**SECURITIES              AND EXCHANGE COMMISSION**

**Washington,              D.C. 20549**

**Form              10-Q**

**[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**

**UNIT              CORPORATION**

|    | **Delaware**                                                          | **73-1283193**                                              |
|--------------|-----------------------------------------------------------------------|-------------------------------------------------------------|
|         | (State                        or other jurisdiction of incorporation) | (I.R.S.                        Employer Identification No.) |

|   | **7130                        South Lewis, Suite 1000, Tulsa, Oklahoma** | **74136**                         |
|--------|--------------------------------------------------------------------------|-----------------------------------|
|   | (Address                        of principal executive offices)          | (Zip                        Code) |

|   | **(918)                        493-7700**                                                                |
|--------|----------------------------------------------------------------------------------------------------------|
|   | (Registrant’s                        telephone number, including area                        code) |

|   | **None**                                                                    |
|--------|-----------------------------------------------------------------------------|
|   | (Former                        name, former address and former fiscal year, |
|   | if                        changed since last report)                        |

|   | Yes                        [x] | No                        [ ] |
|--------|--------------------------------|-------------------------------|

| Large                        accelerated filer [x] | Accelerated                        filer [ ] | Non-accelerated                        filer [ ] |
|----------------------------------------------------|----------------------------------------------|--------------------------------------------------|

|   | Yes                        [ ] | No                        [x] |
|--------|--------------------------------|-------------------------------|

**FORM              10-Q**

**UNIT              CORPORATION**

**TABLE              OF CONTENTS**

|   |                            |                                                                               | Page   |
|--------|---------------------------------|------------------------------------------------------------------------------------|--------|
|   |                            |                                                                               | Number |
|   |                            | PART                        I. Financial Information                          |   |
|   | Item                        1.  | Financial                        Statements (Unaudited)                            |   |
|   |                            |                                                                               |   |
|   |                            | Consolidated                        Condensed Balance Sheets                       |   |
|   |                            | June                        30, 2006 and December 31, 2005                         | 2      |
|   |                            |                                                                               |   |
|   |                            | Consolidated                        Condensed Statements of Income                 |   |
|   |                            | Three                        and Six Months Ended June 30, 2006 and 2005           | 4      |
|   |                            |                                                                               |   |
|   |                            | Consolidated                        Condensed Statements of Cash Flows             |   |
|   |                            | Six                        Months Ended June 30, 2006 and 2005                     | 5      |
|   |                            |                                                                               |   |
|   |                            | Consolidated                        Condensed Statements of Comprehensive Income   |   |
|   |                            | Three                        and Six Months Ended June 30, 2006 and 2005           | 6      |
|   |                            |                                                                               |   |
|   |                            | Notes                        to Consolidated Condensed Financial Statements        | 7      |
|   |                            |                                                                               |   |
|   |                            | Report                        of Independent Registered Public Accounting Firm     | 21     |
|   |                            |                                                                               |   |
|   | Item                        2.  | Management’s                        Discussion and Analysis of Financial     |   |
|   |                            | Condition                        and Results of Operations                         | 22     |
|   |                            |                                                                               |   |
|   | Item                        3.  | Quantitative                        and Qualitative Disclosure about Market Risk   | 41     |
|   |                            |                                                                               |   |
|   | Item                        4.  | Controls                        and Procedures                                     | 41     |
|   |                            |                                                                               |   |
|   |                            | PART                        II. Other Information                             |   |
|   | Item                        1.  | Legal                        Proceedings                                           | 42     |
|   |                            |                                                                               |   |
|   | Item                        1A. | Risk                        Factors                                                | 42     |
|   |                            |                                                                               |   |
|   | Item                        2.  | Unregistered                        Sales of Equity Securities and Use of Proceeds | 42     |
|   |                            |                                                                               |   |
|   | Item                        3.  | Defaults                        Upon Senior Securities                             | 42     |
|   |                            |                                                                               |   |
|   | Item                        4.  | Submission                        of Matters to a Vote of Security Holders         | 42     |
|   |                            |                                                                               |   |
|   | Item                        5.  | Other                        Information                                           | 43     |
|   |                            |                                                                               |   |
|   | Item                        6.  | Exhibits                                                                           | 43     |
|   |                            |                                                                               |   |
|   | Signatures                      |                                                                               | 44     |

**PART              I. FINANCIAL INFORMATION**

**Item              1. Financial Statements**

**UNIT              CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED              CONDENSED BALANCE SHEETS (UNAUDITED)**

|                                                                                                                                                     |   | **June                        30,**       |      |   |   | **December                        31,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|-----------|--------|--------|-----------------------------------------|--------|
|                                                                                                                                                     |   | **2006**                                  |      |   |   | **2005**                                |   |
|                                                                                                                                                     |   | **(In                        thousands)** |      |
| **ASSETS**                                                                                                                                               |   |                                      |      |   |   |                                    |   |   |   |
| Current                        Assets:                                                                                                                   |   |                                      |      |   |   |                                    |   |   |   |
|                              Cash and cash equivalents                                                                          |   | $                                         | 801       |   |   |                                    | $      | 947 |   |
|                              Restricted cash                                                                                    |   |                                      | 18        |   |   |                                    |   | 268 |   |
|                              Accounts receivable                                                                                |   |                                      | 191,045   |   |   |                                    |   | 199,765 |   |
|                              Materials and supplies                                                                             |   |                                      | 14,777    |   |   |                                    |   | 14,108 |   |
|                              Other                                                                                              |   |                                      | 7,687     |   |   |                                    |   | 8,597 |   |
|                   Total                        current assets  |   |                                      | 214,328   |   |   |                                    |   | 223,685 |   |
|                                                                                                                                                     |   |                                      |      |   |   |                                    |   |   |   |
| Property                        and Equipment:                                                                                                           |   |                                      |      |   |   |                                    |   |   |   |
|                              Drilling equipment                                                                                 |   |                                      | 709,185   |   |   |                                    |   | 626,913 |   |
|                              Oil and natural gas properties, on the full cost                                                   |   |                                      |      |   |   |                                    |   |   |   |
|                                 method:                                                                          |   |                                      |      |   |   |                                    |   |   |   |
|                                    Proved properties                                              |   |                                      | 1,126,521 |   |   |                                    |   | 995,119 |   |
|                                    Undeveloped leasehold not being amortized                      |   |                                      | 42,520    |   |   |                                    |   | 38,421 |   |
|                              Gas gathering and processing equipment                                                             |   |                                      | 70,159    |   |   |                                    |   | 60,354 |   |
|                              Transportation equipment                                                                           |   |                                      | 19,141    |   |   |                                    |   | 17,338 |   |
|                              Other                                                                                              |   |                                      | 15,137    |   |   |                                    |   | 12,935 |   |
|                                                                                                                                                     |   |                                      | 1,982,663 |   |   |                                    |   | 1,751,080 |   |
| Less                        accumulated depreciation, depletion, amortization                                                                            |   |                                      |      |   |   |                                    |   |   |   |
|                           and impairment                                                                                                       |   |                                      | 650,562   |   |   |                                    |   | 575,410 |   |
|                                          Net property and equipment |   |                                      | 1,332,101 |   |   |                                    |   | 1,175,670 |   |
|                                                                                                                                                     |   |                                      |      |   |   |                                    |   |   |   |
| Goodwill                                                                                                                                                 |   |                                      | 39,659    |   |   |                                    |   | 39,659 |   |
| Other                        Assets                                                                                                                      |   |                                      | 12,844    |   |   |                                    |   | 17,181 |   |
| Total                        Assets                                                                                                                      |   | $                                         | 1,598,932 |   |   |                                    | $      | 1,456,195 |   |

**UNIT              CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED              CONDENSED BALANCE SHEETS (UNAUDITED) - CONTINUED**

|                                                                                                                                                           |   | **June                        30,**       |      |   |   | **December                        31,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|-----------|--------|--------|-----------------------------------------|--------|
|                                                                                                                                                           |   | **2006**                                  |      |   |   | **2005**                                |   |
|                                                                                                                                                           |   | **(In                        thousands)** |      |
| **LIABILITIES                        AND SHAREHOLDERS’ EQUITY**                                                                                          |   |                                      |      |   |   |                                    |   |   |   |
| Current                        Liabilities:                                                                                                                    |   |                                      |      |   |   |                                    |   |   |   |
|                              Accounts payable                                                                                         |   | $                                         | 87,509    |   |   |                                    | $      | 109,621 |   |
|                              Accrued liabilities                                                                                      |   |                                      | 28,328    |   |   |                                    |   | 32,819 |   |
|                              Income taxes payable                                                                                     |   |                                      | 4,952     |   |   |                                    |   | 16,941 |   |
|                              Contract advances                                                                                        |   |                                      | 10,852    |   |   |                                    |   | 5,548 |   |
|                              Current portion of other liabilities                                                                     |   |                                      | 7,028     |   |   |                                    |   | 7,583 |   |
|                                          Total current liabilities        |   |                                      | 138,669   |   |   |                                    |   | 172,512 |   |
|                                                                                                                                                           |   |                                      |      |   |   |                                    |   |   |   |
| Long-Term                        Debt                                                                                                                          |   |                                      | 129,700   |   |   |                                    |   | 145,000 |   |
|                                                                                                                                                           |   |                                      |      |   |   |                                    |   |   |   |
| Other                        Long-Term Liabilities                                                                                                             |   |                                      | 53,480    |   |   |                                    |   | 41,981 |   |
|                                                                                                                                                           |   |                                      |      |   |   |                                    |   |   |   |
| Deferred                        Income Taxes                                                                                                                   |   |                                      | 284,982   |   |   |                                    |   | 259,740 |   |
|                                                                                                                                                           |   |                                      |      |   |   |                                    |   |   |   |
| Shareholders’                        Equity:                                                                                                             |   |                                      |      |   |   |                                    |   |   |   |
|                              Preferred stock, $1.00 par value, 5,000,000 shares                                                       |   |                                      |      |   |   |                                    |   |   |   |
|          authorized,                        none issued                                                           |   |                                      | ---       |   |   |                                    |   | --- |   |
|                              Common stock, $.20 par value, 175,000,000 shares                                                         |   |                                      |      |   |   |                                    |   |   |   |
|                                 authorized, 46,275,670 and 46,178,162 shares                                           |   |                                      |      |   |   |                                    |   |   |   |
|                                 issued, respectively                                                                   |   |                                      | 9,255     |   |   |                                    |   | 9,236 |   |
|                              Capital in excess of par value                                                                           |   |                                      | 330,941   |   |   |                                    |   | 328,037 |   |
|                              Accumulated other comprehensive income                                                                   |   |                                           | 745       |   |   |                                    |   | 485 |   |
|                              Unearned compensation - restricted stock                                                                 |   |                                      | ---       |   |   |                                    |   | (2,226 | ) |
|                              Retained earnings                                                                                        |   |                                      | 651,160   |   |   |                                    |   | 501,430 |   |
|                                          Total shareholders’ equity |   |                                      | 992,101   |   |   |                                    |   | 836,962 |   |
| Total                        Liabilities and Shareholders’ Equity                                                                                        |   | $                                         | 1,598,932 |   |   |                                    | $      | 1,456,195 |   |

**UNIT              CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED              CONDENSED STATEMENTS OF INCOME (UNAUDITED)**

|                                                 | **Three                        Months Ended** |                                                               | **Six                        Months Ended** |   |
|------------------------------------------------------|-----------------------------------------------|--------------------------------------------------------------------|---------------------------------------------|--------|
|                                                 | **June                        30,**           |                                                               | **June                        30,**         |   |
|                                                 | **2006**                                      |                                                               | **2005**                                    |   | **2006** |   | **2005** |   |
|                                                 |                                          | **(In                        thousands except per share amounts)** |                                        |
| Revenues:                                            |                                          |                                                               |                                        |   |   |   |   |   |   |   |   |   |
| Contract                        drilling             | $                                             | 175,908                                                            |                                        | $      | 105,825 |   | $ | 337,338 |   | $ | 202,506 |   |
| Oil                        and natural gas           |                                          | 81,954                                                             |                                        |   | 61,976 |   |   | 176,280 |   |   | 118,840 |   |
| Gas                        gathering and processing  |                                          | 21,720                                                             |                                        |   | 21,104 |   |   | 47,202 |   |   | 39,334 |   |
| Other                                                |                                          | 767                                                                |                                        |   | 962 |   |   | 2,337 |   |   | 767 |   |
| Total                        revenues                |                                          | 280,349                                                            |                                        |   | 189,867 |   |   | 563,157 |   |   | 361,447 |   |
|                                                 |                                          |                                                               |                                        |   |   |   |   |   |   |   |   |   |
| Expenses:                                            |                                          |                                                               |                                        |   |   |   |   |   |   |   |   |   |
| Contract                        drilling:            |                                          |                                                               |                                        |   |   |   |   |   |   |   |   |   |
| Operating                        costs               |                                          | 79,117                                                             |                                        |   | 64,298 |   |   | 159,426 |   |   | 127,729 |   |
| Depreciation                                         |                                          | 12,845                                                             |                                        |   | 10,381 |   |   | 24,686 |   |   | 19,991 |   |
| Oil                        and natural gas:          |                                          |                                                               |                                        |   |   |   |   |   |   |   |   |   |
| Operating                        costs               |                                          | 18,988                                                             |                                        |   | 12,590 |   |   | 37,294 |   |   | 25,003 |   |
| Depreciation,                        depletion and   |                                          |                                                               |                                        |   |   |   |   |   |   |   |   |   |
| amortization                                         |                                          | 25,041                                                             |                                        |   | 14,845 |   |   | 49,223 |   |   | 29,277 |   |
| Gas                        gathering and processing: |                                          |                                                               |                                        |   |   |   |   |   |   |   |   |   |
| Operating                        costs               |                                          | 18,717                                                             |                                        |   | 19,387 |   |   | 41,518 |   |   | 36,221 |   |
| Depreciation                                         |                                          | 1,232                                                              |                                        |   | 727 |   |   | 2,382 |   |   | 1,365 |   |
| General                        and administrative    |                                          | 4,402                                                              |                                        |   | 3,160 |   |   | 8,368 |   |   | 7,131 |   |
| Interest                                             |                                          | 1,017                                                              |                                        |   | 585 |   |   | 2,007 |   |   | 1,272 |   |
| Total                        expenses                |                                          | 161,359                                                            |                                        |   | 125,973 |   |   | 324,904 |   |   | 247,989 |   |
| Income                        Before Income Taxes    |                                          | 118,990                                                            |                                        |   | 63,894 |   |   | 238,253 |   |   | 113,458 |   |
|                                                 |                                          |                                                               |                                        |   |   |   |   |   |   |   |   |   |
| Income                        Tax Expense:           |                                          |                                                               |                                        |   |   |   |   |   |   |   |   |   |
| Current                                              |                                          | 33,141                                                             |                                        |   | 12,140 |   |   | 63,299 |   |   | 21,557 |   |
| Deferred                                             |                                          | 11,032                                                             |                                        |   | 12,140 |   |   | 25,224 |   |   | 21,557 |   |
| Total                        income taxes            |                                          | 44,173                                                             |                                        |   | 24,280 |   |   | 88,523 |   |   | 43,114 |   |
|                                                 |                                          |                                                               |                                        |   |   |   |   |   |   |   |   |   |
| Net                        Income                    | $                                             | 74,817                                                             |                                        | $      | 39,614 |   | $ | 149,730 |   | $ | 70,344 |   |
|                                                 |                                          |                                                               |                                        |   |   |   |   |   |   |   |   |   |
| Net                        Income per Common Share:  |                                          |                                                               |                                        |   |   |   |   |   |   |   |   |   |
| Basic                                                | $                                             | 1.62                                                               |                                        | $      | 0.86 |   | $ | 3.24 |   | $ | 1.53 |   |
|                                                 |                                          |                                                               |                                        |   |   |   |   |   |   |   |   |   |
| Diluted                                              | $                                             | 1.61                                                               |                                        | $      | 0.86 |   | $ | 3.23 |   | $ | 1.53 |   |

**UNIT              CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED              CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)**

|                                                                                                                                                                          |   | **Six                        Months Ended** |     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|----------|
|                                                                                                                                                                          |   | **June                        30,**         |     |
|                                                                                                                                                                          |   | **2006**                                    |     |   |   | **2005** |   |
|                                                                                                                                                                          |   | **(In                        thousands)**   |     |
| Cash                        Flows From Operating Activities:                                                                                                                  |   |                                        |     |   |   |   |   |   |   |
|                              Net income                                                                                                              |   | $                                           | 149,730  |   |   |   | $ | 70,344 |   |
|                              Adjustments to reconcile net income to net cash                                                                         |   |                                        |     |   |   |   |   |   |   |
|                                 provided (used) by operating activities:                                                              |   |                                        |     |   |   |   |   |   |   |
|                                    Depreciation, depletion and amortization                                            |   |                                        | 76,640   |   |   |   |   | 51,025 |   |
|                                    Deferred tax expense                                                                |   |                                        | 25,224   |   |   |   |   | 21,557 |   |
|                                    Other                                                                               |   |                                        | 3,566    |   |   |   |   | 1,803 |   |
|                              Changes in operating assets and liabilities                                                                             |   |                                        |     |   |   |   |   |   |   |
|                                 increasing (decreasing) cash:                                                                         |   |                                        |     |   |   |   |   |   |   |
|                                    Accounts receivable                                                                 |   |                                        | 7,650    |   |   |   |   | (12,885 | ) |
|                                    Accounts payable                                                                    |   |                                        | (30,993  | ) |   |   |   | (37,082 | ) |
|                                    Material and supplies inventory                                                     |   |                                        | (669     | ) |   |   |   | (1,536 | ) |
|                                    Accrued liabilities                                                                 |   |                                        | (14,114  | ) |   |   |   | 6,803 |   |
|                                    Contract advances                                                                   |   |                                        | 5,304    |   |   |   |   | 457 |   |
|                                    Other - net                                                                         |   |                                        | 1,147    |   |   |   |   | 881 |   |
|                                           Net cash provided by operating activities |   |                                        | 223,485  |   |   |   |   | 101,367 |   |
|                                                                                                                                                                          |   |                                        |     |   |   |   |   |   |   |
| Cash                        Flows From (Used In) Investing Activities:                                                                                                        |   |                                        |     |   |   |   |   |   |   |
|                              Capital expenditures (including producing property,                                                                     |   |                                        |     |   |   |   |   |   |   |
|                                 drilling rig and other acquisitions)                                                                  |   |                                        | (214,452 | ) |   |   |   | (113,481 | ) |
|                              Proceeds from disposition of assets                                                                                     |   |                                        | 3,795    |   |   |   |   | 3,563 |   |
|                              Other-net                                                                                                               |   |                                        | 250      |   |   |   |   | (43 | ) |
|                                          Net cash used in investing activities           |   |                                        | (210,407 | ) |   |   |   | (109,961 | ) |
|                                                                                                                                                                          |   |                                        |     |   |   |   |   |   |   |
| Cash                        Flows From (Used In) Financing Activities:                                                                                                        |   |                                        |     |   |   |   |   |   |   |
|                              Borrowings under line of credit                                                                                         |   |                                        | (130,900 | ) |   |   |   | (93,300 | ) |
|                              Payments under line of credit                                                                                           |   |                                        | 115,600  |   |   |   |   | 92,700 |   |
|                              Net change in other long-term                                                                                           |   |                                        |     |   |   |   |   |   |   |
|                                 liabilities                                                                                           |   |                                        | ---      |   |   |   |   | 180 |   |
|                              Proceeds from exercise of stock options                                                                                 |   |                                        | 654      |   |   |   |   | 559 |   |
|                              Book overdrafts                                                                                                         |   |                                        | 1,422    |   |   |   |   | 9,406 |   |
|                                          Net cash from (used in) financing activities    |   |                                        | (13,224  | ) |   |   |   | 9,545 |   |
|                                                                                                                                                                          |   |                                        |     |   |   |   |   |   |   |
| Net                        Increase (Decrease) in Cash and Cash Equivalents                                                                                                   |   |                                        | (146     | ) |   |   |   | 951 |   |
|                                                                                                                                                                          |   |                                        |     |   |   |   |   |   |   |
| Cash                        and Cash Equivalents, Beginning of Year                                                                                                           |   |                                        | 947      |   |   |   |   | 665 |   |
| Cash                        and Cash Equivalents, End of Period                                                                                                               |   | $                                           | 801      |   |   |   | $ | 1,616 |   |

**UNIT              CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED              CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)**

|                                                                                                                               |   | **Three                        Months Ended** |   |     |   | **Six                        Months Ended** |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|----------|--------|---------------------------------------------|--------|
|                                                                                                                               |   | **June                        30,**           |   |     |   | **June                        30,**         |   |
|                                                                                                                               |   | **2006**                                      |   | **2005** |   |                                        |   | **2006** |   | **2005** |   |
|                                                                                                                               |   | **(In                        thousands)**     |   |
| Net                        Income                                                                                                  |   | $                                             | 74,817 |     | $      | 39,614                                      |   |   |   | $ | 149,730 |   | $ | 70,344 |   |
| Other                        Comprehensive Income,                                                                                 |   |                                          |   |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                              Net of Taxes:                                                                |   |                                          |   |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                                    Change in value of cash                  |   |                                          |   |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                                       flow derivative        |   |                                          |   |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                                       instruments used as    |   |                                          |   |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                                       cash flow hedges       |   |                                          | 155    |     |   | 1,012                                       |   |   |   |   | 379 |   |   | (452 | ) |
|                                    Reclassification -                       |   |                                          |   |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                                       derivative settlements |   |                                          | (69    | )        |   | 74                                          |   |   |   |   | (119 | ) |   | 102 |   |
| Comprehensive                        Income                                                                                        |   | $                                             | 74,903 |     | $      | 40,700                                      |   |   |   | $ | 149,990 |   | $ | 69,994 |   |

**UNIT              CORPORATION AND SUBSIDIARIES**

**NOTES              TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

**NOTE              1 - BASIS OF PREPARATION AND PRESENTATION**

*Share-Based              Payment*

|                                                                                                  |   | **Three**                                       |   |   | **Six**                                  |   |
|-------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                                                  |   | **Months                        Ended**         |   |   | **Months                        Ended**  |   |
|                                                                                                  |   | **June                        30, 2005**        |   |   | **June                        30, 2005** |   |
|                                                                                                  |   | **(In                        thousands except** |   |
|                                                                                                  |   | **per                        share amounts)**   |   |
|                                                                                                  |   |                                            |   |   |                                     |   |   |   |
| Net                        Income, as Reported                                                        |   | $                                               | 39,614 |   |                                     | $      | 70,344 |   |
| Add                        Stock-Based Employee Compensation                                          |   |                                            |   |   |                                     |   |   |   |
|                             Expense Included in Reported Net                      |   |                                            |   |   |                                     |   |   |   |
|                             Income, Net of Tax                                    |   |                                            | 397    |   |                                     |   | 946 |   |
| Less                        Total Stock-Based                                                         |   |                                            |   |   |                                     |   |   |   |
|                             Employee Compensation Expense                         |   |                                            |   |   |                                     |   |   |   |
|                             Determined Under Fair Value Based                     |   |                                            |   |   |                                     |   |   |   |
|                             Method For All Awards                                 |   |                                            | (890   | )      |                                     |   | (1,920 | ) |
| Pro                        Forma Net Income                                                           |   | $                                               | 39,121 |   |                                     | $      | 69,370 |   |
|                                                                                                  |   |                                            |   |   |                                     |   |   |   |
| Basic                        Earnings per Share:                                                      |   |                                            |   |   |                                     |   |   |   |
|                                    As reported |   | $                                               | 0.86   |   |                                     | $      | 1.53 |   |
|                                                                                                  |   |                                            |   |   |                                     |   |   |   |
|                                    Pro forma   |   | $                                               | 0.85   |   |                                     | $      | 1.51 |   |
|                                                                                                  |   |                                            |   |   |                                     |   |   |   |
| Diluted                        Earnings per Share:                                                    |   |                                            |   |   |                                     |   |   |   |
|                                    As reported |   | $                                               | 0.86   |   |                                     | $      | 1.53 |   |
|                                                                                                  |   |                                            |   |   |                                     |   |   |   |
|                                    Pro forma   |   | $                                               | 0.85   |   |                                     | $      | 1.51 |   |

|                                                            |   | **Three                        Months Ended** |                          | **Six                        Months Ended** |   |
|-----------------------------------------------------------------|--------|-----------------------------------------------|-------------------------------|---------------------------------------------|--------|
|                                                            |   | **June                        30,**           |                          | **June                        30,**         |   |
|                                                            |   | **2006**                                      |                          | **2005**                                    |   | **2006** |   | **2005** |   |
|                                                            |   |                                          |                          |                                        |   |   |   |   |   |   |   |   |   |
| Options                        Granted                          |   |                                          | 33,000                        |                                        |   | 54,500 |   |   | 33,000 |   |   | 58,500 |   |
|                                                            |   |                                          |                          |                                        |   |   |   |   |   |   |   |   |   |
| Estimated                        Fair Value (In Millions)       |   | $                                             | 0.8                           |                                        | $      | 1.2 |   | $ | 0.8 |   | $ | 1.3 |   |
|                                                            |   |                                          |                          |                                        |   |   |   |   |   |   |   |   |   |
| Estimate                        of Stock Volatility             |   |                                          | 0.38                          |                                        |   | 0.51 |   |   | 0.38 |   |   | 0.51                        to 0.55 |   |
|                                                            |   |                                          |                          |                                        |   |   |   |   |   |   |   |   |   |
| Estimated                        Dividend Yield                 |   |                                          | 0                             | %                                           |   | 0 | % |   | 0 | % |   | 0 | % |
|                                                            |   |                                          |                          |                                        |   |   |   |   |   |   |   |   |   |
| Risk                        Free Interest Rate                  |   |                                          | 5.00                          | %                                           |   | 4.35 | % |   | 5.00 | % |   | 4.35                        to 4.42 | % |
|                                                            |   |                                          |                          |                                        |   |   |   |   |   |   |   |   |   |
| Expected                        Life Range Based on             |   |                                          |                          |                                        |   |   |   |   |   |   |   |   |   |
|                           Prior Experience (In Years) |   |                                          | 3                        to 7 |                                        |   | 3                        to 10 |   |   | 3                        to 7 |   |   | 3                        to 10 |   |

|                                                        | **Three                        Months Ended** |    | **Six                        Months Ended** |   |
|-------------------------------------------------------------|-----------------------------------------------|---------|---------------------------------------------|--------|
|                                                        | **June                        30,**           |    | **June                        30,**         |   |
|                                                        | **2006**                                      |    | **2005**                                    |   | **2006** |   | **2005** |   |
|                                                        |                                          |    |                                        |
| **Number                        of Shares:**                |                                          |    |                                        |   |   |   |   |   |   |   |   |   |
| Outstanding                        at Beginning of          |                                          |    |                                        |   |   |   |   |   |   |   |   |   |
| Period                                                      |                                          | 405,670 |                                        |   | 488,173 |   |   | 434,713 |   |   | 553,750 |   |
|                           Granted                 |                                          | 5,000   |                                        |   | 30,000 |   |   | 5,000 |   |   | 34,000 |   |
|                           Exercised               |                                          | (20,200 | )                                           |   | (1,860 | ) |   | (49,243 | ) |   | (69,437 | ) |
|                           Forfeited               |                                          | ---     |                                        |   | (48,400 | ) |   | --- |   |   | (50,400 | ) |
| Outstanding                        at End of Period         |                                          | 390,470 |                                        |   | 467,913 |   |   | 390,470 |   |   | 467,913 |   |
|                                                        |                                          |    |                                        |   |   |   |   |   |   |   |   |   |
| **Weighted                        Average Exercise Price:** |                                          |    |                                        |   |   |   |   |   |   |   |   |   |
| Outstanding                        at Beginning of          |                                          |    |                                        |   |   |   |   |   |   |   |   |   |
| Period                                                      | $                                             | 24.50   |                                        | $      | 23.10 |   | $ | 24.14 |   | $ | 22.11 |   |
|                           Granted                 |                                          | 55.83   |                                        |   | 37.48 |   |   | 55.83 |   |   | 37.16 |   |
|                           Exercised               |                                          | 9.62    |                                        |   | 22.40 |   |   | 15.21 |   |   | 15.45 |   |
|                           Forfeited               |                                          | ---     |                                        |   | 23.13 |   |   | --- |   |   | 23.71 |   |
| Outstanding                        at End of Period         | $                                             | 25.67   |                                        | $      | 23.98 |   | $ | 25.67 |   | $ | 23.98 |   |

|                                                  |   | **Outstanding Options Under                        The** |                                       |
|-------------------------------------------------------|--------|--------------------------------------------------------------------|--------------------------------------------|
|                                                  |   | **Option                        Plan At June 30, 2006**            |                                       |
|                                                  |   |                                                               |                                       |   |   | **Weighted**  |   |   |   |   |
|                                                  |   |                                                               |                                       |   |   | **Average**  |   |   | **Weighted**  |   |
|                                                  |   |                                                               |                                       |   |   | **Remaining** |   |   | **Average**  |   |
|                                                  |   |                                                               | **Number                        of**  |   |   | **Contractual**  |   |   | **Exercise**  |   |
| **Exercise                        Prices**            |   |                                                               | **Shares**                                 |   |   | **Life** |   |   | **Price** |   |
|         $3.75 |   |                                                               | 34,000                                     |   |   | 2.5                        years |   | $ | 3.75 |   |
|         $8.75 |   |                                                               | 2,500                                      |   |   | 0.5                        years |   | $ | 8.75 |   |
| $16.69                        - $19.04                |   |                                                               | 114,600                                    |   |   | 5.9                        years |   | $ | 18.34 |   |
| $21.50                        - $26.28                |   |                                                               | 90,930                                     |   |   | 7.5                        years |   | $ | 22.97 |   |
| $34.75                        - $37.83                |   |                                                               | 143,440                                    |   |   | 8.5                        years |   | $ | 37.68 |   |
| $53.90                        - $60.32                |   |                                                               | 5,000                                      |   |   | 9.7                        years |   | $ | 55.83 |   |

|                                                  |   | **Exercisable                        Options Under The** |                                 |
|-------------------------------------------------------|--------|----------------------------------------------------------|--------------------------------------|
|                                                  |   | **Option                        Plan At June 30, 2006**  |                                 |
|                                                  |   |                                                     |                                 |   |   | **Weighted** |   |
|                                                  |   |                                                     |                                 |   |   | **Average** |   |
|                                                  |   |                                                     | **Number                        of** |   |   | **Exercise** |   |
| **Exercise                        Prices**            |   |                                                     | **Shares**                           |   |   | **Price** |   |
|         $3.75 |   |                                                     | 34,000                               |   | $ | 3.75 |   |
|         $8.75 |   |                                                     | 2,500                                |   | $ | 8.75 |   |
| $16.69                        - $19.04                |   |                                                     | 75,800                               |   | $ | 17.98 |   |
| $21.50                        - $26.28                |   |                                                     | 32,820                               |   | $ | 22.90 |   |
| $34.75                        - $37.83                |   |                                                     | 27,040                               |   | $ | 37.67 |   |
| $53.90                        - $60.32                |   |                                                     | ---                                  |   |   | --- |   |

|                                                        | **Three                        Months Ended** |    | **Six                        Months Ended** |   |
|-------------------------------------------------------------|-----------------------------------------------|---------|---------------------------------------------|--------|
|                                                        | **June                        30,**           |    | **June                        30,**         |   |
|                                                        | **2006**                                      |    | **2005**                                    |   | **2006** |   | **2005** |   |
|                                                        |                                          |    |                                        |
| **Number                        of Shares:**                |                                          |    |                                        |   |   |   |   |   |   |   |   |   |
| Outstanding                        at Beginning of          |                                          |    |                                        |   |   |   |   |   |   |   |   |   |
| Period                                                      |                                          | 92,500  |                                        |   | 88,000 |   |   | 96,000 |   |   | 94,000 |   |
|                           Granted                 |                                          | 28,000  |                                        |   | 24,500 |   |   | 28,000 |   |   | 24,500 |   |
|                           Exercised               |                                          | ---     |                                        |   | --- |   |   | (3,500 | ) |   | (6,000 | ) |
|                           Forfeited               |                                          | ---     |                                        |   | --- |   |   | --- |   |   | --- |   |
| Outstanding                        at End of Period         |                                          | 120,500 |                                        |   | 112,500 |   |   | 120,500 |   |   | 112,500 |   |
|                                                        |                                          |    |                                        |   |   |   |   |   |   |   |   |   |
| **Weighted                        Average Exercise Price:** |                                          |    |                                        |   |   |   |   |   |   |   |   |   |
| Outstanding                        at Beginning of          |                                          |    |                                        |   |   |   |   |   |   |   |   |   |
| Period                                                      | $                                             | 25.11   |                                        | $      | 20.76 |   | $ | 24.93 |   | $ | 20.27 |   |
|                           Granted                 |                                          | 62.40   |                                        |   | 39.50 |   |   | 62.40 |   |   | 39.50 |   |
|                           Exercised               |                                          | ---     |                                        |   | --- |   |   | 20.10 |   |   | 13.10 |   |
|    Forfeited                                 |                                          | ---     |                                        |   | --- |   |   | --- |   |   | --- |   |
| Outstanding                        at End of Period         | $                                             | 33.78   |                                        | $      | 24.84 |   | $ | 33.78 |   | $ | 24.84 |   |

|                                                                     |   | **Outstanding                        Options Under The Old Plan**    |                                 |
|--------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------------------------------------|
|                                                                     |   | **And                        The 'Directors' Plan At June 30, 2006** |                                 |
|                                                                     |   |                                                                 |                                 |   |   | **Weighted** |   |   |   |   |
|                                                                     |   |                                                                 |                                 |   |   | **Average** |   |   | **Weighted** |   |
|                                                                     |   |                                                                 |                                 |   |   | **Remaining** |   |   | **Average** |   |
|                                                                     |   |                                                                 | **Number                        of** |   |   | **Contractual** |   |   | **Exercise** |   |
| **Exercise                        Prices**                               |   |                                                                 | **Shares**                           |   |   | **Life** |   |   | **Price** |   |
|         $6.90                    |   |                                                                 | 5,000                                |   |   | 2.8                        years |   | $ | 6.90 |   |
| $12.19                        - $17.54                                   |   |                                                                 | 14,000                               |   |   | 4.6                        years |   | $ | 16.20 |   |
| $20.10                        - $20.46                                   |   |                                                                 | 31,500                               |   |   | 6.4                        years |   | $ | 20.30 |   |
| $28.23                        - $39.50                                   |   |                                                                 | 42,000                               |   |   | 8.3                        years |   | $ | 33.87 |   |
|                                $62.40 |   |                                                                 | 28,000                               |   |   | 9.8                        years |   | $ | 62.40 |   |

|                                                  |   | **Exercisable                        Options Under The Old Plan**    |                                 |
|-------------------------------------------------------|--------|----------------------------------------------------------------------|--------------------------------------|
|                                                  |   | **And                        The 'Directors' Plan At June 30, 2006** |                                 |
|                                                  |   |                                                                 |                                 |   |   | **Weighted** |   |
|                                                  |   |                                                                 |                                 |   |   | **Average** |   |
|                                                  |   |                                                                 | **Number                        of** |   |   | **Exercise** |   |
| **Exercise                        Prices**            |   |                                                                 | **Shares**                           |   |   | **Price** |   |
|         $6.90 |   |                                                                 | 5,000                                |   | $ | 6.90 |   |
| $12.19                        - $17.54                |   |                                                                 | 14,000                               |   | $ | 16.20 |   |
| $20.10                        - $20.46                |   |                                                                 | 31,500                               |   | $ | 20.30 |   |
| $28.23                        - $39.50                |   |                                                                 | 42,000                               |   | $ | 33.87 |   |
|       $62.40            |   |                                                                 | ---                                  |   | $ | --- |   |

**NOTE              2 - EARNINGS PER SHARE**

|                                                                                                |   |                                                               |   | **Weighted**      |   |          |   |
|-----------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|-------------------|--------|---------------|--------|
|                                                                                                |   | **Income**                                                         |   | **Shares**        |   | **Per-Share** |   |
|                                                                                                |   | **(Numerator)**                                                    |   | **(Denominator)** |   | **Amount**    |   |
|                                                                                                |   | **(In                        thousands except per share amounts)** |   |
| For                        the Three Months Ended                                                   |   |                                                               |   |              |   |          |   |   |   |   |
|                           June 30, 2006:                                                  |   |                                                               |   |              |   |          |   |   |   |   |
|                              Basic earnings per common share               |   | $                                                                  | 74,817 |              |   | 46,228        |   | $ | 1.62 |   |
|                              Effect of dilutive stock options              |   |                                                               |   |              |   |          |   |   |   |   |
|                                and restricted stock bonus shares |   |                                                               | --     |              |   | 215           |   |   | (0.01 | ) |
|                              Diluted earnings per common share             |   | $                                                                  | 74,817 |              |   | 46,443        |   | $ | 1.61 |   |
|                                                                                                |   |                                                               |   |              |   |          |   |   |   |   |
| For                        the Three Months Ended                                                   |   |                                                               |   |              |   |          |   |   |   |   |
|                           June 30, 2005:                                                  |   |                                                               |   |              |   |          |   |   |   |   |
|                              Basic earnings per common share               |   | $                                                                  | 39,614 |              |   | 45,859        |   | $ | 0.86 |   |
|                              Effect of dilutive stock options              |   |                                                               | --     |              |   | 235           |   |   | -- |   |
|                              Diluted earnings per common share             |   | $                                                                  | 39,614 |              |   | 46,094        |   | $ | 0.86 |   |

|                                          |   | **2006** |   |   |   | **2005** |
|-----------------------------------------------|--------|----------|--------|--------|--------|----------|
|                                          |   |     |   |   |   |     |   |   |
| Options                                       |   |     | 29,500 |   |   |     |   | --- |
|                                          |   |     |   |   |   |     |   |   |
| Average                        Exercise Price |   | $        | 62.29  |   |   |     | $ | --- |

|                                                                                                      |   |                                                               |    | **Weighted**      |   |          |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|---------|-------------------|--------|---------------|--------|
|                                                                                                      |   | **Income**                                                         |    | **Shares**        |   | **Per-Share** |   |
|                                                                                                      |   | **(Numerator)**                                                    |    | **(Denominator)** |   | **Amount**    |   |
|                                                                                                      |   | **(In                        thousands except per share amounts)** |    |
| For                        the Six Months Ended                                                           |   |                                                               |    |              |   |          |   |   |   |   |
|                           June 30, 2006:                                                        |   |                                                               |    |              |   |          |   |   |   |   |
|                              Basic earnings per common share                     |   | $                                                                  | 149,730 |              |   | 46,214        |   | $ | 3.24 |   |
|                              Effect of dilutive stock options                    |   |                                                               |    |              |   |          |   |   |   |   |
|                                 and restricted stock bonus shares |   |                                                               | --      |              |   | 204           |   |   | (0.01 | ) |
|                              Diluted earnings per common share                   |   | $                                                                  | 149,730 |              |   | 46,418        |   | $ | 3.23 |   |
|                                                                                                      |   |                                                               |    |              |   |          |   |   |   |   |
| For                        the Six Months Ended                                                           |   |                                                               |    |              |   |          |   |   |   |   |
|                           June 30, 2005:                                                        |   |                                                               |    |              |   |          |   |   |   |   |
|                              Basic earnings per common share                     |   | $                                                                  | 70,344  |              |   | 45,829        |   | $ | 1.53 |   |
|                              Effect of dilutive stock options                    |   |                                                               | --      |              |   | 234           |   |   | -- |   |
|                              Diluted earnings per common share                   |   | $                                                                  | 70,344  |              |   | 46,063        |   | $ | 1.53 |   |

|                                          |   | **2006** |   |   |   |  **2005** |
|-----------------------------------------------|--------|----------|--------|--------|--------|----------------|
|                                          |   |     |   |   |   |           |   |   |
| Options                                       |   |     | 29,500 |   |   |           |   | --- |
|                                          |   |     |   |   |   |           |   |   |
| Average                        Exercise Price |   | $        | 62.29  |   |   |           | $ | --- |

**NOTE              3 - ACQUISITIONS**

**NOTE              4 - CREDIT AGREEMENT**

|                                                                        |   | **June                        30,**       |    | **December                        31,** |   |
|-----------------------------------------------------------------------------|--------|-------------------------------------------|---------|-----------------------------------------|--------|
|                                                                        |   | **2006**                                  |    | **2005**                                |   |
|                                                                        |   | **(In                        thousands)** |    |
| Revolving                        Credit Loan,                               |   |                                      |    |                                    |   |   |   |
|                           with Interest at June 30, 2006 and      |   |                                      |    |                                    |   |   |   |
|                           December 31, 2005 of 5.6% and 4.9%**,** |   |                                      |    |                                    |   |   |   |
|                           respectively                            |   | $                                         | 129,700 |                                    | $      | 145,000 |   |
|                                                                        |   |                                      |    |                                    |   |    |   |
| Less                        Current Portion                                 |   |                                      | --      |                                    |   | -- |   |
|                                                                        |   |                                      |    |                                    |   |   |   |
| Total                        Long-Term Debt                                 |   | $                                         | 129,700 |                                    | $      | 145,000 |   |
|                                                                        |   |                                      |    |                                    |   |   |   |

|   | **.** | the                        payment of dividends (other than stock dividends) during                        any fiscal year                        in excess of 25% of the company’s consolidated net income for the                        preceding fiscal year, |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **.** | the                        incurrence of additional debt with certain limited exceptions,                        and |
|--------|-------|----------------------------------------------------------------------------------------------------------------------|

|   | **.** | the                        creation or existence of mortgages or liens, other than those                        in the                        ordinary course of business, on any of the company’s property, except in                        favor of the company’s banks. |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **.** | consolidated                        net worth of at least $350 million, |
|--------|-------|-------------------------------------------------------------------------|

|   | **.** | a                        current ratio (as defined in the loan agreement) of not less                        than 1 to 1,                        and |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **.** | a                        leverage ratio of long-term debt to consolidated EBITDA (as                        defined in the                        credit agreement) for the most recently ended rolling four                        fiscal quarters                        of no greater than 3.25 to 1.0. |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                     |   |                                      | **June                        30,** |   |   | **December                        31,** |   |
|----------------------------------------------------------|--------|-------------------------------------------|-------------------------------------|--------|--------|-----------------------------------------|--------|
|                                                     |   |                                      | **2006**                            |   |   | **2005**                                |   |
|                                                     |   | **(In                        thousands)** |
| Separation                        Benefit Plan           |   | $                                         | 2,909                               |   | $      | 2,788                                   |   |
| Deferred                        Compensation Plan        |   |                                      | 2,676                               |   |   | 2,611                                   |   |
| Retirement                        Agreement              |   |                                      | 1,549                               |   |   | 1,676                                   |   |
| Workers’                        Compensation       |   |                                      | 20,833                              |   |   | 19,394                                  |   |
| Gas                        Balancing Liability           |   |                                      | 1,080                               |   |   | 1,080                                   |   |
| Plugging                        Liability                |   |                                      | 31,461                              |   |   | 22,015                                  |   |
|                                                     |   |                                      | 60,508                              |   |   | 49,564                                  |   |
| Less                        Current Portion              |   |                                      | 7,028                               |   |   | 7,583                                   |   |
| Total                        Other Long-Term Liabilities |   | $                                         | 53,480                              |   | $      | 41,981                                  |   |

**NOTE              5 - ASSET RETIREMENT OBLIGATIONS**

* *

|                                                                                                                                                              |   | **Six                        Months Ended** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
|                                                                                                                                                              |   | **2006**                                    |   | **2005** |   |
|                                                                                                                                                              |   | **(In                        Thousands)**   |   |
| Short-Term                        Plugging Liability:                                                                                                             |   |                                        |   |   |   |   |   |
|                              Liability at beginning of period                                                                            |   | $                                           | 366    |   | $ | 226 |   |
|                              Accretion of discount                                                                                       |   |                                        | 3      |   |   | 12 |   |
|                              Liability settled in the period                                                                             |   |                                        | (101   | ) |   | (103 | ) |
|                              Reclassification of liability from long-term                                                                |   |                                        |   |   |   |   |   |
|                                 to short-term                                                                             |   |                                        | 293    |   |   | 204 |   |
|                              Revision of estimates                                                                                       |   |                                        | 46     |   |   | -- |   |
|                                          Plugging liability at end of period |   | $                                           | 607    |   | $ | 339 |   |
|                                                                                                                                                              |   |                                        |   |   |   |   |   |
| Long-Term                        Plugging Liability:                                                                                                              |   |                                        |   |   |   |   |   |
|                              Liability at beginning of period                                                                            |   | $                                           | 21,649 |   | $ | 18,909 |   |
|                              Accretion of discount                                                                                       |   |                                        | 693    |   |   | 447 |   |
|                              Liability incurred or assumed in the period                                                                 |   |                                        | 1,867  |   |   | 338 |   |
|                              Reclassification of liability from long-term                                                                |   |                                        |   |   |   |   |   |
|                                 to short-term                                                                             |   |                                        | (293   | ) |   | (204 | ) |
|                              Revision of estimates                                                                                       |   |                                        | 6,938  |   |   | (856 | ) |
|                                          Plugging liability at end of period |   | $                                           | 30,854 |   | $ | 18,634 |   |

**NOTE              6 - NEW ACCOUNTING PRONOUNCEMENTS**

In              December 2004, the FASB issued FAS 123R “Share-Based Payment”, which requires              that compensation cost relating to share-based payments be recognized              in the              company’s financial statements. FAS 123(R) was implemented by the company in              the              first quarter of 2006. The company previously accounted for those payments              under              recognition and measurement principles of APB Opinion No. 25, “Accounting for              Stock Issued to Employees,” and related interpretations. For a more detailed              discussion of the implementation for FAS 123(R) see Note 1 - Basis              of              Preparation and Presentation. 

*Accounting              for Uncertainty in Income Taxes, an Interpretation of FASB Statement              No. 109              (FIN 48)*
*Accounting              for Income Taxes*

*How              Taxes Collected from Customers and Remitted to Governmental Authorities              Should              Be Presented in the Income Statement (That is, Gross versus Net              Presentation)*

*Disclosure              of Accounting Policies*

**NOTE              7 - GOODWILL**

**NOTE              8 - HEDGING ACTIVITY**

| **First                        Contract:**  |                                             |                                                         |   |
|---------------------------------------------|--------------------------------------------------|--------------------------------------------------------------|--------|
|                                        | Production                        volume covered | 10,000                        MMBtus/day                     |
|                                        | Period                        covered            | April                        through October of 2005         |
|                                        | Prices                                           | Floor                        of $5.50 and a ceiling of $7.19 |
|                                        |                                             |                                                         |   |   |
| **Second                        Contract:** |                                             |                                                         |
|                                        | Production                        volume covered | 10,000                        MMBtus/day                     |
|                                        | Period                        covered            | April                        through October of 2005         |
|                                        | Prices                                           | Floor                        of $5.50 and a ceiling of $7.30 |

| **Oil                        Collar Contract:** |                                             |                                                                |   |
|-------------------------------------------------|--------------------------------------------------|----------------------------------------------------------------|--------|
|                                            | Production                        volume covered | 1,000                        Barrels/day                       |
|                                            | Period                        covered            | April                        through December of 2005          |
|                                            | Prices                                           | Floor                        of $45.00 and a ceiling of $69.25 |

**NOTE              9 - INDUSTRY SEGMENT INFORMATION**

|                                                                                                              |   | **Three                        Months Ended** |    |     |   | **Six                        Months Ended** |   |
|-------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|---------|----------|--------|---------------------------------------------|--------|
|                                                                                                              |   | **June                        30,**           |    |     |   | **June                        30,**         |   |
|                                                                                                              |   | **2006**                                      |    | **2005** |   |                                        |   | **2006** |   | **2005** |   |
|                                                                                                              |   | **(In                        thousands)**     |    |
| Revenues:                                                                                                         |   |                                          |    |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                              Contract drilling                                           |   | $                                             | 185,793 |     | $      | 110,098                                     |   |   |   | $ | 353,475 |   | $ | 209,418 |   |
|                              Elimination of inter-segment                                |   |                                          |    |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                                 revenue                                   |   |                                          | 9,885   |     |   | 4,273                                       |   |   |   |   | 16,137 |   |   | 6,912 |   |
|                              Contract drilling net of                                    |   |                                          |    |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                                 inter-segment revenue                     |   |                                          | 175,908 |     |   | 105,825                                     |   |   |   |   | 337,338 |   |   | 202,506 |   |
|                                                                                                              |   |                                          |    |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                              Oil and natural gas                                         |   |                                          | 81,954  |     |   | 61,976                                      |   |   |   |   | 176,280 |   |   | 118,840 |   |
|                                                                                                              |   |                                          |    |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                              Gas gathering and processing                                |   |                                          | 25,020  |     |   | 23,038                                      |   |   |   |   | 54,258 |   |   | 43,126 |   |
|                              Elimination of inter-segment                                |   |                                          |    |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                                 revenue                                   |   |                                          | 3,300   |     |   | 1,934                                       |   |   |   |   | 7,056 |   |   | 3,792 |   |
|                              Gas gathering and processing                                |   |                                          |    |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                                 net of inter-segment revenue              |   |                                          | 21,720  |     |   | 21,104                                      |   |   |   |   | 47,202 |   |   | 39,334 |   |
|                                                                                                              |   |                                          |    |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                              Other (1)                                                   |   |                                          | 767     |     |   | 962                                         |   |   |   |   | 2,337 |   |   | 767 |   |
|                                    Total revenues          |   | $                                             | 280,349 |     | $      | 189,867                                     |   |   |   | $ | 563,157 |   | $ | 361,447 |   |
|                                                                                                              |   |                                          |    |     |   |                                        |   |   |   |   |   |   |   |   |   |
| Operating                        Income (2):                                                                      |   |                                          |    |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                              Contract drilling                                           |   | $                                             | 83,946  |     | $      | 31,146                                      |   |   |   | $ | 153,226 |   | $ | 54,786 |   |
|                              Oil and natural gas                                         |   |                                          | 37,925  |     |   | 34,541                                      |   |   |   |   | 89,763 |   |   | 64,560 |   |
|                              Gas gathering and processing                                |   |                                          | 1,771   |     |   | 990                                         |   |   |   |   | 3,302 |   |   | 1,748 |   |
|                                    Total operating income  |   |                                          | 123,642 |     |   | 66,677                                      |   |   |   |   | 246,291 |   |   | 121,094 |   |
|                                                                                                              |   |                                          |    |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                              General and administrative                                  |   |                                          |    |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                                 expense                                   |   |                                          | (4,402  | )        |   | (3,160                                      | )      |   |   |   | (8,368 | ) |   | (7,131 | ) |
|                              Interest expense                                            |   |                                          | (1,017  | )        |   | (585                                        | )      |   |   |   | (2,007 | ) |   | (1,272 | ) |
|                              Other income - net                                          |   |                                          | 767     |     |   | 962                                         |   |   |   |   | 2,337 |   |   | 767 |   |
|                                    Income before income    |   |                                          |    |     |   |                                        |   |   |   |   |   |   |   |   |   |
|                                       taxes |   | $                                             | 118,990 |     | $      | 63,894                                      |   |   |   | $ | 238,253 |   | $ | 113,458 |   |

**REPORT              OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

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

**FINANCIAL              CONDITION**

***Summary***

| •                        contract drilling carried out by our subsidiaries Unit Drilling                        Company,                        Unit Texas Drilling,  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| L.L.C.and                        Service Drilling Southwest, L.L.C.;                                                                                                             |
| •                        oil and natural gas exploration, carried out by our subsidiary                        Unit                        Petroleum Company; and          |
| •                        natural gas buying, selling, gathering and processing carried                        out by our                        subsidiary Superior        |
| Pipeline                        Company, L.L.C.                                                                                                                                  |

| •                        the prices we receive for our natural gas production and,                        to a lesser                        extent, the prices we |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                            receive for our oil production;                                                                                                |
| •                        the quantity of natural gas and oil we produce;                                                                                           |
| •                        the demand for and the dayrates we receive for our drilling                        rigs; and                                              |
| •                        the margins we obtain from our natural gas gathering and                        processing                        contracts.              |

|                                                                       |   |                                                                   | **June                        30,** |   |    | **June                        30,** |   |   | **Percent** |    |
|----------------------------------------------------------------------------|--------|------------------------------------------------------------------------|-------------------------------------|--------|---------|-------------------------------------|--------|--------|-------------|---------|
|                                                                       |   |                                                                   | **2006**                            |   |    | **2005**                            |   |   | **Change**  |    |
|                                                                       |   | **(In                        thousands except percent amounts)**  |
| Working                        Capital                                     |   | $                                                                      | 75,659                              |   | $       | 30,971                              |   |   | 144         |  % |
| Long-Term                        Debt                                      |   | $                                                                      | 129,700                             |   | $       | 94,900                              |   |   | 37          | %       |
| Shareholders’                        Equity                          |   | $                                                                      | 992,101                             |   | $       | 680,710                             |   |   | 46          | %       |
| Ratio                      of Long-Term Debt                      to Total |   |                                                                   |                                |   |    |                                |   |   |        |    |
|                           Capitalization                         |   |                                                                   | 12                                  | %      |    | 12                                  | %      |   | ---         | %       |
| Net                        Income                                          |   | $                                                                      | 149,730                             |   | $       | 70,344                              |   |   | 113         | %       |
| Net                        Cash Provided by Operating Activities           |   | $                                                                      | 223,485                             |   | $       | 101,367                             |   |   | 120         | %       |
| Net                        Cash Used in Investing Activities               |   | $                                                                      | (210,407                            | )      | $       | (109,961                            | )      |   | 91          | %       |
| Net                        Cash Provided by (Used in) Financing            |   |                                                                   |                                |   |    |                                |   |   |        |    |
|    Activities                                               |   | $                                                                      | (13,224                             | )      | $  | 9,545                               |   |   | (239   | )%      |

|                                                                  |   | **June                        30,** |    | **June                        30,** |   |    | **Percent** |   |
|----------------------------------------------------------------------------|--------|-------------------------------------|---------|-------------------------------------|--------|---------|-------------|--------|
|                                                                       |   | **2006**                            |    | **2005**                            |   |    | **Change**  |   |
| Oil                        Production (MBbls)                              |   |                                | 685     |                                |   | 537     |        |   | 28 | % |
| Natural                        Gas Production (MMcf)                       |   |                                | 21,150  |                                |   | 15,514  |        |   | 36 | % |
| Average                        Oil Price Received                          |   | $                                   | 55.88   |                                | $      | 45.15   |        |   | 24 | % |
| Average                        Oil Price Received Excluding Hedges         |   | $                                   | 55.88   |                                | $      | 45.15   |        |   | 24 | % |
| Average                        Natural Gas Price Received                  |   | $                                   | 6.41    |                                | $      | 5.98    |        |   | 7 | % |
| Average                        Natural Gas Price Received Excluding Hedges |   | $                                   | 6.41    |                                | $      | 5.98    |        |   | 7 | % |
| Average                        Number of Our Drilling Rigs in Use During   |   |                                |    |                                |   |    |        |   |   |   |
| the                        Period                                          |   |                                | 109.5   |                                |   | 99.8    |        |   | 10 | % |
| Total                        Number of Drilling Rigs Available at the End  |   |                                |    |                                |   |    |        |   |   |   |
| of                        the Period                                       |   |                                | 115     |                                |   | 103     |        |   | 12 | % |
| Average                        Dayrate                                     |   | $                                   | 17,870  |                                | $      | 10,782  |        |   | 66 | % |
| Gas                        Gathered—MMBtu/day                        |   |                                | 229,448 |                                |   | 114,472 |        |   | 100 | % |
| Gas                        Processed—MMBtu/day                       |   |                                | 23,212  |                                |   | 31,005  |        |   | (25 | )% |
| Number                        of Active Natural Gas Gathering Systems      |   |                                | 37      |                                |   | 35      |        |   | 6 | % |

***Our              Bank Credit Agreement.***

| .                           the payment of dividends (other than stock dividends) during                          any fiscal                          year in excess of 25% of our          |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              consolidated                          net income for the preceding fiscal year,                                                                      |
| .                           the                          incurrence of additional debt with certain limited exceptions,                          and                                        |
| .  the                          creation or existence of mortgages or liens, other than                          those in the                          ordinary course of business, on |
| .                           any                          of our property, except in favor of our                          banks.                                                            |

| .                             consolidated                            net worth of at least $350 million,                                                                                      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| .                             a                            current ratio (as defined in the loan agreement) of not                            less than 1 to 1,                            and |
| .  a                            leverage ratio of long-term debt to consolidated EBITDA                            (as defined in the                            loan agreement) for the  |
| most                              recently ended rolling four fiscal quarters of no greater                              than 3.25 to                              1.0.                             |

***Contractual Commitments***

|                                                        |   |   |   | **Payments                        Due by Period** |    |
|-------------------------------------------------------------|--------|--------|--------|---------------------------------------------------|---------|
|                                                        |   |   |   |                                              |    | **Less** |   |   |   |   |   |   |   |
| **Contractual**                                             |   |   |   |                                              |    | **Than                        1** |   | **2-3** |   | **4-5** |   | **After                        5** |   |
| **Obligations**                                             |   |   |   | **Total**                                         |    | **Year** |   | **Years** |   | **Years** |   | **Years** |   |
|                                                        |   |   |   | **(In                        thousands)**         |    |
| Bank                        Debt (1)                        |   |   |   | $                                                 | 139,890 |   | $ | 6,424 |   | $ | 133,466 |   | $ | --- |   | $ | --- |   |
| Retirement                        Agreements (2)            |   |   |   |                                              | 1,549   |   |   | 600 |   |   | 949 |   |   | --- |   |   | --- |   |
| Operating                        Leases (3)                 |   |   |   |                                              | 3,046   |   |   | 1,101 |   |   | 1,503 |   |   | 442 |   |   | --- |   |
| Drill                        Pipe, Drilling Rigs and        |   |   |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Equipment Purchases (4) |   |   |   |                                              | 24,318  |   |   | 24,318 |   |   | --- |   |   | --- |   |   | --- |   |
| Total                        Contractual                    |   |   |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Obligations             |   |   |   | $                                                 | 168,803 |   | $ | 32,443 |   | $ | 135,918 |   | $ | 442 |   | $ | --- |   |

|   | (1) | See                        the previous discussion in Management Discussion and Analysis                        regarding                        bank debt. This obligation is presented in accordance with                        the terms of                        the credit agreement and includes interest calculated at                        the June 30, 2006                        interest rate of 5.6% including the effect of the interest                        rate swap                        related to $50.0 million of the outstanding                        debt. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | In                        the second quarter of 2001, we recorded $1.3 million in additional                        employee benefit expense for the present value of a separation                        agreement                        made in connection with the retirement of King Kirchner from                        his position                        as Chief Executive Officer. The liability associated with                        this expense,                        including accrued interest, will be paid in monthly payments                        of $25,000                        starting in July 2003 and continuing through June 2009. In                        the first                        quarter of 2004, we acquired a liability for the present                        value of a                        separation agreement between PetroCorp Incorporated and one                        of its                        previous officers. The liability associated with this agreement                        will be                        paid in quarterly payments of $12,500 through December 31,                        2007. In the                        first quarter of 2005, we recorded $0.7 million in additional                        employee                        benefit expense for the present value of a separation agreement                        made in                        connection with the retirement of John Nikkel from his position                        as Chief                        Executive Officer. The liability associated with this expense,                        including                        accrued interest, will be paid in monthly payments of $31,250                        starting in                        November 2006 and continuing through October 2008. These                        liabilities as                        presented above are undiscounted. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | We                        lease office space in Tulsa and Woodward, Oklahoma; Houston,                        Midland, and                        Weatherford, Texas; Pinedale, Wyoming and Denver, Colorado                        under the terms                        of operating leases expiring through January 31, 2010. Additionally,                        we                        have several equipment leases and lease space on short-term                        commitments to                        stack excess rig equipment and production inventory. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Due                        to the potential for limited availability of new drill pipe                        within the                        industry, we have committed to purchase approximately $14.4                        million of                        drill pipe and drill collars and we have also committed to                        purchase $4.9                        million of additional rig components. In April 2006, we committed                        $6.2                        million for the purchase of major components to construct                        two drilling                        rigs with $1.2 million or 20% paid at the time of commitment.                        An                        additional 30% will be paid at the anticipated inspection                        date in August                        with the remainder due at delivery late in the third quarter.                        The first of                        these new drilling rigs should be placed into service in                        the first part on                        November 2006 and the second drilling rig is expected to                        be placed into                        service in the first part of December 2006.  |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                |   |   |   |   |   |          |    | **Amount                        of Commitment Expiration** |   |
|-----------------------------------------------------|--------|--------|--------|--------|--------|---------------|---------|------------------------------------------------------------|--------|
|                                                |   |   |   |   |   |          |    | **Per                        Period**                      |   |
|                                                |   |   |   |   |   | **Total**     |    |                                                       |   |   |   |   |   |   |   |
|                                                |   |   |   |   |   | **Amount**    |    |                                                       |   |   |   |   |   |   |   |
|                                                |   |   |   |   |   | **Committed** |    | **Less**                                                   |   |   |   |   |   |   |   |
| **Other**                                           |   |   |   |   |   | **Or**        |    | **Than                        1**                          |   | **2-3** |   | **4-5** |   | **After                        5** |   |
| **Commitments**                                     |   |   |   |   |   | **Accrued**   |    | **Year**                                                   |   | **Years** |   | **Years** |   | **Years** |   |
|                                                |   |   |   |   |   |          |    | **(In                        thousands)**                  |   |
| Deferred                        Compensation        |   |   |   |   |   |          |    |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Agreement (1)   |   |   |   |   |   | $             | 2,676   |                                                       |   | Unknown |   |   | Unknown |   |   | Unknown |   |   | Unknown |   |
| Separation                        Benefit           |   |   |   |   |   |          |    |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Agreement (2)   |   |   |   |   |   | $             | 2,909   |                                                       | $      | 386 |   |   | Unknown |   |   | Unknown |   |   | Unknown |   |
| Plugging                        Liability (3)       |   |   |   |   |   | $             | 31,461  |                                                       | $      | 607 |   | $ | 2,225 |   | $ | 2,029 |   | $ | 26,600 |   |
| Gas                        Balancing                |   |   |   |   |   |          |    |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Liability (4)   |   |   |   |   |   | $             | 1,080   |                                                       |   | Unknown |   |   | Unknown |   |   | Unknown |   |   | Unknown |   |
| Repurchase                                          |   |   |   |   |   |          |    |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Obligations (5) |   |   |   |   |   |          | Unknown |                                                       |   | Unknown |   |   | Unknown |   |   | Unknown |   |   | Unknown |   |
| Workers’                        Compensation  |   |   |   |   |   |          |    |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Liability (6)   |   |   |   |   |   | $             | 20,833  |                                                       | $      | 5,435 |   | $ | 3,958 |   | $ | 1,353 |   | $ | 10,087 |   |

|   | (1) | We                        provide a salary deferral plan which allows participants                        to defer the                        recognition of salary for income tax purposes until actual                        distribution of                        benefits, which occurs at either termination of employment,                        death or                        certain defined unforeseeable emergency hardships. We recognize                        payroll                        expense and record a liability, included in other long-term                        liabilities in                        our consolidated condensed balance sheet, at the time of                        deferral. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Effective                        January 1, 1997, we adopted a separation benefit plan (“Separation Plan”).                        The Separation Plan allows eligible employees whose employment                        with us is                        involuntarily terminated or, in the case of an employee who                        has completed                        20 years of service, voluntarily or involuntarily terminated,                        to receive                        benefits equivalent to 4 weeks salary for every whole year                        of service                        completed with the company up to a maximum of 104 weeks.                        To receive                        payments the recipient must waive any claims against us in                        exchange for                        receiving the separation benefits. On October 28, 1997, we                        adopted a                        Separation Benefit Plan for Senior Management (“Senior Plan”). The Senior                        Plan provides certain officers and key executives of the                        company with                        benefits generally equivalent to the Separation Plan. The                        Compensation                        Committee of the Board of Directors has absolute discretion                        in the                        selection of the individuals covered in this plan. On May                        5, 2004 we also                        adopted the Special Separation Benefit Plan (“Special Plan”). This plan is                        identical to the Separation Benefit Plan with the exception                        that the                        benefits under the plan vest on the earliest of a participant’s reaching                        the age of 65 or serving 20 years with the company. In January                        2006, the                        compensation committee elected to allow 33 employees to participate                        in the                        plan. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | On                          January 1, 2003 we adopted Financial Accounting Standards                          No. 143,                          “Accounting for Asset Retirement Obligations”* *(FAS                          143). FAS 143 establishes an accounting standard requiring the                          recording of the fair value of liabilities associated with                          the retirement                          of long-lived assets (mainly plugging and abandonment costs                          for our                          depleted wells) in the period in which the liability is                          incurred (at the                          time the wells are drilled or                          acquired). |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4)  | We                        have recorded a liability for certain properties where we                        believe there                        are insufficient oil and natural gas reserves available to                        allow the                        under-produced owners to recover their under-production from                        future                        production volumes. |
|--------|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | We                        formed The Unit 1984 Oil and Gas Limited Partnership and                        the 1986 Energy                        Income Limited Partnership along with private limited partnerships                        (the                        “Partnerships”) with certain qualified employees, officers and directors                        from 1984 through 2006, with a subsidiary of ours serving                        as general |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | partner. The Partnerships were formed for                      the purpose of                      conducting oil and natural gas acquisition, drilling and development                      operations and serving as co-general partner with us in any                      additional                      limited partnerships formed during that year. The Partnerships                      participated on a proportionate basis with us in most drilling                      operations                      and most producing property acquisitions commenced by us for                      our own                      account during the period from the formation of the Partnership                      through                      December 31 of that year. These partnership agreements require,                      on the                      election of a limited partner, that we repurchase the limited                      partner’s                      interest at amounts to be determined by appraisal in the future.                      Such                      repurchases in any one year are limited to 20% of the units                      outstanding.                      We made repurchases of $7,000, $4,000 and $14,000 in 2006,                      2005 and 2004,                      respectively. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | We                        have recorded a liability for future estimated payments related                        to                        workers’ compensation claims primarily associated with our contract                        drilling segment. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Hedging***
**.              **

| **First                        Contract:**  |                                             |                                                         |   |
|---------------------------------------------|--------------------------------------------------|--------------------------------------------------------------|--------|
|                                        | Production                        volume covered | 10,000                        MMBtus/day                     |
|                                        | Period                        covered            | April                        through October of 2005         |
|                                        | Prices                                           | Floor                        of $5.50 and a ceiling of $7.19 |
|                                        |                                             |                                                         |   |   |
| **Second                        Contract:** |                                             |                                                         |
|                                        | Production                        volume covered | 10,000                        MMBtus/day                     |
|                                        | Period                        covered            | April                        through October of 2005         |
|                                        | Prices                                           | Floor                        of $5.50 and a ceiling of $7.30 |

| **Oil                          Collar Contract:** |                                               |                                                                  |   |
|---------------------------------------------------|----------------------------------------------------|------------------------------------------------------------------|--------|
|                                              | Production                          volume covered | 1,000                          Barrels/day                       |
|                                              | Period                          covered            | April                          through December of 2005          |
|                                              | Prices                                             | Floor                          of $45.00 and a ceiling of $69.25 |

***Self-Insurance              or Retentions***
*.              *

***Impact of Prices for Our Oil and Natural Gas***
**.              **

***Oil and Natural Gas Acquisitions and Capital Expenditures***
***.***

***Contract Drilling***
***.***

***Drilling Acquisitions and Capital Expenditures.***

***Acquisition                of Natural Gas Gathering and Processing Company***
***.***

***Oil and Natural Gas Limited Partnerships and Other Entity              Relationships***
***.***

**NEW ACCOUNTING PRONOUNCEMENTS**

*Share-Based              Payment*

*Accounting              for Uncertainty in Income Taxes, an Interpretation of FASB Statement              No. 109              (FIN 48)*
*Accounting              for Income Taxes*

*How                Taxes Collected from Customers and Remitted to Governmental Authorities                Should                Be Presented in the Income Statement (That is, Gross versus Net                Presentation)*

*Disclosure              of Accounting Policies*

**RESULTS              OF OPERATIONS**

**Quarter              Ended June 30, 2006 versus Quarter Ended June 30, 2005**

|                                                                                             |   |   |   | **Quarter                        Ended** |        | **Quarter                        Ended** |   |        |   |
|--------------------------------------------------------------------------------------------------|--------|--------|--------|------------------------------------------|-------------|------------------------------------------|--------|-------------|--------|
|                                                                                             |   |   |   | **June                        30,**      |        | **June                        30,**      |   | **Percent** |   |
|                                                                                             |   |   |   | **2006**                                 |        | **2005**                                 |   | **Change**  |   |
| Total                        Revenue                                                             |   |   |   | $                                        | 280,349,000 |                                     | $      | 189,867,000 |   | 48 | % |
| Net                        Income                                                                |   |   |   | $                                        | 74,817,000  |                                     | $      | 39,614,000  |   | 89 | % |
| **Drilling:**                                                                                    |   |   |   |                                     |        |                                     |   |        |   |   |   |
|                              Revenue                                    |   |   |   | $                                        | 175,908,000 |                                     | $      | 105,825,000 |   | 66 | % |
|                              Operating costs                            |   |   |   | $                                        | 79,117,000  |                                     | $      | 64,298,000  |   | 23 | % |
|                              Percentage of revenue from                 |   |   |   |                                     |        |                                     |   |        |   |   |   |
|                                 daywork contracts        |   |   |   |                                     | 100         | %                                        |   | 100         | %      | --- |   |
|                              Average number of rigs in use              |   |   |   |                                     | 110.3       |                                     |   | 100.3       |   | 10 | % |
|                              Average dayrate on daywork                 |   |   |   |                                     |        |                                     |   |        |   |   |   |
|                                 contracts                |   |   |   | $                                        | 18,588      |                                     | $      | 11,298      |   | 65 | % |
|                              Depreciation                               |   |   |   | $                                        | 12,845,000  |                                     | $      | 10,381,000  |   | 24 | % |
| **Oil                        and Natural Gas:**                                                  |   |   |   |                                     |        |                                     |   |        |   |   |   |
|                              Revenue                                    |   |   |   | $                                        | 81,954,000  |                                     | $      | 61,976,000  |   | 32 | % |
|                              Operating costs                            |   |   |   | $                                        | 18,988,000  |                                     | $      | 12,590,000  |   | 51 | % |
|                              Average natural gas price (Mcf)            |   |   |   | $                                        | 5.76        |                                     | $      | 6.27        |   | (8 | )% |
|                              Average oil price (Bbl)                    |   |   |   | $                                        | 57.11       |                                     | $      | 45.79       |   | 25 | % |
|                              Natural gas production (Mcf)               |   |   |   |                                     | 10,438,000  |                                     |   | 7,861,000   |   | 33 | % |
|                              Oil production (Bbl)                       |   |   |   |                                     | 359,000     |                                     |   | 257,000     |   | 40 | % |
|                              Depreciation, depletion and                |   |   |   |                                     |        |                                     |   |        |   |   |   |
|                                 amortization rate (Mcfe) |   |   |   | $                                        | 1.98        |                                     | $      | 1.57        |   | 26 | % |
|                              Depreciation, depletion and                |   |   |   |                                     |        |                                     |   |        |   |   |  |
|                                 amortization             |   |   |   | $                                        | 25,041,000  |                                     | $      | 14,845,000  |   | 69 | % |
| **Gas                        Gathering and Processing:**                                         |   |   |   |                                     |        |                                     |   |        |   |   |   |
|                              Revenue                                    |   |   |   | $                                        | 21,720,000  |                                     | $      | 21,104,000  |   | 3 | % |
|                              Operating costs                            |   |   |   | $                                        | 18,717,000  |                                     | $      | 19,387,000  |   | (3 | )% |
|                              Depreciation                               |   |   |   | $                                        | 1,232,000   |                                     | $      | 727,000     |   | 69 | % |
|                              Gas gathered - MMbtu/day                   |   |   |   |                                     | 243,399     |                                     |   | 121,611     |   | 100 | % |
|                              Gas processed - MMbtu/day                  |   |   |   |                                     | 22,812      |                                     |   | 31,670      |   | (28 | )% |
|                                                                                             |   |   |   |                                     |        |                                     |   |        |   |   |  |
| General                        and Administrative Expense                                        |   |   |   | $                                        | 4,402,000   |                                     | $      | 3,160,000   |   | 39 | % |
| Interest                        Expense                                                          |   |   |   | $                                        | 1,017,000   |                                     | $      | 585,000     |   | 74 | % |
| Income                        Tax Expense                                                        |   |   |   | $                                        | 44,173,000  |                                     | $      | 24,280,000  |   | 82 | % |
| Average                        Interest Rate                                                     |   |   |   |                                     | 5.78        | %                                        |   | 4.64        | %      | 25 | % |
| Average                        Long-Term Debt Outstanding                                        |   |   |   | $                                        | 118,220,000 |                                     | $      | 84,267,000  |   | 40 | % |

**Six              Months Ended June 30, 2006 versus Six Months Ended June 30,              2005**

|                                                                                             |   |   |   | **Six                        Months Ended** |        | **Six                        Months Ended** |   |        |   |
|--------------------------------------------------------------------------------------------------|--------|--------|--------|---------------------------------------------|-------------|---------------------------------------------|--------|-------------|--------|
|                                                                                             |   |   |   | **June                        30,**         |        | **June                        30,**         |   | **Percent** |   |
|                                                                                             |   |   |   | **2006**                                    |        | **2005**                                    |   | **Change**  |   |
| Total                        Revenue                                                             |   |   |   | $                                           | 563,157,000 |                                        | $      | 361,447,000 |   | 56 | % |
| Net                        Income                                                                |   |   |   | $                                           | 149,730,000 |                                        | $      | 70,344,000  |   | 113 | % |
| **Drilling:**                                                                                    |   |   |   |                                        |        |                                        |   |        |   |   |   |
|                              Revenue                                    |   |   |   | $                                           | 337,338,000 |                                        | $      | 202,506,000 |   | 67 | % |
|                              Operating costs                            |   |   |   | $                                           | 159,426,000 |                                        | $      | 127,729,000 |   | 25 | % |
|                              Percentage of revenue from                 |   |   |   |                                        |        |                                        |   |        |   |   |   |
|                                 daywork contracts        |   |   |   |                                        | 100         | %                                           |   | 100         | %      | --- |   |
|                              Average number of rigs in use              |   |   |   |                                        | 109.5       |                                        |   | 99.8        |   | 10 | % |
|                              Average dayrate on daywork                 |   |   |   |                                        |        |                                        |   |        |   |   |   |
|                                 contracts                |   |   |   | $                                           | 17,870      |                                        | $      | 10,782      |   | 66 | % |
|                              Depreciation                               |   |   |   | $                                           | 24,686,000  |                                        | $      | 19,991,000  |   | 23 | % |
| **Oil                        and Natural Gas:**                                                  |   |   |   |                                        |        |                                        |   |        |   |   |   |
|                              Revenue                                    |   |   |   | $                                           | 176,280,000 |                                        | $      | 118,840,000 |   | 48 | % |
|                              Operating costs                            |   |   |   | $                                           | 37,294,000  |                                        | $      | 25,003,000  |   | 49 | % |
|                              Average natural gas price (Mcf)            |   |   |   | $                                           | 6.41        |                                        | $      | 5.98        |   | 7 | % |
|                              Average oil price (Bbl)                    |   |   |   | $                                           | 55.88       |                                        | $      | 45.15       |   | 24 | % |
|                              Natural gas production (Mcf)               |   |   |   |                                        | 21,150,000  |                                        |   | 15,514,000  |   | 36 | % |
|                              Oil production (Bbl)                       |   |   |   |                                        | 685,000     |                                        |   | 537,000     |   | 28 | % |
|                              Depreciation, depletion and                |   |   |   |                                        |        |                                        |   |        |   |   |   |
|                                 amortization rate (Mcfe) |   |   |   | $                                           | 1.94        |                                        | $      | 1.55        |   | 24 | % |
|                              Depreciation, depletion and                |   |   |   |                                        |        |                                        |   |        |   |   |   |
|                                 amortization             |   |   |   | $                                           | 49,223,000  |                                        | $      | 29,277,000  |   | 68 | % |
| **Gas                        Gathering and Processing:**                                         |   |   |   |                                        |        |                                        |   |        |   |   |   |
|                              Revenue                                    |   |   |   | $                                           | 47,202,000  |                                        | $      | 39,334,000  |   | 20 | % |
|                              Operating costs                            |   |   |   | $                                           | 41,518,000  |                                        | $      | 36,221,000  |   | 15 | % |
|                              Depreciation                               |   |   |   | $                                           | 2,382,000   |                                        | $      | 1,365,000   |   | 75 | % |
|                              Gas gathered - MMbtu/day                   |   |   |   |                                        | 229,448     |                                        |   | 114,472     |   | 100 | % |
|                              Gas processed - MMbtu/day                  |   |   |   |                                        | 23,212      |                                        |   | 31,005      |   | (25 | )% |
|                                                                                             |   |   |   |                                        |        |                                        |   |        |   |   |   |
| General                        and Administrative Expense                                        |   |   |   | $                                           | 8,368,000   |                                        | $      | 7,131,000   |   | 17 | % |
| Interest                        Expense                                                          |   |   |   | $                                           | 2,007,000   |                                        | $      | 1,272,000   |   | 58 | % |
| Income                        Tax Expense                                                        |   |   |   | $                                           | 88,523,000  |                                        | $      | 43,114,000  |   | 105 | % |
| Average                        Interest Rate                                                     |   |   |   |                                        | 5.60        | %                                           |   | 4.21        | %      | 33 | % |
| Average                        Long-Term Debt Outstanding                                        |   |   |   | $                                           | 115,922,000 |                                        | $      | 90,537,000  |   | 28 | % |

**SAFE              HARBOR STATEMENT**

|   | . |   | the                        amount and nature of our future capital expenditures; |
|--------|---|--------|----------------------------------------------------------------------------------|

|   | . |   | wells                        to be drilled or reworked; |
|--------|---|--------|---------------------------------------------------------|

|   | . |   | prices                        for oil and natural gas; |
|--------|---|--------|--------------------------------------------------------|

|   | . |   | demand                        for oil and natural gas; |
|--------|---|--------|--------------------------------------------------------|

|   | . |   | exploitation                        and exploration prospects; |
|--------|---|--------|----------------------------------------------------------------|

|   | . |   | estimates                        of proved oil and natural gas reserves; |
|--------|---|--------|--------------------------------------------------------------------------|

|   | . |   | oil                        and natural gas reserve potential; |
|--------|---|--------|---------------------------------------------------------------|

|   | . |   | development                        and infill drilling potential; |
|--------|---|--------|-------------------------------------------------------------------|

|   | . |   | drilling                        prospects; |
|--------|---|--------|--------------------------------------------|

|   | . |   | expansion                        and other development trends of the oil and natural gas industry; |
|--------|---|--------|----------------------------------------------------------------------------------------------------|

|   | . |   | business                        strategy; |
|--------|---|--------|-------------------------------------------|

|   | . |   | production                        of oil and natural gas reserves; |
|--------|---|--------|--------------------------------------------------------------------|

|   | . |   | growth                        potential for our gathering and processing operations; |
|--------|---|--------|--------------------------------------------------------------------------------------|

|   | . |   | gathering                        systems and processing plants to be constructed or acquired; |
|--------|---|--------|-----------------------------------------------------------------------------------------------|

|   | . |   | volumes                        and prices for natural gas gathered and processed; |
|--------|---|--------|-----------------------------------------------------------------------------------|

|   | . |   | expansion                        and growth of our business and operations; and |
|--------|---|--------|---------------------------------------------------------------------------------|

|   | . |   | demand                        for our drilling rigs and drilling rig rates. |
|--------|---|--------|-----------------------------------------------------------------------------|

|   | . |   | the                        risk factors discussed in this report and in the documents                        we incorporate                        by reference; |
|--------|---|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | . |   | general                        economic, market or business conditions; |
|--------|---|--------|-------------------------------------------------------------------------|

|   | . |   | the                        nature or lack of business opportunities that we pursue; |
|--------|---|--------|-------------------------------------------------------------------------------------|

|   | . |   | demand                        for our land drilling services; |
|--------|---|--------|---------------------------------------------------------------|

|   | . |   | changes                        in laws or regulations; and |
|--------|---|--------|------------------------------------------------------------|

|   | . |   | other                        factors, most of which are beyond our control. |
|--------|---|--------|-----------------------------------------------------------------------------|

**Item              3. Quantitative and Qualitative Disclosure about Market              Risk**

***Commodity              Price Risk.***

***Interest              Rate Risk.***

**Item              4. Controls and Procedures**

***Evaluation              of Disclosure Controls and Procedures.***

***Changes              in Internal Controls.***

**PART              II. OTHER INFORMATION**

**Item              1. Legal Proceedings**

**Item              1A.**
**Risk              Factors**

** **

**Item              2. Unregistered Sales of Equity Securities and Use of              Proceeds**

**Item              3. Defaults Upon Senior Securities**

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

| I.                                            | Election                        of Director Nominees John G. Nikkel, Robert J. Sullivan,                        Jr. and Gary R.                        Christopher for a three-year terrn expiring in                        2009. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                           |   | **Numbers                        of** |   | **Against                        or** |
|------------------------------------------------|--------|---------------------------------------|--------|---------------------------------------|
| **Nominee**                                    |   | **Votes                        For**  |   | **Withheld**                          |
| John                        G. Nikkel          |   | 36,095,085                            |   | 2,960,578                             |
| Robert                        J. Sullivan, Jr. |   | 37,014,730                            |   | 2,050,933                             |
| Gary                        R. Christopher     |   | 37,012,143                            |   | 2,053,520                             |

|   | II. | Ratification                        of the appointment of PricewaterhouseCoopers LLP as our independent                        registered public accounting firm for the fiscal year                        2006. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| For                        -     | 38,051,944 |
|----------------------------------|------------|
| Against                        - | 248,853    |
| Abstain                        - | 764,866    |

|   | III. | Ratification                        of an amendment to the company's amended and restated certificate                        of                        incorporation to increase the shares of the company's authorized                        common                        stock. |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| For                        -     | 28,020,271 |
|----------------------------------|------------|
| Against                        - | 10,275,499 |
| Abstain                        - | 768,092    |

|   | IV. | Ratification                        of an amendment to the company's amended and restated certificate                        of                        incorporation to increase the shares of the company's authorized                        preferred                        stock. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| For                        -     | 4,872,001  |
|----------------------------------|------------|
| Against                        - | 26,160,495 |
| Abstain                        - | 771,049    |

|   | V. | Approve                        the adoption of the Unit Corporation Stock and Incentive                        Compensation                        Plan. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| For                        -     | 28,643,782 |
|----------------------------------|------------|
| Against                        - | 2,354,342  |
| Abstain                        - | 803,620    |

**Item              5. Other Information**

**Item              6. Exhibits**

|   | 15     | Letter                        re: Unaudited Interim Financial Information.                                                                       |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                             |
|   | 31.1   | Certification                        of Chief Executive Officer under Rule 13a - 14(a) of the                                                    |
|   |   | Exchange                        Act.                                                                                                             |
|   |   |                                                                                                                                             |
|   | 31.2   | Certification                        of Chief Financial Officer under Rule 13a - 14(a) of                        the                             |
|   |   | Exchange                        Act.                                                                                                             |
|   |   |                                                                                                                                             |
|   | 32     | Certification                        of Chief Executive Officer and Chief Financial Officer                        under                         |
|   |   | Rule                        13a - 14(a) of the Exchange Act and 18 U.S.C. Section 1350,                        as                        adopted |
|   |   | under                        Section 906 of the Sarbanes-Oxley Act of                        2002.                                               |

**SIGNATURES**

|                                        |                                                        | Unit                        Corporation  |
|---------------------------------------------|-------------------------------------------------------------|-----------------------------------------------|
| Date:                        August 8, 2006 | By:/s/                        Larry D. Pinkston             |
|                                        | LARRY                        D. PINKSTON                    |
|                                        | Chief                        Executive Officer and Director |
|                                        |                                                        |
| Date:                        August 8, 2006 | By:/s/                        David T. Merrill              |
|                                        | DAVID                        T. MERRILL                     |
|                                        | Chief                        Financial Officer and          |
|                                        | Treasurer                                                   |