**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**









**FORM
      10-QSB**









**(Mark
      One)**


**x**  **QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**




**For
      the quarterly period ended June 30, 2007**




** ̈**  **TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**




**For
      the transition period from** **** **to** **** ****




**333-64122**


**(Commission
      file number)**







**Blast
      Energy Services, Inc.**


**(Exact
      name of small business issuer as specified in its charter)**









**California**
            **22-3755993****(State
                or other jurisdiction of**
              **incorporation
                or organization)**
            **(IRS
                Employer**
              **Identification
                No.)**




**14550
      Torrey Chase Blvd, Suite 330**


**Houston,
      Texas 77014**


**(Address
      of principal executive offices)**




**(281)
      453-2888**


**(Issuer’s
      telephone number)**




**(Former
      name, former address and former fiscal year, if changed since last report)**









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




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




The
      number of shares outstanding of each of the issuer’s classes of common equity as
      of August 14, 2007 is 67,609,904




The
      common stock of Blast Energy Services, Inc. is traded on the OTC Bulletin Board
      under the symbol “BESV”.




**Transitional
      Small Business Disclosure Format (check
      one):     Yes** ** ̈** **No** **x** ****






1


**BLAST
      ENERGY SERVICES, INC.**


**(Debtor
      and Debtor-in-Possession)**




**Index**




**Page**
              **Number**PART I.
            FINANCIAL
                INFORMATIONItem
                1.
            Financial
                Statements
            3Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Plan of
                Operation
            12Item
                3.
            Controls
                and Procedures
            16Part
                II.
            OTHER
                INFORMATIONItem
                1.
            Legal
                Proceedings
            16Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            18Item 6.
            Exhibits
            18SIGNATURES
            19








2


**BLAST
      ENERGY SERVICES, INC.**


**** **(Debtor
      and Debtor-in-Possession)**




**PART
      I. FINANCIAL INFORMATION**




**ITEM
      1. Financial Statements**




**Page**
              **Number**Consolidated
                Balance Sheets as of June 30, 2007 and December 31, 2006
            4Consolidated
                Statements of Operations, for the three and six months ended June
                30, 2007
                and 2006
            5Consolidated
                Statements of Cash Flow, for the six months ended June 30, 2007 and
                2006
            6Notes
                to Consolidated Financial Statements
            7





3





**BLAST
      ENERGY SERVICES, INC.**


**(DEBTOR
      AND DEBTOR-IN-POSSESSION)**


**CONSOLIDATED
      BALANCE SHEETS**


**(Unaudited)**








**June
                30,**
            
            **December
                31,****2007**
            
            **2006****Assets**Current
                AssetsCash
            
            $
            150,859
            
            $
            1,534,603Restricted
                cash
            
            
            -
            
            
            56,631Accounts
                receivable
            
            
            912,997
            
            
            177,737Other
                assets
            
            
            120,507
            
            
            821,879Total
                Current Assets
            
            
            1,184,363
            
            
            2,590,850Intellectual
                property, net of accumulated amortization of $153,214 and
                $111,429
            
            
            1,016,786
            
            
            1,058,571Equipment,
                net of accumulated depreciation of $33,373 and $38,171
            
            
            1,046,246
            
            
            1,100,413Assets
                held for sale
            
            
            -
            
            
            45,915,107Deferred
                financing costs
            
            
            -
            
            
            1,264,801Total
                Assets
            
            $
            3,247,395
            
            $
            51,929,742**Liabilities
                and Stockholders’ Equity (Deficit)**Current
                LiabilitiesAccounts
                payable
            
            $
            1,275,025
            
            $
            729,549Accrued
                expenses
            
            
            2,585,778
            
            
            471,594Other
                current liabilities
            
            
            -
            
            
            56,631Deferred
                revenue
            
            
            14,713
            
            
            6,780Advances-related
                parties
            
            
            1,200,000
            
            
            1,000,000Notes
                payable
            
            
            604,085
            
            
            1,014,127Senior
                debt
            
            
            2,100,000
            
            
            -Liabilities
                associated with assets held for sale
            
            
            -
            
            
            45,775,832Total
                Current Liabilities
            
            
            7,779,601
            
            
            49,054,513Long
                Term LiabilitiesDeferred
                revenue, less current portion
            
            
            -
            
            
            1,692,750Total
                Liabilities
            
            
            7,779,601
            
            
            50,747,263Commitments
                and Contingencies
            
            
            -
            
            
            -Stockholders’
                Equity (Deficit):Common
                stock, $.001 par value, 100,000,000 shares authorized; 67,609,904
                shares
                issued and outstanding
            
            
            67,610
            
            
            67,610Additional
                paid in capital
            
            
            70,267,612
            
            
            69,116,253Accumulated
                deficit
            
            
            (74,867,428
            )
            
            (68,001,384
            )Total
                Stockholders’ Equity (Deficit)
            
            
            (4,532,206
            )
            
            1,182,479Total
                Liabilities and Stockholders’ Equity (Deficit)
            
            $
            3,247,395
            
            $
            51,929,742








See
      accompanying notes to consolidated financial statements.


4


**BLAST
      ENERGY SERVICES, INC.**


**(DEBTOR
      AND DEBTOR-IN-POSSESSION)**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**Three and Six
      Months Ended June 30, 2007 and 2006**


**(Unaudited)**








**For
                the Three Months Ended**
            
            **For
                the Six Months Ended****June
                30,**
            
            **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Revenue:Drilling
                Services
            
            $
            -
            
            $
            -
            
            $
            1,102,150
            
            $
            -Satellite
                Communications
            
            
            111,189
            
            
            265,082
            
            
            273,608
            
            
            557,044Downhole
                Solutions
            
            
            -
            
            
            14,150
            
            
            -
            
            
            14,150Total
                Revenue
            
            
            111,189
            
            
            279,232
            
            
            1,375,758
            
            
            571,194Cost
                of Services Provided:Drilling
                Services
            
            
            295,794
            
            
            -
            
            
            1,596,868
            
            
            -Satellite
                Communications
            
            
            104,537
            
            
            298,126
            
            
            221,930
            
            
            503,269Downhole
                Solutions
            
            
            -
            
            
            300,602
            
            
            6,794
            
            
            432,847Total
                Cost of Services Provided
            
            
            400,331
            
            
            598,728
            
            
            1,825,592
            
            
            936,116Depreciation
                and amortization
            
            
            22,907
            
            
            25,909
            
            
            142,523
            
            
            52,622Gross
                (Deficit)
            
            
            (312,049
            )
            
            (345,405
            )
            
            (592,357
            )
            
            (417,544
            )Operating
                Expenses:Selling,
                general and administrative
            
            
            1,007,901
            
            
            593,522
            
            
            2,897,165
            
            
            1,306,386Operating
                Loss
            
            
            (1,319,950
            )
            
            (938,927
            )
            
            (3,489,522
            )
            
            (1,723,930
            )Other
                (Income) Expense:Other
                (income)
            
            
            (35,545
            )
            
            (39,128
            )
            
            (35,545
            )
            
            (81,661
            )Interest
                expense
            
            
            1,716
            
            
            29,571
            
            
            1,370,508
            
            
            73,448Loss
                on sale of equipment
            
            
            2,033,714
            
            
            -
            
            
            2,033,714
            
            
            -Loss
                on extinguishment of debt
            
            
            17,970
            
            
            80,000
            
            
            17,970
            
            
            262,000Interest
                income
            
            
            (1,101
            )
            
            -
            
            
            (10,125
            )
            
            -Total
                other (income)/expense
            
            
            2,016,754
            
            
            70,443
            
            
            3,376,522
            
            
            253,787Net
                Loss
            
            $
            (3,336,704
            )
            $
            (1,009,370
            )
            $
            (6,866,044
            )
            $
            (1,977,717
            )Basic
                and diluted net loss per share
            
            $
            (0.05
            )
            $
            (0.02
            )
            $
            (0.10
            )
            $
            (0.05
            )Weighted
                average shares outstanding
            
            
            67,609,904
            
            
            43,697,634
            
            
            67,609,904
            
            
            43,199,118








See
      accompanying notes to consolidated financial statements.


5


**BLAST
      ENERGY SERVICES, INC.**


**(DEBTOR
      AND DEBTOR-IN-POSSESSION)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**Six
      Months Ended June 30, 2007 and 2006**


**(Unaudited)**




**2007**
              
              **2006****Cash
                  Flows from Operating Activities:**Net
                  loss
              
              $
              (6,866,044
              )
              $
              (1,977,717
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Stock
                  issued for services
              
              
              -
              
              
              644,000Option
                  and warrant expense
              
              
              1,151,359
              
              
              173,833Amortization
                  of note discount
              
              
              -
              
              
              14,814Depreciation
                  and amortization
              
              
              142,523
              
              
              52,622Amortization
                  of deferred financing costs
              
              
              1,264,801
              
              
              -Loss
                  on sale of equipment
              
              
              2,033,714
              
              
              -Loss
                  on extinguishment of debt
              
              
              17,970
              
              
              262,000Changes
                  in:Accounts
                  receivable
              
              
              (735,260
              )
              
              20,657Other
                  current assets
              
              
              609,984
              
              
              26,297Accounts
                  payable
              
              
              545,476
              
              
              (48,141
              )Accrued
                  expenses
              
              
              510,585
              
              
              (100,150
              )Deferred
                  revenue
              
              
              (36,217
              )
              
              (56,832
              )Net
                  Cash Used in Operating Activities
              
              
              (1,361,109
              )
              
              (988,617
              )**Cash
                  Flows From Investing Activities:**Proceeds
                  from restricted cash
              
              
              46,489
              
              
              -Proceeds
                  from sale of equipment
              
              
              67,500
              
              
              -Payments
                  for construction of equipment
              
              
              -
              
              
              (68,633
              )Purchase
                  of property and equipment
              
              
              -
              
              
              (21,885
              )Net
                  Cash Used in Investing Activities
              
              
              113,989
              
              
              (90,518
              )**Cash
                  Flows From Financing Activities:**Proceeds
                  from exercise of options and warrants
              
              
              -
              
              
              168,885Proceeds
                  from sale of stock
              
              
              -
              
              
              300,000Proceeds
                  from advances - related parties
              
              
              200,000
              
              
              -Payments
                  on notes payable
              
              
              (336,624
              )
              
              (2,500
              )Net
                  Cash Provided by Financing Activities
              
              
              (136,624
              )
              
              466,385Net
                  change in cash
              
              
              (1,383,744
              )
              
              (612,750
              )Cash
                  at beginning of period
              
              
              1,534,603
              
              
              835,978Cash
                  at end of period
              
              $
              150,859
              
              $
              223,228Supplemental
                  disclosures:Interest
                  paid in cash
              
              $
              -
              
              $
              -Income
                  taxes paid
              
              
              -
              
              
              -Non-Cash
                  Transactions:Conversion
                  of notes payable to common stock
              
              $
              -
              
              $
              550,000Exchange
                  of rigs for debt
              
              
              45,822,321
              
              
              -Prepaid
                  insurance financed with note payable
              
              
              112,907
              
              
              -Cancellation
                  of insurance finance note
              
              
              186,325
              
              
              -Shares
                  issued for extinguishment of debt and liabilities
              
              
              -
              
              
              282,000





See
      accompanying notes to consolidated financial statements.


6


**BLAST
      ENERGY SERVICES, INC.**


**(DEBTOR
      AND DEBTOR-IN-POSSESSION)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





**NOTE
      1 -** **BASIS
      OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION**





The
      accompanying unaudited interim financial statements of Blast Energy Services,
      Inc. (“Blast”) have been prepared in accordance with accounting principles
      generally accepted in the United States of America for interim financial
      information and with the instructions to Form 10-QSB. Accordingly, they do
      not
      include all of the information and footnotes required by generally accepted
      accounting principles for complete financial statements and should be read
      in
      conjunction with Management’s Discussion and Analysis and the audited financial
      statements and notes thereto contained in Blast’s 2006 Annual Report filed with
      the SEC on Form 10-KSB. In the opinion of management, all adjustments,
      consisting of normal recurring adjustments, necessary for a fair presentation
      of
      financial position and the results of operations for the interim periods
      presented have been reflected herein. The results of operations for the interim
      periods are not necessarily indicative of the results to be expected for the
      full year. Notes to the financial statements which would substantially duplicate
      disclosures contained in the audited financial statements for 2006 as reported
      in the 10-KSB have been omitted.





Blast’s
      Consolidated Financial Statements have been prepared on a going concern basis
      in
      accordance with accounting principles generally accepted in the United States
      of
      America (“GAAP”), including the provisions of AICPA’ Statement of Position 90-7,
“Financial Reporting by Entities in Reorganization Under the Bankruptcy Code”
(“SOP 90-7”). This contemplates the realization of assets and satisfaction of
      liabilities in the ordinary course of business. Accordingly, Blast’s
      Consolidated Financial Statements do not include any adjustments relating to
      the
      recoverability of assets and classification of liabilities that might be
      necessary should Blast be unable to continue as a going concern.




Due
      to
      Blast’s Chapter 11 proceedings, the realization of assets and satisfaction of
      liabilities, without substantial adjustments and/or changes in ownership, are
      subject to uncertainty.  Accordingly, there is substantial doubt about
      the current financial reporting entity’s ability to continue as a going concern.
      Upon emergence from bankruptcy, Blast expects to adopt fresh-start reporting
      in
      accordance with SOP 90-7 which will result in becoming a new entity for
      financial reporting purposes.  The adoption of fresh-start reporting
      may have a material impact on the consolidated financial statements of the
      new financial reporting entity.




The
      accompanying Consolidated Financial Statements do not reflect or provide for
      the
      consequences of the Chapter 11 proceedings. In particular, the financial
      statements do not show (1) as to assets, their realizable value on a liquidation
      basis or their availability to satisfy liabilities; (2) as to pre-petition
      liabilities, the amounts that may be allowed for claims or contingencies, or
      their status and priority; (3) as to shareholders’ equity accounts, the effect
      of any changes that may be made in capitalization; or (4) as to operations,
      the
      effect of any changes that may be made in business operations.





Blast’s
      consolidated financial statements include the accounts of Blast and its wholly
      owned subsidiary, Eagle Domestic Drilling Operations LLC (“EDDO”). All
      significant inter-company accounts and transactions have been eliminated in
      consolidation.





Reclassifications
      - certain reclassifications of prior year amounts have been made to conform
      to
      the current presentation.





**NOTE
      2 - GOING CONCERN**





As
      shown
      in the accompanying financial statements, Blast incurred a net loss of
      approximately $3.3 million for the three months ended June 30, 2007, has an
      accumulated deficit of approximately $75 million and a working capital deficit
      of $6.6 million as of June 30, 2007 and has several significant future financial
      obligations. The financial statements do not include any adjustments that might
      be necessary if Blast is unable to continue as a going concern. These conditions
      create an uncertainty as to Blast’s ability to continue as a going concern.





7


**NOTE
      3 - INTELLECTUAL PROPERTY**





At
      June
      30, 2007 and December 31, 2006, the total cost of the Intellectual Property
      (“IP”) was $1,170,000 with $153,214 and $111,429, respectively, of accumulated
      amortization. The patent-pending IP, composed of the 50% ownership in the
      Alberta Energy Partners’ abrasive fluid jetting technology, is being amortized
      on a straight-line method over the life of the patent, which is 14 years.





**NOTE
      4 - DEFERRED REVENUE**





Blast
      bills some of its satellite bandwidth contracts in advance over periods ranging
      from 3 to 36 months. Blast recognizes revenue evenly over the contract term.
      Deferred revenue related to satellite services totaled $14,713 at June 30,
      2007,
      all of which are expected be recognized in the next twelve months.





**NOTE
      5 - ADVANCES -** **RELATED
      PARTIES**





During
      June 2007, Blast agreed to a $500,000 debtor-in-possession financing arrangement
      with Berg McAfee Companies, funded by Eric McAfee and Clyde Berg, each of whom
      are considered significant shareholders of Blast. As of June 30,
      2007, Blast has borrowed $200,000 under this arrangement. The financing
      carries interest at 8% and is secured by certain insurance refunds and
      receivables from Saddle Creek Energy Development, a drilling services
      customer.





During
      2005 under the agreement to develop its initial abrasive jetting rig with Berg
      McAfee Companies $1 million of rig funding was received. These loans bear
      interest at rates ranging from 5% to 8% and accrued interest has not been paid.
      The loan matured on March 31, 2007 and was not paid subject to the Chapter
      11
      proceedings.





**NOTE
      6 -** **RELATED
      PARTY TRANSACTIONS**





Blast
      and
      EDDO entered into a settlement with Second Bridge, LLC, Thornton Oilfield
      Holdings, LLC and various other Thornton entities (the “Thornton Entities”),
      Laurus Master Fund, Ltd. (“Laurus”), and the Unsecured Creditors Committee
      (collectively the “Parties” and overall the “Settlement”). The Settlement
      provides the structure for the satisfaction of several classes of claims against
      the Company, and forms the basis for treatment of those classes of claims in
      Blast's plan of reorganization that incorporated the benefits of the Settlement.
      The Settlement was approved by the Bankruptcy Court on May 14,
      2007.





In
      connection with our Bankruptcy proceedings, we previously filed an adversary
      proceeding against Second Bridge LLC (“Second Bridge”) seeking to invalidate the
      personal property lien asserted by Second Bridge, to recover preferences and
      fraudulent transfers and to avoid a consulting services agreement as a
      fraudulent conveyance. Second Bridge subsequently filed a second suit in the
      form of an adversary proceeding against us, essentially alleging the same claims
      asserted in Cleveland County, Oklahoma State Court.  Second Bridge also
      filed an adversary proceeding asserting its lien rights in certain property
      owned by Eagle. These claims between Blast and Second Bridge are incorporated
      in
      the terms of the Settlement and provide the method by which the Second Bridge
      claims will be treated in the plan of reorganization.





Additionally,
      the Settlement provides for an agreement with Laurus on the terms of the
      satisfaction of substantially all of its secured claims against the Company
      by
      virtue of the implementation of an asset purchase agreement. The terms of the
      Settlement, including the satisfaction of the remainder of the Laurus claims,
      are to be implemented in the plan of reorganization. The Settlement and the
      treatment of the Laurus secured claims provides for the transfer of five land
      drilling rigs and associated spare parts to Laurus in settlement of Laurus’
note, accrued interest and default penalties on the note, save and except a
      residual $2.1 million that will remain as a secured debt owed by Blast to Laurus
      and which will be provided for in the plan of reorganization consistent with
      the
      terms of the Settlement. We previously received objections by the Thornton
      Entities to the sale. One of the Thornton Entities, Thornton Business Security
      Trust, is a significant shareholder of Blast.





Further,
      the Settlement provides for the treatment of several claims made by the Thornton
      Entities that enable Blast to propose its reorganization plan. More
      specifically, the Thornton Entities shall dismiss all of their lawsuits against
      us. The Settlement also provides that Laurus will pay Second Bridge $1.8
      million, that we will purchase 900,000 shares of our common stock, currently
      held by Second Bridge for $900; and that we agree in our reorganization plan
      to
      pay Laurus the remainder of its secured claim of $2.1 million as a
      reimbursement, which payment is secured by all of our assets which Laurus had
      security interests in at the time we entered bankruptcy, which amount we will
      carry as a note payable on our balance sheet until paid (the “$2.1 Million
      Senior Note”). The Settlement provides that full mutual releases of all claims
      are given among Blast, the Thornton Entities and Laurus, except with respect
      to
      the $2.1 Million Senior Note.


8





The
      Settlement and our plan of reorganization anticipate that any funds we receive
      as a result of the sale of any of our assets, accounts receivable collection
      or
      favorable judgments we may receive (other than those excluded below) will be
      split 65%/35% between Laurus and us, respectively, until such $2.1 Million
      Senior Note is repaid in full, provided however that Laurus shall have no claim
      on any insurance refunds received by us and that with respect to the proceeds
      from our Saddle Creek Energy Development litigation (described in greater detail
      in item “a” of “Chapter 11 Proceedings” in Note 10 to the consolidated financial
      statements), we will receive 65% of any such proceeds and Laurus will receive
      35% of any such proceeds.





Lastly,
      the Settlement and our plan of reorganization provide that the remaining shares
      held by the Thornton Entities will take no action to call or support a special
      shareholder meeting of the Blast shareholders nor will they vote their shares
      prior to the effective date of the Debtors’ plan of reorganization; provided,
      however, that any of them will be entitled to vote their shares on a matter
      requiring shareholder vote called by a third party shareholder, except with
      respect to removal of the members of the board of directors or corporate
      officers as to which they will not be entitled to vote.





**NOTE
      7 -CURRENT NOTES PAYABLE**





Notes
      payable at June 30, 2007 and December 31, 2006 consisted of the
      following:





**June
                30, 2007**
            **December
                31, 2006**Steinberger
                settlement
            500,000
            500,000Note
                payable, Ideal Premium Finance, 8.95%
            -
            471,627Note
                payable, Ideal Premium Finance, 8.06%
            61,585
            -Note
                payable, individual, 10% due on demand
            42,500
            42,500$
                604,085
            $
                1,014,127





**NOTE
      8 -ASSETS SOLD**





As
      a
      result of the settlement agreement and associated rig sale described in Note
      6
      above, these assets are accounted for pursuant to FAS 144 - Accounting for
      the
      Impairment of Disposal of Long-Lived Assets. Accordingly, the detail of the
      individual assets and liabilities related to the settlement agreement and rig
      sale were separated on the December 31, 2006 consolidated balance sheet and
      reflected in the single asset categories, “Assets Held for Sale” and
“Liabilities held for Sale”.





The
      assets and liabilities included in the settlement agreement and associated
      rig
      sale are comprised of the following:





Assets:
              
              **June
                  30, 2007**
              
              **December
                  31, 2006**Equipment
                  (net of accumulated depreciation)
              
              $
              -
              
              $
              41,107,607Deferred
                  consulting fees
              
              
              -
              
              
              4,800,000Advance
                  on property lease
              
              
              -
              
              
              7,500Accounts
                  receivable
              
              
              682,500
              
              
              -Total
                  Assets
              
              $
              682,500
              
              $
              45,915,107Liabilities:Senior
                  debt
              
              $
              2,100,000
              
              $
              40,600,000Accrued
                  interest
              
              
              -
              
              
              375,832Long
                  term consulting agreement
              
              
              -
              
              
              4,800,000Total
                  Liabilities
              
              $
              2,100,000
              
              $
              45,775,832





9


**NOTE
      9 - BUSINESS SEGMENTS**





Blast
      has
      three reportable segments: (1) Drilling Services, (2) Satellite Communications,
      and (3) Down-hole Solutions. A reportable segment is a business unit that has
      a
      distinct type of business based upon the type and nature of services and
      products offered. Blast evaluates performance and allocates resources based
      on
      profit or loss from operations before other income or expense and income taxes.
      The table below reports certain financial information by reportable
      segment:





**For
                the Three Months Ended**
            
            **For
                the Six Months Ended****June
                30,**
            
            **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Revenues
                from external customersDrilling
                Services
            
            $
            -
            
            $
            -
            
            $
            1,102,150
            
            $
            -Satellite
                Communications
            
            
            111,189
            
            
            265,082
            
            
            273,608
            
            
            557,044Down-hole
                Solutions
            
            
            -
            
            
            14,150
            
            
            -
            
            
            14,150$
            111,189
            
            $
            279,232
            
            
            1,375,758
            
            
            571,194Operating
                profit (loss):Drilling
                Services
            
            $
            (302,987
            )
            $
            -
            
            $
            (607,312
            )
            $
            -Satellite
                Communications
            
            
            6,652
            
            
            (41,029
            )
            
            51,678
            
            
            39,719Down-hole
                Solutions
            
            
            -
            
            
            (337,467
            )
            
            (6,794
            )
            
            (517,786
            )Corporate
            
            
            (1,023,615
            )
            
            (560,436
            )
            
            (2,927,094
            )
            
            (1,245,863
            )$
            (1,319,950
            )
            $
            (938,927
            )
            $
            (3,489,522
            )
            $
            (1,723,930
            )




1-
            Operating
                profit/(loss) is total operating revenue less operating expenses,
                selling,
                general and administrative expenses, depreciation and amortization
                and bad
                debts. It does not include other income and expense or income
                taxes.


2-
            During
                the second quarter of 2007, with the transfer of our land drilling
                rig
                assets to Laurus in satisfaction of our outstanding note with Laurus
                (see
                note 6 to the financial statements), this business segment ceased
                operations and will have no future contribution to revenue, expense
                or
                operating profit or loss.





**NOTE
      10 - LITIGATION**





*Chapter 11
      Proceedings*


On
      January 19, 2007, Blast Energy Services, Inc. (“Blast”) and its wholly owned
      subsidiary, Eagle Domestic Drilling Operations LLC (“EDDO” and collectively, the
“Debtors”), filed voluntary petitions with the US Bankruptcy Court for the
      Southern District of Texas - Houston Division under Chapter 11 of Title 11
      of
      the US Code, Cases Nos. 07-30424-H4-11 and 07-30426-H4-11, respectively
      (the “Bankruptcy Cases”). The Debtors continue to operate their business as
“debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in
      accordance with the applicable provisions of the Bankruptcy Code and orders
      of
      the Bankruptcy Court.





On
      May
      17, 2007 Blast and Eagle filed their first joint plan of reorganization with
      the
      US Bankruptcy Court. This plan outlines Blast’s plan to emerge from Chapter 11
      bankruptcy, including proposed short-term and longer-term financing
      arrangements, provisions to address secured and unsecured creditor claims and
      other matters required under such a plan. This plan further proposes that Blast
      will remain as an ongoing business by sustaining its satellite services
      business, developing a new digital oilfield services business and redeveloping
      the abrasive fluid jetting business following the receipt of damage claim
      proceeds from favorable outcomes to the Hallwood and Quicksilver lawsuits.





On
      June
      1, 2007, Blast and Eagle filed their disclosure statement and submitted it
      for approval. Objections were received and the disclosure statement has not
      yet
      been approved. A hearing is scheduled for August 22, 2007. There is no assurance
      that the plan as presently proposed will not be significantly amended or that
      any plan will be confirmed.





10


As
      of the
      date of the Chapter 11 filing, then pending litigation against the Debtors
      was
      automatically stayed pursuant to 11 USC.§ 362. Absent termination or
      modification of the automatic stay by order of the Bankruptcy Court, litigants
      may not take any action to recover on pre-petition claims against the Debtors.
      These stayed lawsuits include a complaint in Franklin County, Arkansas filed
      by
      Chrisman Ready Mix claiming approximately $126,000 for drilling rig
      transportation expenses incurred on behalf of the Debtors. All such pre-petition
      claims will be resolved in the Bankruptcy Cases.





The
      Debtors are involved with additional disputes filed in the Bankruptcy Cases,
      which are classified as either adversary proceedings or contested matters,
      but
      which are separate and distinct from proofs of claim that have been or may
      be
      filed in the Bankruptcy Cases:





(a)
      the
      Debtors have sued Saddle Creek Energy Development, a Texas joint venture, in
      the
      Bankruptcy Court for non-payment for work performed under an IADC drilling
      contract for EDDO’s Rig #12 that provided for the drilling of three initial
      wells, and which was subsequently amended to provide for the drilling of an
      additional three wells as well as providing labor and materials to operate
      a rig
      not owned by EDDO and identified as “Saddle Creek’s Falcon Rig #1.” EDDO also
      filed liens on certain leases and on the Saddle Creek Falcon Rig #1. On April
      23, 2007, Saddle Creek and EDDO entered into a consensual mediated settlement
      whereby Saddle Creek agreed to pay to EDDO $475,000 and $200,000 on May
      15 th and June
      1 st ,
      respectively. In return for payments, EDDO will release all liens filed on
      Saddle Creek’s assets. This settlement agreement has been filed with the
      Bankruptcy Court for approval. Notwithstanding the agreed settlement and
      Bankruptcy Court approval, Saddle Creek has failed to perform its obligations
      and on May 15, 2007 filed for protection under Chapter 11. In accordance with
      FAS 5 - Accounting for Gain or Loss Contingencies, Blast has estimated the
      most
      reasonable estimate of value of this claim to be based upon the previously
      agreed to settlement amount and interest awarded by the Court of $682,500.
      While
      no assurance can be provided that the Company will recover amounts owed pursuant
      to the settlement, due to the fact that Saddle Creek’s bankruptcy filing
      indicated that they are still a solvent entity, management believes that it
      is a
      valid receivable at this time; and





(b)
      Alberta Energy Partners filed pleadings in the nature of a contested matter
      asserting that Blast cannot retain its interests under that certain Technology
      Purchase Agreement entered into by Blast in August, 2005. Blast plans to
      vigorously defend against such action, and assert rights available to it under
      the Bankruptcy Code. Alberta has also requested that the pending Chapter 11
      cases be converted to Chapter 7 cases or, alternatively, that a trustee be
      appointed.





*Hallwood
      Energy/Hallwood Petroleum Lawsuit*


On
      September 1, 2006, Hallwood Petroleum, LLC and Hallwood Energy, LP
      (collectively, “Hallwood”) filed suit in the state district court of Tarrant
      County, Texas, against Eagle Domestic Drilling Operations, LLC (“EDDO”), a
      wholly owned subsidiary Blast, and a separate company, Eagle Drilling, LLC.
      The
      lawsuit seeks to rescind two IADC two-year term day rate drilling contracts
      between Eagle Drilling and Hallwood, which had been assigned to EDDO by Eagle
      Drilling prior to Blast’s acquisition of the membership interests of EDDO.
 Hallwood alleged Eagle Drilling and EDDO were in breach of the IADC
      contracts and it ceased performance under the contracts.  Hallwood has
      claimed that the rigs provided for use under the IADC contracts did not meet
      contract specifications and that the failures to meet such specifications are
      material breaches of the contracts.  In addition, Hallwood has demanded
      that the remaining balance of funds advanced under the contracts, in the amount
      of $1.65 million, be returned. The Hallwood suit pending in Tarrant County,
      Texas is currently stayed by operation of the automatic stay provided for in
      the
      US Bankruptcy Code as a result of the Chapter 11 filing of Blast and its
      subsidiary, EDDO. EDDO plans to vigorously contest the claims by Hallwood and,
      at the appropriate juncture, institute proceedings to prosecute causes of action
      against Hallwood for its damages arising out of what Blast considers are
      unjustified terminations of the two IADC contracts. EDDO and Hallwood have
      discussed potential settlements to this litigation; however, there can be no
      assurance that any settlement will be reached, or that it will be on favorable
      terms to EDDO. The parties’ attorneys have agreed to try the case in the US
      Bankruptcy Court for the Southern District in Houston where the debtor’s
      petition for reorganization is presently pending. This agreement was approved
      by
      the US Bankruptcy Court and a trial date has been scheduled for mid-April,
      2008.




11


*Quicksilver
      Resources Lawsuit*


On
      October 13, 2006, Quicksilver Resources, Inc. (“Quicksilver”) filed suit in the
      state district court of Tarrant County, Texas against Eagle Domestic Drilling
      Operations, LLC (“EDDO”), a wholly owned subsidiary of Blast, and a separate
      company, Eagle Drilling, LLC. The lawsuit seeks to rescind three IADC two-year
      term day rate contracts between Eagle Drilling and Quicksilver, which had been
      assigned to EDDO by Eagle Drilling prior to Blast’s acquisition of the
      membership interests of EDDO.  The lawsuit includes further allegations of
      other material breaches of the contracts and negligent operation by EDDO and
      Eagle Drilling under the contracts. Quicksilver asserts that performance under
      one of the contracts was not timely and that mechanical problems of the rig
      provided under the contract caused delays in its drilling operations.
      Quicksilver repudiated the remaining two contracts prior to the time for
      performance set forth in each respective contract.  Although the lawsuit
      filed in Tarrant County was stayed by operation of the automatic stay provided
      for in the US Bankruptcy Code as a result of the Chapter 11 filing of Blast
      and
      its subsidiary, EDDO, Quicksilver has removed the lawsuit to the US Bankruptcy
      Court for the Northern District of Texas. On May 7, 2007 the US Bankruptcy
      Court
      for the Northern District of Texas approved the motion filed by EDDO seeking
      to
      have the lawsuit transferred to the US Bankruptcy Court for the Southern
      District of Texas where its petition for reorganization under Chapter 11 of
      the
      US Bankruptcy Code is presently pending. Subsequent to the transfer the parties
      entered a stipulation that the lawsuit would be tried in the Bankruptcy Court
      before a jury. EDDO intends to vigorously defend itself in this proceeding
      and,
      at the appropriate juncture, institute proceedings to prosecute causes of action
      against Quicksilver for its damages arising out of what Blast considers are
      unjustified terminations of the three IADC contracts.





Blast
      has
      filed with the Bankruptcy Court that it has estimated that the Hallwood and
      Quicksilver legal recoveries are in the range of $15 million to $45 million,
      of
      which there can be no assurance. Furthermore, there can be no assurance that
      any
      judgment will be received from the pending litigation or that if received,
      such
      judgment will be collectible.





*Steinberger
      Derivative Lawsuit*


Blast
      entered into a settlement agreement with Mr. Steinberger in August 2005 in
      full
      settlement of a lawsuit for wrongful dismissal between the parties. Such
      settlement has resulted in the creation of a $500,000 interest free note being
      made in favor of Mr. Steinberger on Blast’s books payable at June 30, 2007.
      Subsequently, Blast has been named as a party in the derivative lawsuit between
      Mr. Steinberger and his attorney, Mr. Sessions. Blast believes it has no
      liability arising from this dispute and is defending its interests in the
      case.





*General*


Other
      than the aforementioned legal matters, Blast is not aware of any other pending
      or threatened legal proceedings. The foregoing is also true with respect to
      each
      officer, director and control shareholder as well as any entity owned by any
      officer, director and control shareholder, over the last five
      years.





As
      part
      of its regular operations, Blast may become party to various pending or
      threatened claims, lawsuits and administrative proceedings seeking damages
      or
      other remedies concerning its’ commercial operations, products, employees and
      other matters. Although Blast can give no assurance about the outcome of these
      or any other pending legal and administrative proceedings and the effect such
      outcomes may have on Blast, except as described above, Blast believes that
      any
      ultimate liability resulting from the outcome of such proceedings, to the extent
      not otherwise provided for or covered by insurance, will not have a material
      adverse effect on Blast‘s financial condition or results of
      operations.





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




**Forward-Looking
      Statements**




All
      statements that are included in this Quarterly Report, other than statements
      of
      historical fact, are forward-looking statements. You can identify
      forward-looking statements by words such as “anticipate”, “believe” and similar
      expressions and statements regarding our business strategy, plans and objectives
      for future operations. Although management believes that the expectations
      reflected in these forward-looking statements are reasonable, it can give no
      assurance that such expectations will prove to have been correct. The
      forward-looking statements in this filing involve known risks and uncertainties,
      which may cause our actual results in future periods to be materially different
      from any future performance suggested in this report. Such factors may include,
      but are not limited to, such risk factors as: changes in technology, reservoir
      or sub-surface conditions, the introduction of new services, commercial
      acceptance and viability of new services, fluctuations in customer demand and
      commitments, pricing and competition, reliance upon subcontractors, the ability
      of our customers to pay for our services, together with such other risk factors
      as may be included in our Annual Report on Form 10-KSB.


12




**Three
      Months Ended June 30, 2007 Compared to Three Months Ended June 30,
      2006**




*Drilling
      Services*





The
      Drilling Services’ business segment was acquired in August 2006 and had revenues
      of $-0- and an operating loss of $303,000 for the three months ended June 30,
      2007. The operating loss is a result of the costs associated with maintaining
      the rig business until it could be sold as part of the settlement agreement.
      During the second quarter of 2007, with the transfer of our land drilling rig
      assets to Laurus in satisfaction of our outstanding note with Laurus (see note
      6
      to the financial statements), this business segment ceased operations and will
      have no future contribution to revenue, expense or operating profit or loss.





*Satellite
      Communications Services*





Satellite
      Communication Services’ revenues decreased by $164,000 to $111,000 for the three
      months ended June 30, 2007 compared to $265,000 for the three months ended
      June
      30, 2006. The decrease is primarily a result of the loss of services revenue
      following the cancellation of licenses by the government in Chad, the decision
      by Coldren Resources LP on not to renew the services contracts on the assets
      they purchased from Noble Energy, Inc., a previous customer of our satellite
      services and some difficulty renewing existing contracts while in Chapter 11.
      The operating margin from Satellite Communication Services increased
      approximately $48,000 to $7,000 for the three months ended June 30, 2007
      compared to a deficit of $41,000 for the three months ended June 30, 2006.
      This
      increase is primarily related to a reduction of payroll and overhead costs
      while
      certain employee efforts were temporarily shifted to assist in the Drilling
      Services business.





As
      hardware is sold, we recognize the revenue in the period it is delivered to
      the
      customer. There were no significant hardware sales during the quarters ended
      June 30, 2007 and 2006. We bill some of our bandwidth contracts in advance,
      but
      recognize the revenue over the period benefited.





*Down-hole
      Solutions*





There
      were no Down-hole Solutions’ revenues for the three months ended June 30, 2007
      and June 30, 2006. The development of this technology is on hold due to a lack
      of liquidity during our Chapter 11 proceedings. The operating loss from
      Down-hole Solutions decreased by approximately $337,000 to a loss of -0- for
      the
      three months ended June 30, 2007 compared to a loss of approximately $337,000
      for the three months ended June 30, 2006. Expenses for 2006 were primarily
      labor
      related associated with designing, testing and repairing the new abrasive fluid
      jetting process.





*Selling,
      General and Administrative*




Selling,
      general and administrative (“SG&A”) expenses increased by approximately
      $414,000 to $1,008,000 for the quarter ended June 30, 2007 compared to $594,000
      for the quarter ended June 30, 2006. The following table details major
      components of SG&A expense over the periods (in thousands).




**For
                the Three Months Ended June 30,**
            **Increase**
              **(Decrease)****(in
                thousands)**
            **2007**
            **2006**Payroll
                and related costs
            $
                109
            $
                191
            $
                (82)Option
                and warrant expense
            88
            80
            8Legal
                fees & settlements
            593
            66
            527External
                services
            138
            109
            29Insurance
            40
            90
            (50)Travel
                & entertainment
            21
            41
            (20)Office
                rent, communications, misc.
            18
            17
            1$
                1,008
            $
                594
            $
                414




For
      the
      most part, lower administrative costs were a result of our efforts to reduce
      overhead costs while in Chapter 11. However, the main factor leading to the
      increase in SG&A expenses was increased legal fees associated with the
      restructuring of the debtors while in bankruptcy, which includes not only the
      debtors counsel but the costs incurred by the creditors committee and its
      support, during the three months ended June 30, 2007, which expenses were not
      present during the three months ended June 30, 2006, as we were not in
      bankruptcy at that time.


13


*Net
      Loss* **




The
      net
      loss for the second quarter of 2007 increased substantially to $3.3 million
      from
      a loss of $1 million for the corresponding period in 2006. This increase is
      primarily related to the loss on sale of equipment related to the Laurus
      transaction (see note 6 to the financial statments) and increased legal fees
      associated with the bankruptcy proceedings. The tax benefit associated with
      our
      loss has been fully reserved as we have recurring net losses and it is more
      likely than not that the tax benefits will not be realized.





**Six
      Months Ended June 30, 2007 Compared to Six Months Ended June 30,
      2006**




*Drilling
      Services*





This
      business segment was acquired in August 2006 and had revenues of $1,102,000
      and
      an operating loss of $607,000 for the six months ended June 30, 2007. The
      operating loss was primarily related to low drilling rig utilization rates
      following the breach of drilling contracts by Hallwood and Quicksilver and
      the
      costs associated with maintaining the rig business until it could be sold as
      part of the settlement agreement. As a newly acquired business segment, there
      are no comparisons to results available from the six months ended June 30,
      2006.
      During the second quarter of 2007, with the transfer of our land drilling rig
      assets to Laurus in satisfaction of our outstanding note with Laurus (see note
      6
      to the financial statements), this business segment ceased operations and will
      have no future contribution to revenue, expense or operating profit or
      loss.





*Satellite
      Communications Services*





Satellite
      Communication Services’ revenues decreased by approximately $283,000 to $274,000
      for the six months ended June 30, 2007 compared to $557,000 for the six months
      ended June 30, 2006. The decrease can be attributed to the loss of services
      revenue following the cancellation of licenses by the government in Chad, the
      decision by Coldren Resources LP on not to renew the services contracts on
      the
      assets they purchased from Noble Energy, Inc, a previous customer of our
      satellite services and some difficulty renewing existing contracts while in
      Chapter 11. The operating margin from Satellite Communication Services increased
      approximately $12,000 to $52,000 for the six months ended June 30, 2007 compared
      to a margin of $40,000 for the six months ended June 30, 2006. This increase
      is
      primarily related to a reduction of payroll and overhead costs while certain
      employee efforts were temporarily shifted to assist in the Drilling Services
      business.





As
      hardware is sold, we recognize the revenue in the period it is delivered to
      the
      customer. There were no significant hardware sales during the six months ended
      June 30, 2007 and 2006. We bill some of our bandwidth contracts in advance,
      but
      recognize the revenue over the period benefited.





*Down-hole
      Solutions*





There
      were no Down-hole Solutions’ revenues for the six months ended June 30, 2007 and
      June 30, 2006. The development of this technology is on hold due to a lack
      of
      liquidity during our Chapter 11 proceedings. The operating loss from Down-hole
      Solutions decreased by $511,000 to a loss of $7,000 for the six months ended
      June 30, 2007 compared to a loss of $518,000 for the three months ended June
      30,
      2006. Expenses for 2007 represent minor overhead costs to put the business
      on
      hold while the expenses for 2006 were primarily labor related associated with
      designing, testing and repairing the new abrasive fluid jetting
      process.





14


*Selling,
      General and Administrative*




Selling,
      general and administrative (“SG&A”) expenses increased by approximately
      $1,591,000 to $2,897,000 for the six months ended June 30, 2007 compared to
      $1,306,000 for the six months ended June 30, 2006. The following table details
      major components of SG&A expense over the periods (in thousands).




**For
                the Six Months Ended June 30,**
            **Increase**
              **(Decrease)****(in
                thousands)**
            **2007**
            **2006**Payroll
                and related costs
            $
                190
            $
                296
            $
                (106)Option
                and warrant expense
            1,151
            173
            978Legal
                fees & settlements
            1,199
            136
            1,063External
                services
            235
            424
            (189)Insurance
            21
            144
            (123)Travel
                & entertainment
            54
            88
            (34)Office
                rent, communications, misc.
            47
            45
            2$
                2,897
            $
                1,306
            $
                1,591





For
      the
      most part, lower administrative costs were a result of our efforts to reduce
      overhead costs while in Chapter 11. The main reason for the increase in SG&A
      expenses was a result of increased legal fees associated with the restructuring
      of the debtors while in bankruptcy, which includes not only debtors counsel
      but
      the costs incurred by the creditors committee and its support, which expenses
      were not present during the six months ended June 30, 2006. Additionally, the
      calculation of non-cash expense associated with the employee options issued
      with
      the rig acquisition caused overall administrative expenses to be significantly
      higher than for the same period a year ago.





*Net
      Loss* **




The
      net
      loss for the six months ended June 30, 2007 increased substantially to $6.9
      million from a loss of $2.0 for the corresponding period in 2006. This increase
      is primarily related to the loss on sale of equipment related to the Laurus
      transaction (see note 6 to the financial statements) and higher legal fees
      as
      well as option and warrant expense described above. The tax benefit associated
      with our loss has been fully reserved as we have recurring net losses and it
      is
      more likely than not that the tax benefits will not be realized.





**Liquidity
      and Capital Resources**




As
      of
      June 30, 2007, we had a cash balance of $150,859 compared to a cash balance
      of
      $1.5 million as of December 31, 2006. The decline since year end is due to
      the
      absence of any meaningful land drilling rig revenues without relief from
      continued operating and legal expenses. We continue to utilize cash to fund
      operations. We have used these proceeds to fund day to day operations and legal
      support for our Chapter 11 proceedings. As of August 10, 2007, our cash balance
      was approximately $125,000, which includes the benefit of a $200,000 DIP loan
      described above (see note 5 to the financial statements). In the near term,
      unless we are able to recover settlement monies for amounts owed under various
      breached customer contracts in a timely manner or secure additional debtor
      in
      possession financing, we will be forced to liquidate the remaining assets and
      wind up our affairs.





On
      May
      17, 2007 Blast and Eagle filed their first joint plan of reorganization with
      the
      US Bankruptcy Court. This plan outlines the Company’s plan to emerge from
      Chapter 11 bankruptcy, including proposed short-term and longer-term financing
      arrangements, provisions to address secured and unsecured creditor claims and
      other matters required under such a plan. This plan further proposes that Blast
      will remain as an ongoing business by sustaining its satellite services
      business, developing a new digital oilfield services business and redeveloping
      the abrasive fluid jetting business following the receipt of damage claim
      proceeds from favorable outcomes to the Hallwood and Quicksilver lawsuits.





On
      June 1
      Blast and Eagle filed their disclosure statement and submitted it for approval.
      Objections were received and the disclosure statement has not yet been approved.
      A hearing is scheduled for August 22, 2007. There is no assurance that the
      plan
      as presently proposed will not be significantly amended or that any plan will
      be
      confirmed.





In
      addition to the $2.1 million Senior Note owed to Laurus, we have a $1 million
      note with Berg McAfee secured on the abrasive jetting rig, a $42,500 note that
      is due on demand, and a $500,000 note due from a legal settlement.





We
      had
      negative net working capital of $6.6 million and a total accumulated deficit
      of
      $75 million as of June 30, 2007.


15


Blast
      has
      filed with the Bankruptcy Court that it has estimated that the Hallwood and
      Quicksilver legal recoveries are in the range of $15 million to $45 million,
      however, the Company is also subject to certain contingent liabilities relating
      to litigation matters, including the dispute with Hallwood and other matters
      before the Bankruptcy Court. An adverse determination in any of these matters
      could have a material adverse effect on the Company.





**Item
      3. Controls and Procedures**




Based
      on
      management’s evaluation as of the end of the period covered by this report, our
      Principal Executive Officer and Principal Financial Officer have participated
      in
      the evaluation and concluded that our disclosure controls and procedures were
      effective to ensure that information we are required to disclose in reports
      filed or submitted under the Securities Exchange Act of 1934, as amended, is
      recorded, processed, summarized, and reported within the periods specified
      and
      in accordance with the SEC’s rules and forms.





There
      have been no changes in our internal control over financial reporting during
      the
      period covered by this report that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial
      reporting.




**Part
      II. OTHER INFORMATION**




**Item
      1. Legal Proceedings**





*Chapter 11
      Proceedings*


On
      January 19, 2007, Blast Energy Services, Inc. (“Blast”) and its wholly owned
      subsidiary, Eagle Domestic Drilling Operations LLC (“EDDO” and collectively, the
“Debtors”), filed voluntary petitions with the US Bankruptcy Court for the
      Southern District of Texas - Houston Division under Chapter 11 of Title 11
      of
      the US Code, Cases Nos. 07-30424-H4-11 and 07-30426-H4-11, respectively
      (the “Bankruptcy Cases”). The Debtors continue to operate their business as
“debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in
      accordance with the applicable provisions of the Bankruptcy Code and orders
      of
      the Bankruptcy Court.





On
      May
      17, 2007 Blast and Eagle filed their first joint plan of reorganization with
      the
      US Bankruptcy Court. This plan outlines Blast’s plan to emerge from Chapter 11
      bankruptcy, including proposed short-term and longer-term financing
      arrangements, provisions to address secured and unsecured creditor claims and
      other matters required under such a plan. This plan further proposes that Blast
      will remain as an ongoing business by sustaining its satellite services
      business, developing a new digital oilfield services business and redeveloping
      the abrasive fluid jetting business following the receipt of damage claim
      proceeds from favorable outcomes to the Hallwood and Quicksilver lawsuits.





On
      June 1
      Blast and Eagle filed their disclosure statement and submitted it for approval.
      Objections were received and the disclosure statement has not yet been approved.
      A hearing is scheduled for August 22, 2007. There is no assurance that the
      plan
      as presently proposed will not be significantly amended or that any plan will
      be
      confirmed.





As
      of the
      date of the Chapter 11 filing, then pending litigation against the Debtors
      was
      automatically stayed pursuant to 11 USC.§ 362. Absent termination or
      modification of the automatic stay by order of the Bankruptcy Court, litigants
      may not take any action to recover on pre-petition claims against the Debtors.
      These stayed lawsuits include a complaint in Franklin County, Arkansas filed
      by
      Chrisman Ready Mix claiming approximately $126,000 for drilling rig
      transportation expenses incurred on behalf of the Debtors. All such pre-petition
      claims will be resolved in the Bankruptcy Cases.





16


The
      Debtors are involved with additional disputes filed in the Bankruptcy Cases,
      which are classified as either adversary proceedings or contested matters,
      but
      which are separate and distinct from proofs of claim that have been or may
      be
      filed in the Bankruptcy Cases:





(a)
      the
      Debtors have sued Saddle Creek Energy Development, a Texas joint venture, in
      the
      Bankruptcy Court for non-payment for work performed under an IADC drilling
      contract for EDDO’s Rig #12 that provided for the drilling of three initial
      wells, and which was subsequently amended to provide for the drilling of an
      additional three wells as well as providing labor and materials to operate
      a rig
      not owned by EDDO and identified as “Saddle Creek’s Falcon Rig #1.” EDDO also
      filed liens on certain leases and on the Saddle Creek Falcon Rig #1. On April
      23, 2007, Saddle Creek and EDDO entered into a consensual mediated settlement
      whereby Saddle Creek agreed to pay to EDDO $475,000 and $200,000 on May
      15 th and June
      1 st ,
      respectively. In return for payments, EDDO will release all liens filed on
      Saddle Creek’s assets. This settlement agreement has been filed with the
      Bankruptcy Court for approval. Notwithstanding the agreed settlement and
      Bankruptcy Court approval, Saddle Creek has failed to perform its obligations
      and on May 15, 2007 filed for protection under Chapter 11. In accordance with
      FAS 5 - Accounting for Gain or Loss Contingencies, Blast has estimated the
      most
      reasonable estimate of value of this claim to be based upon the previously
      agreed to settlement amount and interest awarded by the Court of $682,500.
      While
      no assurance can be provided that the Company will recover amounts owed pursuant
      to the settlement, due to the fact that Saddle Creek’s bankruptcy filing
      indicated that they are still a solvent entity, management believes that it
      is a
      valid receivable at this time; and





(b)
      Alberta Energy Partners filed pleadings in the nature of a contested matter
      asserting that Blast cannot retain its interests under that certain Technology
      Purchase Agreement entered into by Blast in August, 2005. Blast plans to
      vigorously defend against such action, and assert rights available to it under
      the Bankruptcy Code. Alberta has also requested that the pending Chapter 11
      cases be converted to Chapter 7 cases or, alternatively, that a trustee be
      appointed.





*Hallwood
      Energy/Hallwood Petroleum Lawsuit*


On
      September 1, 2006, Hallwood Petroleum, LLC and Hallwood Energy, LP
      (collectively, “Hallwood”) filed suit in the state district court of Tarrant
      County, Texas, against Eagle Domestic Drilling Operations, LLC (“EDDO”), a
      wholly owned subsidiary of the Company, and a separate company, Eagle Drilling,
      LLC. The lawsuit seeks to rescind two IADC two-year term day rate drilling
      contracts between Eagle Drilling and Hallwood, which had been assigned to EDDO
      by Eagle Drilling prior to Blast’s acquisition of the membership interests of
      EDDO.  Hallwood alleged Eagle Drilling and EDDO were in breach of the IADC
      contracts and it ceased performance under the contracts.  Hallwood has
      claimed that the rigs provided for use under the IADC contracts did not meet
      contract specifications and that the failures to meet such specifications are
      material breaches of the contracts.  In addition, Hallwood has demanded
      that the remaining balance of funds advanced under the contracts, in the amount
      of $1.65 million, be returned. The Hallwood suit pending in Tarrant County,
      Texas is currently stayed by operation of the automatic stay provided for in
      the
      US Bankruptcy Code as a result of the Chapter 11 filing of the Company and
      its
      subsidiary, EDDO. EDDO plans to vigorously contest the claims by Hallwood and,
      at the appropriate juncture, institute proceedings to prosecute causes of action
      against Hallwood for its damages arising out of what Blast considers are
      unjustified terminations of the two IADC contracts. EDDO and Hallwood have
      discussed potential settlements to this litigation; however, there can be no
      assurance that any settlement will be reached, or that it will be on favorable
      terms to EDDO. The parties’ attorneys have agreed to try the case in the US
      Bankruptcy Court for the Southern District in Houston where the debtor’s
      petition for reorganization is presently pending. This agreement was approved
      by
      the US Bankruptcy Court and a trial date has been scheduled for mid-April,
      2008.




17


*Quicksilver
      Resources Lawsuit*


On
      October 13, 2006, Quicksilver Resources, Inc. (“Quicksilver”) filed suit in the
      state district court of Tarrant County, Texas against Eagle Domestic Drilling
      Operations, LLC (“EDDO”), a wholly owned subsidiary of the Company, and a
      separate company, Eagle Drilling, LLC. The lawsuit seeks to rescind three IADC
      two-year term day rate contracts between Eagle Drilling and Quicksilver, which
      had been assigned to EDDO by Eagle Drilling prior to Blast’s acquisition of the
      membership interests of EDDO.  The lawsuit includes further allegations of
      other material breaches of the contracts and negligent operation by EDDO and
      Eagle Drilling under the contracts. Quicksilver asserts that performance under
      one of the contracts was not timely and that mechanical problems of the rig
      provided under the contract caused delays in its drilling operations.
      Quicksilver repudiated the remaining two contracts prior to the time for
      performance set forth in each respective contract.  Although the lawsuit
      filed in Tarrant County was stayed by operation of the automatic stay provided
      for in the US Bankruptcy Code as a result of the Chapter 11 filing of the
      Company and its subsidiary, EDDO, Quicksilver has removed the lawsuit to the
      US
      Bankruptcy Court for the Northern District of Texas. On May 7, 2007 the US
      Bankruptcy Court for the Northern District of Texas approved the motion filed
      by
      EDDO seeking to have the lawsuit transferred to the US Bankruptcy Court for
      the
      Southern District of Texas where its petition for reorganization under Chapter
      11 of the US Bankruptcy Code is presently pending. Subsequent to the transfer
      the parties entered a stipulation that the lawsuit would be tried in the
      Bankruptcy Court before a jury. EDDO intends to vigorously defend itself in
      this
      proceeding and, at the appropriate juncture, institute proceedings to prosecute
      causes of action against Quicksilver for its damages arising out of what Blast
      considers are unjustified terminations of the three IADC contracts.





Blast
      has
      filed with the Bankruptcy Court that it has estimated that the Hallwood and
      Quicksilver legal recoveries are in the range of $15 million to $45 million,
      of
      which there can be no assurance. Furthermore, there can be no assurance that
      any
      judgment will be received from the pending litigation or that if received,
      such
      judgment will be collectible.





*Steinberger
      Derivative Lawsuit*


Blast
      entered into a settlement agreement with Mr. Steinberger in August 2005 in
      full
      settlement of a lawsuit for wrongful dismissal between the parties. Such
      settlement has resulted in the creation of a $500,000 interest free note being
      made in favor of Mr. Steinberger on Blast’s books paybable at June 30, 2007.
      Subsequently, Blast has been named as a party in the derivative lawsuit between
      Mr. Steinberger and his attorney, Mr. Sessions. Blast believes it has no
      liability arising from this dispute and is defending its interests in the
      case.





*Concluding
      Statement*


Other
      than described above, we are not aware of any other threatened or pending legal
      proceedings. The foregoing is also true with respect to each officer, director
      and control shareholder as well as any entity owned by any officer, director
      and
      control shareholder, over the last five years. As part of its regular
      operations, we may become party to various pending or threatened claims,
      lawsuits and administrative proceedings seeking damages or other remedies
      concerning our commercial operations, products, employees and other matters.
      Although we can provide no assurance about the outcome of these or any other
      pending legal and administrative proceedings and the effect such outcomes may
      have on the company, except as described above, we believe that any ultimate
      liability resulting from the outcome of such proceedings, to the extent not
      otherwise provided for or covered by insurance, will not have a material adverse
      effect on our financial condition or results of operations.





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





None.





**Item
      6. Exhibits**




31.1
            Certification
                of Principal Executive Officer pursuant to Section 302
                (1)31.2
            Certification
                of Principal Accounting Officer pursuant to Section 302
                (1)32.1
            Certification
                of Principal Executive Officer pursuant to Section 1350
                (1)32.2
            Certification
                of Principal Accounting Officer pursuant to Section 1350
                (1)




(1)
            Filed
                herewith














18


**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.




**Blast
                Energy Services, Inc.**By:
            /s/
                John O’Keefe, CEOJohn
                O’KeefeChief
                Executive Officer and Principal Executive OfficerDate:
                August 14, 2007By:
            /s/
                John MacDonald, CFOJohn
                MacDonaldChief
                Financial Officer and Principal Accounting OfficerDate:
                August 14, 2007