<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

MARK ONE:

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 0-12500

                                  ISRAMCO, INC.
             (Exact name of registrant as specified in its charter)

          Delaware                                         13-3145265
(State or Other Jurisdiction                    IRS Employer Identification No.)
      of Incorporation)

                      11767 KATY FREEWAY, HOUSTON, TX 77079
                    (Address of Principal Executive Offices)

                                  713-621-3882
              (Registrant's Telephone Number, including Area Code)

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:
                          Common Stock, par value $0.01
                                (Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [_] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Securities Act of 1933.
Yes [_] No [x]

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

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in this Form, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_]    Accelerated filer [_]   Non-accelerated filer [X]

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

As of March 13, 2007 there were 2,717,691 shares of the Registrant's common
stock par value $0.01 per share ("Common Stock") outstanding. The aggregate
market value of the Common Stock held by non-affiliates of the Registrant at
March 13, 2007 was approximately $46.6 million. Such market value was calculated
using the closing price of the Common Stock as of such date reported on the
NASDAQ Market.

<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

The information called for in Items 10, 11, 12 and 14 in Part III will be
contained in the issuer's definitive proxy statement which the issuer intends to
file within 120 days after the end of the Issuer's fiscal year ended December
31, 2006 and such information is incorporated herein by reference.



                                       1

<PAGE>

                                  ISRAMCO, INC.
                          2006 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

                                     PART I

ITEM 1.    BUSINESS........................................................3

ITEM 1A.   RISK FACTORS...................................................11

ITEM 1B.   UNRESOLVED STAFF COMMENTS......................................15

ITEM 2.    PROPERTIES.....................................................15

ITEM 3.    LEGAL PROCEEDINGS..............................................15

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............15

                                     PART II

ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......15

ITEM 6.    SELECTED FINANCIAL DATA........................................16

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION....18

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS....24

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................24

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
              AND FINANCIAL DISCLOSURE....................................24

ITEM 9A.   CONTROLS AND PROCEDURES........................................25

ITEM 9B.   OTHER INFORMATION..............................................25

                                    PART III

ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
              COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT...........25

ITEM 11.   EXECUTIVE COMPENSATION.........................................25

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
              AND RELATED STOCKHOLDER MATTERS.............................25

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................25

ITEM 14.   PRINCIPAL ACCOUNTANT FEES & SERVICES...........................25

ITEM 15.   EXHIBITS.......................................................28


                                       2

<PAGE>

                           FORWARD LOOKING STATEMENTS

CERTAIN STATEMENTS MADE IN THIS ANNUAL REPORT ON FORM 10-K ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY TERMINOLOGY SUCH AS
"MAY", "WILL", "SHOULD", "EXPECTS", "INTENDS", "ANTICIPATES", "BELIEVES",
"ESTIMATES", "PREDICTS", OR "CONTINUE" OR THE NEGATIVE OF THESE TERMS OR OTHER
COMPARABLE TERMINOLOGY AND INCLUDE, WITHOUT LIMITATION, STATEMENTS BELOW
REGARDING EXPLORATION AND DRILLING PLANS, FUTURE GENERAL AND ADMINISTRATIVE
EXPENSES, FUTURE GROWTH, FUTURE EXPLORATION, FUTURE GEOPHYSICAL AND GEOLOGICAL
DATA, GENERATION OF ADDITIONAL PROPERTIES, RESERVES, NEW PROSPECTS AND DRILLING
LOCATIONS, FUTURE CAPITAL EXPENDITURES, SUFFICIENCY OF WORKING CAPITAL, ABILITY
TO RAISE ADDITIONAL CAPITAL, PROJECTED CASH FLOWS FROM OPERATIONS, OUTCOME OF
ANY LEGAL PROCEEDINGS, DRILLING PLANS, THE NUMBER, TIMING OR RESULTS OF ANY
WELLS, INTERPRETATION AND RESULTS OF SEISMIC SURVEYS OR SEISMIC DATA, FUTURE
PRODUCTION OR RESERVES, LEASE OPTIONS OR RIGHTS, PARTICIPATION OF OPERATING
PARTNERS, CONTINUED RECEIPT OF ROYALTIES, AND ANY OTHER STATEMENTS REGARDING
FUTURE OPERATIONS, FINANCIAL RESULTS, OPPORTUNITIES, GROWTH, BUSINESS PLANS AND
STRATEGY. BECAUSE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES,
THERE ARE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. ALTHOUGH
THE COMPANY BELIEVES THAT EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING
STATEMENTS ARE REASONABLE, IT CANNOT GUARANTEE FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS. MOREOVER, NEITHER THE COMPANY NOR ANY OTHER PERSON ASSUMES
RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THESE FORWARD-LOOKING
STATEMENTS. THE COMPANY IS UNDER NO DUTY TO UPDATE ANY FORWARD-LOOKING
STATEMENTS AFTER THE DATE OF THIS REPORT TO CONFORM SUCH STATEMENTS TO ACTUAL
RESULTS.

                                     PART I

ITEM 1. BUSINESS

GENERAL

     Isramco, Inc. ("Isramco" or the "Company") was incorporated in Delaware in
1982 and is engaged in the exploration for and production of oil and gas in
Israel and in the United States. In Israel, the Company holds a participation
interest in two long- term off-shore leases and serves as the operator of one of
those leases. See "Summary of exploration efforts in Israel".

     In the United States, the Company, through its wholly-owned subsidiaries,
Jay Petroleum LLC ("Jay Petroleum") and Jay Management LLC ("Jay Management"),
is involved in oil and gas exploration and production in the United States. Jay
Petroleum owns varying working interests in oil and gas wells in Louisiana,
Texas, Oklahoma and Wyoming. Independent estimates of the reserves held by Jay
Petroleum as of December 31, 2006 are approximately 74,110 net barrels of proved
developed producing oil and 1,100 net MMCFs of proved developed producing
natural gas. In March 2007, the Company, through a newly created Texas limited
liability company, purchased additional oil and gas properties (including 650
oil and gas wells) located in Texas and New Mexico. See "Summary of Exploration
Efforts in United States".

THE OPERATOR OF THE MED ASHDOD LEASE

     Isramco is currently the operator of the Med Ashdod Lease in offshore
Israel under a joint operating agreement (the "JOA") entered into among the
participants in the lease, As operator, Isramco carries out all the operations
contemplated in the JOA, including directing the oil exploration and drilling
activities of the venture, within the framework of work programs and budgets
approved by the participants in the venture. Isramco may be removed as operator
for cause by notice in writing given by two or more of the other parties
representing at least 65% of the total interests in the lease.

     Under the JOA, each participant is responsible for the costs, expenses and
obligations incurred in relation to the lease area in proportion to its rights
and interests in the lease.

     As operator, Isramco charges the venture participants for all costs
incurred in connection with the exploration and drilling activities conducted by
the Med Ashdod venture and is entitled to receive a fee for its administrative
overhead equal to 6% of all direct charges or minimum monthly compensation of
$6,000 per the lease. During the years ended December 31, 2006 and 2005, Isramco
was paid a total of $69,000 and $977,000, respectively, as operator fees.

                                       3

<PAGE>

     With respect to the Med Yavne Lease, Isramco furnishes to BG International
Limited, a member of the British Gas Group ("BG"), the operator of the lease,
consulting services of an administrative and technical nature for which it
receives a monthly fee equal to $10,000.

GENERAL PARTNER OF THE ISRAMCO NEGEV 2 LIMITED PARTNERSHIP

     In 1989 Isramco transferred a substantial portion of its working interest
in certain oil and gas assets in Israel to Isramco Negev 2 Limited Partnership,
an Israeli limited partnership organized for the purpose of the exploration and
the production of oil and gas in Israel (the "Limited Partnership") In exchange
for the working interests, the Limited Partnership granted to Isramco certain
overriding royalties. In 1992, Isramco transferred to the Limited Partnership
additional rights in exchange for additional overriding royalties and
reimbursement of expenses. Isramco formed Isramco Oil and Gas Ltd. ("IOG"), an
Israeli company and Isramco's wholly-owned subsidiary to act as the general
partner for the Limited Partnership and also formed Isramco Management (1988)
Ltd., an Israeli company and Isramco's wholly-owned subsidiary to act as the
limited partner. The limited partner is the nominee of Limited Partnership units
held by public investors in Israel.

     Pursuant to the Limited Partnership Agreement and the Trust Agreement, a
supervisor was appointed on behalf of the Limited Partnership unit holders, with
sole authority to appoint the sole director for Isramco Management (1988) Ltd.
and to supervise its activities on behalf of and for the benefit of the Limited
Partnership unit holders. Although control and management of the Limited
Partnership rests with the general partner, matters involving certain rights of
the Limited Partnership unit holders are subject to the approval of the
supervisor and in certain instances the approval of the Limited Partnership unit
holders. The firm of Igal Brightman & Co., Accountants and Mr. David Valiano,
Accountant have been appointed as supervisors.

     Through IOG, Isramco currently receives a management fee of $40,000 per
month from the Limited Partnership for office space, management and other
services.

     Isramco currently holds 8.17% of the issued Limited Partnership units and
IOG holds an additional 0.008% of the Limited Partnership units. On December 31,
2006, the Limited Partnership had cash, cash equivalents, certificates of
deposit and marketable securities with a value of approximately $136 million.

     Additionally, IOG (as the general partner of the Limited Partnership) is
entitled to 5% overriding royalties in certain petroleum assets held by the
Limited Partnership.

NON-OIL AND GAS PROPERTIES

     In June 2002, Isramco purchased non-oil and gas producing real estate
located in Israel at an aggregate cost of $1,887,000. In January 2004, Isramco
entered into an agreement with a related entity pursuant to which the property
was leased to such entity for a 24 month period at a monthly rent of $7,000. On
January 1, 2006, Isramco entered into a new agreement with a related entity
pursuant to which a significantly smaller part of the property is leased to such
entity for a 24-month period at a monthly rent of $550.

     In March 2004, Isramco purchased a luxury cruise liner for aggregate
consideration of $8,050,000. Isramco, through its wholly owned subsidiary, Magic
1 Cruise Line Corp., a British Virgin Island corporation ("Magic 1 Corp."),
leased the vessel to European based tour operator from April 2005 through
October 2005 and from April 6, 2006 through November 5, 2006. In December 2006,
Isramco sold all of the outstanding share capital of Magic 1 Corp. to an
unrelated third party for total consideration of approximately $2.15 million.
The consideration paid to Isramco included the purchaser's assumption of an
outstanding loan in the principal amount of $3.3 million. Isramco's decision to
sell its holdings in Magic is primarily attributable to Isramco's decision to
focus principally on the oil and gas business. Following the sale, Isramco is no
longer engaged in the business of cruise lines.

OIL AND GAS VENTURES AND PETROLEUM ASSETS

                      OIL AND GAS LEASES LOCATED IN ISRAEL

     The table below sets forth the Working Interests of Isramco and all
affiliated and non-affiliated participants in the leases in Israel, the total
acreage of each lease, and the expiration dates of each of the leases as of
December 31, 2006. Isramco also holds Overriding Royalties in the leases. See
"Table of Overriding Royalties".

                                       4

<PAGE>

                            TABLE OF WORKING INTEREST
                                IN THE LEASES(1)
                              (% INTEREST OF 100%)

<TABLE>
<CAPTION>
NAME OF PARTICIPANT            MICHAL & MATAN       MED YAVNE LEASE*   MED ASHDOD LEASE**(3)
------------------------   ----------------------   ----------------   ---------------------
<S>                        <C>                         <C>                   <C>
Licenses
Isramco                            0.4584                 0.3625
Affiliates
Isramco Negev 2, Limited            27.50                 32.411             19.1370
Partnership
I.O.C.                              7.800                  7.800
I.N.O.C. Dead Sea                      --                 5.0525
Limited Partnership
Naphtha                            1.8033                     --
Naphtha Explorations               2.2826                 1.8411
Limited Partnership
JOEL                               2.8807                     --
Equital                            2.1639                     --
Non-affiliated entities             72.50                   50.2             65.8069
Total                             100.000                100.000
Area (acres)                      175,000                 13,100              61,800
Expiration Date (2)            12/31/2008              6/10/2030           6/15/2030
</TABLE>

*    The lease was granted in June 2000 and is scheduled to expire in June 2030.

**   The lease was granted in January 2002 and is scheduled to expire in June
     2030.

(1)  All of the oil and gas assets are subject to a 12.5% Overriding Royalty due
     to the Government of Israel under the Petroleum Law.

(2)  The expiration dates are subject to the fulfillment of applicable
     provisions of the Israel Petroleum Law and Regulations, and the conditions
     and work obligations of each of the above leases.

(3)  Under the Grant Agreement with the Government of Israel, the government may
     claim that Isramco is contingently obligated to repay to the government the
     grant monies in the amount of $110,000 and to pay a 6.5% Overriding Royalty
     on all production from the area.

                      OVERRIDING ROYALTIES HELD BY ISRAMCO

     Isramco holds Overriding Royalties in certain oil and gas assets.
Additionally, Isramco is entitled to receive from certain participants in the
Med Yavne and Med Ashdod leases overriding royalties equal to 2% of each such
participant's rights to any oil/gas produced within those leases. Isramco holds
the following Overriding Royalties:

                                       5

<PAGE>

                          TABLE OF OVERRIDING ROYALTIES

     From the Limited Partnership, on the first 10% of the Limited Partnership's
share of the following leases

                                        Before Payout   After Payout
                                        -------------   ------------
Med Yavne Lease*                              1%            13%
Med Ashdod Lease**                            1%            13%
From JOEL                                 On 8% of JOEL's Interest

                                        Before Payout   After Payout
                                        -------------   ------------
Med Ashdod Lease                            2.5%            12.5%
From Delek Oil Exploration Ltd.
   (DOEX) (1)(2)                          On 6% of DOEX's Interest

                                        Before Payout  After Payout
                                        -------------   ------------
Med Ashdod Lease                            2.5%            12.5%

From Naphtha, Naphtha Exploration LP,
Joel, Equital, INOC Dead Sea L P
on oil and/or gas produced on the
Med Leases                                    2%

To IOC On Certain petroleum rights
held by Limited Partnership                   5%

Michal & Matan Licenses
from Isramco Negev 2, Limited
Partnership                                   5%

*    A 30 year lease covering an area of approximately 53 square kilometers
     (including the area of the gas discovery) was granted in June 2000.

**   A 30-year lease covering an area of approximately 250 square kilometers
     (including the area of the gas discovery) was granted in January 2002.

(1)  The Working Interests of Delek and DOEX have been assigned to Delek
     Drilling Limited Partnership.

(2)  The prospectus of the Delek Limited Partnership dated January 26, 1994
     states that the interest which Delek L.P., received from Delek and DOEX is
     free from any encumbrances except that Isramco may argue that the interests
     are subject to an Overriding Royalty. Isramco has no information available
     to it as to why this statement is in the Delek L.P. prospectus.

Isramco has no direct financial obligation with regard to the Overriding
Royalties, however, in the event the Limited Partnership, JOEL, DOEX or Delek,
fails to fund its obligation with regard to the leases to which an Overriding
Royalty exists, Isramco could lose its interest in such Overriding Royalty. See
also "Table of Working Interests" above.

                    SUMMARY OF EXPLORATION EFFORTS IN ISRAEL

MED YAVNE LEASE

     Based on the gas finds known as "Or 1" and "Or South" , a 30-year lease was
granted in June 2000 (hereinafter: the "Med Yavne Lease"). The Med Yavne Lease
covers 53 square kilometers (approximately 13,000 acres) offshore Israel. The
operator of the Med Yavne Lease is BG International Limited, a member of the
British Gas Group ("BG").

     According to the operator's estimates, which are based on the results of
the drillings in the Or 1, and a three-dimensional seismic survey performed in
the area of the lease, the recoverable gas reserves of Or 1 reserve are
estimated at 51 billion cubic feet. In November 2002 and in January 2007,
Isramco received an opinion from a consulting firm in the United States that
performed a techno-economic examination for the development of the Or 1 reserve.
The opinion indicates that, under certain assumptions, development of the

                                       6

<PAGE>

reserve by connection to a nearby platform (at a distance of seven miles) and
from there via an existing transportation pipeline to the coast, may be
economically feasible. It is the intention of the partners in Med Yavne Lease to
cooperate with independent third parties to jointly develop Or 1 reserve with
their gas reserve.

     Isramco's participation interest of the Med Yavne Lease is 0.4585% and the
participation of Isramco Negev 2 LP is 32.411%.

MED ASHDOD LEASE

     Following the results of "Nir 1" drilling, a 30 year lease was granted in
January 2002. The Med Ashdod Lease covers approximately 250 square kilometers
(approximately 62,000 acres) offshore Israel. Isramco serves as the operator of
the Med Ashdod Lease and holds a 0.3625% participation interest therein.

     During fiscal 2006, Isramco continued to seek out a drilling rig in order
to drill the "Yam 3" well. As the date of this report, Isramco cannot evaluate
where and if the well will be spud.

MATAN & MICHAL LICENSES

     A Company affiliate, Isramco Negev 2 Ltd., currently holds a 27.5%
participation interest in two offshore licenses covering an area of
approximately 175,000 acres offshore Israel known as "Matan and Michal". The
licenses are in effect through 2008. The remaining interests are held by
unrelated third parties. In July 2006, Noble Energy Mediterranean Ltd. purchased
a 33% interest in the licenses and following such purchase was appointed
operator of the licenses,

     In November 2006, the operator presented to the license participants a work
plan to drill the "Tamar 1" well within a proposed budget of $69 million. The
operator also presented additional work plans for 2006 and 2007 within an
aggregate proposed budget of approximately $2.2 million. All the license
participants gave notice of their approval of their proportionate share of the
proposed budget and the work plans. As of the filing of this report, no
agreement with respect to the drilling has been signed.

               SUMMARY OF EXPLORATION EFFORTS IN THE UNITED STATES

     Isramco, through its wholly-owned subsidiaries, Jay Petroleum LLC ("Jay
Petroleum") and Jay Management LLC ("Jay Management"), is involved in oil and
gas production in the United States. Jay Petroleum owns varying working
interests in oil and gas wells in Louisiana, Texas, Oklahoma and Wyoming.
Independent estimates of the reserves held by Jay Petroleum as of December 31,
2006 are approximately 74,110 net barrels of proved developed producing oil and
1,100 net MMCFs of proved developed producing natural gas. Jay Management acts
as the operator of certain of the producing oil and gas interests owned or
acquired by Jay Petroleum.

     During 2006 Jay Petroleum has participated in the drilling and completion
of 19 gas wells in Parker County, Texas and has a 15 percent working interest
non-operated position in some 13,000 acres. The objective producing formation is
the Barnett Shale. All the wells are directionally drilled to maximize gas
recovery. The operator is XTO Energy, Inc. in Fort Worth, Texas. The pipeline
connection was initiated in late December 2006 and will be completed in Spring
2007.

     On October 19, 2006, Jay Petroleum LLC and Delek Energy US Inc each
purchased a 50% working interest in 2,800 non producing Barnett Shale acreages
in Wise County Texas from McCommons Oil Company. Jay Petroleum and Delek each
paid $1.2 million for these rights. In addition, Jay Management LLC, another
wholly owned Isramco subsidiary, and Delek entered into a joint operating
agreement as of October 19, 2006 for Jay Management to serve as operator of the
acreages. A 3D seismic survey of the area and two exploratory gas wells are
currently planned and, based on the results thereof, additional drillings will
be considered.

     In early 2006, Isramco drilled and completed the Arco Hughes #5 gas well
located in the Castillo Field, Jasper Co., Texas. The well is presently shut-in
waiting for a pipeline connection. Jay is presently studying the potential of
the area for further development.

TRANSACTION WITH FIVE STATES

        Isramco and Five States Energy Company, L.L.C. ("Five States") entered
into a certain Purchase and Sale Agreement (the "Purchase Agreement"), pursuant
to which Isramco agreed to purchase from Five States, through Isramco Energy
LLC, a Texas limited liability company that is wholly owned by Isramco ("Isramco
Energy"), certain oil and gas properties (including 650 oil and gas wells)
located in Texas and New Mexico.

                                       7

<PAGE>

     The closing of the transactions contemplated in the Purchase Agreement was
completed on March 2, 2007 for an aggregate purchase price of $92 million (the
"Purchase Price"). According to an engineering report prepared by an independent
consulting company relating to the properties purchased under the Purchase
Agreement, the estimated proved developed producing reserves are 1,447,161 net
barrels of oil and 20,078,174 net MCF's of natural gas and 1,305,705 net of
liquid products. Isramco funded $7.7 million of the Purchase Price from working
capital and the balance from a combination of commercial bank loans and loans
from related parties. The loans are discussed below.

        Isramco obtained loans in the total principle amount of $42 million from
Naphtha Israel Petroleum Corp. Ltd., the parent company (including through its
wholly owned subsidiary IOC-Israel Oil Company Ltd) ("Naphtha") with terms and
conditions as below:

        Pursuant to a Loan Agreement dated as of February 27, 2007 (the "Loan
Agreement") with Naphtha, Isramco obtained a loan in the principal amount of
$18.5 million. The outstanding principal amount of the loan accrues interest at
per annum rate equal to the London Inter-bank Offered Rate (LIBOR) plus 5.5%,
not to exceed 11% per annum. Interest is payable at the end of each loan year.
Principal plus any accrued and unpaid interest are due and payable on February
26, 2014. Interest after the maturity date accrues at the per annum rate of
LIBOR plus 12% until paid in full. At any time, Isramco is entitled to prepay
the outstanding amount of the loan without penalty or prepayment. To secure its
obligations that may be incurred under the Loan Agreement, Isramco agreed to
grant to Naphtha a security interest in certain specified properties held by Jay
Petroleum, its wholly owned subsidiary. Naphtha can accelerate the loan and
exercise its rights under the collateral upon the occurrence any one or more of
the following events of default: (i) Isramco's failure to secure the
indebtedness as provided for in the agreement, pay any amount that may become
due in connection with the loan within five (5) days of the due date (whether by
extension, renewal, acceleration, maturity or otherwise) or fail to make any
payment due under any hedge agreement entered into in connection with the
transaction, (ii) Isramco's material breach of any of the representations or
warranties made in the loan agreement or security instruments or any writing
furnished pursuant thereto, (iii) Isramco's failure to observe any undertaking
contained in transaction documents if such failure continues for 30 calendar
days after notice, (iv) Isramco's insolvency or liquidation or a bankruptcy
event or(v) Isramco's criminal indictment or conviction under any law pursuant
to which such indictment or conviction can lead to a forfeiture by Isramco of
any of the properties securing the loan. Mr. Jackob Maimon, Isramco's president
and director is a director of Naphtha and Mr. Haim Tsuff, Isramco's Chief
Executive Officer and Chairman is a controlling shareholder of Naphtha.

     Pursuant to a Loan Agreement dated as of February 27, 2007 (the "Second
Loan Agreement") Isramco obtained a loan from Naphtha, in the principal amount
of $10.5 million, repayable at the end of seven years. Interest accrues at a per
annum rate of LIBOR plus 6%. At any time Isramco can make prepayments without
premium or penalty. The Second Loan Agreement is not secured. The other terms of
the Second Loan Agreement are identical to the terms of the Loan Agreement.
Pursuant to a Loan Agreement dated as of February 27, 2007 (the "Third Loan
Agreement ") Isramco obtained a loan from Naphtha, in the principal amount of
$12 million, repayable at the end of five years. Interest accrues at a per annum
rate of LIBOR plus 6%. At any time Isramco can make prepayments without premium
or penalty. The Third Loan is not secured. The other terms of the Third Loan
Agreement are identical to the terms of the Loan Agreement.

        Pursuant to a Loan Agreement dated as of February 26, 2007 Isramco
obtained a loan from J.O.E.L Jerusalem Oil Exploration Ltd, a related party
("JOEL"), in the principal amount of $ 7 million, repayable at the end of 3
months. Interest accrues at a per annum rate of 5.36%. Mr. Jackob Maimon,
Isramco's president and director is a director of JOEL and Mr. Haim Tsuff,
Isramco's Chief Executive Officer and Chairman is a controlling shareholder of
JOEL.

        Pursuant to a Credit Agreement, dated as of March 2, 2007 (the "Credit
Agreement") between Isramco Energy and Wells Fargo Bank NA, as administrative
agent, Isramco Energy obtained a $35.3 million credit line from Wells Fargo.
Amounts outstanding under the credit line are payable by March 1, 2011. Interest
on amounts outstanding accrue at a per annum rate equal to LIBOR plus 2%. An
Event of Default under the Credit Agreement shall be deemed to have occurred in
the event of any one or more of the following: (a) Isramco Energy shall default
in the payment or prepayment when due of any principal of or interest on any
loan, or any reimbursement obligation for a disbursement made under any letter
of credit, or any fees or other amount payable by it under the Credit Agreement
or any of the documents entered into in connection therewith (the "Credit
Agreement Documents"); (b) Isramco Energy or any of its subsidiaries shall
default in the payment when due of any principal of or interest on any of its
other debt, or any event specified in any note, agreement, indenture or other
document evidencing or relating to any such debt shall occur if the effect of
such event is to cause, or (with the giving of any notice or the lapse of time
or both) to permit the holder or holders of such debt (or a trustee or agent on
behalf of such holder or holders) to cause, such debt to become due prior to its
stated maturity; (c) Any representation, warranty or certification made or
deemed made pursuant to the Credit Agreement or any other Credit Agreement
Document, or any certificate furnished pursuant to the provisions thereof, shall
prove to be have been false or misleading as of the time made or furnished in
any material respect; (d) Isramco Energy shall (i) default in the performance of
any of its obligations under the Credit Agreement (including the obligation to
provide audited financial statements on an annual basis and the obligation to
report any default, but excluding other affirmative covenants) or (ii) default
in the performance of any of the affirmative covenants under the Credit
Agreement (excluding the

                                       8

<PAGE>

obligation to provide audited financial statements on an annual basis and the
obligation to report any default) or in the performance of its obligations under
any other Credit Agreement Document (other than payment obligations, which are
governed by clause (a) above) and such default shall continue unremedied for a
period of thirty (30) days after the earlier to occur of (A) Isramco Energy
receiving notice thereof or (B) Isramco Energy otherwise becoming aware of such
default; (e) Isramco or any of Isramco Energy's subsidiaries shall default in
the performance of any of their respective obligations under the guaranty
agreements entered into pursuant to the Credit Agreement (other than the payment
of amounts due, which shall have no grace period) and such default shall
continue unremedied for a period of thirty (30) days after the earlier to occur
of (i) Isramco receiving notice thereof or (ii) Isramco, Isramco Energy or any
of its subsidiaries otherwise becoming aware of such default; (f) Isramco Energy
shall admit in writing its inability to, or be generally unable to, pay its
debts as such debts become due; (g) Isramco Energy shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or all or a substantial part of its
property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter
in effect), (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up, liquidation or
composition or readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Federal Bankruptcy Code or (vi) take any corporate
action for the purpose of effecting any of the foregoing; (h) A proceeding or
case shall be commenced, without the application or consent of Isramco Energy,
in any court of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or readjustment of
its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or
the like of Isramco Energy or all or any substantial part of its assets, (iii)
similar relief in respect of Isramco Energy under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment
of debts, and such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be entered
and continue unstayed and in effect, for a period of 60 days, or (iv) an order
for relief against Isramco Energy shall be entered in an involuntary case under
the federal bankruptcy code; (i) A judgment or judgments for the payment of
money in excess of $100,000 in the aggregate shall be rendered by a court
against Isramco Energy or any subsidiary and the same shall not be discharged
(or provision shall not be made for such discharge), or a stay of execution
thereof shall not be procured by posting of a bond or otherwise, within thirty
(30) days from the date of entry thereof and Isramco Energy or such subsidiary
shall not, within said period of 30 days, or such longer period during which
execution of the same shall have been stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal; (j) The Credit Agreement
Documents after delivery thereof shall for any reason, except to the extent
permitted by the terms thereof, cease to be in full force and effect and valid,
binding and enforceable in accordance with their terms, or cease to create a
valid and perfected lien of the priority required thereby on any of the
collateral purported to be covered thereby, except to the extent permitted by
the terms of the Credit Agreement, or Isramco, Isramco Energy or any of its
subsidiaries shall so state in writing; (k) An event having a material adverse
effect on Isramco Energy shall occur; (l) Isramco Energy discontinues its usual
business or a change of control occurs; (m) Isramco or any of Isramco Energy's
subsidiaries takes, suffers or permits to exist any of the events or conditions
referred to in paragraphs (f), (g), (h) or (i) or if any provision of any
guaranty agreement related thereto shall for any reason cease to be valid and
binding on such guarantor or if such guarantor shall so state in writing; (n)
Isramco Energy defaults under certain management, operating and consulting
agreements entered into with respect to properties for which the lender has a
security interest.

     In addition to including customary affirmative and negative covenants, the
Credit Agreement requires Isramco Energy to: (a) maintain a ratio of
consolidated current assets to consolidated current liabilities of no less than
1.0 to 1.0 at all times; (b) ensure that its leverage ratio is no more than 3.50
to 1.0 as of the end of each fiscal quarter; (c) ensure that its interest
coverage ratio is no more than 2.50 to 1.0 as of the end of each fiscal quarter;
(d) ensure that its capital expenditures in any fiscal year do not exceed
$2.500,000.; ensure that COPAS charges do not exceed $250 per well per month.
Amounts outstanding under the Credit Agreement are secured by a guarantee from
Isramco and a pledge by Isramco of the shares of Isramco Energy.

     Additionally, pursuant to an agreement between Sigma Energy Corporation
("Sigma"), an unrelated party that originated the transaction with Five States,
Isramco and Isramco Energy, Isramco Energy paid to Sigma on March 2, 2007, the
amount of $300,000 and after Payout (as defined in the Agreement with Sigma),
Isramco Energy undertook to assign to Sigma a direct ownership interests equal
to 3.75% of the interests acquired by Isramco Energy under the Purchase
Agreement.

SWAP TRANSACTIONS

     In connection with the transaction with Five States, Isramco entered into
the following swap contracts.

                                       9

<PAGE>


1. As at balance sheet date Isramco had 24 swap contracts to sell 264,084
barrels of crude oil during 24 months commencing January 2007 for a total
consideration of $17.7 million, and 24 swap contracts to sell 2,853,156 MMBTU of
natural gas during 24 months commencing January 2007 for a total consideration
of $23.1 million.

     Subsequent to balance sheet date, in January 2007, Isramco executed reverse
contracts for most of the abovementioned contracts and remained with open swap
contracts for 23,000 barrels of crude oil for a total consideration of $1.5
million and 376,000 MMBTU of natural gas for a total consideration of $3
million.

The above mentioned reverse of swap contracts generated to Isramco a profit of
$2.1 million.

2. Following the closing of Five States transaction as stated above, Isramco
signed additional swap agreements with Wells Fargo Bank to secure it's future
oil and gas prices as follows:

(i)Swap contracts to sell 398,918 barrels of crude oil during 46 months
commencing March 2007 for a total consideration of $25.4 million.

(ii)Swap contracts to sell 29,609,026 MMBTU of natural gas during 46 months
commencing March 2007 for a total consideration of $29.6 million.

Hereunder are the open swap contracts positions as at March 13, 2007:

                           OIL
----------------------------------------------------------
 MONTHLY   FUTURE                      TOTAL      TOTAL
QUANTITY    PRICE           NO' OF   QUANTITY     AMOUNT
 BARRELS     US$     YEAR   MONTHS    BARRELS       US$
--------   ------   -----   ------   --------   ----------
  3,000     62.00   2,007     10       30,000    1,860,000
  3,000     64.15   2,008     12       36,000    2,309,400
  2,700     63.90   2,009     12       32,400    2,070,360
  2,700     63.30   2,010     12       32,400    2,050,920
  6,341     62.47   2,007     10       63,410    3,961,223
  5,516     64.70   2,008     12       66,192    4,282,622
  6,096     64.55   2,009     12       73,152    4,721,962
  5,447     63.80   2,010     12       65,364    4,170,223
  1,000     66.05   2,007     12       12,000      792,600
  1,000     68.46   2,008     12       12,000      821,520
                                      -------   ----------
Total                                 422,918   27,040,830
                                      =======   ==========

                           GAS
-----------------------------------------------------------
 MONTHLY   FUTURE                      TOTAL        TOTAL
QUANTITY    PRICE           NO' OF   QUANTITY      AMOUNT
  MMBTU      US$     YEAR   MONTHS     MMBTU         US$
--------   ------   -----   ------   ---------   ----------
 81,107     8.03    2,007     10       811,070    6,512,892
 80,876     8.20    2,008     12       970,512    7,958,198
 85,874     7.77    2,009     12     1,030,488    8,006,892
 79,286     7.49    2,010     12       951,432    7,126,226
 20,000     7.87    2,007     12       240,000    1,887,600
 13,000     8.37    2,008     12       156,000    1,304,940
                                     ---------   ----------
Total                                4,159,502   32,796,748
                                     =========   ==========

                                       10

<PAGE>


NON-OIL AND GAS PROPERTIES

CRUISE LINER

     In March 2004, Isramco purchased a luxury cruise liner (the "Vessel") for
aggregate consideration of $8,050,000. The Vessel, a Bahamas registered ship,
contains 270 passenger cabins on nine decks. Isramco leased the Vessel to a tour
operator for the period from April 4, 2005 through October 31, 2005 and from
April 6, 2006 through November 5, 2006 at a daily rate of $8,000. Under the
lease all maintenance and operating costs associated with the vessel were borne
by the operator.

     Title to the Vessel was in Magic 1 Cruise Line Corp., a British Virgin
Islands corporation and a wholly owned subsidiary of Isramco ("Magic"). Isramco
expended approximately $1.4 million and $1 million in the years 2006 and 2005,
respectively, in respect of the maintenance, repairs, renovation and upkeep of
the vessel. In addition, following management's assessment conducted in April
and May 2006 as part of the preparation of the financial statements for the
first quarter of 2006, management determined that there had been a decrease in
the fair market value of Isramco's investment in the Magic 1 cruise vessel and,
that as a consequence thereof, Isramco believed the investment had been
impaired. Accordingly, Isramco recorded as impairment charge in March 2006 in
the amount of $2,200,000.

     On December 31, 2006, Isramco and Chesny Estates Ltd. ("Chesny"), a British
Virgin Islands corporation entered into a certain Share Purchase and Sale
Agreement, dated as of December 31, 2006 (the "Purchase Agreement"). pursuant to
which Isramco sold to Chesny all of the outstanding share capital of Magic, for
a purchase price of $2.15 million. The purchase included the assumption by
Chesny of a loan in the principal amount of $3.3 million incurred by Magic in
connection with the purchase of the cruise liner vessel.

     Isramco's decision to sell its holdings in Magic is primarily attributable
to Isramco's decision to focus principally on the oil and gas business.
Following the sale of Magic, Isramco is no longer engaged in the cruise line
business.

REAL ESTATE IN ISRAEL

     In June 2002, Isramco purchased non oil and gas producing real estate
located in Israel at an aggregate cost of $1,887,000. As of December 1, 2004,
Isramco entered into an agreement with a related entity pursuant to which the
property is leased to such entity for a 24 month period at a monthly rent of
$7,000 through December 31, 2005. On January 1, 2006, Isramco entered into a new
agreement with a related entity pursuant to which a significantly smaller part
of the property is leased to such entity for a 24-month period at a monthly rent
of $550.

EMPLOYEES

     As of March 13, 2006, Isramco had 10 employees at its branch office in
Israel and three employees in its office in Houston, Texas.

ITEM 1A. RISK FACTORS

     In addition to the other information contained in this Annual Report on
Form 10-K, investors should consider carefully the following risks. If any of
these risks occurs, Isramco's business, financial condition or operating results
could be adversely affected.

                        RISKS RELATED ISRAMCO'S BUSINESS

OIL AND GAS DRILLING IS A SPECULATIVE ACTIVITY AND RISKY

     Isramco is engaged in the business of oil and natural gas exploration and
the resulting development of productive oil and gas wells. Isramco's growth will
be materially dependent upon the success of its future drilling program.
Drilling for oil and gas involves numerous risks, including the risk that no
commercially productive oil or natural gas reservoirs will be encountered. The
cost of drilling, completing and operating wells is substantial and uncertain,
and drilling operations may be curtailed, delayed or cancelled as a result of a
variety of factors beyond Isramco's control, including unexpected drilling
conditions, pressure or irregularities in formations, equipment failures or
accidents, adverse weather conditions, compliance with governmental requirements
and shortages or delays in the availability of drilling rigs or crews and the
delivery of equipment. Although Isramco believes that its use of 3-D seismic
data and other advanced technology should increase the probability of success of
its wells and should reduce average finding costs through elimination of
prospects that might otherwise be drilled solely on the basis of 2-D seismic
data and other traditional methods, drilling remains an inexact and speculative
activity. In addition, the use of 3-D seismic data and such technologies
requires greater pre-drilling expenditures than traditional drilling strategies
and Isramco could incur losses as a result of such expenditures. Isramco's
future drilling activities may not be successful and, if unsuccessful, such
failure could have an adverse effect on Isramco's future

                                       11

<PAGE>

results of operations and financial condition. Although Isramco may discuss
drilling prospects that have been identified or budgeted for, Isramco may
ultimately not lease or drill these prospects within the expected time frame, or
at all. Isramco may identify prospects through a number of methods, some of
which do not include interpretation of 3-D or other seismic data. The drilling
and results for these prospects may be particularly uncertain. The final
determination with respect to the drilling of any scheduled or budgeted wells
will be dependent on a number of factors, including (i) the results of
exploration efforts and the acquisition, review and analysis of the seismic
data, (ii) the availability of sufficient capital resources to Isramco and the
other participants for the drilling of the prospects, (iii) the approval of the
prospects by other participants after additional data has been compiled, (iv)
economic and industry conditions at the time of drilling, including prevailing
and anticipated prices for oil and natural gas and the availability of drilling
rigs and crews, (v) Isramco's financial resources and results (vi) the
availability of leases and permits on reasonable terms for the prospects and
(vii) the payment of royalties to lessors. There can be no assurance that these
projects can be successfully developed or that the wells discussed will, if
drilled, encounter reservoirs of commercially productive oil or natural gas.
There are numerous uncertainties in estimating quantities of proved reserves,
including many factors beyond Isramco's control.

     THE OIL AND NATURAL GAS RESERVE DATA INCLUDED IN THIS REPORT ARE ONLY
ESTIMATES AND MAY PROVE TO BE INACCURATE.

     There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their estimated values. The reserve data in this report represent
only estimates that may prove to be inaccurate because of these uncertainties.
Estimates of economically recoverable oil and natural gas reserves depend upon a
number of variable factors, such as historical production from the area compared
with production from other producing areas and assumptions concerning effects of
regulations by governmental agencies, future oil and natural gas prices, future
operating costs, severance and excise taxes, development costs and workover and
remedial costs, some or all of these assumptions may in fact vary considerably
from actual results. For these reasons, estimates of the economically
recoverable quantities of oil and natural gas attributable to any particular
group of properties, classifications of such reserves based on risk of recovery,
and estimates of the future net cash flows expected therefrom prepared by
different engineers or by the same engineers but at different times may vary
substantially. Accordingly, reserve estimates may be subject to downward or
upward adjustment. Actual production, revenue and expenditures with respect to
Isramco's reserves will likely vary from estimates, and such variances may be
material.

     THERE IS A POSSIBILITY THAT ISRAMCO WILL LOSE THE LEASES TO ITS OIL AND GAS
PROPERTIES.

     Isramco's oil and gas revenues are generated through leases to the oil and
gas properties or, in the case of Israeli based properties, licenses that,
subject to certain conditions, may result in leases being granted. The leases
are subject to certain obligations and are renewable at the discretion of
various governmental authorities, as such, Isramco may not be able to fulfill
its obligations under the leases which may result in the modification or
cancellation of such leases, or such leases may not be renewed or may be renewed
on terms different from the current leases. The modification or cancellation of
Isramco's leases may have a material impact on Isramco's revenues.

     COMPETITION IN THE INDUSTRY MAY IMPAIR ISRAMCO'S ABILITY TO EXPLORE,
DEVELOP AND COMMERCIALIZE ITS OIL AND GAS PROPERTIES.

     The oil and natural gas industry is very competitive. Competition is
particularly intense in the acquisition of prospective oil and natural gas
properties and oil and gas reserves. Isramco competes with a substantial number
of other companies having larger technical staffs and greater financial and
operational resources. Many such companies not only engage in the acquisition,
exploration, development and production of oil and natural gas reserves, but
also carry on refining operations, electricity generation and the marketing of
refined products. Isramco also competes with major and independent oil and gas
companies in the marketing and sale of oil and natural gas, and the oil and
natural gas industry in general competes with other industries supplying energy
and fuel to industrial, commercial and individual consumers. Isramco competes
with other oil and natural gas companies in attempting to secure drilling rigs
and other equipment necessary for drilling and completion of wells. Such
equipment may be in short supply from time to time.

     ISRAMCO'S BUSINESS MAY BE AFFECTED BY OIL AND GAS PRICE VOLATILITY.

     Historically, natural gas and oil prices have been volatile. These prices
rise and fall based on changes in market demand and changes in the political,
regulatory and economic climate and other factors that affect commodities
markets that are generally outside of Isramco's control. Some of Isramco's
projections and estimates are based on assumptions as to the future prices of
natural gas and crude oil. These price assumptions are used for planning
purposes. Isramco expects that its assumptions will change over time and that
actual prices in the future may differ from its estimates. Any substantial or
extended decline in the actual

                                       12

<PAGE>

prices of natural gas and/or crude oil may have a material adverse effect on
Isramco's financial position and results of operations (including reduced cash
flow and borrowing capacity), the quantities of natural gas and crude oil
reserves that it can economically produce and the quantity of estimated proved
reserves that may be attributed to its properties

     ISRAMCO HAS NO MEANS TO MARKET ITS OIL AND GAS PRODUCTION WITHOUT THE
ASSISTANCE OF THIRD PARTIES.

     The marketability of Isramco's production depends upon the proximity of its
reserves to, and the capacity of, facilities and third party services, including
oil and natural gas gathering systems, pipelines, trucking or terminal
facilities, and processing facilities. The unavailability or lack of capacity of
such services and facilities could impair or delay the production of new wells
or the delay or discontinuance of development plans for properties. A shut-in or
delay or discontinuance could adversely affect Isramco's financial condition. In
addition, regulation of oil and natural gas production transportation in the
United States or in other countries may affect its ability to produce and market
its oil and natural gas on a profitable basis.

     THE UNAVAILABILITY OR INCREASED COST OF DRILLING RIGS, EQUIPMENT, SUPPLIES,
PERSONNEL AND OILFIELD SERVICES COULD ADVERSELY AFFECT ISRAMCO'S ABILITY TO
EXECUTE ON A TIMELY BASIS ON ITS DEVELOPMENT PLANS WITHIN ITS BUDGET.

     Shortages or an increase in cost of drilling rigs, equipment, supplies or
personnel could delay or adversely affect Isramco's operations, which could have
a material adverse effect on its business, financial condition and results of
operations. In periods of increased drilling activity, Isramco may experience
increases in associated costs, including those related to drilling rigs,
equipment, supplies and personnel and the services and products of other vendors
to the industry. Increased drilling activity in the Texas area also decreases
the availability of rigs and associated equipment. These costs may increase
further and necessary equipment and services may not be available to us at
economical prices.

     ISRAMCO IS SUBJECT TO RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.

     Isramco conducts business from its facilities in Israel and the United
States. Its international operations and activities subject Isramco to a number
of risks, including the risk of political and economic instability, difficulty
in managing foreign operations, potentially adverse taxes, higher expenses and
difficulty in collection of accounts receivable. Although Isramco Israeli
subsidiary receives most of its operating funds in U.S. dollars, a portion of
its payroll and other expenses and certain of its investments are fixed in the
currency of Israel. Because Isramco's financial results are reported in U.S.
dollars, they are affected by changes in the value of the various foreign
currencies that Isramco uses to make payments in relation to the U.S. dollar.

     ISRAMCO'S OPERATIONS MAY BE IMPACTED BY CERTAIN RISKS COMMON IN THE
INDUSTRY.

     Isramco's exploration and drilling operations are subject to various risks
common in the industry, including cratering, explosions, fires and
uncontrollable flows of oil, gas or well fluids. The drilling operations are
also subject to the risk that no commercially productive natural gas or oil
reserves will be encountered. The cost of drilling, completing and operating
wells is often uncertain, and drilling operations may be curtailed, delayed or
canceled as a result of a variety of factors, including drilling conditions,
pressure or irregularities in formations, equipment failures or accidents and
adverse weather conditions.

     In accordance with industry practice, Isramco maintains insurance against
some, but not all, of the risks described above. Isramco cannot provide
assurance that its insurance will be adequate to cover losses or liabilities.
Also, it cannot predict the continued availability of insurance at premium
levels that justify its purchase.

     GOVERNMENT REGULATION AND LIABILITY FOR ENVIRONMENTAL MATTERS MAY ADVERSELY
AFFECT ISRAMCO'S BUSINESS AND RESULTS OF OPERATIONS.

     Oil and natural gas operations are subject to various federal, state and
local government regulations, which may be changed from time to time. Matters
subject to regulation include discharge permits for drilling operations,
drilling bonds, reports concerning operations, the spacing of wells, unitization
and pooling of properties and taxation. From time to time, regulatory agencies
have imposed price controls and limitations on production by restricting the
rate of flow of oil and natural gas wells below actual production capacity in
order to conserve supplies of oil and natural gas. There are federal, state and
local laws and regulations

                                       13

<PAGE>

primarily relating to protection of human health and the environment applicable
to the development, production, handling, storage, transportation and disposal
of oil and natural gas, by-products thereof and other substances and materials
produced or used in connection with oil and natural gas operations. In addition,
Isramco may be liable for environmental damages caused by previous owners of
property it purchases or leases. As a result, Isramco may incur substantial
liabilities to third parties or governmental entities. Isramco is also subject
to changing and extensive tax laws, the effects of which cannot be predicted.
The implementation of new, or the modification of existing, laws or regulations
could have a material adverse effect on Isramco's business.

     ISRAMCO MAY BE UNABLE TO IDENTIFY LIABILITIES ASSOCIATED WITH THE
PROPERTIES THAT IT ACQUIRES OR OBTAIN PROTECTION FROM SELLERS AGAINST THEM.

     The acquisition of properties requires Isramco to assess a number of
factors, including recoverable reserves, development and operating costs and
potential environmental and other liabilities. Such assessments are inexact and
inherently uncertain. In connection with the assessments, Isramco performs a
review of the subject properties, but such a review will not reveal all existing
or potential problems. In the course of our due diligence, we may not inspect
every well, platform or pipeline. Isramco cannot necessarily observe structural
and environmental problems, such as pipeline corrosion, when an inspection is
made. Isramco may not be able to obtain contractual indemnities from the seller
for liabilities that it created. Isramco may be required to assume the risk of
the physical condition of the properties in addition to the risk that the
properties may not perform in accordance with its expectations.

     MEMBERS OF ISRAMCO'S MANAGEMENT TEAM OWN A SIGNIFICANT AMOUNT OF COMMON
STOCK, GIVING THEM INFLUENCE OR CONTROL IN CORPORATE TRANSACTIONS AND OTHER
MATTERS, AND THE INTERESTS OF THESE INDIVIDUALS COULD DIFFER FROM THOSE OF OTHER
SHAREHOLDERS.

     Members of Isramco's management team beneficially own approximately 51.3%
of Isramco's outstanding shares of common stock as of March 13, 2007. As a
result, these shareholders are in a position to significantly influence or
control the outcome of matters requiring a shareholder vote, including the
election of directors, the adoption of an amendment to our articles of
incorporation or bylaws and the approval of mergers and other significant
corporate transactions.

RAPID GROWTH MAY PLACE SIGNIFICANT DEMANDS ON RESOURCES.

     Isramco experienced rapid growth in operations occasioned by the purchase
of approximately 650 producing oil and gas wells from Five States and expect
that significant expansion of its operations will continue. The rapid growth has
placed, and the anticipated future growth will continue to place, a significant
demand on Isramco's managerial, operational and financial resources due to:

     o    the need to manage relationships with various strategic partners and
          other third parties;

     o    difficulties in hiring and retaining skilled personnel necessary to
          support our business;

     o    the need to train and manage a growing employee base; and

     o    pressures for the continued development of our financial and
          information management systems.

     If Isramco has not made adequate allowances for the costs and risks
associated with this expansion or if its systems, procedures or controls are not
adequate to support its operations, its business could be adversely impacted.

                      RISKS RELATED TO OPERATIONS GENERALLY

     ISRAMCO IS SUBJECT TO RISKS ASSOCIATED WITH OPERATIONS IN ISRAEL.

     Isramco is involved in oil and gas exploration activities in Israel as
operator of certain offshore licenses or otherwise. Isramco also purchased
significant non-oil and gas real-estate properties in Israel. Isramco also
maintains a significant presence within Israel. Accordingly, a significant
portion of Isramco's business is directly affected by prevailing economic,
military and political conditions that affect Israel. Any major hostilities
involving Israel might have a material adverse effect on Isramco's business,
financial condition or results of operations.

     ISRAMCO'S STOCK PRICE IS VOLATILE AND COULD CONTINUE TO BE VOLATILE.

     Investor interest in Isramco's common stock may not lead to the development
of an active or liquid trading market. The market price of Isramco's common
stock has fluctuated in the past and is likely to continue to be volatile and
subject to wide fluctuations. In addition, the stock market has experienced
extreme

                                       14

<PAGE>

price and volume fluctuations. The stock prices and trading volumes for
Isramco's stock has fluctuated widely and may continue to so for reasons that
may be unrelated to business or results of operations. General economic, market
and political conditions could also materially and adversely affect the market
price of Isramco's common stock and investors may be unable to resell their
shares of common stock at or above their purchase price.

     PENNY STOCK REGULATIONS ARE APPLICABLE TO INVESTMENT IN SHARES OF THE
COMPANY'S COMMON STOCK.

     Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the Nasdaq system, provided that current
prices and volume information with respect to transactions in such securities
are provided by the exchange or system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules. Many brokers will not deal
with penny stocks; this restricts the market.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

     Isramco maintains offices in Houston, Texas. Isramco leases office space
premises (approximately 2,015 square feet) at 11767 Katy Freeway, Houston, TX
77079 under a lease expiring in October 2009 at a monthly rental of $ 3,200.
Isramco anticipates that it will be able to extend the lease, or find
replacement premises, on commercially reasonable terms.

     Isramco also leases office space in Israel from IOC at 8 Granit St., Petach
Tikva, Israel. In 2006, Isramco paid IOC an aggregate of $226,404 for rental
space, office services, secretarial services and computer services. Isramco
believes that the payment for the above services are reasonable compared to
other similar locations.

ITEM 3. LEGAL PROCEEDINGS

     From time to time, Isramco is involved in disputes and other legal actions
arising in the ordinary course of business. In management's opinion, none of
these other disputes and legal actions is expected to have a material impact on
Isramco's consolidated financial position or results of operations.

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

     During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders of Isramco.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The number of record holders of Isramco's Common Stock on March 13, 2007
was approximately 396, not including an undetermined number of persons who hold
their stock in street name.

     Our common stock is listed on the Nasdaq Capital Market under the symbol
"ISRL". The following table sets forth for the periods indicated, the reported
high and low closing prices for our common stock.

                                       15





<PAGE>

                 COMMON STOCK
               ---------------
                HIGH      LOW
               ------   ------
2006
March 31       $ 15.33  $12.22
June 30        $ 17.98  $16.06
September 30   $ 18.55  $16.40
December 31    $ 31.66  $21.25

2005
March 31       $ 8.99   $ 8.72
June 30        $10.93   $ 9.60
September 30   $15.09   $14.27
December 31    $15.27   $14.91

     Isramco has not declared or paid any cash dividends on its Common Stock.
Isramco does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. Isramco intends to retain all earnings for use in its
business operations and in expansion.

STOCK PERFORMANCE GRAPH

     The following graph compares the yearly percentage of change in Isramco's
cumulative stockholder return on its Common Stock (assuming reinvestment of
dividends at date of payment into Common Stock) to the cumulative total return
on the NASDAQ Market Index ("NASDAQ Index") and the cumulative total return on
the GICS (Global Industry Classification Standard) Standard & Poor's Oil & Gas
Exploration and Production Index ("Peer Index") for the period of five years
commencing on December 31, 2000 and ending on December 31, 2005. The graph
assumes that $100 was invested on December 31, 2001 in the common stock of
Isramco, The NASDAQ Index and Peer Index, and further assumes no payment or
reinvestment of dividends. The stock price performance on the following graph is
not necessarily indicative of future stock price performance.

DATE                NASDAQ   PEER INDEX   COMPANY
-----------------   ------   ----------   -------
DECEMBER 31, 2001   100.00      100.0      100.0
DECEMBER 31, 2002     68.4      102.8       70.0
DECEMBER 31, 2003    102.7      136.2      158.2
DECEMBER 31, 2004    111.5      205.5      135.1
DECEMBER 31, 2005    113.0      316.7      386.4
DECEMBER 31, 2006    123.8      333.0      752.5

ITEM 6. SELECTED FINANCIAL DATA (CONSOLIDATED)

The data presented below with respect to Isramco should be read in conjunction
with the Consolidated Financial Statements and related Notes thereto of Isramco
included elsewhere in this Report and Item 7-- "Management's Discussion and
Analysis of Financial Condition and Results of Operations." (in thousands)

                                       16

<PAGE>

<TABLE>
<CAPTION>
                                                          2006         2005         2004         2003         2002
                                                       ----------   ----------   ----------   ----------   ----------
<S>                                                    <C>          <C>          <C>          <C>          <C>
Operator's fees                                                69   $      977   $      137   $      753   $      249
Oil and Gas Sales                                           2,167   $    3,319   $    3,174   $    3,439   $    2,423
Interest income                                               448   $      293   $      729   $      760   $      738
Office services to related parties
   and other                                                  756   $      938   $      772   $      939   $      913
Equity in earnings (losses) of investees                    2,570   $      661   $    1,365   $    1,098   $     (440)
Gain (Loss) on marketable securities                        1,177   $      551   $      240   $      872   $     (189)
Compensation for legal settlement                           2,536           --           --           --           --
Gain from swap transactions                                 2,604         (641)          --           --           --
Other                                                          39   $      117   $      492   $      475   $       49
Impairment of oil & gas properties                            668   $      759   $      268   $      617           --
Exploration costs                                             125          110           --   $      165   $    1,747
Lease operating expenses and severance
Taxes                                                       1,119   $    1,458   $    1,149   $      872   $      844
Depreciation, depletion and Amortization                      455   $    1,011   $      896   $      621   $      642
Operator expense                                              330   $      767   $      807   $      795   $      791
General and administrative expenses                         2,009   $    2,298   $    1,691   $    2,012   $    1,422
Interest Expense                                              294   $       --   $       93   $       52   $      210
Accretion Expense                                              71   $       25   $        5   $       43           --
Income tax (expense) benefit                                 (726)  $      (40)  $     (576)  $    1,188   $      114
Income from continuing operations                           6,569   $     (253)  $    1,424   $    2,520   $   (1,799)
Discontinued operation                                     (2,727)        (879)        (431)          --           --
Income before cumulative effect of change in
   accounting principles                                    3,842       (1,132)         993        2,520       (1,799)
Cumulative effect of change in accounting principles           --           --           --   $     (264)  $    3,516
Net income (loss)                                           3,842       (1,132)         993        2,256        1,717
Basic and diluted earnings (loss)
per common share for:
   Income from continuing operations                         2.42   $    (0.09)  $     0.54   $     0.95   $    (0.68)
Cumulative effect of accounting change, net                    --           --           --        (0.10)        1.33
   Discontinued operations                                  (1.01)  $    (0.33)  $    (0.16)
   Net income (loss)                                         1.41   $    (0.42)  $     0.38   $     0.85   $     0.65
Weighted average number of
Common shares outstanding - basic                       2,717,691    2,709,355    2,639,853    2,639,853    2,639,853
Weighted average number of
Common shares outstanding - diluted                     2,717,691    2,709,355    2,639,853    2,639,853    2,639,853
</TABLE>

                                       17

<PAGE>

                        AS OF DECEMBER 31,
                        ------------------
                          2006      2005
                         ------   -------
Balance Sheet Data
Total assets             62,073   $38,615
Total liabilities        27,329   $10,122
Long-term obligations     4,768   $ 3,242
Shareholders' equity     34,744   $28,493

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE FOLLOWING COMMENTARY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS FORM 10-K.
THE DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE STATEMENTS RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL
PERFORMANCE. IN SOME CASES, YOU CAN IDENTIFY THESE FORWARD-LOOKING STATEMENTS BY
TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "PLAN," "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "PREDICT," "POTENTIAL," "INTEND," OR "CONTINUE," AND
SIMILAR EXPRESSIONS. THESE STATEMENTS ARE ONLY PREDICTIONS. OUR ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS
AS A RESULT OF A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET
FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS FORM 10-K.

OVERVIEW

     Isramco, Inc., a Delaware corporation, is active in the exploration of oil
and gas in Israel and the United States. Isramco acts as an operator of certain
leases and licenses and also holds participation interests in certain other
interests. Isramco also holds certain non-oil and gas properties discussed
below.

CRITICAL ACCOUNTING POLICIES

     Estimation of oil and gas reserves is important to the effective management
of Isramco. They are integral to making investment decisions about oil and gas
properties such as whether development should proceed or enhanced recovery
methods should be undertaken. Oil and gas reserve quantities are also used as
the basis of calculating the unit-of-production rates for depletion and
evaluating for impairment. Oil and gas reserves are divided between proved and
unproved reserves. Proved reserves are the estimated quantities of crude oil,
natural gas and natural gas liquids that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions; i.e., prices
and costs as of the date the estimate is made. Unproved reserves are those with
less than reasonable certainty of recoverability and are classified as either
probable or possible.

     The estimation of proved reserves is an ongoing process based on rigorous
technical evaluations and extrapolations of well information such as flow rates
and reservoir pressure declines. Although Isramco is reasonably certain that
proved reserves will be produced, the timing and amount recovered can be
affected by a number of factors including completion of development projects,
reservoir performance, regulatory approvals and significant changes in long-term
oil and gas price levels.

     The calculation of unit-of-production depletion is a critical accounting
estimate that measures the depletion of upstream assets. It is the ratio of (1)
actual volumes produced to (2) total proved developed reserves (those proved
reserves recoverable through existing wells with existing equipment and
operating methods) applied to the (3) asset cost. The volumes produced and asset
costs are known and, while proved developed reserves have a high probability of
recoverability, they are based on estimates that are subject to some
variability.

     Isramco records an investment impairment charge when it believes an
investment has experienced a decline in value that is other than is temporary.
Future adverse changes in market conditions or poor operating results of
underlying investments could result in losses or an inability to recover the
carrying value of the investment that may not be reflected in an investment's
current carrying value, thereby possibly requiring an impairment charge in the
future.

     Isramco records a valuation allowance to reduce its deferred tax assets to
the amount that is more likely than not to be realized. While Isramco has
considered future taxable income and ongoing prudent and

                                       18

<PAGE>

feasible tax planning strategies in assessing the need for the valuation
allowance, in the event that Isramco were to determine that it would be able to
realize its deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase net income in the
period such determination was made.

     Isramco does not participate in, nor has it created, any off-balance sheet
special purpose entities or other off-balance sheet financing. In addition,
Isramco does not enter into any derivative financial instruments other than the
Swap Agreements.

     Isramco records a liability for asset retirement obligations at fair value
in the period in which they are incurred and a corresponding increase in the
carrying amount of the related long lived assets.

LIQUIDITY AND CAPITAL RESOURCES

     Isramco finances its operations primarily from cash generated by
operations. Isramco's operating activities provided (used) net cash of
$2,010,000 and ($196,000) for the years ended December 31, 2006 and 2005,
respectively. The availability of cash generated by operations could be affected
by other business risks discussed in the "Risk Factors" section of this annual
report.

     Working capital (current assets minus current liabilities) was $5,752,000
and $9,121,000 at December 31, 2006 and 2005, respectively. The increase in
working capital is primarily attributable to the purchase of oil and gas assets
and participation in drilling of wells in the United States.

     Net cash provided by (used in) investing activities in fiscal 2006 was
$(2,779,000) compared to $276,000 in fiscal 2005. The increase in net cash used
in investing activities in 2006 is primarily attributable to Isramco's
investments in the drilling of oil and gas wells in the United States offset by
the increase in the value of marketable securities.

     Capital expenditures for property and equipment were $6,737,000 and
$3,686,000 in fiscal 2006 and 2005, respectively. Capital expenditures in 2006
and 2005 were primarily attributable to purchase of oil and gas properties and
drilling of oil and gas wells in the United States.

RESULTS OF OPERATIONS

     YEAR ENDED DECEMBER 31, 2006 COMPARED TO YEAR ENDED DECEMBER 31, 2005.

     Isramco reported income from continuing operations of $6,569,000 (income of
$2.42 per share) in 2006 compared to a loss from continuing operations of
$253,000 (loss of $0.09 per share) in 2005. The increase in the net income in
2006 compared to 2005 is primarily attributable to: (i) an increase in the gain
of marketable securities, (ii) an increase in the net income of investees, (iii)
an increase in other income due to recording of non-recurring one time receipt
of $2,536,000 for the settlement of certain lawsuit that was initiated by
Isramco and income related to mark-to market of swap contracts on oil and gas
prices.

Set forth below is a break-down of these results.

                                  UNITED STATES

                 OIL AND GAS VOLUME AND REVENUES (IN THOUSANDS)

                         2006    2005
                        -----   -----
Oil Volume Sold (Bbl)      13      16
Gas Volume Sold (MCF)     213     355
Oil Sales ($)             796     806
Gas Sales ($)           1,371   2,513
Average Unit Price
Oil ($/Bbl) *           59.14   51.25
Gas ($/MCF) **           6.42    7.11

*    Bbl - Barrel Equivalent to 42 U.S. Gallons

**   MCF - 1,000 CUBIC FEET

                                       19

<PAGE>

OIL AND GAS EXPLORATION COSTS

     In 2006, Isramco incurred $125,000 in exploration costs mainly incurred for
geological and geophysical consulting relating to the operation in United
States, compared to $110,000 in 2005, mainly incurred for a well drilled in
Israel which was plugged and abandoned.

OPERATOR'S FEES

     In 2006 Isramco earned $69,000 in operator fees compared to $977,000 in
2005. The decrease is mainly due to the drilling of the Gad 1 well, offshore
Israel, in 2005.

OIL AND GAS REVENUES

     In 2006 and 2005 Isramco had oil and gas revenues of $2,167,000 and
$3,319,000, respectively. The decrease is primarily attributable to the decline
in oil and gas production and decrease in gas prices.

LEASE OPERATING EXPENSES AND SEVERANCE TAXES

     Lease operating expenses and severance taxes were incurred primarily in
connection with oil and gas fields in the United States. Oil and gas lease
operating expenses and severance taxes were $1,119,000 and $1,458,000 for 2006
and 2005, respectively. The decline is primarily due to the decline in oil and
gas revenues caused by a decline in production.

INTEREST AND DIVIDEND INCOME

     Interest income during the year ended December 31, 2006 was $448,000
compared to $293,000 for the year ended December 31, 2005. The increase in
interest income is primarily attributable to interest earned on interest bearing
marketable securities.

GAIN ON MARKETABLE SECURITIES

     In 2006, Isramco recognized net realized and unrealized gain on marketable
securities of $1,177,000 compared to net realized and unrealized gain on
marketable securities of $551,000 in 2005.

     Increases or decreases in the gains and losses from marketable securities
are dependent on the market prices in general and the composition of the
portfolio of Isramco.

OPERATOR EXPENSES

     In 2006 Isramco expended $330,000 for operator expenses compared to
$767,000 in 2005.The decrease is primarily attributable to decrease in Isramco's
exploration activities.

GENERAL AND ADMINISTRATIVE EXPENSES

     In 2006 Isramco incurred $2,009,000 in general and administrative expenses
compared to $2,298,000 in 2005. The decrease in mainly due to a decrease in
legal consultant expenses and due to the lower bonus payments to executives in
2006.

EQUITY IN NET INCOME OF INVESTEE

     Isramco's equity in the net income of investees for 2006 was $2,570,000
compared to its equity in net income of investees of $661,000 for 2005. The
increase is primarily attributable to the increase in the gain of marketable
securities held by the Limited Partnerships Isramco Negev 2 and I.O.C Dead Sea
LP, affiliates of Isramco.

DEPRECIATION, DEPLETION AMORTIZATION AND IMPAIRMENT

     Depreciation, depletion and amortization expenses are connected to the
producing wells in the United States.

     During 2006 Isramco recorded depreciation depletion and amortization
expenses $455,000 compared to $1,011,000 in 2005. The main reasons for the
decrease is due to decrease in oil and gas production volumes in 2006 and
impairment charges recorded in 2005.

     During 2006 and 2005, Isramco recorded impairment charges of 668,000 and
$759,000, respectively

                                       20

<PAGE>

relating to oil and gas assets in the United States.

DISCONTINUED OPERATION

     In 2006, Isramco recorded a loss of $2,727,000 on discontinued operation of
the Magic 1 Cruise Line Corp. compared to a loss of $879,000 in 2005. The
increase of net and operating loss of the vessel discontinued activity in 2006
compared to 2005 is attributable mainly to a one time impairment of cost of
vessel of $2.2 million and increase of maintenance expenses, net of capital gain
from the sale of the vessel. As a result of the sale of the vessel, the company
recorded a one time capital gain of $384,000.

OTHER INCOME

     Other Income in 2006 was $39,000 compared to $117,000 in 2005.

GAIN FROM SWAP TRANSATION

     Isramco recorded in 2006 net income of $2,604,000 related to market to
market of swap contracts on oil and gas prices, compared to net expenses of
$641,000 in 2005.

COMPENSATION FOR LEGAL SETTLEMENT

     In January 2006, the Company entered into a settlement agreement and mutual
release with the defendant parties named therein relating to the lawsuit
initiated by the Company against the defendants in February 2004 in the Superior
Court of California, County of Los Angeles, alleging breach of contract and tort
claims in connection with an agreement between the Company and the defendants to
jointly purchase and develop certain parcels of real estate outside Los Angeles.
The agreement provides for the settlement of the action with no finding or
admission of fault on the part of any party and, pursuant thereto, certain of
the defendants paid to the Company $2,500,000 as reimbursement for costs and
expenses incurred by the Company in connection with its pursuit of the real
estate investment opportunity that was the subject of the action. Under the
agreement, the Company and the defendants mutually released one another from any
claims or causes of actions arising out of or relating to the action, any claim
that could have been asserted in the action, and any and all claims and/or
allegations relating to the real estate (and the development thereof) that was
the subject of the action.

        (ii) In February 2006, the Company entered into a settlement agreement
and mutual release with the defendant parties named therein relating to the
lawsuit initiated by the Company against the defendants in 2004 in the District
Court of Harris County, Texas, alleging a tort claim in connection with an
agreement between the Company and a third party pursuant to which the Company
purchased all of the outstanding capital stock of a company that owns oil and
gas assets in Illinois. Under the agreement the defendants paid the Company
$550,000 and the Company filed a motion to dismiss its claims against the
defendants with prejudice.

     As a result of the payments received under the settlement agreements, the
Company recorded a net gain of approximately $2,536,000 (after payment of legal
fees and other expenses) during 2006.

INCOME TAXES

     Isramco recorded income tax expense of $726,000 for the year ended December
31, 2006 as compared to $40,000 for the year ended December 31, 2005. The
primary difference from the statutory tax expense and the actual tax expense for
2006 results from intangible drilling costs incurred during 2006 that are fully
deductible for tax purposes and are depleted for book purposes. This is
partially offset by the foreign income tax expense incurred for the foreign
operations.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004.

     Isramco reported net loss of $1,132,000 (loss of $0.42 per share) in 2005
compared to a net profit of $993,000 (loss of $0.38 per share) in 2004. The
decrease in the net income in 2005 compared to 2004 is primarily attributable
to: (i) an increase in losses associated with the operation of the vessel, (ii)
an increase in the impairment of oil and gas assets, (iii) an increase in lease
operation expenses of the wells in the United States and (iv) an increase in the
general and administration expenses.

Set forth below is a break-down of these results.

                                       21

<PAGE>

                                  UNITED STATES
                 OIL AND GAS VOLUME AND REVENUES (IN THOUSANDS)

                         2005     2004
                        ------   ------
Oil Volume Sold (Bbl)       16       18
Gas Volume Sold (MCF)      355      470
Oil Sales                 $806     $678
Gas Sales               $2,513   $2,524
Average Unit Price
Oil ($/Bbl) *           $51.25   $38.12
Gas ($/MCF) **          $ 7.11   $ 5.38

*    Bbl - Barrel Equivalent to 42 U.S. Gallons

**   MCF - 1,000 CUBIC FEET

                                       22

<PAGE>

OIL AND GAS EXPLORATION COSTS

     In 2005 Isramco incurred $110,000 in exploration costs. These costs were
incurred mainly for a well drilled in Israel that was plugged and abandoned.

OPERATOR'S FEES

     In 2005 Isramco earned $977,000 in operator fees compared to $137,000 in
2004. The increase is due to the drilling of the Gad 1 well.

OIL AND GAS REVENUES

     In 2005 and 2004 Isramco had oil and gas revenues of $3,319,000 and
$3,174,000, respectively. The increase is due to the increase in oil and gas
prices.

LEASE OPERATING EXPENSES AND SEVERANCE TAXES

     Lease operating expenses and severance taxes were incurred primarily in
connection with oil and gas fields in the United States. Oil and gas lease
operating expenses and severance taxes were $1,458,000 and $1,149,000 for 2005
and 2004, respectively. The increase in lease operating expenses and severance
taxes is primarily attributable to work-over performed on two wells.

INTEREST AND DIVIDEND INCOME

     Interest income during the year ended December 31, 2005 was $293,000
compared to $729,000 for the year ended December 31, 2004. The decrease in
interest income is primarily attributable to interest receivable on marketable
securities (Debentures).

GAIN ON MARKETABLE SECURITIES

     In 2005, Isramco recognized net realized and unrealized gain on marketable
securities of $551,000 compared to net realized and unrealized gain on
marketable securities of $240,000 in 2004.

     Increases or decreases in the gains and losses from marketable securities
are dependent on the market prices in general and the composition of the
portfolio of Isramco.

OPERATOR EXPENSES

     In 2005, Isramco expended $767,000 for operator expenses compared to
$807,000 in 2004.

GENERAL AND ADMINISTRATIVE EXPENSES

     In 2005, Isramco incurred $2,298,000 in general and administrative expenses
compared to $1,691,000 in 2004. The relatively higher amount in 2005 is
primarily attributable to bonus payments totaling $245,000 to the president,
vice president and secretary, fees associated with lawsuits initiated by Isramco
and consultants' fees.

EQUITY IN NET INCOME OF INVESTEE

     Isramco's equity in the net income of investees for 2005 was $661,000
compared to its equity in net income of investees of $1,365,600 for 2004. The
decrease is primarily attributable to the decrease in the gain of marketable
securities held by the Limited Partnerships Isramco Negev 2 and I.O.C Dead Sea
LP, affiliates of Isramco.

DEPRECIATION, DEPLETION AMORTIZATION AND IMPAIRMENT

     Depreciation depletion and amortization expenses are connected to the
producing wells in the United States.

     During 2005, Isramco recorded $1,011,000 compared to $896,000 in 2004. The
increase is attributable to investments in oil and gas properties.

     During 2005 and 2004, Isramco recorded impairment charges of $759,000 and
$268,000, respectively, relating to oil and gas assets in the United States.

                                       23

<PAGE>

OTHER INCOME (EXPENSE)

     Other Income in 2005 was $117,000 compared to $492,000 in 2004. Other
Income in 2005 is primarily attributable to, $195,000 received from the European
tour operator of the cruise line vessel for office services provided by Isramco.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In September 2006, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 157, "Fair Value Measurements." This Statement defines fair
value, establishes a framework for its measurement and expands disclosures about
fair value measurements. We use fair value measurements to measure, among other
items, purchased assets and investments, leases, derivative contracts and
financial guarantees. We also use them to assess impairment of properties,
plants and equipment, intangible assets and goodwill. The Statement does not
apply to share-based payment transactions and inventory pricing. This Statement
is effective January 1, 2008. We are currently evaluating the impact on our
financial statements.

     In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" (FIN
48). This Interpretation provides guidance on recognition, classification, and
disclosure concerning uncertain tax liabilities. The evaluation of a tax
position will require recognition of a tax benefit if it is more likely than not
that it will be sustained upon examination. This Interpretation is effective
beginning January 1, 2007. We are currently evaluating the impact on our
financial statements.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Isramco is exposed to market risk, including adverse changes in commodity
prices.

     Isramco produces and sells natural gas and crude oil. As a result,
Isramco's financial results can be significantly affected if these commodity
prices fluctuate widely in response to changing market forces.

     Isramco uses swap contracts to manage the risk on commodity prices.
Isramco's positions are monitored and managed on a daily basis to ensure
compliance with Isramco's risk management policy. The swap contracts are entered
into principally with a major financial institution. All derivatives are
recorded at fair value on the consolidated balance sheet with resulting gains
and losses reflected in income. Fair values are derived principally from market
quotes and other independent third-party quotes.

     As of December 31, 2006, Isramco had 24 swap contracts to sell 264,084
barrels of crude oil during 24 months commencing January 2007 for a total
consideration of $17.7 million, and 24 swap contracts to sell 2,853,156 MMBTU of
natural gas during 24 months commencing January 2007 for a total consideration
of $23.1 million.

     Subsequent to balance sheet date, in January 2007, Isramco executed reverse
contracts for most of the abovementioned contracts and remained with open swap
contracts for 23,000 barrels of crude oil for a total consideration of $1.5
million and 376,000 MMBTU of natural gas for a total consideration of $3
million.

     The above mentioned reverse of swap contracts generated to Isramco a profit
of $2.1 million.

     As at balance sheet date, each hypothetical 10% increase in the price of
natural gas would increase the liability of the natural gas derivative contracts
by approximately $0.3 million and, each hypothetical 10% increase in the price
of crude oil would increase the liability of the crude oil derivative contracts
by approximately $0.15 million.

     Hypothetical decrease in the prices of these commodities would result in
the same opposite effects on the values of the contracts. The hypothetical
effect on these contracts was estimated by calculating the cash value of the
contracts as the difference between the hypothetical and contract delivery
prices multiplied by the contracts amounts.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information called for by this Item 8 is included following the "Index
to Financial Statements" contained in this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

                                       24

<PAGE>

AND FINANCIAL DISCLOSURE

     On January 13, 2005, the audit committee of the board of directors (the
"Audit Committee") of Isramco accepted the resignation of UHY - Mann Frankfort
Stein & Lipp CPAS, LLP ("UHY LLP") (formerly - Mann Frankfort Stein & Lipp CPAS,
L.L.P.) as Isramco's independent accountants. Concurrent with UHY LLP's
resignation, the Audit Committee appointed Malone & Bailey, PC (the "New
Accountants") as the independent accounting firm to audit the financial
statements of Isramco for the year ended December 31, 2004.

     The reports by UHY LLP with respect to Isramco's financial statements
for the year ended December 31, 2003 did not contain any adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. During the fiscal year ended December 31,
2003 and during the subsequent interim period, there were no disagreements
between Isramco and UHY LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which, if not
resolved to the satisfaction of UHY LLP, would have caused it to make reference
to the subject matter of thereof in connection with its reports.

     During the fiscal year ended December 31, 2003, and through the date of its
resignation, UHY LLP did not advise Isramco with respect to any matters
described in paragraphs (a)(1)(v)(A) through (D) of Item 304 of Regulation S-K.

     During the fiscal year ended December 31, 2003, and through the date of
their engagement, Isramco did not consult with the New Accountants regarding
either (i) the application of accounting principles to a specified transaction,
either completed or proposed; (ii) the type of audit opinion that might be
rendered on Isramco's financial statements; (iii) any matter that was either the
subject of disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or
a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).

ITEM 9A. CONTROLS AND PROCEDURES

     EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Isramco maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in Isramco's Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure
based closely on the definition of "disclosure controls and procedures" in Rule
13a-14(c).

     As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with participation of management,
including our Chief Executive Officer (and our Principal Financial Officer), of
the effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer (and Principal
Financial Officer) concluded that our disclosure controls and procedures were
effective.

     CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. During the quarter
ended December 31, 2006, there have been no changes in our internal controls
over financial reporting that have materially affected, or are reasonably likely
to materially affect, these controls.

                                    PART III

     The information called for by items 10, 11, 12 13 and 14 will be contained
in the Company's definitive proxy statement which the Company intends to file
within 120 days after the end of the Company's fiscal year ended December 31,
2006 and such information is incorporated herein by reference.

GLOSSARY

"Grant Agreement" shall mean the agreement between the Company and the
Government of Israel pursuant to which the Government of Israel has provided
assistance to the Company in connection with its investment in the Negev 2
Venture by providing a grant of 44.34(cent) for each U.S. dollar ($1.00)
invested and expended by the Company in oil and gas activities in Israel within
the framework of the Negev 2 Venture. The Government financing provided for
under the Grant is repayable only from funds emanating from commercial
production in any payout area and then, only to the extent of 30% of the
recipient's share of the net revenue from said payout area, as and when
received. The Grant Agreement entitles the Government of Israel, to receive a
12.5% royalty on oil sales, as well as an overriding royalty of 6.5% of the
Company's share in the petroleum produced and saved after payout. If there is no

                                       25

<PAGE>

commercial discovery of oil, the Company will not be required to repay the grant
monies. A grant agreement was also entered into between the Government of Israel
and HEI, Donesco, L.P.S. and Mazal Oil.

"Joint Operating Agreement" shall mean the Joint Operating Agreement of the
Negev 2 Venture which was signed as of the 30th day of June, 1988, between the
participants in the Negev 2 Venture, as amended or as shall be amended from time
to time.

"Joint Venture Agreement" shall mean the Joint Venture Agreement of the Negev 2
Venture which was signed as of the 30th of June, 1988 between the participants
in the Negev 2 Venture, as amended from time to time.

"Limited Partnership" shall mean Isramco-Negev 2 Limited Partnership, a Limited
Partnership founded pursuant to a Limited Partnership Agreement made on the 2nd
and 3rd days of March, 1989 (as amended on September 7, 1989, July 28, 1991,
March 5, 1992 and June 11, 1992) between the Trustee on part as Limited Partner
and Isramco Oil and Gas Ltd., as General Partner on the other part.

"Limited Partnership Agreement" shall mean the Limited Partnership Agreement
made the 2nd and 3rd days of March, 1989 (as amended September 7, 1989, July 28,
1991, March 5, 1992 and June 11, 1992), between Isramco Oil and Gas Ltd., as
General Partner, and Isramco Management (1988) Ltd. as the Limited Partner.

"Negev 2 Venture Agreements" shall mean the Joint Venture Agreement, the Joint
Operating Agreement, the Voting Agreement and every agreement into which the
parties to said agreements have entered, in connection with the Negev 2 Venture.

"Overriding Royalty" shall mean a percentage interest over and above the base
royalty and is free of all costs of exploration and production, which costs are
borne by the Grantor of the Overriding Royalty Interest and which is related to
a particular Petroleum License.

"Payout" shall mean the defined point at which one party has recovered its prior
costs.

"Petroleum" shall mean any petroleum fluid, whether liquid or gaseous, and
includes oil, natural gas, natural gasoline, condensates and related fluid
hydrocarbons, and also asphalt and other solid petroleum hydrocarbons when
dissolved in and producible with fluid petroleum.

"Petroleum Exploration" shall mean test drilling; any other operation or search
for petroleum, including geological, geophysical, geochemical and similar
investigations and tests; and, drilling solely for obtaining geological
information.

"Petroleum Production" shall mean the production of petroleum from a petroleum
field and all operations incidental thereto, including handling and treatment
thereof and conveyance thereof to tankers, a pipe line or a refinery in or in
the vicinity of the field.

"Preliminary Permit", "Preferential Right to Obtain a License", "License" shall
have the meaning(s) set forth in the Petroleum Law of Israel.

"Trust Agreement" shall mean the Trust Agreement made on the 3rd day of March,
1989 (as amended September 7, 1989, July 28, 1991, March 5, 1992 and June 11,
1992) for the Trust Company of Kesselman and Kesselman.

"Working Interest" shall mean an interest in a Petroleum Asset granting the
holder thereof the right to participate pro rata in exploiting the Petroleum
Asset for petroleum exploration, development and petroleum production, subject
to its pro rata participation in the expenses involved therein after acquiring
the Working Interest.

"Israel Petroleum Law"

The Company's business in Israel is subject to regulation by the State of Israel
pursuant to the Petroleum Law, 1952. The administration and implementation of
the Petroleum Law is vested in the Minister of National Infrastructure (the
"Minister") and an Advisory Council.

The following includes brief statements of certain provisions of the Petroleum
Law in effect at the date of this Prospectus. Reference is made to the copy of
the Petroleum Law filed as an exhibit to the Registration Statement referred to
under "Additional Information" and the description which follows is qualified in
its entirety by such reference.

The holder of a preliminary permit is entitled to carry out petroleum
exploration, but not test drilling or

                                       26

<PAGE>

petroleum production, within the permit areas. The Commissioner determines the
term of a preliminary permit and it may not exceed eighteen (18) months. The
Minister may grant the holder a priority right to receive licenses in the permit
areas, and for the duration of such priority right no other party will be
granted a license or lease in such areas.

Drilling for petroleum is permitted pursuant to a license issued by the
Commissioner. The term of a license is for three (3) years, subject to extension
under certain circumstances for an additional period up to four (4) years. A
license holder is required to commence test drilling within two (2) years from
the grant of a license (or earlier if required by the terms of the license) and
not to interrupt operations between test drillings for more than four (4)
months. If any well drilled by the Company is determined to be a commercial
discovery prior to expiration of the license, the Company will be entitled to
receive a Petroleum Lease granting it the exclusive right to explore for and
produce petroleum in the lease area. The term of a lease is for thirty (30)
years, subject to renewal for an additional term of twenty (20) years.

The Company, as a lessee, will be required to pay the State of Israel the
royalty prescribed by the Petroleum Law which is presently, and at all times
since 1952 has been, 12.5% of the petroleum produced from the leased area and
saved, excluding the quantity of petroleum used in operating the leased area.

The Minister may require a lessee to supply at the market price such quantity of
petroleum as, in the Minister's opinion, is required for domestic consumption,
subject to certain limitations.

As a lessee, the Company will also be required to commence drilling of a
development well within six (6) months from the date on which the lease is
granted and, thereafter, with due diligence to define the petroleum field,
develop the leased area, produce petroleum therefore and seek markets for and
market such petroleum.

                                       27

<PAGE>

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Exhibits

3.1     Articles of Incorporation of Registrant with all amendments filed as an
        Exhibit to the S-l Registration Statement, File No. 2-83574.

3.2     Amendment to Certificate of Incorporation filed March 17, 1993, filed as
        an Exhibit with the S-l Registration Statement, File No. 33-57482.

3.3     By-laws of Registrant with all amendments, filed as an Exhibit to the
        S-l Registration Statement, File No. 2-83570.

10.1    Oil Marketing Agreement, filed as Exhibit with the S-l Registration
        Statement, File No. 2-83574.

10.2    Joint Venture Agreement and Joint Operating Agreement dated June 30,
        1988 by and among HEI Oil and Gas Limited Partnership, JOEL - Jerusalem
        Oil Exploration Ltd., Delek Oil Exploration Ltd., Delek, The Israel Fuel
        Corporation Ltd., the Company, Southern Shipping and Energy (U.K.),
        Naphtha, Israel Petroleum Company Ltd., Oil Exploration of Pat Ltd., LPS
        Israel Oil Inc., Donesco Venture Fund One, a Limited Partnership and
        Mazaloil Inc. filed as an Exhibit to Form 8-K for the month of September
        1988.

10.3    Grant Agreement with the Government of Israel, undated, between the
        Company and the Government of Israel on behalf of the State of Israel,
        filed as an Exhibit to Form 10-Q for the Company for the period ending
        September 30, 1988 and incorporated herein by reference.

10.4    Translated from Hebrew, Indemnity Agreement between the Company and
        Isramco Management (1988) Ltd. dated March _, 1989, filed as an Exhibit
        to Form 8-K for the month of March 1989 and incorporated herein by
        reference.

10.5    Amendment Agreement to Grant Agreement between the Company and the
        Government of Israel, filed as an Exhibit to this Post-effective
        Amendment No. 8 to Form S-l Registration Statement. File No. 2- 83574.

10.6    Translated from Hebrew, Limited Partnership Agreement between Isramco
        Oil and Gas Ltd. and Isramco Management (1988) Ltd. dated March 2, 1989,
        filed as an Exhibit to Form 8-K for the month of March 1989 and
        incorporated herein by reference.

10.7    Translated from Hebrew, Trust Agreement between Isramco Management
        (1988) Ltd. and Kesselman and Kesselman dated March 3, 1989, filed as an
        Exhibit to Form 8-K for the month of March 1989 and incorporated herein
        by reference.*

10.8    Translated from Hebrew, Indemnity Agreement between the Company and
        Isramco Management (1988) Ltd. dated March _, 1989, filed as an Exhibit
        to Form 8-K for the month of March 1989 and incorporated herein by
        reference.*

10.9    Equalization of Rights Agreement between Isramco-Negev 2 Limited
        Partnership and Delek Oil Exploration Ltd. and Delek - The Israel Fuel
        Corporation Ltd, filed as an Exhibit to Form 8-K for the month of
        January 1993 dated January 21, 1993 and incorporated herein by
        reference.

10.10   Option Agreement between Isramco Resources Inc. and Delek Oil
        Exploration Ltd. and Delek - The Israel Fuel Corporation Ltd. filed as
        an Exhibit to Form 8-K for the month of January 1993 dated January 21,
        1993 and incorporated herein by reference.

10.11   Agreement by and among Naphtha Congo Ltd., Equital Ltd. and the Company
        dated September 4, 1997, filed as an Exhibit to Form 8-K for the month
        of September, 1997 and incorporated herein by reference.

10.12   Amendment to Consulting Agreement between Goodrich Global L.T.D. B.V.I.
        and the Company dated

                                       28

<PAGE>

        December _, 1997, filed as an Exhibit to Form 8-K for the month of
        December, 1997 and incorporated herein by reference.

10.13   Consulting Agreement between Romulas Investment Ltd. and the Company
        dated August _, 1997, filed as an Exhibit to Form 8-K for the month of
        September, 1997 and incorporated herein by reference, assigned by
        Romulas Investment Ltd. on December 31, 1997 to Remarkable Holdings Ltd.

10.14   Inventory Services Management Agreement dated December 1997 between the
        Company and Equital Ltd. filed herewith as Exhibit 10.70.

10.15   Consulting Agreement dated as of November 1, 1999 between the Company
        and Worldtech, Inc.

10.16   Agreement dated June 12, 2002 between the Company and Mati Properties
        and Construction Ltd. and Boaz Avrahami, filed as an Exhibit to the Form
        10-Q for the quarter ended June 30, 2002.

10.17   Share Purchase and Sale Agreement dated as of December 31, 2006 between
        Isramco Inc. and Chesny Estates Ltd. *

10.18   Addendum Agreement dated as of February 12, 2007 between Isramco Inc.
        and Chesny Estates Ltd. *

14.1    Code of Ethics, filed as an Exhibit to Form 10-K for the year ended
        December 31, 2003.

31      Certification of Chief Executive and Principal Financial Officer
        pursuant to Section 302 of Sarbanes-Oxley Act. *

32      Certification of Chief Executive and Principal Financial Officer
        pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
        of the Sarbanes-Oxley act of 2002. *

99.1    Financial Statements of Isramco Negev 2 Limited Partnership as of
        December 31, 2006. *

*    Attached hereto as an exhibit

                                       29

<PAGE>

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.


                                /S/ HAIM TSUFF
                                -----------------------------------------------
                                HAIM TSUFF,
                                CHAIRMAN OF THE BOARD,
                                CHIEF EXECUTIVE OFFICER
                                (AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)

DATE: MARCH 15, 2007

In accordance with the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the capacities and on the dates indicated.

SIGNATURE              TITLE                 DATE
--------------------   -------------------   --------------


/S/ HAIM TSUFF         CHIEF EXECUTIVE       MARCH 15, 2007
--------------------   OFFICER, DIRECTOR
HAIM TSUFF


/S/ JACKOB MAIMON      PRESIDENT, DIRECTOR   MARCH 15, 2007
--------------------
JACKOB MAIMON


/S/ MAX PRIDGEON       DIRECTOR              MARCH 15, 2007
--------------------
MAX PRIDGEON


/S/ DONALD D. LOVELL   DIRECTOR              MARCH 15, 2007
--------------------
DONALD D. LOVELL


/S/FRANS SLUITER       DIRECTOR              MARCH 15, 2007
--------------------
FRANS SLUITER


                                       30


<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                                                                         Page
                                                                         ----
Report of Independent Registered Public Accounting Firm                   F-1

Consolidated Balance Sheets at December 31, 2006 and 2005                 F-2

Consolidated Statements of Operations for the years ended December 31,
2006, 2005 and 2004                                                       F-3

Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2006, 2005 and 2004                      F-4

Consolidated Statements of Cash Flows for the years ended December 31,
2006, 2005 and 2004                                                       F-5

Notes to Consolidated Financial Statements                                F-6


<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Isramco, Inc. and Subsidiaries
Houston, Texas

We have audited the accompanying consolidated balance sheets of Isramco, Inc. as
of December 31, 2006 and 2005, and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 2006. These financial statements
are the responsibility of Isramco's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Isramco, Inc., as
of December 31, 2006 and 2005, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2006, in conformity with accounting principles generally accepted in the United
States of America.

MALONE & BAILEY, PC
www.malone-bailey.com
Houston, Texas

March 12, 2007


                                       F-1

<PAGE>

                         ISRAMCO, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                   (in thousands except for share information)

                                                                DECEMBER 31
                                                             -----------------
                                                               2006      2005
                                                             -------   -------
ASSETS
CURRENT ASSETS
Cash and cash equivalents                                    $17,573   $ 1,200
Marketable securities, at market                               3,130     5,570
Accounts receivable                                              403       605
Prepaid expenses and other current                             5,057        98
Accounts receivable - sale of Magic 1                          2,150        --
                                                             -------   -------
      Assets held for sale                                        --     8,528
                                                             -------   -------
      TOTAL CURRENT ASSETS                                    28,313    16,001

Property and equipment, net (successful efforts
   method for oil and gas properties)                         12,537     6,997
Marketable securities, at market                               5,759     3,619
Investment in affiliates                                      15,302    11,836
Other                                                            162       162
                                                             -------   -------
TOTAL ASSETS                                                 $62,073   $38,615
                                                             =======   =======
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued expenses                        $ 5,050   $ 1,997
Bank loans                                                       347       370
Short-term loan from related party                            17,164        --
Liabilities associated with assets held for sale                  --     4,513
                                                             -------   -------
      TOTAL CURRENT LIABILITIES                               22,561     6,880
                                                             -------   -------
LONG-TERM LIABILITIES
Asset retirement obligations                                     356       343
Deferred income taxes                                          4,412     2,899
                                                             -------   -------
      TOTAL LONG-TERM LIABILITIES                              4,768     3,242
                                                             -------   -------
      TOTAL LIABILITIES                                       27,329    10,122
                                                             -------   -------
COMMITMENTS AND CONTINGENCIES                                     --        --
SHAREHOLDERS' EQUITY
Common stock $0.0l par value; authorized 7,500,000 shares;
   issued 2,746,958 shares; outstanding 2,717,691 shares          27        27
Additional paid-in capital                                    26,240    26,240
Retained earnings                                              5,399     1,557
Accumulated other comprehensive income                         3,242       833
Treasury stock, 29,267 shares at cost                           (164)     (164)
                                                             -------   -------
Total shareholders' equity                                    34,744    28,493
                                                             -------   -------
Total liabilities and shareholders' equity                   $62,073   $38,615
                                                             =======   =======

               See notes to the consolidated financial statements.


                                       F-2

<PAGE>

                         ISRAMCO, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                   (in thousands except for share information)

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                               ------------------------------------
                                                                  2006         2005         2004
                                                               ----------   ----------   ----------
                                                                                         (RESTATED)
<S>                                                            <C>          <C>          <C>
Revenues and other income:
Operator fees from related party                               $       69   $      977   $      137
Oil and gas sales                                                   2,167        3,319        3,174
Interest income                                                       448          293          729
Office services:
   To related parties                                                 480          476          592
   To others                                                          276          462          180
Gain on marketable securities                                       1,177          551          240
Equity in net income of investees                                   2,570          661        1,365
Compensation for legal settlement                                   2,536           --           --
Gain from swap transactions                                         2,604         (641)          --
Other                                                                  39          117          492
                                                               ----------   ----------   ----------
      Total revenues and other income                              12,366        6,215        6,909
                                                               ----------   ----------   ----------
Expenses:
Interest expense                                                      294           --           93
Accretion expense                                                      71           25            5
Depreciation, depletion and amortization                              455        1,011          896
Lease operation expense and severance taxes                         1,119        1,458        1,149
Exploration costs                                                     125          110           --
Operator expense                                                      330          767          807
General and administrative
      To related parties                                              227          503          358
      To others                                                     1,782        1,795        1,333
Impairment of oil and gas assets                                      668          759          268
                                                               ----------   ----------   ----------
      Total expenses                                                5,071        6,428        4,909
                                                               ----------   ----------   ----------
Income (loss) from continuing operations before income taxes        7,295         (213)       2,000
Income tax expense                                                   (726)         (40)        (576)
                                                               ----------   ----------   ----------
Income from continuing operations                                   6,569         (253)       1,424
Loss from discontinued operation                                   (3,111)        (879)        (431)
Gain from disposal of discontinued operation                          384           --           --
                                                               ----------   ----------   ----------
Net income (loss)                                              $    3,842   $   (1,132)  $      993
                                                               ==========   ==========   ==========
Earnings (loss) per share - basic and diluted:
   Continuing operations                                       $     2.42   $    (0.09)  $     0.54
   Discontinued operations                                          (1.01)       (0.33)       (0.16)
                                                               ----------   ----------   ----------
   Total                                                       $     1.41   $    (0.42)  $     0.38
                                                               ==========   ==========   ==========
Weighted average number of shares outstanding-basic             2,717,691    2,709,355    2,639,853
                                                               ==========   ==========   ==========
Weighted average number of shares outstanding -diluted          2,717,691    2,709,355    2,639,853
                                                               ==========   ==========   ==========
</TABLE>

               See notes to the consolidated financial statements.


                                       F-3

<PAGE>

                         ISRAMCO, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
         FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 (RESTATED)

<TABLE>
<CAPTION>
                                                           COMMON STOCK
                                                 -----------------------------
                                                                                 ACCUMULATED
                                                                    ADDITIONAL      OTHER                             TOTAL
                                                   NUMBER             PAID-IN   COMPREHENSIVE  RETAINED  TREASURY  SHAREHOLDERS'
                                                 OF SHARES  AMOUNT    CAPITAL   INCOME (LOSS)  EARNINGS    STOCK      EQUITY
                                                 ---------  ------  ----------  -------------  --------  --------  -------------
                                                                         $ IN THOUSANDS, EXCEPT SHARE AMOUNTS
                                                 -------------------------------------------------------------------------------
<S>                                              <C>          <C>    <C>           <C>         <C>        <C>         <C>
Balances at December 31, 2003                    2,639,853     27     26,240          589        1,696      (164)      28,388
Net loss                                                                                           993                    993
Net unrealized gain on available for sale
   marketable securities, net of taxes                 --      --                     504                     --          504
Net gain on foreign exchange rate, net of taxes                                       151                                 151
                                                                                                                      -------
Total comprehensive income                                                                                              1,648
                                                 ---------    ---    -------       ------      -------    ------      -------
Balances at December 31, 2004                    2,639,853     27     26,240        1,244        2,689      (164)      30,036
Shares issued for exercise of options               77,838     --         --                                               --
Net loss                                                                                        (1,132)                (1,132)
Net unrealized gain on available for sale
   marketable securities, net of taxes                                                113                                 113
Net loss on foreign exchange rate, net of taxes                                      (524)                               (524)
                                                                                                                      -------
Total comprehensive loss                                                                                               (1,543)
                                                 ---------    ---    -------       ------      -------    ------      -------
Balances at December 31, 2005                    2,717,691    $27    $26,240         $833      $ 1,557    $ (164)     $28,493
Net income                                                                                       3,842                  3,842
Net unrealized gain on available for sale
   marketable securities, net of taxes                  --     --         --          810           --        --          810
Net gain (loss) on foreign exchange rate,
   net of taxes                                                                     1,599                               1,599
                                                                                                                      -------
Total comprehensive income                                                                                              6,251
                                                 ---------    ---    -------       ------      -------    ------      -------
Balance of December 31, 2006                     2,717,691    $27    $26,240       $3,242      $ 5,399    $ (164)     $34,744
                                                 =========    ===    =======       ======      =======    ======      =======
</TABLE>

                 See notes to consolidated financial statements.


                                       F-4

<PAGE>

                         ISRAMCO, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                                     -------------------------------
                                                                       2006       2005       2004
                                                                     --------   -------   ----------
                                                                                          (RESTATED)
<S>                                                                   <C>       <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                     $ 3,842   $(1,132)   $   993
Adjustments to reconcile net income (loss) to cash provided
   by operating activities:
Depreciation, depletion, amortization and provision for impairment      1,123     1,769        702
Accretion of asset retirement obligation                                   71        25          5
Loss from discontinued operations                                       2,727       879        431
Gain on marketable securities                                          (1,177)     (550)      (336)
Undistributed equity earnings                                          (2,570)     (661)    (1,366)
Deferred income tax                                                       271      (355)       790
Changes in assets and liabilities:
   Accounts receivables                                                   202        30       (132)
   Prepaid expenses and other current assets                           (5,821)   (1,061)    (3,941)
   Accounts payable and accrued expenses                                3,271       871        282
                                                                      -------   -------    -------
Continuing operations                                                   1,939      (185)    (2,572)
Discontinued operation                                                  1,040     1,741      4,088
                                                                      -------   -------    -------
Net cash provided by operating activities                               2,979     1,556      1,516
                                                                      -------   -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                                     (6,737)   (3,686)    (1,098)
Purchase of marketable securities                                      (2,056)   (3,353)    (4,807)
Investment in affiliate                                                (1,197)       --         --
Dividend from affiliate                                                 1,254        --         --
Proceeds from sale of marketable securities                             5,957     7,315      6,115
Proceeds from other sales                                                  --        --        623
                                                                      -------   -------    -------
Continuing operations                                                  (2,779)      276        833
Discontinued operation                                                     (8)   (1,017)    (9,028)
                                                                      -------   -------    -------
Net cash used in investing activities                                  (2,787)     (741)    (8,195)
                                                                      -------   -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term loan from related party                       17,164        --         --
Proceeds from bank loans                                                   --        --      4,800
Payments on short-term debt                                                --      (601)    (4,800)
Proceeds (repayments) on short-term bank loans, net                       (22)     (306)     1,277
                                                                      -------   -------    -------
Continuing operations                                                  17,142      (907)     1,277
Discontinued operations                                                  (961)     (735)     5,000
                                                                      -------   -------    -------
Net cash provided by (used in) financing activities                    16,181    (1,642)     6,277
                                                                      -------   -------    -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   16,373      (827)      (402)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                          1,200     2,027      2,429
                                                                      -------   -------    -------
CASH AND CASH EQUIVALENTS AT END OF YEAR                              $17,573   $ 1,200    $ 2,027
                                                                      =======   =======    =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest                              $   217   $   205    $   168
                                                                      =======   =======    =======
Cash paid during the period for income taxes                          $    76   $    65    $    82
                                                                      =======   =======    =======
</TABLE>

See notes to the consolidated financial statements.


                                       F-5

<PAGE>

                         ISRAMCO, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE A) -- General and Summary of Significant Accounting Policies:

[1] The Company

Isramco Inc. and subsidiaries ("Isramco" or the "Company") are primarily engaged
in the acquisition, exploration, operation and development of oil and gas
properties. As of December 31, 2006, Isramco had oil and gas interests in Texas,
Louisiana, Oklahoma, Wyoming, New Mexico, and working interests in various
properties located in Israel.

In addition, Isramco owns real estate in Israel.

[2] Consolidation

The consolidated financial statements include the accounts of Isramco and its
wholly-owned subsidiaries: Jay Petroleum, L.L.C., a Texas limited liability
company (Jay); Jay Management L.L.C., a Texas limited liability company (Jay
Management); IsramTec Inc., a Delaware corporation (IsramTec); Isramco Oil and
Gas Ltd., an Israeli company; and Magic 1 Cruise Line, Corp., a British Virgin
Island corporation. Inter-company balances and transactions have been eliminated
in consolidation.

[3] Oil and Gas Revenue Recognition

Isramco follows the entitlement method of accounting for recording oil and gas
revenues under that method, any revenues received in excess of Isramco's share
is treated as a liability. If revenues received are less than Isramco's share,
the deficiency is recorded as an asset. Isramco's imbalance position was not
significant in terms of volumes or values at December 31, 2006 and 2005.

[4] Method of Accounting for Oil and Gas Operations

Isramco follows the "successful efforts" method of accounting for its oil and
gas producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip development wells are capitalized. Costs to drill exploratory
wells that do not find proved reserves, geological and geophysical costs, and
costs of carrying and retaining unproved properties are expensed. Costs incurred
for exploratory wells that find reserves that cannot yet be classified as proved
are capitalized on Isramco's balance sheet if (a) the well has found a
sufficient quantity of reserves to justify its completion as a producing well
and (b) Isramco is making sufficient progress assessing the reserves and the
economic and operating viability of the project. Otherwise, well costs are
expensed if a determination as to whether proved reserves were found cannot be
made within one year following the completion of drilling and these criteria are
not met.

Leasehold costs of producing properties are depleted using the
unit-of-production method based on estimated proved oil and gas reserves.
Amortization of intangible development costs is based on the unit-of-production
method using estimated proved developed oil and gas reserves.

[5] Marketable Securities

Statement of Financial Accounting Standard No. 115 (SFAS No. 115), Accounting
for Certain Investments in Debt and Equity Securities, requires Isramco to
classify its debt and equity securities in one of three categories: trading,
available-for-sale and held-to-maturity. Trading securities are bought and held
principally for the purposes of selling them in the near term. Held-to-maturity
securities are those securities in which Isramco has both the ability and intent
to hold the security until maturity. All other securities not included in
trading or held-to-maturity are classified as available-for-sale.

Trading and available-for-sale securities are recorded at fair market value.
Isramco holds no held-to-maturity securities. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
or losses, net of the related tax effects, on available-for-sale securities are
excluded from earnings and are reported net of applicable taxes as accumulated
other comprehensive income, a separate component of shareholders' equity, until
realized.

[6] Investment in Affiliates

Isramco uses the equity method to account for its investments in affiliate
entities over which it has the ability to exercise significant influence over
operating and financial policies.

[7] Depreciation and Amortization

Equipment, consisting of motor vehicles, office furniture and equipment, is
carried at cost less accumulated depreciation, computed on the straight-line
method over the estimated useful lives of the assets.


                                       F-6

<PAGE>

[8] Translation of Foreign Currencies

Foreign currency is translated in accordance with Statement of Financial
Accounting Standards No. 52, which provides the criteria for determining the
functional currency for entities operating in foreign countries. Isramco has
determined its functional currency is the United States (U.S.) dollar since all
of its contracts are in U.S. dollars. Adjustments resulting form the process of
translating foreign functional currency financial statements into U.S. dollars
are included in accumulated other comprehensive income in stockholders' equity.
Foreign currency transaction gains and losses are included in current income.
The functional currency of our Israeli subsidiaries is the New Israeli Shekel.

[9] Earnings Per Share (EPS)

Isramco follows SFAS No. 128, Earnings per Share, for computing and presenting
earnings per share, which requires, among other things, dual presentation of
basic and diluted loss per share on the face of the statement of operations.
Basic EPS is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common shares were exercised or converted into common shares
or resulted in the issuance of common shares that then shared in the earnings of
the entity. For the years ended December 31, 2005 and 2004, Isramco's stock
options were anti-dilutive.

[10] Cash Equivalents

Cash equivalents include short-term investments with original maturities of
ninety days or less and are not limited in their use.

[11] Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and related notes.
Actual results could differ from those estimates.

Oil and gas reserve quantities are the basis for the calculation of
depreciation, depletion and impairment of oil and gas properties. An independent
petroleum engineering firm estimates Isramco's reserves. However, management
emphasizes that reserve estimates are inherently imprecise and that estimates of
more recent discoveries and non-producing reserves are more imprecise than those
for properties with long production histories.

As mandated under SFAS No. 144, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets" (SFAS No. 144), Isramco is required under
certain circumstances to evaluate the possible impairment of the carrying value
of its long-lived assets. For proved oil and gas properties, this involves a
comparison to the estimated future undiscounted net cash flows, as described in
the paragraph below. In addition to the uncertainties inherent in the reserve
estimation process, these amounts are affected by management's estimates for
projected prices for oil and natural gas, which have typically been volatile. It
is reasonably possible that Isramco's oil and gas reserve estimates may
materially change in the forthcoming year.

[12] Impairment of Long-Lived Assets

Isramco adopted SFAS No. 144, effective as of January 1, 2002. This Statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to undiscounted future net cash
flows expected to be generated by the asset or used in its disposal. If the
carrying amount of an asset exceeds its estimated undiscounted future net cash
flows, an impairment charge is recognized equal to the amount by which the
carrying amount exceeds the fair market value of the asset. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.

During 2006 Isramco reported impairment charges of 2,200,000 relating to the
vessel included in discontinued operation.

During 2005 and 2004, Isramco reported impairment charges of $759,000 and
$50,000 respectively, relating to its proved properties.

Unproved oil and gas properties that are individually significant are
periodically assessed for impairment value, and a loss is recognized to the
extent, if any, that the cost of the property has been impaired. During 2006,
2005,and 2004, Isramco recorded impairments of $0, $0 and $218,000,
respectively, relating to its unproved properties.

[13] Income Taxes


                                       F-7

<PAGE>

Isramco accounts for income taxes using the asset and liability method as
prescribed by SFAS No. 109, Accounting for Income Taxes. Deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits that are not expected to be realized.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the period that such tax rate changes are enacted.

[14] Environmental

Isramco is subject to extensive federal, state, local and foreign environmental
laws and regulations. These laws, which are constantly changing, regulate the
discharge of materials into the environment and may require Isramco to remove or
mitigate the environmental effects of the disposal or release of petroleum or
chemical substances at various sites. Liabilities for expenditures of no capital
nature are recorded when environmental assessment and/or remediation is
probable, and the costs can be reasonably estimated. No significant amounts for
environmental liabilities were recorded at December 31, 2006 and 2005.

[15] Asset Retirement Obligations

Isramco recognizes the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. The associated asset
retirement costs are capitalized as part of the carrying amount of the asset.
The fair value of a liability for an asset retirement obligation is the amount
for which that liability could be settled in a current transaction between
willing parties. Isramco uses the expected cash flow approach for calculating
asset retirement obligations. The liability is discounted using the
credit-adjusted risk-free interest rate in effect when the liability is
initially recognized. The changes in the liability for an asset retirement
obligation due to the passage of time are measured by applying an interest
method of allocation to the amount of the liability at the beginning of the
period. This amount is recognized as an increase in the carrying amount of the
liability and as accretion expense classified as an operating item in the
statement of operations.

[16] Stock-Based Compensation

Effective January 1, 2006, we adopted the provisions of SFAS No. 123R,
"Share-Based Payments." The cumulative effect of this change in accounting
principle related to stock-based awards was immaterial. Prior to January 1,
2006, we accounted for these plans under the recognition and measurement
provisions of APB No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Under APB No. 25, no compensation expense was
recognized for stock options.

The following table summarizes the pro forma effect on net income (loss) and
income (loss) per share for 2005 and 2004 as if we had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation.:

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                                (in thousands except share data)
                                                                --------------------------------
                                                                        2005        2004
                                                                     ---------   ----------
<S>                                                                  <C>         <C>
Net income (loss) from continuing operations, reported               $(253,000)  $1,424,000
Add: Total stock-based compensation expense included
        in net income, net of related tax effects                           --           --
Less: Total stock-based compensation expense determined under
         fair-value based method, net of related tax effects                --           --
                                                                     ---------   ----------
Net Income (loss) from continuing operations, pro forma              $(253,000)  $1,424,000

Basic and diluted income (loss) per share:
   As reported                                                       $   (0.09)  $     0.54
   Pro forma                                                         $   (0.09)  $     0.54
</TABLE>

[17] Reclassifications

Certain amounts in prior financial statements have been reclassified to conform
to the 2006 financial statements presentation.

[18] Derivative Instruments

All derivative instruments are recorded on the balance sheet at fair value.
Recognition and classification of the gain or loss that results from recording
and adjusting a derivative to fair value depends on the purpose for issuing or
holding the derivative. Gains and losses from derivatives that are not accounted
for as hedges under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," are recognized immediately in earnings as other revenue.
For derivative instruments that are designated


                                       F-8

<PAGE>

and qualify as a fair value hedge, the gains or losses from adjusting the
derivative to its fair value will be immediately recognized in earnings and, to
the extent the hedge is effective, offset the concurrent recognition of changes
in the fair value of the hedged item. Gains or losses from derivative
instruments that are designated and qualify as a cash flow hedge will be
recorded on the balance sheet in accumulated other comprehensive income until
the hedged transaction is recognized in earnings; however, to the extent the
change in the value of the derivative exceeds the change in the anticipated cash
flows of the hedged transaction, the excess gains or losses will be recognized
immediately in earnings. During 2006, 2005, and 2004, we recorded gain (losses)
of $2,604,000, ($641,000), and $0, respectively, related to our derivative
instruments. Fair values are derived principally from market quoted and other
independent third-party quotes.

[19] New Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, "Fair Value Measurements." This Statement defines fair value,
establishes a framework for its measurement and expands disclosures about fair
value measurements. We use fair value measurements to measure, among other
items, [purchased assets and investments, leases, derivative contracts and
financial guarantees]. We also use them to assess impairment of properties,
plants and equipment, intangible assets and goodwill. The Statement does not
apply to share-based payment transactions and inventory pricing. This Statement
is effective January 1, 2008. We are currently evaluating the impact on our
financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" (FIN
48). This Interpretation provides guidance on recognition, classification, and
disclosure concerning uncertain tax liabilities. The evaluation of a tax
position will require recognition of a tax benefit if it is more likely than not
that it will be sustained upon examination. This Interpretation is effective
beginning January 1, 2007. We are currently evaluating the impact on our
financial statements.

(NOTE B) - Transactions with Affiliates and Related Parties

We act as operator for joint venture with related parties in Israel engaged in
the exploration of oil and gas for which it receives operating fees equal to the
larger of 6% of the actual direct costs or minimum monthly fees of $6,000.

Operator fees earned and related operator expenses are as follows (in
thousands):

                    YEAR ENDED DECEMBER 31,
                    -----------------------
                       2006   2005   2004
                       ----   ----   ----
Operator fees:
Nir 2                  $ --   $ --   $ --
Gad 1                    --    905     --
Med Ashdod Lease         69     72     --
GAL C                    --     --     72
Marine North             --     --     --
Marine Center            --     --     --
Marine South             --     --     65
                       ----   ----   ----
Operator Income        $ 69   $977   $137
                       ====   ====   ====
Operator expenses      $330   $767   $807
                       ====   ====   ====

In December 2003, we entered into a consulting agreement with Doron Avraham, the
Vice President of the Isramco. Pursuant to this agreement, we agreed to pay the
consultant the sum of $15,000 per month plus expenses in consideration of the
services that he provides to Isramco. The consulting agreement expires in
November 2007.

We paid Israel Oil Company ("I.O.C") $226,000 for the year ended December 31,
2006 and Naphtha Israel Petroleum Corp., Ltd. ("Naphtha"), $ 235,000 and,
$228,000 for the years ended December 31, 2005 and 2004, respectively, for rent
and office, secretarial and computer services. Naphtha is the sole shareholder
of Naphtha Holdings, Ltd., which is the record holder of 48.4% of our
outstanding common stock and which may be deemed to be controlled by Haim Tsuff,
the Chairman of the Board of Directors and Chief Executive Officer of Isramco.

We paid Israel Oil Company Ltd $120,000 consulting fee for Isramco's projects in
the U.S. I.O.C is fully owned by Naphtha Israel Petroleum Corp., a company
controlled by Haim Tsuff, the chairman of the Board and Chief Executive Officer
of Isramco.


                                       F-9

<PAGE>

Isramco Oil and Gas Ltd. ("IOG"), a wholly-owned subsidiary of Isramco, is the
general partner of Isramco-Negev 2 Limited Partnership, from which we received
management fees and expense reimbursements of $480,000 for each of the years
ended December 31, 2006, 2005 and 2004.

In May 1996, we entered into a consulting agreement with Goodrich Global L.T.D.
B.V.I., a company owned and controlled by Haim Tsuff, the Chairman of the Board
of Directors and Chief Executive Officer of Isramco. Pursuant to this consulting
agreement, we pay the consultant $144,000 per annum in installments of $12,000
per month plus expenses in consideration of the services that Mr. Tsuff provides
to Isramco. In April 1997, the consulting fees payable under the agreement were
increased to $240,000 per annum in installments of $20,000 per month. The term
of the consulting agreement expires in May 2008. In the event that we terminate
the agreement, the consultant will be entitled to receive a lump sum severance
payment equal to the balance of the unpaid consulting fees due for the remaining
term of the agreement.

In November 1999, we entered into a consulting agreement with Worldtech Inc., a
Mauritus company of which Jackob Maimon, the President. Jackob Maimon is a
director of Isramco. Pursuant to this consulting agreement, we pay the
consultant $240,000 per annum in installments of $20,000 per month plus expenses
in consideration of the services that he provides to Isramco. The agreement
expires in May 2008. In the event that we terminate the agreement, , the
consultant shall be entitled to receive a lump sum severance payment equal to
the balance of the unpaid consulting fees due for the remaining term of the
agreement.

In December 2004, we awarded a bonus of $150,000 to our Chief Executive Officer
and Chairman of the Board of Directors.

In December 2005, we awarded bonuses of $150,000 to our Chief Executive Officer
and Chairman of the Boards of Directors, $150,000 to our President and $75,000
to our Vice President.

In December 2006, we awarded bonuses of $ 150,000 to our President.

(NOTE C) - Investments in Affiliate

Isramco Oil and Gas Ltd. ("IOG"), a wholly-owned subsidiary of Isramco, is the
general partner of the Isramco Negev 2 Limited Partnership (the "Limited
Partnership"). The daily management of the Limited Partnership is under the
control of the general partner; however, matters involving the rights of the
Limited Partnership unit holders are subject to supervision of a supervisor,
appointed to supervise the Limited Partnership activities, and in some instances
the approval of the Limited Partnership unit holders. Through IOG, we own a
0.05% interest in the Limited Partnership, which is accounted for by the equity
method of accounting.

At December 31, 2006, Isramco owned 345,309,522 units or 8.17% of the issued
Limited Partnership units of the Limited Partnership, Isramco Negev 2.
Summarized financial information of Isramco Negev 2 Limited Partnership is as
follows (amounts in thousands):

                               AS OF DECEMBER 31,
                               ------------------

Balance Sheet                    2006       2005
                               --------   --------
Current Assets                 $134,628   $127,661
Other Assets                      3,277      1,653
                               --------   --------
Total Assets                   $137,905    129,314
                               ========   ========
Current Liabilities            $    996        109
Equity                          136,909   $129,205
                               --------   --------
Total Liabilities and equity   $137,905   $129,314
                               ========   ========

                                 Year Ended December 31,
                               ---------------------------
Statement of Operations          2006      2005      2004
                               -------   -------   -------
Income                         $14,819   $15,509   $13,080
Expenses                         1,001    (7,267)     (807)
                               -------   -------   -------
Net income                     $13,818   $ 8,242   $12,273
                               =======   =======   =======


                                      F-10

<PAGE>

At December 31, 2006, Isramco also owned 7,877,248 of units (24.97%% of the
issued Partnership units) of the I.N.O.C Dead Sea Limited Partnership.
Summarized financial information of I.N.O.C. Dead Sea Limited Partnership is as
follows (amounts in thousands):

                               AS OF DECEMBER 31,
                               ------------------

Balance Sheet                    2006     2005
                               -------   -------
Current Assets                 $17,004   $13,277
Other Assets                        --       --
                               -------   -------
Total Assets                   $17,004   $13,277
                               =======   =======
Current Liabilities            $    67   $    65
Equity                          16,937    13,212
                               -------   -------
Total Liabilities and Equity   $17,004   $13,277
                               =======   =======

                                    Year Ended December 31,
                                   ------------------------
Statements of Operations            2006     2005     2004
                                   ------   ------   ------
Income                             $3,091   $1,495   $2,488
Expenses                              280     (262)    (300)
                                   ------   ------   ------
Net income                         $2,811   $1,233   $2,188
                                   ======   ======   ======
(NOTE D) - Marketable Securities

At December 31, 2006 and 2005, we had net unrealized gains on marketable
securities of $1,054,000 and $1,538,000, respectively. Sales of marketable
securities resulted in realized gains of $1,177,000 $551,000 and $240,000 for
the years ended December 31, 2006, 2005 and 2004, respectively.

Trading securities, which are primarily traded on the Tel-Aviv Stock Exchange,
consists of the following:

<TABLE>
<CAPTION>
                                            DECEMBER 31, 2006           DECEMBER 31, 2005
                                        -------------------------   -------------------------
                                           COST      MARKET VALUE      COST      MARKET VALUE
                                        ----------   ------------   ----------   ------------
<S>                                     <C>           <C>           <C>           <C>
Debentures and Convertible Debentures   $  495,000    $1,560,000    $3,852,000    $3,981,000
Equity securities                        1,407,000     1,375,000     1,476,000     1,432,000
Investment Trust Funds                     174,000       195,000       145,000       157,000
                                        ----------    ----------    ----------    ----------
                                        $2,076,000    $3,130,000    $5,473,000    $5,570,000
                                        ==========    ==========    ==========    ==========
</TABLE>

Available-for-sale securities, which are primarily traded on the Tel-Aviv Stock
Exchange and on the OTC Bulletin Board, consist of the following:

<TABLE>
<CAPTION>
                                            DECEMBER 31, 2006           DECEMBER 31, 2005
                                        -------------------------   -------------------------
                                           COST      MARKET VALUE      COST      MARKET VALUE
                                        ----------   ------------   ----------   ------------
<S>                                     <C>           <C>           <C>           <C>
Equity Securities                       $1,894,000    $5,759,000    $2,178,000    $3,619,000
                                        ==========    ==========    ==========    ==========
</TABLE>

(Note E) - Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Oil and gas assets are
depreciated using the unit-of-production method and the depreciable life varies
by field. Non oil and gas assets are depreciated over their useful lives using
the straight line method.


                                      F-11

<PAGE>

    Property, plant and equipment at December 31, 2006 and 2005 were composed
                        of the following (in thousands):

                                         As of December 31,
                                           2006      2005
                                         -------   -------
Oil and gas properties
   Proved oil and gas properties         $16,850   $10,099
   Unproved properties                        --       125
Other property, plant and equipment          324       271
Land                                       1,888     1,888
                                         -------   -------
Property, plant and equipment at cost     19,062    12,383
                                         -------   -------
Less:
Accumulated depletion and depreciation    (6,525)   (5,386)
                                         -------   -------
Net property, plant and equipment        $12,537   $ 6,997
                                         =======   =======

(NOTE F) Derivative Instruments

Isramco enters into derivative contracts, including swap contracts, to provide a
measure of stability in the cash flows associated with our oil and gas
production and to manage exposure to commodity price. Our objective is to lock
in a range of oil and gas prices. Our positions are monitored and managed on a
daily basis to ensure compliance with Isramco's risk management policy. The swap
contracts are entered into principally with major financial institutions.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, requires companies to recognize all derivative instruments as either
assets or liabilities on the balance sheet at fair value.

As of December 31,2006, Isramco had 24 swap contracts to sell 264,084 barrels of
crude oil during 24 months commencing January 2007 for a total consideration of
$17.7 million, and 24 swap contracts to sell 2,853,156 MMBTU of natural gas
during 24 months commencing January 2007 for a total consideration of $23.1
million.

In January 2007, Isramco executed reverse contracts for most of the
abovementioned contracts and remained with open swap contracts for 23,000
barrels of crude oil for a total consideration of $1.5 million and 376,000 MMBTU
of natural gas for a total consideration of $3 million.

The above mentioned reverse of swap contracts generated to Isramco a profit of
$2.1 million.

The accounting for changes in fair value (i.e., gains or losses) of a derivative
instrument depends on whether it meets the qualifications for, and has been
designated as, a SFAS No. 133 hedge, and the type of hedge. At this time, we are
not using SFAS No. 133 hedge accounting for commodity derivative contracts. All
gains and losses, realized or unrealized, from derivative contracts not
designated as SFAS No. 133 hedges have been recognized in the income statement.
Gains and losses from derivative contracts held for trading not directly related
to our physical business, whether realized or unrealized, have been reported net
in other income.

Isramco is exposed to credit risk in the event of nonperformance by the counter
party to these contracts, Bank of Oklahoma and Wells Fargo Bank. However,
Isramco periodically assesses their credit worthiness to mitigate this credit
risk.

(NOTE G) Debt

Isramco's debt consists of the following as of December 31, 2006 and 2005:

                                          2006        2005
                                      -----------   --------
Short term bank loan                  $   347,000   $370,000
Short term loan from parent company    17,164,000         --
                                      -----------   --------
Total                                 $17,511,000   $370,000
                                      ===========   ========

Loan from parent company bared Libor+5.5% per annum and was repaid after balance
sheet date in February 2007.

(NOTE H) EPS Computation

SFAS No. 128, "Earnings Per Share", requires a reconciliation of the numerator
(income) and denominator (shares) of the basic


                                      F-12

<PAGE>

EPS computation to the numerator and denominator of the diluted EPS computation.
Isramco's reconciliation is as follows:

<TABLE>
<CAPTION>
                                                      FOR THE YEAR ENDED DECEMBER 31,
                                 ------------------------------------------------------------------------
                                          2006                     2005                    2004
                                 ---------------------   -----------------------   ----------------------
                                   INCOME      SHARES        LOSS        SHARES      INCOME      SHARES
                                 ---------   ---------   -----------   ---------   ----------   ---------
<S>                              <C>         <C>         <C>           <C>         <C>          <C>
Earnings (loss) - basic          6,569,000   2,717,691   $  (253,000)  2,709,355   $1,424,000   2,639,853
Effect of dilutive securities:
Stock options                           --          --            --          --           --          --
Earnings (loss) - diluted        6,569,000   2,717,691   $  (253,000)  2,709,355   $1,424,000   2,639,853
Including discontinued           3,842,000   2,717,691    (1,132,000)  2,709,355      993,000   2,639,853
operations:
</TABLE>

(NOTE I) Stock Options

The 1993 stock option plan (the 1993 Plan) was approved at the annual meeting of
shareholders held in August 1993. At December 31, 2006, 20,050 shares of common
stock were reserved for issuance under the 1993 Plan. Options granted under the
1993 Plan may be either incentive stock options under the Internal Revenue Code
or options which do not qualify as incentive stock options. Options granted
under the 1993 Plan may be exercised for a period of up to ten years from the
grant date. The exercise price for an incentive stock option may not be less
than 100% of the fair market value of Isramco's common stock on the date of
grant. All the options granted under the 1993 Plan to date were fully vested on
the date of grant. The administrator of the 1993 Plan may set the exercise price
for a nonqualified stock option at less than 100% of the fair market value of
Isramco's common stock on the date of grant.

No stock options were granted during 2006, 2005 and 2004. Shares of common stock
reserved for future issuance under the 1993 plan are 20,050 shares. There are no
granted stock options outstanding under the 1993 Plan as of balance sheet date.

(NOTE J) -- Income Taxes

The components of the provision for income taxes on continuing operations for
the years ended December 31 were:

                               2006        2005       2004
                            ---------   ---------   --------
Current income tax:                                (Restated)
Federal                     $(167,000)  $      --   $     --
Foreign                       400,000     370,000         --
State                         150,000      25,000     24,000
                            ---------   ---------   --------
Total current income tax    $ 383,000   $ 395,000   $ 24,000
                            ---------   ---------   --------
Deferred income tax
U.S.                        $ 343,000   $(355,000)  $552,000
Foreign                            --          --         --
State                              --          --         --
                            ---------   ---------   --------
Total deferred income tax   $ 343,000   $(355,000)  $552,000
                            =========   =========   ========
Provision for income tax    $ 726,000   $  40,000   $576,000
                            =========   =========   ========


                                      F-13

<PAGE>

The deferred tax assets (liabilities) as of December 31, 2006 and 2005 are as
follows:

<TABLE>
<CAPTION>
                                                                         2006          2005
                                                                      ----------   -----------
<S>                                                                   <C>          <C>
Net unrealized depreciation (appreciation) of marketable securities  $(1,467,000)  $  (523,000)
Investments in partnerships                                           (3,048,000)   (2,510,000)
Basis differences in property and equipment                           (1,369,000)     (708,000)
Losses carry-forward                                                   1,072,000       456,000
Foreign tax credit carry-forward                                         370,000       370,000
Other timing differences                                                  30,000        16,000
                                                                      ----------   -----------
Total                                                                $(4,412,000)  $(2,899,000)
                                                                      ==========   ===========
</TABLE>

Reconciliation between the actual income tax expense (benefit) and income taxes
computed by applying the U.S. Federal income tax rate to income before income
taxes is as follows:

                                                YEAR ENDED DECEMBER 31,
                                             ----------------------------
                                              2006     2005       2004
                                             -----    -----    ----------
                                                               (RESTATED)
Computed at U.S. statutory rates              35.0%   (35.0)%    35.0%
State income taxes, net of federal benefit     2.1%     2.3%      1.1%
Foreign income taxes                           9.6%    33.9%       --
Accretion expense                            (35.2)%     --        --
Other                                          0.2%     2.5%      0.6%
                                             -----    -----      ----
                                              11.7%     3.7%     36.7%
                                             =====    =====      ====

(NOTE K) -- Concentrations of Credit Risk

Financial instruments, which potentially expose Isramco to concentrations of
credit risk, consist primarily of trade accounts receivable. Isramco's customer
base includes several of the major United States oil and gas operating and
production companies. Although Isramco is directly affected by the well-being of
the oil and gas production industry, management does not believe a significant
credit risk existed at December 31, 2006.

Isramco maintains deposits in banks, which may exceed the amount of federal
deposit insurance available. Management periodically assesses the financial
condition of the institutions and believes that any possible deposit loss is
minimal.

A significant portion of Isramco's cash and cash equivalents is invested in
marketable securities. Substantially all marketable securities owned by Isramco
are held by banks in Israel and Switzerland.

(NOTE L) -- Commitments and Contingencies

COMMITMENTS:

Isramco leases corporate office facilities under a three-year operating lease
expiring in October 2009 at a monthly rental of $3,200. Isramco is also
responsible for its pro rate share of the operating expenses that exceed a
certain threshold.

At December 31, 2006, future minimum lease payments under non-cancelable
operating leases were approximately $108,800 Future annual minimum lease
payments are follows:

Year Ending December 31,    Amount
------------------------   --------
          2007             $ 38,400
          2008               38,400
          2009               32,000
                           --------
         Total             $108,800
                           ========

CONTINGENCIES:

Isramco is involved in various other legal proceedings arising in the normal
course of business. In the opinion of management, Isramco's ultimate liability,
if any, in these pending actions would not have a material adverse effect on the
financial position, operating results or liquidity of Isramco.


                                      F-14

<PAGE>

(NOTE M) - Geographical Segment Information

Isramco's operations for 2006 involve two industry segments - the exploration,
development production and transportation of oil and natural gas and holding and
leasing its cruise line vessel. Prior to 2004, Isramco operated in a single
operating segment - oil and gas activities. Its current oil and gas activities
are concentrated in the United States and Israel. Operating outside the United
States subjects Isramco to inherent risks such as a loss of revenues, property
and equipment from such hazards as exploration, nationalization, war, terrorism
and other political risks, risks of increased taxes and governmental royalties,
renegotiation of contracts with government entities and change in laws and
policies governing operations of foreign-based companies.

Isramco's oil and gas business is subject to operating risks associated with the
exploration, and production of oil and gas, including blowouts, pollution and
acts of nature that could result in damage to oil and gas wells, production
facilities of formations. In additions, oil and gas prices have fluctuated
substantially in recent years as a result of events, which were outside of
Isramco's control. Isramco does not directly operate the cruise line vessel.
Isramco leases the vessel to third party cruise line operators. This segment of
Isramco's business is subject to many risks all of which cannot be presently
anticipated, including losses resulting from unexpected repairs and maintenance
and competition.

<TABLE>
<CAPTION>
                                                                 GEOGRAPHIC SEGMENTS
                                                                   (IN THOUSANDS)
                                                         ------------------------------------
                                                         UNITED STATES   ISRAEL      TOTAL
                                                         -------------   ------   -----------
<S>                                                         <C>          <C>       <C>
                 2006
Sales and other operating revenue                           $ 2,167      $  825    $  2,992
Costs and operating expenses                                  2,517         251       2,768
                                                            -------      ------    --------
Operating profit (loss)                                        (350)        574         224
Interest income and other                                                               448
Net gain in investee and gain on marketable
Securities                                                                            3,747
General corporate expenses                                                           (2,009)
Internet expense                                                                       (294)
Compensation for legal settlement                                                     2,536
Gain from swap transaction                                                            2,604
Other income                                                                             39
Income taxes                                                                           (726)
Net income before discontinued operation                                              6,569
Loss on discontinued operation                                                       (2,727)
Net income                                                                            3,842
Identifiable assets at December 31, 2006                     10,560          66      10,626
Cash and corporate assets                                                            51,447
Total assets at December 31, 2006                                                    62,073

                 2005
Sales and other operating revenue                           $ 3,140      $1,550    $  4,690
Costs and operating expenses                                 (3,075)       (787)     (3,862)
                                                            -------      ------    --------
Operating profit (loss)                                          65         763         828
Interest income                                                                         294
   Interest expense                                                                      (-)
Gain on marketable securities and net gain in investee                                1,212
General corporate expenses                                                           (2,045)
Other income (expense)                                                                 (524)
Compensation for legal settlement                                                        --
Gain from swap transaction                                                             (641)
Income taxes                                                                            (40)
Net loss before discontinued operation                                                 (253)
Loss on discontinued operation                                                         (879)
Net loss                                                                             (1,132)
Identifiable assets at December 31, 2005                    $ 5,236      $   68    $  5,304
Cash and corporate assets                                                            33,311
Total assets at December 31, 2005                                                    38,615
</TABLE>


                                      F-15

<PAGE>

<TABLE>
<S>                                                         <C>          <C>       <C>
               2004
Sales and other operating revenue                           $ 3,368      $  730    $  4,098
Costs and operating expenses                                 (2,309)       (800)     (3,109)
                                                            -------      ------    --------
Operating profit (loss)                                       1,059         (70)        989
Interest income                                                                         729
Interest expense                                                                        (93)
General corporate expenses                                                           (1,722)
Gain on marketable securities and                                                     1,605
Net income in investee
   Other income                                                                         492
Income taxes                                                                           (576)
Net income before discontinued operation                                              1,424
                                                                                       (431)
Net income                                                                              993
Identifiable assets at December 31, 2004                    $ 3,135      $   59    $  3,194
Cash and corporate assets                                                            56,178
Total assets at December 31, 2004                                                    59,372
</TABLE>

(NOTE N) -- Asset Retirement Obligations

The reconciliation of the beginning and ending asset retirement obligations for
the years ended December 31, 2006 and 2005 is as follows (in thousands):

                                                            2006   2005
                                                            ----   ----
Asset retirement obligations, as of beginning of the year   $343   $314
Liabilities incurred                                           8      7
Liabilities settled                                           --     --
Accretion expense                                             13     19
Revisions in estimated cash flows                             (8)    (3)
                                                            ----   ----
Asset retirement obligations, as of end of year             $356   $343
                                                            ====   ====

(NOTE O) -- Common Stock

In March 2005, Isramco issued 38,919 shares of its common stock to each of Haim
Tsuff, Chairman of the Board of Directors and Chief Executive Officer of
Isramco, and Jackob Maimon, President of Isramco. The shares were issued upon
the exercise of options to purchase 69,995 shares common stock at an exercise
price of $4.28 per share granted to each of Mr. Tsuff and Mr. Maimon on March
25, 2000. The options were exercised pursuant to "cashless" exercise provisions
under which the number of shares of common stock issued upon exercise was
reduced by the number of shares, valued at the closing price of the common stock
on the Nasdaq Small Cap Market on the trading day immediately prior to exercise,
equal to the aggregate exercise price of the option.


                                      F-16

<PAGE>

(NOTE P) -- Restatement

Isramco has restated its 2004 financial statements from the amounts previously
reported. The restatements include adjustments to the calculation of the
deferred tax in 2004 related to temporary differences that originated prior to
2003. Following is a summary of the restatement adjustments:

                                         AS REPORTED   ADJUSTMENTS   AS RESTATED
                                         -----------   -----------   -----------
2004 SUMMARY BALANCE SHEET
Total assets                               $41,358       $  --         $41,358
Current Liabilities                          2,670          --           2,670
Assets retirement obligation                   314          --             314
Deferred tax obligation                      2,989         480           3,469
Current portion of long-term bank loan       4,869          --           4,869
Total Long term Liabilities                  8,172         480           8,652
Total Liabilities                           10,842         480          11,322
Total Shareholder's Equity                  30,516        (480)         30,036

                                         AS REPORTED   ADJUSTMENTS   AS RESTATED
                                         -----------   -----------   -----------
2004 SUMMARY STATEMENT OF OPERATIONS
Total Revenues                             $ 8,943        $   --       $8,943
Total Expenses                               7,374            --        7,374
Income before taxes                          1,569            --        1,569
Income taxes                                (1,589)        1,013         (576)
Net Income                                 $   (20)       $1,013       $  993
Earning Per Share                          $    --        $ 0.38       $ 0.38

(NOTE Q) - DISCONTINUED OPERATION

In March 2004, Isramco purchased a luxury cruise liner for aggregate
consideration of $8,050,000. Isramco, through its wholly owned subsidiary, Magic
1 Cruise Line Corp., a British Virgin Island corporation ("Magic 1 Corp."),
leased the vessel to European based tour operator from April 2005 through
October 2005 and from April 6, 2006 through November 5, 2006. In December 2006,
Isramco sold all of the outstanding share capital of Magic 1 Corp. to an
unrelated third party for total consideration of approximately $2.15 million The
sale included the assumption by the purchaser of a loan in the principal amount
of $3.3 million. Following the sale, Isramco is no longer engaged in the
business of cruise line vessel

RESULTS OF OPERATION FROM DISCONTINUED OPERATION
(in thousands except for share information)

                                        YEAR ENDED DECEMBER 31,
                                       ------------------------
                                        2006     2005     2004
                                      -------   ------   ------
Revenues                              $ 1,712   $1,520   $2,033
                                      -------   ------   ------
Expenses :
Interest expense                          622      389      170
Cost of revenue from vessel             1,418    1,051    1,926
Depreciation                              945    1,128      438
General and administrative                  7       15       26
Impairment of vessel                    2,200       --       --
                                      -------   ------   ------
   Total expenses                       5,192    2,583    2,560
                                      -------   ------   ------
Loss before income taxes               (3,480)  (1,063)    (527)
Income taxes                               --       --       --
                                      -------   ------   ------
Net loss from vessel activity          (3,480)  (1,063)    (527)
                                      -------   ------   ------
Interest expenses to parent company       369      184       96
Capital gain from sale of activity        384       --       --
                                      -------   ------   ------
Net loss from discontinued operation  $(2,727)  $ (879)  $ (431)
                                      =======   ======   ======


                                      F-17

<PAGE>

(NOTE R) - SUBSEQUENT EVENTS

TRANSACTION WITH FIVE STATES

On March 2, 2007, Isramco, through Isramco Energy LLC, a Texas limited liability
company that is wholly owned by Isramco, purchased certain oil and gas
properties (including 650 oil and gas wells) located in Texas and New Mexico
from Five States Energy Company, L.L.C. for an aggregate purchase price of $92
million (the "Purchase Price"). According to an engineering report prepared by
an independent consulting company, the estimated proved developed producing
reserves are 1,447,161 net barrels of oil and 20,078,174 net MMCF's of natural
gas and 1,305,705 net of liquid products.

Isramco funded $7.7 million of the Purchase Price from working capital and the
balance from a combination of commercial bank loans and loans from related
parties. Isramco obtained loans in the total principle amount of $42 million
from Naphtha Israel Petroleum Corp. Ltd., the parent company (including through
its wholly owned subsidiary IOC-Israel Oil Company Ltd) ("Naphtha"). Pursuant to
a Loan Agreement dated as of February 27, 2007 (the "Loan Agreement"), Isramco
obtained $18.5 million. The outstanding principal amount of the loan accrues
interest at per annum rate equal to the London Inter-bank Offered Rate (LIBOR)
plus 5.5%, not to exceed 11% per annum. Interest is payable at the end of each
loan year. Principal plus any accrued and unpaid interest are due and payable on
February 26, 2014. To secure its obligations that may be incurred under the Loan
Agreement, Isramco agreed to grant to Naphtha a security interest in certain
specified properties held by Jay Petroleum, its wholly owned subsidiary.
Pursuant to a Loan Agreement dated as of February 27, 2007 (the "Second Loan
Agreement") Isramco obtained a loan from Naphtha, in the principal amount of
$10.5 million, repayable at the end of seven years. Interest accrues at a per
annum rate of LIBOR plus 6%. The Second Loan is not secured. The other terms of
the Second Loan Agreement are identical to the terms of the Loan Agreement.
Pursuant to a Loan Agreement dated as of February 27, 2007 (the "Third Loan
Agreement ") Isramco obtained a loan from Naphtha, in the principal amount of
$12 million, repayable at the end of five years. Interest accrues at a per annum
rate of LIBOR plus 6%. The Third Loan is not secured. The other terms of the
Third Loan Agreement are identical to the terms of the Loan Agreement. Pursuant
to a Loan Agreement dated as of February 26, 2007 Isramco obtained a loan from
J.O.E.L Jerusalem Oil Exploration Ltd, a related party ("JOEL"), in the
principal amount of $7 million, repayable at the end of 3 months. Interest
accrues at a per annum rate of 5.36%..

As of March 2, 2007 Isramco Energy obtained a $35.3 million credit line from
Wells Fargo Bank. Amounts outstanding under the credit line are payable by March
1, 2011. Interest on amounts outstanding accrue at a per annum rate equal to
LIBOR plus 2%.. In addition to including customary affirmative and negative
covenants, the Credit Agreement requires Isramco Energy to: (a) maintain a ratio
of consolidated current assets to consolidated current liabilities of no less
than 1.0 to 1.0 at all times; (b) ensure that its leverage ratio is no more than
3.50 to 1.0 as of the end of each fiscal quarter; (c) ensure that its interest
coverage ratio is no more than 2.50 to 1.0 as of the end of each fiscal quarter;
(d) ensure that its capital expenditures in any fiscal year do not exceed
$2.500,000.; ensure that COPAS charges do not exceed $250 per well per month.
Amounts outstanding under the Credit Agreement are secured by a guarantee from
Isramco and a pledge by Isramco of the shares of Isramco Energy. Additionally,
on March 2, 2007, Isramco Energy paid to Sigma Energy Corporation, an unrelated
party that originated the transaction with Five States, the amount of $300,000
and after Payout (as defined in the agreement with Sigma), Isramco Energy
undertook to assign to Sigma a direct ownership interests equal to 3.75% of the
interests acquired by Isramco Energy under the Five States purchase agreement.

SWAP TRANSACTIONS

As of December 31, 2006, Isramco had 24 swap contracts to sell 264,084 barrels
of crude oil during 24 months commencing January 2007 for a total consideration
of $17.7 million, and 24 swap contracts to sell 2,853,156 MMBTU of natural gas
during 24 months commencing January 2007 for a total consideration of $23.1
million.

Subsequent to balance sheet date, in January 2007, Isramco executed reverse
contracts for most of the above mentioned contracts and remained with open swap
contracts for 23,000 barrels of crude oil for a total consideration of $1.5
million and 376,000 MMBTU of natural gas for a total consideration of $3
million.

The above mentioned reverse of swap contracts generated to Isramco a profit of
$2.1 million.

Following the closing of Five state transaction as stated above, Isramco signed
additional swap agreements with Wells Fargo Bank to secure it's future oil and
gas prices as follows:

Swap contracts to sell 398,918 barrels of crude oil during 46 months commencing
March 2007 for a total consideration of $25.4 million.

Swap contracts to sell 29,609,026 MMBTU of natural gas during 46 months
commencing March 2007 for a total consideration of $29.6 million.


                                      F-18

<PAGE>

Hereunder are the open swap contracts positions as at March 13, 2007:

                            OIL
----------------------------------------------------------
 MONTHLY   FUTURE                      TOTAL       TOTAL
QUANTITY    PRICE           NO' OF   QUANTITY     AMOUNT
 BARRELS     US$     YEAR   MONTHS    BARRELS       US$
--------   ------   -----   ------   --------   ----------
 3,000      62.00   2,007     10       30,000    1,860,000
 3,000      64.15   2,008     12       36,000    2,309,400
 2,700      63.90   2,009     12       32,400    2,070,360
 2,700      63.30   2,010     12       32,400    2,050,920
 6,341      62.47   2,007     10       63,410    3,961,223
 5,516      64.70   2,008     12       66,192    4,282,622
 6,096      64.55   2,009     12       73,152    4,721,962
 5,447      63.80   2,010     12       65,364    4,170,223
 1,000      66.05   2,007     12       12,000      792,600
 1,000      68.46   2,008     12       12,000      821,520
                                      -------   ----------
Total                                 422,918   27,040,830
                                      =======   ==========

                            GAS
-----------------------------------------------------------
 MONTHLY   FUTURE                       TOTAL       TOTAL
QUANTITY    PRICE           NO' OF    QUANTITY     AMOUNT
  MMBTU      US$     YEAR   MONTHS     MMBTU         US$
--------   ------   -----   ------   ---------   ----------
 81,107     8.03    2,007     10       811,070    6,512,892
 80,876     8.20    2,008     12       970,512    7,958,198
 85,874     7.77    2,009     12     1,030,488    8,006,892
 79,286     7.49    2,010     12       951,432    7,126,226
                                            --
 20,000     7.87    2,007     12       240,000    1,887,600
 13,000     8.37    2,008     12       156,000    1,304,940
                                     ---------   ----------
Total                                4,159,502   32,796,748
                                     =========   ==========

(NOTE S) -- Supplementary Oil and Gas Information (Unaudited)

The following supplemental information regarding the oil and gas activities of
Isramco for 2006, 2005 and 2004 is presented pursuant to the disclosure
requirements promulgated by the Securities and Exchange Commission and SFAS No.
69, "Disclosures About Oil and Gas Producing Activities." Capitalized costs
relating to oil and gas activities and costs incurred in oil and gas property
acquisition, exploration and development activities for each year are shown
below.

CAPITALIZED COST OF OIL AND GAS PRODUCING ACTIVITIES (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                       2006            2005
                                                                  UNITED STATES   UNITED STATES
                                                                  -------------   -------------
<S>                                                                  <C>             <C>
Unproved properties not being amortized                                  --               --
Proved property being amortized                                      16,851           10,566
Accumulated depreciation, depletion amortization and impairment      (5,611)          (5,347)
                                                                     ------          -------
Net capitalized costs                                                11,240          $ 5,219
                                                                     ======          =======
</TABLE>


                                      F-19

<PAGE>

COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION, AND DEVELOPMENT
ACTIVITIES (IN THOUSANDS)

                                          2006     2005     2004
                                         UNITED   UNITED   UNITED
                                         STATES   STATES   STATES
                                         ------   ------   ------
Property acquisition costs--proved and
unproved properties
Exploration costs                         1,609   $2,557   $   --
Development costs                           125      110       --
                                          4,652      582    1,098

OIL AND GAS RESERVES

Oil and gas proved reserves cannot be measured exactly. The engineers
interpreting the available data, as well as price and other economic factor base
reserve estimates on many factors related to reservoir performance, which
require evaluation. The reliability of these estimates at any point in time
depends on both the quality and quantity of the technical and economic data, the
production performance of the reservoirs as well as extensive engineering
judgment. Consequently, reserve estimates are subject to revision, as additional
data become available during the producing life of a reservoir. When a
commercial reservoir is discovered, proven reserves are initially determined
based on limited data from the first well or wells. Subsequent data may better
define the extent of the reservoir and additional production performance, well
tests and engineering studies will likely improve the reliability of the reserve
estimate. The evolution of technology may also result in the application of
improved recovery techniques such as supplemental or enhanced recovery projects,
or both, which have the potential to increase reserves beyond those envisioned
during the early years of a reservoir's producing life.

The following table represents Isramco's net interest in estimated quantities of
proved developed and undeveloped reserves of crude oil, condensate, natural gas
liquids and natural gas and changes in such quantities at December 31, 2005,
2004 and 2003, and for the years then ended. Net proved reserves are the
estimated quantities of crude oil and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are proved reserve volumes that can be
expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are proved reserve volumes that
are expected to be recovered from new wells on undrilled acreage or from
existing wells where a significant expenditure is required for recompilation.
All of Isramco's proved reserves are in the United States. Isramco's oil and gas
reserves are priced at $6.3 per barrel and $61.05 per Mcf, respectively, at
December 31, 2006

                                   OIL BBLS    GAS MCF
                                   --------   ---------
December 31, 2003                   197,900   3,003,240

Revisions of previous estimates     (40,031)   (522,246)
Acquisition of minerals in place
Sales of minerals in place               --          --
Production                          (17,789)   (469,558)
                                    -------   ---------
December 31, 2004                   140,080   2,011,440

Revisions of previous estimates     (20,269)   (118,402)
Acquisition of minerals in place      1,280     106,670
Sales of minerals in place               --          --
Production                          (15,723)   (355,008)
                                    -------   ---------
December 31, 2005                   105,368   1,644,700

Revisions of previous estimates      24,071     (59,066)
Acquisition of minerals in place         --          --
Sales of minerals in place               --          --
Production                          (13,464)   (213,634)
                                    -------   ---------
December 31, 2006                   115,975   1,372,000
                                    =======   =========


                                      F-20

<PAGE>

Isramco's proved developed reserves are as follows:

                          DEVELOPED            UNDEVELOPED
                    OIL BBLS    GAS MCF    OIL BBLS   GAS MCF
                    --------   ---------   --------   -------
December 31, 2006    115,975   1,372,000     5,876    618,700
December 31, 2005    105,368   1,644,700    20,652    484,101
December 31, 2004    140,080   2,011,440    32,880    334,100
December 31, 2003    197,900   3,003,240        --    516,440

Interest in proved reserves of unconsolidated affiliates

                    OIL BBLS    GAS MCF
                    --------   ---------
December 31, 2006         --   1,979,000
December 31, 2005         --   1,979,000
December 31, 2004         --   1,979,000
December 31, 2003         --   1,979,000

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW

The standardized measure of discounted future net cash flows relating to
Isramco's proved oil and gas reserves is calculated and presented in accordance
with Statement of Financial Accounting Standards No. 69. Accordingly, future
cash inflows were determined by applying year-end oil and gas prices to
Isramco's estimated share of the future production from proved oil and gas
reserves.

Future production and development costs were computed by applying year-end costs
to future years. Applying year-end statutory tax rates to the estimated net
future cash flows derived future income taxes. A prescribed 10% discount factor
was applied to the future net cash flows.

In Isramco's opinion, this standardized measure is not a representative measure
of fair market value. The standardized measure is intended only to assist
financial statement users in making comparisons among companies.

<TABLE>
<CAPTION>
                                                            2006          2005          2004
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
Future cash inflows                                     $18,208,000   $27,812,000   $16,308,760
Future development costs                                   (866,000)     (894,000)      (73,800)
Future production costs                                  (7,170,000)   (8,045,000)   (6,691,180)
                                                        -----------   -----------   -----------
Future net cash flows                                    10,172,000    18,873,000     9,548,750
Future income tax expenses                               (2,976,000)   (6,458,000)   (3,426,575)
Annual 10% discount rate                                 (2,875,000)   (4,927,000)     (300,190)
                                                        -----------   -----------   -----------
Standardized measure discounted future net cash flows   $ 4,321,000   $ 7,488,000   $ 6,001,810
                                                        ===========   ===========   ===========
</TABLE>

CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS

The principal sources of change in the standardized measure of discounted future
net cash flows for the years ended December 31, 2006, 2005 and 2004 were as
follows:

<TABLE>
<CAPTION>
                                                                           2006          2005          2004
                                                                       -----------   -----------   -----------
<S>                                                                    <C>           <C>           <C>
Beginning of the year                                                   $7,488,000   $ 6,001,810   $ 4,650,177
Sales and transfers of oil and gas produced, net of production costs    (1,048,000)   (1,861,000)   (2,025,000)
Net changes in prices and production costs                              (5,629,000)   10,962,000     2,475,000
Net changes in income taxes                                              4,961,000       220,000     1,364,429
Changes in estimated future development costs, net of current
   development costs                                                            --            --        86,980
Acquisition of minerals in place                                           992,000            --     1,074,485
Revision of previous estimates                                          (1,716,000)    1,000,000    (5,974,080)
Change of discount                                                       1,395,000       943,000
Change in production rate and other                                     (2,123,000)   (9,740,577)    4,349,819
                                                                       -----------   -----------   -----------
End of year                                                             $4,321,000   $ 7,488,000   $ 6,001,810
                                                                       ===========   ===========   ===========
</TABLE>


                                      F-21

<PAGE>

(NOTE T) -- SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
(Amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                     QUARTER ENDED
                                                --------------------------------------------------------
                                                MARCH 31   JUNE 30   SEPTEMBER 30   DECEMBER 31    TOTAL
                                                  2006       2006        2006           2006       2006
                                                --------   -------   ------------   -----------   ------
<S>                                               <C>       <C>         <C>            <C>        <C>
Total Revenues                                    5,245     2,305       1,443          3,373      12,366
Net Income (loss) before taxes                    2,650     1,337         225          3,083       7,295
Net income (loss) from discontinued operation    (2,500)      231         458           (916)     (2,727)
Net Income                                          394     1,066         582          1,800       3,842
Earnings (loss) per Common Share
-Basic and Diluted                                 0.14      0.39        0.21           0.67        1.41
</TABLE>

<TABLE>
<CAPTION>
                                                                      QUARTER ENDED
                                                ---------------------------------------------------------
                                                MARCH 31   JUNE 30   SEPTEMBER 30   DECEMBER 31    TOTAL
(Amounts in thousands, except per share data)     2005       2005        2005          2005         2005
                                                --------   -------   ------------   -----------   -------
<S>                                              <C>        <C>         <C>           <C>         <C>
Total Revenues                                   $2,201     $1,053      $2,565        $   396     $ 6,215
Net Income (loss) before taxes                   $  989     $ (953)     $1,152        $(1,401)    $  (213)
Net income (loss) from discontinued operation
                                                     --       (201)        190           (529)       (879)
Net Income (loss)                                $  304     $ (596)     $  992        $(1,832)    $(1,132)
Earnings (loss) per Common Share
-Basic and Diluted                               $ 0.11     $(0.22)     $ 0.36        $ (0.67)    $ (0.42)

</TABLE>

<TABLE>
<CAPTION>
                                                                     QUARTER ENDED
                                                --------------------------------------------------------
                                                MARCH 31   JUNE 30   SEPTEMBER 30   DECEMBER 31    TOTAL
                                                  2004       2004        2004           2004       2004
                                                --------   -------   ------------   -----------   ------
<S>                                              <C>        <C>         <C>            <C>        <C>
Total Revenues                                   $1,893     $ 741       $2,338         $1,937     $6,909
Net Income (loss) before taxes                   $  915     $ 150       $  466         $  564     $2,095
Net income (loss) from discontinued operation
                                                 $ (529)    $ 123       $  122         $ (676)    $ (431)
Net Income (loss)                                $  845     $  --       $ (595)        $  743     $  993

Earnings (loss) per Common Share
-Basic and Diluted                               $ 0.32     $0.00       $(0.23)        $ 0.29     $ 0.38
</TABLE>


                                      F-22