Financial Results

Included in the first quarter 2009 results are unrealized derivative gains of $0.7 million attributed to hedge effect. Also included in the first quarter 2009’s operating expenses are a non-cash charge of $41 million related to an impairment of the carrying value of oil and gas properties and a $4.7 million cash payment to Gasco Energy’s rig contractor for early termination of a rig contract. Before the impairment charge and the early termination payment, and excluding the effect of unrealized derivative gains, a non-GAAP measure, the company would have posted net income of $2.5 million or $0.02 per share.

Included in the first quarter 2008 results are derivative losses of $6.4 million attributed to hedge effect, of which $5.9 million was unrealized. Excluding the effect of unrealized derivative losses, a non-GAAP measure, the company would have posted net income of $1.5 million, or $0.01 per share, for the first quarter of 2008. Gasco Energy did not incur an impairment charge in the first quarter of 2008.

Gasco Energy has reported oil and gas sales of $4.2 million, for the first quarter 2009, compared with the $8.5 million in the year-ago quarter. The decrease in oil and gas sales during the first quarter 2009 is attributed to lower prices received for sales of the company’s natural gas and oil volumes counterbalanced in part by a 15.6% raise in oil and gas sales volumes during the first quarter 2009, as compared to the same period in 2008. Gathering revenues from Gasco Energy’s midstream assets were $0.9 million for the first quarter 2009, compared with the $0.9 million in the year-ago quarter. Total revenues for the first quarter were $5.4 million, as compared to $9.8 million in the year-ago quarter.

The company’s average realized gas price was $5.67 per thousand cubic feet of natural gas (Mcf) for the first quarter of 2009, which includes the effect of hedges, compared to $7.19 per Mcf in the year-ago quarter, also including the effect of hedges. Gasco Energy’s risk management activities increased its average gas price by $2.39 per Mcf during the first quarter of 2009. Earlier to the impact of hedges, Gasco Energy’s average price received for its natural gas production during the first quarter of 2009 was about $3.28 per Mcf as compared to $7.61 per Mcf in the prior-year period.

The average realized oil price was $25.45 per barrel for the first quarter of 2009, as compared to $75.28 per barrel in the year-ago quarter. Gasco Energy’s does not hedge its crude oil volumes.

Unit Cost Comparisons – LOE / DD&A / G&A

Lease operating expense (LOE) for the first quarter 2009 was $0.7 million, compared with the $1.3 million in the year-ago quarter. On a per-unit basis, LOE was $0.55 per thousand cubic feet of natural gas equivalent (Mcfe) in the first quarter 2009, as compared to $1.17 per Mcfe in the year-ago period. The quarter-over-quarter decline in LOE is attributed to a decrease in operating expenses ($0.47 per Mcfe lower) and to lower production taxes ($0.15 per Mcfe lower). Specifically, the 53% decline in LOE per Mcfe is attributed to a decrease in chemical treatment projects during 2009, a decrease in the costs that were incurred during 2008 to repair and bring older wells on to production, to the implementation of cost savings measures such as the elimination of over-time worked by Gasco Energy employees and to the removal of contractor services.

Depletion, depreciation and amortization (DD&A) was $2.6 million for the first quarter 2009, as compared to $2.4 million in the year-ago quarter. On a per-unit basis, DD&A for the first quarter 2009 was $2.06 per Mcfe, as compared to $2.26 per Mcfe in the 2008 reporting period.

Gasco Energy’s reported general and administrative expense (G&A) of $1.9 million in the first quarter 2009, against $2.2 million in the year-ago quarter. On a per-unit basis, total G&A for first quarter 2009 was $1.48 per Mcfe, as compared to $2.02 per Mcfe for the same period in 2008. G&A expense for the first quarter 2009 comprises $0.5 million of non-cash, stock-based compensation expense, or, on a per-unit basis, $0.40 per Mcfe, as compared to the prior-period total of $0.7 million, or $0.67 per Mcfe. Gathering operations expense was unchanged quarter-over-quarter at $0.7 million.

Gasco Energy’s total assets as of March 31, 2009 were $119.6 million, as compared to $153.9 million at year-end 2008. The decline in total assets at March 31, 2009 is attributed mainly to the aforementioned non-cash charge of $41 million related to an impairment of the carrying value of oil and gas properties.

Net cash provided by operating activities for the first quarter 2009 was $2.4 million, as compared to $4.8 million in the year-ago quarter. Cash and investments were $9.1 million at March 31, 2009. Also at March 31, 2009, Gasco Energy’s had $44 million drawn on its $250 million reserve-based revolving credit facility, of which $1 million is at present available for future borrowing.

Quarterly Production

Gasco Energy’s has reported cumulative net production of 1,255 million cubic feet of natural gas equivalents (MMcfe) for the first quarter of 2009, up 15.6%, compared with the net production of 1,085 MMcfe, in the year-ago quarter.

Risk Management

Consequent to the end of the first quarter of 2009, Gasco Energy entered into an additional swap agreement for a portion of its 2010 and 2011 natural gas production

Operations

As earlier reported, Gasco Energy’s ceased drilling operations during February 2009 and temporarily halted completion operations. During the quarter, Gasco Energy’s conducted no early completion operations and re-entered three gross wells (0.92 net) to complete behind-pipe pay zones. During the quarter, Gasco Energy’s invested $3.5 million in oil and gas activities in the Riverbend project.

At March 31, 2009, Gasco Energy’s operated 130 gross wells. Gasco Energy’s currently has an inventory of 32 operated wells with up-hole recompletions and four Upper Mancos wells awaiting initial completion activities. Due to low gas prices in the Rockies, the company is selectively recompleting up-hole pay.

Gate Canyon State #23-16

The Gate Canyon State #23-16 well, which has been producing for 80 days, came on at an initial production rate of 5.7 million cubic feet of natural gas per day (MMcf/d) flowing up 5 1/2 casing while cleaning up frac fluid. The well averaged 3.2 MMcf/d and 2.6 MMcf/d for the first 30 and 60 days, respectively. The well is at present producing about 1.6 MMcf/d from multiple fracture-stimulated intervals within the Mancos and lower Blackhawk formations.

Liquidity and Outlook

Impact of Current Credit Markets and Commodity Prices:

The credit markets and the financial services industry have been experiencing a period of upheaval characterized by the bankruptcy, failure, collapse or sale of various financial institutions and an unprecedented level of intervention from the US federal government. During the fourth quarter of 2008 and the first quarter of 2009, the severe disruptions in the credit markets and reductions in global economic activity had significant unfavorable impacts on stock markets and oil and gas-related commodity prices, which added to a major decline in Gasco Energy’s stock price and are anticipated to negatively impact Gasco Energy’s future liquidity.