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UNITED STATES

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, 2009



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number  0-8041





LOGO

GEORESOURCES, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Colorado                                                       |  | 84-0505444                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                                    |  |           
|--------------------------------------------------- |  | ----------
|110 Cypress Station Drive, Suite 220 Houston, Texas |  | 77090-1629
|(Address of principal executive offices)            |  | (Zip code)

(281) 537-9920

(Registrants telephone number, including area code)





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registration was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No  x

Indicated by check mark whether the registrant is a large accelerated file, an accelerated file, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
file, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                         |  |                                                  |  |                           |  |  
|------------------------ |  | ------------------------------------------------ |  | ------------------------- |  | -
|Larger accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                         |  |                                                  | 
|Non-accelerated filer    |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.



|                                       |  |                                
|-------------------------------------- |  | -------------------------------
|Class of equity                        |  | Outstanding at November 4,
2009
|Common stock, par value $.01 per share |  | 16,241,717 shares              









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TABLE OF CONTENTS



|         |  |                                                                                                                               |  |   
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | --
|         |  | PART I  FINANCIAL INFORMATION                                                                                                |  |   
|         |  |                                                                                                                              
|Item 1.  |  | Financial Statements.                                                                                                         |  |   
|         |  |                                                                                                                              
|         |  | Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008.                                                   |  | 3 
|         |  |                                                                                                                              
|         |  | Consolidated Statements of Income for Three Months and Nine Months ended September 30, 2009 and 2008.                         |  | 5 
|         |  |                                                                                                                              
|         |  | Consolidated Statement of Stockholders Equity and Comprehensive Income (Loss) for the Nine Months ended
 September 30, 2009. |  | 6 
|         |  |                                                                                                                              
|         |  | Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2009 and
2008.                                  |  | 7 
|         |  |                                                                                                                              
|         |  | Notes to Consolidated Financial Statements.                                                                                   |  | 8 
|         |  |                                                                                                                              
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations.                                        |  | 25
|         |  |                                                                                                                              
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk.                                                                   |  | 36
|         |  |                                                                                                                              
|Item 4.  |  | Controls and Procedures.                                                                                                      |  | 37
|         |  |                                                                                                                              
|         |  | PART II  OTHER INFORMATION                                                                                                   |  |   
|         |  |                                                                                                                              
|Item 1.  |  | Legal Proceedings.                                                                                                            |  | 38
|         |  |                                                                                                                              
|Item 1A. |  | Risk Factors.                                                                                                                 |  | 38
|         |  |                                                                                                                              
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds.                                                                  |  | 38
|         |  |                                                                                                                              
|Item 3.  |  | Defaults Upon Senior Securities.                                                                                              |  | 38
|         |  |                                                                                                                              
|Item 4.  |  | Submission of Matters to a Vote of Security Holders.                                                                          |  | 38
|         |  |                                                                                                                              
|Item 5.  |  | Other Information.                                                                                                            |  | 38
|         |  |                                                                                                                              
|Item 6.  |  | Exhibits.                                                                                                                     |  | 39
|         |  |                                                                                                                              
|         |  | Signatures.                                                                                                                   |  | 41



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GEORESOURCES, INC and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)



|                                                          |  |                   |         |   |                  |   |         |  
|--------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                          |  | September 30,2009 |         |   | December 31,2008 |  
|                                                          |  | (unaudited)       |         |   |                  |  
|ASSETS                                                    |  |                   |         |   |                  |   |         |  
|Current assets:                                           |  |                   |         |   |                  |   |         |  
|                                                          |  |                  
|Cash                                                      |  | $                 | 11,936  |   |                  | $ | 13,967  |  
|Accounts receivable                                       |  |                   |         |   |                  |   |         |  
|Oil and gas revenues                                      |  |                   | 11,131  |   |                  |   | 11,439  |  
|Joint interest billings and other                         |  |                   | 14,298  |   |                  |   | 7,172   |  
|Affiliated partnerships                                   |  |                   | 289     |   |                  |   | 2,905   |  
|Notes receivable                                          |  |                   | 120     |   |                  |   | 120     |  
|Derivative financial instruments                          |  |                   | 722     |   |                  |   | 8,200   |  
|Income taxes receivable                                   |  |                   | 2,962   |   |                  |   | 2,165   |  
|Prepaid expenses and other                                |  |                   | 2,650   |   |                  |   | 3,923   |  
|                                                          |  |                   |         |   |                  |   |         |  
|Total current assets                                      |  |                   | 44,108  |   |                  |   | 49,891  |  
|                                                          |  |                   |         |   |                  |   |         |  
|Oil and gas properties, successful efforts method:        |  |                   |         |   |                  |   |         |  
|                                                          |  |                  
|Proved properties                                         |  |                   | 279,240 |   |                  |   | 204,536 |  
|Unproved properties                                       |  |                   | 9,890   |   |                  |   | 2,409   |  
|Office and other equipment                                |  |                   | 797     |   |                  |   | 1,025   |  
|Land                                                      |  |                   | 96      |   |                  |   | 96      |  
|                                                          |  |                   |         |   |                  |   |         |  
|                                                          |  |                   | 290,023 |   |                  |   | 208,066 |  
|                                                          |  |                  
|Less accumulated depreciation, depletion and amortization |  |                   | (41,277 | ) |                  |   | (26,486 | )
|                                                          |  |                   |         |   |                  |   |         |  
|Net property and equipment                                |  |                   | 248,746 |   |                  |   | 181,580 |  
|                                                          |  |                   |         |   |                  |   |         |  
|Equity in oil and gas limited partnerships                |  |                   | 4,099   |   |                  |   | 3,266   |  
|                                                          |  |                  
|Derivative financial instruments                          |  |                   | 755     |   |                  |   | 6,409   |  
|                                                          |  |                  
|Deferred financing costs and other                        |  |                   | 3,768   |   |                  |   | 2,388   |  
|                                                          |  |                   |         |   |                  |   |         |  
|                                                          |  | $                 | 301,476 |   |                  | $ | 243,534 |  
|                                                          |  |                   |         |   |                  |   |         |  

The accompanying notes are an integral part of these statements.



3



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GEORESOURCES, INC and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)



|                                                                                                           |  |                   |         |   |                  |   |        
|---------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | -------
|                                                                                                           |  | September 30,2009 |         |   | December 31,2008
|                                                                                                           |  | (unaudited)       |         |   |                 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                       |  |                   |         |   |                  |   |        
|Current liabilities:                                                                                       |  |                   |         |   |                  |   |        
|                                                                                                           |  |                  
|Accounts payable                                                                                           |  | $                 | 4,066   |   |                  | $ | 10,750 
|Accounts payable to affiliated partnerships                                                                |  |                   | 9,172   |   |                  |   | 10,310 
|Revenues and royalties payable                                                                             |  |                   | 13,898  |   |                  |   | 11,701 
|Drilling advances                                                                                          |  |                   | 38      |   |                  |   | 2,169  
|Accrued expenses                                                                                           |  |                   | 1,859   |   |                  |   | 1,506  
|Derivative financial instruments                                                                           |  |                   | 3,364   |   |                  |   | 1,572  
|                                                                                                           |  |                   |         |   |                  |   |        
|Total current liabilities                                                                                  |  |                   | 32,397  |   |                  |   | 38,008 
|                                                                                                           |  |                   |         |   |                  |   |        
|Long-term debt                                                                                             |  |                   | 104,000 |   |                  |   | 40,000 
|                                                                                                           |  |                  
|Deferred income taxes                                                                                      |  |                   | 17,410  |   |                  |   | 17,868 
|                                                                                                           |  |                  
|Asset retirement obligations                                                                               |  |                   | 5,741   |   |                  |   | 5,418  
|                                                                                                           |  |                  
|Derivative financial instruments                                                                           |  |                   | 1,066   |   |                  |   | 1,245  
|                                                                                                           |  |                  
|Stockholders equity:                                                                                      |  |                   |         |   |                  |   |        
|Common stock, par value $0.01 per share; authorized 100,000,000 shares; issued and outstanding: 16,241,717 |  |                   | 162     |   |                  |   | 162    
|Additional paid-in capital                                                                                 |  |                   | 113,587 |   |                  |   | 112,523
|Accumulated other comprehensive (loss) income                                                              |  |                   | (1,318  | ) |                  |   | 7,283  
|Retained earnings                                                                                          |  |                   | 28,431  |   |                  |   | 21,027 
|                                                                                                           |  |                   |         |   |                  |   |        
|Total stockholders equity                                                                                 |  |                   | 140,862 |   |                  |   | 140,995
|                                                                                                           |  |                   |         |   |                  |   |        
|                                                                                                           |  | $                 | 301,476 |   |                  | $ | 243,534
|                                                                                                           |  |                   |         |   |                  |   |        

The accompanying notes are an integral part of these statements.



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GEORESOURCES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

(unaudited)



|                                         |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           
|---------------------------------------- |  | ------------------------------- | ---------- | ---- | ------------------------------ | ---------- | ---- |  | - | ---------- | - |  | - | ----------
|                                         |  | Three Months EndedSeptember 30, |            |      | Nine Months EndedSeptember 30,
|                                         |  | 2009                            |            | 2008 |                                |            | 2009 |  |   | 2008      
|Revenue:                                 |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           
|Oil and gas revenues                     |  | $                               | 19,980     |      | $                              | 21,763     |      |  | $ | 49,109     |   |  | $ | 69,344    
|Partnership management fees              |  |                                 | 151        |      |                                | 585        |      |  |   | 847        |   |  |   | 1,419     
|Property operating income                |  |                                 | 398        |      |                                | 381        |      |  |   | 1,312      |   |  |   | 1,052     
|Gain on sale of property and equipment   |  |                                 | 57         |      |                                | 308        |      |  |   | 1,545      |   |  |   | 2,269     
|Partnership income                       |  |                                 | 2,374      |      |                                | 366        |      |  |   | 3,834      |   |  |   | 1,021     
|Interest and other                       |  |                                 | 25         |      |                                | 190        |      |  |   | 165        |   |  |   | 640       
|                                         |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           
|Total revenue                            |  |                                 | 22,985     |      |                                | 23,593     |      |  |   | 56,812     |   |  |   | 75,745    
|Expenses:                                |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           
|Lease operating expense                  |  |                                 | 4,395      |      |                                | 5,594      |      |  |   | 13,202     |   |  |   | 17,174    
|Severance taxes                          |  |                                 | 1,200      |      |                                | 2,088      |      |  |   | 2,562      |   |  |   | 6,405     
|Re-engineering and workovers             |  |                                 | 761        |      |                                | 649        |      |  |   | 2,057      |   |  |   | 2,331     
|Exploration expense                      |  |                                 | 620        |      |                                | 29         |      |  |   | 988        |   |  |   | 531       
|Impairment of oil and gas properties     |  |                                 |           |      |                                |           |      |  |   | 128        |   |  |   |          
|General and administrative expense       |  |                                 | 1,951      |      |                                | 1,688      |      |  |   | 5,976      |   |  |   | 5,333     
|Depreciation, depletion and amortization |  |                                 | 6,310      |      |                                | 3,833      |      |  |   | 15,503     |   |  |   | 11,283    
|Hedge ineffectiveness                    |  |                                 | 111        |      |                                | (890       | )    |  |   | 186        |   |  |   | 47        
|Loss on derivative contracts             |  |                                 | 83         |      |                                |           |      |  |   | 141        |   |  |   |          
|Interest                                 |  |                                 | 1,586      |      |                                | 975        |      |  |   | 3,549      |   |  |   | 3,858     
|                                         |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           
|Total expense                            |  |                                 | 17,017     |      |                                | 13,966     |      |  |   | 44,292     |   |  |   | 46,962    
|                                         |  |                                 |            |     
|Income before income taxes               |  |                                 | 5,968      |      |                                | 9,627      |      |  |   | 12,520     |   |  |   | 28,783    
|                                         |  |                                 |            |     
|Income tax expense (benefit):            |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           
|Current                                  |  |                                 | 356        |      |                                | 1,679      |      |  |   | (176       | ) |  |   | 4,438     
|Deferred                                 |  |                                 | 2,184      |      |                                | 2,149      |      |  |   | 5,292      |   |  |   | 6,532     
|                                         |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           
|                                         |  |                                 | 2,540      |      |                                | 3,828      |      |  |   | 5,116      |   |  |   | 10,970    
|                                         |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           
|Net income                               |  | $                               | 3,428      |      | $                              | 5,799      |      |  | $ | 7,404      |   |  | $ | 17,813    
|                                         |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           
|Net income per share (basic)             |  | $                               | 0.21       |      | $                              | 0.36       |      |  | $ | 0.46       |   |  | $ | 1.16      
|                                         |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           
|Net income per share (diluted)           |  | $                               | 0.21       |      | $                              | 0.35       |      |  | $ | 0.46       |   |  | $ | 1.14      
|                                         |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           
|Weighted average shares outstanding:     |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           
|Basic                                    |  |                                 | 16,241,717 |      |                                | 16,236,716 |      |  |   | 16,241,717 |   |  |   | 15,384,864
|                                         |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           
|Diluted                                  |  |                                 | 16,323,353 |      |                                | 16,440,755 |      |  |   | 16,241,717 |   |  |   | 15,582,284
|                                         |  |                                 |            |      |                                |            |      |  |   |            |   |  |   |           

The accompanying notes are an integral part of these statements.



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GEORESOURCES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY and COMPREHENSIVE INCOME (LOSS)

Nine Months Ended September 30, 2009

(In thousands except share data)

(unaudited)



|                                                                        |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |        |   |  |   |         |  
|----------------------------------------------------------------------- |  | ------------ |  | ------------------------ | --- | ---------------- | - | ------------------------------------------ |  | - | ------ |  | - | ------ | - |  | - | ------- | -
|                                                                        |  | Common Stock |  | AdditionalPaid-inCapital |     | RetainedEarnings |   | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total  | 
|                                                                        |  | Shares       |  | Par Value                |     |                  |   |                                           
|Balance, December 31, 2008                                              |  | 16,241,717   |  | $                        | 162 |                  | $ | 112,523                                    |  | $ | 21,027 |  | $ | 7,283  |   |  | $ | 140,995 |  
|                                                                        |  |              |  |                          |     |                 
|Comprehensive income (loss):                                            |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |        |   |  |   |         |  
|Net income                                                              |  |              |  |                          |     |                  |   |                                            |  |   | 7,404  |  |   |        |   |  |   | 7,404   |  
|Change in fair market value of hedged positions, net of taxes of $3,134 |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   | (4,688 | ) |  |   | (4,688  | )
|Net realized hedging gains charged to income, net of taxes of $2,617    |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   | (3,913 | ) |  |   | (3,913  | )
|                                                                        |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |        |   |  |   |         |  
|Total comprehensive loss                                                |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |        |   |  |   | (1,197  | )
|                                                                        |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |        |   |  |   |         |  
|Equity based compensation expense                                       |  |              |  |                          |     |                  |   | 1,064                                      |  |   |        |  |   |        |   |  |   | 1,064   |  
|                                                                        |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |        |   |  |   |         |  
|Balance, September 30, 2009                                             |  | 16,241,717   |  | $                        | 162 |                  | $ | 113,587                                    |  | $ | 28,431 |  | $ | (1,318 | ) |  | $ | 140,862 |  
|                                                                        |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |        |   |  |   |         |  

The accompanying notes are an integral part of this statement.



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GEORESOURCES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share amounts)

(unaudited)



|                                                                                  |  |                                |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Nine Months EndedSeptember 30, |        
|                                                                                  |  | 2009                           |         |   | 2008 |  
|Cash flows from operating activities:                                             |  |                                |         |   |      |   |         |  
|Net income                                                                        |  | $                              | 7,404   |   |      | $ | 17,813  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |         |   |      |   |         |  
|Depreciation, depletion and amortization                                          |  |                                | 15,503  |   |      |   | 11,283  |  
|Unproved property impairments                                                     |  |                                |        |   |      |   | 483     |  
|Proved property impairments                                                       |  |                                | 128     |   |      |   |        |  
|Gain on sale of property and equipment                                            |  |                                | (1,545  | ) |      |   | (2,269  | )
|Accretion of asset retirement obligations                                         |  |                                | 271     |   |      |   | 304     |  
|Unrealized gain on derivative contracts                                           |  |                                | (153    | ) |      |   |        |  
|Amortization of loss on canceled hedge contract                                   |  |                                | 363     |   |      |   |        |  
|Hedge ineffectiveness loss                                                        |  |                                | 186     |   |      |   | 47      |  
|Partnership income                                                                |  |                                | (3,834  | ) |      |   | (1,021  | )
|Partnership distributions                                                         |  |                                | 1,355   |   |      |   | 551     |  
|Deferred income taxes                                                             |  |                                | 5,292   |   |      |   | 6,532   |  
|Non-cash compensation                                                             |  |                                | 1,064   |   |      |   | 462     |  
|Changes in assets and liabilities:                                                |  |                                |         |   |      |   |         |  
|Increase in accounts receivable                                                   |  |                                | (5,593  | ) |      |   | (155    | )
|Decrease in notes receivable                                                      |  |                                | 245     |   |      |   | 555     |  
|Increase in prepaid expense and other                                             |  |                                | (355    | ) |      |   | (1,499  | )
|Increase (decrease) in accounts payable and accrued expense                       |  |                                | (7,403  | ) |      |   | 5,514   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                                | 12,928  |   |      |   | 38,600  |  
|                                                                                  |  |                               
|Cash flows from investing activities:                                             |  |                                |         |   |      |   |         |  
|Proceeds from sale of property and equipment                                      |  |                                | 2,660   |   |      |   | 20,960  |  
|Additions to property and equipment                                               |  |                                | (81,619 | ) |      |   | (43,012 | )
|Investment in oil and gas limited partnership                                     |  |                                |        |   |      |   | (978    | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                                | (78,959 | ) |      |   | (23,030 | )
|                                                                                  |  |                               
|Cash flows from financing activities:                                             |  |                                |         |   |      |   |         |  
|Issuance of common stock                                                          |  |                                |        |   |      |   | 32,187  |  
|Issuance of long-term debt                                                        |  |                                | 64,000  |   |      |   |        |  
|Reduction of long-term debt                                                       |  |                                |        |   |      |   | (46,000 | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                               |  |                                | 64,000  |   |      |   | (13,813 | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net (decrease) increase in cash and cash equivalents                              |  |                                | (2,031  | ) |      |   | 1,757   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Cash and cash equivalents at beginning of period                                  |  |                                | 13,967  |   |      |   | 24,430  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                        |  | $                              | 11,936  |   |      | $ | 26,187  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Supplementary information:                                                        |  |                                |         |   |      |   |         |  
|Interest paid                                                                     |  | $                              | 2,938   |   |      | $ | 3,708   |  
|Income taxes paid                                                                 |  | $                              | 677     |   |      | $ | 4,210   |  

The accompanying notes are an integral part of these statements.



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GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE A: Organization and Basis of Presentation

Description of Operations

GeoResources, Inc. (GeoResources or the Company) operates a single business segment engaged in the acquisition, development and production of, and exploration for, crude oil,
natural gas and related products primarily in Texas, North Dakota, Louisiana, Oklahoma, and Montana.

Consolidated
Financial Statements

The unaudited consolidated financial statements include the accounts of GeoResources and its
subsidiaries, all of which are wholly owned. The financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting. All intercompany balances and transactions have been
eliminated in consolidation. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly, in all material respects, the
Companys interim results. GeoResources 2008 Annual Report on Form 10-K/A includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Form 10-Q. Except as disclosed herein,
there has been no material changes to the information disclosed in the notes to the consolidated financial statements included in GeoResources 2008 Annual Report on Form 10-K/A. Operating results for the periods presented are not necessarily
indicative of the results that may be expected for the full year.

Earnings Per Share

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during
each period. Diluted net income per common share is calculated by dividing net income by the weighted average number of diluted common shares outstanding, which includes the effect of potentially dilutive securities. The only securities considered
potentially dilutive are the Companys stock options.

NOTE B: Acquisitions and Dispositions

Bakken Acquisition

In May 2009, the Company closed an acquisition, through an existing joint venture partner, of producing wells and acreage in the Bakken Shale trend of the Williston Basin. The Company acquired a 15%
interest in approximately 60,000 net acres, and also acquired 15% of varying working interests in 59 producing and productive wells. The Companys net acquisition cost was approximately $10.4 million, subject to closing adjustments for normal
operations activity and other customary purchase price adjustments. The Company funded the acquisition with borrowings from its senior secured revolving credit facility.

Giddings Field Acquisition

On May 29, 2009, effective
May 1, 2009, the Company, though its subsidiary, Catena Oil and Gas LLC (Catena), entered into a Purchase and Sale Agreement (the Purchase Agreement) with an affiliated limited partnership, SBE Partners LP (the
Seller) for the acquisition (the Acquisition) of certain oil and gas producing properties in Giddings Field, Grimes and Montgomery Counties, Texas (the Interests). Under the Purchase Agreement, the Interests were
purchased for a net cash purchase price of $48.4 million, subject to adjustments at closing for normal operations activity and other customary purchase price adjustments (the Purchase Price). The Acquisition increased the Companys
partnership



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GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



sharing ratio from 2% to 30% in the Seller. Catena is the general partner of the Seller. The Acquisition increased the Companys direct working interests in the Interests from a range of
6.5% to 7.8% to a range of 34% to 37%. The Company funded the Purchase Price with borrowings from its senior secured revolving credit facility. The Purchase Agreement contains representations and warranties, covenants, and indemnifications that are
customary for oil and gas producing property acquisitions.

The amount of revenue and net income from the Acquisition included
in the Companys consolidated income statement for the nine months ended September 30, 2009 was $3,666,000 and $788,000, respectively.

The following summary presents unaudited pro forma information for the nine month periods ended September 30, 2009 and 2008, as if the Acquisition had been consummated at January 1, 2008 (in
thousands except share and per share amounts):



|                         |  |               |            |      |   |           
|------------------------ |  | ------------- | ---------- | ---- | - | ----------
|                         |  | September 30,
|                         |  | 2009          |            | 2008
|Total revenue            |  | $             | 61,665     |      | $ | 99,212    
|Income before taxes      |  |               | 15,449     |      |   | 42,273    
|Net income               |  |               | 9,216      |      |   | 26,379    
|Net income per share:    |  |               |            |      |   |           
|Basic                    |  | $             | 0.57       |      | $ | 1.71      
|Diluted                  |  | $             | 0.57       |      | $ | 1.69      
|Weighted average shares: |  |               |            |      |   |           
|Basic                    |  |               | 16,241,717 |      |   | 15,384,864
|Diluted                  |  |               | 16,241,717 |      |   | 15,582,284

Other Acquisitions and Sales

In January 2009, the Company sold a producing property located in Louisiana to an unaffiliated party for $1.6 million. The Company recognized
a gain of $1.3 million in conjunction with this sale.

On August 29, 2009, the Company, through its subsidiary, Catena,
received a distribution of proved undeveloped property and unproved acreage in the Giddings Field from SBE Partners LP (SBE), an affiliated partnership. The property was recorded at the estimated fair market value of $1.6 million, which
exceeded its carrying value in the partnership. In conjunction with the distribution, SBE recorded a gain. The Company, which accounts for SBE as an equity method investment, included its share of the gain, $1,037,000, in partnership income.

NOTE C: Recently Issued Accounting Pronouncements

On December 31, 2008, the SEC published the revised rules and interpretations updating its oil and gas reporting requirements. Many of the revisions are updates to definitions in existing oil and gas
rules to make them consistent with the petroleum resources management system, which is a widely accepted standard for the management of petroleum resources that was developed by several industry organizations. Key revisions include the ability to
include nontraditional resources in reserves, the use of new technology for determining reserves, permitting disclosure of probable and possible reserves, and changes to the pricing used in determining reserves. To determine reserves, companies must
use a 12-month average price. The Company is required to comply with the amended disclosure requirement for registration statements filed after January 1, 2010, and for annual reports for fiscal years ending on or after December 15, 2009.
Early adoption is not permitted. The Company is currently assessing the impact that the adoption will have on its disclosures, operating results, financial position and cash flows.



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GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



In August 2009, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2009-05, Measuring Liabilities at Fair Value, to amend FASB Accounting Standards Codification(ASC) topic 820, Fair Value Measurement and Disclosures. The ASU is intended
to clarify how entities should estimate the fair value of liabilities. The amended ASC includes clarifying guidance for circumstances in which a quoted price in an active market is not available, the effect of the existence of liability transfer
restrictions, and the effect of quote prices for an identical liability, including when an identical liability is traded as an asset. ASC topic 820, as amended, and its guidance on measuring liabilities at fair value is effective for the first
interim or annual reporting period beginning after August 29, 2009, with earlier application permitted. The Company is in the process of evaluating the impact the amended guidance in ASC 820 will have on its consolidated financial statements.

In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles, as codified in FASB ASC topic 105 Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162. This standard establishes only two levels of GAAP, authoritative and
non-authoritative. The FASB ASC was not intended to change or alter existing GAAP, and the Companys adoption effective July 1, 2009, did not therefore have any impact on its consolidated financial statements other than to modify
references to accounting guidance within certain existing disclosures. The FASB ASC will become the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC
registrants. All other non-grandfathered, non-SEC accounting literature not included in the FASB ASC will become non-authoritative. FASB ASC is effective for financial statements for interim or annual reporting periods ending after
September 15, 2009. Upon adoption the Company began to use the new guidelines and numbering system prescribed by the FASB ASC when referring to GAAP in the third quarter of fiscal 2009.

In June 2009, the Financial Accounting Standards Board issued FASB Statement 167, Amendments to FASB Interpretation No. 46(R),
as codified FASB ASC topic 810 Consolidation, to improve how enterprises account for and disclose their involvement with variable interest entities (VIEs), which are special purpose entities, and other entities whose equity at risk is
insufficient or lack certain characteristics. Among other things, Statement 167 changes how an entity determines whether it is the primary beneficiary of a variable interest entity (VIE) and whether that VIE should be consolidated. The new Statement
requires an entity to provide significantly more disclosures about its involvement with VIEs. As a result, the Company must comprehensively review its involvement with VIEs and potential VIEs, including entities previously considered to be
qualifying special purpose entities, to determine the effect on the Companys consolidated financial statements and related disclosures. Statement 167 is effective as of the beginning of a reporting entitys first annual reporting period
that begins after November 15, 2009, and for interim periods within the first annual reporting period. Earlier application is not permitted. The Company is in the process of evaluating the impact Statement 167 will have on its consolidated
financial statements and related disclosures.

In May 2009, the Financial Accounting Standards Board issued Statement 165,
Subsequent Events (SFAS 165), as codified in FASB ASC topic 855 Subsequent Events. SFAS 165 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued. Specifically, this standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur
for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an
entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective for fiscal years and interim periods ended after June 30, 2009. The Company adopted SFAS 165 effective April 1, 2009, which
did not have an impact on its consolidated financial statements, other than additional disclosures.



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GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



In April 2009, the FASB issued Staff Position (FSP) 141R-1, Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (FSP FAS 141R-1), as codified ASC topic 805 Business Combinations. FSP FAS 141R-1 amends SFAS 141R and addresses application
issues regarding the accounting and disclosure provisions for contingencies. The FSP replaces the guidance in SFAS 141R on the initial recognition and measurement of assets and liabilities arising from contingencies acquired or assumed in a business
combination with guidance similar to that in FASB Statement 141, before the 2007 revision. The FSP also amends Statement 141Rs subsequent guidance for contingent assets and liabilities recognized at the acquisition date and amends the
disclosure requirements for contingencies. The FSP is effective for business combinations with an acquisition date that is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company
adopted FSP FAS 141R-1 effective January 1, 2009, and has applied its provisions to the acquisitions completed during the first nine months of 2009.

In April 2009, the FASB issued two FASB FSPs intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. FSP
No. 157-4, Determining Fair Value When the Volume or Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, as codified in FASB ASC topic 820-10-65 Fair Value
Measurement and Disclosure,provides additional guidelines for estimating fair value in accordance with FASB SFAS No. 157, Fair Value Measurements (SFAS 157). FSP No 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments, as codified in FASB ASC topic 825-10-65, increases the frequency of fair value disclosures. These FSPs are effective for fiscal years and interim periods ended after June 15, 2009. The Company adopted these
FSPs effective April 1, 2009, which did not have an impact on its consolidated financial statements, other than additional disclosures.

In December 2007, the FASB issued Statement No. 141R, Business Combinations (SFAS 141R) which replaces SFAS No. 141, as codified in FASB ASC, Topic 805 Business
Combinations. SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements, the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree. The statement also provides guidance for recognizing and measuring goodwill acquired in business combinations and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial
effects of business combinations. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company adopted SFAS 141R effective January 1, 2009, and has applied its provisions
prospectively to the acquisitions completed during the first nine months of 2009.

NOTE D: Long-term Debt

On October 16, 2007, the Company entered into an Amended and Restated Credit Agreement (Amended Credit Agreement) with
Wachovia Bank (the Bank) as Administrative agent, Issuing Bank, Sole Lead Arranger and Sole Bookrunner. The Amended Credit Agreement provided for financing of up to $200 million to the Company. The initial borrowing base of the Amended
Credit Agreement was $110. On September 30, 2008, the borrowing base was reduced to $95 million due to the sales of certain of the Companys non-core oil and gas properties. On November 5, 2008, the borrowing base was increased to
$100 million and on April 6, 2009, the $100 million borrowing base was reaffirmed by the Bank.

On July 13, 2009,
the Company entered into a Second Amended and Restated Credit Agreement (Second Amended Credit Agreement). The Second Amended Credit Agreement increased the facility from $200 million to $250 million and extended the term of the
agreement to October 16, 2012. The initial borrowing base of the facility is $135 million, subject to redetermination on May 1 and November 1 of each year. The Second Amended Credit Agreement provides for interest rates at
(a) LIBOR plus 2.25% to 3.00% or (b) the prime lending rate plus 1.25% to 2.00%, depending upon the amount borrowed. The agreement also requires the payment of commitment fees to the lender in respect of the unutilized commitments. The
commitment rate is 0.50% per annum. The Company is also required to pay customary letter of credit fees. All of the obligations under the Second Amended Credit Agreement, and the guarantees of those obligations, are secured by substantially all
of the Companys assets.



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GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



The Second Amended Credit Agreement contains a number of covenants that, among other
things, restrict, subject to certain exceptions, the Companys ability to incur additional indebtedness, create liens on assets, make investments, enter into sale and lease back transactions, pay dividends and distributions or repurchase its
capital stock, engage in mergers or consolidations, make significant changes to management, sell certain assets, sell or discount any notes receivable or accounts receivable and engage in certain transactions with affiliates. In addition, the Second
Amended Credit Agreement requires the maintenance of certain financial ratios, contains customary affirmative covenants, and provides for customary events of default. The Company was in compliance with all covenants at September 30, 2009.

The principal outstanding under the Second Amended Credit Agreement was $104 million at September 30, 2009 and $40
million at December 31, 2008. The annual interest rate in effect at September 30, 2009 was 3.00% on the entire amount of outstanding principal. Subsequent to the end of the quarter, on October, 19, 2009, the Company paid down the
outstanding principal by $2 million. The remaining borrowing capacity under the Second Amended Credit Agreement, as of November 4, 2009, was $33 million. The maturity date for amounts outstanding under the Seconded Amended Credit Agreement is
October 16, 2012.

Interest expense for the three months ended September 30, 2009 and 2008, included amortization of
deferred financing costs of $256,000 and $120,000, respectively. Interest expense for the nine months ended September 30, 2009 and 2008, included amortization of deferred financing costs of $520,000 and $359,000, respectively.

In October 2007, the Company entered into an interest rate swap agreement with the Bank, providing a fixed rate of 4.79% on a notional
$50,000,000 through October 16, 2010. During 2008, the Company broke the swap up into two pieces, a $40 million swap and a $10 million swap each with a fixed annual interest rate of 4.29%. The $40 million swap is accounted for as a cash flow
hedge while the $10 million swap is accounted for as a trading security. The fair market value of these swaps at September 30, 2009, was a liability of $2,050,000 of which $1,968,000 was classified as a current liability. The fair market value
of the two swaps at December 31, 2008 was a liability of $2,817,000 of which $1,572,000 was classified as a current liability. The Company also recognized a net loss of $83,000 on the $10 million swap during the three months ended
September 30, 2009. This loss was due to cash settlement losses of $117,000 which were offset by a mark-to-market gain of $34,000. During the nine months ended September 30, 2009, the Company recognized a net loss of $141,000 on the $10
million swap. This loss was due to cash settlement losses of $294,000 which were offset by a mark-to-market gain of $153,000.

At September 30, 2009 and December 31, 2008, accumulated other comprehensive income included unrecognized losses of $983,000, net of a tax benefit of $657,000, and $1,394,000, net of a tax benefit of $859,000, respectively. These
unrecognized losses represent the inception to date change in mark-to-market value of the Companys $40 million interest rate swap, designated as a hedge, as of the balance sheet date. For the three months ended September 30, 2009, the
Company recognized realized cash settlement losses of $411,000 related to the $40 million swap. For the nine months ended September 30, 2009, the Company recognized realized cash settlement losses of $1,179,000 related to the swap. Based on the
estimated fair market value of the Companys $40 million interest rate swap contract designated as a hedge at September 30, 2009, the Company expects to reclassify net losses of $1.6 million into earnings from accumulated other
comprehensive income (loss) during the next twelve months; however, actual cash settlement gains and losses recognized may differ materially.

NOTE E: Stock Options, Performance Awards and Stock Warrants

In March 2007, the shareholders of the Company
approved the GeoResources, Inc, Amended and Restated 2004 Employees Stock Incentive Plan (the Plan), which authorizes the issuance of options and other stock-based incentives to officers, employees, directors and consultants of the
Company to acquire up to 2,000,000 shares of the Companys common stock at prices which may not be less than the stocks fair market value on the date of grant. The options can be designated as either incentive options or nonqualified
options.



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GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



On February 3, 2009, and March 26, 2009, the Company granted options under the
Plan to officers and other employees to purchase 300,000 and 225,000 shares of common stock, respectively. Also on February 3, 2009, the Company granted options to outside directors to purchase 200,000 shares of common stock. The following is a
summary of the terms of these grants by exercise price:



|                       |  |                                 |  |         |  |        
|---------------------- |  | ------------------------------- |  | ------- |  | -------
|                       |  | Number of Shares Exercisable at
|Vesting Date           |  | $8.50                           |  | $10.00  |  | Total  
|Officers and Employees |  |                                 |  |         |  |        
|February 3, 2010       |  | 65,625                          |  | 65,625  |  | 131,250
|February 3, 2011       |  | 65,625                          |  | 65,625  |  | 131,250
|February 3, 2012       |  | 65,625                          |  | 65,625  |  | 131,250
|February 3, 2013       |  | 65,625                          |  | 65,625  |  | 131,250
|                       |  |                                 | 
|Directors              |  |                                 |  |         |  |        
|February 3, 2010       |  | 25,000                          |  | 25,000  |  | 50,000 
|February 3, 2011       |  | 25,000                          |  | 25,000  |  | 50,000 
|February 3, 2012       |  | 25,000                          |  | 25,000  |  | 50,000 
|February 3, 2013       |  | 25,000                          |  | 25,000  |  | 50,000 
|                       |  |                                 |  |         |  |        
|Total                  |  | 362,500                         |  | 362,500 |  | 725,000
|                       |  |                                 |  |         |  |        

The closing market prices of the Companys common stock on the date of the
February and March 2009 grants were $7.62 and $7.16, respectively.

Subsequent to the end of the quarter, on October 20,
2009, the Company granted additional options to certain employees to purchase 25,000 shares of common stock. These options vest at the rate of 25% per year beginning October 20, 2010, at an exercise price of $13.50 for 12,500 shares and
$15.00 for the remaining 12,500 shares. The closing price of the Companys common stock on October 20, 2009, was $12.70.

All the options, if not exercised, will expire 10 years from the date of grant.

A summary of the Companys
stock option activity for the nine months ended September 30, 2009 is as follows:



|                                   |  |                 |  |                              |      |                                                |      |                         |   |          
|---------------------------------- |  | --------------- |  | ---------------------------- | ---- | ---------------------------------------------- | ---- | ----------------------- | - | ---------
|                                   |  | Number ofShares |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualLife
(year) |      | AggregateIntrinsicValue
|Outstanding, December 31, 2008     |  | 790,000         |  | $                            | 9.39 |                                                | 8.81 |                         | $ | 158,750  
|                                   |  |                 |  |                             
|Granted                            |  | 725,000         |  | $                            | 9.25 |                                                |      |                         |   |          
|Exercised                          |  |                |  | $                            |     |                                                |      |                         |   |          
|Forfeited                          |  |                |  | $                            |     |                                                |      |                         |   |          
|                                   |  |                 |  |                              |      |                                                |      |                         |   |          
|Outstanding, September 30, 2009    |  | 1,515,000       |  | $                            | 9.32 |                                                | 8.53 |                         | $ | 2,936,375
|                                   |  |                 |  |                              |      |                                                |      |                         |   |          
|Exercisable at September 30, 2009: |  |                |  |                              |      |                                                |      |                         |   |          

The Company recognized compensation expense based upon the fair value of the options
at the date of grant determined by the Black-Scholes option pricing model. For the three months ended September 30, 2009 and 2008, the Company recognized compensation expense of $403,000 and $164,000, respectively, related to these options. For
the nine months ended September 30, 2009 and 2008, the



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GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



Company recognized compensation expense of $1,064,000 and $462,000, respectively, related to these options. As of September 30, 2009, the future pre-tax expense of non-vested stock options
is $3,076,000 to be recognized through the first quarter of 2013.

The weighted-average fair value of the options granted
during the nine months ended September 30, 2009, was $4.36 per share, using the following assumptions:



|                        |  |        |  
|----------------------- |  | ------ | -
|Risk-free interest rate |  | 1.25   | %
|Dividend yield          |  | None   |  
|Volatility              |  | 87     | %
|Expected life of option |  | 4Years |  

In measuring compensation associated with these options, an annual pre-vesting
forfeiture rate of 1% was used.

NOTE F: Income Taxes

The Company accounts for income taxes using an asset and liability approach. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using
currently enacted tax laws, attributable to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.

Uncertain Tax Positions

The Company will consider a tax position settled if the taxing authority has completed its examination, the Company does not plan to appeal, and it is remote that the taxing authority would reexamine the
tax position in the future. The Company uses the benefit recognition model which contains a two-step approach, a more likely than not recognition criteria and a measurement attribute that measures the position as the largest amount of tax benefit
that is greater than 50% likely of being realized upon ultimate settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit will be recorded. The amount of interest expense recognized by the
Company related to uncertain tax positions is computed by applying the applicable statutory rate of interest to the difference between the tax position recognized and the amount previously taken or expected to be taken in a tax return.

At September 30, 2009, the Company did not have any uncertain tax positions that would require recognition. The Companys
uncertain tax positions may change in the next twelve months; however, the Company does not expect any possible change to have a significant impact on its results of operations or financial position.

The Company files a consolidated federal income tax return and various combined and separate filings in several state and local
jurisdictions.

The Companys continuing practice is to recognize estimated interest and penalties, if any, related to
potential underpayment on any unrecognized tax benefits as a component of income tax expense in its Consolidated Statement of Income. As of September 30, 2009, the Company did not have any accrued interest or penalties associated with any
unrecognized tax benefits. The Company does not anticipate that total unrecognized tax benefits will significantly change due to the settlement of audits and the expiration of statutes of limitations prior to September 30, 2010.

NOTE G: Derivative Financial Instruments

The Company enters into various crude oil and natural gas hedging contracts, primarily costless collars and swaps, in an effort to manage its exposure to product price volatility. Historically, prices
received for oil and gas production have been volatile because of seasonal weather patterns, supply and demand factors, worldwide political factors and general economic conditions. Costless collars are designed to establish floor and ceiling prices
on anticipated future oil and gas production. Swaps are designed so



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GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



that the Company receives or makes payments based on a differential between fixed and variable prices for crude oil and natural gas. The Company has designated its commodity derivative contracts
as cash flow hedges designed to achieve more predictable cash flows, as well as to reduce its exposure to price volatility. While the use of these derivative instruments limits the downside risk of adverse price movements, they may also limit future
revenues from favorable price movements.

On October 17, 2008, the Company paid $2,975,000 to cancel its 2009 natural gas
swaps that were previously accounted for as cash flow hedges. At the time of cancelation, accumulated other comprehensive income (loss) contained $298,000, net of a tax benefit of $184,000, of acquisition to date mark-to-market losses on the
effective portion of these commodity derivative contracts. As a result of the cancelation of the swaps, the amounts recorded in accumulated other comprehensive income (loss) as of the date of cancelation remained in accumulated other comprehensive
income (loss) and is being reclassified into earnings during 2009 as the original hedged transactions affect earnings. The remainder of the cost to cancel was previously recognized as part of a prior acquisition or through ineffectiveness charges.

At September 30, 2009, accumulated other comprehensive income (loss) consisted of unrecognized gains of $335,000, net of
taxes of $605,000, representing the inception to date change in mark-to-market value of the effective portion of the Companys open commodity contracts, designated as cash flow hedges, as of the balance sheet date. At December 31, 2008,
accumulated other comprehensive income (loss) consisted of unrecognized gains of $8,677,000, net of taxes of $5,348,000. For the three and nine months ended September 30, 2009, the Company recognized realized net cash settlement gains on
commodity derivatives of $2,540,000 and $8,072,000, respectively. The Company also reclassified losses related to the swap contracts canceled during 2008 of $120,000 and $363,000, respectively, for the three and nine months ended September 30,
2009. For the three and nine months ended September 30, 2008, the Company recognized realized net cash settlement losses on commodity derivatives of $4,257,000 and $12,183,000, respectively. Based on the estimated fair market value of the
Companys derivative contracts designated as hedges at September 30, 2009, the Company expects to reclassify net losses of $675,000 into earnings from accumulated other comprehensive income (loss) during the next twelve months; however,
actual cash settlement gains and losses recognized may differ materially. The Company also expects to reclassify losses of $119,000 related to the commodity swaps canceled during 2008, into earnings from accumulated other comprehensive income (loss)
during the next twelve months.

During the first quarter of 2009 the Company entered into two natural gas swap contracts and
one crude oil fixed price forward sale contract. The natural gas swaps have fixed prices of $4.86 and $4.87 per MMBTU. The term of the contracts is from April 2009 to March 2010 and each contract is for 50,000 MMBTUs per month. The fixed price crude
oil contract is directly associated with the Companys Williston Basin production. Under this agreement the Company will sell 9,000 Bbls per month from April 2009 to March 2010 at a price of $43.85. During the second quarter of 2009, the
Company entered into two additional natural gas swap contracts. The natural gas swaps have fixed prices of $5.16 and $5.20 per MMBTU. The term of the contracts is from July 2009 to December 2010. The $5.16 contract is for 180,000 MMBTUs per month
for July 2009 to December 2009 and 120,000 MMBTUs per month during 2010. The $5.20 contract is for 70,000 MMBTUs per month for July 2009 to December 2009 and 40,000 MMBTUs per month during 2010.



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GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



At September 30, 2009, the Company had hedged its exposure to the variability in
future cash flows from forecasted oil and gas production volumes as follows:



|                              |  |                      |  |            |      |                    |   |      
|----------------------------- |  | -------------------- |  | ---------- | ---- | ------------------ | - | -----
|                              |  | TotalRemainingVolume |  | FloorPrice |      | Ceiling /SwapPrice
|Crude Oil Contracts (Bbls):   |  |                      |  |            |      |                    |   |      
|Swap contracts:               |  |                      |  |            |      |                    |   |      
|2009                          |  | 92,000               |  |            |      |                    | $ | 76.00
|2010                          |  | 322,000              |  |            |      |                    | $ | 74.71
|2011                          |  | 282,000              |  |            |      |                    | $ | 74.37
|Forward sales contracts:      |  |                      |  |            |      |                    |   |      
|2009                          |  | 27,000               |  |            |      |                    | $ | 43.85
|2010                          |  | 27,000               |  |            |      |                    | $ | 43.85
|                              |  |                      | 
|Natural Gas Contracts (Mmbtu) |  |                      |  |            |      |                    |   |      
|Swap contracts                |  |                      |  |            |      |                    |   |      
|2009                          |  | 150,000              |  |            |      |                    | $ | 4.86 
|2009                          |  | 150,000              |  |            |      |                    | $ | 4.87 
|2009                          |  | 540,000              |  |            |      |                    | $ | 5.16 
|2009                          |  | 210,000              |  |            |      |                    | $ | 5.20 
|2010                          |  | 150,000              |  |            |      |                    | $ | 4.86 
|2010                          |  | 150,000              |  |            |      |                    | $ | 4.87 
|2010                          |  | 1,440,000            |  |            |      |                    | $ | 5.16 
|2010                          |  | 480,000              |  |            |      |                    | $ | 5.20 
|Costless collars contracts:   |  |                      |  |            |      |                    |   |      
|2009                          |  | 68,883               |  | $          | 7.00 |                    | $ | 10.75
|2010                          |  | 1,287,000            |  | $          | 7.00 |                    | $ | 9.90 
|2011                          |  | 1,079,000            |  | $          | 7.00 |                    | $ | 9.20 

The fair market value of these hedge contracts at September 30, 2009, was a net
liability of $903,000 of which $722,000 was classified as a current asset, $755,000 was classified as a long-term asset, $1,396,000 was classified as a current liability and $984,000 was classified as a long-term liability. The fair market value of
the Companys hedge contracts at December 31, 2008, was an asset of $14,609,000, of which $8,200,000 was classified as a current asset. During the three and nine months ended September 30, 2009, the Company recognized a loss of
$111,000 and $186,000, respectively, due to hedge ineffectiveness on these hedge contracts. During the three months ended September 30, 2008, the Company recognized a gain of $890,000 due to hedge ineffectiveness. During the nine months ended
September 30, 2008, the Company recognized a loss of $47,000 due to hedge ineffectiveness.

The Company has also entered
into an interest rate swap designated as a cash flow hedge as discussed in Note D above.



16



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##### Table of Contents

GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



All derivative instruments are recorded on the consolidated balance sheet of the Company
at fair value. The following table summarizes the location and fair value amounts of all derivative instruments in the consolidated balance sheets (in thousands):



|                                         |                        |                                                  |               |                       |              |  |                        |        |               |                                                      |  |              |        |   |  |   |        |  
|---------------------------------------- | ---------------------- | ------------------------------------------------ | ------------- | --------------------- | ------------ |  | ---------------------- | ------ | ------------- | ---------------------------------------------------- |  | ------------ | ------ | - |  | - | ------ | -
|Derivatives designated as ASC 815hedges: |                        | Asset Derivatives                                |               | Liability Derivatives |             
|                                         |                        |                                                  | Fair Value    |                       |              |  | Fair Value             |       
|                                         | Balance Sheet Location |                                                  | Sept. 30,2009 |                       | Dec. 31,2008 |  | Balance Sheet Location |        | Sept. 30,2009 |                                                      |  | Dec. 31,2008 |       
|Commodity contracts                      |                        | Current derivative financial instruments asset   |               | $                     | 722          |  | $                      | 8,200  |               | Current derivative financial instruments liability   |  | $            | (1,396 | ) |  | $ |       |  
|Commodity contracts                      |                        | Long-term derivative financial instruments asset |               |                       | 755          |  |                        | 6,409  |               | Long-term derivative financial instruments liability |  |              | (984   | ) |  |   |       |  
|Interest rate swap contract              |                        | Current derivative financial instruments asset   |               |                       |             |  |                        |       |               | Current derivative financial instruments liability   |  |              | (1,574 | ) |  |   | (1,258 | )
|Interest rate swap contract              |                        | Long-term derivative financial instruments asset |               |                       |             |  |                        |       |               | Long-term derivative financial instruments liability |  |              | (66    | ) |  |   | (996   | )
|                                         |                        |                                                  |               |                       |              |  |                        |        |               |                                                      |  |              |        |   |  |   |        |  
|                                         |                        |                                                  |               | $                     | 1,477        |  | $                      | 14,609 |               |                                                      |  | $            | (4,020 | ) |  | $ | (2,254 | )
|                                         |                        |                                                  |               |                       |              |  |                        |        |               |                                                      |  |              |        |   |  |   |        |  



|                                             |  |                                                  |  |                       |   |              |   |                        |  |                                                      |  |   |              |   |  |   |      |  
|-------------------------------------------- |  | ------------------------------------------------ |  | --------------------- | - | ------------ | - | ---------------------- |  | ---------------------------------------------------- |  | - | ------------ | - |  | - | ---- | -
|Derivatives not designated as ASC815 hedges: |  | Asset Derivatives                                |  | Liability Derivatives |  
|                                             |  |                                                  |  | Fair Value            |   |              |   | Fair Value             | 
|                                             |  | Balance Sheet Location                           |  | Sept. 30,2009         |   | Dec. 31,2008 |   | Balance Sheet Location |  | Sept. 30,2009                                        |  |   | Dec. 31,2008 |  
|Interest rate swap contract                  |  | Current derivative financial instruments asset   |  | $                     |  |              | $ |                       |  | Current derivative financial instruments liability   |  | $ | (394         | ) |  | $ | (314 | )
|Interest rate swap contract                  |  | Long-term derivative financial instruments asset |  |                       |  |              |   |                       |  | Long-term derivative financial instruments liability |  |   | (16          | ) |  |   | (249 | )
|                                             |  |                                                  |  |                       |   |              |   |                        |  |                                                      |  |   |              |   |  |   |      |  
|                                             |  |                                                  |  | $                     |  |              | $ |                       |  |                                                      |  | $ | (410         | ) |  | $ | (563 | )
|                                             |  |                                                  |  |                       |   |              |   |                        |  |                                                      |  |   |              |   |  |   |      |  



17



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##### Table of Contents

GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



Derivative contracts  The following table summarizes the effects of
commodity and interest rate derivative instruments on the consolidated statements of income for the three months ended September 30, 2009 and 2008 (in thousands):



|                                          |               |                                                                            |      |               |                                                                                  |   |                                                                              |               |  |                      |               |   |       |   |  |   |        |  
|----------------------------------------- | ------------- | -------------------------------------------------------------------------- | ---- | ------------- | -------------------------------------------------------------------------------- | - | ---------------------------------------------------------------------------- | ------------- |  | -------------------- | ------------- | - | ----- | - |  | - | ------ | -
|                                          |               | Amount of Gain or (Loss)Recognized in OCI onDerivative (Effective Portion) |      |               | Location of Gain or (Loss)
Reclassified from OCI into Income (Effective Portion) |   | Amount of Gain or (Loss)Reclassified from OCI intoIncome (Effective Portion) |              
|Derivatives designated as ASC 815 hedges: |               |                                                                            |     
|                                          | Sept. 30,2009 |                                                                            |      | Sept. 30,2008 |                                                                                  |   |                                                                              | Sept. 30,2009 |  |                      | Sept. 30,2008 |  
|Commodity contracts                       |               | $                                                                          | 777  |               |                                                                                  | $ | 49,545                                                                       |               |  | Oil and gas revenues |               | $ | 2,420 |   |  | $ | (4,257 | )
|Interest rate swap contract               |               |                                                                            | (272 | )             |                                                                                  |   | (515                                                                         | )             |  | Interest expense     |               |   | (411  | ) |  |   | (206   | )
|                                          |               |                                                                            |      |               |                                                                                  |   |                                                                              |               |  |                      |               |   |       |   |  |   |        |  
|                                          |               | $                                                                          | 505  |               |                                                                                  | $ | 49,030                                                                       |               |  |                      |               | $ | 2,009 |   |  | $ | (4,463 | )
|                                          |               |                                                                            |      |               |                                                                                  |   |                                                                              |               |  |                      |               |   |       |   |  |   |        |  



|                                                        |  |                                                                                     |  |                                                                                |               |   |  |   |      |  
|------------------------------------------------------- |  | ----------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------ | ------------- | - |  | - | ---- | -
|Derivatives in ASC 815 cash flow hedging relationships: |  | Location of (Gain) or Loss Recognized in Income on Derivative (Ineffective Portion) |  | Amount of (Gain) or LossRecognized in Income onDerivative(Ineffective Portion) |              
|                                                        |  | Sept. 30, 2009                                                                      |  |                                                                                | Sept. 30,2008 |  
|Commodity contracts                                     |  | Hedge ineffectiveness                                                               |  | $                                                                              | 111           |   |  | $ | (890 | )
|                                                        |  |                                                                                     |  |                                                                                |               |   |  |   |      |  
|                                                        |  |                                                                                    
|Derivatives not designated as ASC 815 hedges:           |  | Location of (Gain) or Loss
Recognized in Income on Derivative                       |  | Amount of (Gain) or LossRecognized in Income onDerivative                      |              
|                                                        |  | Sept. 30, 2009                                                                      |  |                                                                                | Sept. 30,2008 |  
|Realized cash settlements on interest rate swap         |  | Loss on derivative contracts                                                        |  | $                                                                              | 117           |   |  | $ |     |  
|Unrealized (gains) on commodity contracts               |  | Loss on derivative contracts                                                        |  |                                                                                | (34           | ) |  |   |     |  
|                                                        |  |                                                                                     |  |                                                                                |               |   |  |   |      |  
|                                                        |  |                                                                                     |  | $                                                                              | 83            |   |  | $ |     |  
|                                                        |  |                                                                                     |  |                                                                                |               |   |  |   |      |  



18



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##### Table of Contents

GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



The following table summarizes the effects of commodity and interest rate derivative
instruments on the consolidated statements of income for the nine months ended September 30, 2009 and 2008 (in thousands):



|                                          |               |                                                                           |        |               |                                                                                  |   |                                                                             |               |  |                      |               |   |        |   |  |   |         |  
|----------------------------------------- | ------------- | ------------------------------------------------------------------------- | ------ | ------------- | -------------------------------------------------------------------------------- | - | --------------------------------------------------------------------------- | ------------- |  | -------------------- | ------------- | - | ------ | - |  | - | ------- | -
|                                          |               | Amount of Gain or(Loss) Recognized inOCI on Derivative(Effective
Portion) |        |               | Location of Gain or (Loss) Reclassified from OCI into Income (Effective Portion) |   | Amount of Gain or(Loss) Reclassifiedfrom OCI into Income(Effective
Portion) |              
|Derivatives designated as ASC 815 hedges: |               |                                                                           |       
|                                          | Sept. 30,2009 |                                                                           |        | Sept. 30,2008 |                                                                                  |   |                                                                             | Sept. 30,2009 |  |                      | Sept. 30,2008 |  
|Commodity contracts                       |               | $                                                                         | (7,256 | )             |                                                                                  | $ | (24,455                                                                     | )             |  | Oil and gas revenues |               | $ | 7,709  |   |  | $ | (12,183 | )
|Interest rate swap contract               |               |                                                                           | (566   | )             |                                                                                  |   | (679                                                                        | )             |  | Interest expense     |               |   | (1,179 | ) |  |   | (187    | )
|                                          |               |                                                                           |        |               |                                                                                  |   |                                                                             |               |  |                      |               |   |        |   |  |   |         |  
|                                          |               | $                                                                         | (7,822 | )             |                                                                                  | $ | (25,134                                                                     | )             |  |                      |               | $ | 6,530  |   |  | $ | (12,370 | )
|                                          |               |                                                                           |        |               |                                                                                  |   |                                                                             |               |  |                      |               |   |        |   |  |   |         |  



|                                                        |  |                                                                                     |  |                                                                                |               |   |  |   |   
|------------------------------------------------------- |  | ----------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------ | ------------- | - |  | - | --
|                                                        |  |                                                                                     |  | Amount of (Gain) or LossRecognized in Income onDerivative
(IneffectivePortion)
|Derivatives in ASC 815 cash flow hedging relationships: |  | Location of (Gain) or Loss Recognized in Income on Derivative (Ineffective Portion) | 
|                                                        |  | Sept. 30,2009                                                                       |  |                                                                                | Sept. 30,2008
|Commodity contracts                                     |  | Hedge ineffectiveness                                                               |  | $                                                                              | 186           |   |  | $ | 47
|                                                        |  |                                                                                     |  |                                                                                |               |   |  |   |   
|                                                        |  |                                                                                    
|Derivatives not designated as ASC 815 hedges:           |  | Location of (Gain) or Loss
Recognized in Income on Derivative                       |  | Amount of (Gain) orLoss Recognized inIncome on Derivative                     
|                                                        |  | Sept. 30,2009                                                                       |  |                                                                                | Sept. 30,2008
|Realized cash settlements on interest rate swap         |  | Loss on derivative contracts                                                        |  | $                                                                              | 294           |   |  | $ |  
|Unrealized (gains) on commodity contracts               |  | Loss on derivative contracts                                                        |  |                                                                                | (153          | ) |  |   |  
|                                                        |  |                                                                                     |  |                                                                                |               |   |  |   |   
|                                                        |  |                                                                                     |  | $                                                                              | 141           |   |  | $ |  
|                                                        |  |                                                                                     |  |                                                                                |               |   |  |   |   



19



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##### Table of Contents

GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



Contingent features in derivative instruments  None of the Companys
derivative instruments contain credit-risk-related contingent features. Counterparties to the Companys derivative contracts are high credit quality financial institutions.

NOTE H: Fair Value Disclosures

ASC Topic 820 defines fair value,
establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements.

ASC Topic 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes
assets and liabilities at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:



| |  |  | Level 1  inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2  inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs are
observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  inputs to the valuation methodology are unobservable and significant to the fair value measurement.
| | - |  | -------------------------------------------------------------------------------------------------------------

A financial instruments categorization within the valuation hierarchy is based upon the lowest level of the input that is
significant to the fair value measurement. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The table
below presents information about the Companys assets and liabilities measured at fair value on a recurring basis as of September 30, 2009, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to
determine such fair value:

Cash, Cash Equivalents, Accounts Receivable and Payable and Revenue Royalties 
The carrying amount of cash and cash equivalents, accounts receivable and payable and royalties payable are estimated to approximate their fair values due to the short maturities of these instruments.

Long-Term Debt  The Companys long-term debt obligation bears interest at floating market rates, so carrying
amounts and fair values are approximately equal.

Derivative Financial Instruments  Derivative financial
instruments are carried at fair value. Commodity derivative instruments consist of costless collars and swaps for crude oil and natural gas. The Companys costless collars are valued based on the counterpartys marked-to-market statements,
which are validated by observable transactions for the same or similar commodity options using the NYMEX futures index, and are designated as Level 2 within the valuation hierarchy. The Companys swaps are valued based on a discounted future
cash flow model. The primary input for the model is the NYMEX futures index. The Companys model is validated by the counterpartys marked-to-market statements. The swaps are also designated as Level 2 within the valuation hierarchy. The
discount rate used in determining the fair values of these instruments includes a measure of nonperformance risk. The Companys interest rate swaps are valued using the counterpartys marked-to-market statement, which can be validated
using modeling techniques that include market inputs such as publicly available interest rate yield curves, and is designated as Level 2 within the valuation hierarchy.



20



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##### Table of Contents

GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



Derivative Assets and Liabilities  September 30, 2009

(in thousands)



|                                                                  |  |                                                            |  |                                           |        |   |                                        |   |                               |   |        |  
|----------------------------------------------------------------- |  | ---------------------------------------------------------- |  | ----------------------------------------- | ------ | - | -------------------------------------- | - | ----------------------------- | - | ------ | -
|                                                                  |  | Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) |  | SignificantOtherObservableInputs(Level 2) |        |   | SignificantUnobservableInputs(Level 3) |   | Balanceas ofSeptember 30,2009 |  
|Current portion of derivative financial instrument asset(1)       |  |                                                           |  | $                                         | 722    |   |                                        |  |                               | $ | 722    |  
|Long-term portion of derivative financial instrument asset(1)     |  |                                                           |  |                                           | 755    |   |                                        |  |                               |   | 755    |  
|Current portion of derivative financial instrument liability(2)   |  |                                                           |  |                                           | (3,364 | ) |                                        |  |                               |   | (3,364 | )
|Long-term portion of derivative financial instrument liability(3) |  |                                                           |  |                                           | (1,066 | ) |                                        |  |                               |   | (1,066 | )



|(1) | Commodity derivative instruments accounted for as cash flow hedges.
|--- | -------------------------------------------------------------------

|(2) | Includes a $40 million interest rate swap accounted for as a cash flow hedge ($1,574,000), a $10 million interest rate swap accounted for as a trading security
($394,000) and a commodity derivative accounted for as a cash flow hedge ($1,396,000).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes a $40 million interest rate swap accounted for as a cash flow hedge ($66,000), a $10 million interest rate swap accounted for as a trading security ($16,000)
and a commodity derivative accounted for as a cash flow hedge ($984,000).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Derivative Assets and Liabilities
 December 31, 2008

(in thousands)



|                                                                  |  |                                                            |  |                                           |        |   |                                        |   |                              |   |        |  
|----------------------------------------------------------------- |  | ---------------------------------------------------------- |  | ----------------------------------------- | ------ | - | -------------------------------------- | - | ---------------------------- | - | ------ | -
|                                                                  |  | Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) |  | SignificantOtherObservableInputs(Level 2) |        |   | SignificantUnobservableInputs(Level 3) |   | Balanceas ofDecember 31,2008 |  
|Current portion of derivative financial instrument asset(1)       |  |                                                           |  | $                                         | 8,200  |   |                                        |  |                              | $ | 8,200  |  
|Long-term portion of derivative financial instrument asset(1)     |  |                                                           |  |                                           | 6,409  |   |                                        |  |                              |   | 6,409  |  
|Current portion of derivative financial instrument liability(2)   |  |                                                           |  |                                           | (1,572 | ) |                                        |  |                              |   | (1,572 | )
|Long-term portion of derivative financial instrument liability(3) |  |                                                           |  |                                           | (1,245 | ) |                                        |  |                              |   | (1,245 | )



|(1) | Commodity derivative instruments accounted for as cash flow hedges.
|--- | -------------------------------------------------------------------

|(2) | Includes a $40 million interest rate swap accounted for as a cash flow hedge ($1,258,000) and a $10 million interest rate swap accounted for as a trading security
($314,000).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes a $40 million interest rate swap accounted for as a cash flow hedge ($996,000) and a $10 million interest rate swap accounted for as a trading security
($249,000).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21



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##### Table of Contents

GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



At September 30, 2009, and December 31, 2008, the Company did not have any
assets or liabilities measured at fair value on a recurring basis that meet the definition of Level 1 or Level 3.

Asset
Impairments  The Company reviews proved oil and gas properties for impairment when events and circumstances indicate a significant decline in the recoverability of the carrying value of such properties. When events and circumstances
indicate a significant decline in the recoverability of a property, the Company estimates the future cash flows expected in connection with the property and compares such future cash flows to the carrying value of the property to determine if the
carrying amount is recoverable. If the carrying amount of the property exceeds its estimated undiscounted future cash flows, the carrying amount of the property is reduced to its estimated fair value. Fair value may be estimated using comparable
market data, a discounted cash flow method, or a combination of the two. In the discounted cash flow method, estimated future cash flows are based on managements expectations for the future and include estimates of future oil and gas
production, commodity prices based on commodity futures price strips as of the date of the estimate, operating and development costs, and a risk-adjusted discount rate.

The Company recorded asset impairments of zero and $128,000 on proved properties during the three and nine months ended September 30, 2009. During the three and nine months ended September 30,
2008, the Company recorded impairments of zero and $483,000 on unproved properties. The 2009 impairments were included in impairment expense while the 2008 impairments, due to the nature of the expenses, were included in exploration expense.
Significant Level 3 assumptions associated with the calculation of discounted cash flows used in the impairment analysis include the Companys estimate of future natural gas and crude oil prices, operating and development costs, anticipated
production of proved reserves, appropriate risk-adjusted discount rates and other relevant data.

Asset Retirement
Obligations  The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with oil and gas properties.
Significant Level 3 inputs used in the calculation of asset retirement obligations include plugging costs and reserve lives. A reconciliation of the Companys asset retirement obligation is presented in Note I.

Property Acquisitions and Business Combinations  The Company records the identifiable assets acquired, liabilities
assumed and any non-controlling interests at fair value at the date of acquisition. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two. In the discounted cash flow method, estimated
future cash flows are based on managements expectations for the future and include estimates of future oil and gas production, commodity prices based on commodity futures price strips as of the date of the estimate, operating and development
costs, and a risk-adjusted discount rate. Significant Level 3 assumptions associated with the calculation of discounted cash flows used in the determination of fair value of the acquisition include the Companys estimate of future natural gas
and crude oil prices, operating and development costs, anticipated production of proved reserves, appropriate risk-adjusted discount rates and other relevant data. The Companys acquisitions are discussed in Note B.



22



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##### Table of Contents

GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



NOTE I: Asset Retirement Obligations

The Companys asset retirement obligations represent the estimated future costs associated with the plugging and abandonment of oil and
gas wells, and removal of equipment and facilities from leased acreage and land restoration, in accordance with applicable local, state and federal laws. The Company determines its obligation by calculating the present value of estimated cash flows
related to plugging and abandonment obligations. The changes to the Asset Retirement Obligations (ARO) for oil and gas properties and related equipment during the nine months ended September 30, 2009, are as follows (in thousands):



|                                                |  |   |       |  
|----------------------------------------------- |  | - | ----- | -
|Asset retirement obligation, January 1, 2009    |  | $ | 5,418 |  
|Additional liabilities incurred                 |  | $ | 239   |  
|Accretion expense                               |  |   | 271   |  
|Disposals of properties                         |  |   | (187  | )
|                                                |  |   |       |  
|Asset retirement obligation, September 30, 2009 |  | $ | 5,741 |  
|                                                |  |   |       |  

NOTE J: Related Party Transactions

Accounts receivable at September 30, 2009, and December 31, 2008, included $157,000 and $2,311,000, respectively, due from SBE
Partners LP (SBE Partners). Accounts receivable at September 30, 2009, and December 31, 2008, also included $132,000 and $594,000, respectively, due from OKLA Energy Partners LP (OKLA Energy). Both of these
partnerships are oil and gas limited partnerships for which a subsidiary of the Company serves as general partner. These amounts represent the limited partnerships share of property operating expenditures incurred by operating subsidiaries of
the Company on their behalf, as well as accrued management fees. Accounts payable at September 30, 2009, and December 31, 2008, included $8,627,000 and $9,333,000, respectively, due to SBE Partners for oil and gas revenues collected on its
behalf. Accounts payable at September 30, 2009, and December 31, 2008, also included $545,000 and $977,000, respectively, due to OKLA Energy for oil and gas revenues collected on its behalf.

The Company earned partnership management fees during the three months ended September 30, 2009 and 2008, of $151,000, and $585,000,
respectively. The Company earned partnership management fees during the nine months ended September 30, 2009 and 2008, of $847,000 and $1,419,000, respectively.

Subsidiaries of the Company operate the majority of oil and gas properties in which the two above limited partnerships have an interest. Under this arrangement, the Company collects revenues from
purchasers and incurs property operating and development expenditures on each partnerships behalf. These revenues are paid monthly to each partnership, which in turn reimburses the Company for the partnerships share of expenditures.

In May 2009, the Company, through its subsidiary, Catena, entered into a Purchase and Sale Agreement with an affiliated
limited partnership, SBE Partners. Catena purchased the properties for $49,340,000. As the General Partner of SBE Partners, Catena received a distribution from the partnership as a result of the sale of $987,000. The net purchase price for the
properties was $48,353,000. This acquisition is discussed in Note B above.



23



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##### Table of Contents

GEORESOURCES, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



The following is a summary of selected financial information of SBE Partners, LP for the
nine months ended September 30, 2009 and 2008 (in thousands):



|                                               |  |                                |        |      |   |       
|---------------------------------------------- |  | ------------------------------ | ------ | ---- | - | ------
|                                               |  | Nine Months EndedSeptember 30,
|                                               |  | 2009                           |        | 2008
|Summary of Partnership operations:             |  |                                |        |      |   |       
|Revenues                                       |  | $                              | 46,797 |      | $ | 70,054
|Income from continuing operations              |  | $                              | 25,293 |      | $ | 46,015
|Net income                                     |  | $                              | 25,293 |      | $ | 46,015
|                                               |  |                               
|The Companys equity in Partnership net income |  | $                              | 3,847  |      | $ | 922   

NOTE K: Subsequent Events

The Company evaluated its September 30, 2009 financial statements for subsequent events through November 4, 2009, the date the
financial statements were issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.



24



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following is Managements Discussion and Analysis (MD&A) of significant factors that have affected certain aspects
of our financial position and operating results during the periods included in the accompanying unaudited consolidated financial statements. This discussion should be read in conjunction with the accompanying unaudited consolidated financial
statements and related notes thereto, included elsewhere in this Quarterly Report on Form 10-Q and should further be read in conjunction with our Annual Report on Form 10-K/A for the year ended December 31, 2008.

Forward-Looking Information

Certain of the statements in all parts of this document, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by words such as may,
will, expect, anticipate, estimate or continue, or comparable words. All statements other than statements of historical facts included in this report, including, without limitation,
statements regarding our business strategy, plans, objectives, expectations, intent, and beliefs of management, related to current or future operations are forward-looking statements. Such statements are based on certain assumptions and analyses
made by management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. The forward-looking statements included in this report are
subject to a number of material risks and uncertainties including assumptions about the pricing of oil and gas, assumptions about operating costs, operations continuing as in the past or as projected by independent or Company engineers, the ability
to generate and take advantage of acquisition opportunities and numerous other factors. A detailed discussion of important factors that could cause actual results to differ materially from the Companys expectations are discussed herein and in
the Companys Annual Report on Form 10-K/A for the year ended December 31, 2008. Forward-looking statements are not guarantees of future performance and actual results; therefore, developments and business decisions may differ materially
from those envisioned by such forward-looking statements.

General Overview

We are an independent oil and gas company engaged in the acquisition and development of oil and gas reserves through an active and
diversified program which includes purchases of reserves, re-engineering, development and exploration activities. As further discussed herein, future growth in assets, earnings, cash flows and share values will be dependent upon our ability to
effectively compete for capital and acquire, discover and develop commercial quantities of oil and gas reserves that can be produced at a profit, and assemble an oil and gas reserve base with a market value exceeding its acquisition, development and
production costs.

We continue to implement our business strategy to acquire, discover and develop oil and gas reserves and
achieve continued balanced growth. Management continues to focus on reducing operating and administrative costs on a per unit basis. In addition, we have attempted to mitigate downward price volatility by the use of commodity price hedging. The
current volatile price environment for oil and natural gas is significant, and management cannot predict the prices that will be available during the life of our current business plan. Following is a brief outline of our current plans:



|(1) | Acquisitions
|--- | ------------



| | a. | Acquire operated oil and gas properties with significant producing reserves and development and exploration potential;
| | -- | ----------------------------------------------------------------------------------------------------------------------



| | b. | Solicit industry or institutional partners to participate, on a promoted basis, in acquisitions or projects where the capital commitments or risks exceed our existing
financial capability, in order to manage our financial position, diversify opportunities, reduce average cost and generate operating fees.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Development Exploitation
|--- | ------------------------



| | a. | Drill proved undeveloped and probable reserves to optimize value;
| | -- | -----------------------------------------------------------------



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| | b. | Focus on fields and projects with development and exploitation upside;
| | -- | ----------------------------------------------------------------------



| | c. | Implement re-engineering and development programs within existing fields to extend field life, increase proved reserves, lower per unit operating costs, and enhance
economics.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Exploration
|--- | -----------



| | a. | Generate exploration projects and increase direct participation with growth over time;
| | -- | --------------------------------------------------------------------------------------



| | b. | Solicit industry partners, on a promoted basis, for internally generated projects.
| | -- | ----------------------------------------------------------------------------------



|(4) | Cost Control
|--- | ------------



| | a. | Target low operating and general and administrative costs;
| | -- | ----------------------------------------------------------



| | b. | Minimize drilling and development costs;
| | -- | ----------------------------------------



| | c. | Promote partners to reduce costs and generate operating fees.
| | -- | -------------------------------------------------------------



|(5) | Asset Rationalization
|--- | ---------------------



| | a. | Selectively divest assets to upgrade our producing property portfolio and to lower corporate wide per-unit operating and administrative costs, and focus on
existing fields and new projects with greater development and exploitation potential;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Focus on assets that maximize the rate of return for our investors.
| | -- | -------------------------------------------------------------------

While the impact and success of our plans cannot be predicted with accuracy, managements goal is to replace production and further increase our reserve base at an acquisition or finding cost that
will yield attractive rates of return and increase shareholder value.

In addition to our fundamental business strategy, we
intend to actively pursue corporate acquisitions or mergers. Management believes that opportunities may become available to acquire corporate entities or otherwise effect business combinations, particularly as a result of recent commodity prices and
the contraction in equity and debt financing markets. We intend to consider any such opportunities which may become available and are beneficial to stockholders. The primary financial considerations in the evaluation of any such potential
transaction will include, but are not limited to: (1) the ability of small capitalization oil and gas companies to gain recognition and favor in the public markets, (2) share appreciation potential, (3) shareholder liquidity, and
(4) capital formation and cost of capital to effect growth.

Oil and Gas Properties

We use the Successful Efforts method of accounting for oil and gas operations. Under this method, costs to acquire oil and gas properties,
drill successful exploratory wells, drill and equip development wells and install production facilities are capitalized. Exploration costs, including unsuccessful exploratory wells and geological and geophysical costs are charged to operations as
incurred. Depreciation, depletion and amortization (DD&A) of the capitalized costs associated with proved oil and gas properties are computed using the unit-of-production method, at the field level, based on proved reserves. Oil and
gas properties are periodically assessed for impairment and generally written down to estimated fair value if the sum of estimated future undiscounted pretax cash flows, based on engineering and expected economic circumstances, is less than the
carrying value of the asset. The fair value of impaired assets is generally determined using market values, if known, or using reasonable projections of production, prices and costs and discount rates commensurate with the risks involved.

Property Acquisitions and Divestitures in 2009

Bakken Acquisition

In May 2009, we closed an acquisition of
producing wells and acreage in the Bakken Shale trend of the Williston Basin. The acquisition was made through an existing joint venture. We acquired a 15% interest in approximately 60,000 net acres, and also acquired 15% of varying working
interests in 59 producing and productive wells. Our share of producing wells and undeveloped locations added approximately 486,000 barrel of oil equivalent (BOE) of proved reserves and numerous prospective



26



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##### Table of Contents

locations. We now have working interest in the area ranging from 10% to 15% in approximately 100,000 net acres. Of those total acres, approximately 59,000 net acres are located in Mountrail
County, with the remainder located in adjacent North Dakota counties and Richland County, Montana. The acquisition cost was approximately $10.4 million, subject to closing adjustments for normal operations activity and other customary purchase price
adjustments. We funded the acquisition with borrowings from our senior secured revolving credit facility.

Giddings
Field Acquisition

In May 2009, we entered into a Purchase and Sale Agreement (the Purchase Agreement) with
an affiliated limited partnership for which we serve as the general partner, SBE Partners LP (the Seller) for the acquisition (the Acquisition) of certain oil and gas producing properties in Giddings Field, Grimes and
Montgomery Counties, Texas (the Interests). Prior to the Acquisition, we had direct working interests in the properties ranging from about 6.5% to 7.8%. After the Acquisition, we hold direct working interests in the producing wells
ranging from approximately 34% to 37%. The acquired direct working interests total an estimated 25 Bcfe of proved reserves, 88% natural gas and 73% developed, with daily production, at the time of the transaction, totaling 10,625 Mcf and 85 Bbls of
associated liquids. In addition, we immediately increased our partnership sharing ratio from 2% to 30%, amounting to approximately 13.2 Bcfe. Furthermore, our share of the partnerships daily production, subsequent to the transaction, amounts
to 5,618 Mcf and 45 Bbls of associated liquids. We will remain the general partner of the affiliated partnership and operator of the properties. The Acquisition also provides additional development opportunities and exposure to the upside associated
with the Eagleford Shale and other prospective targets. Under the Purchase Agreement, the Interests were purchased for a net cash purchase price of $48.4 million, subject to adjustments at closing for normal operations activity and other customary
purchase price adjustments (the Purchase Price). We funded the Purchase Price with borrowings from our senior secured revolving credit facility. The Purchase Agreement contains representations and warranties, covenants, and
indemnifications that are customary for oil and gas producing property acquisitions.

In January 2009, we sold a producing
property located in Louisiana to an unaffiliated party for $1.6 million. We recognized a gain of $1.3 million in conjunction with this sale.

In August 2009, we received a distribution of proved undeveloped property and unproved acreage in the Giddings Field from SBE Partners LP, an affiliated partnership. The property was recorded an estimated
fair market value of $1.6 million.



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##### Table of Contents

Results of Operations

Three months ended September 30, 2009, compared to three months ended September 30, 2008

The Company recorded net income of $3,428,000 for the three months ended September 30, 2009 compared to net income of $5,799,000 for the same period in 2008. This $2,371,000 decrease resulted
primarily from the following factors:



|                                                                           |  |   |        |  
|-------------------------------------------------------------------------- |  | - | ------ | -
|Net amounts contributing to increase (decrease) in net income (thousands): | 
|                                                                           | 
|Oil and gas sales                                                          |  | $ | (1,783 | )
|Lease operating expenses                                                   |  |   | 1,199  |  
|Production taxes                                                           |  |   | 888    |  
|Exploration expense                                                        |  |   | (591   | )
|Re-engineering and workovers                                               |  |   | (112   | )
|General and administrative expenses (G&A)                                |  |   | (263   | )
|Depletion, depreciation and amortization expense (DD&A)                  |  |   | (2,477 | )
|Net interest income (expense)                                              |  |   | (776   | )
|Hedge ineffectiveness                                                      |  |   | (1,001 | )
|Gain (loss) on derivative contracts                                        |  |   | (83    | )
|Gain (loss) on sale of property                                            |  |   | (251   | )
|Other income  net                                                         |  |   | 1,591  |  
|                                                                           |  |   |        |  
|Income before income taxes                                                 |  |   | (3,659 | )
|Provision for income taxes                                                 |  |   | 1,288  |  
|                                                                           |  |   |        |  
|Decrease in net income                                                     |  | $ | (2,371 | )
|                                                                           |  |   |        |  

The following discussion applies to the above changes.

Oil and Natural Gas Sales. Net revenues from oil and gas sales decreased $1,783,000, or 8%. Revenue increased by $2,720,000 and
$439,000 due to the Giddings Field and Bakken acquisitions, respectively. These increases were offset by a revenue decrease of $4,942,000 that resulted primarily from decreases in commodity prices, offset by increases in production volumes.
Properties purchased in the two acquisitions accounted for increased volumes of approximately 1,040,000 Mcf of gas and approximately 10,000 barrels of oil. Price and production comparisons are set forth in the following table.



|                                                     |  |                           |      |  |                                 |       |  |   |       
|---------------------------------------------------- |  | ------------------------- | ---- |  | ------------------------------- | ----- |  | - | ------
|                                                     |  | Percentincrease(decrease) |      |  | Three Months EndedSeptember 30,
|                                                     |  |                           | 2009 |  | 2008                           
|Gas Production (MMcf)                                |  | 132                       | %    |  |                                 | 1,678 |  |   | 723   
|Oil Production (MBbls)                               |  | 27                        | %    |  |                                 | 212   |  |   | 167   
|Barrel of Oil Equivalent (MBOE)                      |  | 71                        | %    |  |                                 | 492   |  |   | 288   
|Average Price Gas Before Hedge Settlements (per Mcf) |  | -71                       | %    |  | $                               | 2.67  |  | $ | 9.13  
|Average Price Oil Before Hedge Settlements (per Bbl) |  | -47                       | %    |  | $                               | 61.65 |  | $ | 116.01
|Average Realized Price Gas (per Mcf)                 |  | -58                       | %    |  | $                               | 3.87  |  | $ | 9.12  
|Average Realized Price Oil (per Bbl)                 |  | -30                       | %    |  | $                               | 63.55 |  | $ | 90.60 

Lease Operating Expenses. Lease operating expenses decreased from
approximately $5,594,000 in the third quarter of 2008 to $4,395,000 for the same period in 2009, a decrease of $1,199,000 or 21%. On a unit-of-production basis, barrel of oil equivalent (BOE) costs decreased by $10.49 or 54% as a result
of acquisition of properties with lower operating costs, divestitures of properties with higher operating costs, re-engineering projects completed during 2008 that either enhanced production or lowered per unit operating costs, and reductions in
costs for materials, services and rigs during 2009.



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##### Table of Contents

Re-engineering and Workover. Re-engineering and workover costs increased by $112,000
from $649,000 to $761,000, due primarily to projects associated with a waterflood on one of our North Dakota properties.

Production Taxes. Production taxes decreased by $888,000 or 43%, due to decreased revenues. The production taxes we pay are generally calculated as a percentage of oil and natural gas sales revenues before the effects of hedging. Our
production taxes for the quarter ended September 30, 2009 and 2008 were 6.8% and 8.0%, respectively, of oil and gas sales before the effects of hedging. The 2009 rate decreased from 2008 due to a change in our portfolio of producing properties
and the approval of production tax exemptions for a number of our producing wells.

General and Administrative
Expenses. G&A increased $263,000 during the quarter ended September 30, 2009 compared to the same period in 2008. Additional non-cash charges of $239,000 related to stock-based compensation were the primary cause of the increase. The
remaining $24,000 increase resulted from the overall expansion of the business and salary increases which were offset by our ongoing cost reduction efforts. The total non-cash charges related to stock-based compensation included in G&A expense
for the three months ended September 30, 2009 and 2008 are $403,000 and $164,000, respectively.

Depreciation,
Depletion and Amortization. DD&A expense increased by $2,477,000 or 65% due to higher capitalized costs. Capitalized costs increased due to acquisition and successful drilling and development activities, including additional property
interests acquired in both the Giddings Field, Texas and the Bakken Shale trend in North Dakota.

Interest Income and
Expense. Interest expense increased by $611,000 due to higher average debt levels in the third quarter of 2009 compared to the same period in 2008. During the third quarter of 2009, our average outstanding debt was approximately $101,000,000
compared to $50,000,000 for the same period in 2008. Interest income decreased by $165,000 in the third quarter of 2009 over the same period of 2008, due to on average lower invested cash balances and lower interest rates.

Hedge Ineffectiveness. In the third quarter of 2009 the loss from hedge ineffectiveness was $111,000, compared to gain from hedge
ineffectiveness of $890,000 for the same period in 2008. In the second, third and fourth quarters of 2008 our realized price was more consistent with the market benchmark used for hedging; therefore, the cumulative ineffectiveness charge was reduced
and we recorded a gain on hedge ineffectiveness for the year. In the third quarter of 2009, the differential between the market benchmark used for hedging and the prices we realized on our sales of oil and gas remained fairly consistent and given
that the commodity hedges decreased in value during the first nine months of the year, the inception-to-date ineffectiveness decreased and we recorded an expense.

Loss on Derivative Contracts. In December 2008, we split a $50 million notional value interest rate swap that was previously accounted for as a cash flow hedge. The swap was split into a $10
million notional amount swap and a $40 million notional amount swap. We continued hedge accounting for the $40 million swap and accounted for the $10 million swap as a trading security. In the third quarter of 2009, we recognized cash settlement
losses on the $10 million swap of $117,000. These losses were offset by mark-to-market gains of $34,000.

Other Income.
Other income increased by $1,591,000 in the third quarter of 2009 compared to the same period in 2008 due to an increase in partnership income of $2,008,000, and an increase in property operating income of $17,000, these increased were partially
offset by $434,000 lower partnership management fees. Our management fee income decreased due to decreased net revenues of the partnerships. Partnership income in the third quarter of 2009 included a one-time $1,000,000 gain related to the
distribution of the Giddings Field proved undeveloped properties to us by an affiliated partnership.

In the third quarter
2009 we had a net gain on sales of properties and other assets of $57,000 versus $308,000 in the same period of 2008.



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Income Tax Expense. Income tax expense for the third quarter of 2009 was $2,540,000
compared to $3,828,000 for the same period in 2008. Our income tax expense decreased due to lower pre-tax earnings. Our effective tax rate during the third quarter of 2009 was approximately 42.6% versus 39.8% in the same period during 2008. Our
effective tax rate increased as a result of the non-cash compensation expense on qualified stock options; the expense related to these options is not deductible in determining taxable income as well as an increase in our expected year-to-date tax
rates versus our expectation in the prior quarter.

Nine months ended September 30, 2009, compared to nine months
ended September 30, 2008

The Company recorded net income of $7,404,000 for the nine months ended
September 30, 2009 compared to net income of $17,813,000 for the same period in 2008. This $10,409,000 decrease resulted primarily from the following factors:



|                                                                              |  |   |         |  
|----------------------------------------------------------------------------- |  | - | ------- | -
|Net amounts contributing to increase (decrease) in net income (in thousands): | 
|                                                                              | 
|Oil and gas sales                                                             |  | $ | (20,235 | )
|Lease operating expenses                                                      |  |   | 3,972   |  
|Production taxes                                                              |  |   | 3,843   |  
|Exploration expense                                                           |  |   | (457    | )
|Re-engineering and workovers                                                  |  |   | 274     |  
|General and administrative expenses (G&A)                                   |  |   | (643    | )
|Depletion, depreciation and amortization expense (DD&A)                     |  |   | (4,220  | )
|Impairment expense                                                            |  |   | (128    | )
|Net interest income (expense)                                                 |  |   | (166    | )
|Hedge ineffectiveness                                                         |  |   | (139    | )
|Gain (loss) on derivative contracts                                           |  |   | (141    | )
|Gain (loss) on sale of property                                               |  |   | (724    | )
|Other income - net                                                            |  |   | 2,501   |  
|                                                                              |  |   |         |  
|Income before income taxes                                                    |  |   | (16,263 | )
|Provision for income taxes                                                    |  |   | 5,854   |  
|                                                                              |  |   |         |  
|Decrease in net income                                                        |  | $ | (10,409 | )
|                                                                              |  |   |         |  

The following discussion applies to the above changes.

Oil and Natural Gas Sales. Net revenues from oil and gas sales decreased $20,235,000, or 29%. Revenue increased by $3,666,000 and
$837,000 due to the Giddings Field and Bakken acquisitions, respectively. These increases were offset by a decrease of $24,738,000 that resulted primarily from decreases in commodity prices. Properties purchased in the two acquisitions accounted for
increased volumes of approximately 1,338,000 Mcf of gas and approximately 18,000 barrels of oil. Price and production comparisons are set forth in the following table.



|                                                     |  |                           |      |  |                                |       |  |   |       
|---------------------------------------------------- |  | ------------------------- | ---- |  | ------------------------------ | ----- |  | - | ------
|                                                     |  | Percentincrease(decrease) |      |  | Nine Months EndedSeptember 30,
|                                                     |  |                           | 2009 |  | 2008                          
|Gas Production (MMcf)                                |  | 52                        | %    |  |                                | 3,430 |  |   | 2,251 
|Oil Production (MBbls)                               |  | 9                         | %    |  |                                | 601   |  |   | 553   
|Barrel of Oil Equivalent (MBOE)                      |  | 26                        | %    |  |                                | 1,173 |  |   | 928   
|Average Price Gas Before Hedge Settlements (per Mcf) |  | -67                       | %    |  | $                              | 3.06  |  | $ | 9.24  
|Average Price Oil Before Hedge Settlements (per Bbl) |  | -53                       | %    |  | $                              | 51.45 |  | $ | 109.81
|Average Realized Price Gas (per Mcf)                 |  | -55                       | %    |  | $                              | 3.95  |  | $ | 8.82  
|Average Realized Price Oil (per Bbl)                 |  | -34                       | %    |  | $                              | 59.23 |  | $ | 89.50 



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Lease Operating Expenses. Lease operating expenses decreased from approximately
$17,174,000 during the first nine months of 2008 to $13,202,000 for the same period in 2009, a decrease of $3,972,000 or 23%. On a unit-of-production basis, BOE costs decreased by $7.24 or 39% as a result of acquisition of properties with lower
operating costs, divestitures of properties with higher operating costs, re-engineering projects completed during 2008 that either enhanced production or lowered per unit operating costs, and reductions in costs for materials, services and rigs
during 2009

Re-engineering and Workover. Re-engineering and workover costs decreased by $274,000 from $2,331,000 to
$2,057,000, due to completion of projects associated with 2007 and 2008 acquisitions that occurred during 2008 and the divestiture of certain higher cost properties.

Production Taxes. Production taxes decreased by $3,843,000 or 60%, due to decreased revenues as well as from a nonrecurring refund of $599,000 resulting from a regulatory state tax exemption
received on Austin Chalk wells with high drilling costs. The production taxes we pay are generally calculated as a percentage of oil and natural gas sales revenues before the effects of hedging. Our production taxes for the first nine months of 2009
and 2008 were 6.2% and 7.9%, respectively, of oil and gas sales before the effects of hedging. The 2009 rate decreased compared to 2008 as a result of a change in our portfolio of producing properties, production tax exemptions and the nonrecurring
refund.

General and Administrative Expenses. G&A increased by $643,000 during the first nine months of 2009
compared to the same period in 2008. Additional non-cash charges of $602,000 related to stock-based compensation were the primary cause of the increase. The remaining $41,000 increase resulted from the overall expansion of the business and salary
increases which were offset by our ongoing cost reduction efforts. The total non-cash charges related to stock-based compensation included in G&A expense for the nine months ended September 30, 2009 and 2008 are $1,064,000 and $462,000,
respectively.

Depreciation, Depletion and Amortization. DD&A expense increased by $4,220,000 or 37% due to higher
capitalized costs. Capitalized costs increased due to acquisitions of additional property interests in both the Austin Chalk and Bakken Shale and continued successful drilling in those same areas.

Interest Income and Expense. Interest expense decreased by $309,000 due to lower weighted average debt levels and lower interest
rates during the nine months of 2009 compared to the same period in 2008. During the first nine months of 2009, our weighted average outstanding debt was approximately $51,000,000 compared to $57,000,000 for the same period in 2008. The interest
rate on our debt at September 30, 2009 was 3.00% versus 6.22% at September 30, 2008. Interest income decreased by $475,000 during the first nine months of 2009 compared to the same period during 2008, due to a lower average invested cash
balance as well as lower interest rates on that balance.

Hedge Ineffectiveness. For the first nine months of 2009 the
loss from hedge ineffectiveness was $186,000, compared to a loss of $47,000 for the same period in 2008. During 2008 our realized price was more consistent with the market benchmark used for hedging than during the same period of 2009; therefore,
the ineffectiveness charge was lower.

Loss on Derivative Contracts. In December 2008, we split a $50 million notional
value interest rate swap that was previously accounted for as a cash flow hedge. The swap was split into a $10 million notional amount swap and a $40 million notional amount swap. We continued hedge accounting for the $40 million swap and accounted
for the $10 million swap as a trading security. For the first nine months of 2009, we recognized cash settlement losses on the $10 million swap of $294,000. These losses were offset by mark-to-market gains of $153,000.

Other Income. Other income increased by $2,501,000 during the first nine months of 2009 compared to the same period in 2008 due to an
increase in partnership income of $2,813,000 and an increase in property operating income of $260,000, partially offset by a $572,000 decrease in partnership management fees. Partnership income in the first nine months of 2009 included our share of
partnership severance tax refunds of $1,318,000, related to tax exempt well status obtained for certain wells with a high drilling cost. Partnership income also included our share of the gain on the sale of the Giddings Field producing properties
and the Giddings Field proved undeveloped properties and acreage, our share of these gains was approximately $1,276,000.



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In the first nine months of 2009 we had a net gain on sales of properties and other assets
of $1,545,000 versus $2,269,000 in the same period of 2008.

Income Tax Expense. Income tax expense for the first nine
months of 2009 was $5,116,000 compared to $10,970,000 for the same period in 2008. Our income tax expense decreased due to lower pre-tax earnings. Our effective tax rate during the first nine months of 2009 was approximately 40.9% versus 38.1% in
the same period during 2008. Our effective tax rate increased as a result of the non-cash compensation expense on qualified stock options; the expense related to these options is not deductible in determining taxable income.

Impact of Changing Prices and Costs

Our revenues and the carrying value of our oil and gas properties are subject to significant change due to changes in oil and gas prices. As demonstrated historically, prices are volatile and unpredictable. Oil prices increased appreciably
during 2007 and again during the first and second quarters of 2008 but retreated somewhat during the third quarter of 2008 and dropped significantly since then before rising somewhat during the summer of 2009. Average realized oil prices of $59.23
per Bbl, net of hedges, for the nine months ended September 30, 2009, were 34% lower than for the comparable period in 2008. Average realized natural gas prices of $3.95 per Mcf, net of hedges, for the nine months ended September 30, 2009,
were 55% lower than for the comparable period in 2008. The average realized prices for the nine months ended September 30, 2009, included the effects of our hedges. Should significant, further price decreases occur or should prices fail to
remain at levels which will facilitate repayment of debt and reinvestment of cash flow to replace current production, we could experience difficulty in developing our assets and continuing our growth.

Hedging Activities

In an
attempt to reduce our sensitivity to oil and gas price volatility and secure favorable debt financing, we have and will likely continue to enter into hedging transactions which may include fixed price swaps, price collars, puts and other
derivatives. Management believes our hedging strategy will result in greater predictability of internally generated funds, which can be dedicated to capital development projects and corporate obligations.

We do not engage in speculative commodity trading activities and do not hedge all available or anticipated quantities. Our strategy with
regard to hedging includes the following factors:



| | (1) | Secure and maintain favorable debt financing terms;
| | --- | ---------------------------------------------------



| | (2) | Minimize price volatility and generate internal funds available for capital development projects and additional acquisitions;
| | --- | -----------------------------------------------------------------------------------------------------------------------------



| | (3) | Lock-in growth in revenues, cash flows and profits for financial reporting purposes; and
| | --- | ------------------------------------------------------------------------------------------



| | (4) | Allow certain quantities to float, particularly in months with high price potential.
| | --- | ------------------------------------------------------------------------------------

We believe that commodity speculation and trading activities are inappropriate for us, but further believe appropriate management of
realized prices is an integral part of managing our business strategy.

Administrative and Operating Costs

We continue to focus on cost-containment efforts in seeking to lower per-unit administrative and operating costs. However, we must continue
to attract and retain competent management, technical and administrative personnel in pursuing our business strategy and fulfill our contractual obligations.



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Liquidity and Capital Resources

We expect to finance our future acquisition, development and exploration activities through working capital, cash flow from operating
activities, our bank credit facility, sale of non-strategic assets, various means of corporate and project finance and possibly through the issuance of additional debt and equity securities. In addition, we intend to continue to partially finance
our drilling activities through the sale of participations to industry partners on a promoted basis, whereby we will earn working interests in reserves and production greater than our proportionate capital costs.

Credit Facility

The borrowing base under our credit facility is currently $135 million. As of September 30, 2009, the outstanding principal balance was $104 million. As of November 4, 2009, the outstanding
principal balance was $102 million, leaving unused borrowing capacity of $33 million. Our borrowing base is currently in the process of redetermination and we do not expect any decrease in the amount of credit available to us. For the nine months
ended September 30, 2009, the weighted average annual interest rate in effect was 3.55% before the effects of the $40 million interest rate swap, discussed in Note D above. The rate in effect including the effects of the interest rate swap was
5.86%.

Cash Flows from Operating Activities

For the nine months ended September 30, 2009, our net cash provided by operating activities was $12.9 million, compared to $38.6 million
for the same period in 2008. During the first nine months of 2009 we reduced our net current liabilities by $13.1 million and incurred unfavorable commodity price changes. We believe that we can continue to generate cash flows sufficient to allow us
to continue with our planned capital program designed to replace our reserves and increase our production.

Cash Flows
from Investing Activities

Cash applied to oil and gas capital expenditures for the nine months ended
September 30, 2009 and 2008, was $81.6 million and $43.0 million, respectively. In 2009, we also realized cash of $2.7 million from the sale of properties compared to $21.0 million during the same period during 2008. Capital expenditures for
2009 were financed with debt of $64 million and working capital of $17.6 million. We expect to spend approximately $50 to $55 million in capital expenditures during the remainder of 2009 thru 2010.

Capital Budget

We previously reported an inventory of identified projects totaling approximately $83 million of capital expenditures. We continue to expand our portfolio of projects and in addition our acquisitions have
further increased our expected drilling and development expenditures. Accordingly, at present we have identified approximately $153 million of diversified exploration and development projects, which are summarized in the table below. The table does
not include all contemplated projects but is representative of the bulk of such projects and represents a diversified group of exploration and development opportunities as well as planned expenditures for seismic and acreage in focused areas. A
benefit of our portfolio is that it includes both gas and oil opportunities, much of which are held by production and therefore not subject to lease expiration or significant future carrying costs. Accordingly, we have some ability to
adjust our capital spending as our financial position and industry circumstances dictate. Generally, we are committed to limit our capital spending to our cash flows, although in certain limited circumstances, we may utilize our borrowing capacity
for development or lease saving operations. We do not intend to use our borrowing capacity for exploratory drilling. We may shift our expenditure between regions and projects (such as development versus exploration) in an attempt to maximize cash
flow and take advantage of regional differences in net commodity prices and service costs. Furthermore, our budget may be accelerated or deferred, pending commodity prices, drilling and service rig availability and cost, and adequate staffing to
effectively manage activities and control costs. While financial conditions and industry circumstances may require us to make adjustments, it is our current intent to continue our Bakken and Austin Chalk drilling



33



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##### Table of Contents

programs and certain other projects in the Gulf Coast, West Texas and the Williston Basin. Given commodity price volatility, even our Bakken and Austin Chalk programs could be temporarily
deferred. In the opinion of management, at present, we have sufficient cash flows and liquidity to fulfill lease obligations or otherwise maintain all material mineral leases.

Inventory of Planned Exploration and Development Projects



|                                             |  |              |       |                               |    |  
|-------------------------------------------- |  | ------------ | ----- | ----------------------------- | -- | -
|                                             |  | ($ Millions) |       | Percent ofDistrictOpportunity |   
|Southern District                            |  |              |       |                               |    |  
|Austin Chalk drilling and development(1) (2) |  | $            | 50.9  |                               | 58 | %
|Other development drilling(2)                |  |              | 17.6  |                               | 20 | %
|Exploratory drilling(3)                      |  |              | 7.7   |                               | 9  | %
|Acreage, seismic and other(5)                |  |              | 7.0   |                               | 8  | %
|Re-engineering and workover(4)               |  |              | 3.0   |                               | 4  | %
|Waterflood expansion                         |  |              | 1.1   |                               | 1  | %
|                                             |  |              |       |                               |    |  
|                                             |  |              | 87.3  |                               |    |  
|                                             |  |             
|Northern District                            |  |              |       |                               |    |  
|Bakken Shale drilling(6)                     |  | $            | 31.4  |                               | 48 | %
|Other development drilling(2)                |  |              | 22.6  |                               | 34 | %
|Acreage, seismic and other(5)                |  |              | 7.0   |                               | 11 | %
|Waterflood and associated drilling           |  |              | 3.2   |                               | 5  | %
|Re-engineering and workover(4)               |  |              | 1.5   |                               | 2  | %
|                                             |  |              |       |                               |    |  
|                                             |  |              | 65.7  |                               |    |  
|                                             |  |              |       |                               |    |  
|Total                                        |  | $            | 153.0 |                               |    |  
|                                             |  |              |       |                               |    |  



Notes:



|(1) | Horizontal drilling and development program with an affiliated institutional partnership. At present, we believe we have at least 22 additional drilling locations, the
majority of which are expected to be dual laterals wells. We also expect to re-enter numerous well bores and extend existing laterals or drill additional laterals. None of the possible re-entries are included in the above table as all such
opportunities are held by production and have no critical timing.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes both proved undeveloped and non-proved reserve potential.
|--- | ------------------------------------------------------------------

|(3) | Principally South Louisiana and the Texas Gulf Coast.
|--- | -----------------------------------------------------

|(4) | Includes activities related to existing fields intended to enhance production and lower operating expenses. These expenditures include replacement, repairs or
additional flowlines, facilities, and/or compression as well as the modification of the down-hole lift method, recompletions and side-track drilling.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Potential expenditures associated with further expansion of acreage and prospect inventory generally within close proximity of our existing fields.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Our participating working interests vary based on acreage contributed to the approved drilling units. On wells operated by our joint venture partner we expect our
working interests to range from 4% to 10%. We expect to participate in 60 wells in the next 18 months. In addition, due to nominal acreage contributions to drilling units operated by others we will likely have interests in numerous wells below that
working interest range, with many being 1% or less. While not material financially, management has generally elected to participate in all such drilling within this focus area primarily to collect valuable technical data related to the drilling
operations and reservoir characteristics. Also, it includes one Bakken Shale test well in Montana where our working interest presently is 50%.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The projects and timing of expenditures are subject to significant change as we continue to
technically and economically evaluate existing and alternative projects, as we further expand our portfolio and as industry conditions dictate. Estimated expenditures are also subject to significant change. There can be no assurance that all of the
projects identified and summarized above will remain viable and therefore certain projects may be sold or abandoned by us.



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##### Table of Contents

|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

We are exposed to market risk from changes in commodity prices. In the normal course of business, we enter into derivative transactions, including commodity price collars, swaps and floors to mitigate our
exposure to commodity price movements. While the use of these arrangements may limit the benefit to us of increases in the prices of oil and natural gas, it also limits the downside risk of adverse price movements. We use a revolving credit facility
which has a floating interest rate. We are exposed to market risk from changes in interest rates. We enter into interest rate swaps to mitigate our exposure to interest rate changes. While the use of these swaps may limit the benefit of falling
interest rates, they also limit the adverse effects of increasing interest rates.

The following is a list of contracts
outstanding at September 30, 2009:



|                 |  |                 |  |           |  |          |  |                   |  |                         |                     |                                          |   |        |  
|---------------- |  | --------------- |  | --------- |  | -------- |  | ----------------- |  | ----------------------- | ------------------- | ---------------------------------------- | - | ------ | -
|Transaction Date |  | TransactionType |  | Beginning |  | Ending   |  | Price PerUnit (1) |  | RemainingAnnual Volumes |                     | Fair ValueOutstandingas ofSept.
30, 2009 |  
|                 |  |                 |  |           |  |          |  |                   |  |                         |                     | (in thousands)                           |  
|Natural Gas      |  |                 |  |           |  |          |  |                   |  |                         |                     |                                          |   |        |  
|October-07       |  | Collar          |  | 01/01/09  |  | 12/31/09 |  | $7.00 -$10.75     |  |                         | 68,883 Mmbtu        |                                          | $ | 70     |  
|October-07       |  | Collar          |  | 01/01/10  |  | 12/31/10 |  | $7.00 -$9.90      |  |                         | 1,287,000 Mmbtu     |                                          |   | 1,293  |  
|October-07       |  | Collar          |  | 01/01/11  |  | 12/31/11 |  | $7.00 -$9.20      |  |                         | 1,079,000 Mmbtu     |                                          |   | 1,084  |  
|February-09      |  | Swap            |  | 04/01/09  |  | 03/31/10 |  | $4.86             |  |                         | 300,000 Mmbtu       |                                          |   | (203   | )
|March-09         |  | Swap            |  | 04/01/09  |  | 03/31/10 |  | $4.87             |  |                         | 300,000 Mmbtu       |                                          |   | (200   | )
|June-09          |  | Swap            |  | 07/01/09  |  | 12/31/10 |  | $5.16             |  |                         | 1,980,000 Mmbtu     |                                          |   | (1,211 | )
|June-09          |  | Swap            |  | 07/01/09  |  | 12/31/10 |  | $5.20             |  |                         | 690,000 Mmbtu       |                                          |   | (373   | )
|                 |  |                 |  |           |  |          |  |                   |  |                         |                     |                                          |   |        |  
|                 |  |                 |  |           |  |          |  |                   |  |                         |                     |                                          |   | 460    |  
|Crude Oil        |  |                 |  |           |  |          |  |                   |  |                         |                     |                                          |   |        |  
|October-07       |  | Swap            |  | 01/01/09  |  | 12/31/09 |  | $76.00            |  |                         | 92,000 Bbls         |                                          |   | 547    |  
|October-07       |  | Swap            |  | 01/01/10  |  | 12/31/10 |  | $74.71            |  |                         | 322,000 Bbls        |                                          |   | 46     |  
|October-07       |  | Swap            |  | 01/01/11  |  | 12/31/11 |  | $74.37            |  |                         | 282,000 Bbls        |                                          |   | (856   | )
|March-09         |  | Forward Sale    |  | 04/01/09  |  | 03/31/10 |  | $43.85            |  |                         | 54,000 Bbls         |                                          |   | (1,100 | )
|                 |  |                 |  |           |  |          |  |                   |  |                         |                     |                                          |   |        |  
|                 |  |                 |  |           |  |          |  |                   |  |                         |                     |                                          |   | (1,363 | )
|Interest Rate    |  |                 |  |           |  |          |  |                   |  |                         |                     |                                          |   |        |  
|Oct-07/Dec-09    |  | Swap            |  | 10/10/07  |  | 10/16/10 |  | 4.29375%          |  | $                       | 40 Million Notional |                                          |   |        |  
|                 |  |                 |  |           |  |          |  |                   |  |                         | 30-day LIBOR        |                                          |   | (1,640 | )
|Oct-07/Dec-09    |  | Swap            |  | 12/16/08  |  | 10/16/10 |  | 4.29375%          |  | $                       | 10 Million Notional |                                          |   |        |  
|                 |  |                 |  |           |  |          |  |                   |  |                         | 30-day LIBOR        |                                          |   | (410   | )
|                 |  |                 |  |           |  |          |  |                   |  |                         |                     |                                          |   |        |  
|                 |  |                 |  |           |  |          |  |                   |  |                         |                     |                                          |   | (2,050 | )
|                 |  |                 |  |           |  |          |  |                   |  |                         |                     |                                          |   |        |  
|                 |  |                 |  |           |  |          |  |                   |  |                         |                     |                                          | $ | (2,953 | )
|                 |  |                 |  |           |  |          |  |                   |  |                         |                     |                                          |   |        |  



|(1) | Price per unit is per Mmbtu for natural gas, per barrel for crude oil, and annual interest rate for interest rate swaps.
|--- | ------------------------------------------------------------------------------------------------------------------------



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|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and Procedures. In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act), our management evaluated, with the participation of our Chief Executive
Officer and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2009. Based upon their evaluation of
these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of September 30, 2009 to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the SEC), and to
ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to
allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. There have
been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.



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##### Table of Contents

PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

We are
not a party to, nor are any of our properties subject to, any material pending legal proceedings. We know of no material legal proceedings contemplated or threatened against the Company.



|Item 1A. | Risk Factors
|-------- | ------------

In addition
to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our 2008 Annual Report on Form 10-K/A, which could materially affect our business, financial
condition or future results. The risks described in our 2008 Annual Report on Form 10-K/A may not be the only risks facing our Company. There are no updates to our risk factors as disclosed in our Annual Report on Form 10-K/A for the year ended
December 31, 2008, except as noted below. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially adversely affect our business, financial condition and/or operating results.

Certain federal income tax deductions currently available with respect to oil and gas exploration and development may be eliminated as a
result of future legislation.

Among the changes contained in President Obamas budget proposal, released by the
White House on February 26, 2009, is the elimination of certain key U.S. federal income tax preferences currently available to oil and gas exploration and production companies. Such changes include, but are not limited to, (i) the repeal
of the percentage depletion allowance for oil and gas properties; (ii) the elimination of current deductions for intangible drilling and development costs; (iii) the elimination of the deduction for certain U.S. production activities; and
(iv) an extension of the amortization period for certain geological and geophysical expenditures. Additionally, the Senate Bill version of the Oil Industry Tax Break Repeal Act of 2009, introduced on April 23, 2009, and the Senate Bill
version of the Energy Fairness for America Act, introduced on May 20, 2009, include many of the proposals outlined in President Obamas budget proposal. It is unclear, however, whether any such changes will be enacted or how soon such
changes could be effective.

The passage of any legislation as a result of the budget proposal, either Senate Bill or any
other similar change in U.S. federal income tax law could eliminate certain tax deductions that are currently available with respect to oil and gas exploration and development, and any such change could negatively affect our financial condition and
results of operation.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None



|Item 5. | Other Information
|------- | -----------------

None



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##### Table of Contents

|Item 6. | Exhibits
|------- | --------

EXHIBIT
INDEX

FOR

Form 10-Q for the quarter ended September 30, 2009.



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1    |  | Amended and Restated Articles of Incorporation dated June 10, 2003, incorporated by reference to Exhibit 3.1 of Registrants Form 10-KSB for the year ended
December 31, 2003.                                                                                                                                                                                                                                                                
|       | 
|3.1(a) |  | Articles of Amendment to the Articles of Incorporation, incorporated by reference as Annex C to the Registrants definitive Proxy Statement dated February 23, 2007, and
filed with the Commission on February 23, 2007.                                                                                                                                                                                                                      
|       | 
|3.1(b) |  | Articles of Amendment to Articles of Incorporation, dated November 6, 2007. (5)                                                                                                                                                                                                                                                                                                                                                               
|       | 
|3.2    |  | Bylaws, as amended March 2, 2004, incorporated by reference to Exhibit 3.2 of Registrants Form 10-KSB for the year ended December 31, 2003.                                                                                                                                                                                                                                                                                                  
|       | 
|10.15  |  | Agreement and Plan of Merger dated September 14, 2006, among GeoResources, Inc., Southern Bay Energy Acquisition, LLC, Chandler Acquisition, LLC, Southern Bay Oil & Gas,
L.P., Chandler Energy, LLC and PICA Energy, LLC (including Amendment No. 1 dated February 16, 2007). Incorporated by reference as Annex A to the Registrants Definitive Proxy Statement dated February 23, 2007 and filed with the
Commission on February 23, 2007.
|       | 
|10.19  |  | June 7, 2001 Lease Agreement by and between AROC, Inc. and BGK Texas Property Management, Inc. for 110 Cypress Station Drive, Suite 220, Houston, Texas 77090.
(3)                                                                                                                                                                                                                                                                            
|       | 
|10.20  |  | First Amendment to June 7, 2001 Lease Agreement by and between AROC, Inc. and BGK Texas Property Management, Inc. for 110 Cypress Station Drive, Suite 220, Houston, Texas
77090, dated November 10, 2003. (3)                                                                                                                                                                                                                                
|       | 
|10.21  |  | Assignment and Assumption by Southern Bay Energy, L.L.C. of June 7, 2001 Lease Agreement by and between AROC, Inc. and BGK Texas Property Management, Inc. for 110 Cypress
Station Drive, Suite 220, Houston, Texas 77090, dated April 19, 2005. (3)                                                                                                                                                                                          
|       | 
|10.22  |  | Unconditional Guaranty of June 7, 2001 Lease Agreement by and between Southern Bay Energy, L.L.C. and BGK Texas Property Management, Inc. for 110 Cypress Station Drive, Suite
220, Houston, Texas 77090, dated April 19, 2005. (3)                                                                                                                                                                                                           
|       | 
|10.23  |  | Second Amendment to June 7, 2001 Lease Agreement by and between Southern Bay Energy, L.L.C. and BGK Texas Property Management, Inc. for 110 Cypress Station Drive, Suite 220,
Houston, Texas 77090, dated April 19, 2005. (3)                                                                                                                                                                                                                 
|       | 
|10.24  |  | Third Amendment to June 7, 2001 Lease Agreement by and between Southern Bay Energy, L.L.C. and BGK Texas Property Management, Inc. for 110 Cypress Station Drive, Suite 220,
Houston, Texas 77090, dated April 9, 2007. (3)                                                                                                                                                                                                                   
|       | 
|10.26  |  | January 31, 2000 Office Building Lease by and between 475-17thStreet, CO. and Collis P. Chandler III for 475 17th Street Building, Suite 860, 475 17th Street, Denver, Colorado
80202. (3)                                                                                                                                                                                                                                                    
|       | 
|10.27  |  | First Amendment to January 31, 2000 Office Building Lease by and between 475-17thStreet, CO. and Collis P. Chandler III for 475 17th Street, Suite 860, Denver, Colorado 80202, dated
September 28, 2001. (3)                                                                                                                                                                                                                                 
|       | 
|10.28  |  | Second Amendment to January 31, 2000 Office Building Lease by and between 475-17thStreet, CO. and Collis P. Chandler III for 475 17th Street, Suite 860, Denver, Colorado 80202, dated October 23,
2002. (3)                                                                                                                                                                                                                                  
|       | 
|10.29  |  | Third Amendment to January 31, 2000 Office Building Lease by and between 475-17thStreet, CO. and Collis P. Chandler III for 475 17th Street, Suite 860, Denver, Colorado 80202, dated June 28,
2004. (3)                                                                                                                                                                                                                                      



39



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##### Table of Contents

|      |  |                                                                                                                                                                                                                      
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.30 |  | Credit Agreement dated September 26, 2007 between the Registrant and Wachovia Bank National Association. (2)                                                                                                         
|      | 
|10.31 |  | Limited Partner Interest Purchase and Sale Agreement dated October 16, 2007 between the Registrant and TIFD III-X, LLC. (2)                                                                                          
|      | 
|10.32 |  | Amended and Restated Credit Agreement dated October 16, 2007 between the Registrant and Wachovia Bank National Association. (2)                                                                                      
|      | 
|10.33 |  | Amended and Restated Credit Agreement dated October 16, 2007 between the Registrant and Wachovia Bank National Association. (2)                                                                                      
|      | 
|10.34 |  | Form of Purchase Agreement. (4)                                                                                                                                                                                      
|      | 
|10.35 |  | Form of Warrant. (4)                                                                                                                                                                                                 
|      | 
|10.36 |  | Form of Registration Rights Agreement. (4)                                                                                                                                                                           
|      | 
|10.37 |  | Agreement of Limited Partnership for OKLA Energy Partners LP dated May 20, 2008. (6)                                                                                                                                 
|      | 
|10.38 |  | Lease Agreement by and between Southern Bay Energy, L.L.C. and Cypress Court Operating Associates, L.P. for office space at 110 Cypress Station Drive, Suite 220, Houston, Texas
77090, dated September 25, 2008. (7)
|      | 
|10.39 |  | Purchase and Sale Agreement between SBE Partners LP and Catena Oil and Gas LLC, dated May 29, 2009. (8)                                                                                                              
|      | 
|10.40 |  | Consent and Amendment No. 1 to Agreement of Limited Partnership of SBE Partners LP as of May 29, 2009. (8)                                                                                                           
|      | 
|10.41 |  | Second Amended and Restated Credit Agreement between the Registrant and Wachovia Bank, National Association as Administrative Agent dated July 13, 2009. (8)                                                         
|      | 
|10.42 |  | Consent, Distribution Agreement, and Amendment No. 2 to Agreement of Limited Partnership of SBE Partners LP (1)                                                                                                      
|      | 
|14.1  |  | Code of Business Conduct and Ethics adopted March 2, 2004, incorporated by reference to Exhibit 14.1 of Registrants Form 10-KSB for fiscal year ended December 31,
2003.                                            
|      | 
|21.1  |  | Subsidiaries of the Registrant. (3)                                                                                                                                                                                  
|      | 
|31.1  |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. (1)                                                                                                                  
|      | 
|31.2  |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. (1)                                                                                                                  
|      | 
|32.1  |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. (1)                                                                                                                  
|      | 
|32.2  |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. (1)                                                                                                                  



|(1) | Filed herewith.
|--- | ---------------

|(2) | Filed with the Registrants Form 10-QSB for the quarter ended September 30, 2007.
|--- | ---------------------------------------------------------------------------------

|(3) | Filed with the Registrants Form 10-QSB for the quarter ended June 30, 2007.
|--- | ----------------------------------------------------------------------------

|(4) | Filed with the Registrants Form 8-K on June 11, 2008.
|--- | ------------------------------------------------------

|(5) | Filed with the Registrants Form 10-KSB for the year ended December 31, 2007.
|--- | -----------------------------------------------------------------------------

|(6) | Filed with the Registrants Form 10-Q for the quarter ended June 30, 2008.
|--- | --------------------------------------------------------------------------

|(7) | Filed with the Registrants Form 10-Q for the quarter ended September 30, 2008.
|--- | -------------------------------------------------------------------------------

|(8) | Filed with the Registrants Form 10-Q for the quarter ended June 30, 2009.
|--- | --------------------------------------------------------------------------



40



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SIGNATURES

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



|                 |  |  |  |  |  |                                                       
|---------------- |  |  |  |  |  | ------------------------------------------------------
|                 |  |  |  |  |  | GEORESOURCES, INC.                                    
|                 |  |  | 
|November 5, 2009 |  |  |  |  |  |                                                       
|                 |  |  | 
|                 |  |  |  |  |  | /s/    FRANK A.
LODZINSKI                             
|                 |  |  |  |  |  | Frank A. Lodzinski                                    
|                 |  |  |  |  |  | Chief Executive Officer (Principal Executive Officer) 
|                 |  |  | 
|                 |  |  |  |  |  | /s/    HOWARD E.
EHLER                                
|                 |  |  |  |  |  | Howard E. Ehler                                       
|                 |  |  |  |  |  | Chief Financial Officer (Principal Accounting Officer)



41