Edgar Filing: PRIMEENERGY CORP

form10qa.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

T	Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2008

£	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From to

Commission File Number 0-7406

PrimeEnergy Corporation

(Exact name of registrant as specified in its charter)

Delaware	84-0637348
(State or other jurisdiction of incorporation or organization)	(IRS employer identification number)

One Landmark Square, Stamford, Connecticut 06901

(Address of principal executive offices)

(203) 358-5700

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings required for the past 90 days. Yes T No £

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer” and “smaller reporting company” in Rule 12-B of the Exchange Act.

Large Accelerated Filer £	Accelerated Filer £
Non-Accelerated Filer £	Smaller Reporting Company T
(Do not check if smaller reporting company)

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T

The number of shares outstanding of each class of the Registrant’s Common Stock as of August 11, 2008 was: Common Stock, $0.10 par value, 3,050,141 shares.

PrimeEnergy Corporation

Index to Form 10-Q

June 30, 2008

Part I - Financial Information

Item 1. Financial Statements (restated)

	Consolidated Balance Sheets – June 30, 2008 and December 31, 2007	3-4

	Consolidated Statements of Operations for the six and three months ended June 30, 2008 and 2007	5-6

	Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2008 and for the year ended December 31, 2007	7

	Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007	8

	Notes to Consolidated Financial Statements	9-31

Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operation		32-34

Item 3. Quantitative and Qualitative Disclosures About Market Risk		28-29

Item 4T. Controls and Procedures		36

Part II - Other Information

Item 1. Legal Proceedings		37

Item 1A. Risk Factors		37

Item 2. Changes in Securities and Use of Proceeds		37

Item 3. Defaults Upon Senior Securities		37

Item 4T. Submission of Matters to a Vote of Security Holders		38

Item 5. Other Information		38

Item 6. Exhibits		39

Signatures		40

Index

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A (the “Form 10-Q/A”) amends the Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 filed by PrimeEnergy Corporation (the “Company”), originally filed with the Securities and Exchange Commission on August 15, 2008. The Form 10-Q/A includes amended and restated consolidated financial statements and related financial information for the year ended December 31, 2007 and the quarters ended June 30, 2008 and 2007. This information is disclosed in Note 2 to the consolidated financial statements.

The restatement provides detail of the change in accounting method from proportionate consolidation of partnerships that the Company controls to the full consolidation method and the change in the basis of a partnership in which the Company acquired a twenty percent non-controlling interest in 2005.

The following items are included in this amendment:

PART I -

ITEM 1. Financial Statements

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

All other information contained in the original Form 10-Q remains unchanged. However, the entire report with all Items is included in this Form 10-Q/A-1 for the convenience of the reader. This Amendment No.1 on Form 10-Q/A does not reflect events occurring after the filing of our Report on Form 10-Q on August 15, 2008 or include, or otherwise modify or update, the disclosure contained therein in any way except as expressly indicated above.

Index

PrimeEnergy Corporation

Consolidated Balance Sheets

June 30, 2008 and December 31, 2007

	June 30, 2008 (Unaudited and Restated)		December 31 2007 (Audited and Restated)
ASSETS
Current assets:
Cash and cash equivalents	$	23,338,000	$	25,373,000
Restricted cash and cash equivalents		5,312,000		3,633,000
Accounts receivable (net)		30,386,000		21,311,000
Due from related parties		223,000		32,000
Prepaid expenses		2,009,000		1,391,000
Derivative contracts		418,000		1,332,000
Inventory at cost		5,356,000		3,705,000
Deferred income tax		11,783,000		1,582,000
Total current assets		78,825,000		58,359,000

Property and equipment, at cost
Oil and gas properties (successful efforts method), net		226,194,000		237,852,000
Field service equipment and other, net		9,001,000		8,209,000
Net property and equipment		235,195,000		246,061,000

Other assets		936,000		1,245,000

Total assets	$	314,956,000	$	305,665,000

See accompanying notes to the consolidated financial statements.

Index

PrimeEnergy Corporation

Consolidated Balance Sheets

June 30, 2008 and December 31, 2007

	June 30, 2008 (Unaudited and Restated)			December 31, 2007 (Audited and Restated)
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Current bank debt	$	18,000,000		$	34,950,000
Accounts payable		37,225,000			26,780,000
Current portion of asset retirement and other long term obligation		2,171,000			1,065,000
Derivative liability short term		31,765,000			4,340,000
Accrued liabilities		11,394,000			10,032,000
Due to related parties		316,000			520,000
Total current liabilities		100,871,000			77,687,000

Long-term bank debt		101,050,000			120,050,000
Indebtedness to related parties		20,000,000			--
Asset retirement obligation		18,822,000			16,936,000
Derivative liability long term		23,847,000			3,369,000
Deferred income taxes		18,993,000			26,022,000
Total liabilities		283,583,000			244,064,000
Minority interest		11,705,000			12,929,000
Stockholders' equity:
Preferred stock, $.10 par value, authorized 5,000,000 shares, none issued		--			--
Common stock, $.10 par value, authorized 10,000,000 shares; issued 7,694,970 in 2008		769,000			769,000
Paid in capital		11,024,000			11,024,000
Retained earnings		79,635,000			72,885,000
Accumulated other comprehensive income(loss), net		(35,058,000	)		(3,618,000	)
		56,370,000			81,060,000
Treasury stock, at cost, 4,642,912 common shares at 2008 and 4,558,544 common shares at 2007		(36,702,000	)		(32,388,000	)
Total stockholders' equity		19,668,000			48,672,000
Total liabilities and stockholders, equity	$	314,956,000		$	305,665,000

See accompanying notes to the consolidated financial statements.

Index

PrimeEnergy Corporation

Consolidated Statements of Operations

Six Months Ended June 30, 2008 and 2007

Unaudited

	2008 Restated		2007 Restated
Revenue:
Oil and gas sales	$	74,648,000	$	52,234,000
Field service income		12,749,000		11,800,000
Administrative overhead fees		4,499,000		4,812,000
Other income		197,000		166,000
Total revenue		92,093,000		69,012,000
Costs and expenses:
Lease operating expense		21,160,000		17,013,000
Field service expense		9,583,000		9,050,000
Depreciation, depletion and amortization		35,629,000		20,611,000
General and administrative expense		7,290,000		7,050,000
Exploration costs		299,000		419,000
Total costs and expenses		73,961,000		54,143,000
Add gain/(loss) on sale and exchange of assets		78,000		611,000
Income from operations		18,210,000		15,480,000

Other income and expenses
Less: Interest expense		4,376,000		4,512,000
Add interest income		261,000		495,000
Less: Minority interest		3,894,000		1,914,000

Income before provision for income taxes		10,201,000		9,549,000
Provision for income taxes		3,451,000		3,438,000
Net income	$	6,750,000	$	6,111,000

Basic income per common share	$	2.20	$	1.91

Diluted income per common share	$	1.76	$	1.55

See accompanying notes to the consolidated financial statements.

Index

PrimeEnergy Corporation

Consolidated Statements of Operations

Three Months Ended June 30, 2008 and 2007

Unaudited

	2008 Restated			2007 Restated
Revenue:
Oil and gas sales	$	40,547,000		$	29,968,000
Field service income		6,494,000			5,904,000
Administrative overhead fees		2,300,000			2,482,000
Other income		(5,000	)		165,000
Total revenue		49,336,000			38,519,000
Costs and expenses:
Lease operating expense		11,454,000			9,474,000
Field service expense		4,804,000			4,499,000
Depreciation, depletion and amortization		18,709,000			12,917,000
General and administrative expense		4,065,000			3,852,000
Exploration costs		242,000			58,000
Total costs and expenses		39,274,000			30,800,000
Add gain/(loss) on sale and exchange of assets		93,000			348,000
Income from operations		10,155,000			8,067,000

Other income and expenses
Less: Interest expense		1,929,000			2,829,000
Add interest income		104,000			268,000
Less: Minority interest		2,248,000			1,139,000

Income before provision for income taxes		6,082,000			4,367,000
Provision for income taxes		2,063,000			1,573,000
Net income	$	4,019,000		$	2,794,000

Basic income per common share	$	1.31		$	0.88

Diluted income per common share	$	1.05		$	0.71

See accompanying notes to the consolidated financial statements.

Index

PrimeEnergy Corporation

Consolidated Statement of Stockholders’ Equity

Six Months Ended June 30, 2008 (Restated)

(Unaudited)

	Common Stock
	Shares		Amount		Paid In Capital		Retained Earnings		Accumulated Other Comprehensive Income/Loss			Treasury Stock			Total
Balance at December 31, 2007		7,694,970	$	769,000	$	11,024,000	$	72,885,000	$	(3,618,000	)	$	(32,388,000	)	$	48,672,000
Purchased 84,368 shares of common Stock													(4,314,000	)		(4,314,000	)
Net income								6,750,000								6,750,000
Other comprehensive Income, net of taxes										(31,440,000	)					(31,440,000	)
Balance at June 30, 2008		7,694,970	$	769,000	$	11,024,000	$	79,635,000	$	(35,058,000	)	$	(36,702,000	)	$	19,668,000

See accompanying notes to the consolidated financial statements.

Index

PrimeEnergy Corporation

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2008 and 2007

(Unaudited)

	2008 Restated			2007 Restated
Cash flows from operating activities:
Net income	$	6,750,000		$	6,111,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion on discounted liabilities		35,629,000			20,611,000
Dry hole and abandonment expense		--			318,000
Gain on sale of properties		(78,000	)		(611,000	)
Provision for deferred taxes		1,340,000			2,767,000
Minority interest in earnings of partnerships		3,894,000			1,914,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable		(7,112,000	)		7,711,000
(Increase) decrease in due from related parties		738,000			743,000
(Increase) decrease in inventories		459,000			2,496,000
(Increase) decrease in prepaid expenses and other assets		(1,581,000	)		(456,000	)
Increase (decrease) in accounts payable		12,860,000			(3,069,000	)
Increase (decrease) in accrued liabilities		1,404,000			(170,000	)
Increase (decrease) in due to related parties		(384,000	)		(1,000	)
Net cash provided by operating activities
Net cash provided by operating activities:		53,919,000			38,364,000

Cash flows from investing activities:
Capital expenditures, including exploration expense		(33,126,000	)		(70,211,000	)
Proceeds from sale of property and equipment		78,000			611,000
Net cash (used in) investing activities		(33,048,000	)		(69,600,000	)

Cash flows from financing activities:
Purchase of treasury stock		(4,314,000	)		(2,382,000	)
Proceeds from long-term bank debt		72,175,000			65,285,000
Repayment of long-term bank debt		(87,959,000	)		(41,609,000	)
Distribution to minority interest		(2,808,000	)		(1,990,000	)
Net cash provided by (used in) financing activities		(22,906,000	)		19,304,000
Net increase (decrease) in cash and cash equivalents		(2,035,000	)		(11,932,000	)

Cash and cash equivalents at the beginning of the period		25,373,000			29,056,000
Cash and cash equivalents at the end of the period	$	23,338,000		$	17,124,000

See accompanying notes to the consolidated financial statements.

Index

PrimeEnergy Corporation

Notes to Consolidated Financial Statements

June 30, 2008

(1) Interim Financial Statements:

The accompanying consolidated financial statements of PrimeEnergy Corporation, with the exception of the consolidated balance sheet at December 31, 2007, have not been audited by independent public accountants. In the opinion of management, the accompanying financial statements reflect all adjustments necessary to present fairly our financial position at June 30, 2008 and our income and cash flows for the six months ended June 30, 2008 and 2007. All such adjustments are of a normal recurring nature. Certain amounts presented in prior period financial statements have been reclassified for consistency with current period presentation. The results for interim periods are not necessarily indicative of annual results.

Effective January 1, 2008, the Company adopted those provisions of Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” that were required to be adopted. There was no financial statement impact upon adoption on January 1, 2008. For further information regarding the adoption of SFAS No. 157, please refer to Note 11 of the Notes to the Consolidated Financial Statements.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115,” became effective on January 1, 2008 and permits companies to choose, at specified dates, to measure certain eligible financial instruments at fair value. The provisions of SFAS No. 159 apply only to entities that elect to use the fair value option and to all entities with available-for-sale and trading securities. At the effective date, companies may elect the fair value option for eligible items that exist at that date, and the effect of the first remeasurement to fair value must be reported as a cumulative-effect adjustment to the opening balance of retained earnings. Since the Company has not elected to adopt the fair value option for eligible items, SFAS No. 159 has not had an impact on its financial position or results of operations.

Recently Issued Accounting Standards:

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” which identifies a consistent framework for selecting accounting principles to be used in preparing financial statements for nongovernmental entities that are presented in conformity with United States generally accepted accounting principles (GAAP). The current GAAP hierarchy was criticized due to its complexity, ranking position of FASB Statements of Financial Accounting Concepts and the fact that it is directed at auditors rather than entities. The statement specifies that the reporting entity, not the auditors, is responsible for its compliance with GAAP. SFAS No. 162 will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not believe that SFAS No. 162 will have an impact on its financial position, result of operations or cash flows. The Company will adopt SFAS 162 when it becomes effective.

In March 2008, the FASB issued SFAS No. 161, “Disclosure about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 with the intent to provide users of financial statements with an enhanced understanding of: (i) how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We are in the process of evaluating the impact of SFAS No. 161 on our consolidated financial statements.

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of Accounting Research Bulletin (ARB) No. 51.” SFAS No. 160 clarifies that a noncontrolling interest (previously commonly referred to as a minority interest) in a subsidiary is an ownership interest in the consolidated entity and should be reported as equity in the consolidated financial statements. The presentation of the consolidated income statement has been changed by SFAS No. 160, and consolidated net income attributable to both the parent and the noncontrolling interest is now required to be reported separately. Previously, net income attributable to the noncontrolling interest was typically reported as an expense or other deduction in arriving at consolidated net income and was often combined with other financial statement amounts. In addition, the ownership interests in subsidiaries held by parties other than the parent must be clearly identified, labeled, and presented in the equity in the consolidated financial statements separately from the parent’s equity. Subsequent changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary should be accounted for consistently, and when a subsidiary is deconsolidated, any retained noncontrolling equity interest in the former subsidiary must be initially measured at fair value. Expanded disclosures, including a reconciliation of equity balances of the parent and noncontrolling interest are also required. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 and earlier adoption is prohibited. Prospective application is required. We are in the process of evaluating the impact of SFAS No. 160 on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS No. 141(R) was issued in an effort to continue the movement toward the greater use of fair values in financial reporting and increased transparency through expanded disclosures. It changes how business acquisitions are accounted for and will impact financial statements at the acquisition date and in subsequent periods. Certain of these changes will introduce more volatility into earnings. The acquirer must now record all assets and liabilities of the acquired business at fair value, and related transaction and restructuring costs will be expensed rather than the previous method of being capitalized as part of the acquisition. SFAS No. 141(R) also impacts the annual goodwill impairment test associated with acquisitions, including those that close before the effective date of SFAS No. 141(R). The definitions of a “business” and a “business combination” have been expanded, resulting in more transactions qualifying as business combinations. SFAS No. 141(R) is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 31, 2008 and earlier adoption is prohibited. We cannot predict the impact that the adoption of SFAS No. 141(R) will have on our financial position, results of operations or cash flows with respect to any acquisitions completed after December 31, 2008.

(2) Financial Restatement:

The restatements reflect the change in accounting method from proportionate consolidation of partnerships that the Company controls to the full consolidation method. The Company had historically accounted for its interests in twenty limited partnerships and trusts, which own interests in oil and gas properties using the proportionate consolidation under the guidance of EITF 00-1 as related to the extractive industries. Under the guidance of EITF 04-05 the interests in limited partnerships and trusts that we control should have been fully consolidated when EITF 04-05 became effective.

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

The restatements also reflect the correction of gain recognition in 2005 related to the sale of assets to a partnership in which the company acquired a twenty percent non-controlling interest. The Company recorded 100% of the gain however under the guidance of EITF 01-2 the Company, since it acquired a 20% interest in the partnership, should have recorded 80% of the gain. This correction in 2005 resulted in a reduction of the Company’s basis related to the partnership interest and a decrease in the current year depreciation and depletion of that asset.

The effects of the restatement on reported amounts for the period ended June 30, 2008, December 31, 2007 and June 30, 2007 are presented below in the following tables:

RESTATED CONSOLIDATED BALANCE SHEETS

	As Reported June 2008		Cumulative Effective of Prior Year Adjustments			Current Year Adjustments			Notes		As Restated June 2008

ASSETS:

Current assets:
Cash and cash equivalents	$	20,775,000	$	4,060,000		$	(1,497,000	)		b	$	23,338,000
Restricted cash and cash equivalents		5,312,000		--			--					5,312,000
Accounts receivable, net		29,080,000		963,000			343,000			b		30,386,000
Due from related parties		281,000		(180,000	)		122,000			b		223,000
Prepaid expenses		2,009,000		--			--					2,009,000
Derivative contracts		418,000		--			--					418,000
Inventory at cost		5,360,000		(6,000	)		2,000			b		5,356,000
Deferred income tax		11,783,000		--			--					11,783,000
Total current assets		75,018,000		4,837,000			(1,130,000	)				78,825,000

Property and equipment, at cost:
Oil and gas properties (successful efforts method), net		221,299,000		4,681,000			214,000			a,b		226,194,000
Field service equipment		9,001,000		--			--					9,001,000
Total net property and equipment		230,300,000		4,681,000			214,000					235,195,000

Other assets		871,000		65,000			--			b		936,000

Total assets	$	306,189,000	$	9,583,000		$	(816,000	)			$	314,956,000

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

RESTATED CONSOLIDATED BALANCE SHEETS

	As Reported June 2008			Cumulative Effective of Prior Year Adjustment			Current Year Adjustment			Notes		June 2008 Restated
LIABILITIES and STOCKHOLDERS’ EQUITY:

Current liabilities:
Current bank debt	$	18,000,000		$	--		$	--				$	18,000,000
Accounts payable		37,352,000			54,000			(181,000	)		b		37,225,000
Current portion of asset retirement and other long-term obligations		2,171,000			--			--					2,171,000
Derivative liability short term		31,765,000			--			--					31,765,000
Accrued liabilities		11,238,000			79,000			77,000			b		11,394,000
Due to related parties		1,179,000			(1,043,000	)		180,000			b		316,000
Total current liabilities		101,705,000			(910,000	)		76,000					100,871,000

Long-term bank debt		101,050,000			--			--					101,050,000
Indebtedness to related parties		20,000,000						--					20,000,000
Asset retirement obligations		17,406,000			1,398,000			18,000			b		18,822,000
Derivative liability long term		23,847,000			--			--					23,847,000
Deferred income taxes		19,788,000			(908,000	)		113,000			a,b		18,993,000
Total liabilities		283,796,000			(420,000	)		207,000					283,583,000

Minority interest		1,313,000			11,616,000			(1,224,000	)		b		11,705,000

Stockholders’ equity:
Preferred stock, $.10 par value, authorized 5,000,000 shares; none issued
Common stock, $.10 par value, authorized 10,000,000 shares; issued 7,694,970 in 2008 and 2007		769,000			--			--					769,000
Paid in capital		11,024,000			--			--					11,024,000
Retained earnings		81,047,000			(1,613,000	)		201,000			a		79,635,000
Accumulated other comprehensive income (loss), net		(35,058,000	)		--			--					(35,058,000	)
		57,782,000			(1,613,000	)		201,000					56,370,000
Treasury stock, at cost 4,642,912 common shares in 2008 and 4,558,544 in 2008		(36,702,000	)		--			--					(36,702,000	)

Total stockholders’ equity		21,080,000			(1,613,000	)		201,000					19,668,000

Total liabilities and stockholders’ equity	$	306,189,000		$	9,583,000		$	(816,000	)			$	314,956,000

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

RESTATED CONSOLIDATED STATEMENT of STOCKHOLDERS’ EQUITY

As Reported:

	Common Stock
	Shares		Amount		Paid In Capital	Retained Earnings		Accumulated Other Comprehensive Income/Loss			Treasury Stock			Total
Balance at December 31, 2007		7,694,970	$	769,000	11,024,000	74,498,000		(3,618,000		)	(32,388,000		)	50,285,000
Purchased 84,368 shares of common Stock												(4,314,000	)		(4,314,000	)
Net income							6,549,000								6,549,000
Other comprehensive Income, net of taxes									(31,440,000	)					(31,440,000	)
Balance at June 30, 2008		7,694,970	$	769,000	$ 11,024,000	$	81,047,000	$	(35,058,000	)	$	(36,702,000	)	$	21,080,000

As Restated:

	Common Stock
	Shares		Amount		Paid In Capital	Retained Earnings		Accumulated Other Comprehensive Income/Loss			Treasury Stock			Total
Balance at December 31, 2007		7,694,970	$	769,000	11,024,000	72,885,000		(3,618,000		)	(32,388,000		)	(48,672,000		)
Purchased 84,368 shares of common Stock												(4,314,000	)		(4,314,000	)
Net income							6,750,000								6,549,000
Other comprehensive Income, net of taxes									(31,440,000	)					(31,440,000	)
Balance at June 30, 2008		7,694,970	$	769,000	$ 11,024,000	$	79.635,000	$	(35,058,000	)	$	(36,702,000	)	$	19,668,000

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

CONSOLIDATED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2008

	As Reported June 2008		Current year adjustments			Notes		As Restated June 2008

Revenue:
Oil and gas sales	$	67,889,000	$	6,759,000			b	$	74,648,000
Field service income		12,718,000		31,000			b		12,749,000
Administrative overhead fees		4,499,000		--					4,499,000
Other income		197,000		--					197,000
		85,303,000		6,790,000					92,093,000
Costs and expenses:
Lease operating expense		18,722,000		2,438,000			b		21,160,000
Field service expense		9,574,000		9,000			b		9,583,000
Depreciation, depletion and amortization		35,690,000		(61,000	)		a,b		35,629,000
General and administrative expense		7,033,000		257,000			b		7,290,000
Exploration costs		299,000		--					299,000
		71,318,000		2,643,000					73,961,000

Add gain on sale and exchange of assets		78,000		--					78,000
Income from operations		14,063,000		4,147,000					18,210,000

Other income and expense:
Less interest expense		4,376,000		--					4,376,000
Add interest income		200,000		61,000			b		261,000
Less minority interest		--		3,894,000			b		3,894,000

Income before provision for income taxes		9,887,000		314,000					10,201,000
Provision for income taxes		3,338,000		113,000			a		3,451,000

Net income	$	6,549,000	$	201,000				$	6,750,000

Basic net income per common share	$	2.13	$	0.07				$	2.20
Diluted net income per common share	$	1.71	$	0.05				$	1.76

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

CONSOLIDATED STATEMENTS of CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2008

	As Reported June 2008			CurrentYear Adjustments			Notes		As Restated June 2008

Cash flows from operating activities:
Net income	$	6,549,000		$	201,000			a	$	6,750,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion on discounted liabilities		35,690,000			(61,000	)		a,b		35,629,000
Gain on sale of properties		(78,000	)		--					(78,000	)
Provision for deferred income taxes		1,227,000			113,000			a		1,340,000
Minority interest in earnings of partnerships		--			3,894,000			b		3,894,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable		(8,732,000	)		1,620,000			b		(7,112,000	)
(Increase) decrease in due from related parties		(68,000	)		806,000			b		738,000
(Increase) decrease in inventories		463,000			(4,000	)		b		459,000
(Increase) decrease in prepaid expenses and other assets		(1,646,000	)		65,000			b		(1,581,000	)
Increase (decrease) in accounts payable		13,047,000			(187,000	)		b		12,860,000
Increase (decrease) in accrued liabilities		1,560,000			(156,000	)		b		1,404,000
Increase (decrease) in due to related parties		(384,000	)		--					(384,000	)
Net cash provided by operating activities		47,628,000			6,291,000					53,919,000

Cash flows from investing activities
Capital expenditures, including exploration expense		(28,146,000	)		(4,980,000	)		b		(33,126,000	)
Proceeds from sale of properties and equipment		78,000			--					78,000
Net cash used in investing activities		(28,068,000	)		(4,980,000	)				(33,048,000	)

Cash flows from financing activities
Purchase of stock for treasury		(4,314,000	)		--					(4,314,000	)
Increase in long-term bank debt and other long-term obligations		72,175,000			--					72,175,000
Repayment of long-term bank debt and other long-term obligations		(87,959,000	)		--					(87,959,000	)
Distribution to minority interest		--			(2,808,000	)		b		(2,808,000	)
Net cash provided by (used in) financing activities		(20,098,000	)		(2,808,000	)				(22,906,000	)

Net increase(decrease) in cash and cash equivalents		(538,000	)		(1,497,000	)				(2,035,000	)
Cash and cash equivalents at the beginning of the period		21,313,000			4,060,000			b		25,373,000
Cash and cash equivalents at the end of the period	$	20,775,000		$	2,563,000				$	23,338,000

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

RESTATED CONSOLIDATED BALANCE SHEETS

	As Reported December 2007		Cumulative effect of Adjustments			Current Year Adjustments			Notes		As Restated December 2007

ASSETS:

Current assets:
Cash and cash equivalents	$	21,313,000	$	4,403,000		$	(343,000	)		b	$	25,373,000
Restricted cash and cash equivalents		3,633,000		--			--					3,633,000
Accounts receivable, net		20,348,000		694,000			269,000			b		21,311,000
Due from related parties		212,000		(226,000	)		46,000			b		32,000
Prepaid expenses		1,391,000		--			--					1,391,000
Derivative contracts		1,332,000		--			--					1,332,000
Inventory at cost		3,711,000		(3,000	)		(3,000	)		b		3,705,000
Deferred income tax		1,582,000		--			--					1,582,000
Total current assets		53,522,000		4,868,000			(31,000	)				58,359,000

Property and equipment, at cost:
Oil and gas properties (successful efforts method), net		233,171,000		3,581,000			1,100,000			a,b		237,852,000
Field service equipment and other, net		8,209,000		--			--					8,209,000
Net property and equipment		241,380,000		3,581,000			1,100,000					246,061,000


Other assets		1,180,000		67,000			(2,000	)		b		1,245,000

Total assets	$	296,082,000	$	8,516,000		$	1,067,000				$	305,665,000

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

RESTATED CONSOLIDATED BALANCE SHEETS

	As Reported 2007			Cumulative Effective of Prior Year Adjustment			Current Year Adjustment			Notes		As Restated 2007
LIABILITIES and STOCKHOLDERS’ EQUITY:

Current liabilities:
Current bank debt	$	34,950,000		$	--		$	--				$	34,950,000
Accounts payable		26,726,000			(31,000	)		85,000			b		26,780,000
Current portion of asset retirement and other long-term obligations		1,065,000			31,000			(31,000	)		b		1,065,000
Derivative liability short term		4,340,000			--			--					4,340,000
Accrued liabilities		9,953,000			68,000			11,000			b		10,032,000
Due to related parties		1,563,000			(312,000	)		(731,000	)		b		520,000
Total current liabilities		78,597,000			(244,000	)		(666,000	)				77,687,000

Long-term bank debt		120,050,000			--			--					120,050,000
Asset retirement obligations		15,538,000			576,000			822,000			b		16,936,000
Derivative liability long term		3,369,000			--			--					3,369,000
Deferred income taxes		26,930,000			(1,093,000	)		185,000			a,b		26,022,000
Total liabilities		244,484,000			(761,000	)		341,000					244,064,000

Minority interest		1,313,000			11,220,000			396,000			b		12,929,000

Stockholders’ equity:
Preferred stock, $.10 par value, authorized 5,000,000 shares; none issued
Common stock, $.10 par value, authorized 10,000,000 shares; issued 7,694,970 in 2007 and 2006		769,000			--			--					769,000
Paid in capital		11,024,000			--			--					11,024,000
Retained earnings		74,498,000			(1,943,000	)		330,000			a		72,885,000
Accumulated other comprehensive income (loss), net		(3,618,000	)		--			--					(3,618,000	)
		82,673,000			(1,943,000	)		330,000					81,060,000
Treasury stock, at cost 4,558,544 common shares in 2007 and 4,478,145 in 2006		(32,388,000	)		--			--					(32,388,000	)
Total stockholders’ equity		50,285,000			(1,943,000	)		330,000					48,672,000

Total liabilities and stockholders’ equity	$	296,082,000		$	8,516,000		$	1,067,000				$	305,665,000

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

CONSOLIDATED STATEMENTS OF OPERATIONS

F0R THE SIX MONTHS ENDED JUNE 30, 2007

	As Reported June 2007		Current year adjustments		Notes		As Restated June 2007

Revenue:
Oil and gas sales	$	47,672,000	$	4,562,000		b	$	52,234,000
Field service income		11,782,000		18,000		b		11,800,000
Administrative overhead fees		4,812,000		--				4,812,000
Other income		166,000		--				166,000
		64,432,000		4,580,000				69,012,000
Costs and expenses:
Lease operating expense		14,797,000		2,216,000		b		17,013,000
Field service expense		9,050,000		--				9,050,000
Depreciation, depletion and amortization		20,600,000		11,000		a,b		20,611,000
General and administrative expense		6,790,000		260,000		b		7,050,000
Exploration costs		419,000		--				419,000
		51,656,000		2,487,000				54,143,000

Add gain on sale and exchange of assets		611,000		--				611,000
Income from operations		13,387,000		2,093,000				15,480,000

Other income and expense:
Less: Interest expense		4,512,000		--				4,512,000
Add interest income		417,000		78,000		b		495,000
Less: Minority interest		--		1,914,000		b		1,914,000

Income before provision for income taxes		9,292,000		257,000				9,549,000
Provision for income taxes		3,345,000		93,000		a		3,438,000

Net income	$	5,947,000	$	164,000			$	6,111,000

Basic net income per common share	$	1.86	$	0.05			$	1.91
Diluted net income per common share	$	1.50	$	0.05			$	1.55

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

CONSOLIDATED STATEMENTS of CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2007

	As Reported June 2007			CurrentYear Adjustments			Notes		As Restated June 2007
Cash flows from operating activities:
Net income	$	5,947,000		$	164,000			a	$	6,111,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion on discounted liabilities		20,600,000			11,000			a,b		20,611,000
Dry hole and abandonment costs		318,000			--					318,000
Gain on sale of properties		(611,000	)		--					(611,000	)
Provision for deferred income taxes		2,674,000			93,000			a		2,767,000
Minority interest in earnings of partnerships		--			1,914,000			b		1,914,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable		6,800,000			911,000			b		7,711,000
(Increase) decrease in due from related parties		389,000			354,000			b		743,000
(Increase) decrease in inventories		2,506,000			(10,000	)		b		2,496,000
(Increase) decrease in prepaid expenses and other assets		(522,000	)		66,000			b		(456,000	)
Increase (decrease) in accounts payable		(2,963,000	)		(106,000	)		b		(3,069,000	)
Increase (decrease) in accrued liabilities		(28,000	)		(142,000	)		b		(170,000	)
Increase (decrease) in due to related parties		(18,000	)		17,000			b		(1,000	)
Net cash provided by operating activities		35,092,000			3,272,000					38,364,000

Cash flows from investing activities
Capital expenditures, including exploration expense		(68,399,000	)		(1,812,000	)		b		(70,211,000	)
Proceeds from sale of properties and equipment		611,000			--					611,000
Net cash used in investing activities		(67,788,000	)		(1,812,000	)				(69,600,000	)

Cash flows from financing activities
Purchase of stock for treasury		(2,382,000	)		--					(2,382,000	)
Increase in long-term bank debt and other long-term obligations		65,285,000			--					65,285,000
Repayment of long-term bank debt and other long-term obligations		(41,609,000	)		--					(41,609,000	)
Distribution to minority interest		--			(1,990,000	)		b		(1,990,000	)
Net cash provided by (used in) financing activities		21,294,000			(1,990,000	)				19,304,000

Net increase(decrease) in cash and cash equivalents		(11,402,000	)		(530,000	)				(11,932,000	)
Cash and cash equivalents at the beginning of the period		24,653,000			4,403,000			b		29,056,000
Cash and cash equivalents at the end of the period	$	13,251,000		$	3,873,000				$	17,124,000

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

Explanatory Notes to Restated Consolidated Statements of Operations, Balance Sheets and Statements of Cash Flows

The correction of the recorded gain on sale of assets to a partnership in which the Company acquired a twenty percent non-controlling interest in the year ended December 31, 2005 resulted in a decrease of $3.7 million in the basis of the acquired interest in 2005. This change in the basis of oil and gas properties resulted in a reduction of depletion and depreciation expense of $314,180 and $257,472 for the three months ended June 2008 and June 2007 respectively, and corresponding reductions in accumulated depletion and depreciation. The change in depletion and depreciation expense resulted in the noted change in deferred taxes.

b)	The restatement of these items, net of amounts described in note a, results from the change from the proportionate consolidation method to the full consolidation method of accounting for our controlling interests in unincorporatedentities.

(3) Significant Acquisitions, Dispositions and Property Activity

The Company makes an annual offer to repurchase the interests of the partners and trust unit holders in certain of the Partnerships. The Company purchased such interests in an amount totaling $153,000 is for the six months ending June 30, 2008 and $371,000 for the year ending December 31, 2007.

(4) Restricted Cash and Cash Equivalents:

Restricted cash and cash equivalents include $5,312,000 and $3,633,000 at June 30, 2008 and December 31, 2007, respectively, of cash primarily pertaining to undistributed revenue payments. There were corresponding accounts payable recorded at June 30, 2008 and December 31, 2007 for these liabilities.

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

(5) Additional Balance Sheet Information

Certain balance sheet amounts are comprised of the following:

	June 30, 2008 Restated			December 31, 2007 Restated
Accounts Receivable:
Joint interest billing	$	6,795,000		$	3,192,000
Trade receivables		2,565,000			2,352,000
Oil and gas sales		21,065,000			14,785,000
Income tax receivable		--			795,000
Other		243,000			415,000
	$	30,668,000		$	21,539,000
Less, allowance for doubtful accounts		(282,000	)		(228,000	)
	$	30,386,000		$	21,311,000
Accounts Payable:
Trade	$	17,081,000		$	12,364,000
Royalty and other owners		15,824,000			11,209,000
Other		4,320,000			3,207,000
Total	$	37,225,000		$	26,780,000
Accrued Liabilities:
Compensation and related expenses	$	3,135,000		$	1,687,000
Property cost		2,974,000			4,551,000
Income tax		2,147,000			--
Other		3,138,000			3,794,000
Total	$	11,394,000		$	10,032,000

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

(6) Property and Equipment: (restated)

Property and equipment at June 30, 2008 and December 31, 2007 consisted of the following:

	June 30, 2008			December 31, 2007
Proved oil and gas properties, at cost	$	390,725,000		$	378,908,000
Unproved oil and gas properties, at cost		13,461,000			4,458,000
Less, accumulated depletion and depreciation		(177,992,000	)		(145,514,00	)

	$	226,194,000		$	237,852,000
Field service equipment and other		19,546,000			18,029,000
Less, accumulated depreciation		(10,545,000	)		(9,820,000	)
	$	9,001,000		$	8,209,000

Total net property and equipment	$	235,195,000		$	246,061,000

Total interest incurred during the year ended December 31, 2007 was $12,984,000. Of this amount, the Company capitalized $1,922,000. Capitalized interest is included as part of the cost of oil and gas properties. The capitalized rates are based upon the Company’s weighted-average cost of borrowings used to finance expenditures. There was no interest capitalized during the first half of 2008.

(7) Long-Term Debt:

Bank Debt:

The Company currently has credit facilities totaling $360 million, consisting of a $200 million credit facility through Guaranty Bank (the offshore facility) and a $160 million credit facility through a syndicate of banks led by Guaranty Bank (the onshore facility). The offshore facility’s maturity date is 2009 and onshore credit facility matures in 2011.

Availability under the credit facilities is based on the loan value assigned to Prime’s oil and gas properties. The determination of the Borrowing Base is made by the lenders taking into consideration the estimated value of Prime’s oil and gas properties in accordance with the lenders’ customary practices for oil and gas loans. This process involves reviewing Prime’s estimated proved reserves and their valuation. The Borrowing Base is re-determined semi-annually, and the available borrowing amount could be increased or decreased as a result of such redeterminations. In addition, Prime and the lenders each have discretion at any time to have the Borrowing Base re-determined. A revision to Prime’s reserves may prompt such a request on the part of the lenders, which could possibly result in a reduction in the Borrowing Base and availability under the credit facilities. If outstanding borrowings under either of the credit facilities exceed the applicable portion of the Borrowing Base, Prime would be required to repay the excess amount within a prescribed period. If we are unable to pay the excess amount, it would cause an event of default.

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

The credit facilities include terms and covenants that require the Company to maintain, as defined, a minimum current ratio, tangible net worth, debt coverage ratio and interest coverage ratio, and restrictions are placed on the payment of dividends and the amount of treasury stock the Company may purchase. The credit facilities are collateralized by substantially all of the Company’s assets. The Company is required to mortgage, and grant a security interest in, consolidated proved oil and gas properties. Prime also pledged the stock of several subsidiaries to the lenders to secure the credit facilities.

During the second quarter 2008, the Company entered into an amended and restated credit agreement related to the offshore credit facility allowing for a subordinated credit facility with a private lender and the release of certain collateral which was then pledged to the new lender under a separate credit agreement.

At June 30, 2008, the borrowing bases and outstanding balances of the Company’s bank debt were $96 million and $89.6 million, respectively, under the onshore credit facility at a weighted average interest rate of 5.92%, and $29.4 million under the offshore credit facility at a weighted average interest rate of 5.28%. Total outstanding bank debt was $119 million at June 30,2008. The combined average interest rates paid on outstanding bank borrowings subject to interest at the bank’s base rate and on outstanding bank borrowings bearing interest based upon the LIBO rate were 6.03% during the first six months of 2008 as compared to 8.89% during the same period of 2007.

The Company entered into interest rate hedge agreements to help manage interest rate exposure. These contracts include interest rate swaps. Interest rate swap transactions generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. The Company entered into interest swap agreements for a period of two years, beginning in April 2008, related to $60 million of Company bank debt resulting in a fixed rate of 4.375%. The underlying debt contracts above are repriced quarterly based upon the three-month LIBOR rates.

Indebtedness to related parties – noncurrent:

During the second quarter 2008, the Company’s offshore subsidiary entered into a subordinated credit facility with a private lender with an availability of $50 million. The private lender has specific collateral pledged under a separate credit agreement. The private lender is a member of the Company’s Board of Directors.

The current advances of this credit facility are $20 million. The facility matures in January 2010. The new loan bears interest at the rate of 10% per annum.

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

(8) Other Long-Term Obligations and Commitments:

Operating Leases:

The Company has several non-cancelable operating leases, primarily for rental of office space, that have a term of more than one year.

	Operating Leases
2008	$	297,000
2009		350,000
2010		71,000
2011		5,000
Thereafter		—

Total minimum payments	$	723,000

Asset Retirement Obligation: (restated)

A reconciliation of our liability for plugging and abandonment costs for the Six Months Ended June 30, 2008 and the year ended December 31, 2007 is as follows:

	June 30, 2008			December 31, 2007
Asset retirement obligation – beginning of period	$	17,361,000		$	7,047,000
Liabilities incurred		268,000			468,000
Liabilities settled		(134,000	)		(367,000	)
Accretion expense		567,000			461,000
Revisions in estimated liabilities		1,211,000			9,752,000
Asset retirement obligation – end of period	$	19,273,000		$	17,361,000

The Company’s liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive life of wells and our risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligation. Revisions to the asset retirement obligation are recorded with an offsetting change to producing properties, resulting in prospective changes to depreciation, depletion and amortization expense and accretion of discount. Because of the subjectivity of assumptions and the relatively long life of most of our wells, the costs to ultimately retire our wells may vary significantly from previous estimates.

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

(9) Contingent Liabilities:

The Company, as managing general partner of the affiliated Partnerships, is responsible for all Partnership activities, including the drilling of development wells and the production and sale of oil and gas from productive wells. The Company also provides the administration, accounting and tax preparation work for the Partnerships, and is liable for all debts and liabilities of the affiliated Partnerships, to the extent that the assets of a given limited Partnership are not sufficient to satisfy its obligations. As of June 30, 2008, the affiliated Partnerships have established cash reserves in excess of their debts and liabilities and the Company believes these reserves will be sufficient to satisfy Partnership obligations.

The Company is subject to environmental laws and regulations. Management believes that future expenses, before recoveries from third parties, if any, will not have a material effect on the Company’s financial condition. This opinion is based on expenses incurred to date for remediation and compliance with laws and regulations which have not been material to the Company’s results of operations.

(10) Stock Options and Other Compensation:

In May 1989, non-statutory stock options were granted by the Company to four key executive officers for the purchase of shares of common stock. At June 30, 2008 and 2007, options on 767,500 were outstanding and exercisable at prices ranging from $1.00 to $1.25.

(11) Related Party Transactions:

The Company, as managing general partner or managing trustee, makes an annual offer to repurchase the interest of the partners and trust unit holders in certain of the Partnerships or Trusts. The Company purchased such interests in an amount totaling $153,000 in the second quarter 2008 and $371,000 during 2007.

Treasury stock purchases in 2008 and 2007 included shares acquired from related parties. Purchases from related parties included 70,000 shares purchased for a total consideration of $3,500,000 during the first half of 2008 and a total of 31,700 shares purchased for a total consideration of $1,743,500 in 2007.

Receivables from related parties consist of reimbursable general and administrative costs, lease operating expenses and reimbursement for property development and related costs. These receivables are due from joint venture partners, which may include members of the Company’s Board of Directors.

Payables owed to related parties primarily represents receipts collected by the Company as agent, for the joint venture partners, which may include members of the Company’s Board of Directors, for oil and gas sales net of expenses. As of June 30, 2008, included in due to related parties is the amount of accrued interest in the amount of $164,000 owed to the related party, a member of the Company’s Board of Directors whom the Company’s offshore subsidiary entered into a credit agreement. The agreement provides for a loan of $20 million at a rate of 10% per annum and is secured by certain oil and gas properties and the Company’s interest in a limited partnership which owns a shopping center in Alabama.

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

(12) Financial Instruments

Adoption of SFAS No. 157

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a formal framework for measuring fair values of assets and liabilities in financial statements that are already required by United States generally accepted accounting principles to be measured at fair value. SFAS No. 157 clarifies guidance in FASB Concepts Statement (CON) No. 7 which discusses present value techniques in measuring fair value. Additional disclosures are also required for transactions measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which granted a one year deferral (to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years) for certain non-financial assets and liabilities to comply with SFAS No. 157. The Company will adopt the provisions of FAS No. 157 covered under FSP No. 157-2 on January 1, 2009. Additionally, in February 2008, the FASB issued FSP No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,” which amends SFAS No. 157 to exclude SFAS No. 13 and related pronouncements that address fair value measurements for purposes of lease classification and measurement. FSP No. FAS 157-1 is effective upon the initial adoption of SFAS No. 157. The Company has adopted SFAS No. 157 and the related FSPs discussed above which did not have an impact on its financial position or results of operations for the quarter ended June 30, 2008.

As defined in SFAS No. 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The transaction is based on a hypothetical transaction in the principal or most advantageous market considered from the perspective of the market participant that holds the asset or owes the liability.

The valuation techniques that can be used under SFAS No. 157 are the market approach, income approach or cost approach. The market approach uses prices and other information for market transactions involving identical or comparable assets or liabilities, such as matrix pricing. The income approach uses valuation techniques to convert future amounts to a single discounted present amount based on current market conditions about those future amounts, such as present value techniques, option pricing models (i.e. Black-Scholes model) and binomial models (i.e. Monte-Carlo model). The cost approach is based on current replacement cost to replace an asset.

The Company utilizes market data or assumptions that market participants who are independent, knowledgeable and willing and able to transact would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company attempts to utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs. SFAS No. 157 establishes a formal fair value hierarchy based on the inputs used to measure fair value. The hierarchy gives the highest priority level 1 measurements and the lowest priority to level 3 measurements, and accordingly, level 1 measurements should be used whenever possible.

Index

PrimeEnergy Corporation

Notes to Consolidated Financial Statements

June 30, 2008

The three levels of the fair value hierarchy as defined by SFAS No. 157 are as follows:

•

Level 1: Valuations utilizing quoted, unadjusted prices for identical assets or liabilities in active markets that the Company has the ability to access. This is the most reliable evidence of fair value and does not require a significant degree of judgment. Examples include exchange-traded derivatives and listed equities that are actively traded.

•

Level 2: Valuations utilizing quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly for substantially the full term of the asset or liability. Financial instruments that are valued using models or other valuation methodologies are included. Models used should primarily be industry-standard models that consider various assumptions and economic measures, such as interest rates, yield curves, time value, volatilities, contract terms, current market prices, credit risk or other market-corroborated inputs. Examples include most over-the-counter derivatives (non-exchange traded), physical commodities, most structured notes and municipal and corporate bonds.

•

Level 3: Valuations utilizing significant, unobservable inputs. This provides the least objective evidence of fair value and requires a significant degree of judgment. Inputs may be used with internally developed methodologies and should reflect an entity’s assumptions using the best information available about the assumptions that market participants would use in pricing an asset or liability. Examples include certain corporate loans, real-estate and private equity investments and long-dated or complex over-the-counter derivatives.

Depending on the particular asset or liability, input availability can vary depending on factors such as product type, longevity of a product in the market and other particular transaction conditions. In some cases, certain inputs used to measure fair value may be categorized into different levels of the fair value hierarchy. For disclosure purposes under SFAS No. 157, the lowest level that contains significant inputs used in valuation should be chosen. Per SFAS No. 157, the Company has classified its assets and liabilities into these levels depending upon the data relied on to determine the fair values. The fair values of the Company’s natural gas and crude oil price collars and swaps are valued based upon quotes obtained from counterparties to the agreements and are designated as Level 3.

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

The following fair value hierarchy table presents information about the Company’s liabilities measured at fair value on a recurring basis as of June 30, 2008:

	Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Balance as of June 30, 2008
Assets
Interest Rate Contracts		—		—	$	534,000		$	534,000

Total Assets		—		—	$	534,000		$	534,000

Liabilities
Commodity Derivative Contracts		—		—	$	(35,592,000	)	$	(35,592,000	)

Total Liability		—		—	$	(35,592,000	)	$	(35,592,000	)

The derivative contracts were measured based on quotes from the Company’s counterparties. Such quotes have been derived using a model that considers various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for natural gas and crude oil, volatility factors and interest rates, such as a LIBOR curve for a similar length of time as the derivative contract term. Although the Company utilizes multiple quotes to assess the reasonableness of its values, the Company has not attempted to obtain sufficient corroborating market evidence to support classifying these derivative contracts as Level 2.

The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as level 3 in the fair value hierarchy.

Net liabilities as of January 1, 2008	$	(3,618,000	)
Total realized and unrealized losses:
Included in earnings		(4,284,000	)
Included in other comprehensive income		(27,719,000	)
Purchases, sales, issuances and settlements, net		563,000
Net liabilities as of June 30, 2008	$	(35,058,000	)

______________________

(a)	Amounts reported in net income are classified as sales for commodity derivative instruments and as a reduction to interest expense for interest rate swap instruments.

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

Derivative Instruments and Hedging Activity

The Company periodically enters into derivative commodity instruments to hedge its exposure to price fluctuations on natural gas and crude oil production. At June 30, 2008, the Company had eleven cash flow hedges open: two natural gas price swap arrangements and nine crude oil collar arrangements. At June 30, 2008, $55.8 million ($35.6 million net of tax) unrealized loss was recorded in Accumulated Other Comprehensive Income, $31.8 million and $23.8 million short-term and long-term derivative payable. Also included in Accumulated Other Comprehensive Income is unrealized gain on interest rate swaps of $835,000 ($534,000 net of tax), and $267,000 in both short and long-term derivative assets.

The change in the fair value of derivatives designated as hedges that is effective is initially recorded to Accumulated Other Comprehensive Income. The ineffective portion, if any, of the change in the fair value of derivatives designated as hedges, and the change in fair value of all other derivatives, is recorded currently in earnings as a component of oil and gas sales.

As of June 30, 2008, natural gas price swaps cover 2,985 Mmcf of production at a weighted average price of $8.04 for 2008 and $9.75 for 2009. The oil price collar covers 731 Mbbl of production at a floor price ranging from $60.00 to $65.00, a ceiling price ranging from $77.40 to $86.50 and a third-tier call of $100 on one collar arrangement.

Assuming no change in commodity prices, after June 30, 2008, the Company would expect to reclassify to the Statement of Operations, over the next 12 months, $20.7 million in after-tax loss associated with commodity hedges. This reclassification represents the net short-term payables associated with open positions currently not reflected in earnings at June 30, 2008 related to anticipated remaining 2008 production and 2009 production through June.

Assuming no change in interest rates after June 30, 2008, the Company would expect to reclassify to the statement of operations $267,000 in after tax gains associated with the interest rate swaps. This reclassification represents interest swaps which will expire within one year of June 30, 2008.

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

	Crude Oil Price Collar
Contract Period	Volume In Mbbl		Weighted Average Price Floor/Ceiling/Third Tier (per Bbl)						Net Unrealized (Loss)/Gain(In thousands)
Third Quarter 2008		20	$	65/	$	79.25/	$	100.00
Third Quarter 2008		51			$	60.00/	$	81.25
Third Quarter 2008		15			$	60.00/	$	78.00
Fourth Quarter 2008		18	$	65/	$	79.25/	$	100.00
Fourth Quarter 2008		51			$	60.00/	$	81.25
Fourth Quarter 2008		15			$	60.00/	$	78.00
Full Year 2008		170							$	(5,398	)
First Quarter 2009		51			$	60/	$	79.70
First Quarter 2009		6			$	60/	$	77.75
First Quarter 2009		12			$	65/	$	86.50
Second Quarter 2009		17			$	60/	$	79.70
Second Quarter 2009		38			$	60/	$	77.40
Second Quarter 2009		2			$	60/	$	77.75
Second Quarter 2009		12			$	65/	$	86.50
Third Quarter 2009		57			$	60/	$	77.40
Third Quarter 2009		12			$	65/	$	86.50
Fourth Quarter 2009		57			$	60/	$	77.40
Fourth Quarter 2009		12			$	65/	$	86.50
Full Year 2009		276							$	(10,585	)
First Quarter 2010		51			$	65/	$	80.90
First Quarter 2010		9			$	65/	$	84.14
Second Quarter 2010		51			$	65/	$	80.90
Second Quarter 2010		9			$	65/	$	84.14
Third Quarter 2010		51			$	65/	$	80.90
Third Quarter 2010		9			$	65/	$	84.14
Fourth Quarter 2010		51			$	65/	$	80.90
Fourth Quarter 2010		9			$	65/	$	84.14
Full Year 2010		240							$	(8,494	)
First Quarter 2011		45			$	65.00/	$	84.14
Full Year 2011		45							$	(1,517	)

Index

PRIMEENERGY CORPORATION and SUBSIDIARIES

NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

At June 30, 2008, we had two natural gas price swap contracts covering our 2008 and 2009 production as follows:

	Natural Gas Price Swaps
Contract Period	Volume in Mmcf		Weighted Average Price (per Mcf)		Net Unrealized Gain (In thousands)
Third Quarter 2008		1,005		8.07		(3,333	)
Fourth Quarter 2008		1,005		8.07		(3,604	)
Full Year 2008		2,010	$	8.04	$	(6,937	)
First Quarter 2009		975	$	9.75	$	(2,662	)
Full Year 2009		975	$	9.75	$	(2,662	)

We are exposed to market risk on these open contracts, to the extent of changes in market prices of natural gas and crude oil. However, the market risk exposure on these hedged contracts is generally offset by the gain or loss recognized upon the ultimate sale of the commodity that is hedged.

The preceding paragraphs contain forward-looking information concerning future production and projected gains and losses, which may be impacted both by production and by changes in future market prices of energy commodities. See “Forward-Looking Information” for further details.

(13) Income Per Share (restated):

Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common stock had been converted to common stock. The following reconciles amounts reported in the financial statements:

	Six Months Ended June 30, 2008						Six Months Ended June 30, 2007
	Net Income		Number of Shares		Per Share Amount		Net Income		Number of Shares		Per Share Amount
Net income per common share	$	6,750,000		3,074,725	$	2.20	$	6,111,000		3,199,343	$	1.91
Effect of dilutive securities:
Options				753,132						753,089

Diluted net income per common share	$	6,750,000		3,827,857	$	1.76	$	6,111,000		3,952,432	$	1.55

	Three Months Ended June 30, 2008						Three Months Ended June 30, 2007
	Net Income		Number of Shares		Per Share Amount		Net Income		Number of Shares		Per Share Amount
Net income per Common share	$	4,019,000		3,057,831	$	1.31	$	2,794,000		3,185,640	$	0.88
Effect of dilutive Securities:
Options				753,563						753,264

Diluted net income per common share	$	4,019,000		3,811,394	$	1.05	$	2,794,000		3,938,904	$	0.71

Index

PrimeEnergy Corporation

June 30, 2008

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with the financial statements of the Company and notes thereto.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow provided by operations for the six month period ended June 30, 2008 was $53,919,000. Excluding the effects of significant unforeseen expenses or other income, our cash flow from operations fluctuates primarily because of variations in oil and gas production and prices or changes in working capital accounts. Our oil and gas production will vary based on actual well performance but may be curtailed due to factors beyond our control. Hurricanes in the Gulf of Mexico may shut down our production for the duration of the storm’s presence in the Gulf or damage production facilities so that we cannot produce from a particular property for an extended amount of time. In addition, downstream activities on major pipelines in the Gulf of Mexico can also cause us to shut-in production for various lengths of time.

Our realized oil and gas prices vary due to world political events, supply and demand of products, product storage levels, and weather patterns. We sell the vast majority of our production at spot market prices. Accordingly, product price volatility will affect our cash flow from operations. To mitigate price volatility we sometimes lock in prices for some portion of our production through the use of financial instruments.

The Company’s activities include development and exploratory drilling. The Company’s strategy is to develop a balanced portfolio of drilling prospects that includes lower risk wells with a high probability of success and higher risk wells with greater economic potential.

For 2008 we have budgeted $60 million for exploration and development in our core operating areas. As of August 2008, the Company has committed approximately $27 million on wells in these areas that have been spudded since January 1, 2008. We expect to continue to make significant capital expenditures over the next several years as part of our long-term growth strategy.

If our exploratory drilling results in significant new discoveries, we will have to expend additional capital in order to finance the completion, development, and potential additional opportunities generated by our success. We believe that, because of the additional reserves resulting from the successful wells and our record of reserve growth in recent years, we will be able to access sufficient additional capital through additional bank financing.

The Company has in place both a stock repurchase program and a limited partnership interest repurchase program. Spending under these programs in 2007 was $4.8 million. As of June 30, 2008 the Company has expended approximately $4.5 million on these programs. The amount of treasury stock the Company may purchase is restricted by debt convents with the Company’s primary lender.

The Company currently maintains two credit facilities with a bank totaling $360 million, with a combined current borrowing base of $119 million. The bank reviews the borrowing base semi-annually and, at their discretion, may decrease or propose an increase to the borrowing base relative to a redetermined estimate of proved oil and gas reserves. Our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial covenants defined in the agreement. We are currently in compliance with these financial covenants. If we do not comply with these covenants on a continuing basis, the lenders have the right to refuse to advance additional funds under the facility and/or declare all principal and interest immediately due and payable.

Index

PrimeEnergy Corporation

June 30, 2008

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

During the second quarter of 2008, the Company’s offshore subsidiary arranged a subordinated credit facility with a private lender controlled by a director of the Company. The facility provides availability of $50 million and is secured by properties released by the bank and pledged under this agreement. The current advances of this credit facility are $20 million due January 2010.

It is the goal of the Company to increase its oil and gas reserves and production through the acquisition and development of oil and gas properties. The Company also continues to explore and consider opportunities to further expand its oilfield servicing revenues through additional investment in field service equipment. However, the majority of the Company’s capital spending is discretionary, and the ultimate level of expenditures will be dependent on the Company’s assessment of the oil and gas business environment, the number and quality of oil and gas prospects available, the market for oilfield services, and oil and gas business opportunities in general.

RESULTS OF OPERATIONS

Revenues and net income during the six month period ended June 30, 2008, as compared to the same periods in 2007 reflect the increased oil and gas sales, presented below, offset by exploration costs and depreciation and depletion of oil and gas properties. The table summarizes production volumes and average sales prices realized (including realized gains and losses from derivatives).

	Six months Ended June 30,						Three Months Ended June 30,
	2008		2007		Increase / (Decrease)		2008		2007		Increase / (Decrease)
Barrels of Oil Produced		320,000		264,000		56,000		165,000		159,000		6,000
Average Price Received	$	94.19	$	56.64	$	37.55	$	108.50	$	57.48	$	51.02

Oil Revenue	$	30,140,000	$	14,953,000	$	15,187,000	$	17,902,000	$	9,139,000	$	8,763,000

MCF of Gas Produced		4,723,000		4,685,000		38,000		2,341,000		2,663,000		(322,000	)
Average Price Received	$	9.42	$	7.96	$	1.46	$	9.67	$	7.82	$	1.85

Gas Revenue	$	44,508,000	$	37,281,000	$	7,227,000	$	22,645,000	$	20,829,000	$	1,816,000

Total Oil & Gas Revenue	$	74,648,000	$	52,234,000	$	22,414,000	$	40,547,000	$	29,968,000	$	10,579,000

Index

PrimeEnergy Corporation

June 30, 2008

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Oil and gas prices received excluding the impact of derivatives were;

	Six months Ended June 30,						Three Months Ended June 30,
	2008		2007		Increase / (Decrease)		2008		2007		Increase / (Decrease)
Oil Price	$	109.26	$	55.53	$	53.73	$	128.49	$	56.97	$	71.52
Gas Price	$	9.83	$	7.14	$	2.69	$	10.90	$	7.59	$	3.31

Changes in production are due to production from properties added during 2007 and early 2008 offset by the natural decline of existing properties. The increase in oil production is related to our onshore drilling program while the change in gas production reflects the production from our offshore drilling program.

Lease operating expense for the six months of 2008 increased by $4,047,000 compared to 2007 due to the addition of lease operating expenses of new properties, increased production taxes related to higher prices and overall price increases in oil field services.

General and administrative expenses remained flat in the first six months of 2008 as compared to 2007.

Field Service income and expense for the six months of 2008 increased $949,000 and $533,000, respectively, compared to 2007. These increases reflect higher utilization of equipment combined with an upward trend in rates and costs during 2008.

Depreciation and depletion increased to $35,629,000 in 2008 from $20,611,000 in 2007. This increase is directly attributed to the majority of the Company’s offshore properties coming on line late in 2007. These additions increased the overall property basis and production for the company

This Report contains forward-looking statements that are based on management’s current expectations, estimates and projections. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “projects” and “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and are subject to the safe harbors created thereby. These statements are not guarantees of future performance and involve risks and uncertainties and are based on a number of assumptions that could ultimately prove inaccurate and, therefore, there can be no assurance that they will prove to be accurate. Actual results and outcomes may vary materially from what is expressed or forecast in such statements due to various risks and uncertainties. These risks and uncertainties include, among other things, the possibility of drilling cost overruns and technical difficulties, volatility of oil and gas prices, competition, risks inherent in the Company’s oil and gas operations, the inexact nature of interpretation of seismic and other geological and geophysical data, imprecision of reserve estimates, and the Company’s ability to replace and expand oil and gas reserves. Accordingly, stockholders and potential investors are cautioned that certain events or circumstances could cause actual results to differ materially from those projected.

Index

PrimeEnergy Corporation

June 30, 2008

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate and swap activity.

The Company is exposed to interest rate risk on its line of credit, which has variable rates based upon the lenders base rate, as defined, and the London Inter-Bank Offered rate. Based on the weighted average balances outstanding during the first half of 2008, a hypothetical 2.5% increase in the applicable interest rates would have increased interest expense for the Six Months Ended June 30, 2008 by approximately $1,601,000.

The Company entered into interest rate hedge agreements to help manage interest rate exposure. These contracts include interest rate swaps. Interest rate swap transactions generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. The Company entered into swap agreements for a period of two years, beginning in April 2008, related to $60 million of Company bank debt resulting in a fixed rate of 4.375%. The underlying debt contracts are repriced quarterly based upon the three-month LIBOR rates.

Derivative Instruments and Hedging Activity.

Our hedging strategy is designed to reduce the risk of price volatility for our production in the natural gas and crude oil markets. Our hedging arrangements apply to only a portion of our production and provide only partial price protection. These hedging arrangements limit the benefit to us of increases in prices, but offer protection in the event of price declines. Further, if our counterparties defaulted, this protection might be limited as we might not receive the benefits of the hedges. Please read the discussion below and Note 11 of the Notes to Consolidated Financial Statements for a more detailed discussion of our hedging arrangements.

Hedges on Production – Collars.

From time to time, we enter into natural gas and crude oil collar agreements with counterparties to hedge price risk associated with a portion of our production. These cash flow hedges are not held for trading purposes. Under the collar arrangements, if the index price rises above the ceiling price, we pay the counterparty. If the index price falls below the floor price, the counterparty pays us. In the case of a three-way collar if the index price rises above the third tier price, the counterparty pays us.

Hedges on Production – Swaps.

From time to time, we enter into natural gas and crude oil swap agreements with counterparties to hedge price risk associated with a portion of our production. These cash flow hedges are not held for trading purposes. Under the swap agreements, if the index price rises above the swap price, we pay the counterparty. If the index falls below the swap price, the counterparty pays us.

Index

PrimeEnergy Corporation

June 30, 2008

ITEM 4T.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

(a) Management’s Quarterly Report on Internal Control Over Financial Reporting.

The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Under the supervision and with the participation of our senior management, consisting of our chief executive officer and our chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report (the “Evaluation Date”). Based on that evaluation, the Company’s management, including our chief executive officer and chief financial officer, concluded that as of the Evaluation Date our disclosure controls and procedures are effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this quarterly report.

(b) Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter of the period covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Index

PrimeEnergy Corporation

June 30, 2008

PART II - OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

From time to time, the Company is party to certain legal actions and claims arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, management does not expect these matters to have a materially adverse effect on the financial position or results of operations of the Company.

Item 1A.

RISK FACTORS

Not required

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of equity securities during the period covered in this Report.

During the six months ended June 30, 2008, the Company purchased the following shares of common stock as treasury shares.

2008 Month	Number of Shares		Average Price Paid per share		Maximum Number of Shares that May Yet Be Purchased Under The Plan (1)
January		60,684	$	50.06		224,871
February		558	$	54.68		224,313
March		10,465	$	50.25		213,848
April		5,500	$	58.05		208,348
May		435	$	61.23		207,913
June		6,726	$	55.62		201,187
Total/Average		84,368	$	51.13

________________

(1)

In December 1993, we announced that our board of directors authorized a stock repurchase program whereby we may purchase outstanding shares of our common stock from time-to-time, in open market transactions or negotiated sales. A total of 2,700,000 shares have been authorized, to date, under this program. Through June 30, 2008 we repurchased a total of 2,498,813 shares under this program for $32,422,977 at an average price of $13.38 per share. Additional purchases may occur as market conditions warrant. We expect future purchases will be funded with internally generated cash flow or from working capital.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

None

Index

PrimeEnergy Corporation

June 30, 2008

PART II - OTHER INFORMATION

Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Stockholders of the Company was held on June 10, 2008. The only matter submitted to the stockholders was the election of seven Directors (named below) nominated by management, all of whom were currently serving as Directors. Proxies were solicited pursuant to Regulation 14A under the Securities Act of 1934, definitive copies of which were filed with the Commission. There was no solicitation in opposition to management’s nominees, and all of the Directors nominated for the re-election were elected. The number of shares of the Company’s common stock voted at the Annual Meeting was 2,282,932. Those persons nominated and elected as Directors, and the number of shares voting for or withheld for each, is shown below. There were no abstentions or broker non-votes.

	For		Withheld
Beverly A. Cummings		2,187,879		95,053
Charles E. Drimal, Jr.		2,188,349		94,583
Matthias Eckenstein		2,181,394		101,538
H. Gifford Fong		2,181,180		101,752
Thomas S. T. Gimbel		2,278,530		4,393
Clint Hurt		2,278,435		4,497
Jan K. Smeets		2,192,639		90,293
None

Item 5.

OTHER INFORMATION

None

Index

PrimeEnergy Corporation

June 30, 2008

Item 6.

EXHIBITS

The following documents are filed herewith as a part of this report:

Exhibit No.


10.26.2	Amended and Restated Credit Agreement among Prime Offshore L.L.C. between Guaranty Bank, FSB, as agent and the Lenders party hereto effective March 31, 2008.

10.27.3	Subordinated Promissory Note dated effective March 31, 2008 in the face principal amount of up to $50,000,000 executed by Prime Offshore L.L.C. and payable to Artic Management Corporation.

10.27.4	Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment of Production Dated effective as of March 31, 2008 from Prime Offshore L.L.C. to Mathias Eckenstein TTEE for Artic Management Corporation (first lien).

10.27.5	Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment of Production Dated effective as of March 31, 2008 from Prime Offshore L.L.C. to Mathias Eckenstein TTEE for Artic Management Corporation (second lien).

10.27.6	Pledge Agreement dated as effective March 31, 2008 between Prime Offshore L.L.C. and Artic Management Corporation (General Partner Interest in FWOE Partners L.P.)

31.1	Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).

31.2	Certification of Chief Financial Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith)

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

Index

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PrimeEnergy Corporation
	(Registrant)

March 24, 2009	/s/ Charles E. Drimal, Jr.
(Date)	Charles E. Drimal, Jr.
	President
	Principal Executive Officer

March 24, 2009	/s/ Beverly A. Cummings
(Date)	Beverly A. Cummings
	Executive Vice President
	Principal Financial and Accounting Officer