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.

On July 7, 2009, Noble Energy, Inc. published results from the Tamar-2 appraisal well, drilled to a total depth of 16,680 feet in 5,530 feet of water, offshore Israel in the Matan license. The purpose of the Tamar-2 was to confirm the interpretation of the reservoir discovered by the Tamar - 1. According to Noble, the results were "extremely positive" and led to a 26% increase in the projected gross mean resources estimate for the Tamar, to 6.3 trillion cubic feet ("TCF").

On August 11, 2009, Netherland, Sewell & Associates, Inc. (NSAI) submitted their reserve report for the Tamar field. NSAI estimates the projected gross mean resources to be 7.3 TCF, of which 6.0 TCF are categorized as proved reserves, subject to the development of the field. Noble and its partners are moving forward with development plans, which contemplate first production by 2012. Isramco, Inc. has a 1.4375% overriding royalty interest in the Tamar gas field, before payout. After payout, the overriding royalty interest increases to 2.7375%.

Liquidity and Capital Resources

Our primary source of cash during the six months ended June 30, 2009 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 the 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 June 30,       As of December 31,
                                                                     2009                   2008
Revolving Credit Facility                                      $         39,950     $             43,200
Long - term debt - related party                                         83,072                   80,354
Current maturities of long-term debt, short-term debt and
bank overdraft                                                           15,679                   22,544
Total debt                                                              138,701                  146,098

Stockholders' equity                                                     19,849                   25,034

Debt to capital ratio                                                      87.5 %                   85.4 %

During the six month period ended June 30, 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 $54,950 thousand is currently outstanding. Management currently believes that the reduced availability continues to provide the liquidity needed to meet our expected working capital needs for the balance of fiscal 2009. On July 16, 2009, the lenders under our Senior Secured Revolving Credit Agreement, dated as of March 27, 2008, as amended and restated as of April 28, 2008, reduced the borrowing base by $10 million to $35 million.

At June 30, 2009, the Company was in compliance with all of its debt covenants under its existing Credit Agreements.

At June 30, 2009, our total debt was $138,701 thousand compared to total debt of $146,098 thousand at year-end 2008. As of June 30, 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 June 30, 2009 is attributable to 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 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.

                                                                 Six months Ended June 30,
                                                                   2009               2008
                                                                       (In thousands)
Cash flows provided by operating activities                    $      9,041        $    4,388
Cash flows provided by (used in) investing activities                   559           (98,276 )
Cash flows provided by (used in) financing activities                (9,817 )          99,206
Net increase (decrease) in cash                                $       (217 )      $    5,318

Net cash provided by operating activities increased in 2009 primarily due to the acquisition of oil and gas interests in March 2008 from GFB Acquisition -I, L.P. ("GFB") and our commodity price hedging activities which partially offset by the declines in oil and natural gas revenues, which was primarily attributable to lower average oil and gas prices for the quarter ended June 30, 2009 of $46.65/bbl and $3.58/mcf, compared to $117.06/bbl and $9.71/mcf for the period ended June 30, 2008.

Investing Activities, Net cash flows provided by (used in) investing activities for the six months ended June 30, 2009 and 2008 were $559 thousand and ($98,276) thousand, 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 $(9,817) thousand and $99,206 thousand for the six months ended June 30, 2009 and 2008, respectively.

The primary component of cash used in financing activities in 2009 is repayments made in respect of the Senior Credit Agreements in the amount of $9,250 thousand. The primary component of cash provided by financing activities in 2008 is proceeds from long-term loans obtained from related parties $51,280 thousand and Senior Credit Agreements $54,000 thousand.

Results of Operations

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

 Selected Data



                                                                      Three Months Ended June 30,
                                                                        2009                 2008
                                                                    (In thousands except per share
                                                                           and MBOE amounts)
Financial Results
Oil and Gas sales                                                 $           7,155       $    18,841
Other                                                                           244                32
Total revenues and other                                                      7,399            18,873

Cost and expenses                                                             8,881             9,601
Other expense                                                                10,741            57,177
Income tax benefit                                                           (4,209 )         (15,719 )
Net loss                                                                     (8,014 )         (32,186 )
Earnings per common share - basic and diluted                     $           (2.95 )     $    (11.84 )
Weighted average number of shares outstanding-basic and diluted           2,717,691         2,717,691

Operating Results
Adjusted EBITDAX (1)                                              $           7,373       $     9,607
Sales volumes (MMBOE)                                                           223               224

Average cost per MBOE:
Production (including transportation and taxes)                   $           16.17       $     27.04
General and administrative                                        $            3.75       $      2.94
Depletion                                                         $           19.07       $     12.33

(1) See Adjusted EBITDAX 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 operations before income taxes, which is presented in accordance with GAAP.

Financial Results

Loss from continuing Operations, In the three months ended June 30, 2009, Isramco's income from continuing operations was ($8,014) thousand, or ($2.95) per share, compared to loss from continuing operations of ($32,186) thousand, or ($11.84) per share, for the same corresponding period in 2008.

This decrease was primarily due to the impact of derivatives, lower lease operating expenses which were partially offset by sustained lower natural gas, oil and NGLs sales revenues due to lower prices and higher depreciation, depletion and amortization expenses.

Revenues, Volumes and Average Prices

                                 Sales Revenues

                                          Three Months Ended June 30,
In thousands except percentages      2009            2008         D vs. 2008
Gas sales                         $    2,113       $   7,334              (71 )%
Oil sales                              4,014           9,747              (59 )
Natural gas liquid sales               1,028           1,760              (42 )
Total                             $    7,155       $  18,841              (62 )%

Our sales revenues for the three months ended June 30, 2009 decreased by 62% when compared to same period of 2008 due to lower natural gas, oil and condensate and NGLs commodity prices.

                           Volumes and Average Prices

                                                               Three Months Ended June 30,
                                                          2009             2008         D vs. 2008
Natural Gas
Sales volumes Mmcf                                          653.75          717.75               (9 )%
Average Price per Mcf (1)                              $      3.23       $   10.22              (68 )
Total gas sales revenues (thousands)                   $     2,113       $   7,334              (71 )%

Crude Oil
Sales volumes MBbl                                           71.08           78.65              (10 )%
Average Price per Bbl (1)                              $     56.48       $  123.93              (54 )
Total oil sales revenues (thousands)                   $     4,014       $   9,747              (59 )%

Natural gas liquids
Sales volumes MBbl                                           42.46           25.98               63 %
Average Price per Bbl (1)                              $     24.20       $   67.74              (64 )
Total natural gas liquids sales revenues (thousands)   $     1,028       $   1,760              (42 )%

(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 decreased by 9%, crude oil sales volumes by 10% and natural gas liquids sales volumes increased by 63% for the three months ended June 30, 2009 compared to the same period of 2008 primarily due to a natural decline in production.

Our average natural gas price for the three months ended June 30, 2009 decreased by 68% or $6.99 per Mcf when compared to the same period of 2008. Our average crude oil price for the three months ended June 30, 2009 decreased by 54% or $67.45 per Bbl when compared to the same period of 2008. Our average natural gas liquids price for the three months ended June 30, 2009 decreased by 64% or $43.54 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 June 30, 2009
compared to the same period of 2008.

                                                                                       Natural gas
In thousands                                          Natural Gas          Oil           liquids
2008 sales revenues                                  $       7,334      $   9,747      $     1,760
Changes associated with sales volumes                         (654 )         (939 )          1,116
Changes in prices                                           (4,567 )       (4,794 )         (1,848 )
2009 sales revenues                                  $       2,113      $   4,014      $     1,028



Operating Expenses

                                                              Three Months Ended June 30,
In thousands except percentages                         2009            2008          D vs. 2008
Lease operating expense, transportation and taxes    $    3,598       $   6,063            (41 )%
Depreciation, depletion and amortization                  4,244           2,764             54
Accretion expense                                           204             114             79
General and administrative                                  835             660             27
                                                     $    8,881       $   9,601             (7 )%

During three months ended June 30, 2009, our operating expenses decreased by 7% when compared to the same period of 2008due to the following factors:

· Lease operating expense, transportation and taxes decreased by 41%, or $2,465 thousand, in 2009 when compared to 2008 due to lower lease operating expenses and 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 54%, or $1,480 thousand, in 2009 when compared to 2008 primarily due to 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 79%, or $90 thousand in 2009 when compared to 2008. The increase reflects the impact of the increase in the revised abandonment costs at year end 2008.

· General and administrative expenses increased by 27%, or $175 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 and assuming operation of approximately 350 wells in October 2008. The GFB acquisition also increased the volume of the activities and, as a result, the indirect expenses of those activities.

Other expenses

                                           Three Months Ended June 30,
In thousands except percentages       2009           2008        D vs. 2008
Interest expense, net              $    2,356      $  2,418               (3 )%
Net loss on derivative contracts        8,385        54,759              (85 )
                                   $   10,741      $ 57,177              (81 )%

Interest expense. Isramco's interest expense decreased by 3%, or $62 thousand, for the three month ended June 30, 2009 compared to the same period of 2008. This decrease is primarily due to the lower average outstanding balance of loans which we obtained to fund the Five States acquisition in 2007 and the GFB acquisition in 2008 and decreases in average LIBOR rates in 2009. The decrease was partially offset by the payments on interest rate swaps.

Net loss 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 June 30, 2009, the Company had a $13.1 million derivative asset, which $7.7 million was classified as current. For the three months ended June 30, 2009, the Company recorded a net derivative loss of $8.4 million ($12.8 million unrealized loss and a $4.4 million gain from net cash proceeds on settled contracts).

At June 30, 2008, the Company had a $73.1 million derivative liability,$29 million of which was classified as current. For the three months ended June 30, 2008, the Company recorded a net derivative loss of $54.7 million ($51.1 million unrealized loss and a $3.6 million net loss for cash payments on settled contracts). This decrease in our net derivative loss is primarily attributable to the recent decrease in the forward strip pricing used to value our derivatives and the additional SWAP contracts we entered in 2007 and 2008.

Adjusted EBITDAX.

To assess the operating results of Isramco, management analyzes income from operations before income taxes, interest expense, exploration expense, unrealized gain (loss) on derivative contracts and DD&A expense and impairments ("Adjusted EBITDAX"). EBITDAX is not a GAAP measure. Isramco's definition of Adjusted EBITDAX excludes exploration expense because exploration expense is not an indicator of operating efficiency for a given reporting period, but rather is monitored by management as a part of the costs incurred in exploration and development activities. Similarly, Isramco excludes DD&A expense and impairments from Adjusted EBITDAX as a measure of segment operating performance because capital expenditures are evaluated at the time capital costs are incurred. The Company's definition of Adjusted EBITDAX also excludes interest expense to allow for assessment of segment operating results without regard to Isramco's financing methods or capital structure. Adjusted EBITDAX is a widely accepted financial indicator of a company's ability to incur and service debt and fund capital expenditures and make payments on its long term loans and Management believes that the presentation of Adjusted EBITDAX provides information useful in assessing the Company's financial condition and results of operations.

However, Adjusted EBITDAX, as defined by Isramco, may not be comparable to similarly titled measures used by other companies. Therefore, Isramco's consolidated Adjusted EBITDAX should be considered in conjunction with income
(loss) from operations and other performance measures prepared in accordance with GAAP, such as operating income or cash flow from operating activities. Adjusted EBITDAX has important limitations as an analytical tool because it excludes certain items that affect income from continuing operations and net cash provided by operating activities. Adjusted EBITDAX should not be considered in isolation or as a substitute for an analysis of Isramco's results as reported under GAAP. Below is a reconciliation of consolidated Adjusted EBITDAX to income
(loss) from operations before income taxes.