FORM 10-Q

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


             (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2006

                                       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 000-21644

                            CRIMSON EXPLORATION INC.
             (Exact name of Registrant as specified in its charter)

            Delaware                                         20-3037840
  (State or other jurisdiction                             (IRS Employer
      of incorporation)                                    Identification No.)

              480 North Sam Houston Parkway East
                         Suite 300
                        Houston, Texas                                77060
         (Address of principal executive offices)                   (zip code)

                                 (281) 820-1919
              (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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. (See definition of "accelerated
filer and "large accelerated filer" in Rule 12b-2 of the Exchange Act).

   Large Accelerated Filer ___ Accelerated Filer___ Non-Accelerated Filer _X__

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ___ No _X_

The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date, August 10, 2006 was 33,152,832 shares
of Common Stock, $.001 par value.



<PAGE>




                                    FORM 10-Q


                            CRIMSON EXPLORATION INC.

                         FORM 10-Q FOR THE QUARTER ENDED
                                  JUNE 30, 2006


<TABLE>
<CAPTION>

                                                                                  Page of
                                                                                  Form 10-Q

Part I:  Financial Statements
<S>                                                                                  <C>

         Item 1.  Financial Statements
                    Consolidated Balance Sheets as of June 30, 2006
                       and December 31, 2005                                          3
                    Consolidated Statements of Operations for the Three Months and
                       Six Months Ended June 30, 2006 and 2005                        5
                    Consolidated Statement of Stockholders' Equity for the Six
                       Months Ended June 30, 2006                                     6
                    Consolidated Statements of Cash Flows for the Six
                       Months Ended June 30, 2006 and 2005                            7
                    Notes to Consolidated Financial Statements                        8

         Item 2.  Management's Discussion and Analysis
                    of Financial Condition and Results
                    of Operations                                                    15

         Item 3.  Quantitative and Qualitative Disclosures about Market Risk         19

         Item 4.  Controls and Procedures                                            20

Part II: Other Information

         Item 4.  Submission of Matters to a Vote of Security Holders                20

         Item 6.  Exhibits                                                           22

Signatures                                                                           23
</TABLE>


                                       2



<PAGE>










                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

                            CRIMSON EXPLORATION INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                     June 30,      December 31,
                                                                       2006           2005
                                                                   ------------    -----------

CURRENT ASSETS
<S>                                                                <C>             <C>
     Cash and cash equivalents                                     $     33,795    $    474,393
     Accounts receivable - trade, net of allowance
         for doubtful accounts of $30,674 in 2006 and 2005            2,536,044       3,498,488
     Prepaid expenses                                                   377,578         249,424
     Deferred tax asset, net                                          1,126,943       1,602,773
                                                                   ------------    ------------
               Total current assets                                   4,074,360       5,825,078
                                                                   ------------    ------------



PROPERTY AND EQUIPMENT
     Oil and gas properties, using the successful efforts
        method of accounting                                         77,926,403      65,598,691
     Other property and equipment                                     1,637,093       1,560,464
      Less accumulated depreciation, depletion and
        amortization                                                (14,609,904)    (12,936,096)
                                                                   ------------    ------------
     Net oil and gas properties and other property and equipment     64,953,592      54,223,059
                                                                   ------------    ------------



OTHER ASSETS
     Deposits                                                            49,502          49,502
     Investments                                                           --           225,689
     Debt issuance cost, net                                            220,271         274,214
     Deferred tax asset, net                                            439,725       2,517,407
                                                                   ------------    ------------
               Total other assets                                       709,498       3,066,812
                                                                   ------------    ------------
TOTAL ASSETS                                                       $ 69,737,450    $ 63,114,949
                                                                   ============    ============
</TABLE>
              The Notes to Consolidated Financial Statements are an
                       integral part of these statements.




                                       3
<PAGE>




                            CRIMSON EXPLORATION INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                June 30,      December 31,
                                                  2006            2005
                                              ------------    ------------
CURRENT LIABILITIES
<S>                                           <C>             <C>
     Notes payable                            $     40,300    $     40,300
     Current portion of long-term debt              81,892          80,883
     Accounts payable - trade                    4,591,369       4,107,441
     Accrued expenses                              330,999         487,453
     Income taxes payable                           18,919          31,075
     Derivative instruments                      1,295,877       2,108,583
                                              ------------    ------------
               Total current liabilities         6,359,356       6,855,735
                                              ------------    ------------
NONCURRENT LIABILITIES
     Long-term debt, net of current portion      2,512,197       1,103,232
     Asset retirement obligations                1,353,121       1,311,133
     Derivative instruments                        575,346       1,039,587
                                              ------------    ------------
               Total noncurrent liabilities      4,440,664       3,453,952
                                              ------------    ------------
               Total liabilities                10,800,020      10,309,687
                                              ------------    ------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
     Preferred stock                                 1,033           1,033
     Common stock                                   33,127          28,991
     Additional paid-in capital                 77,485,309      72,851,626
     Retained deficit                          (18,582,039)    (20,076,388)
                                              ------------    ------------
               Total stockholders' equity       58,937,430      52,805,262
                                              ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $ 69,737,450    $ 63,114,949
                                              ============    ============
</TABLE>

              The Notes to Consolidated Financial Statements are an
                       integral part of these statements.



                                       4
<PAGE>




                            CRIMSON EXPLORATION INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                              Three Months                    Six Months
                                                              Ending June 30,                Ending June 30,
                                                          2006            2005            2006              2005
                                                      ------------    ------------    ------------    ------------
OPERATING REVENUES
<S>                                                   <C>             <C>             <C>             <C>
  Oil and gas sales                                   $  5,150,063    $  4,367,751    $ 10,263,560    $  8,001,911
  Operating overhead and other income                       30,130          25,289          56,282          55,462
                                                      ------------    ------------    ------------    ------------
         Total Operating Revenues                        5,180,193       4,393,040      10,319,842       8,057,373
                                                      ------------    ------------    ------------    ------------
OPERATING EXPENSES
  Lease operating expenses                               1,710,081       1,364,998       3,289,401       2,765,862
  Geological and geophysical                                47,141            --            55,918            --
  Depreciation, depletion and amortization                 919,431         835,231       1,673,807       1,491,009
  Dry holes, abandoned property and impaired assets          8,036         389,183          12,422         391,339
  Asset retirement obligations                              20,994          19,161          41,988          38,322
  General  and administrative                            2,141,074         934,902       3,864,737       1,553,129
                                                      ------------    ------------    ------------    ------------
         Total Operating Expenses                        4,846,757       3,543,475       8,938,273       6,239,661
                                                      ------------    ------------    ------------    ------------
INCOME FROM OPERATIONS                                     333,436         849,565       1,381,569       1,817,712
                                                      ------------    ------------    ------------    ------------
OTHER INCOME AND EXPENSE
  Interest expense                                         (55,878)        (18,099)        (65,800)     (1,216,600)
  Financing cost                                           (43,447)         (5,000)        (88,564)     (1,910,159)
  Loss from equity in investments                             --           (36,159)         (1,843)        (36,159)
  Loss on sale of assets                                      --           (25,894)           --           (38,916)
  Unrealized gain (loss) on derivative instruments         168,667         618,775       1,276,947      (1,394,706)
                                                      ------------    ------------    ------------    ------------
          Total Other Income and (Expense)                  69,342         533,623       1,120,740      (4,596,540)
                                                      ------------    ------------    ------------    ------------
INCOME (LOSS) BEFORE INCOME TAXES                          402,778       1,383,188       2,502,309      (2,778,828)

INCOME TAX  (EXPENSE) BENEFIT                             (200,913)       (537,889)       (927,635)        849,802
                                                      ------------    ------------    ------------    ------------
NET INCOME (LOSS)                                          201,865         845,299       1,574,674      (1,929,026)

DIVIDENDS ON PREFERRED STOCK
   (Paid 2006 -$80,325; 2005 - $1,031,504 )               (915,695)       (924,661)     (1,812,273)     (1,697,781)
                                                      ------------    ------------    ------------    ------------
NET LOSS AVAILABE TO COMMON SHAREHOLDERS
                                                      $   (713,830)   $    (79,362)   $   (237,599)   $ (3,626,807)
                                                      ============    ============    ============    ============
NET LOSS PER SHARE,
   BASIC                                              $      (0.02)   $      (0.00)   $      (0.01)   $      (0.15)
                                                      ============    ============    ============    ============
   DILUTED                                            $      (0.02)   $      (0.00)   $      (0.01)   $      (0.15)
                                                      ============    ============    ============    ============
WEIGHTED  AVERAGE  SHARES  OUTSTANDING,
    BASIC                                               33,096,508      28,605,014      31,348,217      24,513,945
                                                      ============    ============    ============    ============
    DILUTED                                             33,096,508      28,605,014      31,348,217      24,513,945
                                                      ============    ============    ============    ============
</TABLE>




               The Notes to Consolidated Financial Statements are
                      an integral part of these statements


                                       5
<PAGE>






                            CRIMSON EXPLORATION INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                     FOR THE SIX MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                   NUMBER OF SHARES
                             ---------------------------   ADDITIONAL
                              PREFERRED       COMMON        PREFERRED       COMMON         PAID-IN       RETAINED
                                STOCK          STOCK          STOCK          STOCK         CAPITAL       DEFICIT
                             ------------   ------------   ------------   ------------   ------------  -------------
<S>                        <C>         <C>           <C>           <C>            <C>           <C>
BALANCE DECEMBER  31, 2005        103,250     28,990,643    $     1,033   $     28,991   $ 72,851,626  $(20,076,388)

Share Based Compensation             --          262,334           --              262      1,788,869           --
Dividends paid on
Preferred H                          --          105,000           --              105         80,220        (80,325)

Stock options exercised              --           71,000           --               71         31,879           --
Acquisition of oil and
gas leases                           --        3,697,855           --            3,698      2,732,715           --

Current period income                --             --             --             --             --        1,574,674
                             ------------   ------------   ------------   ------------   ------------  -------------
BALANCE JUNE 30, 2006             103,250     33,126,832          1,033   $     33,127   $ 77,485,309  $ (18,582,039)
                             ============   ============   ============   ============   ============  =============
</TABLE>





              The Notes to Consolidated Financial Statements are an
                       integral part of these statements.


                                       6
<PAGE>

                            CRIMSON EXPLORATION INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                             Six Months Ended June 30,
                                                                           -----------------------------
                                                                               2006             2005
                                                                           ------------    -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                        <C>             <C>
     Net income (loss)                                                     $  1,574,674    $ (1,929,026)
     Adjustments to reconcile  net income  (loss) to
          net cash  provided by (used
          in) operating activities:
               Depreciation, depletion and amortization                       1,673,807       1,491,009
               Asset retirement obligations                                      41,988          38,322
               Stock  compensation                                            1,744,261          49,669
               Debt issuance cost                                                53,943       1,779,596
               Discount on note payable                                            --           502,120
               Deferred tax expense (benefit)                                   908,791        (849,802)
               Income tax payable                                               (12,156)           --
               Loss on sale of assets                                              --            38,915
               Loss from equity in investments                                    1,843          36,159
               Dry holes, abandoned property, impaired assets                     4,386            --
               Unrealized (gain) loss on derivative instruments              (1,276,947)      1,394,706
               Changes in operating assets and liabilities
                  (Increase) decrease in accounts receivable- trade, net        672,850      (1,010,646)
                  Increase in prepaid expenses                                 (128,154)        (92,212)
                  Increase  (decrease)  in  accounts  payable
                       and accrued expenses                                     372,344      (1,979,197)
                                                                           ------------    ------------
                  Net cash provided by (used in)
                              operating activities                            5,631,630        (530,387)
                                                                           ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Proceeds from sale of property and equipment                                 --           101,491
      Capital expenditures                                                   (7,514,152)     (6,431,925)
                                                                           ------------    ------------
                         Net cash used in investing activities               (7,514,152)     (6,330,434)
                                                                           ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from sale of preferred stock, net                                    --        38,212,517
     Proceeds from common stock options and warrants exercised                   31,950             200
     Payments on debt                                                           (15,134)    (31,815,988)
     Proceeds from debt issuance                                                   --         1,820,000
     Net draws under revolver                                                 1,425,108            --
     Debt Issuance cost                                                            --            (2,640)
     Dividends paid                                                                --          (681,341)
                                                                           ------------    ------------
                         Net cash provided by financing activities            1,441,924       7,532,748
                                                                           ------------    ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               (440,598)        671,927

CASH AND CASH EQUIVALENTS,
     Beginning of  year                                                         474,393         411,377
                                                                           ------------    ------------
CASH AND CASH EQUIVALENTS,
     End of year                                                           $     33,795    $  1,083,304
                                                                           ============    ============

CASH PAID FOR INTEREST                                                     $     50,728    $  1,917,269
                                                                           ============    ============
</TABLE>

              The Notes to Consolidated Financial Statements are an
                       integral part of these statements.


                                       7
<PAGE>

                    CRIMSON EXPLORATION INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2006 AND 2005
                                   (UNAUDITED)
1. BASIS OF PRESENTATION

         During interim periods,  we follow the accounting policies set forth in
         our Annual Report on Form 10-K filed with the  Securities  and Exchange
         Commission. Users of financial information produced for interim periods
         are encouraged to refer to the footnotes contained in the Annual Report
         when reviewing interim financial results.

         The accompanying financial statements include the Company and its
         wholly-owned subsidiaries: Crimson Exploration Operating, Inc., formed
         January 5, 2006, and LTW Pipeline Co., formed April 19, 1999. All
         material intercompany transactions and balances are eliminated upon
         consolidation. Certain reclassifications were made with previously
         reported amounts to make them consistent with the current presentation
         format.

         On January 5, 2006 we formed  Crimson  Exploration  Operating,  Inc., a
         Delaware corporation,  as our wholly owned subsidiary through which all
         oil and gas operations  will be conducted.  Effective March 2, 2006, we
         merged all of our  previous  subsidiaries,  with the  exception  of LTW
         Pipeline  Co.,  into this newly  formed  corporation.  LTW Pipeline Co.
         remains an inactive subsidiary of Crimson Exploration Inc.

         In management's  opinion, the accompanying interim financial statements
         contain all material  adjustments,  consisting only of normal recurring
         adjustments  necessary to present fairly the financial  condition,  the
         results of operations,  and the cash flows of Crimson  Exploration Inc.
         for the interim periods.

2. STOCKHOLDERS' EQUITY

         On  March  20,  2006,  we  issued  a  total  of  3,235,624   shares  of
         unregistered common stock as partial consideration for the acquisition,
         by merger, of Core Natural Resources,  Inc. ("Core"), and an additional
         462,231  shares  to a  Core  shareholder  for a 2%  overriding  royalty
         interest  owned by him in the Core leasehold  interests.  The stock was
         valued at $0.74 per share, the closing market price of the stock on the
         day preceding the closing of the merger. The stock issued is restricted
         stock subject to resale  limitations  under Rule 144 of the  Securities
         Act of 1933.  Holders of the restricted stock were also granted limited
         piggyback registration rights that expire one year after the closing of
         the merger.

         Effective  March 1, 2006,  we issued  262,334  shares of  unregistered,
         restricted  common stock to members of our  management  in lieu of cash
         performance  bonuses for calendar year 2005. The restricted stock vests
         one year after the date of grant,  and should a recipient's  employment
         with us  terminate  prior to that  date,  entitlement  to the  stock is
         forfeited.  The stock was valued at $0.75 per share on the grant  date,
         the  closing  market  price of the  stock on the  date of  grant.  Upon
         vesting,   this  restricted  stock  will  also  be  subject  to  resale
         limitations under Rule 144 of the Securities Act of 1933.

3. NON-CASH INVESTING AND FINANCING ACTIVITIES

         During the six month  period  ended June 30,  2006 we issued  3,235,624
         shares of common stock, valued at $2,394,362,  as partial consideration
         for the  acquisition of oil and gas leases via merger with Core Natural
         Resources,  Inc. As a result of this  transaction we also increased the
         book value of oil and gas leases by recording a $1,644,721 deferred tax
         liability  related to the  difference  in the fair market  value of the
         assets  acquired  and  their  underlying  tax  basis.  Related  to this
         transaction,  we also acquired a 2% overiding  royalty interest in that
         leasehold  acreage by issuing  462,231 shares of common stock valued at
         $342,051. In a separate transaction, we recorded an increase in oil and
         gas leases of  $513,440  through  the  exchange  of a $289,594  account
         receivable and through the reclassification of a $223,846 investment in
         a partnership upon distribution of assets by that partnership.  We also
         paid  dividends  to the holders of Series H Preferred  Stock by issuing
         105,000 shares of common stock valued at $80,325,  based on the closing
         market price on the date of the grants.

                                       8
<PAGE>

         During the six month period ended June 30, 2005, we settled $350,163 in
         dividends  by  issuing  377,917  shares of  common  stock and we issued
         29,100 shares of common stock to satisfy and record a $23,280 fee for a
         loan extension  prior to the sale of the Series G Preferred  Stock.  In
         addition  we paid  directors  fees by issuing  34,090  shares of common
         stock valued at $29,999,  based on the closing market price on the date
         of the grants.  Also, on March 30, 2005 one of our employees  exercised
         25,000  common  stock  options  for  $11,250  which was  recorded as an
         account receivable.  Under our cashless exercise procedures,  the stock
         was posted for sale by a broker and the receivable was settled when the
         stock was sold.  During the period,  we invested  $23,006 in an oil and
         gas partnership by contributing our cost basis in undrilled oil and gas
         leases. In addition, we financed new field trucks for the $45,724 cost.

4. DERIVATIVE INSTRUMENTS

         In the past we have  entered  into,  and may in the future  enter into,
         certain derivative arrangements with respect to portions of our oil and
         natural gas production to reduce our sensitivity to volatile  commodity
         prices.  We believe that these  derivative  arrangements,  although not
         free of risk,  allow us to achieve a more  predictable cash flow and to
         reduce exposure to price fluctuations. However, derivative arrangements
         limit the  benefit  to us of  increases  in the prices of crude oil and
         natural gas sales. Moreover, our derivative  arrangements apply only to
         a portion of our production  and provide only partial price  protection
         against declines in price.  Such  arrangements may expose us to risk of
         financial  loss in certain  circumstances.  We expect  that the monthly
         volume of  derivative  arrangements  will  vary  from time to time.  We
         continuously reevaluate our price hedging program in light of increases
         in production,  market conditions,  commodity price forecasts,  capital
         spending and debt service requirements.  The following derivatives were
         in place at June 30, 2006.

<TABLE>
<CAPTION>

                                                                                                     Fair Value
                  Crude Oil                      Volume/ Month         Average Price/ Unit           Liability
                  ---------                      -------------         -------------------       ------------------
<S>                               <C>             <C>               <C>                          <C>
         Apr 2006 - Dec 2006          Collar        9,000 Bbls     Floor $50.00-$59.00 Ceiling   $         888,975
         Jan 2007 - Dec 2007          Collar        3,000 Bbls     Floor $45.00-$59.45 Ceiling             618,672
                                                                                                 ------------------
                                                                                                 $       1,507,647
                                                                                                 ==================

                                                                                                    Fair Value
                 Natural Gas                     Volume/ Month         Average Price/ Unit       (Asset) Liability
                 -----------                     -------------         -------------------       -------------------

         Jan 2006 - Dec 2006          Collar     70,000 MMBTU       Floor $6.00-$8.25 Ceiling    $         (77,322)
         Jan 2007 - Dec 2007          Collar     20,000 MMBTU       Floor $6.00-$6.95 Ceiling              440,898
                                                                                                 ------------------
                                                                                                 $         363,576
                                                                                                 ==================
         Total fair value liability                                                              $       1,871,223
         Current portion                                                                                 1,295,877
                                                                                                 ------------------
         Noncurrent portion                                                                      $         575,346
                                                                                                 ==================
</TABLE>



                                        9
<PAGE>









            We also had the following put options in place at June 30, 2006, for
the months reflected.



              Crude Oil                 Monthly Volume           Price per Bbl
              ---------                 --------------           -------------
         May 2006 - Oct 2006              6,000 Bbls                    $25.75
         Nov 2006 - Apr 2007              5,000 Bbls                    $25.75

         The value of these put options was minimal.

         At the  end of each  reporting  period  we are  required  by  SFAS  133
         "Accounting  for Derivative  Instruments  and Hedging  Activities,"  to
         record on our  balance  sheet the  marked  to market  valuation  of our
         derivative  instruments.  We recorded a net  liability  for  derivative
         instruments  at June 30, 2006 and December 31, 2005 of  $1,871,223  and
         $3,148,170,  respectively. As a result of these agreements, we recorded
         a non-cash increase in earnings, for unsettled contracts, of $1,276,947
         for the six month period  ended June 30, 2006 and a non-cash  charge of
         $1,394,706  for the six month period ended June 30, 2005. The estimated
         change in fair value of the derivatives is reported in Other Income and
         Expense as unrealized (gain) loss on derivative instruments.

         For settled contracts,  we realized losses,  reflected as reductions in
         oil and gas  revenues,  of $462,028  and  $1,469,718  for the six month
         periods ended June 30, 2006, and 2005, respectively.

5. STOCK BASED COMPENSATION

         In December 2004,  the Financial  Accounting  Standards  Board ("FASB")
         issued  Statement of Financial  Accounting  Standards  ("SFAS") No. 123
         (revised 2004) "Share-Based  Payment" ("SFAS No. 123R"), which replaces
         SFAS No. 123, "Accounting for Stock-Based  Compensation" and supersedes
         APB  Opinion 25. SFAS No. 123R  requires  all  share-based  payments to
         employees, including grants of employee stock options, to be recognized
         in the financial statements based on the fair values beginning with the
         first  interim  period in fiscal year 2006.  The pro forma  disclosures
         previously permitted under SFAS No. 123 are no longer an alternative to
         financial statement recognition.

         We  adopted  SFAS No.  123R on  January  1,  2006  using  the  modified
         prospective method in which  compensation cost is recognized  beginning
         with the effective date based: (a) on the requirements of SFAS No. 123R
         for all share-based  payments granted after January 1, 2006; and (b) on
         the  requirements  of SFAS No. 123 for all awards  granted to employees
         prior to January 1, 2006 that remain unvested on January 1, 2006. Under
         our  2005  Stock  Incentive  Plan we had  22,400,000  unvested  options
         outstanding  at  January  1,  2006  with   authorization  to  issue  an
         additional  4,600,000  under that  plan.  It is our policy to issue new
         shares  for any  options  exercised.  We use the  Black-Scholes  option
         pricing  model to  measure  the fair  value of stock  options.  For the
         unvested options, the previously measured but unrecognized compensation
         expense,  based on the fair value at the original  grant date,  will be
         recognized  in our  financial  statements  over the  remaining  vesting
         period.  Prior  to the  adoption  of SFAS No.  123R,  we  followed  the
         intrinsic  value  method  in  accordance  with  APB 25 to  account  for
         employee  stock-based  compensation.  Prior period financial statements
         have not been restated.

         The modified  prospective method requires us to estimate forfeitures in
         calculating the expense related to stock-based  compensation as opposed
         to recognizing  forfeitures as they occur.  All of our unvested options
         are  held by our  executive  officers.  One of our  executive  officers
         forfeited his unvested  options during the quarter upon his resignation
         from the company.  This was not  anticipated as we had no prior history
         of an executive officer forfeiting  options.  We do not anticipate that
         there  will be any  further  forfeitures  of  unvested  options  by our
         executive officers.

                                       10
<PAGE>

          For  options  issued  under our 2005  plan we  recorded  $997,248  and
         $1,723,547 in expense (included in general and  administrative  expense
         on the  Statement  of  Operations)  for the  three  month and six month
         period,  ending June 30, 2006,  respectively,  and estimate $12,326,087
         will be expensed  over the  remaining  vesting  period of thirty  three
         months.  We assumed a weighted  average risk free  interest rate of 4%,
         weighted  average  expected life of 6 years,  weighted average expected
         volatility of 92.70% and no expected dividends.

         The following table summarizes stock option activity for the six months
ended June 30, 2006:


<TABLE>
<CAPTION>
                                                                                 Number of               Weighted
                                                                                  Shares                 Average
                                                                                Underlying              Exercise
                                                                                 Options                 Price
                                                                             -----------------       ---------------
<S>                                                                           <C>                      <C>
         Outstanding at December 31, 2005                                          24,110,000               $  1.36
         Granted                                                                           --                    --
         Exercised                                                                    (71,000)              $ (0.45)
         Expired                                                                      (65,000)              $ (0.83)
         Forfeited                                                                   (880,000)              $ (1.48)
                                                                             -----------------
         Outstanding at June 30, 2006                                              23,094,000               $  1.36
                                                                             =================
         Exercisable at June 30, 2006                                               4,904,000               $  1.15
                                                                             =================
</TABLE>

         The  following  table  summarizes   information   about  stock  options
outstanding at June 30, 2006:


<TABLE>
<CAPTION>
                                                                                         Weighted
                                                                                         Average
           Exercise                                                       Number         Remaining         Number
            Prices                                                      Outstanding     Life (Years)     Exercisable
            ------                                                      -----------     ------------     -----------
<S>       <C>                                                             <C>               <C>           <C>
          $   0.45                                                        1,199,000         2.6           1,199,000
          $   0.75                                                          285,000         1.9              285,000
          $   0.97                                                        3,600,000         8.7              540,000
          $   1.16                                                        1,783,000         8.8              309,950
          $   1.25                                                        5,400,000         8.7              810,000
          $   1.70                                                       10,767,000         8.7            1,700,050
          $   1.81                                                           60,000         1.8               60,000
                                                                       ------------                      -----------
                                                                         23,094,000          8.3           4,904,000
                                                                       ============                      ===========
</TABLE>

         The following table reflects the impact of adopting SFAS No. 123R:


<TABLE>
<CAPTION>
                                                                                 Three Months    Six Months
                                                                                    Ended          Ended
                                                                                   June 30,       June 30,
                                                                                     2006           2006
                                                                                -------------- ---------------
<S>                                                                                <C>          <C>
        Compensation expense related to stock options, net
           of tax of $378,954 and $654,948 respectively                             $ 618,294    $ 1,068,559

        Basic earnings per share impact                                                 (0.02)        (0.04)
        Diluted earnings per share impact                                               (0.02)        (0.04)
</TABLE>




                                       11
<PAGE>



         The following table  illustrates the effect on net income after tax and
         net  income  per  common  share as if we had  applied  the  fair  value
         recognition provisions of SFAS No. 123 to stock-based  compensation for
         the periods shown below:

<TABLE>
<CAPTION>


                                                                Three Months Ended      Six Months Ended
                                                                  June 30, 2005          June 30, 2005
                                                                  -------------          -------------

<S>                                                                 <C>                  <C>
         Net income (loss), as reported                             $ (79,362)           $  (3,626,807)

         Add: Stock-based employee compensation (income)
          expense previously included in reported net income, net
          of related tax benefits                                     (19,220)                   7,475
         Deduct: Stock-based employee compensation expense under
         fair value-based method for all awards, net of related
           tax effects                                               (387,006)                (474,752)
                                                                    ---------            -------------
         Pro forma net income (loss)                                $(485,589)           $  (4,094,084)
                                                                    =========            =============
         Basic earning per common share:
           As reported                                              $    (.00)           $        (.15)
           Pro forma                                                $    (.02)           $        (.17)
           Diluted earnings per common share:
           As reported                                              $    (.00)           $        (.15)
           Pro forma                                                $    (.02)           $        (.17)

</TABLE>

         We also have issued  262,334  restricted  shares of our common stock to
         members of our  management in lieu of cash bonuses.  The stock vests on
         February 28,  2007.  We expensed  $49,188 and $65,584  during the three
         month and six month  periods  ended  June 30,  2006,  and will  expense
         $131,166 over the remaining vesting period.



6. FINANCING ACTIVITY

         On February 28, 2005, we sold in a private placement,  81,000 shares of
         our Series G Preferred  Stock to OCM GW Holdings,  LLC ("OCMGW") for an
         aggregate offering price of $40.5 million. GulfWest Oil and Gas Company
         ("GWOG"),  a then  subsidiary  of the  Company,  issued,  in a  private
         placement,  2,000  shares of our  Series A  Preferred  Stock,  having a
         liquidation  preference of $1.0 million, to OCMGW for $1.5 million. Net
         proceeds of the offerings of  approximately  $38 million after expenses
         were used for the  repayment of  substantially  all of our  outstanding
         debt and other past due liabilities and for general corporate purposes.

         The  Series G  Preferred  Stock  bears a coupon of 8% per year,  has an
         aggregate liquidation  preference of $40.5 million, is convertible into
         Common  Stock at $0.90 per  share  and is senior to all of our  capital
         stock.  For the  first  four  years  after  issuance,  we may defer the
         payment of dividends on the Series G Preferred Stock and these deferred
         dividends will also be  convertible  into our Common Stock at $0.90 per
         share.  In  addition,  the  Series G  Preferred  Stock is  entitled  to
         nominate  and elect a majority of the members of the Board of Directors
         of Crimson.


                                       12
<PAGE>

         In  connection  with  these  transactions,  the  terms of the  Series A
         Preferred  Stock were  amended  such that by March 15,  2005,  all such
         stock would  either  convert  into a newly  created  Series H Preferred
         Stock on a one for one basis or into Common Stock at a conversion price
         of $0.35 per share. The Series H Preferred Stock is required to be paid
         a dividend of 40 shares of Common Stock per share of Series H Preferred
         Stock  per  year.  In  addition,   the  Series  H  Preferred  Stock  is
         convertible into Common Stock at a conversion price of $0.35 per share.
         At March 15, 2005,  holders of 6,700 shares of Series A Preferred Stock
         converted  to Series H Preferred  Stock and holders of 3,250  shares of
         Series A Preferred Stock converted to an aggregate  4,642,859 shares of
         Common Stock. Subsequently in 2005, holders of Series H Preferred Stock
         converted 1,450 of their shares into 2,071,429  shares of Common Stock.
         The outstanding  Series H Preferred Stock has an aggregate  liquidation
         preference of $2.625 million. The Series H Preferred Stock is senior to
         all of our capital stock other than Series G Preferred Stock.

         In  addition,  we  amended  the terms of our  9,000  shares of Series E
         Preferred Stock such that the coupon of 6% per year may be deferred for
         the next four years and these  deferred  dividends  will be convertible
         into  Common  Stock  at a  conversion  price of $0.90  per  share.  The
         original liquidation preference of the Series E Preferred Stock of $500
         per share remains convertible into Common Stock at $2.00 per share. The
         Series E Preferred  Stock has an aggregate  liquidation  preference  of
         $4.5  million,  and is  senior  to all of our  Common  Stock,  of equal
         preference  with our Series D  Preferred  Stock as to  liquidation  and
         junior to our Series G and Series H Preferred Stock.

         On July  15,  2005,  we  entered  into a $100  million  senior  secured
         revolving credit facility with Wells Fargo Bank, National  Association.
         Borrowings under the new credit facility will be subject to a borrowing
         base limitation  based on our current proved oil and gas reserves.  The
         current  borrowing  base is set at $20  million  and will be subject to
         semi-annual redeterminations.  The facility is secured by a lien on all
         our assets,  and the assets of our subsidiaries,  as well as a security
         interest in the stock of all our subsidiaries.  The credit facility has
         a term of three years,  and all  principal  amounts,  together with all
         accrued  and unpaid  interest,  will be due and payable in full on June
         30, 2008. Proceeds from extensions of credit under the facility will be
         for  acquisitions  of oil and gas properties and for general  corporate
         purposes.   The   facility   also   provides   for  the   issuance   of
         letters-of-credit up to a $3 million sub-limit. We incurred $323,662 in
         issuance  costs  associated  with the credit  facility  which are being
         amortized over its life.

         Advances  under the  facility  will be in the form of either  base rate
         loans or  Eurodollar  loans.  The interest  rate on the base rate loans
         fluctuates  based upon the higher of (1) the lender's  "prime rate" and
         (2) the Federal  Funds rate,  plus a margin of 0.50%,  plus a margin of
         between 0.0% and 0.5%  depending on the percent of the  borrowing  base
         utilized at the time of the credit extension.  The interest rate on the
         Eurodollar  loans  fluctuates  based upon the rate at which  Eurodollar
         deposits in the London  Interbank  market  ("Libor") are quoted for the
         maturity  selected,  plus a margin of 1.25% to 2.00%  depending  on the
         percent  of the  borrowing  base  utilized  at the  time of the  credit
         extension.  Eurodollar  loans  of one,  three  and nine  months  may be
         selected by us. A commitment fee of 0.375% on the unused portion of the
         borrowing base will accrue,  and be payable  quarterly in arrears.  Our
         interest rate at June 30, 2006 was the prime rate of 8.25%.

         The credit agreement includes usual and customary affirmative covenants
         for  credit  facilities  of this  type and size,  as well as  customary
         negative  covenants,  including,  among  others,  limitation  on liens,
         hedging,  mergers, asset sales or dispositions,  payments of dividends,
         incurrence of additional  indebtedness,  certain leases and investments
         outside of the ordinary course of business.  The credit  agreement also
         requires  us  to  maintain  a  ratio  of  current   assets  to  current
         liabilities, except that any availability under the borrowing base will
         be considered as an addition to current assets,  and any current assets
         or liabilities  resulting from hedging agreements will be excluded,  of
         at least 1.0 to 1.0, an interest  coverage  ratio of EBITDAX  (earnings
         before interest, taxes, depreciation and amortization


                                       13
<PAGE>


         and exploration  expense) to cash interest  expense of 3.0 to 1.0 and a
         tangible net worth of at least $45 million, subject to adjustment based
         on future  results of  operations  and any sales of equity  securities.
         EBITDAX and tangible net worth are calculated without  consideration of
         unrealized gains and losses related to stock derivatives  accounted for
         under  variable  accounting  rules or mark to  market  adjustments  for
         commodity  hedges.  At June  30,  2006 we were in  compliance  with the
         aforementioned financial covenants.


7. OIL AND GAS PROPERTIES

         On March 20,  2006,  we  purchased  a 100%  working  interest  (75% net
         revenue interest) in leases on approximately  22,000  undeveloped acres
         in Culberson County Texas. The acreage,  believed to contain producible
         reserves  in the  Barnett  Shale and  Atoka  formations,  was  acquired
         through our acquisition,  by merger, of Core Natural Resources, Inc., a
         privately-held  entity that was incorporated  solely to hold the leases
         acquired  by us.  Pursuant  to the merger  agreement,  each  issued and
         outstanding  share of common stock of Core was converted into the right
         to receive (i) 5.39270725  shares of our common stock,  par value $.001
         per  share,  (the  "Stock  Consideration")  and (ii)  cash in an amount
         determined   by   dividing    $706,123.25   by   600,000   (the   "Cash
         Consideration," and, together with the Stock Consideration, the "Merger
         Consideration").   Pursuant  to  the  merger   agreement,   we  assumed
         $2,045,258 of Core indebtedness that was paid off at the closing of the
         merger.  The cash  paid at  closing  was  funded  from cash on hand and
         temporary  borrowings  under our  credit  facility.  At  closing of the
         merger  agreement,  600,000 shares of Core Common Stock were issued and
         outstanding.  We issued  3,235,624  shares of our  common  stock as the
         Stock  Consideration.  In a  separate  transaction,  we also  issued an
         additional  462,231 shares of our common stock to a Core stockholder as
         consideration  for the assignment of a 2% overriding  royalty  interest
         owned by that  stockholder in the oil and gas leases of Core (giving us
         a total 77% net revenue interest). All stock issued in conjunction with
         these  transactions is restricted  stock subject to resale  limitations
         under Rule 144 of the Securities Act of 1933.  Core  stockholders  were
         also granted certain limited  piggyback  registration  rights that will
         expire one year from the closing.

         As a result of this  transaction we recorded a $1,644,721  deferred tax
         liability  related to the  difference  in the fair market  value of the
         assets acquired and their underlying tax basis.

8. DEFERRED TAXES

         Our deferred tax asset decreased by  approximately  $2.6 million during
         the six month period.  Major components of the change were decreases of
         $1.6 million  related to the Core merger,  $1.1 million from  expensing
         intangible  drilling costs, $ 0.5 million from the change in fair value
         of  derivatives  and an  increase  of $ 0.7  million  from stock  based
         compensation.

         Deferred  tax  assets  are  shown  net  of  a  $3.1  million  valuation
         allowance.  The valuation  allowance was recorded  because we expect we
         will  not  be  able  to  use  net  operating  loss   carryforwards   of
         approximately  $9.1 million,  relating to periods prior to the February
         2005 sale of the Series G Preferred  Stock,  due to the  limitations of
         Internal Revenue Code Section 382.

9. PREFERRED STOCK

         Dividends on all classes of our preferred  stock are  cumulative  until
         declared as payable by our Board of  Directors.  Our Series E Preferred
         Stock  accumulates at 6% per annum payable in cash,  Series G Preferred
         Stock  accumulates  at 8% per  annum  payable  in  cash  and  Series  H
         Preferred Stock  accumulates at 40 shares of our common stock per share
         of the  Series H  Preferred  Stock  per  annum,  payable  quarterly  as
         declared. Our Series D Preferred Stock bears no dividends.

                                       14
<PAGE>


         The  following  table sets forth the  accumulated  value of  undeclared
dividends of our preferred stock at June 30, 2006.

      Series E Preferred Stock                              $   360,986
      Series G Preferred Stock                                4,331,836
      Series H Preferred Stock                                   42,173
                                                            -----------
                                                            $ 4,734,995
                                                            ===========

         The Series E and Series G dividends are convertible to our common stock
         at  $.90  per  common  share.  The  Series  H  Preferred  Stock  has no
         conversion  feature  for unpaid  dividends.  These  dividends  call for
         payment  of 10 common  shares per  quarter  for each  preferred  share.
         Payments on the Series H are current.

10. RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2006, the Financial  Accounting Standards Board ("FASB") issued
         Interpretation  No.48,  Accounting for  Uncertainty in Income  Taxes-an
         interpretation  of FASB  Statement No. 109 ("FIN 48"). FIN 48 clarifies
         the  accounting  for  uncertainty  in  income  taxes  recognized  in  a
         company's  financial  statements in accordance  with FASB Statement No.
         109, Accounting for Income Taxes. It prescribes a recognition threshold
         and measurement  attribute for the financial statement  recognition and
         measurement  of a tax  position  taken or expected to be taken in a tax
         return. FIN 48 also provides guidance on derecognition, classification,
         interest and penalties,  accounting in interim periods,  disclosure and
         transition.  FIN 48 is  effective  for  fiscal  years  beginning  after
         December 15, 2006 and the Company is evaluating  its  requirements.  We
         intend to adopt FIN 48 in the first  quarter of 2007 and do not believe
         it will have a  material  impact  on our  consolidated  balance  sheet,
         statement of operations or statement of cash flows.

         Texas Margin Tax

         Texas  House Bill 3 ("HB3"),  which was signed  into law in May,  2006,
         provides a comprehensive  change in the method of business  taxation in
         Texas. HB3 eliminates the taxable capital and earned surplus components
         of the existing Texas franchise tax and replaces these  components with
         a taxable margin tax. This change is effective for tax reports filed on
         or after January 1, 2008 (which are based upon 2007 business  activity)
         and results in no impact on our current Texas income tax.

         We are  required to include,  in income,  the impact of HB3 on deferred
         state  income  taxes  during  the  period  which  includes  the date of
         enactment.  Based upon the available information regarding the proposed
         implementation  of this new tax, we have  determined  that no change in
         the amount of net deferred state income taxes is needed.



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
        OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         Overview.

         We are primarily engaged in the acquisition,  development, exploitation
         and  production of crude oil and natural gas,  primarily in the onshore
         producing  regions of the  United  States.  Our focus is on  increasing
         production from our existing  properties through further  exploitation,
         development and exploration,  and on acquiring  additional interests in
         undeveloped  crude oil and natural gas  properties.  Our gross revenues
         are derived from the following sources:


                                       15
<PAGE>



         1.       Oil and gas sales that are proceeds from the sale of crude oil
                  and natural  gas  production  to  midstream  purchasers.  This
                  represents over 99% of our gross revenues.

         2.       Operating   overhead  and  other   income  that   consists  of
                  administrative  fees  received  for  operating  crude  oil and
                  natural gas properties for other working interest owners,  and
                  for marketing and  transporting  natural gas for those owners.
                  This  also   includes   earnings   from  other   miscellaneous
                  activities.

         The  following  discussion  should  be read  in  conjunction  with  the
         consolidated  financial  statements  and the notes thereto  included in
         this quarterly report on Form 10-Q and with the consolidated  financial
         statements,  notes and management's discussion and analysis reported on
         our  2005   Form   10-K.   Statements   in  this   discussion   may  be
         forward-looking.  These  forward-looking  statements  involve risks and
         uncertainties.  We caution that a number of factors  could cause future
         production,  revenues  and  expenses  to  differ  materially  from  our
         expectations.  For a discussion on risk factors affecting our business,
         see the  information  in ITEM 1. A in our 2005  Annual  Report  on From
         10-K.

         Comparative  results  of  operations  for  the  periods  indicated  are
         discussed below.

         Three-Month  Period Ended June 30, 2006 compared to Three- Month Period
         Ended June 30, 2005.

         Revenues

         Oil and Gas Sales.  During the 2006 second  quarter,  revenues from the
         sale of crude oil and  natural  gas,  net of  realized  losses from our
         hedging instruments,  were $5,150,000,  up 18% from $4,368,000 in 2005.
         We  realized a loss of $316,000 on our oil hedges and a gain of $18,000
         on our gas hedges in the 2006  quarter  compared  to losses of $610,000
         for oil and  $204,000  for gas in the 2005  quarter.  The  increase  in
         revenues  was due to higher  realized  crude oil and natural gas prices
         which offset production declines.

         Our second  quarter 2006 sales volumes were 45,187 barrels of crude oil
         and 365,846  mcf of natural  gas,  or 636,968  natural gas  equivalents
         (mcfe),  compared  to 47,771  barrels of crude oil and  420,638  mcf of
         natural gas, or 707,264 mcfe in the second  quarter of 2005. On a daily
         basis we  produced  an average  of 7,000 mcfe in the second  quarter of
         2006  compared  to a daily  average of 7,800 mcfe in the 2005  quarter.
         Lower  volumes  in the 2006  quarter,  compared  to the  2005  quarter,
         resulted from the continued  restriction  on production  (approximately
         600  mcfepd) at our  Lacassine  field in Cameron  Parish  where we were
         finishing  repairs related to Hurricane Rita and installing  production
         equipment  to treat  our high btu gas to meet more  stringent  pipeline
         requirements, in addition, we had a decline in production of 600 mcfepd
         from our horizontal  wells in Iola field in east Texas,  which provided
         early  life,  flush  production  in  the  second  quarter  2005.  These
         production  declines  were  partially  offset by a 200  mcfepd  average
         increase in production in our Madisonville and Colorado fields where we
         implemented workover and drilling projects during the quarter.

         Oil and gas  prices  are  reported  net of the  realized  effect of our
         hedging agreements.  Prices realized in the second quarter of 2006 were
         $60.48  per bbl of oil and $6.61 per mcf of  natural  gas  compared  to
         $37.26 per bbl and $6.15 per mcf in the second quarter of 2005.  Prices
         before the  effects of the hedging  agreements  were $67.47 per bbl and
         $6.56 per mcf in the second  quarter of 2006 compared to $50.02 per bbl
         and $6.64 per mcf in the second quarter of 2005.



                                       16
<PAGE>


         Costs and Expenses

         Lease  Operating  Expenses.  Lease  operating  expenses  for the second
         quarter of 2006 were  $1,710,000 an increase of 25% from  $1,365,000 in
         2005. The increase was due to higher  expenses  related to workovers on
         producing  wells and  increases  in  salt-water  disposal  costs in the
         Cameron Parish fields.

         On a per unit basis,  expenses increased from $1.93 per mcfe in 2005 to
         $2.68 per mcfe in 2006, due to the higher costs and lower production on
         existing properties.

         Depreciation,  Depletion and Amortization  (DD&A). DD&A expense for the
         second quarter of 2006 was $919,000 compared to expense of $835,000 for
         the prior year  quarter,  due to the increase in the DD&A rate per unit
         from $1.18 per mcfe in 2005 to $1.44 per mcfe in 2006.

         General  and  Administrative  (G&A)  Expenses.  Our G&A  expenses  were
         $2,141,000 in the 2006 quarter  compared to $935,000 in 2005.  Included
         in G&A expense for the 2006 quarter is a non-cash  stock option expense
         of $997,000  ($1.57 per mcfe)  related to our  adoption of SFAS 123R on
         January 1, 2006. On a per unit basis, expenses increased from $1.32 per
         mcfe in 2005 to $3.36 per mcfe in 2006 on lower production.

         Interest Expense.  Interest expense was $56,000 in the 2006 quarter, up
         from $18,000 in 2005,  primarily due to the increase in debt related to
         the acquisition of leasehold acreage for future development.

         Geological and  Geophysical  Expense (G&G).  G&G expense was $47,000 in
         2006.  No G&G costs were  incurred  in 2005 as we focused  our  capital
         program on the development of our proved reserves.

         Dry Holes, Abandonment Costs and Impaired Assets. Dry hole, abandonment
         and  impairment  expense  was $8,000 in the 2006  quarter  compared  to
         $389,000 in 2005. The 2005 expense was the result of our  participation
         in an unsuccessful exploratory well.

         Debt  Issuance  Costs.  Debt  issuance  costs were  $56,000 in the 2006
         quarter compared with $5,000 in 2005. The expense in 2006 was comprised
         primarily of the amortization of capitalized  costs associated with the
         revolving credit facility entered into in July 2005 and fees related to
         the unused portion of the credit facility.

         Unrealized  Gain/(Loss) on Derivative  Instruments.  Unrealized gain or
         loss on derivative  instruments is the change during the quarter in the
         mark-to-market  exposure under our commodity price hedging instruments.
         This non-cash  increase in earnings for 2006 was $169,000 compared with
         $619,000 for the 2005 quarter. This expense will vary period to period,
         and will be a function of the hedges in place, and the strike prices of
         those hedges, at each balance sheet date.

         Income Taxes. Our net income before taxes was $403,000 in 2006 compared
         with $1,383,000 in 2005. After adjusting for permanent tax differences,
         we recorded  income tax  expense of  $201,000  in 2006 and  $538,000 in
         2005.

         Dividends  on  Preferred  Stock.  Dividends  on  preferred  stock  were
         $916,000 in the 2006 quarter compared with $925,000 in 2005.  Dividends
         in 2006 included  $808,000 on the Series G Preferred Stock,  $41,000 on
         the Series H  Preferred  Stock and  $67,000  on the Series E  Preferred
         Stock.  Dividends on preferred stock for 2005 included  $808,000 on the
         Series G  Preferred  Stock,  $50,000 on the Series H  Preferred  Stock,
         $67,000 on the Series E Preferred Stock.


                                       17
<PAGE>

         Six-Month  Period  Ended June 30, 2006  compared  to Six- Month  Period
         Ended June 30, 2005.

         Revenues

         Oil and Gas Sales. During the 2006 six month period,  revenues from the
         sale of crude oil and  natural  gas,  net of  realized  losses from our
         hedging instruments,  were $10,264,000, up 28% from $8,002,000 in 2005.
         We realized losses of $450,000 on our oil hedges and $12,000 on our gas
         hedges in the 2006 period compared to losses of $1,145,000 for oil and
         $325,000 for gas in the 2005  period.  The increase in revenues was due
         to higher  realized  crude oil and  natural  gas  prices  which  offset
         production declines.

         For the six month period of 2006 sales  volumes were 91,033  barrels of
         crude oil and 683,452  mcf of natural  gas,  or  1,229,650  natural gas
         equivalents  (mcfe) compared to 92,479 barrels of crude oil and 764,653
         mcf of natural  gas, or 1,319,527  mcfe in the 2005 period.  On a daily
         basis we  produced  an  average of 6,800 mcfe in the six months of 2006
         compared to a daily average of 7,300 mcfe in the 2005 period. The lower
         volumes resulted primarily from the restriction of production, by about
         1,000 mcfepd for four and a half months,  at our Cameron  Parish fields
         related to operational  difficulties  following  Hurricane Rita.  These
         repairs were completed in May 2006. Our largest well in our Nelsonville
         field  (approximately 400 mcfepd) was also lower during that period due
         to collapsed  casing;  it also returned to  production at a lower,  but
         increasing, rate in May.

         Oil and gas  prices are  reported  net of the  realized  effects of our
         hedging  agreements.  Prices  realized in the six month  period of 2006
         were  $59.29 per bbl and $7.12 per mcf  compared  to $36.57 per bbl and
         $6.04 per mcf in the 2005  period.  Prices  before  the  effects of the
         hedging  agreements  were  $64.23  per bbl and $7.14 per mcf in the six
         month of 2006  compared to $48.95 per bbl and $6.47 per mcf in the 2005
         period.

         Costs and Expenses

         Lease Operating  Expenses.  Lease operating  expenses for the six month
         period of 2006 were  $3,289,000  an increase of 19% from  $2,766,000 in
         2005.  The  increase  was due to higher  production  taxes from  higher
         revenues,  higher saltwater disposal costs and higher cost of goods and
         services prevalent in the industry.

         On a per unit basis,  expenses increased from $2.10 per mcfe in 2005 to
         $2.68 per mcfe in 2006 on lower production.

         Depreciation,  Depletion and Amortization  (DD&A). DD&A expense for the
         six  month  period  of 2006  was  $1,674,000  compared  to  expense  of
         $1,491,000  for the prior year period,  due to the increase in the DD&A
         rate per unit from $1.13 per mcfe in 2005 to $1.36 per mcfe in 2006.

         General  and  Administrative  (G&A)  Expenses.  Our G&A  expenses  were
         $3,865,000  in the  2006  period  compared  to  $1,553,000  in 2005 due
         primarily  to additions  to our  management  team to carry out our post
         recapitalization  growth strategy, and due to the non-cash stock option
         expense of $1,724,000  ($1.40 per mcfe) related to our adoption of SFAS
         123R on January 1, 2006. On a per unit basis,  expenses  increased from
         $1.18 per mcfe in 2005 to $3.14 per mcfe in 2006 on lower production.

         Interest  Expense.  Interest  expense  decreased to $66,000 in the 2006
         period, compared to $1,217,000 in 2005, primarily due to the retirement
         of debt in our February 2005 recapitalization.

         Geological and  Geophysical  Expense (G&G).  G&G expense was $56,000 in
         2006.  No G&G costs were  incurred  in 2005 as we focused  our  capital
         program on the development of our proved reserves.


                                       18
<PAGE>

         Dry Holes, Abandonment Costs and Impaired Assets. Dry hole, abandonment
         and  impairment  expense  was  $12,000 in 2006  compared to $391,000 in
         2005.  The 2005  expense  was the  result  of our  participation  in an
         unsuccessful exploratory well.

         Debt Issuance Costs.  Debt issuance costs were $89,000 in 2006 compared
         with $1,910,000 in 2005. The expense in 2006 was comprised primarily of
         the  amortization  of capitalized  costs  associated with the revolving
         credit  facility  entered  into in July  2005 and fees  related  to the
         unused  portion  of the credit  facility.  Costs in 2005  included  the
         writeoff of capitalized  debt issuance costs  associated  with previous
         financings that were repaid with proceeds from the sale of the Series G
         Preferred Stock in February 2005.

         Unrealized  Gain/(Loss) on Derivative  Instruments.  Unrealized gain or
         loss on derivative  instruments is the change during the quarter in the
         mark-to-market  exposure under our commodity price hedging instruments.
         This  non-cash  increase in earnings for 2006 was  $1,277,000  compared
         with a non-cash expense of $1,395,000 for the 2005 period. This expense
         will vary  period to period  and will be a  function  of the  hedges in
         place,  and the strike  prices of those  hedges,  at each balance sheet
         date.

         Income Taxes.  Our net income before taxes was  $2,502,000 for the 2006
         period.  After  adjusting for permanent  tax  differences,  we recorded
         $928,000 in income tax expense.  We reported a net loss before taxes of
         $2,779,000  in the 2005  period  resulting  in an income tax benefit of
         $850,000.

         Dividends  on  Preferred  Stock.  Dividends  on  preferred  stock  were
         $1,812,000 in 2006 compared with $1,698,000 in 2005.  Dividends in 2006
         included  $1,607,000  on the Series G Preferred  Stock,  $71,000 on the
         Series H Preferred Stock and $134,000 on the Series E Preferred  Stock.
         Dividends on preferred stock for 2005 included $1,092,000 on the Series
         G Preferred Stock,  $76,000 on the Series H Preferred Stock, $91,000 on
         the  Series E  Preferred  Stock and  $439,000  for the other  series of
         preferred   stock   previously   issued  by  the  Company   and/or  its
         subsidiaries   and   retired  as  part  of  the   February   28,   2005
         recapitalization.


         Financial Condition and Capital Resources

         At June 30, 2006, our current  liabilities  exceeded our current assets
         by  $2,284,996,  while at December  31,  2005 our  current  liabilities
         exceeded  our  current  assets by  $1,030,657.  At June 30, 2006 we had
         $17,538,609  available on our revolving line of credit.  During the six
         month  period,  we generated  $5,631,630  in cash flow from  operations
         compared to the  utilization  of $530,387 for  operations  in the prior
         year period.  We believe  cash flow,  along with  available  borrowings
         under our revolver,  will be  sufficient to fund our daily  operations,
         debt service and planned capital development program in 2006.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The following  market rate  disclosures  should be read in  conjunction
         with the  quantitative  disclosures  about market risk contained in our
         2005  Annual  Report  on Form  10-K,  as well as with the  consolidated
         financial  statements  and notes  thereto  included  in this  quarterly
         report on Form 10-Q.

         All of our financial  instruments  are for purposes other than trading.
         We only enter into derivative financial instruments in conjunction with
         our oil and gas hedging activities.

         Hypothetical  changes  in  interest  rates and  prices  chosen  for the
         following   stimulated   sensitivity   effects  are  considered  to  be
         reasonably  possible near-term changes generally based on consideration
         of past  fluctuations  for each risk  category.  It is not  possible to
         accurately predict future changes in interest rates and product prices.
         Accordingly,  these  hypothetical  changes may not be an  indicator  of
         probable future fluctuations.

                                       19
<PAGE>


         Interest Rate Risk

         We are exposed to  interest  rate risk on debt with  variable  interest
         rates.  At June 30, 2006, we carried  variable rate debt of $2,461,391.
         Assuming a one  percentage  point change in interest  rates on variable
         rate debt  outstanding  at June 30, 2006,  the annual pretax results of
         operations would change by $24,614.


         Commodity Price Risk

         We hedge a portion of price risk  associated  with our oil and  natural
         gas sales  through  contractual  arrangements  which are  classified as
         derivative   instruments.   As  of  June  30,  2006,  these  derivative
         instruments  had an estimated  fair value  liability of  $1,871,223.  A
         hypothetical  change in oil and gas prices  could have an effect on oil
         and gas futures  prices,  which are used to estimate  the fair value of
         our derivative  instruments.  Considering the highly volatile nature of
         energy  commodity  prices  in the near and long term  consideration  of
         attributes  impacting  them,  it is not  practicable  to  estimate  the
         resultant change.


ITEM 4. CONTROLS AND PROCEDURES

         Our  president  and chief  executive  officer  and our chief  financial
         officer have concluded,  based on their evaluation as of the end of the
         period  covered by this Form 10-Q,  that our  disclosure  controls  and
         procedures,  as defined  under Rules  13a-15(e)  and  15d-15(e)  of the
         Securities  Exchange Act of 1934,  as amended,  are effective to ensure
         that  information we are required to disclose in the reports we file or
         submit under the Exchange Act is recorded,  processed,  summarized  and
         reported  within  the time  periods  specified  in the SEC's  rules and
         forms, and that our disclosure controls and procedures are effective to
         ensure that  information we are required to disclose in such reports is
         accumulated and communicated to management, including our president and
         chief executive officer and our chief financial officer, as appropriate
         to allow timely decisions regarding required disclosure.

         During the period  covered by this report,  there has been no change in
         our  internal   controls  over  financial   reporting  that  materially
         affected, or is reasonably likely to material affect, these controls.



                            PART II OTHER INFORMATION


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         The Company  held its Annual  Meeting of  Shareholders  on May 12, 2006
         (the  "Annual  Meeting").  The close of  business  on April 3, 2006 was
         fixed as the  record  date for  determining  shareholders  entitled  to
         notice of the Annual  Meeting  and the right to vote at the  meeting or
         for any  adjournments  or  postponement  thereof.  As of April 3, 2006,
         32,776,995  shares of our  Class A Common  Stock,  par value  $.001 per
         share ("Common Stock), were outstanding and entitled to vote. Shares of
         our Series G  Convertible  Preferred  Stock,  par value $0.01 per share
         (the  "Series  G  Preferred  Stock  "),  and  shares  of our  Series  H
         Convertible  Preferred  Stock,  par value $.01 per share (the "Series H
         Preferred Stock"),  were entitled to vote on an as converted basis with
         the Common Stock with  respect to the  approval of Grant  Thorton LP as
         our  independent  financial  auditors.  However,  with  respect  to the
         election of directors,  the Series G Preferred Stock  shareholders  are
         entitled to elect a majority of our  directors,  but not the  remaining
         directors, which the holders of the Common Stock and Series H Preferred
         Stock were entitled to elect.  Allan D. Keel, B. James Ford and Skardon
         F.  Baker,  who were  elected by the  holders of the Series G Perferred
         Stock (with 47,977,433  shares voting for reelection and 957,930 shares
         abstaining),  continued their term of office after the meeting.  On the
         record date,  81,000 shares of Series G Preferred  Stock,  representing
         the voting  power of  48,935,363  shares,  and 5,250 shares of Series H
         Preferred  Stock,  representing the voting power of 7,500,001 shares of
         Common  Stock,  in each case with respect to those  matters  which such
         shares  vote on an  as-converted  basis  with the  Common  Stock,  were
         outstanding. Each of the following matters was approved by shareholders
         by the following votes:

                                       20
<PAGE>

         Proposal  1 - To elect  two  directors  to hold  office  until the next
         annual  meeting of  shareholders  and until their  successors  are duly
         elected and qualified.  Each of the director nominees were elected by a
         majority  of votes cast by  holders  of the  Common  Stock and Series H
         Preferred Stock entitled to vote at the Annual Meeting.


                                  Lee B. Backsen
                              For                 Against              Withheld
                              ---                 -------              --------
     Common Stock          25,830,026                0                 118,786
     Series H               7,357,143                0                    0
                           ----------             -------              --------
        Total              33,187,169                0                 118,786
                           ==========             =======              ========





                                    Lon McCain
                              For                 Against              Withheld
                              ---                 -------              --------
     Common Stock          25,830,126                0                 118,686
     Series H               7,357,143                0                    0
                           ----------             -------              --------
        Total              33,187,269                0                 118,686
                           ==========             =======              ========



         Proposal 2 - To approve the  appointment  of Grant  Thornton LLP as the
Company's independent financial auditors.


                                    For         Against            Withheld
                                    ---         -------            --------
        Common Stock              25,908,812       0                57,000
        Series G                  47,977,433       0                   0
        Series H                   7,357,143       0                   0
                                  ----------    -------            --------
               Total              81,243,388       0                57,000
                                  ==========    =======            ========


                                       21
<PAGE>


        ITEM 6.   EXHIBITS.



         Number   Description
         ------   -----------

         *31.1    Certification of Chief Executive  Officer pursuant to Exchange
                  Rule  13a-14(a)  as adopted  pursuant  to  Section  302 of the
                  Sarbanes-Oxley Act of 2002.

         *31.2    Certification of Chief Financial  Officer pursuant to Exchange
                  Rule  13a-14(a)  as adopted  pursuant  to  Section  302 of the
                  Sarbanes-Oxley Act of 2002.

         *32      Certification  pursuant to 18.U.S.C  Section 1350  pursuant to
                  Section  906  of  the   Sarbanes-Oxley  Act  of  2002.  *Filed
                  herewith.

                                       22
<PAGE>








                                   SIGNATURES

         Pursuant to the  requirements  of Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




CRIMSON EXPLORATION INC.
(Registrant)

Date: August 14, 2006

                        By: /s/ Allan D. Keel
                        ---------------------
                        Allan D. Keel
                        President and Chief Executive Officer

Date: August 14, 2006

                        By: /s/ E. Joseph Grady
                        -----------------------
                        E. Joseph Grady
                        Senior Vice President and Chief Financial Officer



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