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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2004

or

For the transition period from              to             

Commission file number: 001-31899

Whiting Petroleum Corporation

(Exact name of registrant as specified in its charter)

(303) 837-1661

(Registrant’s telephone number, including area code)

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 12 months (or for 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  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

Number of shares of the registrant’s common stock outstanding at July 16, 2004: 18,842,171 shares.

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PART I

Item 1. Financial Statements

WHITING PETROLEUM CORPORATION

INDEX TO FINANCIAL STATEMENTS

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WHITING PETROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2004 (Unaudited) AND DECEMBER 31, 2003

(In thousands)

See notes to unaudited consolidated financial statements.

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WHITING PETROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2004 (Unaudited) AND DECEMBER 31, 2003

(In thousands)

See notes to unaudited consolidated financial statements.

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WHITING PETROLEUM CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003

(In thousands, except per share data)

See notes to unaudited consolidated financial statements.

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WHITING PETROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31, 2003 AND THE

SIX MONTHS ENDED JUNE 30, 2004 (Unaudited)

(In thousands)

See notes to unaudited consolidated financial statements.

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WHITING PETROLEUM CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (in thousands)

See notes to unaudited consolidated financial statements.

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WHITING PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004

(In thousands, except per share data)

Description of Operations—Whiting Petroleum Corporation (“Whiting” or the “Company”) is a Delaware corporation that prior to its initial public offering in November 2003 was a wholly owned indirect subsidiary of Alliant Energy Corporation (“Alliant Energy” or “Alliant”), a holding company whose primary businesses are utility companies. Just prior to the initial public offering of Whiting’s common stock, the Company in effect split its common stock, issuing 18,330 shares for the 1 previously held by Alliant Energy. All periods presented have been adjusted to reflect the current capital structure. Whiting acquires, develops and explores for producing oil and gas properties primarily in the Gulf Coast/Permian Basin, Rocky Mountains, Michigan, and Mid-Continent regions of the United States.

Consolidated Financial Statements—The unaudited consolidated financial statements include the accounts of Whiting and its subsidiaries, all of which are wholly owned, together with its pro rata share of the assets, liabilities, revenue and expenses of limited partnerships in which Whiting is the sole general partner. The financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Except as disclosed herein, there has been no material change to the information disclosed in the notes to consolidated financial statements included in Whiting’s Annual Report on Form 10-K for the year ended December 31, 2003. It is recommended that these unaudited consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Form 10-K.

Earnings Per Share—Basic net income per common share of stock is calculated by dividing net income by the weighted average of common shares outstanding during each period. Diluted net income per common share of stock is calculated by dividing net income by the weighted average of common shares outstanding and other dilutive securities. The only securities considered dilutive are the Company’s unvested restricted stock awards. The dilutive effect of these securities were immaterial to the calculation.

Whiting is exposed to market risk in the pricing of its oil and gas production. Historically, prices received for oil and gas production have been volatile because of seasonal weather patterns, supply and demand factors, worldwide political factors and general economic conditions. Periodically, Whiting utilizes traditional swap and collar arrangements to mitigate the impact of oil and gas price fluctuations related to its sales of oil and gas. The Company attempts to qualify the majority of these instruments as cash flow hedges for accounting purposes.

During the first six months of 2004 and 2003, the Company recognized losses of $1,575 and $8,802, respectively, related to its hedging activities. In addition, at June 30, 2004, Whiting’s remaining cash flow hedge positions resulted in a pre-tax liability of $550, of which $338 was recorded a component of accumulated other comprehensive income and $212 was recorded as an increase to the deferred tax asset.

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As of June 30, 2004 and December 31, 2003, the Company held an investment in a publicly traded security classified as available-for-sale (included in other long term-assets). The original cost to the Company was $585. During the quarter ended June 30, 2004, the Company sold one half of its holdings for $2,677 realizing a gain on sale of $2,382. As of June 30, 2004, the Company recorded an unrealized holding gain on the remaining unsold shares of $2,311 of which $1,420 was recorded as a component of accumulated other comprehensive income and $891 was recorded as a decrease to the deferred tax asset. As of December 31, 2003, the Company recorded an unrealized holding gain of $1,782 of which $1,094 was recorded as a component of accumulated other comprehensive income and $688 was recorded as a decrease to the deferred tax asset.

Effective January 1, 2003, the Company adopted the provisions of SFAS No. 143, Accounting for Asset Retirement Obligations. This Statement generally applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. SFAS No. 143 requires the Company to recognize the fair value of asset retirement obligations in the financial statements by capitalizing that cost as a part of the cost of the related asset. In regards to the Company, this Statement applies directly to the plug and abandonment liabilities associated with the Company’s net working interest in well bores. The additional carrying amount is depleted over the estimated lives of the properties. The discounted liability is based on historical abandonment costs in specific areas and the discount is accreted at the end of each accounting period through charges to depreciation, depletion and amortization expense. If the obligation is settled for other than the carrying amount, then a gain or loss is recognized upon settlement.

The Company’s estimated liability for plugging and abandoning its oil and natural gas wells and certain obligations for onshore and offshore facilities in California is discounted using a credit-adjusted risk-free rate of approximately 7%. Upon adoption of SFAS No. 143, the Company recorded an increase to its discounted abandonment liability of $16.4 million, increased proved property cost by $10.1 million and recognized a one-time cumulative effect charge of $3.9 million (net of a deferred tax benefit of $2.4 million).

The following table provides a reconciliation of the Company’s liability for the six months ended June 30, 2004 and the year ended December 31, 2003.

No revisions have been made to the timing or the amount of the original estimate of undiscounted cash flows during 2004 or 2003.

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Long-term debt consisted of the following at June 30, 2004 and December 31, 2003:

7 ¹/4% Senior Subordinated Notes due 2012— On May 11, 2004, the Company issued, in a private placement, $150.0 million aggregate principal amount of its 7 ¹/4% senior subordinated notes due 2012. The net proceeds of the offering were used to refinance debt outstanding under the Company’s credit agreement. The notes were issued at 99.26% of par and the associated discount is being amortized to interest expense over the term of the notes. On July 12, 2004, the Company completed an exchange offer in which it issued $150.0 million aggregate principal amount of new 7 ¹/4% senior subordinated notes due 2012 registered under the Securities Act of 1933 in exchange for the old notes. The notes are unsecured obligations of the Company and are subordinated to all of the Company’s senior debt. The indenture governing the notes contains various restrictive covenants that may limit the Company’s and its subsidiaries’ ability to, among other things, pay cash dividends, redeem or repurchase the Company’s capital stock or the Company’s subordinated debt, make investments, incur additional indebtedness or issue preferred stock, sell assets, consolidate, merge or transfer all or substantially all of the assets of the Company and its restricted subsidiaries taken as a whole, and enter into hedging contracts. These covenants may limit the discretion of the Company’s management in operating the Company’s business. In addition, Whiting Oil and Gas Corporation’s credit agreement restricts the ability of the Company’s subsidiaries to make payments to the Company. The Company was in compliance with these covenants as of June 30, 2004. Three of the Company’s subsidiaries, Whiting Oil and Gas Corporation, Whiting Programs, Inc. and Equity Oil Company (the “Guarantors”), have fully, unconditionally, jointly and severally guaranteed the Company’s obligations under the notes. All of the Company’s subsidiaries other than the Guarantors are minor within the meaning of Rule 3-10(h)(6) of Regulation S-X of the Securities and Exchange Commission, and the Company has no independent assets or operations.

Credit Facility— The Company has a $400.0 million credit agreement with a syndicate of banks. At June 30, 2004, the borrowing base was $195.0 million with no outstanding principal balance. The borrowing base under the credit agreement is based on the collateral value of the Company’s proved reserves and is subject to redetermination on May 1 and November 1 of each year. The credit agreement provides for interest only payments until June 3, 2008, when the entire amount borrowed is due. Interest accrues, at the Company’s option, at either (1) the base rate plus a margin where the base rate is defined as the higher of the federal funds rate plus 0.5% or the prime rate and the margin varies from 0% to 0.625% depending on the utilization percentage of the borrowing base, or (2) at the LIBOR rate plus a margin where the margin varies from 1.25% to 1.875% depending on the utilization percentage of the borrowing base. The Company has consistently chosen the LIBOR rate option since it delivers the lowest effective interest rate. Commitment fees of 0.375% to 0.5% accrue on the unused portion of the borrowing base, depending on the utilization percentage, and are included as a component of interest expense.

The credit agreement contains restrictive covenants that may limit the Company’s ability to, among other things, pay cash dividends, incur additional indebtedness, sell assets, make loans to others, make investments, enter into mergers, enter into hedging contracts, incur liens and engage

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in certain other transactions without the prior consent of the lenders and requires the Company to maintain certain debt to EBITDAX (as defined in the credit agreement) ratios and a working capital ratio. In addition, while the credit agreement allows the Company’s subsidiaries to make payments to the Company so that the Company may pay interest on the senior subordinated notes, it does not allow the Company’s subsidiaries to make payments to the Company to pay principal on the senior subordinated notes. The Company was in compliance with the covenants under the credit agreement as of June 30, 2004. The credit agreement is secured by a first lien on substantially all of Whiting’s assets. Whiting Petroleum Corporation has guaranteed the obligations of Whiting Oil and Gas Corporation under the credit agreement.

Long-Term Debt Payable to Alliant Energy-In conjunction with the Company’s initial public offering in November 2003, the Company issued a promissory note payable to Alliant Energy in the aggregate principal amount of $3.0 million. The note bears interest at an annual rate of 5%. All principal and interest on the promissory note are due on November 25, 2005.

Alliant Energy had loaned the Company an aggregate $80.5 million as of December 31, 2002. The note bore interest at a floating rate which ranged from 6.9% to 4.4% during the first quarter of 2003. On March 31, 2003, Alliant Energy converted its outstanding intercompany balance of $80.9 million to equity of the Company.

The Company’s Board of Directors adopted the Whiting Petroleum Corporation 2003 Equity Incentive Plan on September 17, 2003. Two million shares of the Company’s common stock have been reserved for issuance under this plan. No participating employee may be granted options for more than 300,000 shares of common stock, stock appreciation rights with respect to more than 300,000 shares of common stock or more than 150,000 shares of restricted stock during any calendar year. This plan prohibits the repricing of outstanding stock options without stockholder approval. During the first quarter of 2004, the Company granted 92,171 shares of restricted stock under this plan. The shares of restricted stock were recorded at fair value of $1.94 million and are being amortized to general and administrative expense over their three year vesting period.

The Company maintains a Production Participation Plan for all employees. On an annual basis, interests in oil and gas properties acquired or developed during the year are allocated to the plan on a discretionary basis. Once allocated, the interests (not legally conveyed) are fixed and plan participants generally vest ratably over five years. Forfeitures are re-allocated among other Plan participants. Allocations prior to 1995 consisted of 2% - 3% overriding royalty interests. Allocations since 1995 have been 2% - 5% net revenue interests. Payments to participants of the plan are made annually in cash after year end.

Effective April 23, 2004, the Production Participation Plan was amended and restated. Specifically, the plan was amended to (1) provide that, for years 2004 and beyond, employees will vest at a rate of 20% per year with respect to the income allocated to the plan for such year; (2) provide that employees will become fully vested at age 65, regardless of when their interests would otherwise vest; and (3) provide that, for pools for years 2004 and beyond, if there are forfeitures, the interests will not be proportionately divided among the remaining participants in a given pool but rather will inure to the benefit of the Company.

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In connection with Whiting’s initial public offering in November 2003, the Company entered into a tax separation and indemnification agreement with Alliant Energy. Pursuant to this agreement, the Company and Alliant Energy made a tax election with the effect that the tax basis of the assets of Whiting and its subsidiaries were increased to the deemed purchase price of their assets immediately prior to such initial public offering. Whiting has adjusted deferred taxes on its balance sheet to reflect the new tax basis of the Company’s assets. This additional basis is expected to result in increased future income tax deductions and, accordingly, may reduce income taxes otherwise payable by Whiting.

Under this agreement, the Company has agreed to pay to Alliant Energy 90% of the future tax benefits the Company realizes annually as a result of this step-up in tax basis for the years ending on or prior to December 31, 2013. Such tax benefits will generally be calculated by comparing the Company’s actual taxes to the taxes that would have been owed by the Company had the increase in basis not occurred. In 2014, Whiting will be obligated to pay Alliant Energy 90% of the present value of the remaining tax benefits assuming all such tax benefits will be realized in future years. Future tax benefits in total will approximate $62 million. The Company has estimated total payments to Alliant will approximate $49 million given the discounting affect of the final payment in 2014. The Company has discounted all cash payments to Alliant at the date of the Tax Separation Agreement.

The initial recording of this transaction in November 2003 resulted in a $57.2 million increase in deferred tax assets, a $28.6 million discounted payable to Alliant Energy and a $28.6 million increase to stockholders’ equity. The Company will monitor the estimate of when payments will be made and adjust the accretion of this liability on a prospective basis. During the first six months of 2004, the Company recognized $1.2 million of accretion expense which is included as a component of interest expense.

There is a provision in the Tax Separation Agreement that if tax rates were to change (increase or decrease), the tax benefit or detriment would result in a corresponding adjustment of the Alliant liability. For purposes of this calculation, management has assumed that no such change will occur during the term of this agreement.

Pursuant to a merger agreement dated February 1, 2004, the Company acquired 100% of the outstanding stock of Equity Oil Company (“Equity”) on July 20, 2004. Equity’s results of operation will be included in the Company’s results beginning July 20, 2004. In accordance with the exchange ratio of 0.185 shares of Whiting common stock for each share of Equity common stock as provided by the merger agreement, the Company exchanged approximately 2.2 million newly issued shares of Whiting common stock for approximately 12.1 million shares of Equity’s common stock. The shares of Whiting common stock issued to Equity shareholders represent approximately 10.6% of the Company’s outstanding common stock after completion of the merger. In connection with the acquisition, the Company repaid all of Equity’s outstanding debt of $29.0 million under its credit facility.

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In July 2004, we reached agreement to acquire interests in four producing oil and gas fields in Colorado and Wyoming. Two of the fields will be operated by us (84% average working interest) upon closing. We expect to continue developing all four producing fields once the acquisition is closed. Closing is expected on August 13, 2004, subject to standard conditions to closing including our completion of title and environmental due diligence. The purchase price will be $44.2 million, or $1.11 per Mcfe, for estimated proved reserves of 39.8 Bcfe. Net daily production from the four fields in the purchase is currently 8.9 MMcfe per day. This acquisition will be funded from our credit facility, which currently has $195 million of availability.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, the terms “Whiting,” “we,” “us,” “our” or “ours” when used in this Item refer to Whiting Petroleum Corporation, together with its only operating subsidiary, Whiting Oil and Gas Corporation. When the context requires, we refer to these entities separately.

Forward-Looking Statements

This report contains statements that we believe to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than historical facts, including, without limitation, statements regarding our future financial position, business strategy, projected revenues, earnings, costs, capital expenditures and debt levels, and plans and objectives of management for future operations, are forward-looking statements. When used in this report, words such as we “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe” or “should” or the negative thereof or variations thereon or similar terminology are generally intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, such statements. Some, but not all, of the risks and uncertainties include: declines in oil or natural gas prices; our level of success in exploitation, exploration, development and production activities; our ability to obtain external capital to finance acquisitions; our ability to identify and complete acquisitions and to successfully integrate acquired businesses, including our ability to realize cost savings from our acquisition of Equity Oil Company; unforeseen underperformance of or liabilities associated with acquired properties; inaccuracies of our reserve estimates or our assumptions underlying them; failure of our properties to yield oil or natural gas in commercially viable quantities; uninsured or underinsured losses resulting from our oil and natural gas operations; our inability to access oil and natural gas markets due to market conditions or operational impediments; the impact and costs of compliance with laws and regulations governing our oil and natural gas operations; risks related to our level of indebtedness and periodic redeterminations of our borrowing base under our credit facility; our ability to replace our oil and natural gas reserves; any loss of our senior management or technical personnel; competition in the oil and natural gas industry; and risks arising out of our hedging transactions. We assume no obligation, and disclaim any duty, to update the forward-looking statements in this report.

Overview

We are engaged in oil and natural gas exploitation, acquisition, exploration and production activities primarily in the Gulf Coast/Permian Basin, Rocky Mountains, Michigan and Mid-Continent regions of the United States. Over the last four years, we have emphasized the acquisition of properties that provided current production and significant upside potential through further development. Our drilling activity is directed at this development, specifically on projects that we believe provide repeatable successes in particular fields.

Our combination of acquisitions and development allows us to direct our capital resources to what we believe to be the most advantageous investments. During periods of radically changing prices, we focus our emphasis on drilling and development of our owned properties. When prices stabilize, we generally direct the majority of our capital to acquisitions.

We have historically acquired operated as well as non-operated properties that meet or exceed our rate of return criteria. For acquisitions of properties with additional development, exploitation and exploration potential, our focus has been on acquiring operated properties so that we can better

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control the timing and implementation of capital spending. In some instances, we have been able to acquire non-operated property interests at attractive rates of return that provided a foothold in a new area of interest or complemented our existing operations. We intend to continue to acquire both operated and non-operated interests to the extent we believe they meet our return criteria. In addition, our willingness to acquire non-operated properties in new geographic regions provides us with geophysical and geologic data in some cases that leads to further acquisitions in the same region, whether on an operated or non-operated basis. We sell properties when management is of the opinion that the sale price realized will provide an above average rate of return for the property or when the property no longer matches the profile of properties we desire to own.

Our revenue, profitability and future growth rate depend substantially on factors beyond our control, such as economic, political and regulatory developments and competition from other sources of energy. Oil and natural gas prices historically have been volatile and may fluctuate widely in the future. Sustained periods of low prices for oil or natural gas could materially and adversely affect our financial position, our results of operations, the quantities of oil and natural gas reserves that we can economically produce and our access to capital.

Results of Operations

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

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Oil and Natural Gas Sales. Our oil and natural gas sales revenue increased approximately $9.1 million to $100.5 million for the first six months of 2004. Sales are a function of sales volumes and average sales prices. As shown above, our sales volumes increased 2.1% between periods on a Mcfe basis. The volume increase resulted from successful drilling and acquisition activities over the past year which produced new sales volumes that more than offset natural decline. Our average price for natural gas sales increased 2.5% and our average price for crude oil increased 15.9% between periods.

Loss on Oil and Natural Gas Hedging Activities. We hedged 23% of our natural gas volumes during the first six months of 2004 incurring no hedging loss or gain, and 43% of our natural gas volumes during the same period of 2003 incurring a hedging loss of $7.9 million. We hedged 46% of our oil volumes during the first six months of 2004 incurring a hedging loss of $1.6 million, and 15% of our oil volumes during the same period of 2003 incurring a loss of $0.9 million. See Item 3, “Qualitative and Quantitative Disclosures About Market Risk” for a list of currently outstanding oil and natural gas hedges.

Gain on Sale of Marketable Securities. During the initial six months of 2004 we sold 195,000 shares of Delta Petroleum, Inc. which trades publicly under the symbol “DPTR” realizing gross proceeds of $2.7 million and recognizing a gain on sale of $2.4 million. Subsequent to June 30, 2004, we sold an additional 145,000 shares realizing gross proceeds of $2.1 million and a gain on sale of $1.9 million which will be recorded in the third quarter. At July 28, 2004, we continued to own 50,000 shares of Delta Petroleum, Inc. We have no other investments in marketable securities.

Lease Operating Expenses. Our lease operating expenses per Mcfe increased from $1.13 during the first six months of 2003 to $1.16 during the same period in 2004. The increase is less than 3% on a Mcfe basis which represents normal inflation due to the increased demand for services and equipment.

Production Taxes. The production taxes we pay are generally calculated as a percentage of oil and natural gas sales revenue before the effects of hedging. We take full advantage of all credits and exemptions allowed in the various taxing jurisdictions. Due to our broad asset base, we expect our production tax rate to vary within a window of 6.0% to 6.5% of oil and natural gas sales revenue. Our production taxes for the initial six months of 2004 and 2003 were 6.2% and 6.1%, respectively, of oil and natural gas sales.

Depreciation, Depletion and Amortization. Depreciation, depletion and amortization expense (“DD&A”) increased $1.0 million over the first six months of 2003 to $21.5 million for the first six months of 2004. The increase resulted from increased production and a small increase in the DD&A rate. On a Mcfe basis, the rate increase was from $1.11 during the first six months of 2003 to $1.14 during the same period in 2004. Our DD&A rate was consistent between periods because the pricing environments were similar at each quarter end. Future changes in the pricing environment could significantly impact our DD&A rate. Price increases allow for longer economic production lives and corresponding increased reserve volumes and, as a result, lower depletion rates. Price decreases have the opposite effect. The components of our depreciation, depletion and amortization expense are as follows (in thousands):

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Exploration Costs. Our exploration costs increased $185,000 from the initial six months of 2003 to $920,000 during the first six months of 2004. The higher exploratory costs are related to our increased 2004 drilling budget.

General and Administrative Expenses. We report general and administrative expense net of reimbursements. The components of our general and administrative expense are as follows:

General and administrative expense increased $1.7 million to $8.1 million during the first six months of 2004. The increase between six month periods was from $0.35 to $0.43 on a per Mcfe basis. The increase was primarily caused by the extra costs of functioning as a public company, increases in the employee base due to the continued growth of the company and general cost inflation. The decrease in reimbursements was caused by our purchase of the limited partnership interests in three of the six remaining managed partnerships during the second quarter of 2003.

Interest Expense. The components of our interest expense are as follows:

The decrease in bank interest was primarily due to our $40.0 million pay down of our credit facility on February 17, 2004 and our repayment of the remaining principal balance outstanding under the credit facility on May 11, 2004 with the proceeds from the issuance of our 7 ¼% Senior Subordinated Notes due 2012. We expect our overall interest expense to increase during the remainder of 2004 since the 7.25% fixed interest rate related to our Senior Subordinated Notes is higher than the floating interest rate incurred during 2003 under the credit facility. The decrease in interest expense related to Alliant was due to the March 31, 2003 conversion of $80.9 million of intercompany debt into our equity. The accretion of our tax sharing liability is related to a step-up in tax basis effected immediately prior to our initial public offering (“IPO”) in November 2003. A further explanation of the step-up transaction is included in the “Liquidity and Capital Resources” section below.

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Income Tax Expense. Our effective income tax rate was estimated at 38.6% during the initial six months of 2004, consistent with the yearly estimated effective tax rate for 2003. Prior to our IPO, we were included in the consolidated federal income tax return of Alliant Energy and calculated our income tax expense on a separate return basis at Alliant Energy’s effective income tax rate. Immediately prior to our IPO, Alliant Energy effected a step-up in the tax basis of Whiting Oil and Gas Corporation’s assets, which had the result of increasing our future tax deductions. As a result of this step-up in tax basis and the net operating loss generated during the post-IPO stub period in 2003 we currently do not expect to pay any federal income taxes related to the 2004 tax year.

Cumulative Change in Accounting Principle. Effective January 1, 2003, we adopted the provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement generally applies to legal obligations associated with the retirement of long-lived assets and requires us to recognize the fair value of asset retirement obligations in our financial statements by capitalizing that cost as a part of the cost of the related asset. This statement applies directly to plug and abandonment liabilities associated with our net working interest in well bores. The additional carrying amount is depleted over the estimated useful lives of the properties. The discounted liability is based on historical abandonment costs in specific areas and the discount is accreted at the end of each accounting period through charges to D,D&A. Upon adoption of SFAS No. 143, we recorded an increase to our discounted abandonment liability of $16.4 million, increased proved property cost by $10.1 million and recognized a one-time cumulative effect charge of $3.9 million (net of a deferred tax benefit of $2.4 million).

Net Income. Net income increased from $10.6 million during the initial six months of 2003 to $23.1 million during the first half of 2004. The primary reasons for this increase included 17% higher crude oil and natural gas prices net of hedging between periods, 2.1% increase in volumes sold, the impact of the cumulative effect of adoption of SFAS No. 143 in 2003, offset by higher lease operating expense, general and administrative, DD&A, interest and exploration costs in 2004.

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Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

Oil and Natural Gas Sales. Our oil and natural gas sales revenue increased approximately $11.0 million to $52.9 million for the second quarter of 2004. Sales are a function of sales volumes and average sales prices. As shown above, our sales volumes increased 2.3% between periods on a Mcfe basis. The volume increase resulted from successful drilling and acquisition activities over the past year which produced new sales volumes that more than offset natural decline. Our average price for natural gas sales increased 18% and our average price for crude oil increased 31.9% between periods.

Loss on Oil and Natural Gas Hedging Activities. We did not hedge our natural gas volumes during the second quarter of 2004. During the second quarter of 2003 we hedged 41% of our natural gas volumes incurring a hedging loss of $1.95 million. We hedged 46% of our oil volumes during the second quarter of 2004 incurring a hedging loss of $0.6 million, and 13% of our oil volumes during the same period of 2003 incurring a loss of $0.2 million. See Item 3, “Qualitative and Quantitative Disclosures About Market Risk” for a list of currently outstanding oil and natural gas hedges.

Gain on Sale of Marketable Securities. During the second quarter we sold 195,000 shares of Delta Petroleum, Inc. which trades publicly under the symbol “DPTR” realizing gross proceeds of $2.7 million and recognizing a gain on sale of $2.4 million. Subsequent to June 30, 2004, we sold an additional 145,000 shares realizing gross proceeds of $2.1 million and a gain on sale of $1.9 million which will be recorded in the third quarter. At July 28, 2004, we continued to own 50,000 shares of Delta Petroleum, Inc. We have no other investments in marketable securities.

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Lease Operating Expenses. Our lease operating expenses per Mcfe increased from $1.10 during the second quarter of 2003 to $1.19 during the same period in 2004. The increase represents additional workovers on existing wells and normal inflation due to the increased demand for services and equipment.

Production Taxes. The production taxes we pay are generally calculated as a percentage of oil and natural gas sales revenue before the effects of hedging. We take full advantage of all credits and exemptions allowed in the various taxing jurisdictions. Due to our broad asset base, we expect our production tax rate to vary within a window of 6.0% to 6.5% of oil and natural gas sales revenue. Our production taxes for the second quarters of 2004 and 2003 were 6.1% of oil and natural gas sales.

Depreciation, Depletion and Amortization. Depreciation, depletion and amortization expense (“DD&A”) increased $0.9 million during the second quarter of 2004 compared to the second quarter of 2003. The increase resulted from increased production and a small increase in the DD&A rate. On a Mcfe basis, the rate increase was from $1.08 during the second quarter of 2003 to $1.15 during the same period in 2004. Our DD&A rate increased between periods because capital costs incurred were proportionally higher than new reserves added. Future changes in the pricing environment could significantly impact our DD&A rate. Price increases allow for longer economic production lives and corresponding increased reserve volumes and, as a result, lower depletion rates. Price decreases have the opposite effect. The components of our depreciation, depletion and amortization expense are as follows (in thousands):