**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 September 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                       |   |
|   |                            | September                        30, 2006 and December 31, 2005                    | 2      |
|   |                            |                                                                               |   |
|   |                            | Consolidated                        Condensed Statements of Income                 |   |
|   |                            | Three                        and Nine Months Ended September 30, 2006 and 2005     | 4      |
|   |                            |                                                                               |   |
|   |                            | Consolidated                        Condensed Statements of Cash Flows             |   |
|   |                            | Nine                        Months Ended September 30, 2006 and 2005               | 5      |
|   |                            |                                                                               |   |
|   |                            | Consolidated                        Condensed Statements of Comprehensive Income   |   |
|   |                            | Three                        and Nine Months Ended September 30, 2006 and 2005     | 6      |
|   |                            |                                                                               |   |
|   |                            | Notes                        to Consolidated Condensed Financial Statements        | 7      |
|   |                            |                                                                               |   |
|   |                            | Report                        of Independent Registered Public Accounting Firm     | 23     |
|   |                            |                                                                               |   |
|   | Item                        2.  | Management’s                        Discussion and Analysis of Financial     |   |
|   |                            | Condition                        and Results of Operations                         | 24     |
|   |                            |                                                                               |   |
|   | 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                                           | 42     |
|   |                            |                                                                               |   |
|   | Item                        6.  | Exhibits                                                                           | 42     |
|   |                            |                                                                               |   |
|   | Signatures                      |                                                                               | 43     |

**PART              I. FINANCIAL INFORMATION**

**Item              1. Financial Statements**

**UNIT              CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED              CONDENSED BALANCE SHEETS (UNAUDITED)**

|                                                                                                                                                     |   | **September                        30,**  |      |   |   | **December                        31,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|-----------|--------|--------|-----------------------------------------|--------|
|                                                                                                                                                     |   | **2006**                                  |      |   |   | **2005**                                |   |
|                                                                                                                                                     |   | **(In                        thousands)** |      |
| **ASSETS**                                                                                                                                               |   |                                      |      |   |   |                                    |   |   |   |
| Current                        Assets:                                                                                                                   |   |                                      |      |   |   |                                    |   |   |   |
|                              Cash and cash equivalents                                                                          |   | $                                         | 606       |   |   |                                    | $      | 947 |   |
|                              Restricted cash                                                                                    |   |                                      | 18        |   |   |                                    |   | 268 |   |
|                              Accounts receivable                                                                                |   |                                      | 203,535   |   |   |                                    |   | 199,765 |   |
|                              Materials and supplies                                                                             |   |                                      | 23,152    |   |   |                                    |   | 14,108 |   |
|                              Other                                                                                              |   |                                      | 16,660    |   |   |                                    |   | 8,597 |   |
|                   Total                        current assets  |   |                                      | 243,971   |   |   |                                    |   | 223,685 |   |
|                                                                                                                                                     |   |                                      |      |   |   |                                    |   |   |   |
| Property                        and Equipment:                                                                                                           |   |                                      |      |   |   |                                    |   |   |   |
|                              Drilling equipment                                                                                 |   |                                      | 742,623   |   |   |                                    |   | 626,913 |   |
|                              Oil and natural gas properties, on the full cost                                                   |   |                                      |      |   |   |                                    |   |   |   |
|                                 method:                                                                          |   |                                      |      |   |   |                                    |   |   |   |
|                                    Proved properties                                              |   |                                      | 1,191,130 |   |   |                                    |   | 995,119 |   |
|                                    Undeveloped leasehold not being amortized                      |   |                                      | 51,164    |   |   |                                    |   | 38,421 |   |
|                              Gas gathering and processing equipment                                                             |   |                                      | 80,490    |   |   |                                    |   | 60,354 |   |
|                              Transportation equipment                                                                           |   |                                      | 19,951    |   |   |                                    |   | 17,338 |   |
|                              Other                                                                                              |   |                                      | 16,030    |   |   |                                    |   | 12,935 |   |
|                                                                                                                                                     |   |                                      | 2,101,388 |   |   |                                    |   | 1,751,080 |   |
| Less                        accumulated depreciation, depletion,                                                                                         |   |                                      |      |   |   |                                    |   |   |   |
|                           amortization and impairment                                                                                          |   |                                      | 689,028   |   |   |                                    |   | 575,410 |   |
|                                          Net property and equipment |   |                                      | 1,412,360 |   |   |                                    |   | 1,175,670 |   |
|                                                                                                                                                     |   |                                      |      |   |   |                                    |   |   |   |
| Goodwill                                                                                                                                                 |   |                                      | 39,659    |   |   |                                    |   | 39,659 |   |
| Other                        Intangible Assets, Net                                                                                                      |   |                                      | 17,739    |   |   |                                    |   | --- |   |
| Other                        Assets                                                                                                                      |   |                                      | 13,103    |   |   |                                    |   | 17,181 |   |
| Total                        Assets                                                                                                                      |   | $                                         | 1,726,832 |   |   |                                    | $      | 1,456,195 |   |

**UNIT              CORPORATION AND SUBSIDIARIES**

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

|                                                                                                                                                           |   | **September                        30,**  |      |   |   | **December                        31,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|-----------|--------|--------|-----------------------------------------|--------|
|                                                                                                                                                           |   | **2006**                                  |      |   |   | **2005**                                |   |
|                                                                                                                                                           |   | **(In                        thousands)** |      |
| **LIABILITIES                        AND SHAREHOLDERS’ EQUITY**                                                                                          |   |                                      |      |   |   |                                    |   |   |   |
| Current                        Liabilities:                                                                                                                    |   |                                      |      |   |   |                                    |   |   |   |
|                              Accounts payable                                                                                         |   | $                                         | 90,124    |   |   |                                    | $      | 109,621 |   |
|                              Accrued liabilities                                                                                      |   |                                      | 35,727    |   |   |                                    |   | 32,819 |   |
|                              Income taxes payable                                                                                     |   |                                      | 2,863     |   |   |                                    |   | 16,941 |   |
|                              Contract advances                                                                                        |   |                                      | 10,677    |   |   |                                    |   | 5,548 |   |
|                              Current portion of other liabilities                                                                     |   |                                      | 7,820     |   |   |                                    |   | 7,583 |   |
|                                          Total current liabilities        |   |                                      | 147,211   |   |   |                                    |   | 172,512 |   |
|                                                                                                                                                           |   |                                      |      |   |   |                                    |   |   |   |
| Long-Term                        Debt                                                                                                                          |   |                                      | 145,100   |   |   |                                    |   | 145,000 |   |
|                                                                                                                                                           |   |                                      |      |   |   |                                    |   |   |   |
| Other                        Long-Term Liabilities                                                                                                             |   |                                      | 53,710    |   |   |                                    |   | 41,981 |   |
|                                                                                                                                                           |   |                                      |      |   |   |                                    |   |   |   |
| Deferred                        Income Taxes                                                                                                                   |   |                                      | 306,250   |   |   |                                    |   | 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                                                                |   |                                      |      |   |   |                                    |   |   |   |
|         and                        75,000,000 authorized, 46,278,990                                                   |   |                                      |      |   |   |                                    |   |   |   |
|         and                        46,178,162 shares issued, respectively                                              |   |                                      | 9,256     |   |   |                                    |   | 9,236 |   |
|                              Capital in excess of par value                                                                           |   |                                      | 332,389   |   |   |                                    |   | 328,037 |   |
|                              Accumulated other comprehensive income                                                                   |   |                                      | 491       |   |   |                                    |   | 485 |   |
|                              Unearned compensation - restricted stock                                                                 |   |                                      | ---       |   |   |                                    |   | (2,226 | ) |
|                              Retained earnings                                                                                        |   |                                      | 732,425   |   |   |                                    |   | 501,430 |   |
|                                          Total shareholders’ equity |   |                                      | 1,074,561 |   |   |                                    |   | 836,962 |   |
| Total                        Liabilities and Shareholders’ Equity                                                                                        |   | $                                         | 1,726,832 |   |   |                                    | $      | 1,456,195 |   |

**UNIT              CORPORATION AND SUBSIDIARIES**

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

|                                                   | **Three                        Months Ended** |                                                               | **Nine                        Months Ended** |   |
|--------------------------------------------------------|-----------------------------------------------|--------------------------------------------------------------------|----------------------------------------------|--------|
|                                                   | **September                        30,**      |                                                               | **September                        30,**     |   |
|                                                   | **2006**                                      |                                                               | **2005**                                     |   | **2006** |   | **2005** |   |
|                                                   |                                          | **(In                        thousands except per share amounts)** |                                         |
| Revenues:                                              |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
| Contract                        drilling               | $                                             | 182,461                                                            |                                         | $      | 119,873 |   | $ | 519,799 |   | $ | 322,379 |   |
| Oil                        and natural gas             |                                          | 91,238                                                             |                                         |   | 83,979 |   |   | 267,518 |   |   | 202,819 |   |
| Gas                        gathering and processing    |                                          | 25,638                                                             |                                         |   | 26,561 |   |   | 72,840 |   |   | 65,895 |   |
| Other                                                  |                                          | 557                                                                |                                         |   | 635 |   |   | 2,894 |   |   | 1,402 |   |
| Total                        revenues                  |                                          | 299,894                                                            |                                         |   | 231,048 |   |   | 863,051 |   |   | 592,495 |   |
|                                                   |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
| Expenses:                                              |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
| Contract                        drilling:              |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
| Operating                        costs                 |                                          | 78,595                                                             |                                         |   | 67,161 |   |   | 238,021 |   |   | 194,890 |   |
| Depreciation                                           |                                          | 13,403                                                             |                                         |   | 11,019 |   |   | 38,089 |   |   | 31,010 |   |
| Oil                        and natural gas:            |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
| Operating                        costs                 |                                          | 21,560                                                             |                                         |   | 15,913 |   |   | 58,854 |   |   | 40,916 |   |
| Depreciation,                        depletion         |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
| and                        amortization                |                                          | 27,557                                                             |                                         |   | 16,355 |   |   | 76,780 |   |   | 45,632 |   |
| Gas                        gathering and processing:   |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
| Operating                        costs                 |                                          | 22,216                                                             |                                         |   | 24,395 |   |   | 63,734 |   |   | 60,616 |   |
| Depreciation                        and                |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
|                            amortization |                                          | 1,637                                                              |                                         |   | 902 |   |   | 4,019 |   |   | 2,267 |   |
| General                        and administrative      |                                          | 4,630                                                              |                                         |   | 3,324 |   |   | 12,998 |   |   | 10,455 |   |
| Interest                                               |                                          | 1,228                                                              |                                         |   | 885 |   |   | 3,235 |   |   | 2,157 |   |
| Total                        expenses                  |                                          | 170,826                                                            |                                         |   | 139,954 |   |   | 495,730 |   |   | 387,943 |   |
| Income                        Before Income Taxes      |                                          | 129,068                                                            |                                         |   | 91,094 |   |   | 367,321 |   |   | 204,552 |   |
|                                                   |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
| Income                        Tax Expense:             |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
| Current                                                |                                          | 26,442                                                             |                                         |   | 19,628 |   |   | 89,741 |   |   | 41,185 |   |
| Deferred                                               |                                          | 21,361                                                             |                                         |   | 13,828 |   |   | 46,585 |   |   | 35,385 |   |
| Total                        income taxes              |                                          | 47,803                                                             |                                         |   | 33,456 |   |   | 136,326 |   |   | 76,570 |   |
|                                                   |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
| Net                        Income                      | $                                             | 81,265                                                             |                                         | $      | 57,638 |   | $ | 230,995 |   | $ | 127,982 |   |
|                                                   |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
| Net                        Income per Common Share:    |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
| Basic                                                  | $                                             | 1.76                                                               |                                         | $      | 1.25 |   | $ | 5.00 |   | $ | 2.79 |   |
|                                                   |                                          |                                                               |                                         |   |   |   |   |   |   |   |   |   |
| Diluted                                                | $                                             | 1.75                                                               |                                         | $      | 1.25 |   | $ | 4.98 |   | $ | 2.78 |   |

**UNIT              CORPORATION AND SUBSIDIARIES**

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

|                                                                                                                                                                          |   | **Nine                        Months Ended** |     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|----------|
|                                                                                                                                                                          |   | **September                        30,**     |     |
|                                                                                                                                                                          |   | **2006**                                     |     |   |   | **2005** |   |
|                                                                                                                                                                          |   | **(In                        thousands)**    |     |
| Cash                        Flows From Operating Activities:                                                                                                                  |   |                                         |     |   |   |   |   |   |   |
|                              Net income                                                                                                              |   | $                                            | 230,995  |   |   |   | $ | 127,982 |   |
|                              Adjustments to reconcile net income to net cash                                                                         |   |                                         |     |   |   |   |   |   |   |
|                                 provided (used) by operating activities:                                                              |   |                                         |     |   |   |   |   |   |   |
|                                    Depreciation, depletion and amortization                                            |   |                                         | 119,422  |   |   |   |   | 79,520 |   |
|                                    Deferred tax expense                                                                |   |                                         | 46,585   |   |   |   |   | 35,385 |   |
|                                    Other                                                                               |   |                                         | 5,843    |   |   |   |   | 2,647 |   |
|                              Changes in operating assets and liabilities                                                                             |   |                                         |     |   |   |   |   |   |   |
|                                 increasing (decreasing) cash:                                                                         |   |                                         |     |   |   |   |   |   |   |
|                                    Accounts receivable                                                                 |   |                                         | (4,840   | ) |   |   |   | (47,742 | ) |
|                                    Accounts payable                                                                    |   |                                         | (27,424  | ) |   |   |   | (17,892 | ) |
|                                    Material and supplies inventory                                                     |   |                                         | (9,044   | ) |   |   |   | 1,200 |   |
|                                    Accrued liabilities                                                                 |   |                                         | (9,139   | ) |   |   |   | 8,638 |   |
|                                    Contract advances                                                                   |   |                                         | 5,129    |   |   |   |   | 1,009 |   |
|                                    Other - net                                                                         |   |                                         | (7,928   | ) |   |   |   | (895 | )  |
|                                           Net cash provided by operating activities |   |                                         | 349,599  |   |   |   |   | 189,852 |   |
|                                                                                                                                                                          |   |                                         |     |   |   |   |   |   |   |
| Cash                        Flows From (Used In) Investing Activities:                                                                                                        |   |                                         |     |   |   |   |   |   |   |
|       Capital                        expenditures                                                                                               |   |                                         | (299,312 | ) |   |   |   | (222,157 | ) |
|                              Cash paid for acquisitions                                                                                              |   |                                         | (53,820  | ) |   |   |   | --- |   |
|                              Proceeds from disposition of assets                                                                                     |   |                                         | 5,865    |   |   |   |   | 4,772 |   |
|                              Other-net                                                                                                               |   |                                         | (241     | ) |   |   |   | (4,627 | ) |
|                                          Net cash used in investing activities           |   |                                         | (347,508 | ) |   |   |   | (222,012 | ) |
|                                                                                                                                                                          |   |                                         |     |   |   |   |   |   |   |
| Cash                        Flows From (Used In) Financing Activities:                                                                                                        |   |                                         |     |   |   |   |   |   |   |
|                              Borrowings under line of credit                                                                                         |   |                                         | 183,200  |   |   |   |   | 161,800 |   |
|                              Payments under line of credit                                                                                           |   |                                         | (183,100 | ) |   |   |   | (141,700 | )  |
|       Net                        change in other long-term liabilities                                                                          |   |                                         | ---      |   |   |   |   | 181 |   |
|                              Proceeds from exercise of stock options                                                                                 |   |                                         | 726      |   |   |   |   | 1,128 |   |
|       Tax                        Benefit from stock options                                                                                     |   |                                         | 290      |   |   |   |   | --- |   |
|                              Book overdrafts                                                                                                         |   |                                         | (3,548   | )  |   |   |   | 10,814 |   |
|                                          Net cash from (used in) financing activities    |   |                                         | (2,432   | ) |   |   |   | 32,223 |  |
|                                                                                                                                                                          |   |                                         |     |   |   |   |   |   |   |
| Net                        Increase (Decrease) in Cash and Cash Equivalents                                                                                                   |   |                                         | (341     | ) |   |   |   | 63 |   |
| Cash                        and Cash Equivalents, Beginning of Year                                                                                                           |   |                                         | 947      |   |   |   |   | 665 |   |
| Cash                        and Cash Equivalents, End of Period                                                                                                               |   | $                                            | 606      |   |   |   | $ | 728 |   |

**UNIT              CORPORATION AND SUBSIDIARIES**

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

|                                                                                                                               |   | **Three                        Months Ended** |   |     |   | **Nine                        Months Ended** |    |
|------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|----------|--------|----------------------------------------------|---------|
|                                                                                                                               |   | **September                        30,**      |   |     |   | **September                        30,**     |    |
|                                                                                                                               |   | **2006**                                      |   | **2005** |   |                                         |    | **2006** |   | **2005** |   |
|                                                                                                                               |   | **(In                        thousands)**     |   |
| Net                        Income                                                                                                  |   | $                                             | 81,265 |     | $      | 57,638                                       |    |   |   | $ | 230,995 |   | $ | 127,982 |   |
| Other                        Comprehensive Income,                                                                                 |   |                                          |   |     |   |                                         |    |   |   |   |   |   |   |   |   |
|                              Net of Taxes:                                                                |   |                                          |   |     |   |                                         |    |   |   |   |   |   |   |   |   |
|                                    Change in value of cash                  |   |                                          |   |     |   |                                         |    |   |   |   |   |   |   |   |   |
|                                       flow derivative        |   |                                          |   |     |   |                                         |    |   |   |   |   |   |   |   |   |
|                                       instruments used as    |   |                                          |   |     |   |                                         |    |   |   |   |   |   |   |   |   |
|                                       cash flow hedges       |   |                                          | (106   | )        |   | (1,901                                       | )  |   |   |   | 273 |   |   | (2,353 | ) |
|                                    Reclassification -                       |   |                                          |   |     |   |                                         |    |   |   |   |   |   |   |   |   |
|                                       derivative settlements |   |                                          | (148   | )        |   | 786                                          |    |   |   |   | (267 | ) |   | 888 |   |
| Comprehensive                        Income                                                                                        |   | $                                             | 81,011 |     | $      | 56,523                                       |    |   |   | $ | 231,001 |   | $ | 126,517 |   |

**UNIT              CORPORATION AND SUBSIDIARIES**

**NOTES              TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

**NOTE              1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING              POLICIES**

***Principles              of Consolidation.***

***Stock              Based Compensation.***

*Share-Based              Payment*

|                                                                                                  |   | **Three**                                                                                     |   |   | **Nine**                                      |   |
|-------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------|--------|
|                                                                                                  |   | **Months                        Ended**                                                       |   |   | **Months                        Ended**       |   |
|                                                                                                  |   | **September                        30, 2005**                                                 |   |   | **September                        30, 2005** |   |
|                                                                                                  |   | **(In                        thousands except **per                        share amounts)**** |   |
|                                                                                                  |   |                                                                                          |   |   |                                          |   |   |   |
| Net                        Income, as Reported                                                        |   | $                                                                                             | 57,638 |   |                                          | $      | 127,982 |   |
| Add                        Stock-Based Employee Compensation                                          |   |                                                                                          |   |   |                                          |   |   |   |
|                             Expense Included in Reported Net                      |   |                                                                                          |   |   |                                          |   |   |   |
|                             Income, Net of Tax                                    |   |                                                                                          | 397    |   |                                          |   | 1,344 |   |
| Less                        Total Stock-Based                                                         |   |                                                                                          |   |   |                                          |   |   |   |
|                             Employee Compensation Expense                         |   |                                                                                          |   |   |                                          |   |   |   |
|                             Determined Under Fair Value Based                     |   |                                                                                          |   |   |                                          |   |   |   |
|                             Method For All Awards                                 |   |                                                                                          | (956   | )      |                                          |   | (2,877 | ) |
| Pro                        Forma Net Income                                                           |   | $                                                                                             | 57,079 |   |                                          | $      | 126,449 |   |
|                                                                                                  |   |                                                                                          |   |   |                                          |   |   |   |
| Basic                        Earnings per Share:                                                      |   |                                                                                          |   |   |                                          |   |   |   |
|                                    As reported |   | $                                                                                             | 1.25   |   |                                          | $      | 2.79 |   |
|                                                                                                  |   |                                                                                          |   |   |                                          |   |   |   |
|                                    Pro forma   |   | $                                                                                             | 1.24   |   |                                          | $      | 2.76 |   |
|                                                                                                  |   |                                                                                          |   |   |                                          |   |   |   |
| Diluted                        Earnings per Share:                                                    |   |                                                                                          |   |   |                                          |   |   |   |
|                                    As reported |   | $                                                                                             | 1.25   |   |                                          | $      | 2.78 |   |
|                                                                                                  |   |                                                                                          |   |   |                                          |   |   |   |
|                                    Pro forma   |   | $                                                                                             | 1.23   |   |                                          | $      | 2.74 |   |

|                                                            |   | **Nine                        Months Ended** |                          |
|-----------------------------------------------------------------|--------|----------------------------------------------|-------------------------------|
|                                                            |   | **September                        30,**     |                          |
|                                                            |   | **2006**                                     |                          | **2005** |   |
|                                                            |   |                                         |                          |   |   |   |   |
| Options                        Granted                          |   |                                         | 33,000                        |   |   | 58,500 |   |
|                                                            |   |                                         |                          |   |   |   |   |
| Estimated                        Fair Value (In Millions)       |   | $                                            | 0.8                           |   | $ | 1.3 |   |
|                                                            |   |                                         |                          |   |   |   |   |
| Estimate                        of Stock Volatility             |   |                                         | 0.38                          |   |   | 0.51                        to 0.55 |   |
|                                                            |   |                                         |                          |   |   |   |   |
| Estimated                        Dividend Yield                 |   |                                         | 0                             | % |   | 0 | % |
|                                                            |   |                                         |                          |   |   |   |   |
| Risk                        Free Interest Rate                  |   |                                         | 5.00                          | % |   | 4.35                        to 4.42 | % |
|                                                            |   |                                         |                          |   |   |   |   |
| Expected                        Life Range Based on             |   |                                         |                          |   |   |   |   |
|                           Prior Experience (In Years) |   |                                         | 3                        to 7 |   |   | 6                        to 10 |   |

| •                        incentive stock options under Section 422 of the Internal                        Revenue Code;                          |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •                        non-qualified stock options;                                                                                                 |
| •                        performance shares;                                                                                                          |
| •                        performance units;                                                                                                           |
| •                        restricted stock;                                                                                                            |
| •                        restricted stock units;                                                                                                      |
| •                        stock appreciation rights;                                                                                                   |
| •                        cash based awards; and                                                                                                       |
| •                        other stock-based awards.                                                                                                    |

|                                                        | **Three                        Months Ended** |    | **Nine                        Months Ended** |   |
|-------------------------------------------------------------|-----------------------------------------------|---------|----------------------------------------------|--------|
|                                                        | **September                        30,**      |    | **September                        30,**     |   |
|                                                        | **2006**                                      |    | **2005**                                     |   | **2006** |   | **2005** |   |
|                                                        |                                          |    |                                         |
| **Number                        of Shares:**                |                                          |    |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                        at Beginning of          |                                          |    |                                         |   |   |   |   |   |   |   |   |   |
| Period                                                      |                                          | 390,470 |                                         |   | 467,913 |   |   | 434,713 |   |   | 553,750 |   |
|                           Granted                 |                                          | ---     |                                         |   | --- |   |   | 5,000 |   |   | 34,000 |   |
|                           Exercised               |                                          | (3,320  | )                                            |   | (18,121 | ) |   | (52,563 | ) |   | (87,558 | ) |
|                           Forfeited               |                                          | (800    | )                                            |   | (11,400 | ) |   | (800 | ) |   | (61,800 | ) |
| Outstanding                        at End of Period         |                                          | 386,350 |                                         |   | 438,392 |   |   | 386,350 |   |   | 438,392 |   |
|                                                        |                                          |    |                                         |   |   |   |   |   |   |   |   |   |
| **Weighted                        Average Exercise Price:** |                                          |    |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                        at Beginning of          |                                          |    |                                         |   |   |   |   |   |   |   |   |   |
| Period                                                      | $                                             | 25.67   |                                         | $      | 23.98 |   | $ | 24.14 |   | $ | 22.11 |   |
|                           Granted                 |                                          | ---     |                                         |   | --- |   |   | 55.83 |   |   | 37.16 |   |
|                           Exercised               |                                          | 21.54   |                                         |   | 17.71 |   |   | 15.61 |   |   | 15.92 |   |
|                           Forfeited               |                                          | 37.83   |                                         |   | 30.86 |   |   | 37.83 |   |   | 25.03 |   |
| Outstanding                        at End of Period         | $                                             | 25.68   |                                         | $      | 24.11 |   | $ | 25.68 |   | $ | 24.11 |   |

|                                                  |   | **Outstanding Options Under                        The Stock** |                                       |
|-------------------------------------------------------|--------|--------------------------------------------------------------------------|--------------------------------------------|
|                                                  |   | **Option                        Plan At September 30, 2006**             |                                       |
|                                                  |   |                                                                     |                                       |   |   | **Weighted**  |   |   |   |   |
|                                                  |   |                                                                     |                                       |   |   | **Average**  |   |   | **Weighted**  |   |
|                                                  |   |                                                                     |                                       |   |   | **Remaining** |   |   | **Average**  |   |
|                                                  |   |                                                                     | **Number                        of**  |   |   | **Contractual**  |   |   | **Exercise**  |   |
| **Exercise                        Prices**            |   |                                                                     | **Shares**                                 |   |   | **Life** |   |   | **Price** |   |
|         $3.75 |   |                                                                     | 34,000                                     |   |   | 2.2                        years |   | $ | 3.75 |   |
|         $8.75 |   |                                                                     | 2,500                                      |   |   | 0.2                        years |   | $ | 8.75 |   |
| $16.69                        - $19.04                |   |                                                                     | 112,600                                    |   |   | 5.6                        years |   | $ | 18.33 |   |
| $21.50                        - $26.28                |   |                                                                     | 89,810                                     |   |   | 7.2                        years |   | $ | 22.96 |   |
| $34.75                        - $37.83                |   |                                                                     | 142,440                                    |   |   | 8.3                        years |   | $ | 37.68 |   |
| $53.90                        - $60.32                |   |                                                                     | 5,000                                      |   |   | 9.5                        years |   | $ | 55.83 |   |

|                                                  |   | **Exercisable                        Options Under The Stock** |                                 |
|-------------------------------------------------------|--------|----------------------------------------------------------------|--------------------------------------|
|                                                  |   | **Option                        Plan At September 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                |   |                                                           | 73,800                               |   | $ | 17.96 |   |
| $21.50                        - $26.28                |   |                                                           | 32,700                               |   | $ | 22.82 |   |
| $34.75                        - $37.83                |   |                                                           | 26,840                               |   | $ | 37.67 |   |
| $53.90                        - $60.32                |   |                                                           | ---                                  |   | $ | --- |   |

|                                                        | **Three                        Months Ended** |    | **Nine                        Months Ended** |   |
|-------------------------------------------------------------|-----------------------------------------------|---------|----------------------------------------------|--------|
|                                                        | **September                        30,**      |    | **September                        30,**     |   |
|                                                        | **2006**                                      |    | **2005**                                     |   | **2006** |   | **2005** |   |
|                                                        |                                          |    |                                         |
| **Number                        of Shares:**                |                                          |    |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                        at Beginning of          |                                          |    |                                         |   |   |   |   |   |   |   |   |   |
| Period                                                      |                                          | 120,500 |                                         |   | 112,500 |   |   | 96,000 |   |   | 94,000 |   |
|                           Granted                 |                                          | ---     |                                         |   | --- |   |   | 28,000 |   |   | 24,500 |   |
|                           Exercised               |                                          | ---     |                                         |   | (13,000 | ) |   | (3,500 | ) |   | (19,000 | ) |
|                           Forfeited               |                                          | ---     |                                         |   | --- |   |   | --- |   |   | --- |   |
| Outstanding                        at End of Period         |                                          | 120,500 |                                         |   | 99,500 |   |   | 120,500 |   |   | 99,500 |   |
|                                                        |                                          |    |                                         |   |   |   |   |   |   |   |   |   |
| **Weighted                        Average Exercise Price:** |                                          |    |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                        at Beginning of          |                                          |    |                                         |   |   |   |   |   |   |   |   |   |
| Period                                                      | $                                             | 33.78   |                                         | $      | 24.84 |   | $ | 24.93 |   | $ | 20.27 |   |
|                           Granted                 |                                          | ---     |                                         |   | --- |   |   | 62.40 |   |   | 39.50 |   |
|                           Exercised               |                                          | ---     |                                         |   | 20.25 |   |   | 20.10 |   |   | 17.99 |   |
|    Forfeited                                 |                                          | ---     |                                         |   | --- |   |   | --- |   |   | --- |   |
| Outstanding                        at End of Period         | $                                             | 33.78   |                                         | $      | 25.44 |   | $ | 33.78 |   | $ | 25.44 |   |

|                                                                     |   | **Outstanding                        Options Under The**          |                                 |
|--------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------------------------------------|
|                                                                     |   | **Directors'                        Plans At September 30, 2006** |                                 |
|                                                                     |   |                                                              |                                 |   |   | **Weighted** |   |   |   |   |
|                                                                     |   |                                                              |                                 |   |   | **Average** |   |   | **Weighted** |   |
|                                                                     |   |                                                              |                                 |   |   | **Remaining** |   |   | **Average** |   |
|                                                                     |   |                                                              | **Number                        of** |   |   | **Contractual** |   |   | **Exercise** |   |
| **Exercise                        Prices**                               |   |                                                              | **Shares**                           |   |   | **Life** |   |   | **Price** |   |
|         $6.90                    |   |                                                              | 5,000                                |   |   | 2.6                        years |   | $ | 6.90 |   |
| $12.19                        - $17.54                                   |   |                                                              | 14,000                               |   |   | 4.3                        years |   | $ | 16.20 |   |
| $20.10                        - $20.46                                   |   |                                                              | 31,500                               |   |   | 6.1                        years |   | $ | 20.30 |   |
| $28.23                        - $39.50                                   |   |                                                              | 42,000                               |   |   | 8.1                        years |   | $ | 33.87 |   |
|                                $62.40 |   |                                                              | 28,000                               |   |   | 9.4                        years |   | $ | 62.40 |   |

|                                                  |   | **Exercisable                        Options Under The**          |                                 |
|-------------------------------------------------------|--------|-------------------------------------------------------------------|--------------------------------------|
|                                                  |   | **Directors'                        Plans At September 30, 2006** |                                 |
|                                                  |   |                                                              |                                 |   |   | **Weighted** |   |
|                                                  |   |                                                              | **Number                        of** |   |   | **Average** |   |
| **Exercise                        Prices**            |   |                                                              | **Shares**                           |   |   | **Exercise                        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            |   |                                                              | ---                                  |   | $ | --- |   |

***Oil              and Natural Gas Operations.***

**NOTE              2 - EARNINGS PER SHARE**

|                                                                                                |   |                                                               |   | **Weighted**      |   |          |   |
|-----------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|-------------------|--------|---------------|--------|
|                                                                                                |   | **Income**                                                         |   | **Shares**        |   | **Per-Share** |   |
|                                                                                                |   | **(Numerator)**                                                    |   | **(Denominator)** |   | **Amount**    |   |
|                                                                                                |   | **(In                        thousands except per share amounts)** |   |
| For                        the Three Months Ended                                                   |   |                                                               |   |              |   |          |   |   |   |   |
|                           September 30, 2006:                                             |   |                                                               |   |              |   |          |   |   |   |   |
|                              Basic earnings per common share               |   | $                                                                  | 81,265 |              |   | 46,241        |   | $ | 1.76 |   |
|                              Effect of dilutive stock options              |   |                                                               |   |              |   |          |   |   |   |   |
|                                and restricted stock bonus shares |   |                                                               | ---    |              |   | 203           |   |   | (0.01 | ) |
|                              Diluted earnings per common share             |   | $                                                                  | 81,265 |              |   | 46,444        |   | $ | 1.75 |   |
|                                                                                                |   |                                                               |   |              |   |          |   |   |   |   |
| For                        the Three Months Ended                                                   |   |                                                               |   |              |   |          |   |   |   |   |
|                           September 30, 2005:                                             |   |                                                               |   |              |   |          |   |   |   |   |
|                              Basic earnings per common share               |   | $                                                                  | 57,638 |              |   | 45,959        |   | $ | 1.25 |   |
|                              Effect of dilutive stock options              |   |                                                               | ---    |              |   | 270           |   |   | --- |   |
|                              Diluted earnings per common share             |   | $                                                                  | 57,638 |              |   | 46,229        |   | $ | 1.25 |   |

|                                          |   | **2006** |   |   |   | **2005** |
|-----------------------------------------------|--------|----------|--------|--------|--------|----------|
|                                          |   |     |   |   |   |     |   |   |
| Options                                       |   |     | 33,000 |   |   |     |   | --- |
|                                          |   |     |   |   |   |     |   |   |
| Average                        Exercise Price |   | $        | 61.40  |   |   |     | $ | --- |

|                                                                                                      |   |                                                               |    | **Weighted**      |   |          |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|---------|-------------------|--------|---------------|--------|
|                                                                                                      |   | **Income**                                                         |    | **Shares**        |   | **Per-Share** |   |
|                                                                                                      |   | **(Numerator)**                                                    |    | **(Denominator)** |   | **Amount**    |   |
|                                                                                                      |   | **(In                        thousands except per share amounts)** |    |
| For                        the Nine Months Ended                                                          |   |                                                               |    |              |   |          |   |   |   |   |
|                           September 30, 2006:                                                   |   |                                                               |    |              |   |          |   |   |   |   |
|                              Basic earnings per common share                     |   | $                                                                  | 230,995 |              |   | 46,223        |   | $ | 5.00 |   |
|                              Effect of dilutive stock options                    |   |                                                               |    |              |   |          |   |   |   |   |
|                                 and restricted stock bonus shares |   |                                                               | ---     |              |   | 206           |   |   | (0.02 | ) |
|                              Diluted earnings per common share                   |   | $                                                                  | 230,995 |              |   | 46,429        |   | $ | 4.98 |   |
|                                                                                                      |   |                                                               |    |              |   |          |   |   |   |   |
| For                        the Nine Months Ended                                                          |   |                                                               |    |              |   |          |   |   |   |   |
|                           September 30, 2005:                                                   |   |                                                               |    |              |   |          |   |   |   |   |
|                              Basic earnings per common share                     |   | $                                                                  | 127,982 |              |   | 45,873        |   | $ | 2.79 |   |
|                              Effect of dilutive stock options                    |   |                                                               | ---     |              |   | 235           |   |   | (0.01 | ) |
|                              Diluted earnings per common share                   |   | $                                                                  | 127,982 |              |   | 46,108        |   | $ | 2.78 |   |

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

**NOTE              3 - ACQUISITIONS**

| Working                        Capital                       |   | $      | 337    |   |
|--------------------------------------------------------------|--------|--------|--------|--------|
| Processing                        Plant and Gathering System |   |   | 3,422  |   |
| Amortizable                        Intangible Assets         |   |   | 17,957 |   |
| Total                        Consideration                   |   | $      | 21,716 |   |

**NOTE              4 - CREDIT AGREEMENT**

|                                                                        |   | **September                        30,**  |    | **December                        31,** |   |
|-----------------------------------------------------------------------------|--------|-------------------------------------------|---------|-----------------------------------------|--------|
|                                                                        |   | **2006**                                  |    | **2005**                                |   |
|                                                                        |   | **(In                        thousands)** |    |
| Revolving                        Credit Facility,                           |   |                                      |    |                                    |   |   |   |
|                           with Interest at September 30, 2006 and |   |                                      |    |                                    |   |   |   |
|                           December 31, 2005 of 5.6% and 4.9%**,** |   |                                      |    |                                    |   |   |   |
|                           Respectively                            |   | $                                         | 145,100 |                                    | $      | 145,000 |   |
| Less                        Current Portion                                 |   |                                      | --      |                                    |   | -- |   |
|                                                                        |   |                                      |    |                                    |   |   |   |
| Total                        Long-Term Debt                                 |   | $                                         | 145,100 |                                    | $      | 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 credit 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 themost recently ended rolling four fiscal                        quarters                                    |
|    of                      not                      greater than 3.25 to 1.0.                                                                        |

|                                                     |   |                                      | **September                        30,** |   |   | **December                        31,** |   |
|----------------------------------------------------------|--------|-------------------------------------------|------------------------------------------|--------|--------|-----------------------------------------|--------|
|                                                     |   |                                      | **2006**                                 |   |   | **2005**                                |   |
|                                                     |   | **(In                        thousands)** |
| Separation                        Benefit Plan           |   | $                                         | 2,983                                    |   | $      | 2,788                                   |   |
| Deferred                        Compensation Plan        |   |                                      | 2,547                                    |   |   | 2,611                                   |   |
| Retirement                        Agreement              |   |                                      | 1,484                                    |   |   | 1,676                                   |   |
| Workers’                        Compensation       |   |                                      | 21,590                                   |   |   | 19,394                                  |   |
| Gas                        Balancing Liability           |   |                                      | 1,080                                    |   |   | 1,080                                   |   |
| Plugging                        Liability                |   |                                      | 31,846                                   |   |   | 22,015                                  |   |
|                                                     |   |                                      | 61,530                                   |   |   | 49,564                                  |   |
| Less                        Current Portion              |   |                                      | 7,820                                    |   |   | 7,583                                   |   |
| Total                        Other Long-Term Liabilities |   | $                                         | 53,710                                   |   | $      | 41,981                                  |   |

**NOTE              5 - ASSET RETIREMENT OBLIGATIONS**

* *

|                                                                                                                                                              |   | **Nine                        Months Ended September 30.** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------|
|                                                                                                                                                              |   | **2006**                                                   |   | **2005** |   |
|                                                                                                                                                              |   | **(In                        Thousands)**                  |   |
| Short-Term                        Plugging Liability:                                                                                                             |   |                                                       |   |   |   |   |   |
|                              Liability at beginning of period                                                                            |   | $                                                          | 366    |   | $ | 226 |   |
|                              Accretion of discount                                                                                       |   |                                                       | 6      |   |   | 13 |   |
|                              Liability incurred or assumed in the period                                                                 |   |                                                       | 1      |   |   | --- |   |
|                              Liability settled in the period                                                                             |   |                                                       | (156   | ) |   | (145 | ) |
|                              Reclassification of liability from long-term                                                                |   |                                                       |   |   |   |   |   |
|                                 to short-term                                                                             |   |                                                       | 456    |   |   | 247 |   |
|                              Revision of estimates                                                                                       |   |                                                       | (30    | )  |   | --- |   |
|                                          Plugging liability at end of period |   | $                                                          | 643    |   | $ | 341 |   |
|                                                                                                                                                              |   |                                                       |   |   |   |   |   |
| Long-Term                        Plugging Liability:                                                                                                              |   |                                                       |   |   |   |   |   |
|                              Liability at beginning of period                                                                            |   | $                                                          | 21,649 |   | $ | 18,909 |   |
|                              Accretion of discount                                                                                       |   |                                                       | 1,085  |   |   | 699 |   |
|                              Liability incurred or assumed in the period                                                                 |   |                                                       | 2,834  |   |   | 1,295 |   |
|                              Reclassification of liability from long-term                                                                |   |                                                       |   |   |   |   |   |
|                                 to short-term                                                                             |   |                                                       | (456   | ) |   | (247 | ) |
|                              Revision of estimates                                                                                       |   |                                                       | 6,091  |   |   | (833 | ) |
|                                          Plugging liability at end of period |   | $                                                          | 31,203 |   | $ | 19,823 |   |

**NOTE              6 - NEW ACCOUNTING PRONOUNCEMENTS**

*)*

No.              157,“Fair Value Measurements” (FAS No.              157).              FAS No.              157              establishes a common definition for fair value to be applied to US              GAAP guidance              requiring use of fair value, establishes a framework for measuring              fair value,              and expands the disclosure about such fair value measurements. FASNo.              157              is effective for fiscal years beginning after November 15, 2007. The              company is              currently assessing the impact of FAS No.              157              on its results of operations, financial condition and cash              flows.

**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**

| •                        Contract Drilling,                                 |
|-----------------------------------------------------------------------------------|
| •                        Oil and Natural Gas Exploration and Production and |
| •                        Gas Gathering and Processing                       |

|                                                                                                              |   | **Three                        Months Ended** |    |     |   | **Nine                        Months Ended** |   |
|-------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|---------|----------|--------|----------------------------------------------|--------|
|                                                                                                              |   | **September                        30,**      |    |     |   | **September                        30,**     |   |
|                                                                                                              |   | **2006**                                      |    | **2005** |   |                                         |   | **2006** |   | **2005** |   |
|                                                                                                              |   | **(In                        thousands)**     |    |
| Revenues:                                                                                                         |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
|                              Contract drilling                                           |   | $                                             | 196,953 |     | $      | 127,119                                      |   |   |   | $ | 550,428 |   | $ | 336,537 |   |
|                              Elimination of inter-segment                                |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
|                                 revenue                                   |   |                                          | 14,492  |     |   | 7,246                                        |   |   |   |   | 30,629 |   |   | 14,158 |   |
|                              Contract drilling net of                                    |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
|                                 inter-segment revenue                     |   |                                          | 182,461 |     |   | 119,873                                      |   |   |   |   | 519,799 |   |   | 322,379 |   |
|                                                                                                              |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
|                              Oil and natural gas                                         |   |                                          | 91,238  |     |   | 83,979                                       |   |   |   |   | 267,518 |   |   | 202,819 |   |
|                                                                                                              |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
|                              Gas gathering and processing                                |   |                                          | 29,045  |     |   | 28,720                                       |   |   |   |   | 83,303 |   |   | 71,846 |   |
|       Elimination                        of inter-segment                           |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
|                                 revenue                                   |   |                                          | 3,407   |     |   | 2,159                                        |   |   |   |   | 10,463 |   |   | 5,951 |   |
|                              Gas gathering and processing                                |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
|        net                        of inter-segment                                  |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
|                                 revenue                                   |   |                                          | 25,638  |     |   | 26,561                                       |   |   |   |   | 72,840 |   |   | 65,895 |   |
|                                                                                                              |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
|                              Other (1)                                                   |   |                                          | 557     |     |   | 635                                          |   |   |   |   | 2,894 |   |   | 1,402 |   |
|                                    Total revenues          |   | $                                             | 299,894 |     | $      | 231,048                                      |   |   |   | $ | 863,051 |   | $ | 592,495 |   |
|                                                                                                              |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
| Operating                        Income (2):                                                                      |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
|                              Contract drilling                                           |   | $                                             | 90,463  |     | $      | 41,693                                       |   |   |   | $ | 243,689 |   | $ | 96,479 |   |
|                              Oil and natural gas                                         |   |                                          | 42,121  |     |   | 51,711                                       |   |   |   |   | 131,884 |   |   | 116,271 |   |
|                              Gas gathering and processing                                |   |                                          | 1,785   |     |   | 1,264                                        |   |   |   |   | 5,087 |   |   | 3,012 |   |
|                                    Total operating income  |   |                                          | 134,369 |     |   | 94,668                                       |   |   |   |   | 380,660 |   |   | 215,762 |   |
|                                                                                                              |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
|                              General and administrative                                  |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
|                                 expense                                   |   |                                          | (4,630  | )        |   | (3,324                                       | )      |   |   |   | (12,998 | ) |   | (10,455 | ) |
|                              Interest expense                                            |   |                                          | (1,228  | )        |   | (885                                         | )      |   |   |   | (3,235 | ) |   | (2,157 | ) |
|                              Other income                                                |   |                                          | 557     |     |   | 635                                          |   |   |   |   | 2,894 |   |   | 1,402 |   |
|                                    Income before income    |   |                                          |    |     |   |                                         |   |   |   |   |   |   |   |   |   |
|                                       Taxes |   | $                                             | 129,068 |     | $      | 91,094                                       |   |   |   | $ | 367,321 |   | $ | 204,552 |   |

**NOTE              10 - SUBSEQUENT EVENTS**

**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 subsidiary Unit Drilling                        Company and                                           |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| its                        subsidiaries;                                                                                                                                  |
| •                        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. and its                        subsidiaries.                                                                              |

| •                        the prices and demand 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.              |

|                                                             |   |                                                                   | **September                        30,** |   |   |   | **September                        30,** |   |   | **Percent** |   |
|------------------------------------------------------------------|--------|------------------------------------------------------------------------|------------------------------------------|--------|--------|--------|------------------------------------------|--------|--------|-------------|--------|
|                                                             |   |                                                                   | **2006**                                 |   |   |   | **2005**                                 |   |   | **Change**  |   |
|                                                             |   | **(In                        thousands except percent amounts)**  |                                     |   |   |
| Working                        Capital                           |   | $                                                                      | 96,760                                   |   |   | $      | 56,998                                   |   |   | 70          | %      |
| Long-Term                        Debt                            |   | $                                                                      | 145,100                                  |   |   | $      | 115,600                                  |   |   | 26          | %      |
| Shareholders’                        Equity                |   | $                                                                      | 1,074,561                                |   |   | $      | 749,802                                  |   |   | 43          | %      |
| Ratio                        of Long-Term Debt to Total          |   |                                                                   |                                     |   |   |   |                                     |   |   |        |   |
|                           Capitalization               |   |                                                                   | 12                                       | %      |   |   | 13                                       | %      |   | (8          | )%     |
| Net                        Income                                |   | $                                                                      | 230,995                                  |   |   | $      | 127,982                                  |   |   | 80          | %      |
| Net                        Cash Provided by Operating Activities |   | $                                                                      | 349,599                                  |   |   | $      | 189,852                                  |   |   | 84          | %      |
| Net                        Cash Used in Investing Activities     |   | $                                                                      | (347,508                                 | )      |   | $      | (222,012                                 | )      |   | 57          | %      |
| Net                        Cash Provided by (Used in) Financing  |   |                                                                   |                                     |   |   |   |                                     |   |   |        |   |
|                           Activities              |   | $                                                                      | (2,432                                   | )      |   | $      | 32,223                                   |   |   | (108        | )%     |

|                                                                  |   | **September                        30,** |    | **September                        30,** |   |    | **Percent** |   |
|----------------------------------------------------------------------------|--------|------------------------------------------|---------|------------------------------------------|--------|---------|-------------|--------|
|                                                                       |   | **2006**                                 |    | **2005**                                 |   |    | **Change**  |   |
| Oil                        Production (MBbls)                              |   |                                     | 1,062   |                                     |   | 788     |        |   | 35 | % |
| Natural                        Gas Production (MMcf)                       |   |                                     | 32,350  |                                     |   | 24,055  |        |   | 34 | % |
| Average                        Oil Price Received                          |   | $                                        | 57.18   |                                     | $      | 48.16   |        |   | 19 | % |
| Average                        Natural Gas Price Received                  |   | $                                        | 6.28    |                                     | $      | 6.74    |        |   | (7 | )% |
| Average                        Natural Gas Price Received Excluding Hedges |   | $                                        | 6.28    |                                     | $      | 6.79    |        |   | (8 | )% |
| Average                        Number of Our Drilling Rigs in Use During   |   |                                     |    |                                     |   |    |        |   |   |   |
| the                        Period                                          |   |                                     | 109.8   |                                     |   | 100.7   |        |   | 9 | % |
| Total                        Number of Drilling Rigs Available at the End  |   |                                     |    |                                     |   |    |        |   |   |   |
| of                        the Period                                       |   |                                     | 116     |                                     |   | 110     |        |   | 5 | % |
| Average                        Dayrate                                     |   | $                                        | 18,442  |                                     | $      | 11,583  |        |   | 59 | % |
| Gas                        Gathered—MMBtu/day                        |   |                                     | 245,435 |                                     |   | 129,754 |        |   | 89 | % |
| Gas                        Processed—MMBtu/day                       |   |                                     | 27,226  |                                     |   | 32,709  |        |   | (17 | )% |
| Number                        of Active Natural Gas Gathering Systems      |   |                                     | 37      |                                     |   | 35      |        |   | 6 | % |

***Our              Credit Facility.***

| .                         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 credit 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 themost 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)                        |   |   |   | $                                                 | 155,893 |   | $ | 8,089 |   | $ | 147,804 |   | $ | **---** |   | $ | --- |   |
| Retirement                        Agreements (2)            |   |   |   |                                              | 1,484   |   |   | 694 |   |   | 790 |   |   | **---** |   |   | --- |   |
| Operating                        Leases (3)                 |   |   |   |                                              | 3,840   |   |   | 1,236 |   |   | 2,220 |   |   | 384 |   |   | --- |   |
| Drill                        Pipe, Drilling Rigs and        |   |   |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Equipment Purchases (4) |   |   |   |                                              | 9,307   |   |   | 9,307 |   |   | --- |   |   | --- |   |   | --- |   |
| Total                        Contractual                    |   |   |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Obligations             |   |   |   | $                                                 | 170,524 |   | $ | 19,326 |   | $ | 150,814 |   | $ | 384 |   | $ | --- |   |

|   | (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 facility agreement and includes interest calculated                        at the                        September 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) | We                        have committed to purchase approximately $1.8 million of                        drill collars and                        kellys and we have also committed to purchase $1.7 million                        of additional                        rig components. In April 2006, we committed $6.0 million                        for the purchase                        of major components to construct two drilling rigs with $1.2                        million or                        20% paid at the time of commitment. The remaining $4.8 million                        will be                        paid at delivery. These rigs should be placed into service                        in the first                        quarter of 2007. We have committed to purchase approximately                        50 vehicles                        within the next 9 months for $1.0                        million. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                |   |   |   |   |   |          |    | **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)   |   |   |   |   |   | $             | 2,547   |                                                       |   | Unknown |   |   | Unknown |   |   | Unknown |   |   | Unknown |   |
| Separation                        Benefit           |   |   |   |   |   |          |    |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Agreement (2)   |   |   |   |   |   | $             | 2,983   |                                                       | $      | 289 |   |   | Unknown |   |   | Unknown |   |   | Unknown |   |
| Plugging                        Liability (3)       |   |   |   |   |   | $             | 31,846  |                                                       | $      | 643 |   | $ | 2,113 |   | $ | 2,323 |   | $ | 26,767 |   |
| Gas                        Balancing                |   |   |   |   |   |          |    |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Liability (4)   |   |   |   |   |   | $             | 1,080   |                                                       |   | Unknown |   |   | Unknown |   |   | Unknown |   |   | Unknown |   |
| Repurchase                                          |   |   |   |   |   |          |    |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Obligations (5) |   |   |   |   |   |          | Unknown |                                                       |   | Unknown |   |   | Unknown |   |   | Unknown |   |   | Unknown |   |
| Workers’                        Compensation  |   |   |   |   |   |          |    |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Liability (6)   |   |   |   |   |   | $             | 21,590  |                                                       | $      | 6,194 |   | $ | 6,255 |   | $ | 1,468 |   | $ | 7,673 |   |

|   | (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 of our exploration operations and most producing                        property                        acquisitions 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**

**RESULTS              OF OPERATIONS**

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

|                                                                                             |   |   |   | **Quarter                        Ended** |        | **Quarter                        Ended** |   |        |   |
|--------------------------------------------------------------------------------------------------|--------|--------|--------|------------------------------------------|-------------|------------------------------------------|--------|-------------|--------|
|                                                                                             |   |   |   | **September                        30,** |        | **September                        30,** |   | **Percent** |   |
|                                                                                             |   |   |   | **2006**                                 |        | **2005**                                 |   | **Change**  |   |
| Total                        Revenue                                                             |   |   |   | $                                        | 299,894,000 |                                     | $      | 231,048,000 |   | 30 | % |
| Net                        Income                                                                |   |   |   | $                                        | 81,265,000  |                                     | $      | 57,638,000  |   | 41 | % |
| **Drilling:**                                                                                    |   |   |   |                                     |        |                                     |   |        |   |   |   |
|                              Revenue                                    |   |   |   | $                                        | 182,461,000 |                                     | $      | 119,873,000 |   | 52 | % |
|                              Operating costs                            |   |   |   | $                                        | 78,595,000  |                                     | $      | 67,161,000  |   | 17 | % |
|                              Percentage of revenue from                 |   |   |   |                                     |        |                                     |   |        |   |   |   |
|                                 daywork contracts        |   |   |   |                                     | 100         | %                                        |   | 100         | %      |   |   |
|                              Average number of rigs in use              |   |   |   |                                     | 110.6       |                                     |   | 102.6       |   | 8 | % |
|                              Average dayrate on daywork                 |   |   |   |                                     |        |                                     |   |        |   |   |   |
|                                 contracts                |   |   |   | $                                        | 19,559      |                                     | $      | 13,117      |   | 49 | % |
|                              Depreciation                               |   |   |   | $                                        | 13,403,000  |                                     | $      | 11,019,000  |   | 22 | % |
| **Oil                        and Natural Gas:**                                                  |   |   |   |                                     |        |                                     |   |        |   |   |   |
|                              Revenue                                    |   |   |   | $                                        | 91,238,000  |                                     | $      | 83,979,000  |   | 9 | % |
|                              Operating costs                            |   |   |   | $                                        | 21,560,000  |                                     | $      | 15,913,000  |   | 35 | % |
|                              Average natural gas price (Mcf)            |   |   |   | $                                        | 6.02        |                                     | $      | 8.13        |   | (26 | )% |
|                              Average oil price (Bbl)                    |   |   |   | $                                        | 59.55       |                                     | $      | 54.60       |   | 9 | % |
|                              Natural gas production (Mcf)               |   |   |   |                                     | 11,200,000  |                                     |   | 8,542,000   |   | 31 | % |
|                              Oil production (Bbl)                       |   |   |   |                                     | 376,000     |                                     |   | 251,000     |   | 50 | % |
|                              Depreciation, depletion and                |   |   |   |                                     |        |                                     |   |        |   |   |   |
|                                 amortization rate (Mcfe) |   |   |   | $                                        | 2.04        |                                     | $      | 1.62        |   | 26 | % |
|                              Depreciation, depletion and                |   |   |   |                                     |        |                                     |   |        |   |   |   |
|                                 amortization             |   |   |   | $                                        | 27,557,000  |                                     | $      | 16,355,000  |   | 68 | % |
| **Gas                        Gathering and Processing:**                                         |   |   |   |                                     |        |                                     |   |        |   |   |   |
|                              Revenue                                    |   |   |   | $                                        | 25,638,000  |                                     | $      | 26,561,000  |   | (3 | )% |
|                              Operating costs                            |   |   |   | $                                        | 22,216,000  |                                     | $      | 24,395,000  |   | (9 | )% |
|                              Depreciation and amortization              |   |   |   | $                                        | 1,637,000   |                                     | $      | 902,000     |   | 81 | % |
|                              Gas gathered - MMbtu/day                   |   |   |   |                                     | 276,888     |                                     |   | 159,821     |   | 73 | % |
|                              Gas processed - MMbtu/day                  |   |   |   |                                     | 35,124      |                                     |   | 36,061      |   | (3 | )% |
|                                                                                             |   |   |   |                                     |        |                                     |   |        |   |   |   |
| General                        and Administrative Expense                                        |   |   |   | $                                        | 4,630,000   |                                     | $      | 3,324,000   |   | 39 | % |
| Interest                        Expense                                                          |   |   |   | $                                        | 1,228,000   |                                     | $      | 885,000     |   | 39 | % |
| Income                        Tax Expense                                                        |   |   |   | $                                        | 47,803,000  |                                     | $      | 33,456,000  |   | 43 | % |
| Average                        Interest Rate                                                     |   |   |   |                                     | 6.04        | %                                        |   | 4.89        | %      | 24 | % |
| Average                      Long-Term Debt                                                      |   |   |   |                                     |        |                                     |   |        |   |   |   |
|    Outstanding                                                                    |   |   |   | $                                        | 131,948,000 |                                     | $      | 104,817,000 |   | 26 | % |

**Nine              Months Ended September 30, 2006 versus Nine Months Ended September              30,              2005**

|                                                                                             |   |   |   | **Nine                        Months Ended** |        | **Nine                        Months Ended** |   |        |   |
|--------------------------------------------------------------------------------------------------|--------|--------|--------|----------------------------------------------|-------------|----------------------------------------------|--------|-------------|--------|
|                                                                                             |   |   |   | **September                        30,**     |        | **September                        30,**     |   | **Percent** |   |
|                                                                                             |   |   |   | **2006**                                     |        | **2005**                                     |   | **Change**  |   |
| Total                        Revenue                                                             |   |   |   | $                                            | 863,051,000 |                                         | $      | 592,495,000 |   | 46 | % |
| Net                        Income                                                                |   |   |   | $                                            | 230,995,000 |                                         | $      | 127,982,000 |   | 80 | % |
| **Drilling:**                                                                                    |   |   |   |                                         |        |                                         |   |        |   |   |   |
|                              Revenue                                    |   |   |   | $                                            | 519,799,000 |                                         | $      | 322,379,000 |   | 61 | % |
|                              Operating costs                            |   |   |   | $                                            | 238,021,000 |                                         | $      | 194,890,000 |   | 22 | % |
|                              Percentage of revenue from                 |   |   |   |                                         |        |                                         |   |        |   |   |   |
|                                 daywork contracts        |   |   |   |                                         | 100         | %                                            |   | 100         | %      |   |   |
|                              Average number of rigs in use              |   |   |   |                                         | 109.8       |                                         |   | 100.7       |   | 9 | % |
|                              Average dayrate on daywork                 |   |   |   |                                         |        |                                         |   |        |   |   |   |
|                                 contracts                |   |   |   | $                                            | 18,442      |                                         | $      | 11,583      |   | 59 | % |
|                              Depreciation                               |   |   |   | $                                            | 38,089,000  |                                         | $      | 31,010,000  |   | 23 | % |
| **Oil                        and Natural Gas:**                                                  |   |   |   |                                         |        |                                         |   |        |   |   |   |
|                              Revenue                                    |   |   |   | $                                            | 267,518,000 |                                         | $      | 202,819,000 |   | 32 | % |
|                              Operating costs                            |   |   |   | $                                            | 58,854,000  |                                         | $      | 40,916,000  |   | 44 | % |
|                              Average natural gas price (Mcf)            |   |   |   | $                                            | 6.28        |                                         | $      | 6.74        |   | (7 | )% |
|                              Average oil price (Bbl)                    |   |   |   | $                                            | 57.18       |                                         | $      | 48.16       |   | 19 | % |
|                              Natural gas production (Mcf)               |   |   |   |                                         | 32,350,000  |                                         |   | 24,055,000  |   | 34 | % |
|                              Oil production (Bbl)                       |   |   |   |                                         | 1,062,000   |                                         |   | 788,000     |   | 35 | % |
|                              Depreciation, depletion and                |   |   |   |                                         |        |                                         |   |        |   |   |   |
|                                 amortization rate (Mcfe) |   |   |   | $                                            | 1.97        |                                         | $      | 1.58        |   | 25 | % |
|                              Depreciation, depletion and                |   |   |   |                                         |        |                                         |   |        |   |   |   |
|                                 amortization             |   |   |   | $                                            | 76,780,000  |                                         | $      | 45,632,000  |   | 68 | % |
| **Gas                        Gathering and Processing:**                                         |   |   |   |                                         |        |                                         |   |        |   |   |   |
|                              Revenue                                    |   |   |   | $                                            | 72,840,000  |                                         | $      | 65,895,000  |   | 11 | % |
|                              Operating costs                            |   |   |   | $                                            | 63,734,000  |                                         | $      | 60,616,000  |   | 5 | % |
|                              Depreciation                               |   |   |   | $                                            | 4,019,000   |                                         | $      | 2,267,000   |   | 77 | % |
|                              Gas gathered - MMbtu/day                   |   |   |   |                                         | 245,435     |                                         |   | 129,754     |   | 89 | % |
|                              Gas processed - MMbtu/day                  |   |   |   |                                         | 27,226      |                                         |   | 32,709      |   | (17 | )% |
|                                                                                             |   |   |   |                                         |        |                                         |   |        |   |   |   |
| General                        and Administrative Expense                                        |   |   |   | $                                            | 12,998,000  |                                         | $      | 10,455,000  |   | 24 | % |
| Interest                        Expense                                                          |   |   |   | $                                            | 3,235,000   |                                         | $      | 2,157,000   |   | 50 | % |
| Income                        Tax Expense                                                        |   |   |   | $                                            | 136,326,000 |                                         | $      | 76,570,000  |   | 78 | % |
| Average                        Interest Rate                                                     |   |   |   |                                         | 5.76        | %                                            |   | 4.46        | %      | 29 | % |
| Average                        Long-Term Debt Outstanding                                        |   |   |   | $                                            | 121,323,000 |                                         | $      | 95,349,000  |   | 27 | % |

**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**

**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:                        November 2, 2006 | By:                         /s/                        Larry D. Pinkston |
|                                          | LARRY                        D. PINKSTON                                      |
|                                          | Chief                        Executive Officer and Director                   |
|                                          |                                                                          |
| Date:                        November 2, 2006 | By:                         /s/                        David T. Merrill  |
|                                          | DAVID                        T. MERRILL                                       |
|                                          | Chief                        Financial Officer and                            |
|                                          | Treasurer                                                                     |