**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 September 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**** ̈**





Check
      whether the registrant filed all documents and reports required to be filed
      by
      Section 12, 13, & 15(d) of the Exchange Act after the distribution of
      securities under a plan confirmed by a
      court.  **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 November 12, 2007 is 51,127,404




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)**












**Item**
            **Description**
            **Page****Part
                I – FINANCIAL INFORMATION**Item
                1
            Financial
                Statements
            F-1Consolidated
                Balance Sheets as of September 30, 2007 and December 31, 2006
                (unaudited)
            F-1Consolidated
                Statements of Operations, for the three and nine months ended September
                30, 2007 and 2006 (unaudited)
            F-2Consolidated
                Statements of Cash Flow, for the nine months ended September 30,
                2007 and
                2006
            F-3Notes
                to Consolidated Financial Statements
            F-4Item
                2
            Management’s
                Discussion and Analysis of Financial Condition or Plan of
                Operation
            F-12Item
                3
            Controls
                and Procedures
            F-15**Part
                II – OTHER INFORMATION**Item
                1
            Legal
                Proceedings
            3Item
                2
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            5Item
                3
            Defaults
                Upon Senior Securities
            5Item
                4
            Submission
                of Matters to a Vote of Security Holders
            5Item
                5
            Other
                Information
            5Item
                6
            Exhibits
            5.
            Signatures
            6





2


**PART
      I**


**FINANCIAL
      INFORMATION**





ITEM
      1. FINANCIAL STATEMENTS. **BLAST
        ENERGY SERVICES, INC.**


**(DEBTOR
        AND DEBTOR-IN-POSSESSION)**
 **CONSOLIDATED
        BALANCE SHEETS**
 **(Unaudited)**


**September
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006****Assets**Current
                  Assets:Cash
              
              $
              72,718
              
              
              $
              1,534,603Restricted
                  cash
              
              
              -
              
              
              
              56,631Accounts
                  receivable, net
              
              
              90,373
              
              
              
              118,410Current
                  assets of discontinued operations
              
              
              682,500
              
              
              
              2,612,126Other
                  assets
              
              
              88,237
              
              
              
              76,580Total
                  Current Assets
              
              
              933,828
              
              
              
              4,398,350Intellectual
                  property, net of accumulated amortization of $174,107
                  and  $111,429
              
              
              995,893
              
              
              
              1,058,571Equipment,
                  net of accumulated depreciation of $33,337 and $38,171
              
              
              1,045,778
              
              
              
              1,109,455Non-current
                  assets of discontinued operations
              
              
              -
              
              
              
              45,363,366Total
                  Assets
              
              $
              2,975,499
              
              
              $
              51,929,742**Liabilities
                  and Stockholders' Equity (Deficit)**Current
                  Liabilities:Accounts
                  payable
              
              $
              1,031,035
              
              
              $
              455,967Accrued
                  expenses
              
              
              888,601
              
              
              
              465,280Deferred
                  revenue
              
              
              11,080
              
              
              
              6,780Advances-related
                  parties
              
              
              1,300,000
              
              
              
              1,000,000Notes
                  payable
              
              
              573,293
              
              
              
              542,500Senior
                  debt
              
              
              2,100,000
              
              
              
              -Current
                  liabilities of discontinued operations
              
              
              2,133,869
              
              
              
              43,539,836Total
                  Current Liabilities
              
              
              8,037,878
              
              
              
              46,010,363Long
                  Term Liabilities:Deferred
                  revenue, less current portion
              
              
              -
              
              
              
              44,150Long
                  term liabilities of discoontinued operations
              
              
              -
              
              
              
              4,692,750Total
                  Liabilities
              
              
              8,037,878
              
              
              
              50,747,263Commitments
                  and Contingencies
              
              
              -
              
              
              
              -Stockholders'
                  Equity (Deficit):Common
                  Stock, $.001 par value, 100,000,000 shares authorized;51,127,404
                  shares issued and outstanding
              
              
              51,127
              
              
              
              67,610Additional
                  paid-in capital
              
              
              70,359,869
              
              
              
              69,116,253Accumulated
                  deficit
              
              
              (75,473,375
              )
              
              
              (68,001,384
              )Total
                  Stockholders' Equity (Deficit)
              
              
              (5,062,379
              )
              
              
              1,182,479Total
                  Liabilities and Stockholders' Equity (Deficit)
              
              $
              2,975,499
              
              
              $
              51,929,742


See
      accompanying notes to consolidated financial statements


F-1


**BLAST
        ENERGY SERVICES, INC.**
 **(DEBTOR
        AND DEBTOR-IN-POSSESSION)**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **Nine  and
        Three Months Ended September 30, 2007 and 2006**
 **(Unaudited)**
  **For
                  the Three Months Ended**
              
              
              **For
                  the Nine Months Ended****September
                  30,**
              
              
              **September
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Revenue:Satellite
                  Communications
              
              
              80,151
              
              
              
              251,714
              
              
              
              353,759
              
              
              
              808,758Down-hole
                  Solutions
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              14,150Total
                  revenue
              
              
              80,151
              
              
              
              251,714
              
              
              
              353,759
              
              
              
              822,908Cost
                  of services provided:Satellite
                  Communications
              
              
              103,267
              
              
              
              200,454
              
              
              
              325,197
              
              
              
              703,723Down-hole
                  Solutions
              
              
              -
              
              
              
              326,686
              
              
              
              6,793
              
              
              
              759,533Total
                  cost of services provided
              
              
              103,267
              
              
              
              527,140
              
              
              
              331,990
              
              
              
              1,463,256Depreciation
                  and amortization
              
              
              22,995
              
              
              
              26,559
              
              
              
              70,322
              
              
              
              79,181Gross
                  (deficit)
              
              
              (46,111
              )
              
              
              (301,985
              )
              
              
              (48,553
              )
              
              
              (719,529
              )Operating
                  expenses:Selling,
                  general and administrative
              
              
              602,839
              
              
              
              914,614
              
              
              
              3,482,606
              
              
              
              2,221,000Bad
                  debts expense (recoveries)
              
              
              -
              
              
              
              (10,290
              )
              
              
              -
              
              
              
              (10,290
              )Operating
                  loss
              
              
              (648,950
              )
              
              
              (1,206,309
              )
              
              
              (3,531,159
              )
              
              
              (2,930,239
              )Other
                  (income) expense:Other
                  (income)
              
              
              (47,541
              )
              
              
              (10,524
              )
              
              
              (83,086
              )
              
              
              (92,185
              )Interest
                  expense
              
              
              2,375
              
              
              
              1,130,132
              
              
              
              97,957
              
              
              
              1,203,579Loss
                  on extinguishment of debt
              
              
              -
              
              
              
              -
              
              
              
              17,970
              
              
              
              262,000Total
                  other (income)/expense
              
              
              (45,166
              )
              
              
              1,119,608
              
              
              
              32,841
              
              
              
              1,373,394Loss
                  from continuing operations
              
              
              (603,784
              )
              
              
              (2,325,917
              )
              
              
              (3,564,000
              )
              
              
              (4,303,633
              )Discontinued
                  operations:Loss
                  from operations
              
              
              (2,163
              )
              
              
              (835,846
              )
              
              
              (1,874,277
              )
              
              
              (835,846
              )Loss
                  on sale of equipment
              
              
              -
              
              
              
              -
              
              
              
              (2,033,714
              )
              
              
              -Loss
                  from discontinued operations
              
              
              (2,163
              )
              
              
              (835,846
              )
              
              
              (3,907,991
              )
              
              
              (835,846
              )Net
                  loss
              
              $
              (605,947
              )
              
              $
              (3,161,763
              )
              
              $
              (7,471,991
              )
              
              $
              (5,139,479
              )Basic
                  and diluted net loss per shareContinuing
                  operations
              
              $
              (0.01
              )
              
              $
              (0.04
              )
              
              $
              (0.06
              )
              
              $
              (0.09
              )Discontinued
                  operations
              
              $
              -
              
              
              $
              (0.02
              )
              
              $
              (0.05
              )
              
              $
              (0.02
              )Net
                  loss
              
              $
              (0.01
              )
              
              $
              (0.06
              )
              
              $
              (0.11
              )
              
              $
              (0.11
              )Weighted
                  average shares outstanding
              
              
              60,245,040
              
              
              
              52,589,643
              
              
              
              65,127,972
              
              
              
              46,363,690
  See
        accompanying notes to consolidated financial statements
  F-2
 **BLAST
        ENERGY SERVICES, INC.**
 **(DEBTOR
        AND DEBTOR-IN-POSSESSION)**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **Nine Months
        Ended September 30, 2007 and 2006**
 **(Unaudited)**
 **2007**
              
              
              **2006****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (7,471,991
              )
              
              $
              (5,139,479
              )Loss
                  from discontinued operations
              
              $
              3,907,991
              
              
              $
              835,846Loss
                  from continuing operations
              
              $
              (3,564,000
              )
              
              $
              (4,303,633
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              70,322
              
              
              
              279,857Option
                  and warrant expense
              
              
              1,230,649
              
              
              
              341,901Loss
                  on extinguishment of debt
              
              
              17,970
              
              
              
              262,000Stock
                  issued for services
              
              
              -
              
              
              
              644,000Amortization
                  of note discount
              
              
              -
              
              
              
              603,992Receivable
                  from related party
              
              
              -
              
              
              
              3,600Bad
                  debt provisions
              
              
              -
              
              
              
              (10,290
              )Change
                  in:Accounts
                  receivable
              
              
              24,537
              
              
              
              (15,251
              )Other
                  current assets
              
              
              83,280
              
              
              
              (256,081
              )Accounts
                  payable
              
              
              575,068
              
              
              
              902,044Accrued
                  expenses
              
              
              423,321
              
              
              
              328,956Deferred
                  revenue
              
              
              (39,850
              )
              
              
              (67,906
              )Net
                  cash used in operating activities
              
              
              (1,178,703
              )
              
              
              (1,286,811
              )**Cash
                  flows from investing activities:**Investment
                  in restricted cash
              
              
              46,489
              
              
              
              (704,750
              )Purchase
                  of property and equipment
              
              
              (1,634
              )
              
              
              (300,163
              )Construction
                  of equipment
              
              
              -
              
              
              
              (127,303
              )Net
                  cash provided by investing activities
              
              
              44,855
              
              
              
              (1,132,216
              )**Cash
                  flows from financing activities:**Purchase
                  of treasury stock
              
              
              (16
              )
              
              
              -Proceeds
                  from exercise of options and warrants
              
              
              -
              
              
              
              211,778Borrowngs
                  on debt
              
              
              300,000
              
              
              
              -Principal
                  payments on long term debt
              
              
              (82,114
              )
              
              
              (2,500
              )Net
                  cash provided by financing activities
              
              
              217,870
              
              
              
              209,278**Discontinued
                  operations:**Discontinued
                  operating activities
              
              
              (328,104
              )
              
              
              (767,817
              )Discontinued
                  investing activities
              
              
              67,500
              
              
              
              (47,351,400
              )Discontinued
                  financing activities
              
              
              (285,303
              )
              
              
              53,362,521Net
                  cash provided by discontinued operations
              
              
              (545,907
              )
              
              
              5,243,304Net
                  change in cash
              
              
              (1,461,885
              )
              
              
              3,033,555Cash
                  at beginning of period
              
              
              1,534,603
              
              
              
              835,978Cash
                  at end of period
              
              $
              72,718
              
              
              $
              3,869,533Cash
                  paid for:Interest
              
              $
              -
              
              
              $
              84,865Income
                  taxes
              
              
              -
              
              
              
              -Non-Cash
                  Transactions:Shares
                  issued for acquisition of Eagle
              
              $
              -
              
              
              $
              3,120,000Warrants
                  issued for acquisition of Eagle
              
              
              -
              
              
              
              18,286,835Conversion
                  of notes payable to common stock
              
              
              -
              
              
              
              550,000Additional
                  shares issued for interest payable
              
              
              -
              
              
              
              17,666Shares
                  issued for accounts payable
              
              
              -
              
              
              
              27,000Long-term
                  payable for consulting agreement
              
              
              -
              
              
              
              5,400,000Shares
                  issued for equipment
              
              
              -
              
              
              
              20,000Exchange
                  of rigs for debt
              
              
              45,822,321
              
              
              
              -Prepaid
                  insurance financed with note payable
              
              
              112,907
              
              
              
              -Cancellation
                  of insurance finance note
              
              
              186,325
              
              
              
              -See
                  accompanying notes to consolidated financial statements.


F-3


**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 $0.6
      million for the three months ended September 30, 2007, has an accumulated
      deficit of $75.5 million and a working capital deficit of $7.1 million as of
      September 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.




**NOTE
      3 – INTELLECTUAL PROPERTY**





At
      September 30, 2007 and December 31, 2006, the total cost of the Intellectual
      Property (“IP”) was $1,170,000 with $174,107 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
      expected to be 14 years.


F-4




**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 $11,080 at September
      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 September 30,
      2007, Blast has borrowed $300,000 under this arrangement which is secured by
      certain receivables from Saddle Creek Energy Development, a drilling services
      customer. In November, Blast borrowed an additional $100,000 under this
      facility.





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 averaging 7.4% 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**





On
      August
      20, 2007, Blast Energy Services, Inc. (the “Company” or “Blast”) entered into a
      Settlement Agreement and Mutual Release  (the “Release”) with the Thornton
      Security Business Trust (the “Trust”) whereby the Company and the Trust agreed
      to release, acquit and forever discharge each other, their current and former
      agents, officers, directors, servants, attorneys, representatives, successors,
      employees trustees, beneficiaries, accountants, and assigns (the “Parties”) from
      any and all rights, obligations, claims, demands and causes of action, whether
      in contract, tort, under state and/or federal law, or state and/or federal
      securities regulations, whether asserted or unasserted, whether known or
      unknown, suspected or unsuspected, for or by reason of any matter, cause or
      thing whatsoever, including all obligations arising therefrom, and omissions
      and/or conduct of each party, and/or each parties’ agents, attorneys, servants,
      representatives, successors, employees, directors, officers, trustees,
      beneficiaries, accountants and assigns, relating directly or indirectly thereto
      (the “Release”).  Additionally, the Trust agreed to sell its entire share
      ownership of Blast common stock (16,447,500 shares) to the Company in
      consideration for the Release and $16.48 in cash.





Previously,
      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.





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, was 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, until it is
      discharged.


F-5





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  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% 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 September 30, 2007 and December 31, 2006 consisted of the
      following:




**September
                  30, 2007**
              
              
              **December
                  31, 2006**Steinberger
                  settlement
              
              $
              500,000
              
              
              $
              500,000Note
                  payable, Ideal Premium, 8.95%
              
              
              -
              
              
              
              -Note
                  payable, Ideal Premium, 8.06%
              
              
              30,793
              
              
              
              -Note
                  payable, individual, 10% due on demand
              
              
              42,500
              
              
              
              42,500$
              573,293
              
              
              $
              542,500


**NOTE
      8 – BUSINESS SEGMENTS**





Blast
      has
      two reportable segments: (1) Satellite Communications and (2) 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.  The table below reports assets by business
      segment.  Corporate supports both Satellite Communications and
      Down-hole Solutions segments.


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:




**September
                  30, 2007**
              
              
              **December
                  31, 2006**Satellite
                  Communications
              
              $
              122,153
              
              
              $
              163,381Down-hole
                  Solutions
              
              
              2,037,793
              
              
              
              2,164,164Corporate
              
              
              133,053
              
              
              
              1,626,705$
              2,292,999
              
              
              $
              3,954,250


F-6
  **For
                  the Three Months Ended**
              
              
              **For
                  the Nine Months Ended****September
                  30,**
              
              
              **September
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Revenues
                  from external customersSatellite Communications
              
              
              80,151
              
              
              
              251,714
              
              
              
              353,759
              
              
              
              808,758Down-hole Solutions
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              14,15080,151
              
              
              
              251,714
              
              
              
              353,759
              
              
              
              822,908Operating
                  profit (loss):Satellite Communications
              
              
              (23,116
              )
              
              
              56,816
              
              
              
              28,562
              
              
              
              94,535Down-hole Solutions
              
              
              -
              
              
              
              (381,348
              )
              
              
              (6,793
              )
              
              
              (897,134
              )Corporate
              
              
              (625,834
              )
              
              
              (881,777
              )
              
              
              (3,552,928
              )
              
              
              (2,127,640
              )(648,950
              )
              
              
              (1,206,309
              )
              
              
              (3,531,159
              )
              
              
              (2,930,239
              )





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 third 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
      9 – 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 was approved by order of the Bankruptcy
      Court. Votes are being solicited and the confirmation hearing on the plan is
      set
      for November 28, 2007.





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.
      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:


F-7


(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 $675,000.  In return for
      payments, EDDO will release all liens filed on Saddle Creek’s assets. This
      settlement agreement was approved by the Bankruptcy Court. 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. Saddle
      Creek has filed a plan of reorganization that proposes to pay all claims
      100%.




(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.
      This request was denied by the Bankruptcy Court. Alberta is currently requesting
      an order requiring the rejection of the Technology Purchase Agreement. A hearing
      to determine this dispute was held on November 13 and 14, 2007 and we are
      awaiting the Judge’s ruling on the matter.





*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 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’ 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.




*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, 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.


F-8


*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.




**NOTE
      10 – NEW ACCOUNTING PRONOUNCEMENTS**





In
      June 2006, the Financial Accounting Standards Board (FASB) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
      interpretation of FASB Statement No. 109” (FIN 48). This Interpretation
      provides guidance on recognition, classification and disclosure concerning
      uncertain tax liabilities. The evaluation of a tax position requires recognition
      of a tax benefit if it is more likely than not it will be sustained upon
      examination. We adopted this Interpretation effective January 1, 2007. The
      adoption did not have a material impact on our consolidated financial
      statements.




**NOTE
      11 – DISCONTINUED OPERATIONS**





In
      August
      2006, we acquired Eagle Domestic Drilling Operations LLC (“Eagle”), a drilling
      contractor which at that time owned three land rigs, and had three more under
      construction.   The acquisition of Eagle added a major new
      segment to our business. As part of the financial consideration for the purchase
      of Eagle, we entered into a Securities Purchase Agreement (“SPA”) with Laurus
      Master Fund, Ltd. (“Laurus”) to finance $40.6 million of the total purchase
      price of Eagle. Under the SPA, we issued a Secured Term Note in the original
      principal amount of $40.6 million with a final maturity in three years, with
      interest at prime plus 2.5%, with a minimum rate of 9%, at the time equal to
      10.75%, payable quarterly to Laurus. The principal was to be repaid commencing
      April 1, 2007 at a rate of $800,000 per month for the first twelve months from
      that date, $900,000 per month for the subsequent twelve months and $1,000,000
      per month until the Note matures. The remaining balance of the Note is to be
      paid at maturity with any associated interest.





We
      had
      used assumptions in the August 2006 acquisition of Eagle that included high
      revenue and full utilization rate expectations based upon the five two-year
      term
      drilling contracts Eagle had in place at the time.  The subsequent
      cancellation of these contracts by Hallwood Energy/Hallwood Petroleum and
      Quicksilver Resources in the fall of 2006 reduced our revenue expectations
      and
      consequently our ability to meet the scheduled payments on the Laurus’ Note.
      This cancellation was in violation of the terms of the drilling contracts and
      we
      and Eagle have subsequently filed suit for breach of those
      contracts.





On
      January 19, 2007, Blast and Eagle, filed voluntary petitions with the US
      Bankruptcy Court for the Southern District of Texas – Houston Division (the
“Court”) under Chapter 11 of Title 11 of the US Code in order that we may
      dispose of burdensome and uneconomical assets and reorganize our financial
      obligations and capital structure.





In
      May
      2007, Blast entered into a Settlement 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.





The
      assets and liabilities of the discontinued operations are presented separately
      under the captions “Current assets of discontinued operations”, “Current
      liabilities of discontinued operations” and “Long term liabilities of
      discontinued operations” respectively in the accompanying balance sheet and
      consist of the following:





F-9





**September
                    30,**
                
                
                **December
                    31,**Assets:
                
                **2007**
                
                
                **2006**Current
                  AssetsAccounts
                  receivable
                
                $
                682,500
                
                
                $
                59,327Deferred
                  consulting fees
                
                
                -
                
                
                
                1,800,000Prepaid
                  expenses
                
                
                -
                
                
                
                745,299Advance
                  on property lease
                
                
                -
                
                
                
                7,500Total
                    AssetsTotal
                    Current Assets
                
                
                682,500
                
                
                
                2,612,126Equipment
                
                
                
                
                
                
                41,098,565Deferred
                  consulting fees - long term
                
                
                -
                
                
                
                3,000,000Deferred
                  financing costs
                
                
                -
                
                
                
                1,264,801Total
                  Assets
                
                $
                682,500
                
                
                $
                47,975,492Liabilities:Current
                  liabilitiesAccounts
                  payable
                
                $
                -
                
                
                $
                273,582Accrued
                  expenses
                
                
                -
                
                
                
                337,996Senior
                  debt
                
                
                -
                
                
                
                40,600,000Escrow
                
                
                -
                
                
                
                56,631Short
                  term debt
                
                
                -
                
                
                
                471,627Accrued
                  liabilities
                
                
                1,782,799
                
                
                
                -Accounts
                  payable
                
                
                351,070
                
                
                
                -Current
                  portion of long term consulting agrement
                
                
                -
                
                
                
                1,800,000Total
                  Current Liabilities
                
                
                2,133,869
                
                
                
                43,539,836Long
                  term liabilitiesLong
                  term consulting agreement
                
                
                -
                
                
                
                3,000,000Deferred
                  revenue
                
                
                -
                
                
                
                1,692,750Total
                  Liabilities
                
                $
                2,133,869
                
                
                $
                48,232,586


Loss
      from
      the discontinuance of drilling operations for the three and nine month periods
      ended September 30, 2007 and September 30, 2006 are as follows:


F-10




**BLAST
      ENERGY SERVICES, INC.**


**Loss
      from Discontinued Operations**


**Nine and
      Three Months Ended September 30, 2007 and 2006**


(Unaudited)




**For
                the Three Months Ended**
            
            
            **For
                  the Nine Months Ended****September
                30,**
            
            
            **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenue:Drilling
                Services
            
            $
            -
            
            
            $
            158,296
            
            
            $
            1,102,150
            
            
            $
            158,296Cost
                of Services Provided:Drilling
                Services
            
            
            2,025
            
            
            
            793,466
            
            
            
            1,598,893
            
            
            
            793,466Total
                Cost of Services Provided
            
            
            (2,025
            )
            
            
            (635,170
            )
            
            
            (496,743
            )
            
            
            (635,170
            )Depreciation
                and amortization
            
            
            -
            
            
            
            200,676
            
            
            
            95,196
            
            
            
            200,676Gross
                (Deficit)
            
            
            (2,025
            )
            
            
            (835,846
            )
            
            
            (591,939
            )
            
            
            (835,846
            )Selling,
                general and administrative
            
            
            138
            
            
            
            -
            
            
            
            17,537
            
            
            
            -Interest
                expense
            
            
            -
            
            
            
            -
            
            
            
            1,264,801
            
            
            
            -Loss
                from discontinued operations
            
            
            (2,163
            )
            
            
            (835,846
            )
            
            
            (1,874,277
            )
            
            
            (835,846
            )Loss
                on sale of equipment
            
            
            -
            
            
            
            -
            
            
            
            (2,033,714
            )
            
            
            -Net
                loss from discontinued operations
            
            $
            (2,163
            )
            
            $
            (835,846
            )
            
            $
            (3,907,991
            )
            
            $
            (835,846
            )





F-11




**Item
      2. MANAGEMENT'S DISCUSSION AND
      ANALYSIS**





*The
      following discussion of our financial condition and results of operations should
      be read in conjunction with the accompanying financial statements and the
      related footnotes thereto.*




**Forward-Looking
      Statements**




Certain
      statements concerning our plans and intentions included herein may constitute
      forward-looking statements, including, but not limited to, statements identified
      by the words “anticipate”, “believe”, “expect” and similar expressions and
      statements regarding our business strategy, plans, beliefs and objectives for
      future operations. Although management believes that the expectations reflected
      in these forward-looking statements are reasonable, we can give no assurance
      that such expectations will prove to have been correct. There are a number
      of
      factors that may affect our future results, including, but not limited to,
      (a) our ability to obtain additional funding for development and
      operations, (b) the continued availability of management to execute the
      business plan, (c) successful deployment and market acceptance of our
      products, and (d) the resolution of legal matters that may inhibit the
      execution of the business plan, together with such other risk factors as may
      be
      included in our Annual Report on Form 10-KSB.





This
      quarterly report may contain both historical facts and forward-looking
      statements.  Any forward-looking statements involve risks and
      uncertainties.  Moreover, future revenue and margin trends cannot be
      reliably predicted.





**Important
      Investor Information**





On
      January 19, 2007, Blast Energy Services, Inc. (“we,” “us,” the “Company,”
“Blast” and words of similar meaning) and its wholly owned subsidiary, Eagle
      Domestic Drilling Operations LLC, 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 in order that they may dispose of
      burdensome and uneconomical assets and reorganize their financial obligations
      and capital structure. Accordingly, we urge that caution be exercised with
      respect to existing and future investments in our equity
      securities.





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




*Satellite
      Communications Services*





Satellite
      Communication Services’ revenues decreased by $172,000 to $80,000 for the three
      months ended September 30, 2007 compared to $252,000 for the three months ended
      September 30, 2006. The decrease is a result of the loss of services revenue
      following the cancellation of licenses by the government in Chad, the decision
      by Coldren Resources LP 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 decreased $75,000
      to
      a loss of ($23,000) for the three months ended September 30, 2007 compared
      to a
      profit of $52,000 for the three months ended September 30, 2006. This decrease
      is primarily related to lower revenues partially offset by lower payroll and
      overhead costs.





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
      September 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 September 30,
      2007 and September 30, 2006. The development of this technology is on hold
      due
      to a lack of liquidity during our Chapter 11 proceedings. The operating loss
      decreased by $327,000 to zero for the three months ended September 30, 2007
      compared to a loss of $327,000 for the three months ended September 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 decreased by approximately
      $312,000 to $603,000 for the quarter ended September 30, 2007 compared to
      $915,000 for the quarter ended September 30, 2006. The following table details
      major components of SG&A expense over the periods (in
      thousands).


F-12




**For
                  the Three Months Ended**(in
                  thousands)
              
              **September
                  30,**
              
              
              **Increase****2007**
              
              
              **2006**
              
              
              **(Decrease)**Payroll
                  and related costs
              
              $
              84
              
              
              $
              69
              
              
              $
              15Option
                  and warrant expense
              
              
              79
              
              
              
              168
              
              
              
              (89
              )Legal
                  fees & settlements
              
              
              312
              
              
              
              493
              
              
              
              (181
              )External
                  services
              
              
              66
              
              
              
              114
              
              
              
              (48
              )Insurance
              
              
              37
              
              
              
              24
              
              
              
              13Travel
                  & entertainment
              
              
              14
              
              
              
              29
              
              
              
              (15
              )Office
                  rent, communications, misc.
              
              
              11
              
              
              
              18
              
              
              
              (7
              )$
              603
              
              
              $
              915
              
              
              $
              (311
              )


For
      the
      most part, lower administrative costs were a result of our efforts to reduce
      overhead costs while in Chapter 11, lower option and warrant expense as no
      new
      options have been awarded during bankruptcy, and lower legal costs related
      to
      lawsuit settlement costs in 2006 exceeding the bankruptcy legal fees of
      approximately $165,000 incurred in the third quarter of 2007.





*Net
      Loss*




The
      net
      loss for the third quarter of 2007 decreased substantially to $0.6 million
      from
      a loss of $3.2 million for the corresponding period in 2006. This decrease
      is
      primarily related to the reduction in business revenues and the additional
      legal
      costs 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.





**Nine
      Months Ended September****30, 2007 Compared to Nine Months Ended
      September****30, 2006**




*Satellite
      Communications Services*





Satellite
      Communication Services’ revenues decreased by $455,000 to $354,000 for the nine
      months ended September 30, 2007 compared to $809,000 for the nine months ended
      September 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 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 decreased
      $76,000 to $29,000 for the nine months ended September 30, 2007 compared to
      a
      margin of $105,000 for the nine months ended September 30, 2006.  This
      decrease is primarily related to lower revenues partially offset by lower
      payroll and overhead costs.





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 nine months ended
      September 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 nine months ended September 30,
      2007, compared to $14,000 of Down-hole Solutions’ revenue for the nine months
      ended September 30, 2006. The development of this technology is currently on
      hold due to a lack of liquidity during our Chapter 11 proceedings. The operating
      loss from Down-hole Solutions decreased by $745,000 to a loss of $7,000 for
      the
      nine months ended September 30, 2007 compared to a loss of $745,000 for the
      nine
      months ended September 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.





*Selling,
      General and
      Administrative*




Selling,
      general and administrative (“SG&A”) expenses increased by $1,262,000 to
      $3,483,000 for the nine months ended September 30, 2007 compared to $2,221,000
      for the nine months ended September 30, 2006. The following table details major
      components of SG&A expense over the periods (in thousands).


F-13





**For
                  the Three Months Ended**(in
                  thousands)
              
              **September
                  30,**
              
              
              **Increase****2007**
              
              
              **2006**
              
              
              **(Decrease)**Payroll
                  and related costs
              
              $
              274
              
              
              $
              433
              
              
              $
              (159
              )Option
                  and warrant expense
              
              
              1,231
              
              
              
              342
              
              
              
              889Legal
                  fees & settlements
              
              
              1,511
              
              
              
              628
              
              
              
              883External
                  services
              
              
              296
              
              
              
              528
              
              
              
              (232
              )Insurance
              
              
              108
              
              
              
              165
              
              
              
              (57
              )Travel
                  & entertainment
              
              
              56
              
              
              
              49
              
              
              
              7Office
                  rent, communications, misc.
              
              
              7
              
              
              
              76
              
              
              
              (69
              )$
              3,483
              
              
              $
              2,221
              
              
              $
              1,262


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 approximately $845,000 from 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. Such expenses were not present during the nine months
      ended September 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 nine months ended September 30, 2007 increased to $7.5 million
      from
      a loss of $5.1 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 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
      September 30, 2007, we had a cash balance of $72,718 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 November 10, 2007,
      our
      cash balance was approximately $112,000, which includes the benefit of $400,000
      drawn on the DIP loan described above (see note 5 to the financial statements).
      In the near term, unless we are able to secure exit financing sufficient to
      achieve Plan confirmation, 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 rebuilding 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 was approved
      by
      order of the Bankruptcy Court. Votes are being solicited and the confirmation
      hearing on the plan is set for November 28, 2007.





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 interest free note payable from a legal
      settlement.





F-14


We
      had
      negative net working capital of $7.1 million and a total accumulated deficit
      of
      $75.5 million as of September 30, 2007. Working capital is primarily impacted
      by
      $8.0 million in current liabilities, consisting of:




-
            $1.0
                million in accounts payable balances primarily related to pre-petition
                invoices that cannot be paid while in Chapter
                11;


-
            $0.9
                million for accrued expenses related to bankruptcy legal fees not
                yet
                invoiced and deferred Board of Directors’ fees for 2007 and
                2006;


-
            $1.3
                million in advances from Berg McAfee Companies, our largest shareholder,
                for the $300,000 in draws on our DIP financing and the AFJ construction
                note for $1,000,000;


-
            $0.6
                million in notes payable, see ‘Note 7 – Current Notes Payable’ in the
                footnotes to the financial
                statements;


-
            $2.1
                million in senior debt owed to Laurus Master Fund, see ‘Note 6 – Related
                Party Transactions’ in the footnotes to the financial statements;
                and


-
            $2.1
                million of current liabilities of discontinued operations primarily
                related to the $1.7 million advance from Hallwood prior to their
                breach of
                the drilling contracts. The Company will carry this liability until
                the
                legal dispute with Hallwood is resolved, see ‘Note 10 – Litigation’ in the
                footnotes to the financial
                statements.





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.







F-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.





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 was approved by order of the Bankruptcy
      Court. Votes are being solicited and the confirmation hearing on the plan is
      set
      for November 28, 2007.





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.
      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:


3





(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 $675,000.  In return for
      payments, EDDO will release all liens filed on Saddle Creek’s assets. This
      settlement agreement was approved by the Bankruptcy Court. 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. Saddle
      Creek has filed a plan of reorganization that proposes to pay all claims
      100%.





(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. This request was denied by the Bankruptcy Court. Alberta is currently
      requesting an order requiring the rejection of the Technology Purchase
      Agreement. A hearing to determine this dispute was held on November 13 and
      14,
      2007 and we are awaiting the Judge’s ruling on the matter.





*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 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’ 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.




*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, 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.


4





*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.





*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
      3. DEFAULTS UPON SENIOR
      SECURITIES.**





None.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS.**





None.





**ITEM
      5. OTHER INFORMATION.**





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


5





**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:
                November 15, 2007By:
            /s/
                John MacDonald, CFOJohn
                MacDonaldChief
                Financial Officer and Principal Accounting OfficerDate:
                November 15, 2007




6