FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements included in this Quarterly Report on Form 10-Q, other than statements of historical facts, address matters that the company reasonably expects, believes or anticipates will or may occur in the future. Forward-looking statements may relate to, among other things:

† the company's future financial position, including working capital and anticipated cash flow;

†          amounts and nature of future capital expenditures;

†          operating costs and other expenses;

†          wells to be drilled or reworked;

†          oil and natural gas prices and demand;

†          existing fields, wells and prospects;

†          diversification of exploration;

†

††

                                       †

†          estimates of proved oil and natural gas reserves;

†          reserve potential;

†          development and drilling potential;

†          expansion and other development trends in the oil and natural gas
industry;

†          the company's business strategy;

†          production of oil and natural gas;

†          matters related to the Calliope Gas Recovery System;

†          effects of federal, state and local regulation;

†          insurance coverage;

†          employee relations;

†          investment strategy and risk; and

†          expansion and growth of the company's business and operations.

LIQUIDITY AND CAPITAL RESOURCES

At April 30, 2009, working capital decreased $9,905,000 to $14,255,000 compared to $24,160,000 at October 31, 2008. For the six months ended April 30, 2009, net cash provided by operating activities was $4,007,000 compared to $4,769,000 for the same period in 2008. Net income decreased $15,294,000 primarily due to impairment losses of $24,652,000, a decrease in revenue of $4,214,000 and increased other costs and expenses of $1,241,000.

For the six months ended April 30, 2009 and 2008, net cash used in investing activities was $14,809,000 and $5,422,000, respectively. Investing activities primarily included oil and gas exploration and development expenditures, including Calliope, totaling $10,368,000 and $4,955,000 respectively. For the period ended April 30, 2009, the company also purchased the patents underlying the Calliope Technology for $4,400,000.

At April 30, 2009, eighty eight percent of the company's short term investments were being liquidated.

Existing working capital and anticipated cash flow are expected to be sufficient to fund operations and capital commitments for at least the next 12 months. At April 30, 2009, the company had no lines of credit or other bank financing arrangements except for the hedging line of credit discussed in Note 5. Because earnings are anticipated to be reinvested in operations, cash dividends are not expected to be paid. The company has no defined benefit plans and no obligations for post retirement employee benefits.

The company's adjusted earnings before interest, taxes, depreciation, depletion and amortization, including impairment losses, ("EBITDA") was $3,256,000 for the six months ended April 30, 2009 compared to $2,744,000 for the six months ended April 30, 2008. EBITDA is not a GAAP measure of operating performance. The company uses this non-GAAP performance measure primarily to compare its performance with other companies in the industry that make a similar disclosure. The company believes that this performance measure may also be useful to investors for the same purpose. Investors should not consider this measure in isolation or as a substitute for operating income, or any other measure for determining the company's operating performance that is calculated in accordance with GAAP. In addition, because EBITDA is not a GAAP measure, it may not necessarily be comparable to similarly titled measures employed by other companies. Reconciliation between EBITDA and net income is provided in the table below:

                                                        Six Months Ended April  30,
                                                           2009              2008
RECONCILIATION OF EBITDA:
Net Income (loss)                                    $    (14,601,000 )  $     693,000
Add Back (Deduct):
Interest Expense                                                    -            5,000
Income Tax Expense (Benefit)                               (9,335,000 )        295,000
Depreciation, Depletion and Amortization Expense
Including Write-Down and Impairment                        27,192,000        1,751,000

EBITDA                                               $      3,256,000    $   2,744,000

OFF-BALANCE SHEET FINANCING

The company has no off-balance sheet arrangements at April 30, 2009.

PRODUCT PRICES AND PRODUCTION

Although product prices are key to the company's ability to operate profitably and to budget capital expenditures, they are beyond the company's control and are difficult to predict. Since 1991, the company has periodically hedged the price of a portion of its estimated natural gas production when the potential for significant downward price movement is anticipated. Hedging transactions typically take the form of forward short positions, swaps and collars which are executed on the NYMEX futures market or by indexing to regional index prices associated with pipelines in proximity to the company's production. The company's current hedges are indexed to NYMEX. Refer to Note 5 of the Consolidated Financial Statements for a complete discussion on the company's hedging activities.

Gas and oil sales volume and price realization comparisons for the indicated periods are set forth below. Price realizations include the sales price and the effect of realized hedging transactions.

                             Six Months Ended April 30,
                   2009                  2008               % Change
Product      Volume     Price      Volume     Price      Volume   Price

Gas (Mcf)    647,000   $  7.13 (1) 825,000   $  8.31 (2)    -21 %   -14 %
Oil (bbls)    54,800   $ 38.63      29,100   $ 91.87        +89 %   -58 %




                            Three Months Ended April 30,
                   2009                  2008               % Change
Product      Volume     Price      Volume     Price      Volume   Price

Gas (Mcf)    285,000   $  7.75 (3) 433,000   $  8.37 (4)    -34 %    -7 %
Oil (bbls)    38,100   $ 39.25      13,400   $ 98.25       +184 %   -60 %

(2) Includes $1.03 Mcf realized hedging gain.

(3) Includes $4.74 Mcf realized hedging gain

(4) Includes $0.01 Mcf realized hedging gain.

As previously reported, during fiscal 2008 and the first two quarters of fiscal 2009, the company elected to postpone certain scheduled drilling due to the historically high costs of equipment and field services. That decision came with the consequence that less drilling would cause production to decline. The decline in

gas production is evidenced by the above table.

Beginning in fiscal year 2008, the company has focused its drilling program primarily on oil prospects. The results of the drilling program are also evidenced by the above table. Oil production has increased 89% for the six months ended April 30, 2009 compared to the same period in 2008. In the quarter ended April 30, 2009 oil production has increased 184% compared to the same quarter in 2008.

On a gas equivalent units basis, the production declines the company has experienced in recent periods have been substantially overcome. Total production declined only 2% for the six months ended April 30, 2009 from the same period a year ago and for the three months ended April 30, 2009 gas equivalent production is unchanged from last year.

More importantly, recent drilling discoveries have begun to significantly improve the balance between oil and gas reserves and oil production.

OPERATIONS

During the first six months of fiscal 2009, the company's operations continued to focus on its two core projects - oil and natural gas drilling and application of its patented Calliope Gas Recovery System.

The company believes that, in combination, its drilling and Calliope projects provide an excellent (and possibly unique) balance for achieving its goal of adding long-lived natural gas reserves and production at reasonable costs and risks. However, it should be expected that successful results will occur unevenly for both the drilling and Calliope projects. Drilling results are dependent on both the timing of drilling and on the drilling success rate. Calliope results are primarily dependent on the timing, volume and quality of Calliope installations available to the company.

The company will continue to actively pursue adding reserves through its two core projects in fiscal 2009, and expects these activities to be a reliable source of reserve additions. However, the timing and extent of such activities can be dependent on many factors which are beyond the company's control, including but not limited to, the cost and quality of oil field services such as drilling rigs, production equipment and related services, and access to wells for application of the company's patented gas recovery system on low pressure gas wells. The prevailing price of oil and natural gas has a significant effect on demand and, thus, the related cost of such services and wells.

The cost of field services, particularly the cost of drilling wells, has increased dramatically during the past several years, driven by higher energy prices. Concurrently, the quality of field services has diminished markedly due to manpower shortages. The combination of much higher field service costs and degradation in the quality of the services had a material negative impact on drilling economics. Accordingly, the company delayed additional drilling scheduled for second quarter 2009 for a period of at least two months in anticipation of significant improvement in both the cost and quality of drilling services and materials, which is beginning to occur. The company is currently re-evaluating the timing and extent of its drilling program.

All of the company's oil and natural gas properties are located on-shore in the continental United States. The company's future drilling activities may not be successful, and its overall drilling success rate may change. Unsuccessful drilling activities could have a material adverse effect on the company's results of operations and financial condition. Also, the company may not be able to obtain the right to drill in areas where it believes there is significant potential for the company.

Recent Drilling Activities.

Proprietary Drilling Results - The company recently announced that it has participated in drilling a wildcat discovery well that flowed oil at impressive initial rates during completion testing. For competitive reasons, we have not disclosed any detailed ownership, location or technical information about the well. Production is being curtailed to between 100 and 200 barrels of oil per day. Two confirmation wells have yielded positive results and a third confirmation well is scheduled to spud in June 2009.

Northern Anadarko Basin - Oklahoma drilling has historically been the primary driver for CREDO's production growth. CREDO owns approximately 75,000 gross acres and has interests in almost 200 wells. During the first quarter of fiscal 2009, CREDO completed two wells on its Pool\Proffitt Prospect to test multiple carbonate reservoirs using new fracture stimulation technology. Both have proved to be commercial wells, and there are up to 12 additional locations on CREDO's acreage. CREDO owns 50% to 73% working interest in the wells.

In Hemphill County, Texas, the company purchased an additional 3,800 gross acres and assumed operatorship of 11 wells. The new acreage complements the company's Humphreys Prospect and brings our total acreage in the area to approximately 8,300 gross acres. We have drilled two successful wells on the acreage, and intend to drill more wells in the future. CREDO owns interests ranging up to 25%.

South Texas - CREDO entered the South Texas joint venture to use 3-D seismic to explore for deep, highly faulted prospects. The high potential, 17,000-foot wildcat well drilled to test the Deep Wilcox sand on the Gemini Prospect confirmed the seismic interpretation and found porous sand. However, the sand was water wet and the well was plugged and abandoned. CREDO received approximately $1,300,000 in cash for the prospect package last year, but retained an 11.25% "carried interest" in the test well. The prospect package consists of two additional Deep Wilcox prospects which are geologically different from Gemini Prospect. They are being further evaluated, and if drilled, CREDO will have an 11.25% carried interest in the next well.

Central Kansas Uplift - The company has achieved excellent drilling results on the Central Kansas Uplift. To date, CREDO has participated in 36 wells on the Uplift, of which 47% have been successfully completed as oil producers. That outstanding success prompted us to increase CREDO's leasehold position to almost 150,000 gross and 75,000 net acres. This acreage provides a good inventory of future drilling opportunities where CREDO owns interests ranging up to 85 percent. Credo recently completed shooting 3-D seismic over approximately 100 square miles of the prospect, and the initial interpretation shows many potential drilling locations in 11 prospect areas. The Company expects to drill two to four wells per month for the balance of the year.

Drilling on the Uplift is relatively shallow and costs are moderate, yielding good economics even in the current product price environment. In addition, the project is oil targeted, thereby improving the balance between oil and natural gas in CREDO's reserve base. We expect Kansas to make a major contribution to our reserve and production growth in 2009.

Bakken Shale - CREDO entered the horizontal Bakken oil play in 2008 by leasing about 4,700 acres in North Dakota. The new leases have five or ten year terms and they are located in the vicinity of the recently discovered and prolific Parshall Field. Based on 640 acre spacing units, CREDO has interests in up to 27 well locations. Approximately $2,258,000 (50%) of the acquisition cost has been reclassified to the full cost pool. The company is currently evaluating well proposals, and expects to begin drilling this summer in what has become the number one oil resource play in the U.S. Breakthroughs in precision horizontal drilling and multi-stage, high pressure fracture stimulations have made the Bakken shale a very active resource play. The U.S. Geological Survey recently estimated that the Bakken contains around 4.0 billion barrels of undiscovered oil.

Calliope Gas Recovery Technology

Calliope Gas Recovery System - We are continuing to actively discuss commercial Calliope terms with several companies. We have proven beyond any doubt that Calliope will perform as advertised. Credo has previously published statistics on its Calliope wells which show finding costs of about $0.50 per Mcf and total costs to deliver gas into the pipeline of about $1.00 per Mcf. The statistics also show that Calliope is very low risk when installed on suitable wells.

Calliope's low finding and production costs have become increasingly attractive as the economics on many industry drilling projects deteriorate due to lower product prices. We also believe that lower natural gas prices may stimulate divestitures of marginal properties by other companies, including properties that have Calliope potential.

At year-end, Credo owned an exclusive license to the Calliope patents and the related technology. However, in order to establish absolute control over the technology and to eliminate future costs for individual well licenses, we recently purchased all of the underlying patents for $4,400,000. This acquisition also covers an exciting series of new patents, known as Tractor Seal, that is specifically designed to remove liquids from shallow wells more efficiently than existing technologies. If perfected, this new technology will be an excellent complement to Calliope's focus on deeper wells.

Results of Operations

Six Months Ended April 30, 2009 Compared to Six Months Ended April 30, 2008

For the six months ended April 30, 2009, oil and gas revenues decreased 48% to $4,461,000 compared to $8,675,000 during the same period last year. As the oil and gas price/volume table on page 16 shows, total gas price realizations, which reflect realized hedging transactions, decreased 14% to $7.13 per Mcf and oil price realizations decreased 58% to $38.63 per barrel. The net effect of these price changes was to decrease oil and gas realizations by $3,143,000 ($4,565,000 without realized hedges). For the six months ended April 30, 2009, the company's gas equivalent production decreased 2%, but due to increased oil production, and the price disparity of oil and gas, resulted in oil and gas sales increase of $352,000. The company elected to postpone certain scheduled drilling due to the historically high costs of equipment and field services. That decision came with the consequence that less drilling would cause production declines. Investment and other income decreased $191,000, primarily due to market performance and liquidation of the company's investments, compared to last year.

For the six months ended April 30, 2009, total costs and expenses, excluding the impairment loss of $24,652,000, increased 29% to $5,552,000 compared to $4,286,000 for the comparable period in 2008. Oil and gas production expenses decreased due primarily to reduced field level expenses. DD&A increased primarily due to an increase in the amortizable cost base before the impairment adjustment. General and administrative expenses increased primarily due to accounting and professional fees and increased salaries and benefits. The effective tax rate was 39.0% and 29.9% for the 2009 and 2008 periods, respectively.

Three Months Ended April 30, 2009 Compared to Three Months Ended April 30, 2008

For the three months ended April 30, 2009, total revenues decreased 52% to $2,353,000 compared to $4,942,000 during the same period last year. As the oil and gas price/volume table on page 15 shows, total gas price realizations, which reflect realized hedging transactions, decreased 7% to $7.75 per Mcf and oil price realizations decreased 60% to $39.25 per barrel. The net effect of these price changes was to decrease oil and gas realizations by $1,766,000 ($3,111,000 without realized hedges). For the three months ended April 30, 2009, the company's gas equivalent production remained unchanged, but due to increased oil production, and the price disparity of oil and gas, resulted in an oil and gas sales increase of

$523,000. Investment and other income fell $54,000 due to a generally poorer investment environment and liquidation of a majority of the company's investment holdings.

For the three months ended April 30, 2009, total costs and expenses, excluding the impairment loss of $8,030,000, rose 9% to $2,461,000 compared to $2,249,000 for the comparable period in 2008. Oil and gas production expenses decreased 25% due primarily to decreased field level costs. Depreciation, depletion and amortization (DD&A) increased primarily due to the increased cost base in the amortizable cost base before the impairment adjustment. General and administrative expenses increased primarily due to accounting and professional fees and increased salaries and benefits. The effective tax rate was 39.0% and 28.6% for the 2009 and 2008 periods, respectively.

SIGNIFICANT ACCOUNTING POLICIES

The company believes the following accounting policies and estimates are critical in the preparation of its consolidated financial statements: the carrying value of its oil and natural gas properties, the accounting for oil and gas reserves, and the estimate of its asset retirement obligations.

OIL AND GAS PROPERTIES

The company uses the full cost method of accounting for costs related to its oil and natural gas properties. Capitalized costs included in the full cost pool are depleted on an aggregate basis using the units-of-production method. All costs incurred in the acquisition, exploration, and development of properties (including costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes, and overhead related to exploration and development activities) and the fair value of estimated future costs of site restoration, dismantlement, and abandonment activities are capitalized. Costs for unevaluated properties, which typically include lease rentals, geology and seismic costs, are capitalized but are excluded from the amortizable pool during the evaluation period. When determinations are made whether the property has proved recoverable reserves or not, or if there is an impairment, the costs are reclassified to the full cost pool.

The capitalized costs in the full cost pool are subject to a quarterly ceiling test that limits such pooled costs to the aggregate of the present value of future net revenues attributable to proved oil and natural gas reserves discounted at 10 percent plus the lower of cost or market value of unproved properties less any associated tax effects. If such capitalized costs exceed the ceiling, the company will record a write-down to the extent of such excess as a non-cash charge to earnings, unless the company considers price increases subsequent to the balance sheet date which may reduce or eliminate a write-down.

Changes in oil and natural gas prices have historically had the most significant impact on the company's ceiling test. In general, the ceiling is lower when prices are lower. Even though oil and natural gas prices can be highly volatile over weeks and even days, the ceiling calculation dictates that prices in effect as of the last day of the test period be used and held constant. The resulting valuation is a snapshot as of that day and, thus, is generally not indicative of a true fair value that would be placed on the company's reserves by the company or by an independent third party. Therefore, the future net revenues associated with the estimated proved reserves are not based on the company's assessment of future prices or costs, but rather are based on prices and costs in effect as of the end of the test period.

OIL AND GAS RESERVES The determination of depreciation and depletion expense as well as ceiling test write-downs related to the recorded value of the company's oil and natural gas properties are highly dependent on the estimates of the proved oil and natural gas reserves. Oil and natural gas reserves include proved reserves that represent estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. There are numerous uncertainties inherent in estimating oil and natural gas reserves and their values, including many factors beyond the company's

control. Accordingly, reserve estimates are often different from the quantities of oil and natural gas ultimately recovered and the corresponding lifting costs associated with the recovery of these reserves.

ASSET RETIREMENT OBLIGATIONS The company estimates the future cost of asset retirement obligations, discounts that cost to its present value, and records a corresponding asset and liability in its Consolidated Balance Sheets. The values ultimately derived are based on many significant estimates, including future abandonment costs, inflation, market risk premiums, useful life, and cost of capital. The nature of these estimates requires the company to make judgments based on historical experience and future expectations. Revisions to the estimates may be required based on such things as changes to cost estimates or the timing of future cash outlays. Any such changes that result in upward or downward revisions in the estimated obligation will result in an adjustment to the related capitalized asset and corresponding liability on a prospective basis.

INTANGIBLE ASSETS The company reviews the value of its intangible assets in accordance with FASB Statement No. 144 which requires that it evaluate these assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate.

On September 1, 2000, the company acquired an unrestricted, exclusive license for patented Calliope Gas Recovery System technology. In July 2008, the company acquired the third party rights resulting from certain future Calliope installations for $975,000. Those third party rights would have resulted principally from Calliope installations of joint ventures between the company and other natural gas producing companies. As a result of the natural gas prices at January 31, 2009, the company determined it to be more likely than not that the formation of joint ventures for the installation of Calliope technology that would have been subject to these third party rights will not occur within the foreseeable future. Based on this assumption, and in accordance with FAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets, the company determined that the sum of the undiscounted value of cash flows to be derived from future installations of Calliope technology resulting from joint ventures is minimal. Accordingly, the company recorded an impairment loss of $926,000.

On November 6, 2008 the company purchased all of the patents underlying the Calliope Gas Recovery Technology, all of the related third party interests in future installations of the technology and patents covering a new fluid lift technology for shallow wells known as Tractor Seal for $4,400,000. The patents are being amortized on a straight line basis over the remaining lives ranging from 8.4 to 17.4 years. These costs are subject to potential future impairment if anticipated future Calliope installations do not occur.

REVENUE RECOGNITION The company derives its revenue primarily from the sale of produced natural gas and crude oil. The company reports revenue gross for the amounts received before taking into account production taxes and transportation . . .