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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



|x | Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------

For the Quarterly Period ended September 30, 2008



| ̈ | 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   ̈

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):



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

Indicated by check mark whether the registration 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 10, 2008
|Common stock, par value $.01 per share |  | 16,236,717 shares               



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##### Table of Contents

TABLE OF CONTENTS



|           |  |                                                                                                                              |  |   
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I.    |  | FINANCIAL INFORMATION                                                                                                        |  |   
|           |  |                                                                                                                             
|Item 1.    |  | Financial Statements                                                                                                         |  |   
|           |  |                                                                                                                             
|           |  | Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007                                                   |  | 3 
|           |  |                                                                                                                             
|           |  | Consolidated Statements of Operations for the Three Months and Nine Months ended September 30, 2008 and 2007                 |  | 4 
|           |  |                                                                                                                             
|           |  | Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) for the Nine Months ended September 30, 2008 |  | 5 
|           |  |                                                                                                                             
|           |  | Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2008 and 2007                                  |  | 6 
|           |  |                                                                                                                             
|           |  | Notes to Consolidated Financial Statements                                                                                   |  | 7 
|           |  |                                                                                                                             
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                        |  | 16
|           |  |                                                                                                                             
|Item 3.    |  | Quantitative and Qualitative Disclosure About Market Risk                                                                    |  | 25
|           |  |                                                                                                                             
|Item 4T.   |  | Controls and Procedures                                                                                                      |  | 25
|           |  |                                                                                                                             
|PART II.   |  | OTHER INFORMATION                                                                                                            |  |   
|           |  |                                                                                                                             
|Item 1.    |  | Legal Proceedings                                                                                                            |  | 26
|           |  |                                                                                                                             
|Item 1A.   |  | Risk Factors                                                                                                                 |  | 26
|           |  |                                                                                                                             
|Item 6.    |  | Exhibits                                                                                                                     |  | 27
|           | 
|Signatures |  | 29                                                                                                                          



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Item 1 - Financial Statements

GEORESOURCES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)



|                                                                                                                                               |  |                   |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                               |  | September 30,2008 |         |   | December 31,2007 |  
|                                                                                                                                               |  | (unaudited)       |         |   |                  |  
|ASSETS                                                                                                                                         |  |                   |         |   |                  |   |         |  
|Current assets:                                                                                                                                |  |                   |         |   |                  |   |         |  
|Cash                                                                                                                                           |  | $                 | 26,187  |   |                  | $ | 24,430  |  
|Accounts receivable:                                                                                                                           |  |                   |         |   |                  |   |         |  
|Oil and gas revenues                                                                                                                           |  |                   | 19,681  |   |                  |   | 20,365  |  
|Joint interest billings and other                                                                                                              |  |                   | 3,715   |   |                  |   | 3,913   |  
|Affiliated partnerships                                                                                                                        |  |                   | 4,397   |   |                  |   | 3,360   |  
|Notes receivable                                                                                                                               |  |                   | 120     |   |                  |   | 600     |  
|Prepaid expenses and other                                                                                                                     |  |                   | 3,276   |   |                  |   | 1,430   |  
|                                                                                                                                               |  |                   |         |   |                  |   |         |  
|Total current assets                                                                                                                           |  |                   | 57,376  |   |                  |   | 54,098  |  
|                                                                                                                                               |  |                   |         |   |                  |   |         |  
|Oil and gas properties, successful efforts method:                                                                                             |  |                   |         |   |                  |   |         |  
|Proved properties                                                                                                                              |  |                   | 207,273 |   |                  |   | 187,641 |  
|Unproved properties                                                                                                                            |  |                   | 4,697   |   |                  |   | 5,140   |  
|Office and other equipment                                                                                                                     |  |                   | 1,013   |   |                  |   | 996     |  
|Land                                                                                                                                           |  |                   | 96      |   |                  |   | 96      |  
|                                                                                                                                               |  |                   |         |   |                  |   |         |  
|                                                                                                                                               |  |                   | 213,079 |   |                  |   | 193,873 |  
|Less accumulated depreciation, depletion and amortization                                                                                      |  |                   | (21,888 | ) |                  |   | (12,430 | )
|                                                                                                                                               |  |                   |         |   |                  |   |         |  
|Net property and equipment                                                                                                                     |  |                   | 191,191 |   |                  |   | 181,443 |  
|                                                                                                                                               |  |                   |         |   |                  |   |         |  
|Other assets:                                                                                                                                  |  |                   |         |   |                  |   |         |  
|Equity in oil and gas limited partnerships                                                                                                     |  |                   | 3,328   |   |                  |   | 1,880   |  
|Deferred financing costs and other                                                                                                             |  |                   | 2,473   |   |                  |   | 2,937   |  
|                                                                                                                                               |  |                   |         |   |                  |   |         |  
|                                                                                                                                               |  | $                 | 254,368 |   |                  | $ | 240,358 |  
|                                                                                                                                               |  |                   |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                           |  |                   |         |   |                  |   |         |  
|Current liabilities:                                                                                                                           |  |                   |         |   |                  |   |         |  
|Accounts payable                                                                                                                               |  | $                 | 7,589   |   |                  | $ | 11,374  |  
|Accounts payable to affiliated partnerships                                                                                                    |  |                   | 17,861  |   |                  |   | 9,538   |  
|Revenues and royalties payable                                                                                                                 |  |                   | 15,425  |   |                  |   | 14,567  |  
|Drilling advances                                                                                                                              |  |                   | 212     |   |                  |   | 882     |  
|Accrued expenses                                                                                                                               |  |                   | 4,659   |   |                  |   | 3,839   |  
|Derivative financial instruments                                                                                                               |  |                   | 12,630  |   |                  |   | 6,527   |  
|                                                                                                                                               |  |                   |         |   |                  |   |         |  
|Total current liabilities                                                                                                                      |  |                   | 58,376  |   |                  |   | 46,727  |  
|Long-term debt                                                                                                                                 |  |                   | 50,000  |   |                  |   | 96,000  |  
|Deferred income taxes                                                                                                                          |  |                   | 12,976  |   |                  |   | 6,476   |  
|Asset retirement obligations                                                                                                                   |  |                   | 5,282   |   |                  |   | 7,827   |  
|Derivative financial instruments                                                                                                               |  |                   | 22,004  |   |                  |   | 15,296  |  
|Stockholders equity:                                                                                                                          |  |                   |         |   |                  |   |         |  
|Common stock, par value $.01 per share; authorized 100,000,000 shares; 16,236,717 in 2008 and 14,703,383 in 2007 shares issued and outstanding |  |                   | 162     |   |                  |   | 147     |  
|Additional paid-in capital                                                                                                                     |  |                   | 112,324 |   |                  |   | 79,690  |  
|Accumulated other comprehensive income (loss)                                                                                                  |  |                   | (32,074 | ) |                  |   | (19,310 | )
|Retained earnings                                                                                                                              |  |                   | 25,318  |   |                  |   | 7,505   |  
|                                                                                                                                               |  |                   |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                     |  |                   | 105,730 |   |                  |   | 68,032  |  
|                                                                                                                                               |  |                   |         |   |                  |   |         |  
|                                                                                                                                               |  | $                 | 254,368 |   |                  | $ | 240,358 |  
|                                                                                                                                               |  |                   |         |   |                  |   |         |  

The accompanying notes are an integral part of these statements.



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GEORESOURCES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands,
except per share amounts)

(unaudited)



|                                              |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  
|--------------------------------------------- |  | --------------------------- | ------ | -------------------------- | ---- | - | ------ |  | ---- | ------ |  | - | ------ | -
|                                              |  | Three Months EndedSept. 30, |        | Nine Months EndedSept. 30, |     
|                                              |  | 2008                        |        |                            | 2007 |   | 2008   |  | 2007 |       
|Revenue:                                      |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  
|Oil and gas revenues                          |  | $                           | 21,763 |                            |      | $ | 7,513  |  | $    | 69,344 |  | $ | 18,110 |  
|Partnership management fees                   |  |                             | 585    |                            |      |   | 301    |  |      | 1,419  |  |   | 713    |  
|Property operating income                     |  |                             | 381    |                            |      |   | 400    |  |      | 1,052  |  |   | 1,082  |  
|Gain (loss) on sale of property and equipment |  |                             | 308    |                            |      |   |       |  |      | 2,269  |  |   | (15    | )
|Partnership income                            |  |                             | 366    |                            |      |   | 116    |  |      | 1,021  |  |   | 329    |  
|Interest and other                            |  |                             | 190    |                            |      |   | 305    |  |      | 640    |  |   | 818    |  
|                                              |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  
|Total revenue                                 |  |                             | 23,593 |                            |      |   | 8,635  |  |      | 75,745 |  |   | 21,037 |  
|Expenses:                                     |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  
|Lease operating expense                       |  |                             | 5,594  |                            |      |   | 2,368  |  |      | 17,174 |  |   | 5,683  |  
|Severance taxes                               |  |                             | 2,088  |                            |      |   | 605    |  |      | 6,405  |  |   | 1,407  |  
|Re-engineering and workovers                  |  |                             | 649    |                            |      |   | 302    |  |      | 2,331  |  |   | 734    |  
|Exploration and impairment expense            |  |                             | 29     |                            |      |   |       |  |      | 531    |  |   |       |  
|General and administrative expense            |  |                             | 1,688  |                            |      |   | 1,258  |  |      | 5,333  |  |   | 4,506  |  
|Depreciation, depletion and amortization      |  |                             | 3,833  |                            |      |   | 1,728  |  |      | 11,283 |  |   | 4,589  |  
|Hedge ineffectiveness                         |  |                             | (890   | )                          |      |   | 3      |  |      | 47     |  |   |       |  
|Interest                                      |  |                             | 975    |                            |      |   | 25     |  |      | 3,858  |  |   | 381    |  
|                                              |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  
|Total expense                                 |  |                             | 13,966 |                            |      |   | 6,289  |  |      | 46,962 |  |   | 17,300 |  
|                                              |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  
|Income before income taxes                    |  |                             | 9,627  |                            |      |   | 2,346  |  |      | 28,783 |  |   | 3,737  |  
|                                              |  |                             |        |                           
|Income taxes:                                 |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  
|Current                                       |  |                             | 1,679  |                            |      |   | 553    |  |      | 4,438  |  |   | 649    |  
|Deferred                                      |  |                             | 2,149  |                            |      |   | 381    |  |      | 6,532  |  |   | 2,139  |  
|                                              |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  
|                                              |  |                             | 3,828  |                            |      |   | 934    |  |      | 10,970 |  |   | 2,788  |  
|                                              |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  
|Net income                                    |  | $                           | 5,799  |                            |      | $ | 1,412  |  | $    | 17,813 |  | $ | 949    |  
|                                              |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  
|Net income per share (basic)                  |  | $                           | 0.36   |                            |      | $ | 0.10   |  | $    | 1.16   |  | $ | 0.08   |  
|                                              |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  
|Net Income per share (diluted)                |  | $                           | 0.35   |                            |      | $ | 0.10   |  | $    | 1.14   |  | $ | 0.08   |  
|                                              |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  
|Weighted average shares outstanding (basic)   |  |                             | 16,237 |                            |      |   | 14,703 |  |      | 15,385 |  |   | 11,639 |  
|                                              |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  
|Weighted average shares outstanding (diluted) |  |                             | 16,441 |                            |      |   | 14,703 |  |      | 15,582 |  |   | 11,639 |  
|                                              |  |                             |        |                            |      |   |        |  |      |        |  |   |        |  

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, 2008

(In thousands except share data)

(unaudited)



|                                                                 |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |         |   |  |   |         |  
|---------------------------------------------------------------- |  | ------------ |  | ------------------------ | --- | ---------------- | - | ------------------------------------------ |  | - | ------ |  | - | ------- | - |  | - | ------- | -
|                                                                 |  | Common Stock |  | AdditionalPaid-inCapital |     | RetainedEarnings |   | AccumulatedOtherComprehensiveIncome (loss) |  |   | Total  | 
|                                                                 |  | Shares       |  | Par value                |     |                  |   |                                           
|Balance, December 31, 2007                                       |  | 14,703,383   |  | $                        | 147 |                  | $ | 79,690                                     |  | $ | 7,505  |  | $ | (19,310 | ) |  | $ | 68,032  |  
|                                                                 |  |              |  |                          |     |                 
|Issuance of common stock, net of stock issue costs of $2,313,000 |  | 1,533,334    |  |                          | 15  |                  |   | 32,172                                     |  |   |        |  |   |         |   |  |   | 32,187  |  
|                                                                 |  |              |  |                          |     |                 
|Comprehensive income:                                            |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |         |   |  |   |         |  
|Net income                                                       |  |              |  |                          |     |                  |   |                                            |  |   | 17,813 |  |   |         |   |  |   | 17,813  |  
|Change in fair market value of hedged positions                  |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   | (25,134 | ) |  |   | (25,134 | )
|Net realized hedging losses charged to income                    |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   | 12,370  |   |  |   | 12,370  |  
|                                                                 |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |         |   |  |   |         |  
|Total comprehensive income                                       |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |         |   |  |   | 5,049   |  
|                                                                 |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |         |   |  |   |         |  
|Equity based compensation expense                                |  |              |  |                          |     |                  |   | 462                                        |  |   |        |  |   |         |   |  |   | 462     |  
|                                                                 |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |         |   |  |   |         |  
|Balance, September 30, 2008                                      |  | 16,236,717   |  | $                        | 162 |                  | $ | 112,324                                    |  | $ | 25,318 |  | $ | (32,074 | ) |  | $ | 105,730 |  
|                                                                 |  |              |  |                          |     |                  |   |                                            |  |   |        |  |   |         |   |  |   |         |  

The accompanying notes are an integral part of these statements.



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GEORESOURCES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)



|                                                                                  |  |                                |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Nine Months EndedSeptember 30, |        
|                                                                                  |  | 2008                           |         |   | 2007 |  
|Cash flows from operating activities:                                             |  |                                |         |   |      |   |         |  
|Net income                                                                        |  | $                              | 17,813  |   |      | $ | 949     |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |         |   |      |   |         |  
|Depreciation, depletion and amortization                                          |  |                                | 11,283  |   |      |   | 4,589   |  
|(Gain) loss on sale of property and equipment                                     |  |                                | (2,269  | ) |      |   | 15      |  
|Impairment of unproved properties                                                 |  |                                | 483     |   |      |   |        |  
|Accretion of asset retirement obligations                                         |  |                                | 304     |   |      |   | 79      |  
|Hedge ineffectiveness loss                                                        |  |                                | 47      |   |      |   |        |  
|Partnership income                                                                |  |                                | (1,021  | ) |      |   | (329    | )
|Partnership distributions                                                         |  |                                | 551     |   |      |   | 122     |  
|Deferred income taxes                                                             |  |                                | 6,532   |   |      |   | 2,139   |  
|Non-cash compensation                                                             |  |                                | 462     |   |      |   | 422     |  
|Changes in assets and liabilities:                                                |  |                                |         |   |      |   |         |  
|Increase in accounts receivable                                                   |  |                                | (155    | ) |      |   | (11,046 | )
|Decrease in notes receivable                                                      |  |                                | 555     |   |      |   |        |  
|Decrease (increase) in prepaid expense and other                                  |  |                                | (1,499  | ) |      |   | 489     |  
|Increase in accounts payable and accrued expenses                                 |  |                                | 5,514   |   |      |   | 13,174  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                                | 38,600  |   |      |   | 10,603  |  
|Cash flows from investing activities:                                             |  |                                |         |   |      |   |         |  
|Proceeds from sale of property and equipment                                      |  |                                | 20,960  |   |      |   | 1,750   |  
|Additions to property and equipment                                               |  |                                | (43,012 | ) |      |   | (12,277 | )
|Investment in oil and gas limited partnership                                     |  |                                | (978    | ) |      |   | (1,632  | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                                | (23,030 | ) |      |   | (12,159 | )
|Cash flows from financing activities:                                             |  |                                |         |   |      |   |         |  
|Issuance of common stock, net of stock issue cost of $2,183,000                   |  |                                | 32,187  |   |      |   | 23,518  |  
|Distributions to stockholders                                                     |  |                                |        |   |      |   | (4,007  | )
|Issuance of long-term debt                                                        |  |                                |        |   |      |   | 3,000   |  
|Reduction of long-term debt                                                       |  |                                | (46,000 | ) |      |   | (9,800  | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                               |  |                                | (13,813 | ) |      |   | 12,711  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Net increase in cash and cash equivalents                                         |  |                                | 1,757   |   |      |   | 11,155  |  
|Cash and cash equivalents at beginning of period                                  |  |                                | 24,430  |   |      |   | 6,217   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                        |  | $                              | 26,187  |   |      | $ | 17,372  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Supplementary information:                                                        |  |                                |         |   |      |   |         |  
|Interest paid                                                                     |  | $                              | 3,708   |   |      | $ | 333     |  
|Income taxes paid                                                                 |  | $                              | 4,210   |   |      | $ | 1,750   |  
|Non-cash net asset acquire in merger transactions:                                |  |                                |         |   |      |   |         |  
|GeoResources                                                                      |  | $                              |        |   |      | $ | 23,827  |  
|PICA Energy, LLC                                                                  |  | $                              |        |   |      | $ | 11,703  |  
|Yuma property interests                                                           |  | $                              |        |   |      | $ | 3,338   |  

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 Summary of Significant Accounting Policies

Merger

On April 17, 2007, pursuant to the terms
of an Agreement and Plan of Merger (Merger Agreement), GeoResources, Inc. (GeoResources or the Company), a Colorado corporation, acquired Southern Bay Oil & Gas, L.P. (Southern Bay), a Texas
limited partnership, PICA Energy, LLC (PICA), a Colorado limited liability company and subsidiary of Chandler Energy LLC, and certain oil and gas properties in exchange for 10,690,000 shares of common stock (the Merger).
These transactions resulted in a change in stockholder control of the Company. As a result of the Merger, the former Southern Bay partners received a majority of the outstanding common stock of the Company and thus, obtained voting control of the
Company. Accordingly, for financial reporting purposes, the Merger was accounted for as a reverse acquisition of GeoResources and PICA by Southern Bay. Therefore, the results of operations and cash flows as presented herein for the three and nine
months ended September 30, 2008 are those attributable to the combined entities. The results of operations and cash flows for the nine months ended September 30, 2007 are those attributable to the former Southern Bay entity for the entire
nine months and those of the combined entity for the period from April 18, 2007 through September 30, 2007.

Organization and Basis of
Presentation

GeoResources operates a single business segment involved in the acquisition, development and production of, and
exploration for, crude oil, natural gas and related products primarily in Texas, Louisiana, Oklahoma, North Dakota, Montana and Colorado. The accompanying consolidated financial statements include the accounts of our wholly-owned subsidiaries. All
events described or referred to as prior to April 18, 2007, relate to Southern Bay as the accounting acquirer.

The financial
statements included herein have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, the statements reflect all adjustments (which consist solely
of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial results for interim periods. Certain information and notes normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information not misleading. For further information
regarding the Companys accounting policies, please read the audited consolidated financial statements included in the Companys Form 10-KSB/A for the year ended December 31, 2007.

Reclassification

Certain reclassifications have been
made to prior period amounts to conform to current period presentation of revenues and royalties payable in the Consolidated Balance Sheet as of December 31, 2007.

NOTE B: Acquisitions and Sales

Merger

The net assets of the acquired GeoResources and PICA as well as certain other acquired oil and gas properties pursuant to the Merger were recorded at fair
value using the purchase method of accounting, as required by generally accepted accounting principles. Such net assets consisted of cash and other current assets and liabilities, oil and gas properties, certain mineral leases and options, and debt.
The fair value of the net assets acquired in these purchases was based on the average trading price of GeoResources common stock immediately before and after the public announcement of the Merger Agreement, of $6.29 per share.

AROC Energy Acquisition

On October 16,
2007, the Company, through a wholly-owned subsidiary, entered into an agreement to purchase (Purchase Agreement) all of the limited partnership interest in AROC Energy, L.P., an affiliated limited partnership for which the Company served
as general partner. The limited partner was an unaffiliated entity. Prior to this transaction, the Company owned 2% of the partnership and the limited partner owned the remaining 98%. The Acquisition, which was accounted for as a purchase, included
oil and gas properties located in Louisiana, the Gulf Coast, South Texas, the Permian Basin and the Black Warrior Basin.



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Under the Purchase Agreement, the Company purchased the interest for a cash purchase price of $91,100,000
and paid $12,952,000 to cancel the Limited Partnerships oil and gas hedge contracts. These costs were funded with cash of $8,052,000 and borrowings of $96 million under the Amended Credit Agreement discussed in Note E. The Company also paid
its bank a fee of $1,250,000 in connection with the acquisition. The purchase of the interest was effective on the date of closing of the Purchase Agreement, October 16, 2007, and resulted in the Companys total ownership percentage of
100% of the Limited Partnership. In November 2007, the Company dissolved the Limited Partnership.

Pro Forma Results of Operations

The following summary presents unaudited pro forma information for the nine month period ended September 30, 2007 as if the Merger and
Acquisition had been consummated at January 1, 2007 respectively (in thousands except share data).





|                                                          |  |   |           
|--------------------------------------------------------- |  | - | ----------
|Nine months ended September 30, 2007                      |  |   |           
|Total revenue                                             |  | $ | 50,637    
|Income before income taxes                                |  | $ | 6,970     
|Net income                                                |  | $ | 3,018     
|Net income per share: basic and diluted                   |  | $ | 0.21      
|Weighted average shares outstanding at September 30, 2007 |  |   | 14,616,446

Other Acquisitions and Sales

In January 2007, Southern Bay formed two entities in connection with the acquisition of producing oil and gas properties located in southeast Texas.
Catena Oil & Gas LLC (Catena) was formed as an indirect wholly-owned subsidiary of Southern Bay and SBE Partners LP (SBE) was formed with Catena as general partner with a 2% partnership interest, and a large
institutional investor as the sole limited partner with a 98% partnership interest. In February, 2007 these entities paid cash of $82 million to acquire certain southeast Texas properties. Catena purchased 8% of the interests and SBE purchased the
remaining 92%. Catenas share of the property purchase price was $6.6 million, and its general partner contribution to SBE was $1.6 million. Southern Bay funded these amounts with additional capital contributions from its partners of $5.0
million, borrowings under its bank credit agreement of $3.0 million and working capital of $200,000. The Companys investment in SBE is accounted for under the equity method of accounting.

In May 2008, Southern Bay, through Catena, formed an entity in connection with the acquisition of producing oil and gas properties located throughout
Oklahoma. OKLA Energy Partners LP (OKLA) was formed with Catena as general partner with a 2% partnership interest, and a large institutional investor as the sole limited partner with a 98% partnership interest. In May, 2008, these
entities paid cash of $61.7 million to acquire certain Oklahoma properties. Catena, purchased 18% of the interests and OKLA purchased the remaining 82%. Catenas share of the property purchase price was $12.8 million, and its general partner
contribution to OKLA was $978,000. The Companys investment in OKLA is accounted for under the equity method of accounting.

In
January 2008, the Company sold all of its interest in the Grand Canyon Unit, a property acquired in the Merger. This property, located in Otsego County, Michigan, was sold to an unaffiliated party for $6.6 million in cash. The carrying value of this
property at the date of the sale was equal to the selling price; therefore, no gain or loss was recognized on sale.

In February 2008, the
Company acquired producing properties from an unaffiliated party in the Williston Basin of North Dakota and Montana for $7.9 million in cash. The acquired properties are operated by the Company. The purchase price was allocated to oil and gas
properties.

In February 2008, the Company sold its interests in certain non-core oil and gas properties located in Louisiana to
unaffiliated parties for $1.8 million and recognized gains of $430,000.

In May 2008, the Company closed certain property sales. These
sales consisted of seven non-core fields in Louisiana and Texas and were sold for approximately $11.8 million. The Company recognized a gain of $1.5 million related to these sales.



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In September 2008, the Company acquired producing properties in Oklahoma from an unaffiliated party for
$3.6 million in cash. The acquired properties are operated by the Company. The purchase price was allocated to oil and gas properties.

NOTE C: Recent
Accounting Pronouncements

In March 2008, the Financial Accounting Standards Board (FASB) issued Statement No. 161,
Disclosure about Derivative Instruments and Hedging Activities  an amendment to FASB Statement No. 133 (SFAS 161). The adoption of SFAS 161 is not expected to have an impact on the Companys consolidated financial
statements, other than additional disclosures. SFAS 161 expands interim and annual disclosures about derivative and hedging activities that are intended to better convey the purpose of derivative use and the risks managed. SFAS 161 is effective for
fiscal years and interim periods beginning after November 15, 2008.

In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements  an amendment of ARB No. 51(SFAS 160). This statement amends ARB No. 51 and intends to improve the relevance, comparability and transparency of the
financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards on the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. SFAS
160 is effective for fiscal years, and interim periods, beginning on or after December 15, 2008.

In December 2007, the FASB issued
Statement No. 141R, Business Combinations (SFAS 141R). SFAS 141R may have an impact on the Companys consolidated financial statements when effective, but the nature and magnitude of the specific effects will depend upon
the nature, terms, and size of the acquisitions that the Company consummates after the effective date. 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.

NOTE D: Income Taxes

The Company accounts for
income taxes under the provisions of SFAS No. 109, Accounting of Income Taxes, which provides for an asset and liability approach in accounting for income taxes. 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.

The Company estimates that its effective tax rate for the year ending December 31, 2008 will be approximately 38%. Income
tax expense of $11.0 million and $2.8 million was recognized for the nine month periods ended September 30, 2008 and 2007, respectively. Income tax expense of $3.8 million and $900,000 was recognized for the three month periods ended
September 30, 2008 and 2007, respectively.

FIN 48-Uncertain Tax Positions

The Company also accounts for income taxes under the provisions of FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in
accordance with SFAS No. 109, and FSP FIN 48-1, which provides that a companys tax position will be considered 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. FIN 48 prescribes a benefit recognition model with 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. FIN 48 also requires
that the amount of interest expense recognized related to uncertain tax positions be computed by applying the applicable statutory rate of interest to the difference between the tax position recognized in accordance with FIN 48 and the amount
previously taken or expected to be taken in a tax return.

The Company did not have any unrecognized tax benefits and there was no effect
on its financial condition or results of operations as a result of implementing FIN 48. The amount of unrecognized tax benefits 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.



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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 Operations. As of the date of adoption of FIN 48, the Company did not have any accrued interest or penalties associated
with any unrecognized tax benefits, nor was any interest expense recognized during the current quarter or nine months then ended. The Company does not anticipate that total unrecognized tax benefits will significantly change due to the settlement of
audits and the expiration of statute of limitations prior to September 30, 2009.

NOTE E: Long-Term Debt

On September 26, 2007, the Company entered into a Credit Agreement with Wachovia Bank (the Bank), as Administrative Agent and Issuing
Bank and the Bank and U.S. Bank as Lenders. This agreement provided for a Senior Secured Revolving Credit Facility in the maximum amount of $100 million, with an initial borrowing base of $35 million.

On October 16, 2007, the Company entered into an Amended and Restated Credit Agreement (Amended Credit Agreement) with the Bank as
Administrative agent, Issuing Bank, Sole Lead Arranger and Sole Bookrunner. This agreement provides for financing of up to $200 million to the Company. The initial borrowing base of the Amended Credit Facility was $110 million, subject to
redetermination on April 1 and October 1 of each year. As of September 30, 2008, the borrowing base had been reduced to $95 million due to the sales of certain non-core oil and gas properties. The amounts borrowed under this Amended
Credit Agreement bear interest at either (a) the London Interbank Offered Rate (LIBOR) plus 1.50% to 2.25% or (b) the prime lending rate of the Bank plus .5% to 1.25%, depending on the amount borrowed under the Amended Credit
Agreement. Principal amounts outstanding under this Amended Credit Agreement are due and payable in full at maturity on October 16, 2010. The Amended Credit Agreement also requires the payment of commitment fees to the Lender in respect of the
unutilized commitments thereunder. The commitment rate is 0.375% to 0.50% per year depending on the amount of borrowing base utilization. The Company is also required to pay customary letter of credit fees. All of the obligations under the
Amended Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the Companys assets. The 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 leaseback transactions, pay dividends and distributions or repurchase its capital stock, engage in mergers or
consolidations, sell certain assets, sell or discount any notes receivable or accounts receivable and engage in certain transactions with affiliates. In addition, the Amended Credit Agreement requires the maintenance of certain financial ratios,
contains customary affirmative covenants, and provides for customary events of default.

On October 16, 2007, the Company borrowed $96
million under the Amended Credit Agreement, in connection with the AROC Energy acquisition.The Company also paid the Bank transaction fees of $1.25 million as well as underwriting fees and other loan costs totaling $1.25 million. At
September 30, 2008, the outstanding principal balance was $50.0 million. The annual interest rate in effect at September 30, 2008 was 6.22% on the entire amount of the outstanding principal.

Also, in October 2007, the Company entered into an interest rate swap agreement with the Bank, providing a fixed rate of 4.29% on a notional $50,000,000
through October 16, 2010. As of September 30, 2008, the Company has recorded a liability of $1.1 million, of which $539,000 is current, related to this hedge. The fair market value of the interest rate swap at December 31, 2007 was a
liability of $854,000, of which $477,000 was classified as a current liability.

On November 5, 2008, the borrowing base under the
Amended Credit Agreement was increased to $100 million and the agreement was amended to provide for interest rates at either (a) LIBOR plus 1.75% to 2.50% or (b) the prime lending rate plus .75% to 1.5%, depending on the amount borrowed.

At September 30, 2008, accumulated other comprehensive loss included $1.1 million of unrecognized losses, representing the inception
to date change in mark-to-market value of the Companys interest rate swap, designated as a hedge, as of the balance sheet date. For the nine months ended September 30, 2008, the Company recognized realized cash settlement losses of
$187,000 related to this swap. Based on the estimated fair market value of the Companys derivative contracts designated as hedges at September 30, 2008, the Company expects to reclassify net losses of $539,000 into earnings from
accumulated other comprehensive income during the next twelve months; however, actual cash settlement gains and losses recognized may differ materially.

NOTE F: 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, removal of equipment and facilities from leased acreage and land restoration, in accordance with applicable local, state and federal laws. In accordance with Statement of Financial
Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS 143), 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



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Obligations (ARO) for oil and gas properties and related equipment during the nine months ended
September 30, 2008, are as follows (in thousands):



|                                                |  |   |        |  
|----------------------------------------------- |  | - | ------ | -
|Asset retirement obligation, January 1, 2008    |  | $ | 7,827  |  
|Additional liabilities incurred                 |  |   | 126    |  
|Accretion expense                               |  |   | 304    |  
|Obligations on sold properties                  |  |   | (2,906 | )
|Settled obligations                             |  |   | (69    | )
|                                                |  |   |        |  
|Asset retirement obligation, September 30, 2008 |  | $ | 5,282  |  
|                                                |  |   |        |  

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 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 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 derivative instruments limits the downside risk of
adverse price movements, they may also limit future revenues from favorable price movements. The Company does not enter into derivative instruments for speculative or trading purposes.

At September 30, 2008, accumulated other comprehensive loss consisted of $30,974,000 of unrecognized losses, 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. For the three and nine month periods ended September 30, 2008, the Company
recognized realized cash settlement losses on commodity derivatives of $4,257,000 and $12,183,000, respectively. For the three and nine month periods ended September 30, 2007, the Company recognized realized settlement losses on commodity
derivatives of $534,000 and $1,255,000, respectively. Based on the estimated fair market value of the Companys derivative contracts designated as hedges at September 30, 2008, the Company expects to reclassify net losses of $12,091,000
into earnings from accumulated other comprehensive income during the next twelve months; however, actual cash settlement gains and losses recognized may differ materially. At September 30, 2008, the Company had hedged its exposure to the
variability in future cash flows from forecasted oil and gas production volumes as follows:



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|                               |  |                   |  |            |       |                   |   |      
|------------------------------ |  | ----------------- |  | ---------- | ----- | ----------------- | - | -----
|                               |  | TotalAnnualVolume |  | FloorPrice |       | Ceiling/SwapPrice
|Crude Oil Contracts (Bbls.):   |  |                   |  |            |       |                   |   |      
|Swap contracts:                |  |                   |  |            |       |                   |   |      
|2008 (remainder)               |  | 78,500            |  |            |       |                   | $ | 80.19
|2009                           |  | 368,000           |  |            |       |                   | $ | 76.00
|2010                           |  | 322,000           |  |            |       |                   | $ | 74.71
|2011                           |  | 282,000           |  |            |       |                   | $ | 74.37
|                               |  |                   | 
|Costless collar contracts:     |  |                   |  |            |       |                   |   |      
|2008 (remainder)               |  | 30,000            |  | $          | 65.00 |                   | $ | 75.10
|                               |  |                   | 
|Natural Gas Contracts (Mmbtu): |  |                   |  |            |       |                   |   |      
|Swap contracts:                |  |                   |  |            |       |                   |   |      
|2009 (terminated Oct. 17, 08)  |  | 779,268           |  |            |       |                   | $ | 4.785
|2009 (terminated Oct. 17, 08)  |  | 427,200           |  |            |       |                   | $ | 5.61 
|                               |  |                   | 
|Costless collar contracts :    |  |                   |  |            |       |                   |   |      
|2008 (remainder)               |  | 30,000            |  | $          | 8.00  |                   | $ | 8.45 
|2008 (remainder)               |  | 407,250           |  | $          | 7.00  |                   | $ | 9.80 
|2009                           |  | 275,530           |  | $          | 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, 2008 was a liability of
$33,534,000 of which $12,091,000 was classified as a current liability. The fair market value of these hedge contracts at December 31, 2007 was a liability of $20,696,000, of which $6,051,000 was classified as a current liability. During the
three months ended September 30, 2008, the Company recognized a gain of $890,000 due to hedge ineffectiveness on these hedge contracts versus a loss of $3,000 in the same period during 2007. During the nine month period ended September 30,
2008, the Company recognized a loss due to hedge ineffectiveness of $47,000. During the same period in 2007 no gain or loss due to hedge ineffectiveness was recognized.

Subsequent to the end of the quarter, 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. The cancelation of these swaps
will reduce net income in the fourth quarter of 2008 by $437,000. The remainder of the cost to cancel was previously recognized as part of the AROC Energy acquisition or through ineffectiveness charges. The canceled swaps were acquired as part of
the AROC Energy acquisition discussed in Note B.

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

NOTE H: Fair Value Disclosures

SFAS 157  Effective January 1, 2008, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 157, Fair Value Measurements(SFAS 157), which 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. The implementation of SFAS 157
did not cause a change in the method of calculating fair value assets or liabilities. The primary impact from adoption was additional disclosures.

The Company elected to implement SFAS 157 with the one-year deferral permitted by FASB Staff Position No. FAS 157-2 Effective Date of FASB No. 157 (FSP 157-2), issued February 2008, which defers the effective date of
SFAS 157 for one year for certain nonfinancial assets and nonfinancial liabilities measured at fair value, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. As it relates to the Company,
the deferral applies to certain



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nonfinancial assets and liabilities as may be acquired in a business combination and thereby measured at fair value, impaired oil and gas property
assessments, and the initial recognition of asset retirement obligations for which fair value is used.

Fair Value Hierarchy
 SFAS 157 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 following table presents
information about the Companys liabilities measured at fair value on a recurring basis as of September 30, 2008, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:



|                                                                  |  |                                                           |  |                                           |            |                                        |   |                                 |   |           
|----------------------------------------------------------------- |  | --------------------------------------------------------- |  | ----------------------------------------- | ---------- | -------------------------------------- | - | ------------------------------- | - | ----------
|                                                                  |  | Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) |  | SignificantOtherObservableInputs(Level
2) |            | SignificantUnobservableInputs(Level 3) |   | Balances as ofSeptember 30,2008
|Current portion of derivative financial instrument liability(1)   |  |                                                          |  | $                                         | 12,630,000 |                                        |  |                                 | $ | 12,630,000
|Long-term portion of derivative financial instrument liability(2) |  |                                                          |  | $                                         | 22,004,000 |                                        |  |                                 | $ | 22,004,000



|(1) | Includes Interest Rate Swap ($539,000) and Commodity Derivative Instruments ($12,091,000)
|--- | -----------------------------------------------------------------------------------------

|(2) | Includes Interest Rate Swap ($561,000) and Commodity Derivative Instruments ($21,443,000)
|--- | -----------------------------------------------------------------------------------------

The Company does not have any assets measured at fair value on a recurring basis as of September 30, 2008.

The following methods and assumptions were used to estimate the fair values of the liabilities in the table above:

Commodity Derivative Instruments  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.

Interest Rate Swap  The Companys interest rate swap is valued using the counterpartys mark-to-market
statement, which can be validated using modeling techniques that include market inputs such as publically available interest rate yield curves, and is designated as Level 2 within the valuation hierarchy.

The Company has no assets or liabilities measured at fair value on a recurring basis that meet the definition of Level 1 or Level 3.

SFAS 159  In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities  Including an amendment of FASB Statement No 115 (SFAS 159). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value.
On January 1, 2008, the Company adopted SFAS 159 and decided not to elect fair value accounting for any of its eligible items. The adoption of SFAS 159 therefore had no impact on the Companys consolidated financial position, cash flows or
results of operations. If



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the use of fair value is elected in the future (the fair value option), however, any upfront costs and fees related to the item must be recognized in
earnings and cannot be deferred, e.g., debt issue costs. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value.
Subsequent to the adoption of SFAS 159, changes in fair value are recognized in earnings.

NOTE I: Private Placement Offering

On June 5, 2008, the Company issued 1,533,334 shares of common stock and 613,336 warrants to non-affiliated accredited investors pursuit to
exemptions from registration under federal and state securities laws. The shares of common stock were sold for $22.50 per share. The warrants have a term of five years with an exercise price of $32.43 but cannot be exercised before six months after
the closing of the private placement. The gross proceeds of $34.5 million were reduced by placement fees and issue costs of $2.3 million.

NOTE J: Stock
Options, Performance Awards and Stock Warrants

On October 10, 2007, November 15, 2007, and June 19, 2008, the
Company granted options to officers and employees to purchase 755,000, 10,000 and 25,000 shares of common stock, respectively. These shares were granted pursuant to the GeoResources, Inc. Amended and Restated 2004 Employees Stock Incentive
Plan. The following is a summary of the terms of these options:



|                  |  |                 |  |                         |      
|----------------- |  | --------------- |  | ----------------------- | -----
|Vesting date      |  | Number ofshares |  | ExercisePrice per share
|October 10, 2009  |  | 377,500         |  | $                       | 8.27 
|November 15, 2009 |  | 5,000           |  | $                       | 8.65 
|October 10, 2010  |  | 188,750         |  | $                       | 9.56 
|November 15, 2010 |  | 2,500           |  | $                       | 9.56 
|June 19, 2010     |  | 12,500          |  | $                       | 22.50
|October 10, 2011  |  | 188,750         |  | $                       | 9.56 
|November 15, 2011 |  | 2,500           |  | $                       | 9.56 
|June 19, 2011     |  | 6,250           |  | $                       | 25.00
|June 19, 2012     |  | 6,250           |  | $                       | 25.00
|                  |  |                 |  |                         |      
|Total shares      |  | 790,000         |  |                         |      
|                  |  |                 |  |                         |      

The closing market prices of the Companys common stock on the date of the October and
November 2007 grants were $7.20 and $8.65 respectively. The closing market price of the Companys common stock on the date of the June 2008 grant was $20.99.

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

The Company accounts for
these stock options under the provisions of Statement of Financial Accounting Standards No. 123R, Share Based Payment and, accordingly, recognized compensation expense based upon the fair value of the option at the date of grant
determined by the Black-Scholes option pricing model. During the three and nine months ended September 30, 2008, the Company included stock-based compensation expense in general and administrative expenses of $164,000 and $462,000,
respectively. As of September 30, 2008, the future pre-tax expense of non-vested stock options is $1.2 million to be recognized through 2011.

NOTE
K: Related Party Transactions

In July 2007, the Company acquired certain oil and gas properties from officers and key employees for
$1,075,079, including cash of $856,459 and the issuance of 30,406 shares of common stock at $7.19 per share. Also, in July 2007, the Company issued 100,000 shares of common stock for cash of $719,000 to three individuals, including two members of
the board of directors and an affiliate of one of our directors.

Accounts receivable at September 30, 2008 and December 31,
2007, includes $3,714,000 and $3,360,000 respectively, due from SBE Partners LP (SBE Partners). Accounts receivable at September 30, 2008, also includes $683,000 due from OKLA Energy Partners LP. 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



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incurred by operating subsidiaries of the Company on their behalf, as well as accrued management fees. Accounts payable at September 30, 2008, and
December 31, 2007, includes $16,003,000 and $9,538,000, respectively, due to the SBE Partners for oil and gas revenues collected on its behalf. Accounts payable at September 30, 2008, also includes $1,858,000 due to OKLA Energy for oil and
gas revenues collected on its behalf.

The Company earned partnership management fees during the three month periods ended
September 30, 2008, and 2007, of $585,000 and $301,000, respectively. The Company earned partnership management fees during the nine month periods ended September 30, 2008, and 2007, of $1,419,000 and $713,000, respectively.

Subsidiaries of the Company operate the majority of oil and gas properties in which the two 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.



15



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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-KSB/A for the year ended December 31, 2007.

Forward-Looking Information

Certain
of the statements in all parts of this document, contains 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-KSB/A for the year ended December 31, 2007. 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. We are currently focused in Texas, Louisiana, Oklahoma, North Dakota, Montana and Colorado. As further discussed herein, future growth in assets, earnings, cash flows and share values are dependent upon our ability to
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.

On April 17, 2007, the Company completed certain merger transactions (Merger) among the Company, Southern Bay and PICA. The Merger
provided, in substance, for the mergers of the businesses of Southern Bay and PICA, two independent oil and gas entities, into the Company, and further included the purchase of working interests in oil and gas properties. A total of 10,690,000
shares of the Companys common stock were issued in connection with the Merger. Prior to the Merger, neither Southern Bay nor PICA nor any of their owners or affiliates had any material relationship with the Company or any of its associates, or
any director or officer of the Company, or any affiliate of any such director or officer. The Merger resulted in a change of control of the Company as its board of directors and executive officers consist mostly of persons formerly affiliated with
Southern Bay and PICA.

Under generally accepted accounting principles, Southern Bay was deemed to have acquired the Company, PICA and
certain oil and gas properties. Southern Bay accounted for the transactions using the purchase method of accounting for business combinations. Accordingly, the historical financial statements presented for the Company are those of Southern Bay, back
to its inception in 2004, with the Company, PICA and the acquired oil and gas properties treated as purchased upon closing.

Our business
strategy is to acquire, discover and develop oil and gas reserves and achieve continued 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 using commodity price hedging, and emphasize development drilling and exploration. Following is a brief outline of our current plans.



| | (1) | Acquire oil and gas properties with significant producing reserves and development and exploration potential.
| | --- | -------------------------------------------------------------------------------------------------------------



| | (2) | Solicit industry or institutional partners, on a promoted basis for selected acquisitions, in order to diversify, reduce average cost and generate operating fees.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Implement re-engineering and development programs within existing fields.
| | --- | -------------------------------------------------------------------------



| | (4) | Pursue exploration projects and increase direct participation over time. Solicit industry partners, on a promoted basis, for internally generated projects.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (5) | Selectively divest assets to upgrade our oil and gas 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.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Continue activities directed toward reducing per-unit operating and general and administrative costs on a long-term sustained basis.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Obtain additional capital through the issuance of equity securities and/or through debt financing.
| | --- | --------------------------------------------------------------------------------------------------

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 as a means of continued growth, increasing value and creating liquidity for our equity holders. Management believes that opportunities may become
available to acquire corporate entities or otherwise effect business combinations. 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.

Recent Property Acquisitions and
Divestitures

In January 2007, we acquired properties located in the Giddings Field of the Austin Chalk trend of Texas. In conjunction
with this acquisition, a partnership was formed with a large institutional investor as limited partner. A wholly-owned subsidiary of the Company acquired both a direct 8% working interest in the properties and a 2% general partner interest in this
partnership. Our share of the acquisition purchase price of $82 million was $6.6 million, and our general partner contribution was $1.6 million. These amounts were funded with additional capital contributions of $5 million from former Southern Bay
partners, borrowings under our bank credit agreement of $3 million and working capital of $196,000.

As more fully discussed in Note B to
the consolidated financial statements in Part I of this Form 10-Q, on October 16, 2007, we acquired the limited partnership interest in an affiliated limited partnership from the non affiliated limited partner for $91.1 million. As a result, we
then owned 100% of this limited partnership which held oil and gas property interests in Louisiana, the Gulf Coast, South Texas, the Permian Basin and the Black Warrior Basin. We subsequently dissolved the partnership and integrated the oil and gas
properties into our existing operations. As part of our ongoing property review, we divested certain of the purchased properties and may divest certain additional purchased properties that no longer meet our primary objectives.

In February 2008, we acquired producing properties located in the Williston Basin of North Dakota and Montana for a purchase price of $7.9 million in
cash. The properties are operated by the Company.

In May 2008, we acquired properties located throughout the state of Oklahoma which
included 200 producing wells and approximately 100 additional drilling locations. In conjunction with this acquisition, a partnership was formed with a large institutional investor as limited partner. A wholly-owned subsidiary of the Company
acquired both a direct 18% working interest in the properties and a 2% general partner in this partnership. Our share of the acquisition purchase price of $61.7 million was $12.8 million, and our general partner contribution was $978,000. This
acquisition was funded with the proceeds from the divestitures discussed below.

In September 2008, the Company acquired producing
properties in Oklahoma from an unaffiliated party for $3.6 million in cash. The acquired properties are operated by the Company.



17



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In January 2008, the Company sold all of its interest in the Grand Canyon Unit, a property acquired in
the Merger. This property, located in Otsego County, Michigan, was sold to an unaffiliated party for $6.6 million in cash. The carrying value of this property at the date of the sale was equal to the selling price; therefore, no gain or loss was
recognized. The sale of the property allows the Company to focus on its core areas of operation.

In February 2008, the Company sold
its interests in certain oil and gas properties to unaffiliated parties for $1.8 million and recognized a gain of $430,000. In May 2008, the Company closed the sales of certain other non-core oil and gas properties in Louisiana and Texas to
unaffiliated parties for approximately $11.8 million. These sales were part our planned property divestiture program. The properties, which were producing approximately 390 BOPD, included fields located in inland waters with short production lives,
limited upside, high operating and administrative costs and significant plugging and abandonment obligations. Our divestures will allow us to focus on activities that have greater development and exploration potential and therefore, higher potential
returns.

Results of Operations

Three months ended September 30, 2008, compared to three months ended September 30, 2007

The Company recorded net
income of $5,799,000 for the three months ended September 30, 2008 compared to net income of $1,412,000 for the same period in 2007. This $4,387,000 increase resulted primarily from the following factors:



|                                                                         |  |   |        |  
|------------------------------------------------------------------------ |  | - | ------ | -
|Net amounts contributing to increase (decrease) in net income (in 000s): | 
|                                                                         | 
|Oil and gas sales                                                        |  | $ | 14,250 |  
|Lease operating expenses                                                 |  |   | (3,226 | )
|Production taxes                                                         |  |   | (1,483 | )
|Exploration expense                                                      |  |   | (29    | )
|Re-engineering and workovers                                             |  |   | (347   | )
|General and administrative expenses (G&A)                              |  |   | (430   | )
|Depletion, depreciation and amortization expense (DD&A)                |  |   | (2,105 | )
|Net interest income (expense)                                            |  |   | (1,065 | )
|Hedge ineffectiveness                                                    |  |   | 893    |  
|Gain (loss) on sale of property                                          |  |   | 308    |  
|Other incomenet                                                         |  |   | 515    |  
|                                                                         |  |   |        |  
|Income before income taxes                                               |  |   | 7,281  |  
|Provision for income taxes                                               |  |   | (2,894 | )
|                                                                         |  |   |        |  
|Net increase                                                             |  | $ | 4,387  |  
|                                                                         |  |   |        |  

The following discussion applies to the above changes.

Net revenues from oil and gas sales increased $14,250,000, or 190%. Properties acquired from AROC Energy LP in October 2007, accounted for $13,876,000 of
the increase. Revenue decreased due to properties sold during the second quarter of 2008 by $217,000. The remaining $591,000 resulted primarily from increases in commodity prices and increases in production volumes. Price and production comparisons
are set forth in the following table. Properties acquired from AROC Energy LP accounted for increased production of approximately 319,000 Mcf of gas and approximately 78,000 barrels of oil during the third quarter of 2008. Properties sold during the
second quarter of 2008 accounted for decreased production of approximately 1,800 Mcf of gas and approximately 2,500 barrels of oil.



18



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##### Table of Contents

|                                                     |  |                           |      |  |                                |        |  |   |      
|---------------------------------------------------- |  | ------------------------- | ---- |  | ------------------------------ | ------ |  | - | -----
|                                                     |  | Percentincrease(decrease) |      |  | Three MonthsEndedSeptember 30,
|                                                     |  |                           | 2008 |  | 2007                          
|Gas Production (MMcf)                                |  | 119                       | %    |  |                                | 723    |  |   | 330  
|Oil Production (MBbls)                               |  | 90                        | %    |  |                                | 167    |  |   | 88   
|Barrel of oil equivalent (MBOE)                      |  | 101                       | %    |  |                                | 288    |  |   | 143  
|Average Price Gas Before Hedge Settlements (per Mcf) |  | 68                        | %    |  | $                              | 9.13   |  | $ | 5.45 
|Average Price Oil Before Hedge Settlements (per Bbl) |  | 64                        | %    |  | $                              | 116.01 |  | $ | 70.80
|Average Realized Price Gas (per Mcf)                 |  | 62                        | %    |  | $                              | 9.12   |  | $ | 5.63 
|Average Realized Price Oil (per Bbl)                 |  | 41                        | %    |  | $                              | 90.60  |  | $ | 64.08

Lease operating expenses increased from approximately $2,368,000 in the third quarter of 2007 to
$5,594,000 for the same period in 2008, an increase of $3,226,000 or 136%. Properties acquired from AROC Energy LP accounted for $2,591,000 of the increase. On a unit-of-production basis, barrel of oil equivalent (BOE) costs increased by
$2.90 or 18% as a result of higher costs due to an unprecedented demand for personnel, materials, services and rigs caused by high commodity prices. Re-engineering and workover costs increased by $347,000 from $302,000 to $649,000, due to increased
emphasis on restoring and enhancing existing production capabilities. Production taxes increased by $1,483,000 or 245%, due to increased production volumes and revenues.

G&A increased $430,000 due primarily to overall business expansion, as well as increases in salaries and other overhead expenses, partially offset by cost reductions resulting from the centralization of certain
functions.

The increase in DD&A expense attributable to the properties acquired from AROC Energy LP was $1,869,000. The remaining
increase of $236,000 was due to property additions subsequent to the Merger, partially offset by lower net capitalized costs on other properties.

Interest expense increased by $950,000 due to higher debt levels in the third quarter of 2008 compared to the same period in 2007. As of September 30, 2008, we had outstanding debt of $50,000,000 compared to a balance of zero as of
September 30, 2007. During the third quarter of 2008 and 2007, our average outstanding debt was approximately $50,000,000 and zero, respectively. Interest income decreased by $115,000 in the third quarter of 2008 over the same period of 2007,
due to lower interest rates on average invested cash balances.

In the third quarter of 2008 the gain from hedge ineffectiveness was
$890,000, compared to an expense of $3,000 for the same period in 2007. In the first quarter of 2008 there was a larger differential between the market benchmark used for hedging and the prices we realized on sales of oil and gas. This, combined
with an increased liability, caused us to record a large ineffectiveness loss. In the second and third 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.

Other income increased by $515,000 in the third quarter of 2008 compared to
the same period in 2007 due to increased partnership management fees of $284,000 and increased partnership income of $250,000; these increases were offset by a decrease in property operating income of $19,000. Additionally, in the third quarter of
2008 we had a net gain on sales of non-core properties and other assets of $308,000.

Income tax expense for the third quarter of 2008 was
$3,828,000 compared to $934,000 for the same period in 2007. Our income tax expense increased significantly as a result of significantly higher pre-tax earnings. Our effective tax rate during the third quarter of 2008 and 2007 was approximately 40%.

Nine months ended September 30, 2008, compared to nine months ended September 30, 2007

The Company recorded net income of $17,813,000 for the nine months ended September 30, 2008 compared to a net income of $949,000 for the same period
in 2007. This $16,864,000 increase resulted primarily from the following factors:



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##### Table of Contents

|                                                                         |  |   |         |  
|------------------------------------------------------------------------ |  | - | ------- | -
|Net amounts contributing to increase (decrease) in net income (in 000s): | 
|                                                                         | 
|Oil and gas sales                                                        |  | $ | 51,234  |  
|Lease operating expenses                                                 |  |   | (11,491 | )
|Production taxes                                                         |  |   | (4,998  | )
|Exploration expense                                                      |  |   | (531    | )
|Re-engineering and workovers                                             |  |   | (1,597  | )
|General and administrative expenses (G&A)                              |  |   | (827    | )
|Depletion, depreciation and amortization expense (DD&A)                |  |   | (6,694  | )
|Net interest income (expense)                                            |  |   | (3,655  | )
|Hedge ineffectiveness                                                    |  |   | (47     | )
|Gain (loss) on sale of property                                          |  |   | 2,284   |  
|Other incomenet                                                         |  |   | 1,368   |  
|                                                                         |  |   |         |  
|Income before income taxes                                               |  |   | 25,046  |  
|Provision for income taxes                                               |  |   | (8,182  | )
|                                                                         |  |   |         |  
|Net increase                                                             |  | $ | 16,864  |  
|                                                                         |  |   |         |  

The following discussion applies to the above changes.

Net revenues from oil and gas sales increased $51,234,000, or 283%. Properties acquired in the Merger and from AROC Energy LP accounted for $3,185,000
and $42,448,000 of the increase, respectively. The remaining $5,601,000 increase resulted primary from increases in commodity prices and increases in production volumes. Price and production comparisons are set forth in the following table.
Properties acquired in the Merger accounted for increased production of approximately 51,000 barrels of oil during the nine month period ended September 30, 2008. Properties acquired from AROC Energy LP accounted for increased production of
approximately 1,121,000 Mcf of gas and approximately 293,000 barrels of oil during the nine month period ended September 30, 2008.



|                                                     |  |                           |      |  |                                |        |  |   |      
|---------------------------------------------------- |  | ------------------------- | ---- |  | ------------------------------ | ------ |  | - | -----
|                                                     |  | Percentincrease(decrease) |      |  | Nine Months EndedSeptember 30,
|                                                     |  |                           | 2008 |  | 2007                          
|Gas Production (MMcf)                                |  | 155                       | %    |  |                                | 2,251  |  |   | 883  
|Oil Production (MBbls)                               |  | 156                       | %    |  |                                | 553    |  |   | 216  
|Barrel of oil equivalent (MBOE)                      |  | 156                       | %    |  |                                | 928    |  |   | 363  
|Average Price Gas Before Hedge Settlements (per Mcf) |  | 47                        | %    |  | $                              | 9.24   |  | $ | 6.29 
|Average Price Oil Before Hedge Settlements (per Bbl) |  | 71                        | %    |  | $                              | 109.81 |  | $ | 64.07
|Average Realized Price Gas (per Mcf)                 |  | 41                        | %    |  | $                              | 8.82   |  | $ | 6.26 
|Average Realized Price Oil (per Bbl)                 |  | 53                        | %    |  | $                              | 89.50  |  | $ | 58.40

Lease operating expenses increased from approximately $5,683,000 during the nine months ended
September 30, 2007, to $17,174,000 for the same period in 2008, an increase of $11,491,000 or 202%. Properties acquired in the Merger and from AROC Energy LP accounted for $1,434,000 and $8,154,000 of the increase, respectively. On a
unit-of-production basis, barrel of oil equivalent (BOE) costs increased by $2.83 or 18% as a result of higher costs due to an unprecedented demand for personnel, materials, services and rigs caused by high commodity prices.
Re-engineering and workover costs increased by $1,597,000 from $734,000 to $2,331,000, due to our increased emphasis on restoring and enhancing existing production capabilities. Production taxes increased by $4,998,000 or 355%, due to increased
production volumes and revenues.

G&A increased $827,000 due primarily to overall business expansion as well as increases in salaries
and other overhead expenses, partially offset by cost reductions resulting from centralization of certain functions.

The increase in
DD&A expense attributable to the properties acquired from AROC Energy LP was $5,934,000. The remaining increase of $760,000 was due to property additions subsequent to the Merger, partially offset by lower net capitalized costs on other
properties.

Interest expense increased by $3,477,000 due to higher debt levels during the nine months ended September 30, 2008,
compared to the same period of 2007. As of September 30, 2008, we had outstanding debt of $50,000,000 compared to a balance



20



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##### Table of Contents

of zero as of September 30, 2007. During the nine month period ended September 30, 2008, and 2007, our average outstanding debt was approximately
$73,000,000 and $2,500,000, respectively. Interest income decreased by $178,000 during the nine month period ended September 30, 2008, compared to the same period of 2007, due to lower interest rates on average invested cash balances.

During the nine month period ended September 30, 2008, the losses from hedge ineffectiveness were $47,000, compared to zero for the
same period in 2007. This resulted from fluctuations in the market value of the liability associated with our hedge contracts. Since September 30, 2007, commodity prices have experienced significant fluctuations therefore the gain or loss
associated with the ineffective portions of our hedges has also fluctuated.

Other income increased by $1,368,000 during the nine month
period ended September 30, 2008, compared to the same period in 2007, due to increased partnership management fees of $706,000 and increased partnership income of $692,000. These increases were partially offset by a decrease in property
operating income of $30,000. Additionally, during the nine months ended September 30, 2008, we had a net gain on sales of non-core properties and other assets of $2,269,000.

Income tax expense for the nine month period ended September 30, 2008, was $10,970,000 compared to $2,788,000 for the same period in 2007. Income
tax expense increased due to increased pre-tax earnings; our effective tax rate during the nine month period ended September 30, 2008, was approximately 38%.

Impact of Property Acquisitions, Divestitures and Development

We estimate that production volumes for the year 2008 will
range from 700,000 to 725,000 Bbls of oil and from 2,900,000 to 3,100,000 Mcf of natural gas. The lower ends of these ranges represent an increase of approximately 79% and 76%, respectively, over 2007. Ranges are provided herein because estimates
are dependent on the availability of rigs, materials and services, within the industry. These estimates are predicated on the results of operations for the nine months ended September 30, 2008, adjusted for production from properties sold,
estimated production from properties acquired, and from our drilling and development program. We closed several divestitures of properties situated in state waters and onshore along the Gulf Coast in May 2008 and closed an acquisition in Oklahoma in
June 2008. In the opinion of management, the acquired properties have longer productive lives and greater development and exploration potential than those properties which were sold. In addition, the Company reduced its estimated future abandonment
expenses. However as a result of the divestitures, the Company has experienced a temporary net reduction in production volumes. As previously disclosed, divestitures resulted in reduced oil volumes by about 390 BOPD, while the Oklahoma acquisition
will initially add about 600 Mcfd. Management expects to replace this net reduction by its drilling and development program, but due to availability of rigs, materials and services the timing cannot be predicted with accuracy.

In connection with property acquisitions, we generally implement a capital expenditures program, directly related to existing producing wells and those
capable of production, which we refer to as re-engineering activities. These activities are intended to increase production and forestall natural or mechanical production declines, as well as lower recurring expenses. Thereafter, we
conduct detailed field studies designed to isolate development and exploration opportunities, if any. We have identified numerous projects in our existing property portfolio relating to proved behind-pipe and undeveloped reserves and expect to
define additional development and exploratory potential. Net future cash flows could be favorably affected by additional development potential and/or reductions to per-unit operating costs. No assurance can be given, however, that we will be able to
successfully and economically develop additional reserves.

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 have dropped significantly since
then. Average realized oil prices of $89.50 per Bbl, net of hedges, for the nine months ended September 30, 2008, were 53% higher than for the comparable period in 2007. Average realized natural gas prices of $8.82, net of hedges, for the nine
months ended September 30, 2008, were 41% higher than for the comparable period in 2007. Such average realized prices for the nine months ended September 30, 2008, were affected by certain hedging activities. 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.



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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 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 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 regarding 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.

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 cost. Financing activities in 2008 have resulted in a net reduction of debt of $46 million from the outstanding debt of $96
million at December 31, 2007. During 2007, we borrowed an additional $3,000,000, assumed $1,800,000 of debt in the Merger and repaid the entire balance outstanding of $9.8 million in late June 2007. In October 2007, we borrowed $96 million to
finance a significant property acquisition as discussed in Note B of the consolidated financial statements. During the first quarter of 2008 we repaid $10 million in debt using cash flow from operations. During the second quarter of 2008 we
completed a private placement of common stock and warrants to acquire common stock (discussed in Note I above) and used the net proceeds of $32 million plus additional cash flows from operations to reduce our debt by an additional $36 million.

Credit Facility

At September 30,
2008, we had a borrowing base of $95 million and our outstanding principal balance was $50 million. At September 30, 2008, we had unused remaining borrowing capacity of $45 million. In November 2008, our borrowing based was increased to $100
million.

Cash Flows from Operating Activities

For the nine months ended September 30, 2008, our net cash provided by operating activities was $38.6 million, up by $28.0 million from the same period in 2007, due primarily to favorable commodity price changes and increases in
production resulting from acquisition and development activities, partially offset by increased general and administrative expenses. We expect the recent acquisitions and development activities to continue to increase cash provided by operating
activities throughout the remainder of 2008 and 2009. We believe that we can continue to generate cash flows sufficient to allow us to continue with our planned capital program as long as the average price for a barrel of oil is greater than or
equal to $50.

Cash Flows from Investing Activities

Cash applied to oil and gas capital expenditures for the nine months ended September 30, 2008 and 2007, was $43.0 million and $12.3 million, respectively. In 2008, we also realized cash of $20.9 million from the
sale of properties compared to $1.7 million during the same period during 2007. In 2008, we invested $1.0 million in an oil and gas limited partnership which we are the general partner compared to $1.6 million invested in a different partnership
during the same period during 2007. Capital expenditures for 2008 were financed with the proceeds from the sale of non-core properties and working capital. We expect to spend approximately $77.3 million in capital expenditures during the remainder
of 2008 thru 2010.



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During the remainder of 2008 and in 2009, we also expect to incur certain capital expenditures related to
our existing portfolio of properties for re-engineering facilities (surface and down-hole), restoring shut-in wells to production and for recompletions. In addition, we expect to drill certain development wells in existing fields. We also expect to
make additional capital expenditures during 2008 to maintain leases and complete the interpretation of 3-D seismic data associated with certain exploratory and development projects. We will continue our practice of soliciting partners, on a promoted
basis, for higher risk projects.

2008-2009 Capital Budget

Based solely on our existing portfolio of properties and projects, we presently expect to incur the following capital expenditures during 2008 and 2009:



|                                           |  |           |       
|------------------------------------------ |  | --------- | ------
|                                           |  | (in 000s)
|Southern District:                         |  |           |       
|Austin Chalk Development (1) (2)           |  | $         | 4,506 
|Drilling - Conventional and Horizontal (2) |  |           | 14,282
|Re-Engineering (4)                         |  |           | 3,951 
|Water Flood Expansion                      |  |           | 1,094 
|Quarantine Bay                             |  |           | 5,413 
|Exploratory Drilling (3)                   |  |           | 2,700 
|Acreage, Seismic and Other (5)             |  |           | 5,986 
|                                           | 
|Northern District                          |  |           |       
|Horizontal Development (2) (6)             |  |           | 10,978
|Development Drilling                       |  |           | 12,748
|Re-Engineering (4)                         |  |           | 614   
|Water Flood Expansion                      |  |           | 4,675 
|Bakken & Gotic Shale (7)                   |  |           | 7,321 
|Acreage, Seismic and Other (5)             |  |           | 3,000 
|                                           |  |           |       
|Total                                      |  | $         | 77,268
|                                           |  |           |       



|(1) | Continuation of ongoing horizontal drilling and development program with an affiliated institutional partnership. The program includes eight scheduled wells with one drilling rig
with certain other recompletion expenditures intended to further increase production in producing wells.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(4) | Includes activities related to existing fields intended to enhance production and lower operating expenses. These expenditures include flow lines, facilities, compression, down-hole
lift methods, recompletions and side-track drilling. We currently are in the midst of several such projects, including multiple wells within the fields budgeted.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Initial funds allocated for further expansion of acreage and prospect inventory.
|--- | --------------------------------------------------------------------------------

|(6) | Includes seven horizontal development wells within existing fields where we have working interests ranging from 66% to 100%.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(7) | Includes 25 wells where our working interest ranges from 3% to 9%. Also includes 18 wells where our working interest is 1% or less but where, in the opinion of management, such
participation should provide valuable technical data related to the drilling operations and reservoir characteristics. Also includes one Bakken Shale test in Montana where we presently hold a 50% working interest.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In summary, our current scheduled drilling activities include diversified opportunities intended to develop reserves and increase production. The current
budget includes: (i) 20 wells which have assigned proved undeveloped reserves and the potential for the development of non-proved reserves; (ii) 10 wells which do not have proved reserves assigned but have the potential of developing a resources gas
play in Colorado; (iii) two potentially high impact exploratory wells in Quarantine Bay, Plaquemines Parish, Louisiana; (iv) 43 Bakken Shale wells; and (v) one well intended to test an emerging shale play in our Northern Region.

The budget, as well as the timing of expenditures, is subject to change as we re-evaluate alternative projects in connection with our recent acquisitions
and further expand our portfolio. We expect that the majority of expenditures will occur during 2008, but certain projects may extend into 2009, specifically including acreage acquisition, projected waterflood and horizontal drilling projects. This
budget may be accelerated pending drilling and service rig availability and adequate staffing to effectively manage activities and control costs. In addition, certain expenditures may be deferred in favor of new opportunities.



23



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##### Table of Contents

We believe projected expenditures will result in increased production, cash flows and reserve value and
will further expose us to potential upside from exploration. We further believe any deferral of certain projects will not result in any material losses. Should we be unable to acquire new properties, capital expenditures associated with existing
properties could be increased.

Cash Flows from Financing Activities

In the first nine months of 2008, financing activities provided $32.2 million in cash as a result of a private placement stock offering. Financing activities also used cash of $46.0 million in the reduction of our
long-term debt.



24



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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. We do not participate in these transactions for trading or speculative purposes. 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.

The following is a list of contracts outstanding at September 30, 2008:



|                 |  |                 |  |           |  |          |  |                |                |                         |                 |                                               |         |  
|---------------- |  | --------------- |  | --------- |  | -------- |  | -------------- | -------------- | ----------------------- | --------------- | --------------------------------------------- | ------- | -
|Transaction Date |  | TransactionType |  | Beginning |  | Ending   |  | Price Per Unit |                | Remaining AnnualVolumes |                 | Fair ValueOutstanding as ofSeptember 30, 2008 |        
|                 |  |                 |  |           |  |          |  |                |                |                         |                 | (in thousands)                                |        
|Natural Gas      |  |                 |  |           |  |          |  |                |                |                         |                 |                                               |         |  
|June-07          |  | Collar          |  | 04/01/08  |  | 12/31/08 |  | $              | 8.00 - $8.45   |                         | 30,000 MMBtu    |                                               | 13      |  
|October-07       |  | Collar          |  | 01/01/08  |  | 12/31/08 |  | $              | 7.00 - $9.80   |                         | 407,250 MMBtu   |                                               | (121    | )
|October-07       |  | Collar          |  | 01/01/09  |  | 12/31/09 |  | $              | 7.00 -$10.75   |                         | 275,530 MMBtu   |                                               | (82     | )
|October-07       |  | Swap            |  | 01/01/09  |  | 12/31/09 |  | $              | 4.785          |                         | 779,268MMBtu    |                                               | (2,565  | )
|October-07       |  | Swap            |  | 01/01/09  |  | 12/31/09 |  | $              | 5.61           |                         | 427,200 MMBtu   |                                               | (1,061  | )
|October-07       |  | Collar          |  | 01/01/10  |  | 12/31/10 |  | $              | 7.00 - $9.90   |                         | 1,287,000 MMBtu |                                               | (381    | )
|October-07       |  | Collar          |  | 01/01/11  |  | 12/31/11 |  | $              | 7.00 - $9.20   |                         | 1,079,000 MMBtu |                                               | (319    | )
|Crude Oil        |  |                 |  |           |  |          |  |                |                |                         |                 |                                               |         |  
|June-07          |  | Collar          |  | 01/01/08  |  | 12/31/08 |  | $              | 65.00 - $75.10 |                         | 30,000 Bbls     |                                               | (761    | )
|October-07       |  | Swap            |  | 01/01/08  |  | 12/31/08 |  | $              | 80.19          |                         | 78,500 Bbls     |                                               | (1,592  | )
|October-07       |  | Swap            |  | 01/01/09  |  | 12/31/09 |  | $              | 76.00          |                         | 368,000 Bbls    |                                               | (9,411  | )
|October-07       |  | Swap            |  | 01/01/10  |  | 12/31/10 |  | $              | 74.71          |                         | 322,000 Bbls    |                                               | (9,172  | )
|October-07       |  | Swap            |  | 01/01/11  |  | 12/31/11 |  | $              | 74.37          |                         | 282,000 Bbls    |                                               | (8,082  | )
|                 |  |                 |  |           |  |          |  |                |                |                         |                 |                                               |         |  
|                 |  |                 |  |           |  |          |  |                |                |                         |                 |                                               | (33,534 | )
|                 |  |                 |  |           |  |          |  |                |                |                         |                 |                                               |         |  



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

Our principal executive
officer, Frank A. Lodzinski, and our principal financial officer, Howard E. Ehler, have implemented or caused to be implemented, our disclosure controls and procedures to ensure that material information relating to the Company is communicated
adequately to our chief executive officer and our chief financial officer through the end of the reporting period addressed by this report. As of the end of the reporting period reflected herein, our chief executive officer and chief financial
officer evaluated the effectiveness of our disclosure controls and procedures, and based on such evaluation our chief executive officer and chief financial officer have concluded that the our disclosure controls and procedures, as of the end of the
period covered by this report, are effective in alerting them on a timely basis to material information relating to the Company that is required to be included in our reports filed or submitted under the Securities Exchange Act of 1934.

During the quarter ended September 30, 2008, there were no changes in our internal controls over financial reporting that materially affect, or
are reasonably likely to affect, our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).



25



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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 1- Risk Factors in our 2007 Annual Report on Form 10-KSB/A, which could materially affect our business, financial condition or
future results. The risks described in our 2007 Annual Report on Form 10-KSB/A may not be the only risks facing our Company. 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.



|                                                                    |  |      |  | 
|------------------------------------------------------------------- |  | ---- |  | 
|Item 2  Unregistered Sale of Equity Securities and Use of Proceeds |  | None |  | 
|                                                                    |  |     
|Item 3  Defaults Upon Senior Securities                            |  | None |  | 
|                                                                    |  |     
|Item 4  Submission of Matters to Vote of Security Holders          |  | None |  | 
|                                                                    |  |     
|Item 5  Other Information                                          |  | None |  | 







26



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##### Table of Contents

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

The following exhibits are filed as part of this
report:



| |  |        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 the 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)                                                                                                                                                                                                                   
| |  |       
| |  | 10.25  |  | December 22, 2004 Credit Agreement by and between Southern Bay Oil & Gas, L.P. as borrower and Wachovia Bank, National Association. (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)                                                                                                                                                                                                                                      
| |  |       
| |  | 10.30  |  | Credit Agreement dated September 26, 2007 between the Registrant and Wachovia Bank National Association. (2)                                                                                                                                                                                                                                                                                                                                  



27



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##### Table of Contents

| |  |       |  |                                                                                                                                                                                                                      
| |  | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |      
| |  | 10.32 |  | Limited Partner Interest Purchase and Sale Agreement dated October 16, 2007 between the Registrant and TIFD III-X, LLC. (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 date 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. (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.
|--- | --------------------------------------------------------------------------



28



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##### Table of Contents

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.



|                  |  |  |  |  |  |                                                       
|----------------- |  |  |  |  |  | ------------------------------------------------------
|                  |  |  |  |  |  | GEORESOURCES, INC.                                    
|November 12, 2008 |  |  |  | 
|                  |  |  | 
|                  |  |  |  |  |  | /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)



29



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##### Table of Contents

EXHIBIT INDEX

(a)    Exhibits.



| |  |        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 the 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)                                                                                                                                                                                                                   
| |  |       
| |  | 10.25  |  | December 22, 2004 Credit Agreement by and between Southern Bay Oil & Gas, L.P. as borrower and Wachovia Bank, National Association. (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)                                                                                                                                                                                                                                      
| |  |       
| |  | 10.30  |  | Credit Agreement dated September 26, 2007 between the Registrant and Wachovia Bank National Association. (2)                                                                                                                                                                                                                                                                                                                                  



30



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##### Table of Contents

| |  |       |  |                                                                                                                                                                                                                      
| |  | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |      
| |  | 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 date 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. (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.
|--- | --------------------------------------------------------------------------



31