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. (""Isramco" or "we") is an independent oil and natural gas company engaged in the exploration, development and production of oil and natural gas properties located onshore in the United States. Our properties are primarily located in Texas, New Mexico and Oklahoma. We also act as an operator of certain of these properties. Historically, we have grown through acquisitions, with a focus on properties within our core operating areas that we believe have significant development and exploration opportunities and where we can apply our technical experience and economies of scale to increase production and proved reserves while lowering lease operating costs.

Our financial results depend upon many factors, but are largely driven by the volume of our oil and natural gas production and the price that we receive for that production. Our production volumes will decline as reserves are depleted unless we expend capital in successful development and exploration activities or acquire additional properties with existing production. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, pipeline capacity constraints, inventory storage levels, basis differentials and other factors, and secondarily upon our commodity price hedging activities. Accordingly, finding and developing oil and natural gas reserves at economical costs is critical to our long-term success. Our future drilling plans are subject to change based upon various factors, some of which are beyond our control, including drilling results, oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, gathering system and pipeline transportation constraints and regulatory approvals. To the extent these factors lead to reductions in our drilling plans and associated capital budgets in future periods, our financial position, cash flows and operating results could be adversely impacted.

Liquidity and Capital Resources

Our primary source of cash during the first quarter was cash flows from operating activities. The capital markets, as they relate to us, have been adversely impacted by the current financial crisis, concerns about overall deflation and its effect on commodity prices, the possibility of a deepening world recession that may extend for a long period into the future, a lack of liquidity in the banking system and the unavailability and cost of credit. Continued volatility in the capital markets could adversely impact our ability to replace our reserves, and eventually, our production levels.

Our future capital resources and liquidity may depend, in part, on our success in developing the leasehold interests that we acquired. Cash is required to fund capital expenditures necessary to offset inherent declines in production and proven reserves, which is typical in the capital-intensive oil and gas industry. Future success in growing reserves and production will be highly dependent on capital resources available and the success of finding and acquiring additional reserves. We expect to fund our future capital requirements through internally generated cash flows and borrowings under revolving credit facilities with commercial banking institutions. Long-term cash flows are subject to a number of variables including the level of production and prices, our commodity price hedging activities as well as various economic conditions that have historically affected the oil and natural gas industry. If oil and natural gas prices remain at their current levels for a prolonged period of time or if natural gas prices continue to decline, our ability to fund our capital expenditures, reduce debt, meet our financial obligations and become profitable may be materially impacted.

Debt

                                                                 As of
                                                               March 31,       As of December 31,
                                                                  2009                2008
Revolving Credit Facility                                      $   44,250     $             43,200
Long - term debt - related party                                   80,354                   80,354
Current maturities of long-term debt, short-term debt and
bank overdraft                                                     15,618                   22,544
Total debt                                                        140,222                  146,098

Stockholders' equity                                               27,095                   25,034

Debt to capital ratio                                                83.8 %                   85.4 %

During the three month period ended March 31, 2009, our credit availability under the revolving credit facilities in place between our wholly owned subsidiaries and two commercial banking lenders was reduced from $81,000 thousand to $65,400 thousand (for both facilities together) as a result of the reduction in the relevant borrowing base. The reduction is primarily due to the dramatic decline in the commodity prices year-over-year. Under the reduced facility availability, we can borrow up to a maximum of $65,400 thousand, of which approximately $59,250 thousand is currently outstanding. Management currently believes that the reduced availability provides the liquidity needed to meet our expected working capital needs for 2009.

At March 31, 2009, our total debt was $140,222 thousand compared to total debt of $146,098 thousand at year-end 2008. As of March 31, 2009, current debt included $15,000 thousand as current maturities of the Revolving Credit Facilities. However, the Company is not obligated to repay this facility prior to the due date, except for such payments as may be required under the credit agreements in the event of a redetermination and reduction of the borrowing base. The entire $15,000 thousand that was recorded as due as of March 31, 2009 is attributable of management's decision to further reduce the debt under the credit facilities below the borrowing base. As of December 31, 2008, current debt included $21,000 thousand as current maturities, which $19,750 thousand was due to management's decision to continue payments to reduce debt below the borrowing base.

Cash Flow

Our primary sources of cash in the three months ended March 31, 2009 were from operating activities as compared to the corresponding three month period in 2008 where our primary sources of cash were from operating and financing activities. In the 2009 period, cash received from operations mainly were offset by repayments made under our revolving credit facilities. In the 2008 period, proceeds from loans obtained from related parties, borrowings under the credit facilities and cash received from operations were offset by repayments under the credit facilities, repayments of loans from related parties and cash used in investing activities to fund acquisition activities.

Our long-term cash flows are subject to a number of variables including our level of production and commodity prices, as well as various economic conditions that have historically affected the oil and natural gas industry. If oil and natural gas prices remain at their current levels for a prolonged period of time or if natural gas prices continue to decline, our ability to fund our capital expenditures, reduce debt, meet our financial obligations and maintain operations as presently conducted and ultimately become profitable may be materially adversely impacted.

                                                                 Three months Ended March 31,
                                                                   2009                2008
                                                                        (In thousands)
Cash flows provided by operating activities                  $       5,392       $          2,069
Cash flows provided by (used in) investing activities                  355               (101,449 )
Cash flows provided by (used in) financing activities               (5,716 )              101,559
Net increase in cash                                         $          31       $          2,179

Operating Activities, Net cash flows provided by operating activities for the three months ended March 31, 2009 and 2008 were $5,392 thousands and $2,069 thousands, respectively.

Net cash provided by operating activities increased in 2009 primarily due to the GFB acquisition we had during 2008, our commodity price hedging activities which partially offset by declines in oil and natural gas revenues, this decline was primarily attributable to lower average oil and gas prices for the quarter ended March 31, 2009 of $37.75/bbl and $3.92/mcf compared to $96.52/bbl and $8.78/mcf for the quarter ended March 31, 2008.

Investing Activities, Net cash flows provided by (used in) investing activities for the three months ended March 31, 2009 and 2008 were $355 thousands and ($101,449) thousands, respectively. Net cash flows used in investing activities in 2008 was primarily attributable to the GFB acquisition

Financing Activities, Net cash flows provided by (used in) financing activities were $(5,716) thousands and $101,559 thousands for the three months ended March 31, 2009 and 2008, respectively.

The primary component of cash used in financing activities in 2009 is repayments of Senior Credit Agreements ($4,950) thousands. The primary component of cash provided by financing activities in 2008 is proceeds from long-term loans obtained from related parties ($49,939) thousands and Senior Credit Agreements ($54,000) thousands.

Results of Operations

                                     Selected Data



                                                                     Three Months Ended March 31,
                                                                        2009                 2008
                                                                    (In thousands except per share
                                                                           and MBOE amounts)
Financial Results
Oil and Gas sales                                                 $           6,583       $     7,507
Other                                                                           424               223
Total revenues and other                                                      7,007             7,730

Cost and expenses                                                             9,261             4,569
Other expense (income)                                                       (4,967 )          14,747
Income tax expense (benefit)                                                    923            (3,940 )
Net Income (loss)                                                             1,790            (7,646 )
Earnings per common share - basic and diluted                     $            0.66       $     (2.81 )
Weighted average number of shares outstanding-basic and diluted           2,717,691         2,717,691

Operating Results
Adjusted EBITDAX (1)                                              $           9,667       $    (8,816 )
Sales volumes (MMBOE)                                                           232               122

Average cost per MBOE:
Production (including transportation and taxes)                   $           15.80       $     22.48
General and administrative                                        $            3.79       $      4.03
Depletion                                                         $           19.44       $     10.74

(1) Adjusted EBITDAX (earnings before interest, taxes, depreciation and amortization) for a description of Adjusted EBITDAX, which is not a Generally Accepted Accounting Principles (GAAP) measure, and a reconciliation of Adjusted EBITDAX to income from continuing operations before income taxes, which is presented in accordance with GAAP.

Financial Results

Income (Loss) from continuing Operations, in the first quarter of 2009, Isramco's income from continuing operations was $1,790 thousand, or $0.66 per share. This compared to loss from continuing operations of $7,646 thousand, or $2.81 per share, for the first quarter of 2008.

This increase was primarily due to the impact of derivatives, increases in sales volumes of natural gas, oil and natural gas liquids ("NGL") due to the acquisition in March 2008 of oil and gas interests which were partially offset by sustained lower natural gas, oil and NGLs sales revenues due to lower prices, higher lease operating expenses, higher depreciation, depletion and amortization expenses and higher interest expense due to the above reference acquisition.

Revenues, Volumes and Average Prices
                                 Sales Revenues

                                               Three Months Ended March 31,
       In thousands except percentages      2009             2008      D vs. 2008
       Gas sales                         $    2,663       $    3,448      (23 )%
       Oil sales                              2,963            2,536       17
       Natural gas liquid sales                 957            1,523      (37 )
       Total                             $    6,583       $    7,507      (12 )%

Our sales revenues for first quarter of 2009 decreased by 12% when compared to same period of 2008 due to lower natural gas, oil and condensate and NGLs commodity prices. This decrease was partially offset by increases in sales volumes of natural gas, oil and natural gas liquids due to the GFB acquisition.

                           Volumes and Average Prices

                                                               Three Months Ended March 31,
                                                          2009             2008         D vs. 2008
Natural Gas
Sales volumes Mmcf                                          679.4            392.6               73 %
Average Price per Mcf (1)                              $     3.92       $     8.78              (55 )
Total gas sales revenues (thousands)                   $    2,663       $    3,448              (23 )%

Crude Oil
Sales volumes MBbl                                           78.5             26.3              199 %
Average Price per Bbl (1)                              $    37.75       $    96.52              (61 )
Total oil sales revenues (thousands)                   $    2,963       $    2,536               17 %

Natural gas liquids
Sales volumes MBbl                                           40.2             29.9               35 %
Average Price per Bbl (1)                              $    23.82       $    51.00              (53 )
Total natural gas liquids sales revenues (thousands)   $      957       $    1,523              (37 )%

(1) Amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting

The company's natural gas sales volumes increased by 73%, crude oil sales volumes by 199% and natural gas liquids sales volumes by 35% for the first quarter of 2009 compared to the same period of 2008 primarily due to GFB acquisition.

Our average natural gas price for the first quarter of 2009 decreased by 55% or $4.86 per Mcf when compared to the same period of 2008. Our average crude oil price for the first quarter of 2009 decreased by 61% or $58.77 per Bbl when compared to the same period of 2008. Our average natural gas liquids price for the first quarter of 2009 decreased by 53% or $27.18 per Bbl when compared to the same period of 2008.

               Analysis of Oil and Gas Operations Sales Revenues

The following table provides a summary of the effects of changes in volumes and
prices on Isramco's sales revenues for the three months ended March 31, 2009
compared to the same period of 2008.

                                                                                       Natural gas
In thousands                                          Natural Gas          Oil           liquids
2008 sales revenues                                          3,448          2,536            1,523
Changes associated with sales volumes                        2,518          5,041              526
Changes in prices                                           (3,303 )       (4,614 )         (1,092 )
2009 sales revenues                                  $       2,663      $   2,963      $       957



Operating Expenses

                                                             Three Months Ended March 31,
In thousands except percentages                         2009             2008         D vs. 2008
Lease operating expense, transportation and taxes    $    3,665       $    2,733             34 %
Depreciation, depletion and amortization                  4,507            1,305            245
Accretion expense                                           210               41            412
Operator expense                                              -                -              -
General and administrative                                  879              490             79
                                                     $    9,261       $    4,569            103 %

During the first quarter of 2009, our operating expenses increased by 103% when compared to the first quarter of 2008 due to the following factors:

· Lease operating expense, transportation and taxes increased by 34%, or $932 thousand, in 2009 when compared to 2008 due to approximately $1,600 thousand in additional operating expenses, transportation and taxes attributable to the properties acquired in the GFB acquisition, which was partially offset by lower commodity prices that affected the taxes paid during 2009.

· Depreciation, Depletion &Amortization (DD&A) of the cost of proved oil and gas properties is calculated using the unit-of-production method. Our DD&A rate and expense are the composite of numerous individual field calculations. There are several factors that can impact our composite DD&A rate and expense, including but not limited to field production profiles, drilling or acquisition of new wells, disposition of existing wells, and reserve revisions (upward or downward) primarily related to well performance and commodity prices, and impairments. Changes to these factors may cause our composite DD&A rate and expense to fluctuate from period to period. DD&A increased by 245%, or $3,202 thousand, in 2009 when compared to 2008 primarily due to approximately $2,720 thousand DD&A which was related to the oil and gas properties acquired in GFB acquisition and lower commodity prices that impacted the estimated total reserves, which are the basis for the depletion calculation, which partially offset by the impact of 2008 impairment of $22,093 thousand on the depletable base used to calculate DD&A

· Accretion expense for asset retirement obligations increased by 412%, or $169 thousand in 2009 when compared to 2008. The increase reflects the impact of the increase in the revised abandonment costs at year end 2008 and due to the GFB acquisition.

· General and administrative expenses increased by 79%, or $389 thousand, in 2009 when compared to 2008 primarily due to increases in compensation and benefit expenses associated with additional employees required in connection with the GFB acquisition. The GFB acquisition also increased the volume of the activities and, as a result, the indirect expenses of those activities.

Other expenses (income)

                                                    Three Months Ended March 31,
   In thousands except percentages              2009            2008       D vs. 2008
   Interest expense, net                     $    2,447       $  1,465              67 %
   Net loss (gain) on derivative contracts       (7,414 )       13,282            (156 )
                                             $   (4,967 )     $ 14,747            (134 )

Interest expense. Isramco's interest expense increased by 67%, or $982 thousand, for the first quarter of 2009 compared to the same period of 2008. This increase is primarily attributable to interest on loans we obtained from banks and related parties for funding the GFB acquisition. The increase was partially offset by the lower average outstanding balance of loans which we obtained to fund the Five States acquisition in 2007 and decreases in average LIBOR rates in 2009.

Net loss (gain) on derivative contracts. We enter into derivative commodity instruments to economically hedge our exposure to price fluctuations on our anticipated oil and natural gas production. Consistent with the prior year, we have elected not to designate any positions as cash flow hedges for accounting purposes. Accordingly, we recorded the net change in the mark-to-market value of these derivative contracts in the consolidated statement of operations.

At March 31, 2009, the Company had a $25.9 million derivative asset, which $13.9 million was classified as current. For the three month ended March 31, 2009, the Company recorded a net derivative gain of $7.4 million ($2.8 million unrealized gain and a $4.6 million gain from net cash proceeds on settled contracts). At March 31, 2008, the Company had a $21.4 million derivative liability, $8.9 million of which was classified as current. For the three month ended March 31, 2008, the Company recorded a net derivative loss of $13.3 million ($12.4 million unrealized loss and a $0.9 million net loss for cash payments on settled contracts). This increase in our net derivative gain is primarily attributable to the recent decrease in the forward strip pricing used to value our derivatives and additional SWAP contracts we entered in 2008.