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

Overview

Isramco, Inc., a Delaware corporation incorporated in 1982, together with its wholly-owned subsidiaries, Isramco Energy LLC ("IEN"), Jay Petroleum LLC ("Jay Petroleum"), Isramco Resources LLC ("ISR") and Jay Management LLC ("Jay Management") (collectively "Isramco" or the "Company"), explores for, develops and produces natural gas and crude oil in the United States of America (United States).

On March 27, 2008 (the "Acquisition Date"), we purchased certain oil and gas properties located in Texas, New Mexico, Utah, Colorado and Oklahoma from GFB Acquisition - I, L.P. ("GFB") and Trans Republic Resources, Ltd. ("Trans Republic," and, together with GFB, the "Sellers") for a preliminary purchase price of approximately $102 million (before adjustments as defined in the agreement). Although the acquisition was closed on March 27, 2008, the effective dated of the purchase was determined to be January 1, 2008 (the "Effective Date"). Accordingly, we are entitled to the net revenues, less direct operating expenses, of the acquired properties from the Effective Date through the Acquisition Date. This will result in an adjustment to the preliminary purchase price. These financial statements reflect the assets acquired and operations related to those assets from the Acquisition Date through September 30, 2008.

Critical Accounting Policies

In response to the Release No. 33-8040 of the Securities and Exchange Commission, "Cautionary Advice Regarding Disclosure and Critical Accounting Policies", we identified the accounting principles which we believe are most critical to the reported financial status by considering accounting policies that involve the most complex of subjective decisions or assessments.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event that we were to determine that it would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase net income in the period such determination was made.

We do not participate in, nor have we created, any off-balance sheet special purpose entities or other off-balance sheet financing.

We record a liability for asset retirement obligation at fair value in the period in which it is incurred and a corresponding increase in the carrying amount of the related long live assets.

Liquidity and Capital Resources

We finance our operations primarily from cash generated by operations. During the nine months ended September 30, 2008, our consolidated cash and cash equivalents increased by $5,003,000, from $1,212,000 at December 31, 2007 to $6,215,000 at September 30, 2008.

Net cash provided by operating activities was $12,614,000 for the nine months ended September 30, 2008 compared to ($178,000) used in operating activities for the same period in 2007. The increase is primarily attributable to the GFB and Trans Republic Acquisition, discussed herein, along with an increase in oil and gas prices, which in turn was partially offset by the commodity hedging agreements in effect.

Net cash used in investing activities for the nine months ended September 30, 2008 was $98,988,000 compared to $65,587,000 for the same period in 2007. The cash used in the 2008 period is primarily attributable to the GFB and Trans Republic Acquisition.

Net cash provided by financing activities was $91,377,000 for the nine months ended September 30, 2008 compared to net cash provided by financing activities of $67,264,000 for the same period in 2007. Our financing activities in 2008 primarily relate to borrowings in connection with the GFB and Trans Republic Acquisition.

We believe that existing cash balances and cash flows from operating activities will be sufficient to meet our financing needs. The Company intends to finance its ongoing oil and gas exploration activities from working capital.

Summary of Exploration, Development and Production efforts in the United States

Isramco, through its wholly owned subsidiaries, IEN, Jay Petroleum, ISR and Jay Management, is involved in oil and gas exploration, development production and operation of wells in the United States. Through its subsidiaries, Isramco owns varying working interests in oil and gas wells in Louisiana, Texas, Oklahoma, New Mexico, Colorado, Utah and Wyoming and currently serves as operator of approximately 270 wells located in Texas and New Mexico. On October 1, we assumed operations on an additional 364 wells located in Texas, New Mexico and Oklahoma.

Transaction with GFB Acquisition - 1, L.P. and Trans Republic Resources Ltd. On February 15, 2008, we entered into Purchase and Sale Agreements (the "Agreements") with GFB Acquisition - I, L.P. ("GFB") and Trans Republic Resources, Ltd. ("Trans Republic," and, together with GFB, the "Sellers") pursuant to which we agreed to purchase the Sellers' interests in certain oil and gas properties located in Texas, New Mexico, Utah,, Colorado and Oklahoma for an aggregate purchase price of approximately $102 million. The transaction includes mainly operated oil and gas properties in approximately 40 fields (approximately 490 Leases) in East Texas, Texas Gulf Coast, Permian, Anadarko and San Juan Basins. Significant fields are the Alabama Ferry Field in East Texas, the Bagley Field in West Texas and New Mexico, and the Esperson Dome Field on the Texas Gulf Coast. Net daily production from the properties is approximately 600 Barrels of oil and 3.6 MMCF of gas. Based upon a reserve report prepared by a third party consulting firm as of January 1, 2008, total net proved reserves are approximately 3.26 million barrels of oil and 18 BCF of natural gas. The closing of the transaction was on March 27, 2008.

The acquisition from GFB and Trans Republic was funded, during 2008, through loans in the total principle amount of $102 million, consisting of $54 million from a commercial bank) and $48.9 million from related parties..

Contemporaneously with signing the agreement, we signed swap contracts with a commercial bank for an aggregate volume of 605,016 barrels of crude oil during 48 months and 3,433,348 MMBTU of natural gas during 48 months commencing April 1, 2008, which constitutes approximately 74% of the forecast production for 2008-2011and 18% of the forecasted production for 2012.

The following pro forma information assumes the acquisition of the GFB and Trans Republic properties occurred as of January 1, 2007

                                                                 Isramco Inc Combined
December 31, 2007            Isramco Inc     GFB Acquisition           With GFB
RESERVES
PROVED (MMCFE)                     50,353             37,694                   88,047
Oil (BBls)                      2,003,081          3,258,447                5,261,528
Plant Product (BBls)            2,163,661                  -                2,163,661
Gas (Mcf)                      25,352,566         18,143,838               43,496,404
VOLUME
Oil (BBls)                         96,793            220,487                  317,280
Plant Product (BBls)              100,534                  -                  100,534
Gas (Mcf)                       1,550,789          1,338,926                2,889,715
TOTAL PRODUCTION (MMCFE)            2,735              2,662                    5,397
Daily production (MMfce/d)            7.5                7.3                     14.8

On October 19, 2006, Jay Petroleum and Delek Energy US Inc. ("Delek") each purchased a 50% working interest in the rights below the Marble Falls formation in 2,800 acres acreage in Wise County, Texas from McCommons Oil Company ("McCommons"). The interests purchased are held by production from McCommons in the shallower formations. Jay Petroleum and Delek each paid $1.2 million for these rights. In addition, Jay Management LLC and Delek entered into a joint operating agreement as of October 19, 2006 for Jay Management to serve as operator of the acreages. A 3D seismic survey of the area has been conducted and one exploratory well to the Barnett Shale formation is currently planned. Drilling is currently anticipated before the close of 2008. Based on the results, additional drilling will be considered.

Results of Operations

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007:

We reported a net income of $34,488,000 or $12.69 per share for the three months ended September 30, 2008 compared to net loss of $647,000 or ($0.24) per share for the same period in 2007. The increase in the income recorded during the three months ended September 30, 2008 as compared to the net loss recorded for the same period in 2007 is primarily attributable to an aggregate $53,336,000 increase in gain on swap transactions and operating income. This was partially offset by an $18,439,000 increase in interest expenses and income tax expenses.

Oil & Gas Revenues - During the 2008 period, we recorded $17,855,000 in oil and gas revenues compared to $5,877,000 during the corresponding period in 2007. This increase is primarily attributable to the oil and gas properties that we purchased from GFB and Trans Republic and, increases in oil and gas prices, and partially offset by a natural decline in production from our older oil and gas properties.

Lease Operating Expenses, Transportation and Severance Taxes - During the 2008 period, we recorded $6,435,000 in lease operating expenses, transportation and severance taxes compared to $2,207,000 in 2007. This increase in lease operating expenses, transportation and severance taxes is primarily due to the GFB Acquisition, along with the increase in oil and gas prices, which caused an increase in severance tax obligations.

Depreciation, Depletion, Amortization (DD&A) and Impairment - Depreciation, depletion, amortization and impairment expenses are connected to the producing wells in the United States. During the 2008 period, we recorded $3,263,000 in depreciation, depletion and amortization compared to $1,699,000 in 2007. This depreciation, depletion and amortization increase is primarily due to the GFB Acquisition. In the three months ended September 30, 2008 we recorded $3,088,000 impairment due to the low volume of gas produced and high Lease Operating Expenses and Transportation costs for the wells in which the Company participated which were completed in the Barnett Shale formation in Parker County, Texas.

General and Administrative - During the 2008 period, we recorded $659,000 in general and administrative compared to $739,000 in 2007. This decrease in general and administrative expenses is primarily due to the closure of the Israeli Branch Office. This was partially offset by an increase in general and administrative expenses due to the GFB Acquisition and the assumption of operations on an additional 614 wells

Interest Expense - During the 2008 period, we recorded $2,828,000 in interest expense compared to $1,796,000 in 2007. This increase in interest expense is primarily due to the increasing of our long - term loans related to the GFB Acquisition, partially offset by decreases in the interest rate paid as well as the decrease in the principal amount of indebtedness outstanding for the acquisition of oil and gas properties Five States Energy Company (the "Five States acquisition").

Equity in Earnings of Unconsolidated Affiliates -. As of December 31, 2007, we closed the Israeli branch offices and sold our holdings in two limited partnerships, Isramco Negev 2 and I.O.C. Dead Sea LP. Accordingly, during the 2008 period we did not record any equity in earnings of unconsolidated affiliates compared to loss of $671, 000 in 2007.

Net Gain on Derivative Contracts - From time to time, we enter into derivative commodity instruments to hedge our exposure to price fluctuations on anticipated oil and natural gas production. Under price swaps, we are required to make payments to, or receive payments from, the counterparties based upon the differential between a specified fixed price and a price related to those quoted on the New York Mercantile Exchange for each respective period. We elected not to designate any positions as cash flow hedges for accounting purposes for the period ended September 30, 2008 and 2007. Accordingly, we record the net change in the mark-to-market valuation of these derivative contracts in the consolidated statement of operations as a component of other income and expenses on the consolidated statements of operations.

We recorded a net derivative gain of $50.1 million ($54.5 million unrealized gain and a $4.4 million net loss for cash paid on settled contracts) for the three months ended September 30, 2008.

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007:

We reported a net loss of $5,346,000 or ($1.97) per share for the nine months ended September 30, 2008 compared to net loss of $1,215,000 or ($0.45) per share for the same period in 2007. The increase in the loss recorded during the nine months ended September 30, 2008 as compared to the net loss recorded for the same period in 2007 is primarily attributable to an aggregate $17,220,000 increase in loss on swap transactions as well as the increased in interest expense . This was partially offset by a $15,007,000 increase in operating income and income tax benefit.

Oil & Gas Revenues - During the 2008 period, we recorded $44,203,000 in oil and gas revenues compared to $13,528,000 during the corresponding period in 2007. This increase is primarily attributable to the oil and gas properties that we purchased from GFB and Five States Acquisition, and increase in oil and gas prices and these increases were partially offset by a natural decline in production from our older oil and gas properties.

Lease Operating Expenses, Transportation and Severance Taxes - During the 2008 period, we recorded $15,231,000 in lease operating expenses, transportation and severance taxes compared to $5,188,000 in 2007. This increase in lease operating expenses, transportation and severance taxes is primarily due to the GFB and Five States Acquisition, along with the increase in oil and gas prices, which caused an increase in severance tax obligations and a onetime amortization of $1,000,000 in inventory related to the GFB acquisition.

Depreciation, Depletion, Amortization (DD&A) and Impairment - Depreciation, depletion, amortization expenses are connected to the producing wells in the United States. During the 2008 period, we recorded $7, 283,000 in depreciation, depletion, amortization and impairment compared to $4,384,000 in 2007. This increased depreciation, depletion and amortization is primarily due to the GFB and Five States Acquisitions. In the nine months ended September 30, 2008 we recorded $3,137,000 impairment mainly due to the low volume of gas produced and high lease operating expenses and transportation costs associated with in wells in which the Company participated which were completed in the Barnett Shale formation in Parker County, Texas

General and Administrative - During the 2008 period, we recorded $1,809,000 in general and administrative expenses compared to $2,066,000 in 2007. This decrease in general and administrative expenses is primarily due to the closure of the Israeli Branch Office. This was partially offset by an increase in general and administrative expenses due to GFB and Five States acquisitions and the assumption of operations on an additional 614 wells

Interest Expense - During the 2008 period, we recorded $6,713,000 in interest expense compared to $4,491,000 in 2007. This increase in interest expense is primarily due to the increasing of our long - term loans related to the GFB and Five States Acquisition, partially offset by decreases in the interest rate paid as well as the decrease in the principal amount of indebtedness outstanding for the acquisition of oil and gas properties Five States Energy Company (the "Five States acquisition").

Equity in Earnings of Unconsolidated Affiliates -. As of December 31, 2007, we closed the Israeli branch offices and sold our holdings in two limited partnerships, Isramco Negev 2 and I.O.C. Dead Sea LP. Accordingly, during the 2008 period we did not record any equity in earnings of unconsolidated affiliates compared to $1,598, 000 in 2007.

Net Loss on Derivative Contracts - From time to time, we enter into derivative commodity instruments to hedge our exposure to price fluctuations on anticipated oil and natural gas production. Under price swaps, we are required to make payments to, or receive payments from, the counterparties based upon the differential between a specified fixed price and a price related to those quoted on the New York Mercantile Exchange for each respective period. We elected not to designate any positions as cash flow hedges for accounting purposes for the period ended September 30, 2008 and 2007. Accordingly, we record the net change in the mark-to-market valuation of these derivative contracts in the consolidated statement of operations as a component of other income and expenses on the consolidated statements of operations.

We recorded a net derivative loss of $17.9 million ($8.9 million unrealized loss and a $9 million net loss for cash paid on settled contracts) for the nine months ended September 30, 2008.