The revenue increase was due to increases in production volumes, development activity and increased oil and gas prices. For the three months ended September 30, 2006, oil sales volume increased to 256,366 barrels, compared to 123,600 barrels for the same period in 2005, a 107% increase, and gas sales volume increased to 276,881 MCF (thousand cubic feet), compared to 105,629 MCF for the same period in 2005, a 162% increase. For the nine months ended September 30, 2006, oil sales volume increased to 631,455 barrels, compared to 293,094 barrels for the same period in 2005, a 115% increase, and gas sales volume increased to 617,745 MCF, compared to 273,912 MCF for the same period in 2005, a 126% increase. The average commodity prices received by Arena were $63.91 per barrel of oil and $6.53 per MCF of natural gas for the quarter ended September 30, 2006, compared to $58.92 per barrel of oil and $6.20 per MCF of natural gas for the quarter ended September 30, 2005. The average prices received for the nine months ended September 30, 2006 were $61.91 per barrel of oil and $6.75 per MCF of natural gas, compared to $51.05 per barrel of oil and $5.55 per MCF of natural gas for the nine month period ended September 30, 2005.

Lease operating expenses for the three months ended September 30, 2006 were $8.34 per barrel of oil equivalent ("BOE"), a 22% decrease from the prior year. Depreciation, depletion and amortization costs increased 30% to $5.92 per BOE. General and administrative costs, which included a $263,619 charge for stock based compensation and New York Stock Exchange fee of $150,000, were $3.82 per BOE, a 89% increase. For the nine months ended September 30, 2006, lease operating expenses were $9.26 per BOE, a 13% decrease from the prior year. Depreciation, depletion and amortization costs were $5.79 per BOE, a 26% increase, and general and administrative costs, which included a $656,919 charge for stock based compensation and New York Stock Exchange fee of $150,000, were $3.58 per BOE, a 35% increase.

There was no outstanding debt on the Company’s $150 million bank credit facility at September 30, 2006.Net cash flow from operations for the three and nine months ended September 30, 2006 was $14,914,941, or $0.96 per fully diluted share, and $34,535,543, or $2.33 per fully diluted share, compared to net cash flow of $6,142,832 or $0.47 per fully diluted share, and $11,873,191, or $0.98 per fully diluted share for the same periods in 2005 (1).

Arena's Chief Executive Officer, Mr. Tim Rochford, stated, "The third quarter was another record for us in production, revenues, net income and cash flow. We drilled a total of 36 new wells in the quarter with a 100% success rate, including 27 wells on our Fuhrman-Mascho lease in Andrews County, Texas. We plan on drilling 43 new wells in the fourth quarter and re-fracing another 15. We are currently drilling our 107th well on 20-acre spacing on the Fuhrman-Mascho lease with a 100% success rate. We still anticipate our production exit rate doubling from 2,000 BOEs per day at the end of 2005 to 4,000 BOEs per day at the end of 2006. We continue to add acreage in Kansas and Texas and explore acquisition opportunities."

Non-GAAP Financial Measures:
Earnings for the three months ended September 30, 2006 include a non-cash charge for stock based compensation of $263,619. Earnings for the nine months ended September 30, 2006 include a non-cash charge for stock based compensation of $656,919 and a nonrecurring non-cash charge of $785,598 for warrants issued as part of a financing in July, 2005. Excluding such items, the Company’s earnings would have been $0.53 per diluted share for the three months ended September 30, 2006, and $1.25 for the nine months ended September 30, 2006. 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.