ASSETS

Current assets:

Cash and cash equivalents

Cash held in escrow

Accounts receivable

Assets from price risk management

Other current assets

 

Total current assets

 

 

Oil and gas properties and equipment, successful efforts method:

Developed properties

Wells in progress

Gas transportation pipeline

Undeveloped properties

Corporate and other assets

 

 

Less accumulated depreciation, depletion and amortization

 

Net properties and equipment

 

Other assets

 

TOTAL ASSETS

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

Accounts payable

Accrued expenses

Liabilities from price risk management

Accrued production taxes

Capital lease obligations, current portion

Other current liabilities

 

Total current liabilities

 

Credit facility

Asset retirement obligation

Liabilities from price risk management

Deferred tax liability

 

Total liabilities

 

Preferred stock, $0.10 par value; 10,000,000 shares authorized; 1,610,000 shares issued and outstanding as of March 31, 2010 and December 31, 2009

 

Stockholders’ equity:

Common stock, $0.10 par value; 50,000,000 shares authorized; 11,185,757 and 11,175,532 shares issued and outstanding at March 31, 2011 and 11,165,305 shares issued and 11,155,080 outstanding at December 31, 2010, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income

 

Total stockholders’ equity

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

Revenues

Oil and gas sales

Transportation revenue

Price risk management activities

Other income, net

 

 

Total revenues

 

 

Costs and expenses

Production costs

Production taxes

Exploration expenses including dry hole costs

Impairment and abandonment of equipment and properties

Pipeline operating costs

General and administrative

Depreciation, depletion and amortization

 

 

Total costs and expenses

 

 

Income (loss) from operations

 

Interest expense, net

 

 

Income (loss) before income taxes

 

Benefit (provision) for deferred income taxes

 

 

NET INCOME (LOSS)

 

 

Preferred stock dividends

 

Net income (loss) attributable to common stock

 

 

Net income (loss) per common share:

Basic

 

Diluted

 

Weighted average shares outstanding:

Basic

 

Diluted

 

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash from operating activities:

Depreciation, depletion, amortization and accretion of asset retirement obligation

Abandonment of non-producing properties

Provision for deferred taxes

Employee stock option expense

Directors fees paid in stock

Change in fair value of derivative contracts

Revenue from carried interest

Gain on sale of producing property

Changes in current assets and liabilities:

Decrease (Increase) in deposit held in escrow

Decrease in accounts receivable

Decrease (Increase) in other current assets

Increase (Decrease) in accounts payable

Increase in accrued expenses

Increase in accrued production taxes

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

Cash flows from investing activities:

Additions of producing properties and equipment, net

Additions of corporate and non-producing properties

 

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

Cash flows from financing activities:

Principal payments on capital lease obligations

Issuance of stock under Company stock plans

Tax withholdings related to net share settlement of restricted stock awards

Dividends on preferred stock

Net repayments on credit facility

 

 

NET CASH USED IN FINANCING ACTIVITIES

 

 

Change in cash and cash equivalents

 

Cash and cash equivalents at beginning of period

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

 

Supplemental disclosure of cash and non-cash transactions:

Cash paid for interest

Interest capitalized

Additions to developed properties included in current liabilities

Share-based compensation expense

`

The accompanying unaudited interim consolidated financial statements were prepared by Double Eagle Petroleum Co. (“Double Eagle” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as allowed by such rules and regulations. These consolidated financial statements include all of the adjustments, which, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations. All such adjustments are of a normal recurring nature only. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year.

Certain amounts in the 2010 consolidated financial statements have been reclassified to conform to the 2011 consolidated financial statement presentation. Such reclassifications had no effect on net income.

The accounting policies followed by the Company are set forth in Note 1 to the Company’s consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2010, and are supplemented throughout the notes to this Quarterly Report on Form 10-Q.

The interim consolidated financial statements presented herein should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2010 included in the Annual Report on Form 10-K filed with the SEC.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Petrosearch Energy Corporation (“Petrosearch”) and Eastern Washakie Midstream LLC (“EWM”) (collectively, the “Company”). In August 2009, the Company acquired Petrosearch, which has operations in Texas and Oklahoma. In 2006, the Company sold transportation assets located in the Catalina Unit, at cost, to EWM in exchange for an intercompany note receivable bearing interest of 5% per annum, maturing on January 31, 2028. The note and related interest are fully eliminated in consolidation. In addition, the Company has an agreement with EWM under which the Company pays a fee to EWM to gather and compress gas produced at the Catalina Unit. The Company’s fee related to gas gathering is also eliminated in consolidation.

Basic earnings per share of common stock (“EPS”) is calculated by dividing net income (loss) attributable to common stock by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share incorporates the treasury stock method, and is calculated by dividing net income (loss) attributable to common stock by the weighted average number of shares of common stock and potential common stock equivalents outstanding during the period, if dilutive. Potential common stock equivalents include incremental shares of common stock issuable upon the exercise of stock options and employee stock awards. Income attributable to common stock is calculated as net income less dividends paid on the Series A Preferred Stock. The Company declared and paid cash dividends of $931 ($.5781 per share) for each of the quarters ended March 31, 2011 and 2010.

The following is the calculation of basic and diluted weighted average shares outstanding and earnings per share of common stock for the periods indicated:

Net income (loss)

Preferred stock dividends

 

Net income (loss) attributable to common stock

 

Weighted average shares:

Weighted average shares — basic

Dilution effect of stock options outstanding at the end of period

 

Weighted average shares — diluted

 

 

Net income (loss) per common share:

Basic

 

Diluted

 

The following options and unvested restricted shares, which could be potentially dilutive in future periods, were not included in the computation of diluted net income per share because the effect would have been anti-dilutive for the periods indicated:

 

Anti-dilutive shares

 

The Company’s primary market exposure is to adverse fluctuations in the prices of natural gas. The Company uses derivative instruments, primarily forward contracts, costless collars and swaps, to manage the price risk associated with its gas production, and the resulting impact on cash flow, net income, and earnings per share. The Company does not use derivative instruments for speculative purposes.

The extent of the Company’s risk management activities is controlled through policies and procedures that involve senior management and were approved by the Company’s Board of Directors. Senior management is responsible for proposing hedge recommendations, execution of the approved hedging plan, oversight of the risk management process including methodologies used for valuation and risk measurement and presenting policy changes to the Board. The Company’s Board of Directors is responsible for approving risk management policies and for establishing the Company’s overall risk tolerance levels. The duration of the various derivative instruments depends on senior management’s view of market conditions, available contract prices and the Company’s operating strategy. Under the Company’s credit agreement, the Company can hedge up to 90% of the projected proved developed producing reserves for the next 12 month period, and up to 80% of the projected proved developed producing reserves for the ensuing 24 month period.

The Company recognizes its derivative instruments as either assets or liabilities at fair value on its consolidated balance sheets, and accounts for the derivative instruments as either cash flow hedges or mark to market derivative instruments. On the statements of cash flows, the cash flows from these instruments are classified as operating activities.

Derivative instruments expose the Company to counterparty credit risk. The Company enters into these contracts with third parties and financial institutions that it considers to be creditworthy. In addition, the Company’s master netting agreements reduce credit risk by permitting the Company to net settle for transactions with the same counterparty.

As with most derivative instruments, the Company’s derivative contracts contain provisions which may allow for another party to require security from the counterparty to ensure performance under the contract. The security may be in the form of, but not limited to, a letter of credit, security interest or a performance bond. As of March 31, 2011, no party to any of the Company’s derivative contracts has required any form of security guarantee.

Derivative instruments that are designated and qualify as cash flow hedges are recorded at fair value on the consolidated balance sheets, and the effective portion of the change in fair value is reported as a component of accumulated other comprehensive income (“AOCI”) and is subsequently reclassified into oil and gas sales on the consolidated statements of operations as the contracts settle. As of March 31, 2011 the Company expected approximately $6,367 of unrealized gains before taxes included in its AOCI to be reclassified into oil and gas sales in one year or less as the contracts settle.

Unrealized gains and losses resulting from derivatives not designated as cash flow hedges are recorded at fair value on the consolidated balance sheets and changes in fair value are recognized in the price risk management activities line on the consolidated statements of operations. Realized gains and losses resulting from the contract settlement of derivatives not designated as cash flow hedges also are recorded in the price risk management activities line on the consolidated statement of operations.

The Company had the following commodity volumes under derivative contracts as of March 31, 2011:

 

Volume (MMcf)

In April 2011, the Company entered into an additional derivative contract. Refer to Note 14 for additional detail regarding this contract.

The table below contains a summary of all the Company’s derivative positions reported on the consolidated balance sheet as of March 31, 2011, presented gross of any master netting arrangements:

Commodity derivatives

 

 

 

Commodity derivatives

 

Commodity derivatives

 

 

 

The before-tax effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income for the three months ended March 31, 2011 and 2010, related to the Company’s commodity derivatives was as follows:

Derivatives Designated as Cash Flow Hedging Instruments under ASC 815

 

Commodity contracts

Other comprehensive income (“OCI”).

 

Oil and gas sales

Location of Gain/Loss Recognized in Income (Ineffective) Portion and Amount Excluded from Effectiveness Testing

The before-tax effect of derivative instruments not designated as hedging instruments on the consolidated statements of operations for the three months ended March 31, 2011 and 2010 was as follows:

 

Price risk management activities

Refer to Note 4 for additional information regarding the valuation of the Company’s derivative instruments.

The Company records certain of its assets and liabilities on the consolidated balance sheets at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). A three-level valuation hierarchy has been established to allow readers to understand the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable.

Level 3 — Unobservable inputs that reflect the Company’s own assumptions.

The following describes the valuation methodologies the Company uses for its fair value measurements.

Cash and cash equivalents include all cash balances and any highly liquid investments with an original maturity of 90 days or less. The carrying amount approximates fair value because of the short maturity of these instruments.

The Company determines its estimate of the fair value of derivative instruments using a market approach based on several factors, including quoted market prices in active markets, quotes from third parties, the credit rating of each counterparty, and the Company’s own credit rating. The Company also performs an internal valuation to ensure the reasonableness of third party quotes.

In consideration of counterparty credit risk, the Company assessed the possibility of whether each counterparty to the derivative would default by failing to make any contractually required payments. Additionally, the Company considers that it is of substantial credit quality and has the financial resources and willingness to meet its potential repayment obligations associated with the derivative transactions.

At March 31, 2011, the types of derivative instruments utilized by the Company included costless collars and swaps. The natural gas derivative markets are highly active. Although the Company’s cash flow and economic hedges are valued using public indices, the instruments themselves are traded with third party counterparties and are not openly traded on an exchange. As such, the Company has classified these instruments as Level 2.

The recorded value of the Company’s credit facility approximates fair value as it bears interest at a floating rate.

The Company estimates asset retirement obligations pursuant to the provisions of FASB ASC Topic 410, “Asset Retirement and Environmental Obligations.” The income valuation technique is utilized by the Company to determine the fair value of the liability at the point of inception by taking into account (1) the cost of abandoning oil and gas wells, which is based on the Company’s historical experience for similar work, or estimates from independent third parties; (2) the economic lives of its properties, which is based on estimates from reserve engineers; (3) the inflation rate; and 4) the credit adjusted risk-free rate, which takes into account the Company’s credit risk and the time value of money. Given the unobservable nature of the inputs, the initial measurement of the asset retirement obligation liability is deemed to use Level 3 inputs. There were no asset retirement obligations measured at fair value within the consolidated balance sheet at March 31, 2011.

The following table provides a summary of the fair values of assets and liabilities measured at fair value:

 

Assets

Derivative instruments —
Commodity forward contracts

 

Total assets at fair value

 

 

Liabilities

Derivative instruments —
Commodity forward contracts

 

Total liabilities at fair value

 

The Company did not have any transfers of assets or liabilities between Level 1, Level 2 or Level 3 of the fair value measurement hierarchy during the three months ended March 31, 2011.

Financial instruments which potentially subject the Company to credit risk consist of accounts receivable and derivative financial instruments. Substantially all of the Company’s receivables are within the oil and gas industry, including those from the Company’s third party marketing company. Collectability is dependent upon the financial wherewithal of each individual company as well as the general economic conditions of the industry. The receivables are not collateralized.

The Company currently uses three counterparties for its derivative financial instruments. The Company continually reviews the credit worthiness of its counterparties, which are generally other energy companies or major financial institutions. In addition, the Company uses master netting agreements which allow the Company, in the event of default, to elect early termination of all contracts with the defaulting counterparty. If the Company chooses to elect early termination, all asset and liability positions with the defaulting counterparty would be “net settled” at the time of election. “Net settlement” refers to a process by which all transactions between counterparties are resolved into a single amount owed by one party to the other.

The Company reviews the carrying values of its long-lived assets annually or whenever events or changes in circumstances indicate that such carrying values may not be recoverable. If, upon review, the sum of the undiscounted pretax cash flows is less than the carrying value of the asset group, the carrying value is written down to estimated fair value. Individual assets are grouped for impairment purposes at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, generally on a field-by-field basis. The fair value of impaired assets is determined based on quoted market prices in active markets, if available, or upon the present values of expected future cash flows using discount rates commensurate with the risks involved in the asset group. The impairment analysis performed by the Company may utilize Level 3 inputs. The long-lived assets of the Company consist primarily of proved oil and gas properties and undeveloped leaseholds. The Company did not record any proved property impairment expense in the quarters ended March 31, 2011 or 2010. The Company wrote off $73 and $0 related to expired undeveloped leaseholds during the quarters ended March 31, 2011 and 2010.

The Company recognized stock-based compensation expense totaling $275 for the quarter ended March 31, 2011, and $276 for the quarter ended March 31, 2010.

Compensation expense related to stock options is calculated using the Black Scholes valuation model. Expected volatilities are based on the historical volatility of Double Eagle’s common stock over a period consistent with that of the expected terms of the options. The expected terms of the options are estimated based on factors such as vesting periods, contractual expiration dates, historical trends in the Company’s common stock price and historical exercise behavior. The risk-free rates for periods within the contractual life of the options are based on the yields of U.S. Treasury instruments with terms comparable to the estimated option terms.

A summary of stock option activity under the Company’s various stock option plans as of March 31, 2011 and changes during the three months ended March 31, 2011 is presented below:

Outstanding at January 1, 2011

Granted

Exercised

Cancelled/expired

 

Outstanding at March 31, 2011

 

 

Exercisable at March 31, 2011

 

The Company measures the fair value of the stock awards based upon the fair market value of its common stock on the date of grant and recognizes the resulting compensation expense ratably over the associated service period, which is generally the vesting term of the stock awards. The Company recognizes the compensation expenses net of a forfeiture rate and recognizes the compensation expenses for only those shares expected to vest. The Company typically estimates forfeiture rates based on historical experience, while also considering the duration of the vesting term of the award.

Nonvested stock awards as of March 31, 2011 and changes during the three months ended March 31, 2011 were as follows:

Outstanding at January 1, 2011

Granted

Vested

Forfeited/returned

 

Nonvested at March 31, 2011

 

As part of the acquisition of Petrosearch in 2009, the Company assumed all outstanding warrants to purchase common stock that had been issued by Petrosearch prior to the merger. At March 31, 2011, the Company had 8,660 warrants with an exercise price of $21.25 that expire December 2011. The warrants had no intrinsic value at March 31, 2011.

Double Eagle is required to record income tax expense for financial reporting purpose, however, the Company does not anticipate any payments of current tax liabilities in the near future due to its net operating loss carryforwards.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of March 31, 2011, the Company made no provision for interest or penalties related to uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various states. There are currently no federal or state income tax examinations underway for these jurisdictions. Furthermore, the Company is no longer subject to U.S. federal income tax examinations by the Internal Revenue service for tax years before 2007 and for state and local tax authorities for tax years before 2006.

At March 31, 2011, the Company had a $75 million revolving line of credit in place with $60 million available for borrowing based on several factors, including its current borrowing base and the commitment levels by participating banks. The Company amended the credit facility effective March 8, 2011 to increase the borrowing availability on the facility from $55 million to $60 million.

The credit facility is collateralized by the Company’s oil and gas producing properties. As of March 31, 2011, the balance outstanding on the credit facility of $32,000 has been used to fund the past three years of development of the Catalina Unit and other non-operated projects in the Atlantic Rim, as well as projects in the Pinedale Anticline. Any balance outstanding on the facility matures on January 31, 2013.

Borrowings under the revolving line of credit bear interest at a daily rate equal to the greater of (a) the Federal Funds rate, plus 0.5%, the Prime Rate or the Eurodollar Rate plus 1%, plus (b) a margin ranging between 1.25% and 2.0% depending on the level of funds borrowed. The amendment to the facility in March 2011 removed the 4.5% interest rate floor. The interest rate on the facility at March 31, 2011 was 2.89%. For the quarters ended March 31, 2011 and 2010, the Company incurred interest expense of $326 and $360, respectively, on the credit facility. The Company capitalized interest costs of $35 and $50 for the quarters ended March 31, 2011 and 2010, respectively.

Under the facility, the Company is subject to both financial and non-financial covenants. The financial covenants include maintaining (i) a current ratio, as defined in the agreement, of 1.0 to 1.0; (ii) a ratio of earnings before interest, taxes, depreciation, depletion, amortization, exploration and other non-cash items (“EBITDAX”) to interest plus dividends, of greater than 1.5 to 1.0; and (iii) a funded debt to EBITDAX ratio of less than 3.5 to 1.0. As of March 31, 2011, the Company was in compliance with all financial covenants. If the covenants are violated, and the Company is unable to negotiate a waiver or amendment thereof, the lender would have the right to declare an event of default, terminate the remaining commitment and accelerate all principal and interest outstanding.

In 2007, the Company completed a public offering of 1,610,000 shares of 9.25% Series A Cumulative Preferred Stock (“Series A Preferred Stock”) at a price to the public of $25.00 per share.

Holders of the Series A Preferred Stock are entitled to receive, when and as declared by the Board of Directors, dividends at a rate of 9.25% per annum ($2.3125 per annum per share). The Series A Preferred Stock does not have any stated maturity date and will not be subject to any sinking fund or mandatory redemption provisions, except, under some circumstances, upon a change of ownership or control. Except pursuant to the special redemption upon a change of ownership or control, the Company may not redeem the Series A Preferred Stock prior to June 30, 2012. On or after June 30, 2012, the Company may redeem the Series A Preferred Stock for cash at its option, in whole or from time to time in part, at a redemption price of $25.00 per share, plus accrued and unpaid dividends (whether or not earned or declared) to the redemption date. The shares of Series A Preferred Stock are classified outside of permanent equity on the consolidated balance sheets due to the following redemption provision. Following a change of ownership or control of the Company by a person or entity, other than by a “Qualifying Public Company,” the Company will be required to redeem the Series A Preferred Stock within 90 days after the date on which the change of ownership or control occurred for cash, at the following price per share, plus accrued and unpaid dividends.

June 30, 2011

June 30, 2012 or thereafter

In the event of liquidation, the holders of the Series A Preferred Stock will have the right to receive $25.00 per share, plus all accrued and unpaid dividends, before any payments are made to the holders of the Company’s common stock.

The components of comprehensive income (loss) were as follows:

Net income (loss) attributable to common stock

Change in derivative instrument fair value, net of tax benefit of $452 and tax expense of $771, respectively

Reclassification to earnings

 

Comprehensive income (loss)

 

The components of accumulated other comprehensive income were as follows:

Net change in derivative instrument fair value, net of tax of $2,575 and $3,027, respectively

 

Total accumulated other comprehensive income, net

 

The Company has received deposits representing partial prepayments of the expected capital expenditures from third party working interest owners in the Table Top Unit #1 exploration project. The unexpended portion of the deposits at March 31, 2011 and December 31, 2010 totaled $605 and $615, respectively.

From time to time, the Company is involved in various legal proceedings, including the matters discussed below. These proceedings are subject to the uncertainties inherent in any litigation. The Company is defending itself vigorously in all such matters, and while the ultimate outcome and impact of any proceeding cannot be predicted with certainty, management believes that the resolution of any proceeding will not have a material adverse effect on the Company’s financial condition or results of operations.

On December 18, 2009, Tiberius Capital, LLC (“Plaintiff”), a stockholder of Petrosearch Energy Corporation (“Petrosearch”) prior to the Company’s acquisition (the “Acquisition”) of Petrosearch pursuant to a merger between Petrosearch and a wholly-owned subsidiary of the Company, filed a claim in the District Court for the Southern District of New York against Petrosearch, the Company, and the individuals who were officers and directors of Petrosearch prior to the Acquisition. In general, the claims against the Company and Petrosearch are that Petrosearch inappropriately denied dissenters’ rights of appraisal under the Nevada Revised Statutes to its stockholders in connection with the Acquisition, that the defendants violated various sections of the Securities Act of 1933 and the Securities Exchange Act of 1934, and that the defendants caused other damages to the stockholders of Petrosearch. The plaintiff was seeking monetary damage. On March 31, 2011, the District Court judge dismissed the case. The plaintiff filed a notice of appeal on April 29, 2011, which preserves the plaintiff’s right to appeal.

In April 2011, the Company entered into an additional fixed price swap for 5,000 Mcf per day at $5.10 NYMEX per Mcf. The contract is for the period January 2012 through December 2012.

The Company has noted no additional events, other than noted above, that require recognition or disclosure at March 31, 2011.

Changes in or compliance with laws and regulations, particularly those relating to drilling, derivatives, taxation, safety and protection of the environment;

Our ability to obtain, or a decline in, oil or gas production, or a decline in oil or gas prices;

Our ability to increase our natural gas and oil reserves;

Our ability to market and find reliable and economic transportation for our gas;

The changing political environment in which we operate;

Our ability and the ability of our partners to continue to develop the Atlantic Rim project;

The volumes of production from our oil and gas development properties, which may be dependent upon issuance by federal and state governments, or agencies thereof, of drilling, environmental and other permits, and the availability of specialized contractors, work force, and equipment;

Our future capital requirements and availability of capital resources to fund capital expenditures;

Our ability to maintain adequate liquidity in connection with low oil and gas prices;

Incorrect estimates of required capital expenditures;

The amount and timing of capital deployment in new investment opportunities;

Increases in the cost of drilling, completion and gas collection or other costs of production and operations;

Numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and actual future production rates and associated costs;

Our ability to successfully integrate and profitably operate any future acquisitions;

The actions of third party co-owners of interests in properties in which we also own an interest;

The credit worthiness of third parties with which we enter into hedging and business agreements with;

Weather, climate change and other natural phenomena;

General economic conditions, tax rates or policies, interest rates and inflation rates;

The volatility of our stock price;

Industry and market changes, including the impact of consolidations and changes in competition;

The effect of accounting policies issued periodically by accounting standard-setting bodies;

Our ability to remedy any deficiencies that may be identified in the review of our internal controls; and

The outcome of any future litigation or similar disputes and the impact on any such outcome or related settlements.

Financial Position Summary

Cash and cash equivalents

Working capital

Balance outstanding on credit facility

Stockholders’ equity and preferred stock

Ratios

Debt to total capital ratio⁽¹⁾

Total debt to equity ratio

Total capital includes the $32,000 outstanding on our credit facility, our preferred stock and stockholder’s equity.

Cash provided by (used in):

Operating activities

Investing activities

Financing activities

 

Net change in cash

 

Credit facility (a)

Interest on credit facility (b)

Capital leases

Operating leases

 

Total contractual cash commitments

 

The amount listed reflects the balance outstanding as of March 31, 2011. Any balance outstanding is due on January 31, 2013.

Assumes the interest rate on our credit facility is consistent with that of March 31, 2011.

Gas (Mcf)

Oil (Bbls)

Mcfe

Average daily net production decreased 12% at our Catalina Unit to 13,722 Mcfe per day, as compared to 15,599 Mcfe per day during the first quarter of 2010. The decrease is largely the result of what management believes to be the normal production decline for wells within the field. Historically, production volumes in the Catalina Unit tend to be lower in the first quarter due to challenging weather and mud conditions, which can cause delays in routine well maintenance.

Average daily net production at the Sun Dog and Doty Mountain Units increased 83% for the quarter ended March 31, 2011 to 4,884 Mcfe per day from 2,662 Mcfe per day in the prior-year quarter, largely due to our higher working interest in both units. We purchased additional working interests in the Sun Dog and Doty Mountain Units during the third quarter of 2010, which increased our working interest in the Sun Dog Unit to 20.46% from 8.89% prior to the purchase, and the Doty Mountain Unit to 18.00% from 16.5% prior to the purchase. The increase is also attributed in part to better production from certain Doty Mountain wells due to fracture stimulation.

Average price

 

Production costs

Production taxes

Depletion and amortization

 

Total operating costs

 

 

Gross margin

 

Gross margin percentage

 

 

Fixed Price Swap

Costless Collar

 

Costless Collar

 

Fixed Price Swap

Fixed Price Swap

Costless Collar

 

 

Total

 

CIG refers to the Colorado Interstate Gas price as quoted on the first day of each month. NYMEX refers to quoted prices on the New York Mercantile Exchange.

 

Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.1(a) of the Company’s Annual Report on Form 10-KSB for the year ended August 31, 2001).

 

Certificate of Correction of the Company (incorporated by reference from Exhibit 3.1(b) of the Company’s Annual Report on Form 10-KSB for the year ended August 31, 2001).

 

Certificate of Correction of the Company (incorporated by reference from Exhibit 3 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended November 30, 2001).

 

Certificate of Correction to the Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.3 of the Company’s Current Report of Form 8-K dated June 29, 2007).

 

Articles of Amendment to the Articles of Incorporation of the Company, filed with the Maryland Department of Assessments and Taxation on June 26, 2007 (incorporated by reference from Exhibit 3.1 of the company’s Current Report on Form 8-K dated June 29, 2007).

 

Articles Supplementary, (incorporated by reference from Exhibit 3.2 of the Company’s Current Report of Form 8-K dated June 29, 2007).

 

Articles Supplementary of Junior Participating Preferred Stock, Series B of the Company, dated as of August 21, 2007 (incorporated by reference from Exhibit 3.1 of the Company’s Current Report of Form 8-K dated August 28, 2007).

 

Amendment to Bylaws, Revised Article II, Section 9 (incorporated by reference from Exhibit 3.1 of the company’s Current Report on Form 8-K filed on March 5, 2010).

 

Second Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on June 11, 2007).

 

Form of Warrant Agreement concerning Common Stock Purchase Warrants (incorporated by reference from Exhibit 4.3 of the Amendment No. 1 to the Company’s Registration Statement on Form SB-2 filed on November 27, 1996, SEC Registration No. 333-14011).

 

Rights Agreement between the Company and Computershare Trust Company, N.A. (incorporated herein by reference to the Company’s Current Report on Form 8-K filed on August 24, 2007)

 

Second Amendment to Amended and Restated Credit Agreement dated March 8, 2011 between Double Eagle Petroleum Co. and Bank of Oklahoma, N.A. et.al; (incorporated by reference from Exhibit 10.1, of the Company’s Current report of Form 8-K dated March 10, 2011).

 

Certification of Principal Executive Officer and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

Certification of Principal Accounting Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

Certification Pursuant to 18 U.S.C. Section 1150 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

Filed within this Form 10-Q.

 

Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.1(a) of the Company’s Annual Report on Form 10-KSB for the year ended August 31, 2001).

 

Certificate of Correction of the Company (incorporated by reference from Exhibit 3.1(b) of the Company’s Annual Report on Form 10-KSB for the year ended August 31, 2001).

 

Certificate of Correction of the Company (incorporated by reference from Exhibit 3 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended November 30, 2001).

 

Certificate of Correction to the Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.3 of the Company’s Current Report of Form 8-K dated June 29, 2007).

 

Articles of Amendment to the Articles of Incorporation of the Company, filed with the Maryland Department of Assessments and Taxation on June 26, 2007 (incorporated by reference from Exhibit 3.1 of the company’s Current Report on Form 8-K dated June 29, 2007).

 

Articles Supplementary, (incorporated by reference from Exhibit 3.2 of the Company’s Current Report of Form 8-K dated June 29, 2007).

 

Articles Supplementary of Junior Participating Preferred Stock, Series B of the Company, dated as of August 21, 2007 (incorporated by reference from Exhibit 3.1 of the Company’s Current Report of Form 8-K dated August 28, 2007).

 

Amendment to Bylaws, Revised Article II, Section 9 -(incorporated by reference from Exhibit 3.1 of the company’s Current Report on Form 8-K filed on March 5, 2010).

 

Second Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on June 11, 2007).

 

Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.1(a) of the Company’s Annual Report on Form 10-KSB for the year ended August 31, 2001).

 

Certificate of Correction of the Company (incorporated by reference from Exhibit 3.1(b) of the Company’s Annual Report on Form 10-KSB for the year ended August 31, 2001).

 

Certificate of Correction of the Company (incorporated by reference from Exhibit 3 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended November 30, 2001).

 

Form of Warrant Agreement concerning Common Stock Purchase Warrants (incorporated by reference from Exhibit 4.3 of the Amendment No. 1 to the Company’s Registration Statement on Form SB-2 filed on November 27, 1996, SEC Registration No. 333-14011).

 

Rights Agreement between the Company and Computershare Trust Company, N.A. (incorporated herein by reference to the Company’s Current report on Form 8-K filed on August 24, 2007)

 

Second Amendment to Amended and Restated Credit Agreement dated March 8, 2011 between Double Eagle Petroleum Co. and Bank of Oklahoma, N.A. et.al; (incorporated by reference from Exhibit 10.1, of the Company’s Current Report of Form 8-K dated March 10, 2011).

 

Certification of Principal Executive Officer and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

Certification of Principal Accounting Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

Certification Pursuant to 18 U.S.C. Section 1150 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

Filed with this report.