GeoResources, Inc. Reports Third Quarter and Nine-Month Results

GeoResources, Inc., (Nasdaq: GEOI), today reported third quarter 2006 net income of $523,415, or $0.14 per share, on revenue of $2,482,041, compared to third quarter 2005 net income of $575,927, or $0.15 per share, on revenue of $2,375,086. Operating income for the quarter was $758,472 in 2006 versus $709,726 in 2005. Earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) for the third quarter of 2006 was $864,706 compared to $927,622 for the third quarter of 2005.(1)

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For the first nine months of 2006 net income was $1,905,228, or $0.50 per share, on revenue of $7,162,875 versus net income of $1,697,326, or $0.44 per share, on revenue of $6,083,670 during the first nine months of 2005. Operating income for the nine months increased 54% to $2,351,560. EBITDA for the first nine months was $2,916,184, compared to $2,615,387 during the same period in 2005. Increased production combined with higher commodity prices generated greater revenue. However, third quarter 2006 net income declined $53,000 as a result of $169,000 of costs associated with the previously announced merger agreement with Southern Bay Oil & Gas, L.P. and Chandler energy, LLC.

GeoResources sold a total of 33,548 BOE during the third quarter 2006, a 12% increase compared to 29,978 BOE in the third quarter 2005. For the nine months ended September 30, 2006, GeoResources sold a total of 100,575 BOE a 17% increase over the 85,820 BOE sold during the same period in 2005.

GeoResources' subsidiary, Western Star Drilling Company (WSDC), reported 45 operating days in the second quarter and 128 days in the first nine months of 2006. WSDC drilled three wells for third parties during the third quarter of 2006, generating drilling revenue of $523,555 compared to $694,452 in the third quarter 2005. For the first nine months, drilling revenue increased 36% to $1,565,200 in 2006 compared to $1,155,095 for same period in 2005.

J.P. Vickers, President of GeoResources, said, "We are continuing to benefit from higher production volumes and strong commodity prices and we expect further gains in production in the fourth quarter when we will have production from the Hammond Field, Carter County, Montana which was brought out of shut-in status in late September. Also, we are drilling a shallow 3,400 foot exploratory well on our Kramer Prospect in Bottineau County, North Dakota and expect we will make an announcement of our findings in the near future."

(1) EBITDA is defined as earnings before interest, income taxes,

depreciation and amortization, EBITDA should not be considered as an

alternative to net income (as an indicator of operating performance)

or as an alternative to cash flow (as a measure of liquidity or

ability to service debt obligations) and is not in accordance with,

nor superior to, generally accepted accounting principles, but

provides additional information for evaluating us. Our measure of

EBITDA may not be the same as similar measures described by other

companies. EBITDA is calculated as follows:

Quarter Ended Quarter Ended

Sept. 30, 2006 Sept. 30, 2005

Net income $523,415 $575,927

Add back

Interest expense 3,991 22,419

Income tax 74,095 110,000

Depreciation and amortization 263,205 219,276

EBITDA $864,706 $927,622

Nine Months Ended Nine Months Ended

Sept. 30, 2006 Sept. 30, 2005

Net Income. $1,905,228 $1,697,326

Add back:

Interest expense 25,571 70,125

Income tax 287,645 239,000

Depreciation and amortization 697,740 608,936

EBITDA $2,916,184 $2,615,387

Information herein contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by words such as "may," "will," "expect," "anticipate," "estimate" or "continue," or comparable words. In addition, all statements other than statements of historical facts that address activities that the Company expects or anticipates will or may occur in the future are forward-looking statements. Readers are encouraged to read the SEC reports of the Company, particularly its Form 10-KSB for the Fiscal Year Ended December 31, 2005, for meaningful cautionary language disclosure.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

GEORESOURCES, INC., AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2006 December 31, 2005

(Unaudited)

ASSETS

CURRENT ASSETS:

Cash and equivalents $1,399,861 $1,669,882

Trade receivables, net 1,396,736 1,109,202

Inventories 429,762 236,081

Prepaid expenses 89,398 38,738

Total current assets 3,315,757 3,053,903

PROPERTY, PLANT AND EQUIPMENT, at cost:

Oil and gas properties, using the

full cost method of accounting:

Properties being amortized 29,215,750 27,842,549

Properties not subject to

amortization 196,999 202,257

Drilling rig and equipment 1,868,613 1,607,094

Leonardite plant and equipment 924,984 854,789

Other 798,745 790,100

33,005,091 31,296,789

Less accumulated depreciation,

depletion amortization and

impairment (20,375,729) (19,650,972)

Net property, plant and

equipment 12,629,362 11,645,817

TOTAL ASSETS $15,945,119 $14,699,720

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable $967,939 $1,152,532

Accrued expenses 274,255 293,505

Income taxes payable 119,441 64,000

Current portions of capital lease

obligations 23,929 41,549

Current maturities of long-term debt -- 523,941

Total current liabilities 1,385,564 2,075,527

CAPITAL LEASE OBLIGATIONS, less current

portions -- 13,298

LONG-TERM DEBT, less current maturities -- 177,638

ASSET RETIREMENT OBLIGATION 2,409,070 2,324,690

DEFERRED INCOME TAXES 859,000 753,000

Total liabilities 4,653,634 5,344,153

STOCKHOLDERS' EQUITY:

Common stock, par value $.01 per share;

authorized 10,000,000 shares;

issued and outstanding 3,778,269

and 3,765,269 shares, respectively 37,783 37,653

Additional paid-in capital 422,441 391,881

Retained earnings 10,831,261 8,926,033

Total stockholders' equity 11,291,485 9,355,567

TOTAL LIABILITIES AND STOCKHOLDERS'

EQUITY $15,945,119 $14,699,720

GEORESOURCES, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2006 2005 2006 2005

OPERATING REVENUES:

Oil and gas sales $1,942,072 $1,654,831 $5,538,966 $4,129,992

Leonardite sales 16,414 25,803 58,709 798,583

Drilling revenue 523,555 694,452 1,565,200 1,155,095

2,482,041 2,375,086 7,162,875 6,083,670

OPERATING COSTS AND EXPENSES:

Oil and gas

production 701,798 693,882 2,021,672 1,637,924

Leonardite operations 55,962 76,421 194,023 744,143

Drilling costs 508,708 527,384 1,329,306 1,064,320

Depreciation and

depletion 263,205 219,276 697,740 608,936

Selling, general and

administrative 193,896 148,397 568,574 496,644

1,723,569 1,665,360 4,811,315 4,551,967

Operating income 758,472 709,726 2,351,560 1,531,703

OTHER INCOME (EXPENSE):

Interest expense (3,991) (22,419) (25,571) (70,125)

Interest income 6,803 2,979 20,251 14,543

Gain on involuntary

conversion of

Leonardite facility -- -- -- 497,743

Professional fees

related to proposed

merger (169,289) -- (169,289) --

Other, net 5,515 (4,359) 15,922 (37,538)

(160,962) (23,799) (158,687) 404,623

Income before

income taxes 597,510 685,927 2,192,873 1,936,326

Income tax expense 74,095 110,000 287,645 239,000

Net income $523,415 $575,927 $1,905,228 $1,697,326

EARNINGS PER SHARE:

Basic $.14 $.15 $.50 $.45

Diluted $.14 $.15 $.50 $.44

GEORESOURCES, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended

September 30,

2006 2005

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $1,905,228 $1,697,326

Adjustments to reconcile net income

to net cash provided by operating

activities:

Depreciation and depletion 697,740 608,936

Accretion of asset retirement obligation 84,380 68,720

Deferred income taxes 106,000 88,000

Gain on involuntary conversion of

Leonardite facility -- (497,743)

Other 3,750 6,425

Changes in assets and liabilities:

Decrease (increase) in:

Trade receivables (287,534) 175,460

Inventories (193,681) (11,317)

Prepaid expenses and other (50,660) (31,731)

Increase (decrease) in:

Accounts payable (196,572) (357,898)

Accrued expenses (19,250) 6,739

Income taxes payable 55,441 151,000

Net cash provided by operating

activities 2,104,842 1,903,917

CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to property, plant and equipment (1,745,841) (855,797)

Proceeds from insurance claim -- 694,151

Proceeds from sale of property, plant and

equipment 2,785 26,946

Net cash used in investing activities (1,673,056) (134,700)

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on long-term capital

lease obligations (30,918) (50,815)

Proceeds from stock options exercised 30,690 96,363

Proceeds from long-term borrowings -- 10,006

Principal payments on long-term debt (701,579) (516,673)

Net cash used in financing activities (701,807) (461,119)

NET INCREASE IN CASH AND EQUIVALENTS (270,021) 1,308,098

CASH AND EQUIVALENTS, beginning of period 1,669,882 715,551

CASH AND EQUIVALENTS, end of period $1,399,861 $2,023,649

SUPPLEMENTAL DISCLOSURE OF

CASH FLOW INFORMATION:

Cash paid for:

Interest $25,271 $70,125

Income taxes 126,204 1,120