The growth in quarterly revenues was because of a 346% increase in sales volumes, partly offset by a 65% decrease in blended oil and gas prices from $77.82 per barrel of oil equivalent (BOE) to $27.27 per BOE. The substantial increase in production and sales volumes for third quarter of fiscal 2009 was the result of drilling operations in the Giddings field in central Texas, which generated virtually 100% of third quarter of fiscal 2009 revenues, compared with a contribution of 47% of the revenues in third quarter of fiscal 2008.

The properties that comprised the remaining 53% of third quarter of fiscal 2008 revenues were divested in March 2008. Sequentially, revenues for Q3-09 were 13% higher than second quarter of fiscal 2008 because of a 65% increase in sales volumes, partly offset by a 31% reduction in blended oil and gas prices received.

Results for both periods incorporated about $0.5 million in non-cash stock-based compensation expense and around $0.76 million and $0.14 million in non-cash depreciation, depletion and amortization for third quarter of fiscal 2009 and third quarter of fiscal 2008, respectively.

Robert Herlin, president and chief executive officer, commented, Since our focus is on growing underlying value per share, we substantially cut back our capital expenditures previously aimed at converting proved undeveloped reserves into producing wells in the Giddings Field. It made no sense for us to use our valuable liquidity to generate and sell production at what we believe are cyclically low product prices. In the current commodity environment, we are making our capital expenditure decisions based on achieving attractive full- cycle economics, even if at the expense of short term earnings.

For third quarter of fiscal 2009, Adjusted EBITDA was a nominal loss of $171,000 and flat compared with a loss of $176,000 in third quarter of fiscal 2008.

Working capital was virtually unchanged at $7.5 million on March 31, 2009, as compared with $7.6 million at December 31, 2008. Working capital at the end of third quarter of fiscal 2009 included $6.6 million of cash, cash equivalents and short-term certificates of deposit, as well to $1.5 million of income taxes recoverable from the carry-back of estimated 2009 income tax losses. The company continued to be debt free.

The company incurred capital expenditures of $8.3 million for the acquisition and development of its oil and gas properties during the nine months ended March 31, 2009. In keeping with its revised 2009 capital budget of less than $10 million, planned capital expenditures for oil and gas properties for the remainder of fiscal 2009 are projected to total about $0.4 million, primarily for initial development drilling in Oklahoma.

Planned capital expenditures during the balance of calendar 2009 are projected to comprise of additional development drilling in Oklahoma and initial development drilling in the Neptune project in South Texas.

Revenues for the first nine months of 2009 increased 169% over 2008 to $5.1 million on a 319% increase in sales volumes, offset by a 36% reduction in blended oil and gas prices received. For the first nine months of fiscal 2009, adjusted EBITDA was $1.1 million compared with a negative $1.1 million for the same period in 2008.

Herlin further commented, Despite the steep decline in oil and gas prices, our revenue still grew through the drill bit. In our third quarter, we completed two horizontal re-entry wells in the Giddings Field that began producing late in January 2009, yielding initial production at a combined eight day average gross rate of about 900 BOE per day. Total production in March averaged 482 gross (386 net) BOEPD, despite two key wells being off production for one-third of the month. The Pearson was affected by the gas purchaser’s compressor repair and our Fox well required a workover to repair a gas lift valve. Due to low natural gas prices, we believe it is in the best interests of our shareholders to continue postponing our Giddings drilling program until product prices improve further.

The company started operations in Oklahoma during the current quarter for the drilling or re-entry of up to three low cost vertical wells. In the fourth fiscal quarter of 2008, the company started the process of field testing our Neptune moderately-heavy oil project in South Texas and expect to drill up to three shallow infill wells there later in calendar 2009. The company has also started preparation for a field test of its proprietary artificial lift technology for horizontal wells.

We anticipate that our development work in both Oklahoma and South Texas will position us to add proved reserves and increase the underlying value of the company on a per share basis, while maintaining our solid balance sheet during the balance of 2009 and fiscal 2010. We have the flexibility to pursue these low-cost projects as we look forward to generating expected cash flow from the Delhi Field in 2010, continued Herlin.

Operations at the Delhi field’s CO2-EOR project have intensified. Denbury Resources has announced that the 78 mile Delta CO2 pipeline to Delhi has been concluded and tested, with CO2 injection estimated to start this summer. Since the company believes that first production response is expected to occur around six months following first injection, it’s reasonable to expect an oil production response in early calendar 2010. The company’s 7.4% royalty interest should generate net cash flows with first production, since it bears no capital expenditures in the project and no operating costs associated with the royalty interest. These cash flows should grow steadily as Denbury expands the project through its phases, followed by a step increase when the company’s 25% back-in working interest reverts.

Production Volumes and Prices:

Net production volumes for third quarter of fiscal 2009 were 24,044 barrels of oil (BO) and natural gas liquids (NGL) and 112.2 MMcf of natural gas for a total of 42,740 BOE. Up by 319% over production volumes of 8,146 BO and NGL and 12.3 MMcf of natural gas, or 10,194 BOE in third quarter of fiscal 2008. The average price of oil fell 58% to $39.47 per barrel in third quarter of fiscal 2009 from $93.74 per barrel in third quarter of fiscal 2008, while the average price of NGLs fell 59% in third quarter of fiscal 2009 to $23.25 per barrel from $56.29 per barrel in third quarter of fiscal 2008. The average price of natural gas fell 49% to $4.12 per Mcf in third quarter of fiscal 2009 versus $8.12 per Mcf in third quarter of fiscal 2008. On a BOE basis, the blended effective price declined 65% to $27.27 in third quarter of fiscal 2009 from $77.82 in third quarter of fiscal 2008, due in part to third quarter of fiscal 2009 sales including a higher portion of natural gas.

Costs and Expenses

Lease operating expenses, including production severance taxes, per BOE for third quarter of fiscal 2009 declined 79% over third quarter of fiscal 2008 to $6.88 due to much lower unit lifting costs and higher production volumes in the Giddings field as compared to the divested Tullos field.

Depreciation, Depletion & Amortization Expense (DD&A) rose to $760,000 or $17.57 per BOE for third quarter of fiscal 2009, from $139,000 or $13.55 per BOE in third quarter of fiscal 2008. The increase was mainly because of a higher depletion rate per BOE on much higher sales volumes in the current period. The increased depletion rate is a result of the higher development cost of PUDs in the Giddings Field that were added in replacement of lower cost proved developed producing reserves (PDPs) from properties in the Tullos field area, which were divested in March 2008.