UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 ________________________________
 FORM
10-Q/A
 
 T           Quarterly
Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
 For the
Quarterly Period Ended March 31, 2008
 
 Or
 
 £           Transition
Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
 For the
Transition Period From __________ to ___________
 ______________________________
 
 Commission
File Number 0-7406
 ______________________________
 
 PrimeEnergy
Corporation
 (Exact
name of registrant as specified in its charter)
 
 Delaware
                84-0637348(State
      or other jurisdiction of incorporation or organization)
                (IRS
      employer identification number)
 
 One
Landmark Square, Stamford, Connecticut  06901
 (Address
of principal executive offices)
 
 (203)
358-5700
 (Registrant's
telephone number, including area code)
 
 (Former
name, former address and former fiscal year, if changed since last
report)
 
 Indicated
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filings required for the
past 90 days.
 Yes T           No
£
 
 Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer” and “smaller
reporting company” in Rule 12-B of the Exchange Act.
 
 Large
      Accelerated Filer £
                Accelerated
      Filer £Non-Accelerated
      Filer £
                Smaller
      Reporting Company T(Do
      not check if smaller reporting
company)
 
 Indicated
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes £           No
T
 
 The
number of shares outstanding of each class of the Registrant's Common Stock as
of May 12, 2008 was: Common Stock, $0.10 par value, 3,058,979
shares.
  
 PrimeEnergy Corporation
 Index to
Form 10-Q
 March 31,
2008
 
 
 Part
      I - Financial InformationItem
      1. Financial Statements (restated)Consolidated Balance Sheets – March
      31, 2008 and December 31, 2007
                      3-4Consolidated Statements of
      Operations for the three months ended  March 31, 2008 and
      2007
                      5Consolidated Statement of
      Stockholders' Equity for the Three Months Ended March 31, 2008 and for the
      year ended December 31, 2007
                      6Consolidated Statements of Cash
      Flows for the three months ended March 31, 2008 and
      2007
                      7Notes to Consolidated Financial
      Statements
                      8Item 2. Management's Discussion and
      Analysis of Financial Conditions and Results of
      Operation
                      31-33Item 3. Quantitative and Qualitative
      Disclosures About Market Risk
                      34Item 4. Controls and
      Procedures
                      34Part
      II -  Other InformationItem 1. Legal
      Proceedings
                      35Item 2. Changes in Securities and
      Use of Proceeds
                      35Item 3. Defaults Upon Senior
      Securities
                      35Item 4. Submission of Matters to a
      Vote of Security Holders
                      35Item 5. Other
      Information
                      35Item 6. Exhibits And Reports On Form
      8-K
                      35Signatures
                      36
  2
 Index
  EXPLANATORY
NOTE
 
 This
Amendment No. 1 on Form 10-Q/A (the “Form 10-Q/A”) amends the Quarterly Report
on Form 10-Q for the quarter ended March 31, 2008 filed by PrimeEnergy
Corporation (the “Company”), originally filed with the Securities and Exchange
Commission on May 15, 2008. The Form 10-Q/A includes amended and restated
consolidated financial statements and related financial information for the year
ended December 31, 2007 and the quarters ended March 31, 2008 and 2007. This
information is disclosed in Note 2 to the consolidated financial
statements.
 
 The
restatement provides detail of the change in accounting method from
proportionate consolidation of partnerships that the Company controls to the
full consolidation method and the change in the basis of a partnership in which
the Company acquired a twenty percent non-controlling interest in
2005.
 
 The
following items are included in this amendment:
 
 PART
      I -
                ITEM
      1. Financial Statements
 ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
 
 All other
information contained in the original Form 10-Q remains unchanged. However, the
entire report with all Items is included in this Form 10-Q/A-1 for the
convenience of the reader. This Amendment No.1 on Form 10-Q/A does not reflect
events occurring after the filing of our Report on Form 10-Q on May 15, 2008 or
include, or otherwise modify or update, the disclosure contained therein in any
way except as expressly indicated above.
  Index
  PrimeEnergy Corporation
 Consolidated
Balance Sheets
 March 31,
2008 and December 31, 2007
 
 March 31,
      2008 (Unaudited and Restated)
                        
                        
                        December 31
      2007 (Audited and Restated)ASSETSCurrent
      assets:Cash
      and cash equivalents
                        
                        $
                        22,424,000
                        
                        
                        $
                        25,373,000Restricted
      cash and cash equivalents
                        
                        
                        3,678,000
                        
                        
                        
                        3,633,000Accounts
      receivable (net)
                        
                        
                        21,755,000
                        
                        
                        
                        21,311,000Due
      from related parties
                        
                        
                        131,000
                        
                        
                        
                        32,000Prepaid
      expenses
                        
                        
                        956,000
                        
                        
                        
                        1,391,000Derivative
      contracts
                        
                        
                        --
                        
                        
                        
                        1,332,000Inventory
      at cost
                        
                        
                        3,682,000
                        
                        
                        
                        3,705,000Deferred
      income tax
                        
                        
                        5,048,000
                        
                        
                        
                        1,582,000Total
      current assets
                        
                        
                        57,674,000
                        
                        
                        
                        58,359,000Property
      and equipment, at costOil
      and gas properties (successful efforts method), net
                        
                        
                        227,902,000
                        
                        
                        
                        237,852,000Field
      service equipment and other,  net
                        
                        
                        9,327,000
                        
                        
                        
                        8,209,000Net
      property and equipment
                        
                        
                        237,229,000
                        
                        
                        
                        246,061,000Other
      assets
                        
                        
                        519,000
                        
                        
                        
                        1,245,000Total
      assets
                        
                        $
                        295,422,000
                        
                        
                        $
                        305,665,000
 
 See
accompanying notes to the consolidated financial statements.
  3
 Index
  PrimeEnergy
Corporation
 Consolidated
Balance Sheets
 March 31,
2008 and December 31, 2007
 
 March 31,
      2008 (Unaudited and Restated)
                    
                    
                    December 31,
      2007 (Audited and Restated)LIABILITIES
      and STOCKHOLDERS' EQUITYCurrent
      liabilities:Current
      bank debt
                    
                    $
                    26,350,000
                    
                    
                    $
                    34,950,000Accounts
      payable
                    
                    
                    24,828,000
                    
                    
                    
                    26,780,000Current
      portion of asset retirement and other long term obligation
                    
                    
                    527,000
                    
                    
                    
                    1,065,000Derivative
      liability short term
                    
                    
                    12,635,000
                    
                    
                    
                    4,340,000Accrued
      liabilities
                    
                    
                    10,418,000
                    
                    
                    
                    10,032,000Due
      to related parties
                    
                    
                    446,000
                    
                    
                    
                    520,000Total
      current liabilities
                    
                    
                    75,204,000
                    
                    
                    
                    77,687,000Long-term
      bank debt
                    
                    
                    119,300,000
                    
                    
                    
                    120,050,000Asset
      retirement obligation
                    
                    
                    17,132,000
                    
                    
                    
                    16,936,000Derivative
      liability long term
                    
                    
                    7,358,000
                    
                    
                    
                    3,369,000Deferred
      income taxes
                    
                    
                    23,834,000
                    
                    
                    
                    26,022,000Total
      liabilities
                    
                    
                    242,828,000
                    
                    
                    
                    244,064,000Minority
      interest
                    
                    
                    13,962,000
                    
                    
                    
                    12,929,000Stockholders'
      equity:Preferred
      stock, $.10 par value, authorized 5,000,000 shares, none
      issued
                    
                    
                    --
                    
                    
                    
                    --Common
      stock, $.10 par value, authorized 10,000,000 shares; issued 7,694,970 in
      2008 and 2007
                    
                    
                    769,000
                    
                    
                    
                    769,000Paid
      in capital
                    
                    
                    11,024,000
                    
                    
                    
                    11,024,000Retained
      earnings
                    
                    
                    75,616,000
                    
                    
                    
                    72,885,000Accumulated
      other comprehensive income(loss), net
                    
                    
                    (12,795,000
                    )
                    
                    
                    (3,618,000
                    )74,614,000
                    
                    
                    
                    81,060,000Treasury
      stock, at cost, 4,630,251 common shares at 2008 and 4,558,544 common
      shares at 2007
                    
                    
                    (35,982,000
                    )
                    
                    
                    (32,388,000
                    )Total
      stockholders' equity
                    
                    
                    38,632,000
                    
                    
                    
                    48,672,000Total
      liabilities and stockholders, equity
                    
                    $
                    295,422,000
                    
                    
                    $
                    305,665,000
 
 See
accompanying notes to the consolidated financial
statements.
  4
 Index
  PrimeEnergy Corporation
 Consolidated
Statements of Operations
 Three
Months Ended March 31, 2008 and 2007
 (Unaudited)
 
 2008 Restated
                    
                    
                    2007 RestatedRevenue:Oil
      and gas sales
                    
                    $
                    34,101,000
                    
                    
                    $
                    22,266,000Field
      service income
                    
                    
                    6,255,000
                    
                    
                    
                    5,896,000Administrative
      overhead fees
                    
                    
                    2,199,000
                    
                    
                    
                    2,330,000Other
      income
                    
                    
                    202,000
                    
                    
                    
                    1,000Total
      revenue
                    
                    
                    42,757,000
                    
                    
                    
                    30,493,000Costs
      and expenses:Lease
      operating expense
                    
                    
                    9,706,000
                    
                    
                    
                    7,539,000Field
      service expense
                    
                    
                    4,779,000
                    
                    
                    
                    4,551,000Depreciation,
      depletion and amortization
                    
                    
                    16,920,000
                    
                    
                    
                    7,694,000General
      and administrative expense
                    
                    
                    3,225,000
                    
                    
                    
                    3,198,000Exploration
      costs
                    
                    
                    57,000
                    
                    
                    
                    361,000Total
      costs and expenses
                    
                    
                    34,687,000
                    
                    
                    
                    23,343,000Add
      gain/(loss) on sale and exchange of assets
                    
                    
                    (15,000
                    )
                    
                    
                    263,000Income
      from operations
                    
                    
                    8,055,000
                    
                    
                    
                    7,413,000Other
      income and expenses:Less:
      Interest expense
                    
                    
                    2,447,000
                    
                    
                    
                    1,683,000Add
      interest income
                    
                    
                    157,000
                    
                    
                    
                    227,000Less:
      Minority interest
                    
                    
                    1,646,000
                    
                    
                    
                    775,000Income
      before provision for income taxes
                    
                    
                    4,119,000
                    
                    
                    
                    5,182,000Provision
      for income taxes
                    
                    
                    1,388,000
                    
                    
                    
                    1,865,000Net
      income
                    
                    $
                    2,731,000
                    
                    
                    $
                    3,317,000Basic
      income per common share
                    
                    $
                    0.88
                    
                    
                    $
                    1.03Diluted
      income per common share
                    
                    $
                    0.71
                    
                    
                    $
                    0.84
 
 See
accompanying notes to the consolidated financial statements.
  5
 Index
  PrimeEnergy Corporation
 Consolidated
Statement of Stockholders' Equity
 Three
Months Ended March 31, 2008 (Restated)
 (Unaudited)
 
 Balance
      at December  31, 2007
                    
                    
                    7,694,970
                    
                    
                    $
                    769,000
                    
                    
                    $
                    11,024,000
                    
                    
                    $
                    72,885,000
                    
                    
                    $
                    (3,618,000
                    )
                    
                    $
                    (32,388,000
                    )
                    
                    $
                    48,672,000Purchased
      71,707 shares of common Stock
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (3,594,000
                    )
                    
                    
                    (3,594,000
                    )Net
      income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,731,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,731,000Other
      comprehensive Income (Loss), net of taxes
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (9,177,000
                    )
                    
                    
                    
                    
                    
                    
                    (9,177,000
                    )Balance
      at March 31, 2008
                    
                    
                    7,694,970
                    
                    
                    $
                    769,000
                    
                    
                    $
                    11,024,000
                    
                    
                    $
                    75,616,000
                    
                    
                    $
                    (12,795,000
                    )
                    
                    $
                    (35,982,000
                    )
                    
                    $
                    38,632,000
 
 See
accompanying notes to the consolidated financial statements.
  6
 Index
  PrimeEnergy Corporation
 Consolidated
Statements of Cash Flows
 Three
Months Ended March 31, 2008 and 2007
 (Unaudited)
 
 2008 Restated
                    
                    
                    2007 RestatedCash
      flows from operating activities:Net
      income
                    
                    $
                    2,731,000
                    
                    
                    $
                    3,317,000Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation,
      depletion, amortization and accretion on discounted
      liabilities
                    
                    
                    16,920,000
                    
                    
                    
                    7,694,000Dry
      hole and abandonment expense
                    
                    
                    --
                    
                    
                    
                    305,000Gain
      on sale of properties
                    
                    
                    15,000
                    
                    
                    
                    (263,000
                    )Provision
      for deferred taxes
                    
                    
                    (493,000
                    )
                    
                    
                    1,694,000Minority
      interest in earnings of partnerships
                    
                    
                    1,646,000
                    
                    
                    
                    775,000Changes
      in assets and liabilities:(Increase)
      decrease in accounts receivable
                    
                    
                    16,000
                    
                    
                    
                    3,044,000(Increase)
      decrease in due from related parties
                    
                    
                    814,000
                    
                    
                    
                    381,000(Increase)
      decrease in inventories
                    
                    
                    (8,000
                    )
                    
                    
                    (3,000
                    )(Increase)
      decrease in prepaid expenses and other assets
                    
                    
                    (14,000
                    )
                    
                    
                    12,000Increase
      (decrease) in accounts payable
                    
                    
                    601,000
                    
                    
                    
                    (5,480,000
                    )Increase
      (decrease) in accrued liabilities
                    
                    
                    2,882,000
                    
                    
                    
                    1,754,000Increase
      (decrease) in due to related parties
                    
                    
                    (594,000
                    )
                    
                    
                    82,000Net
      cash provided by operating activities:
                    
                    
                    24,516,000
                    
                    
                    
                    13,312,000Cash
      flows from investing activities:Capital
      expenditures, including exploration expense
                    
                    
                    (13,853,000
                    )
                    
                    
                    (41,913,000
                    )Proceeds
      from sale of property and equipment
                    
                    
                    (15,000
                    )
                    
                    
                    263,000Net
      cash (used in) investing activities
                    
                    
                    (13,868,000
                    )
                    
                    
                    (41,650,000
                    )Cash
      flows from financing activities:Purchase
      of treasury stock
                    
                    
                    (3,594,000
                    )
                    
                    
                    (1,223,000
                    )Proceeds
      from long-term bank debt
                    
                    
                    29,075,000
                    
                    
                    
                    40,160,000Repayment
      of long-term bank debt
                    
                    
                    (38,510,000
                    )
                    
                    
                    (20,220,000
                    )Distribution
      to minority interest
                    
                    
                    (568,000
                    )
                    
                    
                    (738,000
                    )Net
      cash provided by (used in) financing activities
                    
                    
                    (13,597,000
                    )
                    
                    
                    17,979,000Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    (2,949,000
                    )
                    
                    
                    (10,359,000
                    )Cash
      and cash equivalents at the beginning of the period
                    
                    
                    25,373,000
                    
                    
                    
                    29,056,000Cash
      and cash equivalents at the end of the period
                    
                    $
                    22,424,000
                    
                    
                    $
                    18,697,000
 
 See
accompanying notes to the consolidated financial statements.
  7
 Index
  PrimeEnergy Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 (1)
Interim Financial Statements:
 The
accompanying consolidated financial statements of PrimeEnergy Corporation, with
the exception of the consolidated balance sheet at December 31, 2007, have not
been audited by independent public accountants. In the opinion of management,
the accompanying financial statements reflect all adjustments necessary to
present fairly our financial position at March 31, 2008 and our income and cash
flows for the three months ended March 31, 2008 and 2007.  All such
adjustments are of a normal recurring nature.  Certain amounts
presented in prior period financial statements have been reclassified for
consistency with current period presentation. The results for interim periods
are not necessarily indicative of annual results.
 
 Effective
January 1, 2008, the Company adopted those provisions of Statement of Financial
Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” that were
required to be adopted. There was no financial statement impact upon adoption on
January 1, 2008. For further information regarding the adoption of SFAS No. 157,
please refer to Note 11 of the Notes to the Consolidated Financial
Statements.
 
 SFAS No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities,
including an amendment of FASB Statement No. 115,” became effective on January
1, 2008 and permits companies to choose, at specified dates, to measure certain
eligible financial instruments at fair value. The provisions of SFAS No. 159
apply only to entities that elect to use the fair value option and to all
entities with available-for-sale and trading securities. At the effective date,
companies may elect the fair value option for eligible items that exist at that
date, and the effect of the first remeasurement to fair value must be reported
as a cumulative-effect adjustment to the opening balance of retained earnings.
Since the Company has not elected to adopt the fair value option for eligible
items, SFAS No. 159 has not had an impact on its financial position or results
of operations.
 
 Recently Issued Accounting
Standards:
 In March
2008, the FASB issued SFAS No. 161, “Disclosure about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133.” SFAS No. 161 amends
and expands the disclosure requirements of SFAS No. 133 with the intent to
provide users of financial statements with an enhanced understanding of: (i) how
and why an entity uses derivative instruments; (ii) how derivative instruments
and related hedged items are accounted for under SFAS No. 133 and its related
interpretations; and (iii) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance and cash flows.
This statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. We are in the process of evaluating the impact of SFAS No. 161 on
our consolidated financial statements.
  8
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
(ARB) No. 51.” SFAS No. 160 clarifies that a noncontrolling interest (previously
commonly referred to as a minority interest) in a subsidiary is an ownership
interest in the consolidated entity and should be reported as equity in the
consolidated financial statements. The presentation of the consolidated income
statement has been changed by SFAS No. 160, and consolidated net income
attributable to both the parent and the noncontrolling interest is now required
to be reported separately. Previously, net income attributable to the
noncontrolling interest was typically reported as an expense or other deduction
in arriving at consolidated net income and was often combined with other
financial statement amounts. In addition, the ownership interests in
subsidiaries held by parties other than the parent must be clearly identified,
labeled, and presented in the equity in the consolidated financial statements
separately from the parent’s equity. Subsequent changes in a parent’s ownership
interest while the parent retains its controlling financial interest in its
subsidiary should be accounted for consistently, and when a subsidiary is
deconsolidated, any retained noncontrolling equity interest in the former
subsidiary must be initially measured at fair value. Expanded disclosures,
including a reconciliation of equity balances of the parent and noncontrolling
interest are also required. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008 and earlier adoption is prohibited. Prospective application is required. We
are in the process of evaluating the impact of SFAS No. 160 on our consolidated
financial statements.
 
 In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS
No. 141(R) was issued in an effort to continue the movement toward the greater
use of fair values in financial reporting and increased transparency through
expanded disclosures. It changes how business acquisitions are accounted for and
will impact financial statements at the acquisition date and in subsequent
periods. Certain of these changes will introduce more volatility into earnings.
The acquirer must now record all assets and liabilities of the acquired business
at fair value, and related transaction and restructuring costs will be expensed
rather than the previous method of being capitalized as part of the acquisition.
SFAS No. 141(R) also impacts the annual goodwill impairment test associated with
acquisitions, including those that close before the effective date of SFAS No.
141(R). The definitions of a “business” and a “business combination” have been
expanded, resulting in more transactions qualifying as business combinations.
SFAS No. 141(R) is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 31, 2008 and earlier adoption is
prohibited. We cannot predict the impact that the adoption of SFAS No. 141(R)
will have on our financial position, results of operations or cash flows with
respect to any acquisitions completed after December 31, 2008.
  9
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
  (2)
Financial Restatement:
 The
restatements reflect the change in accounting method from proportionate
consolidation of partnerships that the Company controls to the full
consolidation method. The Company had historically accounted for its interests
in twenty limited partnerships and trusts, which own interests in oil and gas
properties using the proportionate consolidation under the guidance of EITF 00-1
as related to the extractive industries. Under the guidance of EITF 04-05 the
interests in limited partnerships and trusts that we control should have been
fully consolidated when EITF 04-05 became effective.
 
 The
restatements also reflect the correction of gain recognition in 2005 related to
the sale of assets to a partnership in which the company acquired a twenty
percent non-controlling interest.  The Company recorded 100% of the
gain however under the guidance of EITF 01-2 the Company, since it acquired a
20% interest in the partnership, should have recorded 80% of the
gain.  This correction in 2005 resulted in a reduction of the
Company’s basis related to the partnership interest and a decrease in the
current year depreciation and depletion of that asset.
 
 The
effects of the restatement on reported amounts for the periods ended March 31,
2008, December 31, 2007, and March 31, 2007 are presented below in the following
tables:
 
 RESTATED
CONSOLIDATED BALANCE SHEETS
 
 As
      Reported March 2008
                        
                        
                        Cumulative
      Effective of PriorYear
      Adjustments
                        
                        
                        Current
      Year Adjustments
                        
                        
                        Notes
                        
                        
                        As Restated March 2008ASSETS:Current
      assets:Cash
      and cash equivalents
                        
                        $
                        17,136,000
                        
                        
                        $
                        4,060,000
                        
                        
                        $
                        1,228,000
                        
                        
                        b
                        
                        
                        $
                        22,424,000Restricted
      cash and cash equivalents
                        
                        
                        3,678,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        3,678,000Accounts
      receivable, net
                        
                        
                        21,579,000
                        
                        
                        
                        963,000
                        
                        
                        
                        (787,000
                        )
                        
                        b
                        
                        
                        
                        21,755,000Due
      from related parties
                        
                        
                        25,000
                        
                        
                        
                        (180,000
                        )
                        
                        
                        286,000
                        
                        
                        b
                        
                        
                        
                        131,000Prepaid
      expenses
                        
                        
                        956,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        956,000Inventory
      at cost
                        
                        
                        3,690,000
                        
                        
                        
                        (6,000
                        )
                        
                        
                        (2,000
                        )
                        
                        b
                        
                        
                        
                        3,682,000Deferred
      income tax
                        
                        
                        5,048,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        5,048,000Total
      current assets
                        
                        
                        52,112,000
                        
                        
                        
                        4,837,000
                        
                        
                        
                        725,000
                        
                        
                        
                        
                        
                        
                        57,674,000Property
      and equipment, at cost:Oil
      and gas properties (successful efforts method), net
                        
                        
                        223,086,000
                        
                        
                        
                        4,681,000
                        
                        
                        
                        135,000
                        
                        
                        a,b
                        
                        
                        
                        227,902,000Field
      service equipment
                        
                        
                        9,327,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        9,327,000Total
      net property and equipment
                        
                        
                        232,413,000
                        
                        
                        
                        4,681,000
                        
                        
                        
                        135,000
                        
                        
                        
                        
                        
                        
                        237,229,000Other
      assets
                        
                        
                        454,000
                        
                        
                        
                        65,000
                        
                        
                        
                        --
                        
                        
                        b
                        
                        
                        
                        519,000Total
      assets
                        
                        $
                        284,979,000
                        
                        
                        $
                        9,583,000
                        
                        
                        $
                        860,000
                        
                        
                        
                        
                        
                        $
                        295,422,000
  10
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 RESTATED
CONSOLIDATED BALANCE SHEETS
 
 As
      Reported March 2008
                        
                        
                        Cumulative
      Effective of Prior Year Adjustment
                        
                        
                        Current
      Year Adjustment
                        
                        
                        Notes
                        
                        
                        As
      Restated March 2008LIABILITIES
      and STOCKHOLDERS’ EQUITY:Current
      liabilities:Current
      bank debt
                        
                        $
                        26,350,000
                        
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        
                        
                        
                        $
                        26,350,000Accounts
      payable
                        
                        
                        25,698,000
                        
                        
                        
                        54,000
                        
                        
                        
                        (924,000
                        )
                        
                        b
                        
                        
                        
                        24,828,000Current
      portion of asset retirement and other long-term
obligations
                        
                        
                        527,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        527,000Derivative
      liability short term
                        
                        
                        12,635,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        12,635,000Accrued
      liabilities
                        
                        
                        10,294,000
                        
                        
                        
                        79,000
                        
                        
                        
                        45,000
                        
                        
                        b
                        
                        
                        
                        10,418,000Due
      to related parties
                        
                        
                        968,000
                        
                        
                        
                        (1,043,000
                        )
                        
                        
                        521,000
                        
                        
                        b
                        
                        
                        
                        446,000Total
      current liabilities
                        
                        
                        76,472,000
                        
                        
                        
                        (910,000
                        )
                        
                        
                        (358,000
                        )
                        
                        
                        
                        
                        
                        75,205,000Long-term
      bank debt
                        
                        
                        119,300,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        119,300,000Asset
      retirement obligations
                        
                        
                        15,721,000
                        
                        
                        
                        1,398,000
                        
                        
                        
                        13,000
                        
                        
                        b
                        
                        
                        
                        17,132,000Derivative
      liability long term
                        
                        
                        7,358,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        7,358,000Deferred
      income taxes
                        
                        
                        24,680,000
                        
                        
                        
                        (908,000
                        )
                        
                        
                        62,000
                        
                        
                        a
                        
                        
                        
                        23,834,000Total
      liabilities
                        
                        
                        243,531,000
                        
                        
                        
                        (420,000
                        )
                        
                        
                        (283,000
                        )
                        
                        
                        
                        
                        
                        242,829,000Minority
      interest
                        
                        
                        1,313,000
                        
                        
                        
                        11,616,000
                        
                        
                        
                        1,033,000
                        
                        
                        b
                        
                        
                        
                        13,962,000Stockholders’
      equity:Preferred
      stock, $.10 par value, authorized 5,000,000 shares; none
      issuedCommon
      stock, $.10 par value, authorized 10,000,000 shares; issued 7,694,970 in
      2008 and 2007
                        
                        
                        769,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        769,000Paid
      in capital
                        
                        
                        11,024,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        11,024,000Retained
      earnings
                        
                        
                        77,119,000
                        
                        
                        
                        (1,613,000
                        )
                        
                        
                        110,000
                        
                        
                        a
                        
                        
                        
                        75,616,000Accumulated
      other comprehensive income (loss), net
                        
                        
                        (12,795,000
                        )
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        (12,795,000
                        )76,117,000
                        
                        
                        
                        (1,613,000
                        )
                        
                        
                        110,000
                        
                        
                        
                        
                        
                        
                        74,614,000Treasury
      stock, at cost 4,630,251 common shares in 2008 and 4,558,544 in
      2007
                        
                        
                        (35,982,000
                        )
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        (35,982,000
                        )Total
      stockholders’ equity
                        
                        
                        40,135,000
                        
                        
                        
                        (1,613,000
                        )
                        
                        
                        110,000
                        
                        
                        
                        
                        
                        
                        38,632,000Total
      liabilities and stockholders’ equity
                        
                        $
                        284,979,000
                        
                        
                        $
                        9,583,000
                        
                        
                        $
                        860,000
                        
                        
                        
                        
                        
                        $
                        295,422,000
  11
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 RESTATED
CONSOLIDATED STATEMENT of STOCKHOLDERS’ EQUITY
 
 As
Reported:
 
 Common
      StockShares
                        
                        
                        Amount
                        
                        
                        Paid In Capital
                        
                        
                        Retained
      Earnings
                        
                        
                        Accumulated
      Other Comprehensive Income/Loss
                        
                        
                        Treasury Stock
                        
                        
                        TotalBalance
      at December  31, 2007
                        
                        
                        7,694,970
                        
                        
                        $
                        769,000
                        
                        
                        $
                        11,024,000
                        
                        
                        $
                        74,498,000
                        
                        
                        $
                        (3,618,000
                        )
                        
                        $
                        (32,388,000
                        )
                        
                        $
                        50,285,000Purchased
      71,707 shares of common Stock
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (3,594,000
                        )
                        
                        
                        (3,594,000
                        )Net
      income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        2,621,000
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        2,621,000Other
      comprehensive Income, net of taxes
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (9,177,000
                        )
                        
                        
                        
                        
                        
                        
                        (9,177,000
                        )Balance
      at March 31, 2008
                        
                        
                        7,694,970
                        
                        
                        $
                        769,000
                        
                        
                        $
                        11,024,000
                        
                        
                        $
                        77,119,000
                        
                        
                        $
                        (12,795,000
                        )
                        
                        $
                        (35,982,000
                        )
                        
                        $
                        40,135,000
 
 As
Restated:
 
 Common
      StockShares
                        
                        
                        Amount
                        
                        
                        Paid In Capital
                        
                        
                        Retained
      Earnings
                        
                        
                        Accumulated
      Other Comprehensive Income/Loss
                        
                        
                        Treasury Stock
                        
                        
                        TotalBalance
      at December  31, 2007
                        
                        
                        7,694,970
                        
                        
                        $
                        769,000
                        
                        
                        $
                        11,024,000
                        
                        
                        $
                        72,885,000
                        
                        
                        $
                        (3,618,000
                        )
                        
                        $
                        (32,388,000
                        )
                        
                        $
                        48,672,000Purchased
      71,707 shares of common Stock
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (3,594,000
                        )
                        
                        
                        (3,594,000
                        )Net
      income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        2,731,000
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        2,731,000Other
      comprehensive Income, net of taxes
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (9,177,000
                        )
                        
                        
                        
                        
                        
                        
                        (9,177,000
                        )Balance
      at March 31, 2008
                        
                        
                        7,694,970
                        
                        
                        $
                        769,000
                        
                        
                        $
                        11,024,000
                        
                        
                        $
                        75,616,000
                        
                        
                        $
                        (12,795,000
                        )
                        
                        $
                        (35,982,000
                        )
                        
                        $
                        38,632,000
  12
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 As
      Reported March 2008
                        
                        
                        Current
      year adjustments
                        
                        
                        Notes
                        
                        
                        As
      Restated March 2008Revenue:Oil
      and gas sales
                        
                        $
                        31,152,000
                        
                        
                        $
                        2,949,000
                        
                        
                        b
                        
                        
                        $
                        34,101,000Field
      service income
                        
                        
                        6,244,000
                        
                        
                        
                        11,000
                        
                        
                        b
                        
                        
                        
                        6,255,000Administrative
      overhead fees
                        
                        
                        2,199,000
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        2,199,000Other
      income
                        
                        
                        202,000
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        202,00039,797,000
                        
                        
                        
                        2,960,000
                        
                        
                        
                        
                        
                        
                        42,757,000Costs
      and expenses:Lease
      operating expense
                        
                        
                        8,593,000
                        
                        
                        
                        1,113,000
                        
                        
                        b
                        
                        
                        
                        9,706,000Field
      service expense
                        
                        
                        4,762,000
                        
                        
                        
                        17,000
                        
                        
                        b
                        
                        
                        
                        4,779,000Depreciation,
      depletion and amortization
                        
                        
                        16,966,000
                        
                        
                        
                        (46,000
                        )
                        
                        a,b
                        
                        
                        
                        16,920,000General
      and administrative expense
                        
                        
                        3,128,000
                        
                        
                        
                        97,000
                        
                        
                        b
                        
                        
                        
                        3,225,000Exploration
      costs
                        
                        
                        57,000
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        57,00033,506,000
                        
                        
                        
                        1,181,000
                        
                        
                        
                        
                        
                        
                        34,687,000Add
      gain on sale and exchange of assets
                        
                        
                        (15,000
                        )
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        (15,000
                        )Income
      from operations
                        
                        
                        6,276,000
                        
                        
                        
                        1,779,000
                        
                        
                        
                        
                        
                        
                        8,055,000Other
      income and expense:Less:  Interest
      expense
                        
                        
                        2,447,000
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        2,447,000Add
      interest income
                        
                        
                        119,000
                        
                        
                        
                        38,000
                        
                        
                        b
                        
                        
                        
                        157,000Less:  Minority
      interest
                        
                        
                        --
                        
                        
                        
                        1,646,000
                        
                        
                        b
                        
                        
                        
                        1,646,000Income
      before provision for income taxes
                        
                        
                        3,948,000
                        
                        
                        
                        171,000
                        
                        
                        
                        
                        
                        
                        4,119,000Provision
      for income taxes
                        
                        
                        1,327,000
                        
                        
                        
                        61,000
                        
                        
                        a
                        
                        
                        
                        1,388,000Net
      income
                        
                        $
                        2,621,000
                        
                        
                        $
                        110,000
                        
                        
                        
                        
                        
                        $
                        2,731,000Basic
      net income per common share
                        
                        $
                        0.85
                        
                        
                        $
                        0.03
                        
                        
                        
                        
                        
                        $
                        0.88Diluted
      net income per common share
                        
                        $
                        0.68
                        
                        
                        $
                        0.03
                        
                        
                        
                        
                        
                        $
                        0.71
  13
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 CONSOLIDATED
STATEMENTS of CASH FLOWS
 
 As
      Reported March 2008
                        
                        
                        Current
      Year Adjustments
                        
                        
                        Notes
                        
                        
                        As
      Restated March 2008Cash
      flows from operating activities:Net
      income
                        
                        $
                        2,621,000
                        
                        
                        $
                        110,000
                        
                        
                        a
                        
                        
                        $
                        2,731,000Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation,
      depletion, amortization and accretion on discounted
      liabilities
                        
                        
                        16,966,000
                        
                        
                        
                        (46,000
                        )
                        
                        a,b
                        
                        
                        
                        16,920,000Gain
      on sale of properties
                        
                        
                        15,000
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        15,000Provision
      for deferred income taxes
                        
                        
                        (554,000
                        )
                        
                        
                        61,000
                        
                        
                        a
                        
                        
                        
                        (493,000
                        )Minority
      interest in earnings of partnerships
                        
                        
                        --
                        
                        
                        
                        1,646,000
                        
                        
                        b
                        
                        
                        
                        1,646,000Changes
      in assets and liabilities:(Increase)
      decrease in accounts receivable
                        
                        
                        (1,231,000
                        )
                        
                        
                        1,247,000
                        
                        
                        b
                        
                        
                        
                        16,000(Increase)
      decrease in due from related parties
                        
                        
                        187,000
                        
                        
                        
                        627,000
                        
                        
                        b
                        
                        
                        
                        814,000(Increase)
      decrease in inventories
                        
                        
                        --
                        
                        
                        
                        (8,000
                        )
                        
                        b
                        
                        
                        
                        (8,000
                        )(Increase)
      decrease in prepaid expenses and other assets
                        
                        
                        (79,000
                        )
                        
                        
                        65,000
                        
                        
                        b
                        
                        
                        
                        (14,000
                        )Increase
      (decrease) in accounts payable
                        
                        
                        802,000
                        
                        
                        
                        (201,000
                        )
                        
                        b
                        
                        
                        
                        601,000Increase
      (decrease) in accrued liabilities
                        
                        
                        3,006,000
                        
                        
                        
                        (124,000
                        )
                        
                        b
                        
                        
                        
                        2,882,000Increase
      (decrease) in due to related parties
                        
                        
                        (594,000
                        )
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        (594,000
                        )Net
      cash provided by operating activities
                        
                        
                        21,139,000
                        
                        
                        
                        3,377,000
                        
                        
                        
                        
                        
                        
                        24,516,000Cash
      flows from investing activitiesCapital
      expenditures, including exploration expense
                        
                        
                        (12,272,000
                        )
                        
                        
                        (1,581,000
                        )
                        
                        b
                        
                        
                        
                        (13,853,000
                        )Proceeds
      from sale of properties and equipment
                        
                        
                        (15,000
                        )
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        (15,000
                        )Net
      cash used in investing activities
                        
                        
                        (12,287,000
                        )
                        
                        
                        (1,581,000
                        )
                        
                        
                        
                        
                        
                        (13,868,000
                        )Cash
      flows from financing activitiesPurchase
      of stock for treasury
                        
                        
                        (3,594,000
                        )
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        (3,594,000
                        )Increase
      in long-term bank debt and other long-term obligations
                        
                        
                        29,075,000
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        29,075,000Repayment
      of long-term bank debt and other long-term obligations
                        
                        
                        (38,510,000
                        )
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        (38,510,000
                        )Distribution
      to minority interest
                        
                        
                        --
                        
                        
                        
                        (568,000
                        )
                        
                        b
                        
                        
                        
                        (568,000
                        )Net
      cash provided by (used in) financing activities
                        
                        
                        (13,029,000
                        )
                        
                        
                        (568,000
                        )
                        
                        
                        
                        
                        
                        (13,597,000
                        )Net
      increase(decrease) in cash and cash equivalents
                        
                        
                        (4,177,000
                        )
                        
                        
                        1,228,000
                        
                        
                        
                        
                        
                        
                        (2,949,000
                        )Cash
      and cash equivalents at the beginning of the period
                        
                        
                        21,313,000
                        
                        
                        
                        4,060,000
                        
                        
                        b
                        
                        
                        
                        25,373,000Cash
      and cash equivalents at the end of the period
                        
                        $
                        17,136,000
                        
                        
                        $
                        5,288,000
                        
                        
                        
                        
                        
                        $
                        22,424,000
  14
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 RESTATED
CONSOLIDATED BALANCE SHEETS
 
 As
      ReportedDecember
2007
                        
                        
                        Cumulative
      effect of Adjustments
                        
                        
                        Current
      Year Adjustments
                        
                        
                        Notes
                        
                        
                        As
      Restated December
2007ASSETS:Current
      assets:Cash
      and cash equivalents
                        
                        $
                        21,313,000
                        
                        
                        $
                        4,403,000
                        
                        
                        $
                        (343,000
                        )
                        
                        b
                        
                        
                        $
                        25,373,000Restricted
      cash and cash equivalents
                        
                        
                        3,633,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        3,633,000Accounts
      receivable, net
                        
                        
                        20,348,000
                        
                        
                        
                        694,000
                        
                        
                        
                        269,000
                        
                        
                        b
                        
                        
                        
                        21,311,000Due
      from related parties
                        
                        
                        212,000
                        
                        
                        
                        (226,000
                        )
                        
                        
                        46,000
                        
                        
                        b
                        
                        
                        
                        32,000Prepaid
      expenses
                        
                        
                        1,391,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        1,391,000Derivative
      contracts
                        
                        
                        1,332,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        1,332,000Inventory
      at cost
                        
                        
                        3,711,000
                        
                        
                        
                        (3,000
                        )
                        
                        
                        (3,000
                        )
                        
                        b
                        
                        
                        
                        3,705,000Deferred
      income tax
                        
                        
                        1,582,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        1,582,000Total
      current assets
                        
                        
                        53,522,000
                        
                        
                        
                        4,868,000
                        
                        
                        
                        (31,000
                        )
                        
                        
                        
                        
                        
                        58,359,000Property
      and equipment, at cost:Oil
      and gas properties (successful efforts method), net
                        
                        
                        233,171,000
                        
                        
                        
                        3,581,000
                        
                        
                        
                        1,100,000
                        
                        
                        a,b
                        
                        
                        
                        237,852,000Field
      service equipment
                        
                        
                        8,209,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        8,209,000Total
      net property and equipment
                        
                        
                        241,380,000
                        
                        
                        
                        3,581,000
                        
                        
                        
                        1,100,000
                        
                        
                        
                        
                        
                        
                        246,061,000Other
      assets
                        
                        
                        1,180,000
                        
                        
                        
                        67,000
                        
                        
                        
                        (2,000
                        )
                        
                        b
                        
                        
                        
                        1,245,000Total
      assets
                        
                        $
                        296,082,000
                        
                        
                        $
                        8,516,000
                        
                        
                        $
                        1,067,000
                        
                        
                        
                        
                        
                        $
                        305,665,000
  15
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 RESTATED
CONSOLIDATED BALANCE SHEETS
 
 As
      ReportedDecember
2007
                        
                        
                        Cumulative
      Effective of Prior Year Adjustment
                        
                        
                        Current
      Year Adjustment
                        
                        
                        Notes
                        
                        
                        As
      RestatedDecember
2007LIABILITIES
      and STOCKHOLDERS’ EQUITY:Current
      liabilities:Current
      bank debt
                        
                        $
                        34,950,000
                        
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        
                        
                        
                        $
                        34,950,000Accounts
      payable
                        
                        
                        26,726,000
                        
                        
                        
                        (31,000
                        )
                        
                        
                        85,000
                        
                        
                        b
                        
                        
                        
                        26,780,000Current
      portion of asset retirement and other long-term
obligations
                        
                        
                        1,065,000
                        
                        
                        
                        31,000
                        
                        
                        
                        (31,000
                        )
                        
                        b
                        
                        
                        
                        1,065,000Derivative
      liability short term
                        
                        
                        4,340,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        4,340,000Accrued
      liabilities
                        
                        
                        9,953,000
                        
                        
                        
                        68,000
                        
                        
                        
                        11,000
                        
                        
                        b
                        
                        
                        
                        10,032,000Due
      to related parties
                        
                        
                        1,563,000
                        
                        
                        
                        (312,000
                        )
                        
                        
                        (731,000
                        )
                        
                        b
                        
                        
                        
                        520,000Total
      current liabilities
                        
                        
                        78,597,000
                        
                        
                        
                        (244,000
                        )
                        
                        
                        (666,000
                        )
                        
                        
                        
                        
                        
                        77,687,000Long-term
      bank debt
                        
                        
                        120,050,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        120,050,000Asset
      retirement obligations
                        
                        
                        15,538,000
                        
                        
                        
                        576,000
                        
                        
                        
                        822,000
                        
                        
                        b
                        
                        
                        
                        16,936,000Derivative
      liability long term
                        
                        
                        3,369,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        3,369,000Deferred
      income taxes
                        
                        
                        26,930,000
                        
                        
                        
                        (1,093,000
                        )
                        
                        
                        185,000
                        
                        
                        a,b
                        
                        
                        
                        26,022,000Total
      liabilities
                        
                        
                        244,484,000
                        
                        
                        
                        (761,000
                        )
                        
                        
                        341,000
                        
                        
                        
                        
                        
                        
                        244,064,000Minority
      interest
                        
                        
                        1,313,000
                        
                        
                        
                        11,220,000
                        
                        
                        
                        396,000
                        
                        
                        b
                        
                        
                        
                        12,929,000Stockholders’
      equity:Preferred
      stock, $.10 par value, authorized 5,000,000 shares; none
      issuedCommon
      stock, $.10 par value, authorized 10,000,000 shares; issued 7,694,970 in
      2007 and 2006
                        
                        
                        769,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        769,000Paid
      in capital
                        
                        
                        11,024,000
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        11,024,000Retained
      earnings
                        
                        
                        74,498,000
                        
                        
                        
                        (1,943,000
                        )
                        
                        
                        330,000
                        
                        
                        a
                        
                        
                        
                        72,885,000Accumulated
      other comprehensive income (loss), net
                        
                        
                        (3,618,000
                        )
                        
                        
                        -
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        (3,618,000
                        )82,673,000
                        
                        
                        
                        (1,943,000
                        )
                        
                        
                        330,000
                        
                        
                        
                        
                        
                        
                        81,060,000Treasury
      stock, at cost 4,558,544 common shares in 2007 and 4,478,145 in
      2006
                        
                        
                        (32,388,000
                        )
                        
                        
                        -
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        (32,388,000
                        )Total
      stockholders’ equity
                        
                        
                        50,285,000
                        
                        
                        
                        (1,943,000
                        )
                        
                        
                        330,000
                        
                        
                        
                        
                        
                        
                        48,672,000Total
      liabilities and stockholders’ equity
                        
                        $
                        296,082,000
                        
                        
                        $
                        8,516,000
                        
                        
                        $
                        1,067,000
                        
                        
                        
                        
                        
                        $
                        305,665,000
  16
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 As
      Reported March 2007
                        
                        
                        Current
      year Adjustments
                        
                        
                        Notes
                        
                        
                        As
      Restated March 2007Revenue:Oil
      and gas sales
                        
                        $
                        20,329,000
                        
                        
                        $
                        1,937,000
                        
                        
                        b
                        
                        
                        $
                        22,266,000Field
      service income
                        
                        
                        5,887,000
                        
                        
                        
                        9,000
                        
                        
                        b
                        
                        
                        
                        5,896,000Administrative
      overhead fees
                        
                        
                        2,330,000
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        2,330,000Other
      income
                        
                        
                        1,000
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        1,00028,547,000
                        
                        
                        
                        1,946,000
                        
                        
                        
                        
                        
                        
                        30,493,000Costs
      and expenses:Lease
      operating expense
                        
                        
                        6,553,000
                        
                        
                        
                        986,000
                        
                        
                        b
                        
                        
                        
                        7,539,000Field
      service expense
                        
                        
                        4,551,000
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        4,551,000Depreciation,
      depletion and amortization
                        
                        
                        7,690,000
                        
                        
                        
                        4,000
                        
                        
                        a,b
                        
                        
                        
                        7,694,000General
      and administrative expense
                        
                        
                        3,110,000
                        
                        
                        
                        88,000
                        
                        
                        b
                        
                        
                        
                        3,198,000Exploration
      costs
                        
                        
                        361,000
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        361,00022,265,000
                        
                        
                        
                        1,078,000
                        
                        
                        
                        
                        
                        
                        23,343,000Add
      gain on sale and exchange of assets
                        
                        
                        263,000
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        263,000Income
      from operations
                        
                        
                        6,545,000
                        
                        
                        
                        868,000
                        
                        
                        
                        
                        
                        
                        7,413,000Other
      income and expense:Less:
      Interest expense
                        
                        
                        1,683,000
                        
                        
                        
                        --
                        
                        
                        
                        
                        
                        
                        1,683,000Add
      interest income
                        
                        
                        191,000
                        
                        
                        
                        36,000
                        
                        
                        b
                        
                        
                        
                        227,000Less:
      Minority interest
                        
                        
                        --
                        
                        
                        
                        775,000
                        
                        
                        b
                        
                        
                        
                        775,000Income
      before provision for income taxes
                        
                        
                        5,053,000
                        
                        
                        
                        129,000
                        
                        
                        
                        
                        
                        
                        5,182,000Provision
      for income taxes
                        
                        
                        1,819,000
                        
                        
                        
                        46,000
                        
                        
                        a
                        
                        
                        
                        1,865,000Net
      income
                        
                        $
                        3,234,000
                        
                        
                        $
                        83,000
                        
                        
                        
                        
                        
                        $
                        3,317,000Basic
      net income per common share
                        
                        $
                        1.01
                        
                        
                        $
                        0.02
                        
                        
                        
                        
                        
                        $
                        1.03Diluted
      net income per common share
                        
                        $
                        0.82
                        
                        
                        $
                        0.02
                        
                        
                        
                        
                        
                        $
                        0.84
  17
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 CONSOLIDATED
STATEMENTS of CASH FLOWS
 
 As
      ReportedMarch 2007
                          
                          
                          Current
      Year Adjustments
                          
                          
                          Notes
                          
                          
                          As
      Restated March 2007Cash
      flows from operating activities:Net
      income
                          
                          $
                          3,234,000
                          
                          
                          $
                          83,000
                          
                          
                          a
                          
                          
                          $
                          3,317,000Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation,
      depletion, amortization and accretion on discounted
      liabilities
                          
                          
                          7,690,000
                          
                          
                          
                          4,000
                          
                          
                          a,b
                          
                          
                          
                          7,694,000Dry
      hole and abandonment costs
                          
                          
                          305,000
                          
                          
                          
                          --
                          
                          
                          
                          
                          
                          
                          305,000Gain
      on sale of properties
                          
                          
                          (263,000
                          )
                          
                          
                          --
                          
                          
                          
                          
                          
                          
                          (263,000
                          )Provision
      for deferred income taxes
                          
                          
                          1,648,000
                          
                          
                          
                          46,000
                          
                          
                          a
                          
                          
                          
                          1,694,000Minority
      interest in earnings of partnerships
                          
                          
                          --
                          
                          
                          
                          775,000
                          
                          
                          b
                          
                          
                          
                          775,000Changes
      in assets and liabilities:(Increase)
      decrease in accounts receivable
                          
                          
                          2,190,000
                          
                          
                          
                          854,000
                          
                          
                          b
                          
                          
                          
                          3,044,000(Increase)
      decrease in due from related parties
                          
                          
                          205,000
                          
                          
                          
                          176,000
                          
                          
                          b
                          
                          
                          
                          381,000(Increase)
      decrease in inventories
                          
                          
                          --
                          
                          
                          
                          (3,000
                          )
                          
                          b
                          
                          
                          
                          (3,000
                          )(Increase)
      decrease in prepaid expenses and other assets
                          
                          
                          (55,000
                          )
                          
                          
                          67,000
                          
                          
                          b
                          
                          
                          
                          12,000Increase
      (decrease) in accounts payable
                          
                          
                          (5,233,000
                          )
                          
                          
                          (247,000
                          )
                          
                          b
                          
                          
                          
                          (5,480,000
                          )Increase
      (decrease) in accrued liabilities
                          
                          
                          1,861,000
                          
                          
                          
                          (107,000
                          )
                          
                          b
                          
                          
                          
                          1,754,000Increase
      (decrease) in due to related parties
                          
                          
                          82,000
                          
                          
                          
                          --
                          
                          
                          
                          
                          
                          
                          82,000Net
      cash provided by operating activities
                          
                          
                          11,664,000
                          
                          
                          
                          1,648,000
                          
                          
                          
                          
                          
                          
                          13,312,000Cash
      flows from investing activitiesCapital
      expenditures, including exploration expense
                          
                          
                          (40,958,000
                          )
                          
                          
                          (955,000
                          )
                          
                          b
                          
                          
                          
                          (41,913,000
                          )Proceeds
      from sale of properties and equipment
                          
                          
                          263,000
                          
                          
                          
                          --
                          
                          
                          
                          
                          
                          
                          263,000Net
      cash used in investing activities
                          
                          
                          (40,695,000
                          )
                          
                          
                          (955,000
                          )
                          
                          
                          
                          
                          
                          (41,650,000
                          )Cash
      flows from financing activitiesPurchase
      of stock for treasury
                          
                          
                          (1,223,000
                          )
                          
                          
                          --
                          
                          
                          
                          
                          
                          
                          (1,223,000
                          )Increase
      in long-term bank debt and other long-term obligations
                          
                          
                          40,160,000
                          
                          
                          
                          --
                          
                          
                          
                          
                          
                          
                          40,160,000Repayment
      of long-term bank debt and other long-term obligations
                          
                          
                          (20,220,000
                          )
                          
                          
                          --
                          
                          
                          
                          
                          
                          
                          (20,220,000
                          )Distribution
      to minority interest
                          
                          
                          --
                          
                          
                          
                          (738,000
                          )
                          
                          b
                          
                          
                          
                          (738,000
                          )Net
      cash provided by (used in) financing activities
                          
                          
                          18,717,000
                          
                          
                          
                          (738,000
                          )
                          
                          
                          
                          
                          
                          17,979,000Net
      increase(decrease) in cash and cash equivalents
                          
                          
                          (10,314,000
                          )
                          
                          
                          (45,000
                          )
                          
                          
                          
                          
                          
                          (10,359,000
                          )Cash
      and cash equivalents at the beginning of the period
                          
                          
                          24,653,000
                          
                          
                          
                          4,403,000
                          
                          
                          b
                          
                          
                          
                          29,056,000Cash
      and cash equivalents at the end of the period
                          
                          $
                          14,339,000
                          
                          
                          $
                          4,358,000
                          
                          
                          
                          
                          
                          $
                          18,697,000
  Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 Explanatory
Notes to Restated Consolidated Statements of Operations, Balance Sheets and
Statements of Cash Flows
 
 a)
                The
      correction of the recorded gain on sale of assets to a partnership in
      which the Company acquired a twenty percent non-controlling interest in
      the year ended December 31, 2005 resulted in a decrease of $3.7 million in
      the basis of the acquired interest in 2005. This change in the basis of
      oil and gas properties resulted in a reduction of depletion and
      depreciation expense of  $171,000 and $129,000 for the three
      months ended March 2008 and March 2007 respectively, and corresponding
      reductions in accumulated depletion and depreciation. The change in
      depletion and depreciation expense resulted in the noted change in
      deferred taxes.
 
 b)
                The
      restatement of these items, net of amounts described in note a, results
      from the change from the proportionate consolidation method to the full
      consolidation method of accounting for the limited partnerships and trust
      we control.
 
 (3)
Significant Acquisitions, Dispositions and Property Activity
 The
Company makes an annual to offer to repurchase the interests of the partners and
trust unit holders in certain of the Partnerships. The Company purchased such
interests in an amount totaling $44,000 is for the three months ending March 31,
2008 and $371,000 for the year ending December 31, 2007.
 
 (4)
Restricted Cash and Cash Equivalents:
 Restricted
cash and cash equivalents include $3,678,000 and $3,633,000 at March 31, 2008
and December 31, 2007, respectively, of cash primarily pertaining to
undistributed revenue payments. There were corresponding accounts payable
recorded at March 31, 2008 and December 31, 2007 for these
liabilities.
  18
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 (5)
Additional Balance Sheet Information (restated)
 Certain
balance sheet amounts are comprised of the following:
 
 March 31, 2008
                              
                              
                              December 31, 2007Accounts Receivable:Joint
      interest billing
                              
                              $
                              3,076,000
                              
                              
                              $
                              3,192,000Trade
      receivables
                              
                              
                              2,706,000
                              
                              
                              
                              2,352,000Oil
      and gas sales
                              
                              
                              15,474,000
                              
                              
                              
                              14,785,000Income
      tax receivable
                              
                              
                              763,000
                              
                              
                              
                              795,000Other
                              
                              
                              15,000
                              
                              
                              
                              415,000$
                              22,034,000
                              
                              
                              $
                              21,539,000Less,
      allowance for doubtful accounts
                              
                              
                              (279,000
                              )
                              
                              
                              (228,000
                              )$
                              21,755,000
                              
                              
                              $
                              21,311,000Accounts Payable:Trade
                              
                              $
                              9,525,000
                              
                              
                              $
                              12,364,000Royalty
      and other owners
                              
                              
                              12,371,000
                              
                              
                              
                              11,209,000Other
                              
                              
                              2,932,000
                              
                              
                              
                              3,207,000Total
                              
                              $
                              24,828,000
                              
                              
                              $
                              26,780,000Accrued Liabilities:Compensation
      and related expenses
                              
                              $
                              2,829,000
                              
                              
                              $
                              1,687,000Property
      cost
                              
                              
                              2,428,000
                              
                              
                              
                              4,551,000Income
      tax
                              
                              
                              1,878,000
                              
                              
                              
                              --Other
                              
                              
                              3,283,000
                              
                              
                              
                              3,794,000Total
                              
                              $
                              10,418,000
                              
                              
                              $
                              10,032,000
  19
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 (6)
Property and Equipment (restated):
 Property
and equipment at March 31, 2008 and December 31, 2007 consisted of the
following:
 
 March
      31, 2008
                      
                      
                      December 31,
      2007Proved
      oil and gas properties, at cost
                      
                      $
                      385,046,000
                      
                      
                      $
                      378,908,000Unproved
      oil and gas properties, at cost
                      
                      
                      4,470,000
                      
                      
                      
                      4,458,000Less,
      accumulated depletion and depreciation
                      
                      
                      (161,614,000
                      )
                      
                      
                      (145,514,000
                      )$
                      227,902,000
                      
                      
                      $
                      237,852,000Field
      service equipment and other
                      
                      
                      19,459,000
                      
                      
                      
                      18,029,000Less,
      accumulated depreciation
                      
                      
                      (10,132,000
                      )
                      
                      
                      (9,820,000
                      )$
                      9,327,000
                      
                      
                      $
                      8,209,000Total
      net property and equipment
                      
                      $
                      237,229,000
                      
                      
                      $
                      246,061,000
 
 Total
interest costs incurred during 2007 was $12,984,000. Of this amount, the Company
capitalized $1,922,000. Capitalized interest is included as part of the cost of
oil and gas properties. The capitalized rates are based upon the Company’s
weighted-average cost of borrowings used to finance the expenditures. There was
no interest capitalized during the first quarter of 2008.
 
 (7)
Long-Term Bank Debt:
 The
Company currently has credit facilities totaling $360 million, consisting of a
$200 million credit facility through Guaranty Bank (the offshore facility) and a
$160 million credit facility through a syndicate of banks led by Guaranty Bank
(the onshore facility).  The credit facilities mature in 2009.
Availability under the credit facilities is based on the loan value assigned to
Prime's oil and gas properties.  At March 31, 2008, the borrowing
bases and outstanding balances were $96 million and $88.25 million,
respectively, under the onshore credit facility at a weighted average interest
rate of 6.85%, and $57.4 million under the offshore credit facility at a
weighted average interest rate of 6.80%.
 
 The
determination of the Borrowing Base is made by the lenders taking into
consideration the estimated value of Prime’s oil and gas properties in
accordance with the lenders’ customary practices for oil and gas loans. This
process involves reviewing Prime’s estimated proved reserves and their
valuation. The Borrowing Base is redetermined semi-annually, and the available
borrowing amount could be increased or decreased as a result of such
redeterminations. In addition, Prime and the lenders each have discretion at any
time to have
the Borrowing Base redetermined. A revision to Prime’s reserves may prompt such
a request on the part of the lenders, which could possibly result in a reduction
in the Borrowing Base and availability under the credit facilities. If
outstanding borrowings under either of the credit facilities exceed the
applicable portion of the Borrowing Base, Prime would be required to repay the
excess amount within a prescribed period. If we are unable to pay the excess
amount, it would cause an event of default.
  20
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
  The
credit facilities include terms and covenants that require the Company to
maintain, as defined, a minimum current ratio, tangible net worth, debt coverage
ratio and interest coverage ratio, and restrictions are placed on the payment of
dividends and the amount of treasury stock the Company may
purchase.
 
 The
credit facilities are collateralized by substantially all of the Company’s
assets. The Company is required to mortgage, and grant a security interest in,
consolidated proved oil and gas properties. Prime also pledged the stock of
several subsidiaries to the lenders to secure the credit
facilities.
 
 The
combined average interest rates paid on outstanding bank borrowings subject to
interest at the bank’s base rate and on outstanding bank borrowings bearing
interest based upon the LIBO rate were 6.83% during the first three months of
2008 as compared to 8.79% during the same period of 2007. Currently, the
borrowing base and outstanding balance under the onshore credit facility is $96
million and 81.6 million respectively and the borrowing base and outstanding
balance under the offshore credit facility is $30.9 million.
 
 In April
2008, the Company entered into an amended and restated credit agreement related
to the offshore credit facility allowing for a subordinated credit facility with
a private lender and the release of certain collateral which was then pledged to
the new lender under a separate credit agreement.
 
 Pursuant
to these agreements the offshore credit facility with the bank is $32.4 million
which matures in 2009 and the new loan is $20 million due January
2010.  The new loan was provided by a related party and bears interest
at the rate of 10% per annum.
 
 In April
2008, the Company entered into an interest swap agreement for a period of two
years related to $60 million of Company debt resulting in a fixed rate of
4.375%.
  21
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 (8) Other
Long-Term Obligations and Commitments:
 
 Operating
Leases:
 
 The
Company has several non-cancelable operating leases, primarily for rental of
office  space, that have a term of more than one year.
 
 Operating
      Leases2008
                          
                          
                          445,0002009
                          
                          
                          350,0002010
                          
                          
                          71,0002011
                          
                          
                          5,000Thereafter
                          
                          
                          --Total
      minimum payments
                          
                          $
                          871,000
 
 Asset
Retirement Obligation:
 
 A
reconciliation of our liability for plugging and abandonment costs for the Three
Months Ended March 31, 2008 and the year ended December 31, 2007 is as
follows:
 
 March 31,
                        2008
      Restated
                      
                      
                      December 31,
                        2007
      RestatedAsset
      retirement obligation – beginning of period
                      
                      $
                      17,361,000
                      
                      
                      $
                      7,047,000Liabilities
      incurred
                      
                      
                      --
                      
                      
                      
                      468,000Liabilities
      settled
                      
                      
                      (85,000
                      )
                      
                      
                      (367,000
                      )Accretion
      expense
                      
                      
                      282,000
                      
                      
                      
                      461,000Revisions
      in estimated liabilities
                      
                      
                      --
                      
                      
                      
                      9,752,000Asset
      retirement obligation – end of period
                      
                      $
                      17,558,000
                      
                      
                      $
                      17,361,000
  22
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 The
Company’s liability is determined using significant assumptions, including
current estimates of plugging and abandonment costs, annual inflation of these
costs, the productive life of wells and our risk-adjusted interest
rate.  Changes in any of these assumptions can result in significant
revisions to the estimated asset retirement obligation.  Revisions to
the asset retirement obligation are recorded with an offsetting change to
producing properties, resulting n prospective changes to depreciation, depletion
and amortization expense and accretion of discount.  Because of the
subjectivity of assumptions and the relatively long life of most of our wells,
the costs to ultimately retire our wells may vary significantly from previous
estimates.
 
 (9)
Contingent Liabilities:
 The
Company, as managing general partner of the affiliated Partnerships, is
responsible for all Partnership activities, including the drilling of
development wells and the production and sale of oil and gas from productive
wells. The Company also provides the administration, accounting and tax
preparation work for the Partnerships, and is liable for all debts and
liabilities of the affiliated Partnerships, to the extent that the assets of a
given limited Partnership are not sufficient to satisfy its obligations. As of
March 31, 2008, the affiliated Partnerships have established cash reserves in
excess of their debts and liabilities and the Company believes these reserves
will be sufficient to satisfy Partnership obligations.
 
 The
Company is subject to environmental laws and regulations. Management believes
that future expenses, before recoveries from third parties, if any, will not
have a material effect on the Company’s financial condition. This opinion is
based on expenses incurred to date for remediation and compliance with laws and
regulations which have not been material to the Company’s results of
operations.
 
 (10)
Stock Options and Other Compensation:
 In May
1989, non-statutory stock options were granted by the Company to four key
executive officers for the purchase of shares of common stock. At March 31, 2008
and 2007, options on 767,500 were outstanding and exercisable at prices ranging
from $1.00 to $1.25.
 
 (11)
Related Party Transactions:
 The
Company, as managing general partner or managing trustee, makes an annual offer
to repurchase the interest of the partners and trust unit holders in certain of
the Partnerships or Trusts.  The Company purchased such interests in
an amount totaling $44,000 in the first quarter 2008 and $371,000 during
2007.
 
 Treasury
stock purchases in 2008 and 2007 included shares acquired from related
parties.  Purchases from related parties included 70,000 shares
purchased for a total consideration of $3,500,000 during the first quarter of
2008 and a total of 31,700 shares purchased for a total consideration of
$1,743,500 in 2007.
  23
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 Receivables
from related parties consist of reimbursable general and administrative costs,
lease operating expenses and reimbursement for property development and related
costs.  These receivables are due from joint venture partners, which
may include members of the Company’s Board of Directors.
 
 Payables
owed to related parties primarily represents receipts collected by the Company
as agent, for the joint venture partners, which may include members of the
Company’s Board of Directors, for oil and gas sales net of
expenses.
 
 (12)
Financial Instruments
 Adoption
of SFAS No. 157
 In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
establishes a formal framework for measuring fair values of assets and
liabilities in financial statements that are already required by United States
generally accepted accounting principles to be measured at fair value. SFAS No.
157 clarifies guidance in FASB Concepts Statement (CON) No. 7 which discusses
present value techniques in measuring fair value. Additional disclosures are
also required for transactions measured at fair value. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP)
No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which granted a one
year deferral (to fiscal years beginning after November 15, 2008, and interim
periods within those fiscal years) for certain non-financial assets and
liabilities to comply with SFAS No. 157. The Company will adopt the provisions
of FAS No. 157 covered under FSP No. 157-2 on January 1, 2009. Additionally, in
February 2008, the FASB issued FSP No. FAS 157-1, “Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13,” which amends SFAS No. 157 to exclude SFAS No.
13 and related pronouncements that address fair value measurements for purposes
of lease classification and measurement. FSP No. FAS 157-1 is effective upon the
initial adoption of SFAS No. 157. The Company has adopted SFAS No. 157 and the
related FSPs discussed above which did not have an impact on its financial
position or results of operations for the quarter ended March 31,
2008.
 
 As
defined in SFAS No. 157, fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (exit price). The transaction is
based on a hypothetical transaction in the principal or most advantageous market
considered from the perspective of the market participant that holds the asset
or owes the liability.
  24
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 The
valuation techniques that can be used under SFAS No. 157 are the market
approach, income approach or cost approach. The market approach uses prices and
other information for market transactions involving identical or comparable
assets or liabilities, such as matrix pricing. The income approach uses
valuation techniques to convert future amounts to a single discounted present
amount based on current market conditions about those future amounts, such as
present value techniques, option pricing models (i.e. Black-Scholes model) and
binomial models (i.e. Monte-Carlo model). The cost approach is based on current
replacement cost to replace an asset.
 
 The
Company utilizes market data or assumptions that market participants who are
independent, knowledgeable and willing and able to transact would use in pricing
the asset or liability, including assumptions about risk and the risks inherent
in the inputs to the valuation technique. These inputs can be readily
observable, market corroborated or generally unobservable. The Company attempts
to utilize valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs. The Company is able to classify fair
value balances based on the observability of those inputs. SFAS No. 157
establishes a formal fair value hierarchy based on the inputs used to measure
fair value. The hierarchy gives the highest priority level 1 measurements and
the lowest priority to level 3 measurements, and accordingly, level 1
measurements should be used whenever possible.
 
 The three
levels of the fair value hierarchy as defined by SFAS No. 157 are as
follows:
 
 ·
                Level
      1: Valuations utilizing quoted, unadjusted prices for identical assets or
      liabilities in active markets that the Company has the ability to access.
      This is the most reliable evidence of fair value and does not require a
      significant degree of judgment. Examples include exchange-traded
      derivatives and listed equities that are actively
  traded.
 
 ·
                Level
      2: Valuations utilizing quoted prices in markets that are not considered
      to be active or financial instruments for which all significant inputs are
      observable, either directly or indirectly for substantially the full term
      of the asset or liability. Financial instruments that are valued using
      models or other valuation methodologies are included. Models used should
      primarily be industry-standard models that consider various assumptions
      and economic measures, such as interest rates, yield curves, time value,
      volatilities, contract terms, current market prices, credit risk or other
      market-corroborated inputs. Examples include most over-the-counter
      derivatives (non-exchange traded), physical commodities, most structured
      notes and municipal and corporate
bonds.
  25
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 ·
                Level
      3: Valuations utilizing significant, unobservable inputs. This provides
      the least objective evidence of fair value and requires a significant
      degree of judgment. Inputs may be used with internally developed
      methodologies and should reflect an entity’s assumptions using the best
      information available about the assumptions that market participants would
      use in pricing an asset or liability. Examples include certain corporate
      loans, real-estate and private equity investments and long-dated or
      complex over-the-counter
derivatives.
 
 Depending
on the particular asset or liability, input availability can vary depending on
factors such as product type, longevity of a product in the market and other
particular transaction conditions. In some cases, certain inputs used to measure
fair value may be categorized into different levels of the fair value hierarchy.
For disclosure purposes under SFAS No. 157, the lowest level that contains
significant inputs used in valuation should be chosen. Per SFAS No. 157, the
Company has classified its assets and liabilities into these levels depending
upon the data relied on to determine the fair values. The fair values of the
Company’s natural gas and crude oil price collars and swaps are valued based
upon quotes obtained from counterparties to the agreements and are designated as
Level 3.
 
 The
following fair value hierarchy table presents information about the
Company’s  liabilities measured at fair value on a recurring basis as
of March 31, 2008:
 
 Quoted
      Prices in Active Markets For Identical Assets (Level 1)
                      
                      
                      Significant
      Other Observable Inputs (Level
      2)
                      
                      
                      Significant
      Unobservable Inputs (Level
      3)
                      
                      
                      Balance
      as of March 31, 2008LiabilitiesDerivative
      Contracts
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      $
                      (19,993,000
                      )
                      
                      $
                      (19,993,000
                      )
 
 The
derivative contracts were measured based on quotes from the Company’s
counterparties. Such quotes have been derived using a  model that
considers various inputs including current market and contractual prices for the
underlying instruments, quoted forward prices for natural gas and crude oil,
volatility factors and interest rates, such as a LIBOR curve for a similar
length of time as the derivative contract term. Although the Company utilizes
multiple quotes to assess the reasonableness of its values, the Company has not
attempted to obtain sufficient corroborating market evidence to support
classifying these derivative contracts as Level 2.
  26
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 Derivative Instruments and Hedging
Activity:
 The
Company periodically enters into derivative commodity instruments to hedge its
exposure to price fluctuations on natural gas and crude oil
production.  At March 31, 2008, the Company had twelve cash flow
hedges open: two natural gas price swap arrangements and ten crude oil collar
arrangements. At March 31, 2008, $19.99 million ($12.80 million net of tax)
unrealized loss was recorded in Accumulated Other Comprehensive Income, along
with receivable and a $12.63 million and $7.36 million short-term and long-term
derivative payable. The change in the fair value of derivatives designated as
hedges that is effective is initially recorded to Accumulated Other
Comprehensive Income. The ineffective portion, if any, of the change in the fair
value of derivatives designated as hedges, and the change in fair value of all
other derivatives, is recorded currently in earnings as a component of oil and
gas sales.
 
 As of
March 31, 2008, natural gas price swaps cover 3,990 Mmcf of production at a
weighted average price of $8.01 for 2008 and $9.75 for 2009. The oil price
collar covers 818 Mbbl of production at a floor price ranging from $60.00 to
$65.00, a ceiling price ranging from $77.40 to $86.50 and a third-tier call of
$100 on one collar arrangement.
 
 Assuming
no change in commodity prices, after March 31, 2008, the Company would expect to
reclassify to the Statement of Operations, over the next 12 months, $8.56
million in after-tax loss associated with commodity hedges. This
reclassification represents the net short-term payables associated with open
positions currently not reflected in earnings atMarch 31, 2008related to anticipated
2008 and 2009 production.
 
 From time
to time, we enter into natural gas and crude oil swap agreements with
counterparties to hedge price risk associated with a portion of our
production.  These cash flow hedges are not held for trading
purposes.  Under the swap agreements, if the index price rises above
the swap price, we pay the counterparty.  If the index falls below the
swap price, the counterparty pays us.
  27
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 Crude
      Oil Price CollarContract Period
                                      
                                      VolumeIn Mbbl
                                      
                                      
                                      
                                      Weighted
      Average Price Floor/Ceiling/Third Tier (per
      Bbl)
                                      
                                      
                                      Net
      Unrealized (Loss)/Gain (In
      thousands)Second
      Quarter 2008
                                      
                                      
                                      21
                                      
                                      
                                      
                                      65/
      $79.25/ $100.00Second
      Quarter 2008
                                      
                                      
                                      51
                                      
                                      
                                      $
                                      60.00/
      $81.25Second
      Quarter 2008
                                      
                                      
                                      15
                                      
                                      
                                      $
                                      60.00/
      $78.00Third
      Quarter 2008
                                      
                                      
                                      20
                                      
                                      
                                      $
                                      65/
      $79.25/ $100.00Third
      Quarter 2008
                                      
                                      
                                      51
                                      
                                      
                                      $
                                      60.00/
      $81.25Third
      Quarter 2008
                                      
                                      
                                      15
                                      
                                      
                                      $
                                      60.00/
      $78.00Fourth
      Quarter 2008
                                      
                                      
                                      18
                                      
                                      
                                      $
                                      65/
      $79.25/ $100.00Fourth
      Quarter 2008
                                      
                                      
                                      51
                                      
                                      
                                      $
                                      60.00/
      $81.25Fourth
      Quarter 2008
                                      
                                      
                                      15
                                      
                                      
                                      $
                                      60.00/
      $78.00Full
      Year 2008
                                      
                                      
                                      257
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (3,090
                                      )First
      Quarter 2009
                                      
                                      
                                      51
                                      
                                      
                                      $
                                      60/
      $79.70First
      Quarter 2009
                                      
                                      
                                      6
                                      
                                      
                                      $
                                      60/
      $77.75First
      Quarter 2009
                                      
                                      
                                      12
                                      
                                      
                                      $
                                      65/
      $86.50Second
      Quarter 2009
                                      
                                      
                                      17
                                      
                                      
                                      $
                                      60/
      $79.70Second
      Quarter 2009
                                      
                                      
                                      38
                                      
                                      
                                      $
                                      60/
      $77.40Second
      Quarter 2009
                                      
                                      
                                      2
                                      
                                      
                                      $
                                      60/
      $77.75Second
      Quarter 2009
                                      
                                      
                                      12
                                      
                                      
                                      $
                                      65/
      $86.50Third
      Quarter 2009
                                      
                                      
                                      57
                                      
                                      
                                      $
                                      60/
      $77.40Third
      Quarter 2009
                                      
                                      
                                      12
                                      
                                      
                                      $
                                      65/
      $86.50Fourth
      Quarter 2009
                                      
                                      
                                      57
                                      
                                      
                                      $
                                      60/
      $77.40Fourth
      Quarter 2009
                                      
                                      
                                      12
                                      
                                      
                                      $
                                      65/
      $86.50Full
      Year 2009
                                      
                                      
                                      276
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (2,520
                                      )First
      Quarter 2010
                                      
                                      
                                      51
                                      
                                      
                                      $
                                      65/
      $80.90First
      Quarter 2010
                                      
                                      
                                      9
                                      
                                      
                                      $
                                      65/
      $84.14Second
      Quarter 2010
                                      
                                      
                                      51
                                      
                                      
                                      $
                                      65/
      $80.90Second
      Quarter 2010
                                      
                                      
                                      9
                                      
                                      
                                      $
                                      65/
      $84.14Third
      Quarter 2010
                                      
                                      
                                      51
                                      
                                      
                                      $
                                      65/
      $80.90Third
      Quarter 2010
                                      
                                      
                                      9
                                      
                                      
                                      $
                                      65/
      $84.14Fourth
      Quarter 2010
                                      
                                      
                                      51
                                      
                                      
                                      $
                                      65/
      $80.90Fourth
      Quarter 2010
                                      
                                      
                                      9
                                      
                                      
                                      $
                                      65/
      $84.14Full
      Year 2010
                                      
                                      
                                      240
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (1,911
                                      )First
      Quarter 2011
                                      
                                      
                                      45
                                      
                                      
                                      $
                                      65/
      $84.14Full
      Year 2011
                                      
                                      
                                      45
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (281
                                      )
  28
 Index
  PrimeEnergy
Corporation
 Notes to
Consolidated Financial Statements
 March 31,
2008
 
 At March
31, 2008, we had two natural gas price swap contracts covering our 2008 and 2009
production as follows:
 
 Natural Gas Price SwapsContract Period
                      
                      Volume
      in Mmcf
                      
                      
                      Weighted
      Average Price (per
    Mcf)
                      
                      
                      Net
      Unrealized Gain (In
      thousands)Second
      Quarter 2008
                      
                      
                      1,005
                      
                      
                      
                      8.07
                      
                      
                      
                      (1,198
                      )Third
      Quarter 2008
                      
                      
                      1,005
                      
                      
                      
                      8.07
                      
                      
                      
                      (1,397
                      )Fourth
      Quarter 2008
                      
                      
                      1,005
                      
                      
                      
                      8.07
                      
                      
                      
                      (1,612
                      )Full
      Year 2008
                      
                      
                      3,015
                      
                      
                      $
                      8.01
                      
                      
                      $
                      (4,207
                      )First
      Quarter 2009
                      
                      
                      975
                      
                      
                      $
                      9.75
                      
                      
                      $
                      (790
                      )Full
      Year 2009
                      
                      
                      975
                      
                      
                      $
                      9.75
                      
                      
                      $
                      (790
                      )
 
 We are
exposed to market risk on these open contracts, to the extent of changes in
market prices of natural gas and crude oil.  However, the market risk
exposure on these hedged contracts is generally offset by the gain or loss
recognized upon the ultimate sale of the commodity that is hedged.
 
 The
preceding paragraphs contain forward-looking information concerning future
production and projected gains and losses, which may be impacted both by
production and by changes in future market prices of energy
commodities.  See “Forward-Looking Information” for further
details.
 
 In April
2008, the Company entered into an interest rate swap agreement for a period of
two years related to $60 million of Company debt resulting in a fixed rate of
4.375%.
 
 (13)
Income Per Share:
 Basic
earnings per share are computed by dividing earnings available to common
stockholders by the weighted average number of common shares outstanding during
the period.  Diluted earnings per share reflect per share amounts that
would have resulted if dilutive potential common stock had been converted to
common stock.  The following reconciles amounts reported in the
financial statements:
 
 Three Months
      Ended March 31, 2008
                    
                    
                    Three
      Months Ended March 31, 2007Net
      Income
                    
                    
                    Number
      of Shares
                    
                    
                    Per
      Share Amount
                    
                    
                    Net
      Income
                    
                    
                    Number
      of Shares
                    
                    
                    Per
      Share AmountNet
      income per  common share
                    
                    $
                    2,731,000
                    
                    
                    
                    3,090,276
                    
                    
                    $
                    0.88
                    
                    
                    $
                    3,317,000
                    
                    
                    
                    3,210,526
                    
                    
                    $
                    1.03Effect
      of dilutive securities:Options
                    
                    
                    
                    
                    
                    
                    752,651
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    752,904Diluted
      net income per common share
                    
                    $
                    2,731,000
                    
                    
                    
                    3,842,927
                    
                    
                    $
                    0.71
                    
                    
                    $
                    3,317,000
                    
                    
                    
                    3,963,430
                    
                    
                    $
                    0.84
  29
 Index
  PrimeEnergy
Corporation
 March 31,
2008
 
 Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
 This
discussion should be read in conjunction with the financial statements of the
Company and notes thereto. The Company's subsidiaries are defined in Note 1 of
the financial statements.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Cash flow
provided by operations for the three month period ended March 31, 2008 was
$24,516,000. Excluding the effects of significant unforeseen expenses or other
income, our cash flow from operations fluctuates primarily because of variations
in oil and gas production and prices or changes in working capital accounts. Our
oil and gas production will vary based on actual well performance but may be
curtailed due to factors beyond our control. Hurricanes in the Gulf of Mexico
may shut down our production for the duration of the storm's presence in the
Gulf or damage production facilities so that we cannot produce from a particular
property for an extended amount of time. In addition, downstream activities on
major pipelines in the Gulf of Mexico can also cause us to shut-in production
for various lengths of time.
 
 Our
realized oil and gas prices vary due to world political events, supply and
demand of products, product storage levels, and weather patterns. We sell the
vast majority of our production at spot market prices. Accordingly, product
price volatility will affect our cash flow from operations. To mitigate price
volatility we sometimes lock in prices for some portion of our production
through the use of financial instruments.
 
 The
Company’s activities include development and exploratory drilling. The Company’s
strategy is to develop a balanced portfolio of drilling prospects that includes
lower risk wells with a high probability of success and higher risk wells with
greater economic potential.
 
 For 2008
we have budgeted $60 million for exploration and development in our core
operating areas. As of May, 2008, the Company has committed approximately $18
million on wells in these areas that have been spudded since January 1, 2008. We
expect to continue to make significant capital expenditures over the next
several years as part of our long-term growth strategy.
  30
 Index
  PrimeEnergy
Corporation
 March 31,
2008
 
 Item2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
 
 If our
exploratory drilling results in significant new discoveries, we will have to
expend additional capital in order to finance the completion, development, and
potential additional opportunities generated by our success. We believe that,
because of the additional reserves resulting from the successful wells and our
record of reserve growth in recent years, we will be able to access sufficient
additional capital through additional bank financing.
 
 The
Company has in place both a stock repurchase program and a limited partnership
interest repurchase program. Spending under these programs in 2007 was $4.8
million. The Company expects to expend a similar amount in 2008.
 
 The
Company currently maintains two credit facilities totaling $360 million, with a
combined current borrowing base of $126.90 million.  The bank reviews
the borrowing base semi-annually and, at their discretion, may decrease or
propose an increase to the borrowing base relative to a redetermined estimate of
proved oil and gas reserves. Our oil and gas properties are pledged as
collateral for the line of credit and we are subject to certain financial
covenants defined in the agreement. We are currently in compliance with these
financial covenants. If we do not comply with these covenants on a continuing
basis, the lenders have the right to refuse to advance additional funds under
the facility and/or declare all principal and interest immediately due and
payable.
 
 In April
2008, the Company entered into an amended and restated credit agreement related
to the offshore credit facility allowing for a subordinated credit facility with
a private lender and the release of certain collateral which was then pledged to
the new lender under a separate credit agreement.
 
 Pursuant
to these agreements the offshore credit facility with the bank is $32.4 million
which matures in 2009 and the new loan is $20 million due January
2010.  The new loan was provided by a related party and bears interest
at the rate of 10% per annum.
 
 It is the
goal of the Company to increase its oil and gas reserves and production through
the acquisition and development of oil and gas properties. The Company also
continues to explore and consider opportunities to further expand its oilfield
servicing revenues through additional investment in field service equipment.
However, the majority of the Company’s capital spending is discretionary, and
the ultimate level of expenditures will be dependent on the Company’s assessment
of the oil and gas business environment, the number and quality of oil and gas
prospects available, the market for oilfield services, and oil and gas business
opportunities in general.
  31
 Index
  PrimeEnergy
Corporation
 March 31,
2008
 
 Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
 
 RESULTS
OF OPERATIONS
 
 Revenues
and net income during the three month period ended March 31, 2008, as compared
to the same periods in 2007 reflect the increased oil and gas sales, presented
below, offset by exploration costs and depreciation and depletion of oil and gas
properties. The table summarizes production volumes and average sales prices
realized (including realized gains and losses from derivatives).
 
 Three
      Months Ended March 31, RestatedIncrease
      /2008
                      
                      
                      2007
                      
                      
                      (Decrease)Barrels
      of Oil Produced
                      
                      
                      156,000
                      
                      
                      
                      105,000
                      
                      
                      
                      51,000Average
      Price Received
                      
                      $
                      78.45
                      
                      
                      $
                      55.88
                      
                      
                      $
                      22.57Oil
      Revenue
                      
                      $
                      12,238,000
                      
                      
                      $
                      5,867,000
                      
                      
                      $
                      6,371,000Mcf
      of Gas Produced
                      
                      
                      2,382,000
                      
                      
                      
                      2,022,000
                      
                      
                      
                      360,000Average
      Price Received
                      
                      $
                      9.18
                      
                      
                      $
                      8.11
                      
                      
                      $
                      1.07Gas
      Revenue
                      
                      $
                      21,863,000
                      
                      
                      $
                      16,399,000
                      
                      
                      $
                      5,464,000Total
      Oil & Gas Revenue
                      
                      $
                      34,101,000
                      
                      
                      $
                      22,266,000
                      
                      
                      $
                      11,835,000
 
 Oil and
gas prices received excluding the impact of derivatives were;
 
 Three
      Months Ended March 31, Restated2008
                      
                      
                      2007
                      
                      
                      Increase
      / (Decrease)Oil
      Price
                      
                      $
                      88.20
                      
                      
                      $
                      53.84
                      
                      
                      $
                      34.36Gas
      Price
                      
                      $
                      8.77
                      
                      
                      $
                      6.52
                      
                      
                      $
                      2.25
 
 Changes
in production are due to production from properties added during 2007 and early
2008 offset by the natural decline of existing properties. The increase in oil
production is related to our onshore drilling program while the increase in gas
production reflects the continued production from our offshore drilling
program.
 
 Lease
operating expense for the three months of 2008 increased by $2,167,000 compared
to 2007 due to the addition of lease operating expenses of new properties, and
overall price increases in oil field services.
  32
 Index
  PrimeEnergy
Corporation
 March 31,
2008
 
 Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
 
 General
and administrative expenses remained flat in the first three months of 2008 as
compared to 2007.
 
 Field
Service income and expense for the three months of 2008 increased $359,000 and
$228,000, respectively, compared to 2007. These increases reflect higher
utilization of equipment combined with an upward trend in rates and costs during
2008.
 
 Depreciation,
depletion and amortization expense increased to $16,920,000 in 2008 from
$7,694,000 in 2007. This increase is primarily related to the offshore
facilities placed in service during the first quarter of 2008.
 
 This
Report contains forward-looking statements that are based on management's
current expectations, estimates and projections.  Words such as
"expects," "anticipates," "intends," "plans," "believes," "projects" and
"estimates," and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, and are subject to the safe harbors created
thereby.  These statements are not guarantees of future performance
and involve risks and uncertainties and are based on a number of assumptions
that could ultimately prove inaccurate and, therefore, there can be no assurance
that they will prove to be accurate.  Actual results and outcomes may
vary materially from what is expressed or forecast in such statements due to
various risks and uncertainties. These risks and uncertainties include, among
other things, the possibility of drilling cost overruns and technical
difficulties, volatility of oil and gas prices, competition, risks inherent in
the Company's oil and gas operations, the inexact nature of interpretation of
seismic and other geological and geophysical data, imprecision of reserve
estimates, and the Company's ability to replace and expand oil and gas reserves.
Accordingly, stockholders and potential investors are cautioned that certain
events or circumstances could cause actual results to differ materially from
those projected.
 
 Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest
rate and swap activity.
 The
Company is exposed to interest rate risk on its line of credit, which has
variable rates based upon the lenders base rate, as defined, and the London
Inter-Bank Offered rate. Based on the weighted average balances outstanding
during the first quarter of 2008, a hypothetical 2.5% increase in the applicable
interest rates would have increased interest expense for the Three Months Ended
March 31, 2008 by approximately $711,000.
  In April
2008, the Company entered into an interest rate swap agreement for a period of
two years related to $60 million of Company debt resulting in a fixed rate of
4.37%.
  33
 Index
  PrimeEnergy
Corporation
 March 31,
2008
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Continued)
 
 Derivative
Instruments and Hedging Activity.
 Our
hedging strategy is designed to reduce the risk of price volatility for our
production in the natural gas and crude oil markets.  Our hedging
arrangements apply to only a portion of our production and provide only partial
price protection.  These hedging arrangements limit the benefit to us
of increases in prices, but offer protection in the event of price
declines.  Further, if our counterparties defaulted, this protection
might be limited as we might not receive the benefits of the hedges. Please read
the discussion below and Note 11 of the Notes to Consolidated Financial
Statements for a more detailed discussion of our hedging
arrangements.
 
 Hedges
on Production – Collars.
 From time
to time, we enter into natural gas and crude oil collar agreements with
counterparties to hedge price risk associated with a portion of our
production.  These cash flow hedges are not held for trading purposes.
Under the collar arrangements, if the index price rises above the ceiling price,
we pay the counterparty. If the index price falls below the floor price, the
counterparty pays us.  In the case of a three-way collar if the index
price rises above the third tier price, the counterparty pays us.
 
 Hedges
on Production – Swaps.
 From time
to time, we enter into natural gas and crude oil swap agreements with
counterparties to hedge price risk associated with a portion of our
production.  These cash flow hedges are not held for trading
purposes.  Under the swap agreements, if the index price rises above
the swap price, we pay the counterparty.  If the index falls below the
swap price, the counterparty pays us.
 
 Item4. CONTROLS AND PROCEDURES
 
 As of the
end of the current reported period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company’s management, including the Company’s Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures pursuant to Rules 13a-15 and
15d-15of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures are effective,
in all material respects, with respect to the recording, processing, summarizing
and reporting, within the time periods specified in the Commission’s rules and
forms, of information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act.
 
 There
were no significant changes in the Company’s internal control over financial
reporting that occurred during the first quarter of 2008 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
  34
 Index
  PrimeEnergy
Corporation
 March 31,
2008
 
 PART II -
OTHER INFORMATION
 
 Item1. LEGAL PROCEEDINGS
 
 From time
to time, the Company is party to certain legal actions and claims arising in the
ordinary course of business. While the outcome of these events cannot be
predicted with certainty, management does not expect these matters to have a
materially adverse effect on the financial position or results of operations of
the Company.
 
 Item2. CHANGES IN SECURITIES AND USE OF PROCEEDS
 
 During
the Three Months Ended March 31, 2008, the Company purchased the following
shares of common stock as treasury shares.
 
 2008 Month
                      
                      Number of Shares
                      
                      
                      Average Price Paid per
share
                      
                      
                      Maximum Number of Shares that May Yet Be Purchased
      Under The Plan (1)January
                      
                      
                      60,684
                      
                      
                      $
                      50.06
                      
                      
                      
                      224,871February
                      
                      
                      558
                      
                      
                      $
                      54.68
                      
                      
                      
                      224,313March
                      
                      
                      10,465
                      
                      
                      $
                      50.25
                      
                      
                      
                      213,848Total/Average
                      
                      
                      71,707
                      
                      
                      $
                      50.12
 
 (1)  In
December 1993, we announced that our board of directors authorized a stock
repurchase program whereby we may purchase outstanding shares of our common
stock from time-to-time, in open market transactions or negotiated sales. A
total of 2,700,000 shares have been authorized, to date, under this program.
Through March 31, 2008 we repurchased a total of 2,486,152 shares under this
program for $32,702,965 at an average price of $13.15 per
share.  Additional purchases may occur as market conditions warrant.
We expect future purchases will be funded with internally generated cash flow or
from working capital.
 
 Item 3. DEFAULTS UPON SENIOR SECURITIES
 None
 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 None
 
 Item5. OTHER INFORMATION
 None
 
 Item 6. EXHIBITS AND REPORTS ON FORM 8K
 No
reports on form 8K were filed by the Company during the Three Months Ended March
31, 2008.
  35
 Index
  SIGNATURES
 
 
 Pursuant
to the requirements of the Securities and Exchange Act of 1934, Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 
 PrimeEnergy
      Corporation(Registrant)March
      25, 2009
                                  /s/ Charles E. Drimal, Jr.(Date)Charles
      E. Drimal, Jr.PresidentPrincipal
      Executive OfficerMarch
      25, 2009
                                  /s/ Beverly A. Cummings(Date)Beverly
      A. CummingsExecutive
      Vice PresidentPrincipal
      Financial and Accounting
Officer
   36