**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 March 31, 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 March 31, 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
            13Item
                3.
            Controls
                and Procedures
            15Part
                II.
            OTHER
                INFORMATIONItem
                1.
            Legal
                Proceedings
            16Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            17Item 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 March 31, 2007 and December 31, 2006
            4Consolidated
                Statements of Operations, for the three months ended March 31, 2007
                and
                2006
            5Consolidated
                Statements of Cash Flow, for the three months ended March 31, 2007
                and
                2006
            6Notes
                to Consolidated Financial Statements
            7





3


**BLAST
      ENERGY SERVICES, INC.**


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


**CONSOLIDATED
      BALANCE SHEETS**


**(Unaudited)**









**March
                31,**
              **2007**
            
            **December
                31,**
              **2006****Assets**Current
                AssetsCash
            
            $
            338,877
            
            $
            1,534,603Restricted
                cash
            
            
            47,123
            
            
            56,631Accounts
                receivable, net
            
            
            784,011
            
            
            177,737Other
                assets
            
            
            593,127
            
            
            821,879Total
                Current Assets
            
            
            1,763,138
            
            
            2,590,850Intellectual
                property, net
            
            
            1,037,679
            
            
            1,058,571Equipment,
                net
            
            
            1,053,092
            
            
            1,100,413Assets
                held for sale
            
            
            45,818,705
            
            
            45,915,107Deferred
                financing costs
            
            
            -
            
            
            1,264,801Total
                Assets
            
            $
            49,672,614
            
            $
            51,929,742**Liabilities
                and Stockholders’ Equity (Deficit)**Current
                LiabilitiesAccounts
                payable
            
            $
            1,103,419
            
            $
            729,549Accrued
                expenses
            
            
            2,082,044
            
            
            471,594Other
                current liabilities
            
            
            47,123
            
            
            56,631Deferred
                revenue
            
            
            29,734
            
            
            6,780Advances-related
                parties
            
            
            1,000,000
            
            
            1,000,000Notes
                payable
            
            
            918,255
            
            
            1,014,127Liabilities
                associated with assets held for sale
            
            
            45,775,832
            
            
            45,775,832Total
                Current Liabilities
            
            
            50,956,407
            
            
            49,054,513Long
                Term LiabilitiesDeferred
                revenue, less current portion
            
            
            -
            
            
            1,692,750Total
                Liabilities
            
            
            50,956,407
            
            
            50,747,263Stockholders’
                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
            
            
            70,179,322
            
            
            69,116,253Accumulated
                deficit
            
            
            (71,530,725
            )
            
            (68,001,384
            )Total
                Stockholders’ Equity (Deficit)
            
            
            (1,283,793
            )
            
            1,182,479Total
                Liabilities and Stockholders’ Equity (Deficit)
            
            $
            49,672,614
            
            $
            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
      Months Ended March 31, 2007 and 2006**


**(Unaudited)**






**2007**
            
            **2006**Revenue:Drilling
                Services
            
            $
            1,102,150
            
            $
            -Satellite
                Communications
            
            
            162,419
            
            
            291,961Down-hole
                Solutions
            
            
            -
            
            
            -Total
                Revenue
            
            
            1,264,569
            
            
            291,961Cost
                of Services Provided:Drilling
                Services
            
            
            1,301,074
            
            
            -Satellite
                Communications
            
            
            117,393
            
            
            205,143Down-hole
                Solutions
            
            
            6,794
            
            
            132,246Total
                Cost of Services Provided
            
            
            1,425,261
            
            
            337,389Depreciation
                and amortization
            
            
            119,616
            
            
            26,713Gross
                Margin (Deficit)
            
            
            (280,308
            )
            
            (72,141
            )Operating
                Expenses:Selling,
                general and administrative
            
            
            1,889,264
            
            
            712,861Operating
                Loss
            
            
            (2,169,572
            )
            
            (785,002
            )Other
                (Income) Expense:Other
                income
            
            
            -
            
            
            (42,533
            )Interest
                expense
            
            
            1,368,792
            
            
            43,877Loss
                on extinguishment of debt
            
            
            -
            
            
            182,000Interest
                income
            
            
            (9,024
            )
            
            -Total
                other (income)/expense
            
            
            1,359,768
            
            
            183,344Net
                Loss
            
            $
            (3,529,340
            )
            $
            (968,346
            )Basic
                and diluted net loss per share
            
            $
            (0.05
            )
            $
            (0.02
            )Weighted
                average shares outstanding - basic and diluted
            
            
            67,609,904
            
            
            42,695,063





See
      accompanying notes to consolidated financial statements.




5


**BLAST
      ENERGY SERVICES, INC.**


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


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**Three
      Months Ended March 31, 2007 and 2006**


**(Unaudited)**




**2007**
            
            **2006****Cash
                Flows From Operating Activities:**Net
                loss
            
            $
            (3,529,340
            )
            $
            (968,346
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Stock
                issued for services
            
            
            -
            
            
            202,500Option
                and warrant expense
            
            
            1,063,069
            
            
            93,458Amortization
                of note discount
            
            
            -
            
            
            8,888Depreciation
                and amortization
            
            
            119,616
            
            
            26,713Amortization
                of deferred financing costs
            
            
            1,264,801
            
            
            -Loss
                on extinguishment of debt
            
            
            -
            
            
            182,000Changes
                in:Accounts
                receivable
            
            
            (606,273
            )
            
            33,104Other
                current assets
            
            
            341,658
            
            
            32,109Accounts
                payable
            
            
            373,870
            
            
            (93,720
            )Accrued
                expenses
            
            
            6,849
            
            
            1,360Deferred
                revenue
            
            
            (21,197
            )
            
            (32,008
            )Net
                Cash Used In Operating Activities
            
            
            (986,947
            )
            
            (513,942
            )**Cash
                Flows From Investing Activities:**Construction
                of equipment
            
            
            -
            
            
            (46,490
            )Purchase
                of property and equipment
            
            
            -
            
            
            (21,885
            )Net
                Cash Used in Investing Activities
            
            
            -
            
            
            (68,375
            )**Cash
                Flows From Financing Activities:**Proceeds
                from exercise of options and warrants
            
            
            -
            
            
            74,710Payments
                on notes payable
            
            
            -
            
            
            (2,500
            )Payments
                on short term debt
            
            
            (208,779
            )
            
            -Net
                Cash Used in Financing Activities
            
            
            (208,779
            )
            
            72,210Net
                change in cash
            
            
            (1,195,726
            )
            
            (510,107
            )Cash
                at beginning of period
            
            
            1,534,603
            
            
            835,978Cash
                at end of period
            
            $
            338,877
            
            $
            325,871Non-Cash
                Transactions:Conversion
                of notes payable to common stock
            
            $
            -
            
            $
            350,000Shares
                issued for interest
            
            
            -
            
            
            11,000Shares
                issued for extinguishment of debt and liabilities
            
            
            -
            
            
            182,000Prepaid
                insurance financed with note payable
            
            
            112,907
            
            
            -




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 it’s wholly
      owned subsidiary. 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 $3.5 million for the three months ended March 31, 2007, has an
      accumulated deficit of approximately $71.5 million and a working capital deficit
      of $49.2 million as of March 31, 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.





**NOTE
      3 - INTELLECTUAL PROPERTY**





At
      March
      31, 2007 and December 31, 2006, the total cost of the Intellectual Property
      (“IP”) was $1,170,000 with $132,321 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.





7


**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 $29,734 at March 31,
      2007
      all of which are expected be recognized in the next twelve months.





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





During
      2005, under the agreement to develop its initial abrasive jetting rig with
      Berg
      McAfee Companies, funded by Eric McAfee and Clyde Berg, each of whom are
      considered significant shareholders of Blast, $1 million 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**





As
      part
      of the acquisition of Eagle Domestic Drilling Operations LLC, the selling
      members agreed to purchase 15 million Blast common shares at $1.00 per share
      and
      5 million two-year warrants with an exercise price of $0.01 per share with
      registration rights. The largest component of the private placement was
      purchased by the Thornton Business Security Trust, a trust whose beneficiaries
      are Rodney D. Thornton and his spouse. Thornton Business Security Trust
      beneficially owns 16,447,500 shares of Blast’s common stock and is Blast’s
      largest shareholder.





Blast
      has
      also entered into a consulting contract with Second Bridge LLC, (“Second
      Bridge”) a privately held Oklahoma limited liability company for the completion
      of Rig# 17, a sixth rig (“Rig# 17 Contract”). The Rig# 17 Contract calls for the
      utilization of existing parts purchased as part of the acquisition, the payment
      of an estimated $2.4 million to vendors for parts and labor, and the delivery
      of
      900,000 shares of Blast common stock. As part of the Rig# 17 Contract, Second
      Bridge agreed to grant Blast a right of first refusal on any drilling rigs
      built
      by Second Bridge for a period of two years. Blast also entered into a consulting
      contract with Second Bridge for a period of three years at $150,000 per month
      to
      provide such services as are agreed to between the parties, including
      operational, construction, and business development advisory services. Second
      Bridge is a manager-managed LLC and its managers include Richard D. Thornton
      and
      Rodney Thornton. Rodney Thornton, through an affiliated entity, Thornton
      Business Security Trust, is the beneficial holder of 12,622,500 shares of Blast.
      As of March 31, 2007 and December 31, 2006, the principal balance owed to Second
      Bridge is $4,800,000.





Blast
      entered into a lease agreement with Adkins Hill Properties LLC, also controlled
      by Rodney D. Thornton, to use the Adkins Fabrication yard at a rate of $7,500
      per month for three years.





All
      of
      these Related Party agreements are impacted by the Settlement Agreement
      discussed in Subsequent Events.





**NOTE
      7 - CURRENT NOTES PAYABLE**





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





**March
                31, 2007**
            
            **December
                31,2006**Steinberger
                settlement
            
            
            500,000
            
            
            500,000Note
                payable, Ideal Premium Finance, 8.95%
            
            
            283,377
            
            
            471,627Note
                payable, Ideal Premium Finance, 8.06%
            
            
            92,378
            
            
            -Note
                payable, individual, 10% due on demand
            
            
            42,500
            
            
            42,500$
            918,255
            
            $
            1,014,127





**NOTE
      8 -ASSETS HELD FOR SALE**





As
      a
      result of the May 11, 2007 settlement agreement and associated rig sale
      described below in Subsequent Events, we are accounting for these assets in
      accordance with FAS 144 - Accounting for the Impairment of Disposal of
      Long-Lived Assets. Per that guideline, we have separated the detail of the
      individual assets and liabilities related to the settlement agreement and rig
      sale from our consolidated balance sheet and reflected them into single asset
      categories, “Assets Held for Sale” and “Liabilities held for Sale”.





8


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




Assets:
            
            **March
                31, 2007**
            
            **December
                31,2006**Equipment
                (net of accumulated depreciation)
            
            $
            41,011,205
            
            $
            41,107,607Deferred
                Consulting Fees
            
            
            4,800,000
            
            
            4,800,000Advance
                on Property Lease
            
            
            7,500
            
            
            7,500Total
                Assets
            
            $
            45,818,705
            
            $
            45,915,107Liabilities:Senior
                Debt
            
            $
            40,600,000
            
            $
            40,600,000Accrued
                Interest
            
            
            375,832
            
            
            375,832Long
                Term Consulting Agreement
            
            
            4,800,000
            
            
            4,800,000Total
                Liabilities
            
            $
            45,775,832
            
            $
            45,775,832








**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:





**Three
                Months Ended March 31,****2007**
            
            **2006**Revenues
                from external customersDrilling
                Services
            
            $
            1,102,150
            
            $
            -Satellite
                Communications
            
            
            162,419
            
            
            291,961Down-hole
                Solutions
            
            
            -
            
            
            -$
            1,264,569
            
            $
            291,961Operating
                profit (loss):Drilling
                Services
            
            $
            (269,882
            )
            $
            0Satellite
                Communications
            
            
            45,026
            
            
            80,743Down-hole
                Solutions
            
            
            (6,794
            )
            
            (180,319
            )Corporate
            
            
            (1,937,922
            )
            
            (685,426
            )$
            (2,169,572
            )
            $
            (785,002
            )





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.








**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.





9


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: (i) a state court suit filed by Second Bridge
      LLC
      in Cleveland County, Oklahoma (“Oklahoma State Court Suit”) claiming breach of
      contract under a consulting services agreement signed on August 25, 2006,
      asserting a personal property lien and claiming damages of $4.8 million; and
      (ii) 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 filed an adversary proceeding against Second Bridge LLC seeking to
      invalidate the personal property lien asserted by Second Bridge, to recover
      preferences and fraudulent transfers and to avoid the consulting services
      agreement as a fraudulent conveyance. Second Bridge filed a second suit in
      the
      form of an adversary proceeding essentially alleging the same claims asserted
      in
      the Oklahoma State Court Suit.   Second Bridge and numerous other
      Thornton entities objected to the debtors planned rig sale but all parties
      entered into a settlement agreement approved on May 14, 2007 and all claims,
      including this suit, were mutually released (See Subsequent Events).





(b)
      the
      Debtors have sued Saddle Creek Energy Development, a Texas joint venture in
      the
      Bankruptcy Court for non-payment of 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, and has
      initiated a foreclosure action in the Bankruptcy Court and the foreclosure
      proceedings are currently scheduled for trial December 1, 2007. On April 23,
      2007, Saddle Creek and EDDO entered into a consensual mediated settlement
      whereby Saddle Creek will 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. On May 15, 2007, notwithstanding the agreed
      settlement and Bankruptcy Court approval, Saddle Creek has failed to perform
      its
      obligations and it is anticipated that Eagle will continue with its litigation
      claims against Saddle Creek in the amount in excess of $3.4 million. In
      accordance with FAS 5 - Accounting for Gain or Loss Contingencies, the Company
      has estimated the most reasonable estimate of value of this claim to be based
      upon the previously agreed to settlement amount of $675,000. This accounting
      methodology in no way reduces or impacts the full amount of the Company’s
      claims..





(c)
      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.





(d)
      the
      Debtors have requested authority to sell the drilling rigs owned by EDDO to
      their senior secured lender Laurus Master Fund, Ltd. (“Laurus”) for a
      consideration equal to the outstanding debt obligations owed to Laurus. The
      Debtors’ efforts to complete this transaction have been objected to by various
      entities controlled by Rodney D. Thornton. The Debtors are actively pursuing
      their right to complete the sale in accordance with the Bankruptcy Code. On
      May
      14, 2007, the Bankruptcy Court approved a settlement agreement between Thornton
      entities and the Debtors (See Subsequent events).





10


*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 the Company 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 is subject
      to
      approval by the US Bankruptcy Court




*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. 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 the Company 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 $15-45 million.





*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 the company, 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.





**NOTE
      11 - SUBSEQUENT EVENTS**





On
      May
      17, 2007 Blast and Eagle have 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.


11


On
      May
      15, 2007, notwithstanding the agreed settlement and Bankruptcy Court approval,
      Saddle Creek has failed to perform its obligations and it is anticipated that
      Eagle will continue with its litigation claims against Saddle Creek in the
      amount in excess of $3.4 million. In accordance with FAS 5 - Accounting for
      Gain
      or Loss Contingencies, the Company has estimated the most reasonable estimate
      of
      value of this claim to be based upon the previously agreed to settlement amount
      of $675,000. This accounting methodology in no way reduces or impacts the full
      amount of the Company’s claims.





Blast
      Energy Services, Inc. and Eagle Domestic Drilling Operations LLC (“EDDO”), our
      wholly owned subsidiary, 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 the Company’s plan of reorganization that will be filed
      incorporating 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 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 the Company 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 the Company
      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 the Company.





Further,
      the Settlement provides for the treatment of several claims made by the Thornton
      Entities that enable the Company to propose its reorganization plan. More
      specifically, the Thornton Entities shall dismiss all of their lawsuits against
      us. The Settlement also provides that Laurus would pay Second Bridge $1.8
      million, that we would 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
      Note”). The Settlement provides that full mutual releases of all claims are
      given among the Company, the Thornton Entities and Laurus, except with respect
      to the $2.1 Million Note.





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 35%/65%, between Laurus and us, respectively, until such $2.1 Million
      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
“b” of “Chapter 11 Proceedings” in Note 10 to the consolidated financial
      statements), we would receive 65% of any such proceeds and Laurus would 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.





12


On
      April
      1, 2007, subject to the approval of the Bankruptcy Court, (a) Blast entered
      into
      a nine month lease (April 2007 - December 2007) for 2,000 square feet of office
      space for its corporate offices in Houston, Texas at a cost of $2,000 per month.
      (b) Blast and David Adams agreed that he would remain as President but step
      down
      as Co-CEO and reduce his commitment to two days per week. As a result John
      O’Keefe became CEO and John MacDonald became Executive VP and CFO of the
      Company. If approved by the Court, these actions represent a significant
      decrease in overhead expenses from the prior lease and employment
      arrangements.





**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.




**Three
      Months Ended March 31, 2007 Compared to Three Months Ended March 31,
      2006**




*Drilling
      Services*





This
      business segment was acquired in August 2006 and had revenues of $1,102,000
      and
      an operating loss of $270,000 for the three months ended March 31, 2007. The
      operating loss was generated as a result of revenue shortfalls from low drilling
      rig utilization rates following the breach of drilling contracts by Hallwood
      and
      Quicksilver. As a newly acquired business segment, there are no comparisons
      to
      results available from the first quarter of 2006. We transfered substantially
      all of the assets which make up the drilling services segment to Laurus Master
      Fund, Ltd. (“Laurus”), in satisfaction of our outstanding note with Laurus, as
      described below, effective May 14, 2007.





*Satellite
      Communications Services*





Satellite
      Communication Services’ revenues decreased by $130,000 to $162,000 for the three
      months ended March 31, 2007 compared to $292,000 for the three months ended
      March 31, 2006. The decrease can be attributed to the loss of services revenue
      following the cancellation of licenses by the government in Chad and the
      decision by Calderon not to renew the services contracts on the assets they
      purchased from Noble, a previous customer of our satellite services. The
      operating margin from Satellite Communication Services decreased approximately
      $36,000 to $45,000 for the three months ended March 31, 2007 compared to a
      margin of $81,000 for the three months ended March 31, 2006.





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
      March 31, 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 March 31, 2007
      and March 31, 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 $173,000 to a loss of $7,000 for the three
      months ended March 31, 2007 compared to a loss of $180,000 for the three months
      ended March 31, 2006. Expenses for 2007 represent basic overhead costs while
      the
      expenses for 2006 were primarily labor related associated with designing,
      testing and repairing the new abrasive fluid jetting process


13





*Selling,
      General and Administrative* **




Selling,
      general and administrative (“SG&A”) expenses increased by $1,176,000 to
      $1,889,000 for the quarter ended March 31, 2007 compared to $713,000 for the
      quarter ended March 31, 2006. The following table details major components
      of
      SG&A expense over the periods (in thousands).




**For
                the Three Months Ended March 31,**
            
            **Increase**
              **(Decrease)****2007**
            
            **2006**Payroll
                and related costs
            
            $
            81
            
            $
            106
            
            $
            (25
            )Option
                and warrant expense
            
            
            1,063
            
            
            93
            
            
            970Legal
                & settlement costs
            
            
            547
            
            
            70
            
            
            477External
                services
            
            
            98
            
            
            315
            
            
            (217
            )Insurance
            
            
            41
            
            
            54
            
            
            (13
            )Travel
                & entertainment
            
            
            33
            
            
            47
            
            
            (14
            )Office
                rent, Communications etc.
            
            
            26
            
            
            28
            
            
            (2
            )$
            1,889
            
            $
            713
            
            $
            1,176





For
      the
      most part, lower administrative costs were a result of our efforts to reduce
      overhead costs while in Chapter 11, with the exception of the 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. 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 first quarter of 2007 increased substantially to $2.8 million
      from
      a loss of $968,000 for the corresponding period in 2006. This increase is
      primarily related to the 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
      March 31, 2007, we had a cash balance of $339,000 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 May 10, 2007, our cash balance
      was
      approximately $80,000. In the near term, unless we are able to recover
      settlement monies for amounts owed under various breached customer contracts
      or
      recover owed insurance premium refunds in a timely manner or secure 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 have 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.





In
      addition to the $40.6 million senior secured debt owed to Laurus, which we
      used
      to fund the Eagle acquisition in August 2006, 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 on June 30,
      2007.





We
      had
      negative net working capital of $49.2 million and a total accumulated deficit
      of
      $71.5 million as of March 31, 2007.





Blast
      has
      filed with the Bankruptcy Court that it has estimated that the Hallwood and
      Quicksilver legal recoveries are in the range of $15-45 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.


14


Blast
      Energy Services, Inc. and Eagle Domestic Drilling Operations LLC (“EDDO”), our
      wholly owned subsidiary, 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 the Company’s plan of reorganization that will be filed
      incorporating 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 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 the Company 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 the Company
      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 the Company.





Further,
      the Settlement provides for the treatment of several claims made by the Thornton
      Entities that enable the Company to propose its reorganization plan. More
      specifically, the Thornton Entities shall dismiss all of their lawsuits against
      us. The Settlement also provides that Laurus would pay Second Bridge $1.8
      million, that we would 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
      Note”). The Settlement provides that full mutual releases of all claims are
      given among the Company, the Thornton Entities and Laurus, except with respect
      to the $2.1 Million Note.





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 35%/65%, between Laurus and us, respectively, until such $2.1 Million
      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
“b” of “Chapter 11 Proceedings” in Note 10 to the consolidated financial
      statements), we would receive 65% of any such proceeds and Laurus would receive
      35% of any such proceeds.




Blast
      is
      currently in discussions to merge with another energy company that has oil
      and
      gas production as well as certain energy service technologies. Discussions
      are
      at an early stage and no assurances can be given that such a merger will be
      consummated or that the economic terms of such a merger would be favorable
      to
      Blast shareholders or creditors. Blast is also in discussions with a major
      data
      networking company to market its products to existing Blast customers in the
      Satellite Communications division. Again no assurances can be given that such
      discussions will result in additional revenues.




**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.


15




**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.





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: (i) a state court suit filed by Second Bridge
      LLC
      in Cleveland County, Oklahoma (“Oklahoma State Court Suit”) claiming breach of
      contract under a consulting services agreement signed on August 25, 2006,
      asserting a personal property lien and claiming damages of $4.8 million; and
      (ii) 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, which disputes include the
      following:





(a)
      the
      Debtors filed an adversary proceeding against Second Bridge LLC seeking to
      invalidate the personal property lien asserted by Second Bridge, to recover
      preferences and fraudulent transfers and to avoid the consulting services
      agreement as a fraudulent conveyance. Second Bridge filed a second suit in
      the
      form of an adversary proceeding essentially alleging the same claims asserted
      in
      the Oklahoma State Court Suit.   The Debtors intend to vigorously
      prosecute their claims for affirmative relief under the Bankruptcy Code and
      defend themselves in both of these proceedings. Second Bridge and numerous
      other
      Thornton entities objected to the debtors planned rig sale but all parties
      entered into a settlement agreement on May 11, 2007 and all claims, including
      this suit, were mutually released (See Subsequent Events);





(b)
      the
      Debtors have sued Saddle Creek Energy Development, a Texas joint venture in
      the
      Bankruptcy Court for non-payment of 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, and has
      initiated a foreclosure action in the Bankruptcy Court. The foreclosure
      proceedings are currently scheduled for trial December 1, 2007. On April 23,
      2007, Saddle Creek and EDDO entered into a consensual mediated settlement
      whereby Saddle Creek will 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 filled on
      Saddle Creek’s assets. This settlement agreement has been filed with the
      Bankruptcy Court for approval. On May 15, 2007, notwithstanding the agreed
      settlement and Bankruptcy Court approval, Saddle Creek has failed to perform
      its
      obligations and it is anticipated that Eagle will continue with its litigation
      claims against Saddle Creek in the amount of approximately $3.4 million. In
      accordance with FAS 5 - Accounting for Gain or Loss Contingencies, the Company
      has estimated the most reasonable estimate of value of this claim to be based
      upon the previously agreed to settlement amount of $675,000. This accounting
      methodology in no way reduces or impacts the full amount of the Company’s
      claims;





(c)
      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; and




(d)
      the
      Debtors have requested authority to sell the drilling rigs owned by EDDO to
      their senior secured lender Laurus Master Fund, Ltd. (“Laurus”) for a
      consideration equal to the outstanding debt obligations owed to Laurus. The
      Debtors’ efforts to complete this transaction have been objected to by various
      entities controlled by Rodney D. Thornton. The Debtors are actively pursuing
      their right to complete the sale in accordance with the Bankruptcy Code. On
      May
      14, 2007, a settlement was reached between Thornton entities and the Debtors
      (See Subsequent events).


16





In
      connection with the Settlement, described above, Rodney D. Thornton and the
      Thornton Entities, as well as Second Bridge agreed to dismiss their lawsuits
      and
      approve the sale of the assets to Laurus, as described in greater detail
      above.





*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 the Company considers
      are
      unjustified terminations of the two IADC contracts. 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 is subject to approval by the US Bankruptcy Court.





*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. 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 the Company 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 $15-45 million.





*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.


17


**Item
        6. Exhibits**
  10.1
              Settlement
                  Agreement - incorporated by reference to Exhibit 10.1 of the Company’s
                  report on Form 8-K filed May 14, 200731.1
              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 OfficerPrincipal
                Executive OfficerDate:
                May 18, 2007By:
            /s/
                John MacDonald, CFOJohn
                MacDonaldChief
                Financial OfficerPrincipal
                Accounting OfficerDate:
                May 18, 2007