Warren Resources oil and gas revenues declined 51% to $11.5 million for the first quarter of 2009, compared to $23.5 million in the first quarter of 2008. This decrease mainly resulted from lower realized sales prices for oil and gas in the first quarter of 2009 compared to 2008.

First Quarter of 2009 Results

Warren Resources’ oil and gas production rose to 2.4 billion cubic feet of gas equivalent (Bcfe) during the first quarter of 2009, which represents a 31% increase over the first quarter of 2008.

During the first quarter of 2009, Warren Resources produced 253,000 net barrels of oil and 920 net million cubic feet (MMcf) of natural gas. This compares to 243,000 net barrels of oil and 405 net MMcf of gas produced during the year-ago quarter.

Total expenses raised 31% to $18.9 million during the first quarter of 2009 compared to $14.4 million in the year-ago quarter. Lease operating expenses and taxes were $8.8 million in 2009 compared to $5.9 million during the same period in 2008. DD&A expenses were $5.3 million, representing a 36% increase over 2008.

General and administrative expenses were unchanged for the first quarter of 2009 at $3.3 million compared to $3.3 million in the year-ago quarter.

Net cash flow provided by operating activities declined to $247 thousand for the first quarter of 2009 compared to $9.9 million in the year-ago quarter. This decline resulted mainly from lower realized oil and gas prices during the period and higher operating expenses.

The average realized price per barrel of oil was $35.14 for the first quarter of 2009 compared to $85.17 in the year-ago quarter. Additionally, the average realized price per thousand cubic feet (Mcf) of gas was $2.89 for the first quarter of 2009 compared to $6.80 in the year-ago quarter. Warren Resources also recorded a gain of $734,000 on its hedging activities during the first quarter of 2009.

Debt and Liquidity

Although the lenders have not concluded their spring 2009 borrowing base re-determination process, the company does not believe that the $120 million conforming borrowing base under its senior credit facility will be reduced. The company expects that the review will be concluded in the next few weeks. The next scheduled borrowing base re-determination will occur in October 2009. At March 31, 2009, Warren Resources was, and now is, in full compliance with all covenants under its senior credit facility.

Interest expense was $1.5 million for the first quarter of 2009 compared to $1.3 million in the year-ago quarter, primarily due to a higher average outstanding balance under our senior credit facility. As of today, Warren Resources has $115 million drawn against the conforming borrowing base of $120 million available under its senior credit facility, not including the $15 million over-advance feature which expires on May 19, 2009.

While our production increased, the first quarter continued to provide commodity pricing challenges for us, commented Norman F. Swanton, chairman and chief executive officer. Our 2009 average realized oil prices of $35.14 per barrel declined 29% from $49.51 per barrel realized during the last quarter of 2008. Similarly, our 2009 realized natural gas prices of $2.89 per Mcf decreased 28% from $4.04 per Mcf realized in the fourth quarter of 2008. However, during the first quarter, our realized oil differentials from the benchmark WTI price decreased from $12 per barrel in January 2009 to $6 per barrel in March 2009. Until oil and gas commodity prices and capital markets improve, we will follow the strategy of optimizing production and the gross profit margin from existing wells without drilling new wells. We will also continue to pursue measures to further improve our long term liquidity, including possible asset sales, volumetric production payments, additional commodity price hedging and other asset monetization strategies.

Operational Update

Wilmington Oil field in the Los Angeles Basin in California

Production in the Wilmington Townlot unit (WTU) averaged about 2,800 gross barrels of oil per day (BOPD) during the first quarter of 2009, compared to about 2,700 gross BOPD for the same quarter in 2008. At this time Warren’s capital expenditure forecast does not contemplate additional drilling in the WTU during 2009. Warren owns an approximate 98.9% working interest in the WTU.

As earlier reported, Warren Resources presented its long-term plan to the South Coast Air quality management district (AQMD) in March of 2008 to handle the disposition of produced natural gas associated with increased oil production from the WTU. On June 17, 2008, the company submitted a draft California Environmental Quality Act (CEQA) analysis in the form of a negative declaration to the AQMD for review. On April 16, 2009, the AQMD issued its notice of intent to adopt a negative declaration for Warren Resources project pursuant to the CEQA analysis. This effectively began the thirty day public comment period required by the CEQA process.

Warren Resources believes the AQMD will certify a final version of the negative declaration under CEQA within a reasonable time after it reviews the comments submitted during the thirty day comment period which expires on May 15, 2009. Warren Resources permits to install the best available control technology (BACT) equipment should be issued shortly thereafter. Installation of the gas re-injection facilities will begin upon certification of the negative declaration and issuance of the necessary permit approvals by the AQMD. The AQMD gas flaring issues have no effect on current production.

Oil production from Warren’s North Wilmington Unit (NWU) averaged 525 gross BOPD in the first quarter of 2009, compared to an average of 420 gross BOPD in the year-ago quarter. Warren Resources holds a 100% working interest in the NWU. WTU and NWU California capital expenditures totaled $600 thousand for the first quarter of 2009.

Atlantic Rim Coalbed Methane project in the eastern Washakie basin, Wyoming

Gross gas production in the Sun Dog unit is now 16.5 million cubic feet of gas per day (MMcfd) compared to 14.5 MMcfd at the end of 2008 and 10.5 MMcfd at the end of the first quarter of 2008. During the first quarter of 2009, gas production from the Sun Dog Unit was limited while building and well tie-ins were being concluded. All of the Sun Dog wells were on line and producing in early 2009. In the quarter, water injection, electrical generation and gas compression facilities were extended in the Sun Dog unit to accommodate the new development. Warren Resources at present plan to raise the Sun Dog compression facility capacity to 50 MMcfd by the end of 2009 to accommodate anticipated production rises from naturally inclining CBM production. Warren Resources owns an approximate 42% working interest in the Sun Dog unit.

Gross gas production from the Doty Mountain unit was about 3.8 MMcfd at the end of 2008 and has continued to rise to about 6.5 MMcfd now. This raised gas production from Doty Mountain is a result of the successful fracture stimulation of several of the accessible wells in the unit. Completion of 14 producing wells earlier drilled during 2008 and additional fracture stimulation work in the Doty Mountain unit has been deferred in order to reduce capital expenditures. Warren’s working interest in the Doty Mountain unit is about 36%.