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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 
| **x** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------|--------------------------------------------------------------------------------------------------------|

 

**For theQuarterly Period Ended March 31, 2010**

 

# **OR**

** **
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------|---------------------------------------------------------------------------------------------------------|

 

**For thetransition period from              to             **

 

# **Commission File No. 000-33275**

# ** **

**WARREN RESOURCES, INC.**

(Exact Name ofRegistrant as Specified in its Charter.)

 

| **Maryland**  (State or other jurisdiction of  incorporation or organization)                 | ** ** | **11-3024080**  (I.R.S. Employer  Identification Number) |
|-----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|
|                                                                                          |       |                                                     |
| **1114  Avenue of the Americas,**

**New  York, NY**(Address of  Principal Executive Offices) |       | **10036**  (Zip Code)                                    |

 

Registrant’stelephone number, including area code:

**(212)697-9660**

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13and 15 (d) of the Securities Exchange Act of 1934 during the preceding 12months and (2) has been subject to such filing requirements for the past90 days.  Yes  x  Noo

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12months (or for such shorter period that the registrant was required to submitand post such files).  Yes  o  No  o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

 

| Large accelerated filer  o |   | Accelerated filer x          |
|----------------------------|--------|------------------------------|
|                       |   |                         |
| Non-accelerated filer o    |   | Smaller  reporting company o |

 

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

 

The aggregate number of Registrant’soutstanding shares on May 5, 2010 was 70,814,547 shares of Common Stock,$0.0001 par value.

 

 

 

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**WARRENRESOURCES, INC.**

 

**TABLE OFCONTENTS**

 
| PART I—        | FINANCIAL INFORMATION                                                                                |   |
|--------------------------|------------------------------------------------------------------------------------------------------|--------|
|                     |                                                                                                 |   |
|                     | Item  1. Financial Statements (Unaudited)                                                            |   |
|                     |                                                                                                 |   |
|                     | Consolidated Balance Sheets as of March 31, 2010  and December 31, 2009                    |   |
|                     |                                                                                                 |   |
|                     | Consolidated Statements of Operations for the three  months ended March 31, 2010 and 2009       |   |
|                     |                                                                                                 |   |
|                     | Consolidated Statements of Cash Flows for three months  ended March 31, 2010 and 2009           |   |
|                     |                                                                                                 |   |
|                     | Notes to the Consolidated Financial Statements                                                       |   |
|                     |                                                                                                 |   |
|                     | Item 2. Management’s Discussion and Analysis of  Financial Conditions and Results of Operations |   |
|                     |                                                                                                 |   |
|                     | Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                  |   |
|                     |                                                                                                 |   |
|                     | Item  4. Controls and Procedures                                                                     |   |
|                     |                                                                                                 |   |
|  PART II— | OTHER INFORMATION                                                                                    |   |
|                     |                                                                                                 |   |
|                     | Item  1. Legal Proceedings                                                                           |   |
|                     |                                                                                                 |   |
|                     |  Item 1A. Risk Factors                                                                          |   |
|                     |                                                                                                 |   |
|                     | Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds                                 |   |
|                     |                                                                                                 |   |
|                     | Item 3. Defaults upon Senior Securities                                                              |   |
|                     |                                                                                                 |   |
|                     | Item 4. Submission of Matters to a Vote of Security  Holders                                         |   |
|                     |                                                                                                 |   |
|                     | Item  5. Other Information                                                                           |   |
|                     |                                                                                                 |   |
|                     | Item 6.  Exhibits                                                                                    |   |
|                     |                                                                                                 |   |
|                     | Signatures                                                                                           |   |

 

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**PART I—FINANCIAL INFORMATION**

 

###### **ITEM 1. FINANCIAL STATEMENTS**

###### ** **

**Warren Resources, Inc. and SubsidiariesCONSOLIDATED BALANCE SHEETS**

** **
| ** **                                                                                                                                                                                                                                                                         | ** ** | **March 31,  2010  (Unaudited)**                | ** **        | **December 31,  2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|-------------------|------------------------|------------|
| ** **                                                                                                                                                                                                                                                                         | ** ** | **(in thousands, except share  and per share data)** | ** **        |
| **ASSETS**                                                                                                                                                                                                                                                                         |       |                                                 |              |                   |       |
| Current  Assets                                                                                                                                                                                                                                                                    |       |                                                 |              |                   |       |
| Cash  and cash equivalents                                                                                                                                                                                                                                                         |       | $                                                    | 17,777            |                   | $          | 17,238 |   |
| Accounts  receivable — trade                                                                                                                                                                                                                                                  |       | 12,611                                               |              | 11,104                 |       |
| Restricted  investments in U.S. Treasury Bonds—available for sale, at fair value                                                                                                                                                                                              |       | 99                                                   |              | 97                     |       |
| Derivative  financial instruments                                                                                                                                                                                                                                                  |       | 689                                                  |              | 421                    |       |
| Other  current assets                                                                                                                                                                                                                                                              |       | 1,085                                                |              | 600                    |       |
|                                                                                                                                                                                                                                                                               |       |                                                 |              |                   |       |
| Total  current assets                                                                                                                                                                                                                                                              |       | 32,261                                               |              | 29,460                 |       |
|                                                                                                                                                                                                                                                                               |       |                                                 |              |                   |       |
| Other  Assets                                                                                                                                                                                                                                                                      |       |                                                 |              |                   |       |
| Oil and gas properties—at cost, based on full cost  method of accounting, net of accumulated depreciation, depletion and  amortization (includes unproved properties excluded from amortization of  $28,049 and $27,976 as of March 31, 2010 and December 31, 2009) |       | 222,028                                              |              | 224,552                |       |
| Property  and equipment—at cost, net                                                                                                                                                                                                                                          |       | 1,330                                                |              | 1,435                  |       |
| Restricted  investments in U.S. Treasury Bonds—available for sale, at fair value                                                                                                                                                                                              |       | 892                                                  |              | 875                    |       |
| Other  assets                                                                                                                                                                                                                                                                      |       | 4,054                                                |              | 4,097                  |       |
|                                                                                                                                                                                                                                                                               |       |                                                 |              |                   |       |
| Total  other assets                                                                                                                                                                                                                                                                |       | 228,304                                              |              | 230,959                |       |
|                                                                                                                                                                                                                                                                               | ** ** | **$**                                                | ** 260,565** | ** **             | **$**      | **260,419** | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                      |       |                                                 |              |                   |       |
| Current  Liabilities                                                                                                                                                                                                                                                               |       |                                                 |              |                   |       |
| Current  maturities of debentures and other long-term liabilities                                                                                                                                                                                                                  |       | $                                                    | 947               |                   | $          | 1,051 |   |
| Accounts  payable and accruals                                                                                                                                                                                                                                                     |       | 17,122                                               |              | 17,149                 |       |
|                                                                                                                                                                                                                                                                               |       |                                                 |              |                   |       |
| Total  current liabilities                                                                                                                                                                                                                                                         |       | 18,069                                               |              | 18,200                 |       |
|                                                                                                                                                                                                                                                                               |       |                                                 |              |                   |       |
| Long-Term  Liabilities                                                                                                                                                                                                                                                             |       |                                                 |              |                   |       |
| Debentures,  less current portion                                                                                                                                                                                                                                                  |       | 1,486                                                |              | 1,486                  |       |
| Other  long-term liabilities, less current portion                                                                                                                                                                                                                                 |       | 11,357                                               |              | 11,277                 |       |
| Derivative  financial instruments                                                                                                                                                                                                                                                  |       | 8,613                                                |              | 10,798                 |       |
| Line  of credit                                                                                                                                                                                                                                                                    |       | 85,000                                               |              | 89,900                 |       |
|                                                                                                                                                                                                                                                                               |       |                                                 |              |                   |       |
|                                                                                                                                                                                                                                                                               |       | 106,456                                              |              | 113,461                |       |
|                                                                                                                                                                                                                                                                               |       |                                                 |              |                   |       |
| Commitments  and Contingencies                                                                                                                                                                                                                                                     |       |                                                 |              |                   |       |
|                                                                                                                                                                                                                                                                               |       |                                                 |              |                   |       |
| Stockholders’  Equity                                                                                                                                                                                                                                                         |       |                                                 |              |                   |       |
| 8% convertible preferred stock, par value $.0001;  authorized 10,000,000 shares, issued and outstanding, 44,585 shares and  98,112 in 2010 and 2009, respectively  (aggregate  liquidation preference $535 in 2010 and $1,177 in 2009)                                             |       | 537                                                  |              | 1,179                  |       |
| Common  stock - $.0001 par value; authorized, 100,000,000 shares; issued 70,814,213  shares in 2010 and 70,651,160 shares in 2009                                                                                                                                                  |       | 7                                                    |              | 7                      |       |
| Additional  paid-in-capital                                                                                                                                                                                                                                                        |       | 461,521                                              |              | 460,787                |       |
| Accumulated  deficit                                                                                                                                                                                                                                                               |       | (325,414                                             | )                 | (332,600               | )          |
| Accumulated  other comprehensive income, net of applicable income taxes of $77 in 2010 and  $74 in 2009                                                                                                                                                                            |       | 117                                                  |              | 113                    |       |
|                                                                                                                                                                                                                                                                               |       | 136,768                                              |              | 129,486                |       |
| Less  common stock in Treasury—at cost; 632,250 shares in 2010 and 2009                                                                                                                                                                                                       |       | 728                                                  |              | 728                    |       |
| Total  stockholders’ equity                                                                                                                                                                                                                                                   |       | 136,040                                              |              | 128,758                |       |
| ** **                                                                                                                                                                                                                                                                         | ** ** | **$**                                                | ** 260,565** | ** **             | **$**      | **260,419** | ** ** |

 

The accompanyingnotes are an integral part of these financial statements.

 

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**Warren Resources, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF OPERATIONS**

** **
| ** **                                                 | ** ** | **Three Months Ended  March 31, (Unaudited)**   | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                 | ** ** | **(in thousands, except share  and per share data)** | ** ** |
| ** **                                                 | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| Operating revenues                                         |       |                                                 |       |   |   |
| Oil and gas sales                                          |       | $                                                    | 21,589     |   | $ | 11,547 |   |
|                                                       |       |                                                 |       |   |   |
| Operating expenses                                         |       |                                                 |       |   |   |
| Lease operating expense and taxes                          |       | 7,231                                                |       | 8,799 |   |
| Depreciation,  depletion and amortization                  |       | 4,783                                                |       | 5,316 |   |
| General  and administrative                                |       | 3,452                                                |       | 3,255 |   |
|                                                       |       |                                                 |       |   |   |
| Total  operating expenses                                  |       | 15,466                                               |       | 17,370 |   |
|                                                       |       |                                                 |       |   |   |
| Income  (loss) from operations                             |       | 6,123                                                |       | (5,823 | ) |
|                                                       |       |                                                 |       |   |   |
| Other  income (expense)                                    |       |                                                 |       |   |   |
| Interest  and other income                                 |       | 38                                                   |       | 97 |   |
| Interest  expense                                          |       | (872                                                 | )          | (1,544 | ) |
| Gain  on derivative financial instruments                  |       | 1,894                                                |       | 734 |   |
|                                                       |       |                                                 |       |   |   |
| Total  other income (expense)                              |       | 1,060                                                |       | (713 | ) |
|                                                       |       |                                                 |       |   |   |
| Income  (loss) before taxes                                |       | 7,183                                                |       | (6,536 | ) |
|                                                       |       |                                                 |       |   |   |
| Deferred  income tax expense (benefit)                     |       | (3                                                   | )          | 18 |   |
|                                                       |       |                                                 |       |   |   |
| Net  income (loss)                                         |       | 7,186                                                |       | (6,554 | ) |
|                                                       |       |                                                 |       |   |   |
| Less  dividends and accretion on preferred shares          |       | 11                                                   |       | 24 |   |
|                                                       |       |                                                 |       |   |   |
| Net  income (loss) applicable to common stockholders       |       | $                                                    | 7,175      |   | $ | (6,578 | ) |
|                                                       |       |                                                 |       |   |   |
| Earnings  (loss) per share — Basic                    |       | $                                                    | 0.10       |   | $ | (0.11 | ) |
| Earnings  (loss) per share — Diluted                  |       | $                                                    | 0.10       |   | $ | (0.11 | ) |
|                                                       |       |                                                 |       |   |   |
| Weighted  average common shares outstanding — Basic   |       | 70,083,641                                           |       | 58,243,910 |   |
| Weighted  average common shares outstanding — Diluted |       | 71,204,846                                           |       | 58,243,910 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

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**Warren Resources, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                         | ** ** | **For the three months ended********March 31, (Unaudited)** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **(in thousands)**                                               | ** ** |
| ** **                                                                         | ** ** | **2010**                                                         | ** ** | **2009** | ** ** |
| ** **                                                                         | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| Cash  flows from operating activities:                                             |       |                                                             |       |   |   |
| Net  income (loss)                                                                 |       | $                                                                | 7,186      |   | $ | (6,554 | ) |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                                             |       |   |   |
| Accretion  of discount on available-for-sale debt securities                       |       | (12                                                              | )          | (12 | ) |
| Amortization  of deferred offering costs                                           |       | 43                                                               |       | 37 |   |
| Depreciation,  depletion and amortization                                          |       | 4,783                                                            |       | 5,316 |   |
| Change  in fair value of derivative financial instruments                          |       | (2,452                                                           | )          | (87 | ) |
| Stock  option expense                                                              |       | 732                                                              |       | 543 |   |
| Deferred  tax expense                                                              |       | (3                                                               | )          | 18 |   |
| Change  in assets and liabilities:                                                 |       |                                                             |       |   |   |
| (Increase)  decrease in accounts receivable—trade                             |       | (815                                                             | )          | 3,345 |   |
| Increase  in other assets                                                          |       | (485                                                             | )          | (1,068 | ) |
| Decrease  in accounts payable and accruals                                         |       | (989                                                             | )          | (1,291 | ) |
|                                                                               |       |                                                             |       |   |   |
| Net  cash provided by operating activities                                         |       | 7,988                                                            |       | 247 |   |
|                                                                               |       |                                                             |       |   |   |
| Cash  flows from investing activities:                                             |       |                                                             |       |   |   |
| Purchase,  exploration and development of oil and gas properties                   |       | (1,882                                                           | )          | (17,833 | ) |
| Purchase  of property and equipment                                                |       | (6                                                               | )          | — |   |
|                                                                               |       |                                                             |       |   |   |
| Net  cash used in investing activities                                             |       | (1,888                                                           | )          | (17,833 | ) |
|                                                                               |       |                                                             |       |   |   |
| Cash  flows from financing activities:                                             |       |                                                             |       |   |   |
| Proceeds  from line of credit                                                      |       | —                                                           |       | 7,350 |   |
| Payments  on long-term debt                                                        |       | (4,931                                                           | )          | (28 | ) |
| Issuance  of common stock, net                                                     |       | 12                                                               |       | — |   |
| Repurchase  of preferred stock, net                                                |       | (642                                                             | )          | — |   |
|                                                                               |       |                                                             |       |   |   |
| Net  cash provided by (used in) financing activities                               |       | (5,561                                                           | )          | 7,322 |   |
|                                                                               |       |                                                             |       |   |   |
| Net  increase (decrease) in cash and cash equivalents                              |       | 539                                                              |       | (10,264 | ) |
|                                                                               |       |                                                             |       |   |   |
| Cash  and cash equivalents at beginning of period                                  |       | 17,238                                                           |       | 29,688 |   |
|                                                                               |       |                                                             |       |   |   |
| Cash  and cash equivalents at end of period                                        |       | $                                                                | 17,777     |   | $ | 19,424 |   |
|                                                                               |       |                                                             |       |   |   |   |   |
| Supplemental  disclosure of cash flow information Cash paid for interest           |       | $                                                                | 849        |   | $ | 1,500 |   |
| Noncash investing and financing activities Accrued  preferred stock dividend       |       | 11                                                               |       | 24 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

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** **

**WARRENRESOURCES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

** **

**NOTE A—ORGANIZATION**

 

Warren Resources, Inc.(the “Company” or “Warren”), was originally formed on June 12, 1990 forthe purpose of acquiring and developing oil and gas properties. The Company isincorporated under the laws of the state of Maryland. The Company’s propertiesare primarily located in Wyoming, California and New Mexico.

 

Theaccompanying unaudited financial statements and related notes present theCompany’s consolidated financial position as of March 31, 2010 and December 31,2009, the consolidated results of operations for the three months ended March 31,2010 and 2009 and consolidated cash flows for the three months ended March 31,2010 and 2009. The unaudited financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America for interim financial information and with the instructions of Form 10-Qand Article 10 of Regulation S-X. Accordingly, they do not include all ofthe information and footnotes required by accounting principles generallyaccepted in the United States of America for complete financial statements. Inthe opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included.Operating results for the three months ended March 31, 2010 are notnecessarily indicative of the results that may be expected for the fiscal yearending December 31, 2010. The accounting policies followed by the Companyare set forth in Note A to the Company’s financial statements included in Form 10-Kfor the year ended December 31, 2009. These interim financial statementsand notes thereto should be read in conjunction with the consolidated financialstatements presented in the Company’s 2009 Annual Report on Form 10-K.

 

##### **NOTE B**—STOCK BASEDCOMPENSATION

##### ** **

*Stock Options*

 

Compensation expense related to stock options andrestricted stock awards recognized in operating results (general andadministrative expenses) was approximately $0.7 and $0.5 million for the threemonths ended March 31, 2010 and March 31, 2009, respectively.

 

The followingassumptions were used to value stock options calculated using the Black-Scholesoptions pricing model:

 
| ** **               | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------|------------|---------------------------------------|------------|
| ** **               | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| Dividend  yield          |       | 0%                                    |       | 0% |   |
| Expected  volatility     |       | 77.8%                                 |       | 69.3% |   |
| Risk-free  interest rate |       | 1.6%                                  |       | 1.5% |   |
| Fair  value of options   |       | $1.32                                 |       | $0.25 |   |
| Expected  life           |       | 3.5 years                             |       | 3.5 years |   |

 
| ** **                             | ** ** | ** **     | ** ** | **Weighted** | ** ** | **Weighted**        | ** ** | ** **          | ** ** |
|----------------------------------------|------------|----------------|------------|--------------|------------|---------------------|------------|---------------------|------------|
| ** **                             | ** ** | ** **     | ** ** | **Average**  | ** ** | **Average**         | ** ** | **Aggregate**       | ** ** |
| ** **                             | ** ** | **Number**     | ** ** | **Exercise** | ** ** | **Remaining**       | ** ** | **Intrinsic Value** | ** ** |
| ** **                             | ** ** | **of Options** | ** ** | **Price**    | ** ** | **Term (in years)** | ** ** | **(in thousands)**  | ** ** |
| Outstanding  at December 31, 2009 |       | 3,419,040      |       | $            | 6.02       |                |       |                |       |   |
| Granted                                |       | 1,058,500      |       | 2.42         |       |                |       |                |       |
| Exercised                              |       | (23,234        | )          | 0.51         |       |                |       |                |       |
| Forfeited  or expired                  |       | (614,000       | )          | 9.05         |       |                |       |                |       |
| Outstanding  at March 31, 2010    |       | 3,840,306      |       | $            | 4.57       |                | 3.61       |                | $          | 3,235 |   |
|                                   |       |           |       |         |       |                |       |                |       |
| Exercisable  at March 31, 2010    |       | 1,532,182      |       | $            | 8.21       |                | 2.85       |                | $          | 1,005 |   |

 

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Thetotal intrinsic value of options exercised during the three months ended March 31,2010 was approximately $45,000. There were no options exercised in the threemonths ended March 31, 2009.

 

As of March 31,2010, total unrecognized stock-based compensation expense related to non-vestedstock options was $2.2 million, which we expect to recognize over a weightedaverage period of 2.3 years.

 

*RestrictedShares*

 

Restricted share activityas of March 31, 2010 was as follows:

 
| ** **                             | ** ** | **Shares** | ** ** | **Weighted  Average  Fair Value** | ** ** |
|----------------------------------------|------------|------------|------------|----------------------------------------|------------|
| ** **                             | ** ** | ** ** | ** ** | ** **                             | ** ** |
| Outstanding  at December 31, 2009 |       | 81,113     |       | $                                      | 11.00      |   |
| Granted                                |       | 533,437    |       | 2.42                                   |       |
| Vested                                 |       | (183,629   | )          | 4.74                                   |       |
| Forfeited                              |       | —     |       | —                                 |       |
| Outstanding  at March 31, 2010    |       | 430,921    |       | $                                      | 3.04       |   |

 

Restricted stock awardsfor executive officers and employees vest ratably over three years, excludingshares issued in March 2010 which vest ratably over nine months. Fairvalue of our restricted shares is based on our closing stock price on the dateof grant.  As of March 31, 2010, total unrecognized stock-basedcompensation expense related to non-vested restricted shares was $0.9 million,which is expected to be recognized over a weighted average period ofapproximately 0.9 years.

 

#### **NOTE C**—CHANGES IN STOCKHOLDERS’ EQUITY

#### ** **

The preferred stock paysan 8% cumulative dividend which is treated as a deduction of additional paid incapital, due to insufficient retained earnings. The holders of the preferredstock are not entitled to vote except as defined by the agreement or asprovided by applicable law.  Thepreferred stock may be voluntarily converted, at the election of the holder,into common stock of the Company based on a conversion rate of one share ofpreferred stock for 0.50 shares of common stock. The accrual of the dividend isdeducted from earnings in the calculation of earnings attributable to commonstockholders.

 

Additionally, commencing October 1,2009, holders of the preferred stock can elect to require the Company to redeemtheir preferred stock at a redemption price equal to the liquidation value of$12.00 per share, plus accrued but unpaid dividends, if any, (“Redemption Price”).  Upon the receipt of a redemption election,the Company, at its option, shall either: (1) pay the holder cash in theamount equal to the Redemption Price or (2) issue to the holder shares ofcommon stock in an amount equal to 125% of the redemption price and any accruedand unpaid dividends, based on the weighted average closing “bid” price of theCompany’s common stock for the thirty trading days immediately preceding thedate of the written redemption election by the holder up to a maximum of 1.5shares of common stock for each one share of preferred stock redeemed. TheCompany is accreting the carrying value of its preferred stock to itsredemption price using the effective interest method with changes recorded toadditional paid in capital. The accretion of preferred stock results in areduction of earnings applicable to common stockholders. For the three monthsended March 31, 2010, the Company redeemed 53,527 shares of preferredstock for an aggregate redemption amount of $642,324.

 

Notwithstanding the forgoing,if the closing “bid” price of the Company’s publicly traded common stock asreported by the NASDAQ stock market, or any exchange on which the shares ofcommon stock are traded, exceeds 133% of the conversion price then in effectfor the convertible preferred shares for at least 10 days during any 30-daytrading period, the Company has the right to redeem in whole or in part theconvertible preferred stock at a redemption price of $12 per share (plus anyaccrued unpaid dividends) or convert the convertible preferred shares (plus anyaccrued unpaid dividends) into common stock at the then applicable conversionrate.

 

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**NOTE D—EARNINGS (LOSS) PER SHARE**

 

Basic earnings (loss) pershare is computed by dividing net earnings (loss) applicable to commonstockholders by the weighted average number of shares of common stockoutstanding during the period. Diluted earnings (loss) per share is based onthe assumption that stock options and warrants are converted into common sharesusing the treasury stock method and convertible bonds and preferred stock areconverted using the if-converted method. Conversion is not assumed if theresults are anti-dilutive.  Potentialcommon shares for the three months ended March 31, 2010 and March 31,2009 of  69,462 and 96,941 respectively,relating to convertible bonds and preferred stock, were excluded from thecomputation of diluted earnings (loss) per share because they areanti-dilutive. Potential common shares of 2,725,465 and 5,261,133 respectively, relating to stock options,warrants and restricted stock were excluded from the computation of dilutedearnings (loss) per share for the three months ended March 31, 2010 and2009, respectively, because they are anti-dilutive. Stock options have aweighted average exercise price of $4.57 and $6.29 at March 31, 2010 and March 31,2009, respectively. At March 31, 2010, the convertible bonds may beconverted from the date of issuance until maturity at 100% of principal amountinto common stock of the Company at a price of $35 to $50.  The preferred stock may be converted at thediscretion of the holder or upon meeting certain conditions at the discretionof the Company (see Note C).

 

Basic and diluted netearnings (loss) per share are computed based on the following information:

 
| ** **                                            | ** ** | **Three Months  Ended********March 31, 2010** | ** ** | **Three Months  Ended********March 31, 2009** | ** ** |
|-------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                            | ** ** | **(in thousands, except for per  share data)**     | ** ** |
| Net  earnings (loss) available to common shareholders |       | $                                                  | 7,175      |                                               | $          | (6,578 | ) |
|                                                  |       |                                               |       |                                               |       |
| Weighted  average shares outstanding - basic          |       | 70,083,641                                         |       | 58,243,910                                         |       |
| Effect  of dilutive securities — stock options   |       | 1,121,205                                          |       | —                                             |       |
| Effect  of dilutive securities — preferred stock |       | —                                             |       | —                                             |       |
| Effect  of dilutive securities — warrants        |       | —                                             |       | —                                             |       |
|                                                  |       |                                               |       |                                               |       |
| Weighted  average shares outstanding - diluted        |       | 71,204,846                                         |       | 58,243,910                                         |       |
|                                                  |       |                                               |       |                                               |       |
| Basic  net earnings (loss) per share                  |       | $                                                  | 0.10       |                                               | $          | (0.11 | ) |
| Diluted  net earnings (loss) per share                |       | $                                                  | 0.10       |                                               | $          | (0.11 | ) |

 

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**NOTE E—LONG-TERM LIABILITIES**

 

Long-termliabilities, excluding derivative financial instruments (see Note I), consistedof the following for the balance sheets dated:

 
| ** **                             | ** ** | **March 31,**      | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2010**                | ** ** | **2009**              | ** ** |
| ** **                             | ** ** | **(in thousands)** | ** ** |
|                                   |       |                    |       |                  |       |
| Line  of Credit                        |       | $                       | 85,000     |                  | $          | 89,900 |   |
| Convertible  debentures                |       | 1,651                   |       | 1,651                 |       |
| Debt  collateralized by treasury stock |       | 343                     |       | 374                   |       |
| Asset  retirement obligations          |       | 8,696                   |       | 8,689                 |       |
| Litigation  allowance                  |       | 3,100                   |       | 3,100                 |       |
|                                   |       | 98,790                  |       | 103,714               |       |
| Less  current portion                  |       | 947                     |       | 1,051                 |       |
| Long-term  portion                     |       | $                       | 97,843     |                  | $          | 102,663 |   |

 

On November 19,2007, the Company entered into a five year, $250 million credit agreement withMerrill Lynch Capital (now owned by GE Business Financial Services, Inc.)The Credit Facility provides for a revolving credit line up to the lesser of (i) theborrowing base, (ii) $250 million or (iii) the draw limit requestedby the Company. The Credit Facility matures on November 19, 2012. It issecured by substantially all of our assets. The borrowing base will bedetermined by the lenders at least semi-annually on each April 1 and October 1and is based in part on the proved reserves of the Company. The currentborrowing base is $120 million. Interest payments are made in arrears. TheCompany repaid $4.9 million under the Credit Facility during the first quarterof 2010, leaving $35 million of currently available credit. Credit lineinterest of approximately $0.1 million was accrued as of March 31, 2010.As of March 31, 2010, the Company has $85 million outstanding on itsborrowing base.

 

The Company is subject tocertain covenants under the terms of the Credit Facility which include, but arenot limited to, the maintenance of the following financial ratios (1) minimumcurrent ratio of current assets (including unused borrowing base in currentassets) to current liabilities of 1.0 to 1.0 and (2) a minimum annualizedconsolidated EBITDAX (as defined by the Credit Facility) to net interestexpense to of 2.5 to 1.0.

 

Dependingon the current level of borrowing base usage, the annual interest rate on eachbase rate borrowing under the Credit Facility will be at our option either: (a) a“Base Rate Loan”, or any other Obligation other than a LIBOR Loan, which has aninterest rate equal to the sum of the “Base Rate” plus the applicable “BaseRate Margin”, calculated to be the higher of (i) the Agent’s prime rate ofinterest announced from time to time, or (ii) the Federal Funds rate mostrecently determined by the Agent, plus 3.0% per annum, plus an applicablemargin that ranges from 1.5% to 2.25%, or (b) a “LIBOR Loan”, which has aninterest rate equal to the sum of the applicable LIBOR period plus theapplicable “LIBOR Margin”, that ranges from 2.75% to 3.50%.

 

Theconvertible bonds may be converted from the date of issuance until maturity at100% of principal amount into common stock of the Company at prices rangingfrom $35 to $50. Each year the holders of the convertible bonds may tender tothe Company up to 10% of the aggregate bonds issued and outstanding. During thethree months ended March 31, 2010, there were no Bond Redemptions.

 

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#### **NOTE F—CONTINGENCIES**

#### ** **

In January 2008, theLos Angeles city attorney filed a complaint against Warren E&P, Inc.,a subsidiary of the Company (“Warren E&P”), and six of its individualemployees and independent contractors in the Superior Court of California,County of Los Angeles (*State of Californiav. Warren E&P, Inc., et al*.). The complaint alleged eightmisdemeanor violations concerning four alleged events in Wilmington, Californiaduring 2007. The complaint asserts one count of failing to report the dischargeor threatened discharge of oil into marine waters for an event occurring on orabout March 7, 2007; one count of failing to prepare and implement an oilspill contingency plan; four counts of violating the California Fish and GameCode by placing petroleum or its by-products in or at a place where they canpass into waters of the state; and two similar violations of the CaliforniaClean Water Act. The complaint alleges all eight counts against Warren E&P, Inc.and one to four counts against each of the individuals. Warren E&P has beendiscussing and negotiating a resolution of this case, and has reached atentative, oral agreement with the City Attorney’s office and the DistrictAttorney’s Office to settle this case. The oral agreement must be documented inwriting, but generally provides that the criminal case will be dismissedagainst all defendants, and Warren will be required to enter into a ConsentDecree and Civil Compromise Agreement, which will require it to pay certaincosts and civil penalties and fines in the approximate amount of $100,000. In December of2009, Warren E&P was able to obtain a dismissal of the six individualdefendants from the case. Warren E&P and its counsel are currently workingwith the District Attorney’s office on the specific terms of the Consent Decreeand Civil Compromise Agreement, and both anticipate this case will be resolvedand ultimately settled in the second quarter of 2010.

 

In 2005, Warren recordeda provision for $1.8 million relating to a contingent liability that theCompany may face as a result of a lawsuit originally filed in 1998 by GothamInsurance Company in the 81st Judicial District Court of Frio County,Texas (*Gotham Insurance Company v. Pedeco, Inc.,et al.,*) seeking a refund of approximately $1.8 million paid byGotham and other insurers under an insurance policy issued for a well blow-outthat occurred in 1997. After several appeals to the Texas Court of Appeals andthe Texas Supreme Court, the case was remanded to the trial court for furtherproceedings. Both parties filed Motions for Summary Judgment in mid-2009, andon November 19, 2009, the trial court heard oral arguments on both Motionsfor Summary Judgment. On January 22, 2010, the court granted Gotham’sMotion for Summary Judgment for restitution in the amount of $1,823,156 andalso awarded prejudgment interest at the rate of 5% per annum in the amount of$976,011. As a result of the January 2010 Summary Judgment, Warrenrecorded an additional provision of $1.3 million in the fourth quarter of 2009relating to this contingent liability. Warren intends to appeal the order ofthe trial court to the Texas Court of Appeals. Although Warren believes that ithas meritorious grounds for the appeal, if its appeal is unsuccessful, it willpay the amount of restitution to Gotham, as ordered by the trial court.

 

Except for the foregoing,the Company is not a party to any material pending legal or governmentalproceedings, other than ordinary routine litigation incidental to our business.While the ultimate outcome and impact of any proceeding cannot be predictedwith certainty, our management believes that the resolution of any proceedingwill not have a material adverse effect on our financial condition or resultsof operations.

 

**NOTE G—COMPREHENSIVE INCOME**

 

Other comprehensiveincome consists primarily of net unrealized investment gains and losses, net ofincome tax effect. Total comprehensive income for the periods is as follow:

 
| ** **                                                | ** ** | **Three months ending** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                | ** ** | **March 31,**                | ** ** |
| ** **                                                | ** ** | **2010**                          | ** ** | **2009** | ** ** |
| ** **                                                | ** ** | **(in thousands)**           | ** ** |
|                                                      |       |                              |       |   |   |
| Net  income (loss)                                        |       | $                                 | 7,186      |   | $ | (6,554 | ) |
| Holding  gains (losses) on available for sale investments |       | 4                                 |       | (26 | ) |
|                                                      |       |                              |       |   |   |
| Comprehensive  income (loss)                              |       | $                                 | 7,190      |   | $ | (6,580 | ) |

 

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#### **NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS**

#### ** **

The estimated fairvalues of financial instruments recognized in the Consolidated Balance Sheetsor disclosed within these Notes to Consolidated Financial Statements have beendetermined using available market information, information from unrelated thirdparty financial institutions and appropriate valuation methodologies, primarilydiscounted projected cash flows. However, considerable judgment is requiredwhen interpreting market information and other data to develop estimates offair value.

 

*Short-term Assets and Liabilities.*****The fair values of cash and cash equivalents, accountsreceivable, accounts payable and accrued expenses and other current liabilitiesapproximate their carrying values because of their short-term nature.

 

*U.S.Treasury Bonds - Trading and Available-For-Sale Securities.* The fair values are based upon quoted market prices for those or similarinvestments and are reported on the Consolidated Balance Sheets at fair value.

 

*CollateralSecurity Agreement Account (included in other non-current assets).*The balance sheet carrying amountapproximates fair value, as it earns a market rate.

 

*ConvertibleDebentures*:****Fair values of fixed rate convertibledebentures were calculated using interest rates in effect as of period end forsimilar instruments with the other terms unchanged.

 

*Other Long-Term Liabilities*. The carrying amount approximates fair value due the current ratesoffered to the Company for long-term liabilities of the same remainingmaturities.

 

*Line of Credit.*The carrying amount approximates fairvalue due the current rates offered to the Company for lines of credit.

 
| ** **                   | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                   | ** ** | **Fair**                     | ** ** | **Carrying**                    | ** ** | **Fair** | ** ** | **Carrying** | ** ** |
| ** **                   | ** ** | **value**                    | ** ** | **amount**                      | ** ** | **value** | ** ** | **amount** | ** ** |
| ** **                   | ** ** | **(in thousands)**      | ** ** |
|                         |       |                         |       |                            |       |   |   |   |   |
| Financial  assets            |       |                         |       |                            |       |   |   |   |   |
| U.S.  Treasury Bonds         |       | $                            | 991        |                            | $          | 991 |   | $ | 972 |   | $ | 972 |   |
| Collateral  security account |       | 3,158                        |       | 3,158                           |       | 3,158 |   | 3,158 |   |
| Financial  liabilities       |       |                         |       |                            |       |   |   |   |   |
| Fixed  rate debentures       |       | $                            | 1,779      |                            | $          | 1,651 |   | $ | 1,760 |   | $ | 1,651 |   |
| Other  long-term liabilities |       | 343                          |       | 343                             |       | 373 |   | 373 |   |
| Line  of credit              |       | 85,000                       |       | 85,000                          |       | 89,900 |   | 89,900 |   |

 

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**FAIRVALUE MEASUREMENTS:**

 

Fair value as defined byauthoritative literature is the price that would be received to sell an asset orpaid to transfer a liability in an orderly transaction between marketparticipants at the measurement date and establishes a three level hierarchyfor measuring fair value. The statement requires fair value measurements beclassified and disclosed in one of the following categories:

 

*Level 1**:*   Quoted prices (unadjusted) in activemarkets for identical assets and liabilities that we have the ability to accessat the measurement date.

 

*Level 2**:*  Inputs other than quoted prices includedwithin Level 1 that are either directly or indirectly observable for the assetor liability, including quoted prices for similar assets or liabilities inactive markets, quoted prices for identical or similar assets or liabilities ininactive markets, inputs other than quoted prices that are observable for theasset or liability, and inputs that are derived from observable market data bycorrelation or other means. Instruments categorized in Level 2 includenon-exchange traded derivatives such as over-the-counter forwards and swaps.

 

*Level 3**:*  Unobservable inputs for the asset orliability, including situations where there is little, if any, market activityfor the asset or liability.

 

Thevaluation assumptions utilized to measure the fair value of the Company’scommodity derivatives were observable inputs based on market data obtained fromindependent sources and are considered Level 2 inputs (quoted prices forsimilar assets, liabilities (adjusted) and market-corroborated inputs).

 

Thefollowing tables present for each hierarchy level our assets and liabilities,including both current and non-current portions, measured at fair value on arecurring basis.

 

**March 31, 2010**

 
| **Assets**                                                                            | ** ** | **Level 1**        | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------|------------|-------------|------------|-------------|------------|-----------|------------|
| ** **                                                                            | ** ** | **(in thousands)** | ** ** |
| Restricted  investments in US Treasury Bonds — available for sale, at fair value |       | $                  | 991        |        | $          | —      |       | $         | —     |   | $ | 991 |   |
| Commodity  derivative asset                                                           |       | $                  | —     |        | $          | 689         |       | $         | —     |   | $ | 689 |   |

 
| **Liabilities**                 | ** ** | **Level 1**        | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|---------------------------------|------------|--------------------|------------|-------------|------------|-------------|------------|-----------|------------|
| ** **                      | ** ** | **(in thousands)** | ** ** |
|                            |       |               |       |        |       |        |       |      |       |
| Commodity  derivative liability |       | $                  | —     |        | $          | 8,613       |       | $         | —     |   | $ | 8,613 |   |
|                                 |            |                    |            |             |            |             |            |           |            |  |  |  |  |

 

**December 31, 2009**

 
| **Assets**                                                                            | ** ** | **Level 1**        | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------|------------|-------------|------------|-------------|------------|-----------|------------|
| ** **                                                                            | ** ** | **(in thousands)** | ** ** |
| Restricted  investments in US Treasury Bonds — available for sale, at fair value |       | $                  | 972        |        | $          | —      |       | $         | —     |   | $ | 972 |   |
| Commodity  derivative asset                                                           |       | $                  | —     |        | $          | 421         |       | $         | —     |   | $ | 421 |   |

 
| **Liabilities**                 | ** ** | **Level 1**        | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|---------------------------------|------------|--------------------|------------|-------------|------------|-------------|------------|-----------|------------|
| ** **                      | ** ** | **(in thousands)** | ** ** |
|                            |       |               |       |        |       |        |       |      |       |
| Commodity  derivative liability |       | $                  | —     |        | $          | 10,798      |       | $         | —     |   | $ | 10,798 |   |
|                                 |            |                    |            |             |            |             |            |           |            |  |  |  |  |

 

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**NOTE I —DERIVATIVE FINANCIAL INSTRUMENTS**

 

To minimize the effect ofa downturn in oil and gas prices and protect our profitability and theeconomics of our development plans, we enter into crude oil and natural gashedge contracts. The terms of contracts depend on various factors, includingmanagement’s view of future crude oil and natural gas prices. This pricehedging program is designed to moderate the effects of a crude oil and naturalgas price downturn while allowing us to participate in some commodity priceincreases. Management regularly monitors the crude oil and natural gas marketsand our financial commitments to determine if, when, and at what level someform of crude oil and/or natural gas hedging and/or basis adjustments or otherprice protection is appropriate. Currently, our derivatives are in the form ofswaps and a costless collar.  However, we may use a variety ofderivative instruments in the future to hedge. The Company has not designatedthese derivatives as hedges for accounting purposes.

 

The following tablesummarizes the open financial derivative positions as of March 31, 2010,related to oil and gas production. The Company will receive prices as noted inthe table below and will pay a counterparty market price based on the NYMEX(for natural gas production) or WTI (for oil production) index price, settledmonthly.

 
| **Product** | ** ** | **Type** | ** ** | **Contract Period**           | ** ** | **Volume**    | ** ** | **Price per  Mcf or Bbl** | ** ** |
|-------------|------------|----------|------------|-------------------------------|------------|---------------|------------|---------------------------|------------|
| Gas         |       | Swap     |       | 02/01/09 - 12/31/10 |       | 3,000 Mcf/d   |       | $6.88                     |       |
| Gas         |       | Swap     |       | 03/01/09 - 02/28/11 |       | 3,000 Mcf/d   |       | $6.02                     |       |
| Oil         |       | Collar   |       | 01/01/10 - 12/31/10 |       | 1,000 Bbld    |       | $65 - $106.50   |       |
| Oil         |       | Swap     |       | 01/01/11 - 12/31/11 |       | 1,225 Bbld    |       | $61.80                    |       |
| Gas         |       | Swap     |       | 01/01/10 - 03/31/10 |       | 2,500 Mmbtu/d |       | –$0.40*              |       |
| Gas         |       | Swap     |       | 02/01/10 - 12/31/10 |       | 6,500 Mmbtu/d |       | –$0.38*              |       |
| Gas         |       | Swap     |       | 04/01/10 - 11/30/10 |       | 2,500 Mmbtu/d |       | –$0.64*              |       |
| Gas         |       | Swap     |       | 04/01/11 - 11/30/11 |       | 2,500 Mmbtu/d |       | –$0.71*              |       |
| Gas         |       | Swap     |       | 01/01/12 - 12/01/12 |       | 3,000 Mmbtu/d |       | –$0.51*              |       |

 

----

*                                         This represents a differential spreadbetween NYMEX and CIG pricing.

 

The tables belowsummarize the amount of gains recognized in income from derivative instruments.

 
| **Derivatives not designated as**                    | ** ** | **Amount of Gain (Loss)  Recognized in Income for  Derivatives not designated as  Hedging Instruments under  authoritative guidance** | ** ** | **Amount of Gain (Loss)  Recognized in Income for  Derivatives not designated as  Hedging Instruments under  authoritative guidance** | ** ** |
|------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Hedging Instrument under  authoritative guidance** | ** ** | **Three months ended March 31, 2010  (in thousands)**                                                                            | ** ** | **Three months ended March 31, 2009  (in thousands)**                                                                            | ** ** |
|                                                 |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Realized  cash settlements on hedges                 |       | $                                                                                                                                     | 816        |                                                                                                                                  | $          | 647 |   |
| Unrealized  gain on hedges                           |       | 1,078                                                                                                                                 |       | 87                                                                                                                                    |       |
| Total                                                |       | $                                                                                                                                     | 1,894      |                                                                                                                                  | $          | 734 |   |

 

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We present our derivativeassets and liabilities in our Condensed Balance Sheets on a net basis. Allderivatives are held with one counter party and gains and losses are offset inthe Balance Sheet presentation. The table below reflects the line item in ourCondensed Balance Sheet where the fair value of our net derivatives, areincluded.

 

**March 31,2010**

 
| ** **                                               | ** ** | **Derivative Assets**       | ** ** |
|----------------------------------------------------------|------------|-----------------------------|------------|
| **(in thousands)**                                       | ** ** | **Balance Sheet  Location** | ** ** | **Fair Value** | ** ** |
| Commodity—Natural  Gas                              |       | current                     |       | 3,345 |   |
| Commodity—Oil                                       |       | current                     |       | (2,656 | ) |
| Total  derivatives not designated as hedging instruments |       |                        |       | $ | 689 |   |
|                                                          |            |                             |            |  |  |  |

 
| ** **                                               | ** ** | **Derivative Liabilities**  | ** ** |
|----------------------------------------------------------|------------|-----------------------------|------------|
| **(in thousands)**                                       | ** ** | **Balance Sheet  Location** | ** ** | **Fair Value** | ** ** |
| Commodity—Natural  Gas                              |       | Non-current                 |       | 455 |   |
| Commodity—Oil                                       |       | Non-current                 |       | 8,158 |   |
| Total  derivatives not designated as hedging instruments |       |                        |       | $ | 8,613 |   |
|                                                          |            |                             |            |  |  |  |

 

**December 31, 2009**

 
| ** **                                               | ** ** | **Derivative Assets**       | ** ** |
|----------------------------------------------------------|------------|-----------------------------|------------|
| **(in thousands)**                                       | ** ** | **Balance Sheet  Location** | ** ** | **Fair Value** | ** ** |
| Commodity—Natural  Gas                              |       | current                     |       | 1,239 |   |
| Commodity—Oil                                       |       | current                     |       | (818 | ) |
| Total  derivatives not designated as hedging instruments |       |                        |       | $ | 421 |   |
|                                                          |            |                             |            |  |  |  |

 
| ** **                                               | ** ** | **Derivative Liabilities**  | ** ** |
|----------------------------------------------------------|------------|-----------------------------|------------|
| **(in thousands)**                                       | ** ** | **Balance Sheet  Location** | ** ** | **Fair Value** | ** ** |
| Commodity—Natural  Gas                              |       | Non-current                 |       | 120 |   |
| Commodity—Oil                                       |       | Non-current                 |       | 10,678 |   |
| Total  derivatives not designated as hedging instruments |       |                        |       | $ | 10,798 |   |
|                                                          |            |                             |            |  |  |  |

 

**NOTE J —RECENTLY ISSUED ACCOUNTING STANDARDS**

 

In January 2010, theFinancial Accounting Standards Board (“FASB”) issued new guidance andclarifications for improving disclosures about fair valuemeasurements.  This guidance requires enhanced disclosures regardingtransfers in and out of the levels within the fair valuehierarchy.  Separate disclosures are required for transfers in andout of Level 1 and 2 fair value measurements, and the reasons for the transfersmust be disclosed.  The new disclosures and clarifications ofexisting disclosures are effective for interim and annual reporting periodsbeginning after December 15, 2009. The adoption of this guidance did nothave any effect on the financial statements.

 

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**Item 2. *Management’s Discussion and Analysis of Financial Conditions and Resultsof Operations***

 

**CAUTIONARY NOTE REGARDINGFORWARD-LOOKING STATEMENTS**

 

*TheCompany has made in this report, and may from time to time otherwise make inother public filings, press releases and discussions with Company management,forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Act of1934 concerning the Company’s operations, economic performance and financialcondition. These forward-looking statements include information concerningfuture production and reserves, schedules, plans, timing of development,contributions from oil and gas properties, and those statements preceded by,followed by or that otherwise include the words “believes,” “expects,” “anticipates,”“intends,” “estimates,” “projects,” “target,” “goal,” “plans,” “objective,” “should”or similar expressions or variations on such expressions. For such statements,the Company claims the protection of the safe harbor for forward-lookingstatements contained in the Private Securities Litigation Reform Act of 1995.Although the Company believes that the expectations reflected in suchforward-looking statements are reasonable, it can give no assurance that suchexpectations will prove to have been correct. Important factors that couldcause actual results to differ materially from the Company’s expectationsinclude, but are not limited to, the Company’s assumptions about energymarkets, production levels, reserve levels, operating results, competitiveconditions, technology, the availability of capital resources, capitalexpenditures and other contractual obligations, the supply and demand for andthe price of oil, natural gas and other products or services, the weather,inflation, the availability of goods and services, drilling risks, futureprocessing volumes and pipeline throughput, general economic conditions, eitherinternationally or nationally or in the jurisdictions in which the Company orits subsidiaries are doing business, legislative or regulatory changes,including changes in environmental regulation, environmental risks andliability under federal, state and local environmental laws and regulations,potential environmental obligations, the securities or capital markets, ourability to repay debt and other factors discussed in “Risk Factors” and in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”included in the Company’s 2009 Annual Report on Form 10-K, this Form 10-Qand in the Company’s other public filings, press releases and discussions withCompany management. Warren undertakes no obligation to publicly update orrevise any forward-looking statement,**whether as a result of new information, subsequentevents or otherwise, unless otherwise required by law.*

 

**Overview**

 

We are an independentenergy company engaged in the exploration and development of domestic onshoreoil and natural gas reserves. We focus our efforts primarily on our waterfloodoil recovery programs and horizontal drilling in the Wilmington field withinthe Los Angeles Basin of California and on the exploration and development ofcoalbed methane (“CBM”) properties located in the Rocky Mountain region. As of March 31,2010, we owned natural gas and oil leasehold interests in approximately 148,500gross, 79,300 net acres, approximately 80% of which are undeveloped.Substantially all our undeveloped acreage is located in the Rocky Mountains.

 

**Liquidity and CapitalResources**

** **

Our cashand cash equivalents increased $0.5 million to $17.8 million during the threemonths ended March 31, 2010.  Thisresulted from cash provided from operating activities of $8.0 million offset bycash used in financing activities of $5.6 million and cash used in investingactivities of $1.9 million.

 

Cash provided byoperating activities was primarily generated by oil and gas operations.  Cash used in financing activities primarilyrepresents repayments on our Credit Facility (as discussed in more detailbelow).  Cash used in investingactivities was primarily spent on oil and gas properties and equipment.

 

On October 23,2009, the Company sold 11.8 million shares of common stock at $2.60 pershare.  The Company received net proceedsof $28.9 million after deducting $1.8 million of issuance costs.

 

On November 19,2007, Warren entered into a five year, $250 million credit agreement withMerrill Lynch Capital (subsequently sold to GE Business Financial Services, Inc.)on behalf of itself and a syndicate of five participating banks (the “CreditFacility”).   The Credit Facility providesfor a revolving loan up to the lesser of (i) the borrowing base (ii) $250million or (iii) the draw limit requested by the Company.  The Credit Facility matures on November 19,2012.  It is secured by substantially allof our assets.  The borrowing base willbe determined by the lenders at least semi-annually on or about April 1and October 1 of each year, and is based in part on the proved reserves ofthe Company. The current borrowing base 

 

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is $120million, representing an immediate availability of $35 million as of March 31,2010.  The Company repaid $4.9 millionunder the Credit Facility during the first quarter of 2010.  The Company is subject to certain covenantsrequired by the Credit Facility which include, but are not limited to themaintenance of the following financial ratios (1) a minimum current ratio(including the unused borrowing base and excluding unrealized gains and losseson derivative financial instruments) of not less than 1.0 to 1.0 and (2) aminimum annualized consolidated EBITDAX (as defined by the Credit Facility) tonet interest expense of not less than to of 2.5 to 1.0.  As of March 31, 2010, the Company hadborrowed $85 million under the Credit Facility and was in compliance with allcovenants.  If the Company fails tosatisfy its Credit Facility covenants, it would be an event of default.  Under such event of default and upon notice, allborrowings would become immediately due and payable to the lending banks.

 

Depending on the currentlevel of borrowing base usage, the annual interest rate on each base rateborrowing under the Credit Facility will be at our option either: (a) a “BaseRate Loan”, or any other Obligation other than a LIBOR Loan, which has aninterest rate equal to the sum of the “Base Rate” plus the applicable “BaseRate Margin”, calculated to be the higher of (i) the Agent’s prime rate ofinterest announced from time to time, or (ii) the Federal Funds rate mostrecently determined by the Agent, plus 3.0% per annum, plus an applicablemargin that ranges from 1.5% to 2.25%, or (b) a “LIBOR Loan”, which has aninterest rate equal to the sum of the applicable LIBOR period plus theapplicable “LIBOR Margin”, that ranges from 2.75% to 3.50%. During the firstquarter of 2010, the Company incurred $0.8 million of interest expenseunder the Credit Facility of which approximately $0.1 million was accruedfor as of March 31, 2010. The weighted average interest rate as of March 31,2010, was 3.4%.

 

Our operations areaffected by local, national and worldwide economic conditions. We have reliedon the capital markets, particularly for equity securities, as well as thebanking and debt markets, to meet financial commitments and liquidity needs ifinternally generated cash flow from operations is not adequate to fund ourcapital requirements. Capital markets in the United States and elsewhere havebeen experiencing extreme adverse volatility and disruption for more than18 months, due in part to the financial stresses affecting the liquidityof the banking system, the real estate mortgage industry and the financialmarkets generally. In recent months, this volatility and disruption has beenreduced. As a result, our access to capital has improved as evidenced by our$29 million equity offering during October 2009.

 

If oil and gas commodityprices go lower, the Company may not generate sufficient cash flows to covercapital expenditures. In such case, the availability of funds under our CreditFacility is critical to our Company. The borrowing base is to be redeterminedon or about May 15, 2010. If the Credit Facility’s borrowing base isreduced to a level below current borrowings, the Company would be obligated tobegin reducing the deficiency by 25% within 90 days after the deficiencyoccurs and the remaining 75% within 180 days after the deficiency occurs.

 

The continuing crisis inthe U.S. and world financial and securities markets could have a materialadverse effect on our business and operations. Additionally, low commodityprices may restrict our ability to meet our current obligations. As a result,Management has taken several actions to ensure that the Company will havesufficient liquidity to meet its obligations through December 31, 2010,including a 2010 capital expenditure budget which is expected to be funded bydiscretionary cash flow, entered into price swap agreements, collars anddifferential swap agreements for a portion of its 2010 production to reduceprice volatility, temporarily shut-in three pilot areas in the Atlantic Rimthat are uneconomic at current prices to reduce lease operating expenses,employee reductions and reductions in discretionary expenditures. As of March 31,2010, approximately 50% of the Company’s natural gas production and 40% of theCompany’s oil production are covered by price swaps. It is not anticipated thatthese percentages will change significantly during the remainder of 2010. Ifthe liquidity of the Company would worsen, the Company would evaluate othermeasures to further improve its liquidity, including, the sale of equity ordebt securities, the sale of certain assets, entering into joint ventures withthird parties, volumetric production payments, additional commodity pricehedging and other monetization of assets strategies. There is no assurance thatthe Company will be successful in these capital raising efforts that may benecessary to fund operations during 2010.

 

During the first quarterof 2010, the Company had net income of $7.2 million (which included$1.1 million of unrealized gains on derivative financial instruments).This compares to the first quarter of 2009 when the Company incurred a net lossof $6.6 million (which included $87,000 of unrealized losses onderivative financial instruments). At March 31, 2010, current assets were$14.2 million more than current liabilities. Currently, the Company has aborrowing base of $120 million and $85 million outstanding under theCredit Facility.

 

In the future, if naturalgas inventories rise to levels such that no natural gas storage capacityexists, certain U.S. natural gas production will need to be reduced or shutin.  Additionally, if commodity prices declineto levels that make it uneconomic to produce oil and natural gas, the Companyor its partners may elect to shut in or reduce production.  As a result, some or 

 

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all of the Company’s oiland natural gas production may be shut in or curtailed during the next 12months, which would have a material adverse effect on operations.

 

The Company’s provedreserves may decline in future years. Due to current commodity prices, compared to the cost of developing ourundeveloped reserves and our estimated lease operating expenses, a portion ofour future projects are or may be uneconomic at this time.  The Company’s projects have material leaseoperating expenses.  Our oil operationsinclude a secondary recovery waterflood with significant fixed costs.  During the first quarter of 2010, our oillease operating expenses were $17.25 per net barrel of oil produced. Ournatural gas operations include reinjecting the produced water into deepformations and compressing and transporting the gas with significant fixedcosts. During the first quarter of 2010, our natural gas lease operatingexpenses were $3.16 per net mcf of gas produced. The Company’s proved reservesare based on assumptions that may prove to be inaccurate.

 

At March 31, 2010,we had approximately 1.5 million vested outstanding stock options issued underour stock based equity compensation plans. Of the total 1.5 million outstandingvested options, 1.0 million had exercise prices above the closing market price$2.52 of our common stock on March 31, 2010.

 

*Contractual Obligations*

 

The contractualobligations table below assumes the maximum amount under contract is tenderedeach year. The table does not give effect to the conversion of any bonds tocommon stock which would reduce payments due. All bonds are secured at maturityby zero coupon U.S. treasury bonds deposited into an escrow accountequaling the par value of the bonds maturing on or before the maturity of thebonds. Such U.S. treasury bonds had a fair market value of $1.0 million at March 31,2010.  The table below does not reflectthe release of escrowed U.S. treasury bonds to us upon redemption.

 
| ** **                                              | ** ** | **Payments due by period *** | ** ** |
|---------------------------------------------------------|------------|------------------------------|------------|
| **Contractual  Obligations  As of March 31, 2010** | ** ** | **Total**                    | ** ** | **Less Than  1 Year** | ** ** | **1-3  Years** | ** ** | **3-5  Years** | ** ** | **More Than  5 Years** | ** ** |
| ** **                                              | ** ** | **(in thousands)**           | ** ** |
| Line  of credit                                         |       | $                            | 85,000     |   | $ | — |   | $ | 85,000 |   | $ | — |   | $ | — |   |
| Bonds                                                   |       | 1,651                        |       | 165 |   | 282 |   | 229 |   | 975 |   |
| Drilling  commitments                                   |       | 585                          |       | 585 |   | — |   | — |   | — |   |
| Leases                                                  |       | 2,295                        |       | 479 |   | 1,242 |   | 505 |   | 69 |   |
| Total                                                   |       | $                            | 89,531     |   | $ | 1,229 |   | $ | 86,524 |   | $ | 734 |   | $ | 1,044 |   |

 

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*                      Does not include estimated interest of$3.1 million less than one year, $5.2 million 1-3 years, $0.4 million3-5 years and $1.3 million thereafter.

 

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**RESULTS OF OPERATIONS:**

 

**Three months Ended March 31, 2010 Compared toThree Months Ended March 31, 2009**

** **

*Oil and gas sales.* Revenue from oil and gas sales increased$10.0 million in the first quarter of 2010 to $21.6 million, an 87% increasecompared to the same quarter in 2009. This increase resulted from an increase in realized energy prices.  The average realized price per barrel of oilfor the three months ended March 31, 2010 and 2009 was $70.52 and $35.14,respectively.  Additionally, the averagerealized price per Mcf of gas for the three months ended March 31, 2010and 2009 was $5.50 and $2.89, respectively. Net oil production for the three months ended March 31, 2010 and2009 was 223 Mbbls and 253 Mbbls, respectively. Net gas production for the three months ended March 31, 2010 and2009 was 1.1 Bcf and 0.9 Bcf, respectively.

 

*Lease operating expense.* Lease operating expense for the firstquarter of 2010 decreased 18% to $7.2 million ($3.00 per Mcfe) compared to $8.8million ($3.61 per Mcfe) in the comparable period of 2009. Primarily, thisdecrease resulted from reduced lease operating expenses in our Atlantic RimProject resulted from shutting in uneconomic wells and reduced workovers onwells.  Additionally, this decreaseresulted from reduced field expenses in our California oil properties.

 

*Depreciation, depletion andamortization.*Depreciation,depletion and amortization expense decreased $0.5 million for the first quarterof 2010 to $4.8 million, a 10% decrease compared to the corresponding quarterlast year.  This decrease reflects areduction in estimated future development costs which reduced overall depletionexpense.  This decrease was partiallyoffset by an increase in the depletion rate related to proved reserves in thefull cost pool.  The 2010 depletion ratedecreased to $1.99 per mcfe compared to $2.18 per mcfe in 2009.

 

*General and administrativeexpenses.* Generaland administrative expenses increased $0.2 million in the first quarter of 2010to $3.5 million, a 6% increase compared to the corresponding quarter lastyear.  This reflects an increase in stockoption expense of $0.2 million.

 

*Interest expense.* Interest expense decreased $0.7 millionin the first quarter of 2010 to $0.9 million compared to the same quarter lastyear.  The decrease results from adecrease in borrowings under our Credit Facility and a decrease in interestrates.

 

*Interest and other income.* Interest and other income decreased $0.1million in the first quarter of 2010 to $38 thousand, a 61% decrease comparedto the same quarter in 2009. This represents a decrease in interest earned dueto lower interest rates as compared to the corresponding quarter last year.

 

*Gain(loss) on derivative financial instruments.*  Derivativegains of $1.9 million were recorded in the first quarter of 2010. Thisamount reflects $0.8 million of realized gains and $1.1 million ofunrealized gains resulting from mark to market accounting of our oil and gasswaps and costless collar positions.

 

**CRITICAL ACCOUNTING POLICIES**

 

Our discussion andanalysis of our financial condition and results of operations are based onconsolidated financial statements that have been prepared in accordance withaccounting principles generally accepted in the United States. The preparationof these financial statements requires us to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses. Webelieve that certain accounting policies affect our more significant judgmentsand estimates used in the preparation of our consolidated financial statements.Our 2009 Form 10-K includes a discussion of our critical accountingpolicies.

 

**Item 3. ****Quantitative andQualitative Disclosures About Market Risk**

 

***Energy PriceRisk***

 

The Company’s mostsignificant market risk is the pricing for natural gas and crude oil.Management expects energy prices to remain volatile and unpredictable. Ifenergy prices decline significantly, revenues and cash flow would significantlydecline. Below is a sensitivity analysis of the Company’s commodity pricerelated derivative instruments.

 

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***CommodityRisk***

 

Our primary market riskexposure is in the price we receive for our natural gas and oil production.Realized pricing is primarily driven by the prevailing worldwide price forcrude oil and spot regional market prices applicable to our U.S. natural gasproduction. Pricing for natural gas and oil production has been volatile andunpredictable for several years, and we expect this volatility to continue inthe future. The prices we receive for production depend on many factors outsideof our control, including volatility in the differences between product pricesat sales points and the applicable index price.

 

In 2009 and 2010 weentered into several financial derivative swap contracts and a costless collarto hedge our exposure to commodity price risk associated with anticipatedfuture oil and gas production. Through a price swap, we have fixed the price wewill receive on a portion of our natural gas and oil production. In a swaptransaction, the counterparty is required to make a payment to us for thedifference between the fixed price and the settlement price if the settlementprice is below the fixed price. We are required to make a payment to thecounterparty for the difference between the fixed price and the settlementprice if the fixed price is below the settlement price. We believe we will havemore predictability of our crude oil and gas revenues as a result of thesefinancial derivative contracts.

 

The following tablesummarizes our open financial derivative positions as of May 5, 2010related to oil and gas production. The Company will receive prices asnoted in the table below and will pay a counterparty market price based on theNYMEX (for natural gas production) or WTI (for oil production) index price,settled monthly.

 
| **Product** | ** ** | **Type** | ** ** | **Contract Period**           | ** ** | **Volume**    | ** ** | **Price per  Mcf or Bbl** | ** ** |
|-------------|------------|----------|------------|-------------------------------|------------|---------------|------------|---------------------------|------------|
| Gas         |       | Swap     |       | 02/01/09 - 12/31/10 |       | 3,000 Mcf/d   |       | $6.88                     |       |
| Gas         |       | Swap     |       | 03/01/09 - 02/28/11 |       | 3,000 Mcf/d   |       | $6.02                     |       |
| Oil         |       | Collar   |       | 01/01/10 - 12/31/10 |       | 1,000 Bbld    |       | $65 - $106.50   |       |
| Oil         |       | Swap     |       | 01/01/11 - 12/31/11 |       | 1,225 Bbld    |       | $61.80                    |       |
| Gas         |       | Swap     |       | 01/01/10 - 03/31/10 |       | 2,500 Mmbtu/d |       | –$0.40*              |       |
| Gas         |       | Swap     |       | 02/01/10 - 12/31/10 |       | 6,500 Mmbtu/d |       | –$0.38*              |       |
| Gas         |       | Swap     |       | 04/01/10 - 11/30/10 |       | 2,500 Mmbtu/d |       | –$0.64*              |       |
| Gas         |       | Swap     |       | 04/01/11 - 11/30/11 |       | 2,500 Mmbtu/d |       | –$0.71*              |       |
| Gas         |       | Swap     |       | 01/01/12 - 12/01/12 |       | 3,000 Mmbtu/d |       | –$0.51*              |       |

 

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*                                         This represents a differential spreadbetween NYMEX and CIG pricing.

 

***InterestRate Risk***

 

We hold investments inU.S. treasury bonds available for sale, which represents securities heldin escrow accounts on behalf of certain debentures. Additionally, we holdU.S. treasury bonds trading securities, which predominantly representU.S. treasury bonds released from escrow accounts. The fair market valueof these securities will generally increase if the federal discount ratedecreases and decrease if the federal discount rate increases. All of ourconvertible debt has fixed interest rates, so consequently we are not exposedto cash flow or fair value risk from market interest rate changes on this debt.

 

At March 31,2010, we had debt outstanding under our Credit Facility of $85 million.  Depending on the current level of borrowingbase usage, the annual interest rate on each base rate borrowing under theCredit Facility will be at our option either: (a) a “Base Rate Loan”, orany other Obligation other than a LIBOR Loan, which has an interest rate equalto the sum of the “Base Rate” plus the applicable “Base Rate Margin”,calculated to be the higher of (i) the Agent’s prime rate of interestannounced from time to time, or (ii) the Federal Funds rate most recentlydetermined by the Agent, plus 3.0% per annum, plus an applicable margin thatranges from 1.5% to 2.25%, or (b) a “LIBOR Loan”, which has an interest rateequal to the sum of the applicable LIBOR period plus the applicable “LIBORMargin”, that ranges from 2.75% to 3.50%.

 

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***Financial Instruments***

 

Our financial instrumentsconsist of the following, cash and cash equivalents, U.S. treasury bonds,collateral security accounts, line of credit and other long-term liabilities.The carrying amounts of these instruments approximate fair market value due tothe highly liquid nature of these short-term instruments or they are reportedat fair value.

 

***Inflation and Changes in Prices***

 

The general level ofinflation affects our costs. Salaries and other general and administrativeexpenses are impacted by inflationary trends and the supply and demand ofqualified professionals and professional services. Inflation and pricefluctuations affect the costs associated with exploring for and producingnatural gas and oil, which have a material impact on our financial performance.

 

***Forward-LookingStatements and Risk***

 

Certain statements inthis report, including statements of the future plans, objectives, and expectedperformance of the company, are forward-looking statements that are dependentupon certain events, risks and uncertainties that may be outside the company’scontrol, and which could cause actual results to differ materially from thoseanticipated. Some of these include, but are not limited to, the market pricesof oil and gas, economic and competitive conditions, exploration risks such asdrilling unsuccessful wells, higher-than-expected costs, potential liabilityfor remedial actions under existing or future environmental regulations andlitigation, potential liability resulting from pending or future litigation, environmentaland regulatory uncertainties that could delay or prevent drilling, and notsuccessfully completing, or any material delay of, any development of new orexisting fields, expansion, or capital expenditure, legislative and regulatorychanges, financial market conditions, political and economic uncertainties offoreign governments, future business decisions, and other uncertainties, all ofwhich are difficult to predict. Forward-looking statements are generallyaccompanied by words such as “estimate”, “project”, “predict”, “will”, “anticipate”,“plan”, “intend”, “believe”, “expect” or similar expressions that convey theuncertainty of future events or outcomes. You should not place undue relianceon these forward-looking statements, which speak only as of the date of thisreport. Unless legally required, Warren does not undertake any obligation toupdate any forward-looking statements, as a result of new information, futureevents or otherwise. Certain risks that may affect Warren’s results ofoperations and financial position appear in Part 1, Item 1A “Risk Factors”of Warren’s 2009 Annual Report on Form 10-K.

 

There are numerousuncertainties inherent in estimating quantities of proved oil and gas reservesand in projecting future rates of production and the timing of developmentexpenditures. The total amount or timing of actual future production may varysignificantly from reserves and production estimates. The drilling ofexploratory wells can involve significant risks, including those related totiming, success rates and cost overruns. Lease and rig availability, complexgeology and other factors can affect these risks. Fluctuations in oil andnatural gas prices or a prolonged continuation of low prices may adverselyaffect the company’s financial position, results of operations and cash flows.

 

#### **Item 4. **Controls andProcedures

#### ** **

***Evaluation ofDisclosure Controls and Procedures***

 

Our management,under the supervision and with the participation of our Chief Executive Officer(“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness ofour disclosure controls and procedures as defined in Securities and Exchange Commission(“SEC”) Rule 13a-15(e) and 15d-15(e) as of the end of the periodcovered by this report.  Based upon thatevaluation, management  has concludedthat our  disclosure  controls and  procedures  are effective to ensure  thatinformation  we are required to disclosein reports that we file or submit under the Securities Exchange Act iscommunicated to management, including the CEO and CFO, as appropriate to allowtimely decisions  regarding requireddisclosure and is  recorded, processed, summarized and reported  within the time periodsspecified in the SEC’s rules and forms.

 

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***Changes inInternal Control over Financial Reporting***

 

There have been nochanges in our internal controls over financial reporting or in other factorsduring the quarter ended March 31, 2010, that have materially affected, orare reasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

## **PART II—OTHERINFORMATION**

## ** **

**Item 1. *Legal Proceedings***

 

Information with respectto this item may be found in Note F to the Consolidated Financial Statements (Part I,Item 1), which is incorporated herein by reference.

 

**Item 1A. *Risk Factors***

 

Our business has manyrisks. In addition to the other information set forth in this report and ourpress releases and other reports and materials that we file with the Securitiesand Exchange Commission, you should carefully consider the factors discussed inPart I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K forthe year ended December 31, 2009, and in our RegistrationStatement on Form S-3, and the prospectus supplement thereto, inconnection with our public offering on October 23, 2009, whichcould materially affect our business, financial condition, operating results orliquidity and the trading price of our common stock.  Additionalrisks and uncertainties not currently known to us or that we currently deem tobe immaterial also may materially adversely affect our business, financialcondition and/or operating results.

 

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

** **

a.               Not applicable

 

b.              Not applicable

 

c.               Not applicable

 

**Item 3. *Defaults upon Senior Securities***

 

Notapplicable.

 

**Item 4. *Submission of Matters to a Vote of Security Holders***

 

None held in thefirst quarter of 2010.

 

**Item 5. *Other Information***

 

Not applicable.

 

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**Item 6. *Exhibits***

*** ***
| **a)** | **Exhibits**                                                                                                                                                                                                     |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Exhibits not  incorporated by reference to a prior filing are designated by an (*) and are  filed herewith; all exhibits not so designated are incorporated herein by  reference to a prior filing as indicated. |

 
| **Exhibit** | ** ** | ** **                                                                                                                                           |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Description**                                                                                                                                      |
|        |       |                                                                                                                                                 |
| 31.1*       |       | Certification of Chief  Executive Officer pursuant to Rule 13a-15(e)/15d-15(e)                                                                  |
| 31.2*       |       | Certification of Chief  Financial Officer pursuant to Rule 13a-15(e)/15d-15(e)                                                                  |
| 32.1*       |       | Certification of Chief  Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted by  Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2*       |       | Certification of Chief  Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906  of the Sarbanes-Oxley Act of 2002 |

 

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| *      |   | Filed herewith. |
|--------|--------|-----------------|
|   |   |            |

 

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 
|                   | WARREN RESOURCES, INC. |
|------------------------|------------------------|
|                   | (Registrant)           |
|                   |                   |
|                   |                   | /s/ Timothy A. Larkin |
| Date: May 5, 2010 |                   |   |
|                   | By:                    | Timothy A. Larkin |
|                   |                   | *Executive Vice President,* |
|                   |                   | *Chief Financial Officer and* |
|                   |                   | *Principal Accounting Officer* |

 

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