The revenue increase was due to increases in production volumes, primarily due to development activity, and increases in commodity prices. Arena’s total sales production for the quarter ended September 30, 2008 was 618,835 BOEs (Barrel of Oil Equivalents). This represents a 54% increase over the same three month period in 2007 and an 11% increase over the second quarter of 2008. For the three months ended September 30, 2008, oil sales volume increased to 528,044 barrels, compared to 344,399 barrels for the same period in 2007, a 53% increase, and gas sales volume increased to 544,746 MCF (thousand cubic feet), compared to 351,498 MCF for the same period in 2007, a 55% increase. For the nine months ended September 30, 2008, oil sales volume increased to 1,458,530 barrels, compared to 954,228 barrels for the same period in 2007, a 53% increase, and gas sales volume increased to 1,414,987 MCF, compared to 1,024,602 MCF for the same period in 2007, a 38% increase. The average commodity prices received by Arena were $115.41 per barrel of oil and $13.71 per MCF of natural gas for the quarter ended September 30, 2008, compared to $69.78 per barrel of oil and $7.68 per MCF of natural gas for the quarter ended September 30, 2007. The average prices received for the nine months ended September 30, 2008 were $109.42 per barrel of oil and $11.51 per MCF of natural gas, compared to $60.14 per barrel of oil and $7.43 per MCF of natural gas for the nine month period ended September 30, 2007.

Lease operating expenses for the three months ended September 30, 2008 were $9.36 per BOE, a 27% increase from the prior year primarily due to increased chemical and utility costs. Production taxes increased 53% to $5.86 per BOE due to higher commodity prices. Depreciation, depletion and amortization costs increased 110% to $15.81 per BOE. General and administrative costs, which included a $1,845,863 charge for stock based compensation, were $5.53 per BOE, a 51% increase.  Interest income was $0.88 per BOE, a 23% decrease.

For the nine months ended September 30, 2008, lease operating expenses were $7.66 per BOE, an 8% increase over the same period in 2007. Production taxes were $5.28 per BOE, a 60% increase. Depreciation, depletion and amortization costs were $13.81 per BOE, an 86% increase, and general and administrative costs, which included a $5,095,580 charge for stock based compensation, were $5.72 per BOE, a 43% increase. Net interest expense was $0.18 per BOE, a 67% decrease.

There was no outstanding debt on the Company’s $150 million bank credit facility at September 30, 2008. Commencing August 1, 2008, the Company put in place a “costless collar” on 518,000 barrels of oil with a $100.00 floor and $197.00 ceiling expiring December 31, 2009.

Net cash flow from operations for the three and nine months ended September 30, 2008 was $54,502,204, or $1.40 per fully diluted share, and $140,042,188, or $3.73 per fully diluted share, compared to net cash flow of $22,164,986, or $0.62, and $50,690,604, or $1.54 per fully diluted share for the same periods in 2007 (1). This represents increases of 146% and 176% respectively.

Mr. Phil Terry, Arena’s President and Chief Executive Officer, stated, “We drilled 69 new development wells and re-fraced ten more existing wells on our Fuhrman Mascho properties during the quarter. We had four drilling rigs operating at the Fuhrman Mascho during the third quarter and as a result experienced our sixteenth consecutive quarter of record production. Based on current economic conditions and lower commodity prices, we have decided to reduce our current 2008 capital expenditure budget from $248 million to $189 million. This will allow us, based on current commodity prices, to continue to grow our annual production and proven reserve base while operating within current cash flow. If we experience a meaningful reduction in well drill costs or an increase in commodity prices we can re-evaluate our development program. We will continue to prepare for the arrival of the new Yates gas pipeline, expected in the second quarter of 2009, and have budgeted the drilling of four new Yates gas wells in the fourth quarter of 2008. We continue to look at acquisition opportunities, concentrating on those that compliment our existing Permian Basin properties. We maintain a strong cash position and the full availability of our $150 million credit facility for acquisition opportunities.”

Non-GAAP Financial Measures:
Earnings for the three months and nine months ended September 30, 2008 include non-cash charges for stock based compensation of $1,845,863 and $5,095,580, respectively. Excluding such items, the Company’s earnings would have been $0.72 per diluted share for the three months ended September 30, 2008, and $1.95 for the nine months ended September 30, 2008.  The Company believes results excluding these items are more comparable to estimates provided by security analysts and, therefore, are useful in evaluating operational trends of the Company and its performance, compared to other similarly situated oil and gas producing companies.

1. Cash Flow from Operations is a non-GAAP financial measure that represents “Net Cash Provided By Operating Activities” adjusted for the change in operating assets and liabilities. See below for a reconciliation of the related amounts.