The following is management's discussion and analysis of certain significant factors that have affected aspects of our financial position and results of operations during the periods included in the accompanying unaudited financial statements. You should read this in conjunction with the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited financial statements for the year ended December 31, 2008 included in our Annual Report on Form 10-K/A and the unaudited financial statements included elsewhere herein.

We use a variety of financial and operational measurements at interim periods to analyze our performance. These measurements include an analysis of production and sales revenue for the period; EBITDAX, a non-GAAP financial measurement; lease operating expenses per barrel of oil equivalent ("LOE per BOE"); and general and administrative ("G&A") expenses as a percentage of operating revenue.

Results of Continuing Operations



                                            For the Three Months Ending          For the Nine Months Ended
                                                   September 30,                       September 30,
                                              2009               2008               2009             2008
Production:
Oil and Condensate (Bbls)                        177,589            196,780            542,467       574,690
Natural Gas (Mcf)                                405,001            250,704          1,026,409       764,293
Natural Gas Liquids (Bbls)                         1,845                 -               1,845            -

Total (BOE)a                                     246,934            238,564            715,380       702,072
Average daily production:
Oil and Condensate (Bbls)                          1,930              2,139              1,987         2,097
Natural Gas (Mcf)                                  4,402              2,725              3,760         2,789
Natural Gas Liquids (Bbls)                            20                 -                   7            -

Total (BOE)a                                       2,684              2,593              2,620         2,562
Average sales price:
Oil and Condensate (per Bbl)             $         64.77    $        115.32    $         53.52    $   109.65
Natural Gas (per Mcf)                    $          3.64    $         10.30    $          4.15    $    10.14
Natural Gas Liquids (per Bbl)            $         18.91    $            -     $         18.91    $       -

Total (per BOE)a                         $         52.69    $        105.95    $         46.58    $   100.79
Average NYMEX pricesb:
Oil (per Bbl)                            $         68.25    $        118.52    $         57.09    $   113.48
Natural Gas (per Mcf)                    $          3.42    $          9.00    $          3.90    $     9.73

a Natural gas is converted at the rate of six Mcf to one BOE and oil, condensate and natural gas liquids are converted at a rate of one Bbl to one
BOE.

b Based upon the average of bid week prompt month prices.

                                                         Production and Revenue by Basin
                                         For Three Months Ended                    For Nine Months Ended
                                              September 30,                            September 30,
                                        2009                  2008                2009                2008
Appalachian
Revenues - Natural Gas             $    1,473,793         $  2,582,720        $  4,257,581        $  7,747,630
Volumes (Mcf)                             405,001              250,704           1,026,409             764,293
Average Price                      $         3.64         $      10.30        $       4.15        $      10.14
Revenues - Condensate              $       13,020         $         -         $     13,020        $         -
Volumes (Bbl)                                 253                   -                  253                  -
Average Price                      $        51.46         $         -         $      51.46        $         -
Revenues - Natural Gas Liquids     $       34,880         $         -         $     34,880        $         -
Volumes (Bbl)                               1,845                   -                1,845                  -
Average Price                      $        18.91         $         -         $      18.91        $         -
Illinois
Revenues - Oil                     $   11,490,245         $ 22,692,083        $ 29,020,431        $ 63,016,941
Volumes (Bbl)                             177,336              196,780             542,214             574,690
Average Price                      $        64.79         $     115.32        $      53.52        $     109.65

                                            Other Performance Measurements From Continuing Operations
                                         For Three Months Ended                    For Nine Months Ended
                                              September 30,                            September 30,
                                        2009                  2008                2009                2008
EBITDAX $ (in Thousands)           $        5,245         $      7,653        $     18,037        $     23,362
LOE per BOE $                      $        22.92         $      32.01        $      22.44        $      29.08
G&A as a Percentage of
Operating Revenue(a)                         20.2 %               20.1 %              27.7 %              20.5 %

(a) Includes realized commodity derivatives during the period, which are recorded as Other Income (Expense). For the nine-month period ended September 30, 2009, we excluded the early settlement of 2011 oil derivatives that totaled approximately $4.6 million.

General Overview

Operating revenue for the three and nine month periods ended September 30, 2009 decreased 48.4% and 52.8%, respectively, when compared to the same periods in 2008. These decreases are primarily due to lower oil and gas prices and lower oil production when compared to 2008, which was partially offset by an increase in natural gas production. The average sales price per BOE during the three and nine month periods ended September 30, 2009 was $52.69 and $46.58, respectively, as compared to $105.95 and $100.79 during the comparable periods of 2008. Partially offsetting the decrease in commodity prices was an increase in natural gas production. Total production for the three and nine month periods ended September 30, 2009 increased approximately 3.5% and 1.9%, respectively, when compared to the same periods in 2008.

Operating expenses decreased $8.1 million, or 34.5%, for the third quarter of 2009 as compared to the same period in 2008 and decreased $6.6 million, or 12.1%, for the first nine months of 2009 as compared to the same period in 2008. Operating expenses are primarily comprised of: production expenses; G&A expenses; exploration expenses; gains and losses on the disposal of assets; impairment expense; and DD&A expenses. The decrease in operating expenses during the three months ended September 30, 2009 can be primarily attributable to a loss sustained from the sale of our New Albany Shale assets in the Illinois Basin during 2008 of approximately $6.3 million. Also contributing to the decrease in operating expenses were lower production and lease operating expenses, a decrease in G&A expenses and a decrease in exploration expenses. These reductions in operating expenses were partially offset by increases in impairment expense and DD&A. The increase in impairment expense is attributable to the impairment of capitalized costs related to our unproved properties in accordance with FASB ASC 932. The increase in our DD&A expenses can be primarily explained by the downward revision in the estimated lives of our proved reserves at December 31, 2008. We calculate our depletion on a units-of-production basis, which accelerated in relation to our lower proved reserves base. The decrease in operating expenses for the first nine months of 2009 as compared to the same period in 2008 was primarily due to the loss recognized in relation to the sale of our New Albany Shale assets in the Illinois Basin during 2008, which was partially offset by reductions in production and lease operating expenses.

EBITDAX, is used as a financial measure by us and by other users of our financial statements, such as our commercial bank lenders, to analyze such things as:

• Our operating performance and return on capital in comparison to those of other companies in our industry, without regard to financial structure;

• The financial performance of our assets and valuation of the entity, without regard to financing methods, capital structure or historical costs basis;

• Our ability to generate cash sufficient to pay interest costs, support our indebtedness and make cash distributions to our stockholders; and

• The viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

EBITDAX decreased approximately $2.4 million to $5.2 million for the three-month period ended September 30, 2009 as compared to the same period in 2008. The decrease in EBITDAX can be primarily attributed to lower commodity prices, partially offset by lower production and lease operating expenses. EBITDAX decreased approximately $5.3 million to $18.0 million for the nine-month period ended September 30, 2009 as compared to the same period in 2008. The decrease in EBITDAX can be primarily attributed to lower commodity prices, partially offset by lower production and lease operating expenses as well as the early settlement of certain oil derivatives relating to 2011.

LOE per BOE measures the average cost of extracting oil and natural gas from our basin reserves during the period. This measurement is also commonly referred to in the industry as our "lifting cost". It represents the average cost of extracting one barrel of oil equivalent from our oil and natural gas reserves in the ground. LOE per BOE decreased by $9.09 for the three months ended September 30, 2009 as compared to the same period in 2008 and $6.64 for the nine months ended September 30, 2009 as compared to the same period in 2008. The expenses decreased as a result of decreased activity levels, primarily in the Illinois Basin, and several cost reduction measures implemented during the fourth quarter of 2008.

G&A expenses as a percentage of operating revenue, which includes realized derivatives, measures overhead costs associated with our management and operations. G&A expenses as a percentage of revenue increased to approximately 20.2% for the three-month period ended September 30, 2009, as compared to 20.1% for the same period in 2008. G&A expenses increased as a percentage of revenue to approximately 27.7% for the nine-month period ended September 30, 2009, as compared to 20.5% for the same period in 2008. The increase in G&A expenses as a percentage of revenue for the three-month period ending September 30, 2009 as compared to the same period in 2008 was primarily due to a decrease in operating revenue, which was a function of lower commodity prices. Overall, G&A expenses decreased when compared to last year, primarily due to a true up of non-cash compensation expenses of approximately $0.6 million. The increase in G&A expenses as a percentage of revenue for the nine-month period ended September 30, 2009 as compared to the same period in 2008 was largely a function of lower operating revenue, which was directly attributable to a decrease in commodity prices. Overall, G&A expenses increased less than 1% from 2008.

Comparison of the Three Months Ended September 30, 2009 to the Three Months
Ended September 30, 2008.

Oil and gas revenue for the three month periods ended September 30, 2009 and
2008 ($ in thousands, except total BOE production and price per BOE) is
summarized in the following table:



                                                     For Three Months Ended September 30,
                                               2009            2008           Change           %
Oil and Gas Revenues:
Oil and condensate sales revenue             $  11,503       $  22,692       $ (11,189 )     (49.3 )%
Oil derivatives realized(a)                  $    (305 )     $  (6,353 )     $   6,048        95.2 %

Total oil and condensate revenue and
derivatives realized                         $  11,198       $  16,339       $  (5,141 )     (31.5 )%
Gas sales revenue                            $   1,474       $   2,583       $  (1,109 )     (42.9 )%
Gas derivatives realized(a)                  $   1,089       $    (287 )     $   1,376       479.4 %

Total gas revenue and derivatives
realized                                     $   2,563       $   2,296       $     267        11.6 %
Total natural gas liquid revenue             $      35       $      -        $      35       100.0 %
Consolidated sales                           $  13,012       $  25,275       $ (12,263 )     (48.5 )%
Consolidated derivatives realized(a)         $     784       $  (6,640 )     $   7,424       111.8 %

Total oil and gas revenue and derivatives
realized                                     $  13,796       $  18,635       $  (4,839 )     (26.0 )%
Total BOE Production                           246,934         238,564           8,370         3.5 %
Average Realized Price per BOE               $   55.87       $   78.11       $  (22.24 )     (28.5 )%

(a) Realized derivatives are included in Other Income (Expense) on the Consolidated Statements of Operations.

Average realized price received for oil and gas during the third quarter of 2009 was $55.87 per BOE, a decrease of 28.5%, or $22.24 per BOE, from the same quarter in 2008. The average price for oil and condensate, after the effect of derivative activities, decreased 24.1%, or $19.98 per barrel, to $63.06 per barrel. The average price for natural gas, after the effect of derivative activities, decreased 30.9%, or $2.83 per Mcf, to $6.33 per Mcf. Our derivative activities effectively increased net realized price by $3.17 per BOE in the third quarter of 2009 and decreased net realized prices by $27.83 per BOE in the third quarter of 2008.

Production volumes in the third quarter of 2009 increased 3.5% from the third quarter of 2008. Natural gas production increased approximately 61.5%, primarily due to the success of our Marcellus Shale drilling operations in the counties of Butler and Westmoreland in the Commonwealth of Pennsylvania. This increase was partially offset by significant pipeline curtailments affecting our conventional shallow gas operations in Westmoreland County, Pennsylvania. Oil production decreased approximately 9.8% in the third quarter of 2009 as compared to the same period in 2008, primarily due to decreased development and activity levels thus far in 2009. We initiated a conventional oil drilling program during the third quarter of 2009 to attempt to offset our year-over-year decrease in production. Overall, our production for the three months ending September 30, 2009 averaged 2,684 BOE per day, of which 71.9% was attributable to oil and 27.3% to natural gas, the remainder was a result of natural gas liquids production.

Other operating revenue for the three months ended September 30, 2009 and September 30, 2008 were approximately $43,000 and $29,000, respectively. We generate other operating revenue from various activities such as revenue from the transportation of third-party natural gas in the Appalachian Basin.

Production and lease operating expenses decreased approximately $2.0 million, or 25.9%, in the third quarter of 2009 from the same period in 2008. These expenses have decreased year-over-year primarily due to decreased activity levels, primarily in the Illinois Basin, and several cost reduction measures implemented during the fourth quarter of 2008 to mitigate discretionary spending and to lower overall operating expenses.

G&A expenses for the third quarter of 2009 decreased approximately $1.0 million, or 25.5%, to $2.8 million from the same period in 2008. These expenses decreased year-over-year primarily due to a recovery of expense recognized during the third quarter of 2009 due to the true-up of our annualized forfeiture rate as it relates to our non-cash compensation expense. In accordance with the provisions of FASB ASC 718, we will record additional expense if the actual forfeiture rate is lower than we estimate, and will record a recovery of expense if the actual forfeiture rate is higher than we estimate.

Loss on disposal of assets for the three months ended September 30, 2009 was a loss of approximately $17,000 as compared to a loss of $6.3 million for the same period in 2008. During the third quarter of 2008, we sold our New Albany Shale acreage holdings in areas of the Illinois Basin, which resulted in a loss of approximately $6.3 million. We, from time to time, sell or dispose of property and equipment in the normal course of business and recognize a gain or loss based on the price received for those assets compared to the book carrying value at the time of sale or disposal.

Impairment expenses for the third quarter of 2009 totaled approximately $0.5 million as compared to $0 during the comparable period of 2008. We recorded these expenses in accordance with FASB ASC 932 to recognize impairment of capitalized costs related to unproved properties. During the third quarter of 2009, we identified certain geographic regions, predominately in areas prospective for the Marcellus Shale, that were outside of the scope of our current plans, increasing the probability of future lease expiration. Capitalized costs associated with these properties are periodically evaluated as to their recoverability based on changes brought about by economic factors and potential shifts in our business strategy. As economic and strategic conditions change and we continue to develop unproved properties, our estimates of impairment will likely change and we may increase or decrease expense.

Exploration expense of oil and gas properties for the third quarter of 2009 decreased approximately $0.7 million from an expense of $1.1 million for the same period in 2008. These expenses are primarily associated with seismic data acquisitions and related activities, reservoir characterization and geologic modeling activities, and oil and gas lease delay rental payments. Expenses during the third quarter of 2008 were higher than the current quarter primarily due to geological modeling activities associated with our ASP project in the Illinois Basin, as well as seismic data acquisitions and related activities associated with our Marcellus Shale program in the Appalachian Basin.

DD&Aexpenses for the three months ended September 30, 2009 increased approximately $1.3 million, or 28.6%, from $4.7 million for the same period in 2008. This increase is primarily attributable to the decrease in our proved reserves as of December 31, 2008. We calculate our depletion on a units-of-production basis, which accelerated in relation to our lower proved reserves base.

Interest expense, net of interest income, for the three months ended September 30, 2009 was approximately $0.2 million as compared to $0.1 million for the same period in 2008. The increase of $135,000 was primarily due to the decrease in the amount of cash on hand, for which we receive interest income, as well as depressed interest rates when compared to last year.

Gain on derivatives, net includes a gain of approximately $0.4 million for the third quarter of 2009 as compared to a gain of $60.0 million for the same period in 2008. These changes were attributable to the volatility of oil and gas commodity prices in the marketplace along with changes in our portfolio of outstanding collars and swap derivatives. Losses from derivative activities generally reflect higher oil and gas prices in the marketplace than were in effect at the end of the last period while gains generally reflect the opposite. Our derivative program is designed to provide us with greater reliability of future cash flows at expected levels of oil and gas production volumes given the highly volatile oil and gas commodities market.

Other expense was an expense of approximately $7,000 in the third quarter of 2009 as compared to expense of approximately $79,000 for the same period in 2008. Our other expense is characterized by the recognition of gains or losses on the sale of scrap inventory and physical yard inventory adjustments and fluctuates from period to period.

Net income tax benefit (expense) was a benefit of approximately 1.0 million for the three months ended September 30, 2009 as compared to expense of approximately $24.9 million for the three months ended September 30, 2008. The change was primarily due to net income during the third quarter of 2008 that was attributable to unrealized gains on our commodity derivatives.

Net income (loss) from continuing operations after income taxes for the three months ended September 30, 2009 was a loss of $1.2 million as compared to net gain of $36.8 million for the same period in 2008. The change was caused by our unrealized gains on derivatives, which were significantly higher during the third quarter of 2008 than the same period in 2009. There were no other comprehensive income (loss) items recognized during the periods presented, therefore our comprehensive net income (loss) is equal to our net income (loss).

Comparison of the Nine Months Ended September 30, 2009 to the Nine Months Ended
September 30, 2008.

Oil and gas revenue for the nine month periods ended September 30, 2009 and 2008
($ in thousands, except price per BOE) is summarized in the following table:



                                                     For Nine Months Ended September 30,
                                                2009         2008           Change           %
Oil and Gas Revenues:
Oil and condensate sales revenue              $  29,033    $  63,017       $ (33,984 )     (53.9 )%
Oil derivatives realized(a)(b)                $   3,764    $ (17,044 )     $  20,808       122.1 %

Total oil and condensate revenue and
derivatives realized                          $  32,797    $  45,973       $ (13,176 )     (28.7 )%
Gas sales revenue                             $   4,258    $   7,748       $  (3,490 )     (45.0 )%
Gas derivatives realized(a)                   $   2,544    $    (660 )     $   3,204       485.5 %

Total gas revenue and derivatives realized    $   6,802    $   7,088       $    (286 )      (4.0 )%
Total natural gas liquid revenue              $      35    $      -        $      35       100.0 %
Consolidated sales                            $  33,326    $  70,765       $ (37,439 )     (52.9 )%
Consolidated derivatives realized(a)          $   6,308    $ (17,704 )     $  24,012       135.6 %

Total oil and gas revenue and derivatives
realized                                      $  39,634    $  53,061       $ (13,427 )     (25.3 )%
Total BOE Production                            715,380      702,072          13,308         1.9 %
Average Realized Price per BOE                $   55.40    $   75.58       $  (20.18 )     (26.7 )%

(a) Realized derivatives are included in Other Income (Expense) on the Consolidated Statements of Operations.

(b) Excludes approximately $4.6 million in proceeds that were received upon the early settlement of oil hedges during the first quarter of 2009 relating to the 2011 calendar year.

Average realized price received for oil and gas during the first nine months of 2009 was $55.40 per BOE, a decrease of 26.7%, or $20.18 per BOE, from the same period in 2008. The average price for oil and condensate, after the effect of derivative activities, decreased 24.4%, or $19.54 per barrel, to $60.46 per barrel. The average price for natural gas, after the effect of derivative activities, decreased 28.5%, or $2.65 per Mcf, to $6.63 per Mcf. Our derivative activities effectively increased net realized price by $8.82 per BOE in the first nine months of 2009 and decreased net realized prices by $25.22 per BOE in the first nine months of 2008.

Production volumes in the first nine months of 2009 increased 1.9% from the first nine months of 2008. Natural gas production increased approximately 34.3%, primarily due to the success of our Marcellus Shale drilling operations in the counties of Butler and Westmoreland in the Commonwealth of Pennsylvania. This increase was partially offset by significant pipeline curtailments affecting our conventional gas operations in Westmoreland County, Pennsylvania. Oil production decreased approximately 5.6% in the first nine months of 2009 as compared to the same period in 2008, primarily due to decreased development and activity levels thus far in 2009. We initiated a conventional oil drilling program during the third quarter of 2009 to attempt to offset our year-over-year decrease in production. Overall, our production for the nine months ending September 30, 2009 averaged 2,620 BOE per day, of which 75.8% was attributable to oil and 23.9% to natural gas, the remainder was from natural gas liquids production.

Other operating revenue for the nine months ended September 30, 2009 and September 30, 2008 was approximately $100,000 and $93,000, respectively. We generate other operating revenue from various activities such as revenue from the transportation of third-party natural gas in the Appalachian Basin.

Production and lease operating expenses decreased approximately $4.4 million, or 21.4%, in the nine month period ended September 30, 2009 from the same period in 2008. These expenses have decreased year-over-year primarily due to decreased activity levels, primarily in the Illinois Basin, and several cost reduction measures implemented during the fourth quarter of 2008 to mitigate discretionary spending and to lower overall operating expenses.

G&A expenses for the first nine months of 2009 increased approximately $60,000, or 0.6%, to $10.9 million from the same period in 2008. These expenses have increased year-over-year primarily due to legal, wages and benefits expenses. Legal expenses have increased due to accruals associated with the pending actions related to our prior Marcellus Shale leasing projects (see Note 11 to our consolidated financial statements) and due to expenses incurred in relation to the PEA signed with Williams (see Note 2 to our consolidated financial statements). Wages and benefits increased primarily due to the increase in total employees when compared to the prior year. These increases in G&A expense were partially offset by a decrease in non-cash compensation expense that is related to a recovery of expense recognized during the third quarter of 2009 due to the true-up of our annualized forfeiture. In accordance with the provisions of FASB ASC 718, we will record additional expense if the actual forfeiture rate is lower than we estimate, and will record a recovery of expense if the actual forfeiture rate is higher than we estimate.

Loss on sale assets for the nine months ended September 30, 2009 was a loss of $417,000 as compared to a loss of $6.4 million for the same period in 2008. The loss recognized during the first nine months of 2009 was primarily due to the . . .