10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 2008

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-7914

BASIC EARTH SCIENCE SYSTEMS, INC.

633 Seventeenth St, Suite 1645

Denver, Colorado 80202-3625

Telephone (303) 296-3076

Incorporated in Delaware IRS ID# 84-0592823

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.     Yes þ   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o                                                                                       Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)        Smaller reporting company þ

Check whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes o No þ

Shares of common stock outstanding on February 17, 2009: 17,505,727

1

BASIC EARTH SCIENCE SYSTEMS, INC.

FORM 10-Q

INDEX

	PART I. FINANCIAL INFORMATION	Page
Item 1.	Financial Statements	4
	Consolidated Balance Sheets:
	December 31, 2008 (Unaudited) and March 31, 2008	4
	Consolidated Statements of Operations:
	Three and Nine Months Ended December 31, 2008 and 2007 (Unaudited)	6
	Consolidated Statements of Cash Flows:
	Nine Months Ended December 31, 2008 and 2007 (Unaudited)	7
	Notes to Unaudited Consolidated Financial Statements:
	December 31, 2008 (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	18
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
Item 5.	Other Information	20
Item 6.	Exhibits	21
	Signatures	22

2

FORWARD-LOOKING STATEMENTS

                   This Current Report on Form 10-Q, including information incorporated herein by reference, contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The use of any statements containing the words "anticipate," "intend," "believe," "estimate," "project," "expect," "plan," "should" or similar expressions are intended to identify such statements. Forward-looking statements relate to, among other things:

•      our future financial position, including anticipated liquidity;

•      amounts and nature of future capital expenditures;

•      acquisitions and other business opportunities;

•      operating costs and other expenses;

•      wells expected to be drilled;

•      asset retirement obligations; and

•      estimates of proved oil and natural gas reserves, deferred tax assets, and depletion rates.

                   Factors that could cause actual results to differ materially from our expectations include, among others, such things as:

•      oil and natural gas prices;

•      our ability to replace oil and natural gas reserves;

•      loss of senior management or technical personnel;

•      inaccuracy in reserve estimates and expected production rates;

•      exploitation, development and exploration results, including from enhanced recovery

activities;

•      costs related to asset retirement obligations;

•      a lack of available capital and financing;

•      the potential unavailability of drilling rigs and other field equipment and services;

•      the existence of unanticipated liabilities or problems relating to acquired properties;

•      general economic, market or business conditions;

• factors affecting the nature and timing of our capital expenditures, including the availability of service contractors and equipment, permitting issues, workovers, and weather;

• the impact and costs related to compliance with or changes in laws or regulations governing our oil and natural gas operations;

• environmental liabilities;

• acquisitions and other business opportunities (or the lack thereof) that may be presented to and pursued by us;

• competition for available properties and the effect of such competition on the price of those properties;

•      risk factors discussed in this report; and

•      other factors, many of which are beyond our control.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, those expectations may prove to be incorrect.  Disclosure of important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2008, under the heading "Risk Factors", and elsewhere in this report, including, without limitation, in conjunction with the forward-looking statements.  All forward-looking statements speak only as of the date made.  All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements.  Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.

3

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Basic Earth Science Systems, Inc.

Consolidated Balance Sheets

Page 1 of 2

	December 31,			March 31,
	2008			2008
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	6,313,000		$	5,571,000
Accounts receivable:
Oil and gas sales		1,401,000			1,110,000
Joint interest and other receivables, net of $71,000 and $50,000 in allowance		60,000			236,000
Other current assets		269,000			280,000
Total current assets		8,043,000			7,197,000
Oil and gas property, full cost method:
Proved property		31,826,000			29,050,000
Unproved property		1,270,000			2,515,000
Accumulated depletion and impairment		(22,159,000	)		(18,515,000	)
Net oil and gas property		10,937,000			13,050,000
Support equipment and other non-current assets, net of $331,000 and $299,000 in accumulated depreciation, respectively		437,000			443,000
Total non-current assets		11,374,000			13,493,000
Total assets	$	19,417,000		$	20,690,000

See accompanying notes to unaudited consolidated financial statements.

4

Basic Earth Science Systems, Inc.

Consolidated Balance Sheets

Page 2 of 2

	December 31,			March 31,
	2008			2008
	(Unaudited)
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	455,000		$	1,443,000
Accrued liabilities		1,827,000			2,586,000
Total current liabilities		2,282,000			4,029,000
Long-term liabilities:
Deferred tax liability		2,507,000			2,800,000
Asset retirement obligation		1,879,000			1,877,000
Total long-term liabilities		4,386,000			4,677,000
Total liabilities		6,668,000			8,706,000
Shareholders’ Equity:
Preferred stock, $.001 par value, 3,000,000 authorized, and none issued or outstanding		—			—
Common stock, $.001 par value, 32,000,000 shares authorized, and 17,480,727 shares issued and outstanding		17,000			17,000
Additional paid-in capital		22,822,000			22,798,000
Treasury stock (350,265 shares); at cost		(38,000	)		(23,000	)
Accumulated deficit		(10,052,000	)		(10,808,000	)
Total shareholders’ equity		12,749,000			11,984,000
Total liabilities and shareholders’ equity	$	19,417,000		$	20,690,000

See accompanying notes to unaudited consolidated financial statements.

5

Basic Earth Science Systems, Inc.

Consolidated Statements of Operations

(Unaudited)

	Nine Months Ended						Three Months Ended
	December 31,						December 31,
	2008			2007			2008			2007
				(As restated)						(As restated)
Revenues:
Oil and gas sales	$	8,173,000		$	5,472,000		$	2,164,000		$	2,080,000
Well service and water disposal revenue		86,000			17,000			41,000			1,000
Total revenues		8,259,000			5,489,000			2,205,000			2,081,000
Expenses:
Oil and gas production		1,913,000			1,518,000			753,000			561,000
Production tax		618,000			463,000			120,000			180,000
Well servicing expenses		28,000			18,000			6,000			1,000
Depreciation and depletion		976,000			531,000			558,000			175,000
Accretion of asset retirement obligation		54,000			85,000			18,000			37,000
Asset retirement expense		164,000			47,000			35,000			28,000
Impairment of oil and gas properties		2,694,000			―			2,694,000			―
General and administrative		932,000			518,000			374,000			195,000
Total expenses		7,379,000			3,180,000			4,558,000			1,177,000
Income (loss) from operations		880,000			2,309,000			(2,353,000	)		904,000
Other Income (Expense):
Interest and other income		54,000			116,000			12,000			41,000
Interest and other expenses		(27,000	)		(12,000	)		(11,000	)		(4,000	)
Total other income		27,000			104,000			1,000			37,000
Income (loss) before income taxes		907,000			2,413,000			(2,352,000	)		941,000
Current income tax expense		444,000			125,000			76,000			25,000
Provision for deferred income taxes		(293,000	)		1,134,000			(858,000	)		479,000
Total income taxes		151,000			1,259,000			(782,000	)		504,000
Net income (loss)	$	756,000		$	1,154,000		$	(1,570,000	)	$	437,000
Per share amounts:
Basic	$	0.04		$	0.07		$	(0.09	)	$	0.03
Diluted	$	0.04		$	0.07		$	(0.09	)	$	0.03
Weighted average common shares outstanding:
Basic		17,468,613			16,993,676			17,474,638			17,051,709
Diluted		17,490,641			17,133,559			17,474,638			17,135,650

See accompanying notes to unaudited consolidated financial statements.

6

Basic Earth Science Systems, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

		Nine Months Ended
		December 31,
		2008		2007
			(As restated)
Cash flows from operating activities:
Net income	$	756,000	$	1,154,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and depletion		976,000		531,000
Deferred tax liability		(293,000)		1,134,000
Accretion of asset retirement obligation		54,000		85,000
Share based compensation		24,000		―
Impairment of Oil and Gas Properties		2,694,000		―
Change in:
Accounts receivable, net		(115,000)		(229,000)
Other assets		(17,000)		91,000
Accounts payable and accrued liabilities		265,000		(124,000)
Other		―		7,000
Net cash provided by operating activities		4,344,000		2,649,000
Cash flows from investing activities:
Oil and gas property		(3,587,000)		(250,000)
Support equipment		―		(16,000)
Proceeds from sale of oil and gas property and equipment		―		14,000
Other		―		(52,000)
Net cash used in investing activities		(3,587,000)		(304,000)
Cash flows from financing activities:
Proceeds from exercise of common stock options		―		14,000
Purchase of treasury shares		(15,000)		―
Net cash provided by (used in) financing activities		(15,000)		14,000
Cash and cash equivalents:
Increase in cash and cash equivalents		742,000		2,359,000
Balance, beginning of year		5,571,000		2,523,000
Balance, end of period	$	6,313,000	$	4,882,000
Supplemental disclosure of cash flow information:
Cash paid for interest	$	7,000	$	7,000
Cash paid for income tax	$	487,000	$	―
Non-cash:
Increase in oil and gas property due to asset retirement obligation	$	33,000	$	―
Additions to oil and gas also included in accrued liabilities	$	263,000	$	1,078,000

See accompanying notes to unaudited consolidated financial statements.

7

Basic Earth Science Systems, Inc.

Notes to Unaudited Consolidated Financial Statements

December 31, 2008

The accompanying interim financial statements of Basic Earth Science Systems, Inc. (sometimes referred to as “the Company” “we” “our” or “us”) are unaudited. However, in the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim period.

At the directive of the Securities and Exchange Commission to use “plain English” in its public filings, the Company will use such terms as “we”, “our” and “us” in place of Basic Earth Science Systems, Inc. or “the Company.” When such terms are used in this manner throughout this document they are in reference only to the corporation, Basic Earth Science Systems, Inc. and its subsidiaries, and are not used in reference to the board of directors, corporate officers, management, or any individual employee or group of employees.

The financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. We believe the disclosures made are adequate to make the information not misleading and suggest that these financial statements be read in conjunction with the financial statements and notes hereto included in our Annual Report on Form 10-KSB for the year ended March 31, 2008.

1. Presentation of Consolidated Financial Statements

As discussed in our 2008 Annual Report on Form 10-KSB for the fiscal year ended March 31, 2008, we discovered during the preparation and review of our 2008 income tax provision that errors occurred in calculating the GAAP cost basis of our oil and gas properties in determining tax liability and the estimated deferred tax asset for percentage depletion carryforward. These errors impacted our previously filed financial statements for fiscal years ended March 31, 2007 and 2006 and our previously filed interim financial statements for those years and the first three quarters of 2008. For further information concerning the restatement and details concerning restated amounts, please refer to our previously filed Annual Report on Form 10-KSB for the fiscal year ended March 31, 2008.

The following table summarizes the impact of these corrections to our consolidated  statement of income for the fiscal quarter ended December 31, 2007, as previously presented in Footnote 13 – Quarterly Financial Data (Unaudited) of our Annual Report on Form 10-KSB for the fiscal year ended March 31, 2007. There was no impact to our 2008 interim Net Cash provided by Operating Activities due to the correction of the above errors.

Impact to the Income Statement	Nine Months Ended December 31, 2007							Three Months Ended December 31, 2007
(Unaudited)	As reported		Adjustment			As restated		As reported		Adjustment			As restated
Provision for deferred income taxes	$	759,000	$	375,000		$	1,134,000	$	354,000	$	125,000		$	479,000
Total income taxes		884,000		375,000			1,259,000		379,000		125,000			504,000
Net Income	$	1,529,000	$	(375,000	)	$	1,154,000	$	562,000	$	(125,000	)	$	437,000
Per share amounts:
Basic	$	0.09	$	(0.02	)	$	0.07	$	0.03	$	(0.00	)	$	0.03
Diluted	$	0.09	$	(0.02	)	$	0.07	$	0.03	$	(0.00	)	$	0.03

8

2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the actual amounts of assets and liabilities at the date of the financial statements and the actual amounts of revenues and expenses during the reporting period. We base these estimates on assumptions that we understand are reasonable under the circumstances. The estimated results that are produced by this effort will differ under different assumptions or conditions.  We understand that these estimates are necessary and that actual results could vary significantly from the estimated amounts for the current and future periods. There are many factors, including global events, which may influence the production, processing, marketing, and valuation of crude oil and natural gas. A reduction in the valuation of oil and gas properties resulting from declining prices or production could adversely impact depletion rates and ceiling test limitations. We understand the following accounting policies and estimates are necessary in the preparation of our consolidated financial statements: the carrying value of our oil and gas property, the accounting for oil and gas reserves, the estimate of our asset retirement obligations, the estimate of our income tax assets and liabilities and estimates of accrued quantities and prices in our oil and gas receivable.

Cash and Cash Equivalents. For purposes of the Consolidated Balance Sheets and Statements of Cash Flows, we consider all highly liquid investments with a maturity of ninety days or less when purchased to be cash equivalents.

Oil and Gas Reserves. Oil and gas reserves represent theoretical, estimated quantities of crude oil and natural gas which geological and engineering data estimate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. There are numerous uncertainties inherent in estimating oil and gas reserves and their values, including many factors beyond our control. Accordingly, reserve estimates are different from the quantities of oil and gas ultimately recovered and the corresponding lifting costs associated with the recovery of these reserves. At March 31, 2008, ninety-five percent of our reported oil and gas reserves are based on estimates prepared by Ryder Scott Company, L.P, a nationally recognized, independent petroleum engineering firm. The remaining five percent of our oil and gas reserves were prepared in-house.

Each quarter, we update reserve estimates by substituting the prices we would have received at quarter-end for the year-end prices that were used by our independent petroleum engineers.  In conducting this “re-pricing” no changes are made to the decline rates, tax rates or lifting costs used by our independent petroleum engineers.  The determination of depletion expense, as well as ceiling test write-downs, are highly dependent on these reserve, and quarterly “re-pricing” estimates.

Oil and Gas Property. We utilize the full cost method of accounting for costs related to our oil and gas property. Capitalized costs included in the full cost pool are depleted on an aggregate basis over the estimated lives of the properties using the units-of-production method. These capitalized costs are subject to a ceiling test that limits such pooled costs to the aggregate of the present value of future net revenues attributable to proved oil and gas reserves discounted at 10 percent plus the lower of cost or market value of unproved properties less any associated tax effects. If the full cost pool of capitalized oil and gas property costs exceeds the ceiling, we will record a ceiling test write-down to the extent of such excess. This write-down is a non-cash charge to earnings. If required, it reduces earnings and impacts shareholders’ equity in the period of occurrence. The write-down may not be reversed in future periods, even though higher oil and gas prices in the future may subsequently and significantly increase reserve estimates in future periods.

As of December 31, 2008, we determined that our capitalized costs exceeded the ceiling test limit.  Accordingly, we recorded an impairment write down of $2,694,000 representing the excess of capitalized costs over the ceiling, as calculated in accordance with these full cost rules for both the quarter and nine months ended December 31, 2008.

9

Asset Retirement Obligations. We have obligations related to the plugging and abandonment of our oil and gas wells, the removal of equipment and facilities, and returning the land to its original condition. SFAS No. 143, “Accounting for Asset Retirement Obligations” requires that we estimate the future cost of this obligation, discount this cost to its present value, and record a corresponding asset and liability in our Consolidated Balance Sheets. The values ultimately derived are based on many significant estimates, including the ultimate expected cost of the obligation, the expected future date of the required cash expenditures, and inflation rates. The nature of these estimates requires us to make judgments based on historical experience and future expectations related to timing. We review the estimate of our future asset retirement obligations quarterly. These quarterly reviews may require revisions to these estimates based on such things as changes to cost estimates or the timing of future cash outlays. Any such changes that result in upward or downward revisions in the estimated obligation will result in an adjustment to the related capitalized asset and corresponding liability on a prospective basis.

We recognize two components on our consolidated statement of income; accretion of asset retirement obligations and asset retirement expense.  Accretion of asset retirement obligation reflects the periodic accretion of the present value of future plugging and abandonment costs.  Asset retirement expense reflects the actual current period gains and losses on plugging and abandonment costs relative to previously estimated future costs.  Since our initial adoption of FASB No. 143 we have closed gains and losses on asset retirements to the income statement as a component of asset retirement expense.

The information below reconciles the value of the asset retirement obligation for the period presented.

	Nine Months Ended December 31, 2008
Balance beginning of period	$	2,179,000
Liabilities incurred		33,000
Liabilities settled		(160,000	)
Revisions in estimated cash flows		(3,000	)
Accretion expense		54,000
Balance end of period	$	2,103,000

Income Taxes. We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. Accordingly, deferred tax liabilities and assets are determined based on the temporary differences between the financial statements and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse.

Projections of future income taxes and their timing require significant estimates with respect to future operating results. Accordingly, the net deferred tax liability is continually re-evaluated and numerous estimates are revised over time. As such, the net deferred tax liability may change significantly as more information and data is gathered with respect to such events as changes in commodity prices, their effect on the estimate of oil and gas reserves, and the depletion of these long-lived reserves.

On April 1, 2007 we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). The adoption of FIN 48 had no impact on our consolidated financial statements. We are subject to U.S. federal income tax and income tax from multiple state jurisdictions. The tax years remaining subject to examination by tax authorities are fiscal years 2004 through 2006. We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2008, we made no provisions for interest or penalties related to uncertain tax positions.

10

Earnings Per Share. Our earnings per share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income by the diluted weighted average number of common shares. The diluted weighted average number of common shares is computed using the treasury stock method for common stock that may be issued for outstanding stock options.

Off Balance Sheet Transactions, Arrangements, or Obligations

We have no material off balance sheet transactions, arrangements or obligations.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, research and development assets and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income taxes. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The adoption of the provisions of SFAS 141R is not expected to have a material effect on our financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, providing companies with an option to report selected financial assets and liabilities at fair value.The Standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently.Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting.SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities.The Standard requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of our choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet.The adoption of the provisions of SFAS 159 did not have a material effect on our financial position, results of operations, or cash flows.

In September2006, the FASB issued SFAS Statement No.157, “Fair Value Measurements”. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November15, 2007.  In February 2008, the FASB issued Staff Position No. FAS 157-2.  That guidance proposed a one year deferral of the implementation of SFAS 157 for non-financial assets and liabilities that are recognized or disclosed at fair value on a nonrecurring basis (less frequent than annually).

On April 1, 2008, we adopted SFAS No. 157 with the one-year deferral for non-financial assets and liabilities.  The adoption of SFAS No. 157 did not have a material impact on our financial position, results of operations, or cash flows.  Beginning April 1, 2009, we expect to adopt the provisions for non-financial assets and non-financial liabilities that are not required or permitted to be measured at fair value on a recurring basis.  While we are in the process of evaluating this standard with respect to its effect on non- financial assets and liabilities, we have not yet determined the impact that it will have on our financial statements upon full adoption in 2009.

11

3. Subsequent Events

On January 14, 2009, FieldPoint Petroleum Corporation announced that it had filed a Registration Statement on Form S-4 to register shares of its common stock proposed to be issued in connection with a potential exchange offer for a minimum of 51% and a maximum of 100% of the outstanding shares of the Company’s common stock.  The exchange ratio that FieldPoint has disclosed is one share of FieldPoint common stock for every two shares of the Company’s common stock and would be subject to a number of conditions.  FieldPoint did not have any substantive communications with the Company before issuing its press release. 

On February 4, 2009, our Board of Directors (the “Board”) declared a dividend (the “Dividend”) of one preferred share purchase right (a “Right”) for each outstanding share of common stock.  The dividend is payable on February 17, 2009 to holders of record on that date.  On February 4, 2009, we entered into a Rights Agreement, with Corporate Stock Transfer, Inc. as the Rights Agent (the “Rights Agreement”), specifying the terms of the Rights.

The Board has authorized the adoption of a Rights Agreement to protect stockholders from coercive or otherwise unfair takeover tactics. In general terms, the Rights impose a significant penalty upon any person or group that acquires beneficial ownership of 15% or more of our outstanding common stock without the prior approval of the Board.  The Rights Agreement will provide an exemption for (i) any person who is, as of February 17, 2009, the beneficial owner of 15% or more of our outstanding common stock, so long as such person does not, subject to certain exceptions, acquire additional common stock of the Company after February 17, 2009, and (ii) Ray J. Singleton, Jr., the Company’s President and Chief Executive Officer, and his family and certain affiliates (collectively, the “Grandfathered Persons”), so long as such Grandfathered Persons, individually or in the aggregate, do not, subject to certain exceptions, acquire additional common stock of the Company such that their aggregate ownership exceeds 36% of the then outstanding common stock of the Company.  Mr. Singleton currently owns approximately 26% of our outstanding common stock.  The Company, its subsidiaries, employee benefit plans of the Company or any of its subsidiaries, and any entity holding common stock for or pursuant to the terms of any such plan will also be excepted.

 In connection with the adoption of the Rights Agreement on February 4, 2009, we filed a Certificate of Designations of Series A Junior Participating Preferred Stock (the “Certificate of Designations”) with the Secretary of State of the State of Delaware to create the Preferred Shares.

Also on February 4, 2009, we amended our bylaws to add a provision requiring a stockholder who seeks to present business or to nominate directors for election at a stockholders’ meeting to provide notice to us in advance of the meeting and to include in such notice certain disclosures about the stockholder and the business to be proposed.

12

Item 2. Management’s Discussion and Analysis and Plan of Operation

Liquidity and Capital Resources

Liquidity Outlook. Our primary source of funding is the net cash flow from the sale of our oil and gas production. The profitability and cash flow generated by our operations in any particular accounting period will be directly related to: (a) the volume of oil and gas produced and sold, (b) the average realized prices for oil and gas sold, and (c) lifting costs. Assuming that oil prices do not decline from current levels, we believe the cash generated from operations, along with existing cash balances, will enable us to meet our existing and normal recurring obligations during the next fiscal year and beyond.

Working Capital. At December 31, 2008, we had a working capital surplus of $5,761,000 (a current ratio of 3.52:1) compared to a working capital surplus at March 31, 2008 of $3,168,000 (a current ratio of 1.79:1). The increase is a result of our improved cash position due to overall increases in price and production of oil and gas for the nine month period ended December 31, 2008.

Cash Flow. Net cash provided by operating activities increased 64% from $2,649,000 in the nine months ended December 31, 2007 (“2007”) to $4,344,000 in the nine months ended December 31, 2008 (“2008”) due to increased oil commodity prices and production volumes in the latest nine month period.  While not reflected on the Consolidated Statement of Income, this level of cash flow was determined by reconciling net income with, among other things, impairment and depletion expense within the “net cash provided by operating activities” section.

Net cash used in investing activities increased 1,080% from $304,000 during 2007 to $3,587,000 in the nine months ended December 31, 2008. The difference relates primarily to timing of cash payments relating to expenditures of the drilling and completion of the new wells in DJ Basin of Colorado.  We also used a de minimis amount of cash for our stock buyback program. (For further information refer to Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds).

Credit Line. Our current banking relationship, established in March 2002, is with American National Bank (“the Bank”), located in Denver, Colorado. Subject to several amendments over time, the line of credit amount was set at $20,000,000 with a concurrent borrowing base of $4,000,000. Effective December 31, 2008 the loan agreement was amended to extend the maturity date of the credit agreement to December 31, 2010.  We renewed the line with an interest rate of prime plus 0.25% or 6.5% whichever is higher.  During the year ended March 31, 2008 and for the nine months ending December 31, 2008, we did not utilize our credit facility.  The loan contains several covenant restrictions.  Since inception this loan facility has contained a covenant that makes the loan callable upon a change of control.  At December 31, 2008, we were in compliance with all covenants.  This line may be used for purposes of borrowing funds to reduce payables, finance re-completion or drilling efforts, fund property acquisitions, or pursue other opportunities we cannot envision at this time.

Capital Expenditures

The amounts presented herein are presented on an accrual basis, and as such may not be consistent with the amounts presented on the consolidated statement of cash flows under investing activities for expenditures on oil and gas property in that the amounts contained therein are presented on a cash basis.

During the quarter ended December 31, 2008, we spent approximately $353,000 on various projects.  When combined with first and second quarter investments, we have deployed $1,568,000 through the first nine months of the current fiscal year.  This compares to $945,000 and $1,328,000 for the quarter and nine months ended December 31, 2007, respectively. Through the first nine months of fiscal 2008, approximately 83% of capital expenditures were dedicated to drilling and completions, 7% was dedicated to preservation of expiring leases and 10% was dedicated to the acquisition of producing properties.

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During the quarter ended December 31, 2008, we estimate that we spent 51% of our capital expenditure amount on the Crown 41-31 project in Montana, and 23% on workovers for the Halverson 21-36 in Richland County, Montana.  These projects were funded with internally generated cash flow from operations.

Panther Energy Company, LLC. (Panther), the operator of the Company’s Banks Prospect in eastern McKenzie County, North Dakota, drilled a second well on that prospect.  In addition, Panther attempted twice to hydraulically stimulate the first well on the prospect but had to postpone its operations due to adverse winter weather conditions.  Panther has informed the Company that Panther intends to move its rig to Montana to drill two wells for a third party and then return to the Banks Prospect in late spring.  The Company will evaluate the drilling results for these two wells before committing the Company to fund capital expenditures related to additional wells on the Banks Prospect.  The Company has a 6.5% (32.5% of 20%) carried working interest “to the tanks” on the Banks acreage contributed to the spacing unit on each well.  Pursuant to the Farmout Agreement between the Company and Panther, Panther earned its 67.5% interest in the Banks acreage upon completion of the second well.  The Company has the right to participate in wells for a 6.5% working interest on the Banks acreage contributed to any spacing unit in the future.

Due to the precipitous drop in oil commodity prices and the relatively high service company prices, the Company and its 50% partner at the South Flat Lake prospect in Montana re-evaluated the economics of a vertical Red River test well on the prospect and decided to postpone drilling.  If commodity prices and drilling costs improve, the Company and its partner would drill an initial well at a total cost estimated currently to be approximately $1.35 million.

At present cash levels, and with the extension of our available borrowing capacity, we expect to have sufficient funds available for our share of any additional acreage, seismic and/or drilling cost requirements that might arise from these opportunities.  We may alter or vary all or part of these planned capital expenditures for reasons including but not limited to; changes in circumstances, unforeseen opportunities, inability to negotiate favorable acquisition, farmout or joint venture terms, lack of cash flow, and lack of additional funding.

We currently have no capital expenditure commitments.  We are continually evaluating other drilling and acquisition opportunities for possible participation. Typically, at any one time, several opportunities are in various stages of due diligence. Our policy is to not disclose the specifics of a project or prospect, nor to speculate on such ventures, until such time as those various opportunities are finalized and undertaken. We caution that the absence of news and/or press releases should not be interpreted as a lack of development or activity.

Divestitures/Abandonments

During the quarter ended December 31, 2008 we plugged no additional wells.  Instead, all expenses incurred during the quarter were for surface restoration.  

Results of Operations

Overview. Net loss for the three months ended December 31, 2008 was $1,570,000 compared to net income of $437,000, as restated, for the three months ended December 31, 2007.  Net income for the nine months ended December 31, 2008 was $756,000 compared to net income of $1,154,000 as restated for the nine months ended December 31, 2007.

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The following table shows selected financial information for the quarter ended December 31 in the current and prior year. Certain prior year amounts may have been reclassified to conform to current year presentation.

	Nine Months Ended				Three Months Ended
	December 31,				December 31,
	2008		2007		2008		2007
Sales volume
Oil (barrels)		72,700		68,300		29,400		23,200
Gas (mcf)		147,000		88,100		65,100		23,500
Revenue
Oil	$	6,658,000	$	4,891,000	$	1,552,000	$	1,921,000
Gas		1,515,000		581,000		612,000		159,000
Total revenue1		8,173,000		5,472,000		2,164,000		2,080,000
Total production expense2		2,490,000		1,981,000		863,000		741,000
Gross profit	$	5,683,000	$	3,491,000	$	1,301,000	$	1,339,000
Depletion expense	$	950,000	$	523,000	$	550,000	$	172,000
Average sales price3
Oil (per barrel)	$	91.57	$	71.61	$	52.80	$	82.62
Gas (per mcf)	$	7.39	$	6.60	$	2.86	$	6.76
Average production expense2,3,4	$	25.62	$	23.87	$	21.41	$	27.24
Average gross profit3,4	$	58.47	$	42.08	$	32.28	$	49.31
Average depletion expense3,4	$	10.05	$	6.30	$	13.87	$	6.34
Average general and administrative expense3,4	$	9.59	$	6.25	$	9.28	$	7.19

1	Net of $86,000 in water disposal revenue, as compared to total revenues of $8,259,000
2	Overall lifting cost (oil and gas production expenses and production taxes)
3	Averages calculated based upon non-rounded figures
4	Per equivalent barrel (6 Mcf of gas is equivalent to 1 barrel of oil)

Three Months Ended December 31, 2008 Compared to Three Months Ended December 31, 2007

Revenues. Oil and gas sales revenue increased $84,000 (4%) in 2008 from 2007 due to increased production partially offset by decreased prices. Oil sales revenue decreased $369,000 (19%), and gas sales revenue increased $453,000 (285%) in 2008 from 2007. 

Volumes and Prices. Oil sales volumes increased 27%, from 23,200 barrels in 2007 to 29,400 barrels in 2008 while there was a decrease of 36% in the average price per barrel from $82.62 in 2007 to $52.80 in 2008. The increase in oil sales volume is attributed primarily to the production of our Antenna Federal property in Weld County, Colorado.  Gas sales volume increased 177% from 23.5 million cubic feet (MMcf) in 2007 to 65.1 MMcf in 2008, while the average price per Mcf decreased 58%, from $6.76 in 2007 to $2.86 in 2008. The increase in gas sales volume is primarily due to bringing back online wells in the Antenna Federal property in Weld County, Colorado, as well as the production of new wells in the same property. On an equivalent barrel (BOE) basis, sales volume increased 48% from 27,200 BOE in 2007 to 40,300 BOE in 2008.

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Expenses. Oil and gas production expense increased $182,000 (32%) in 2008 over 2007. Oil and gas production expense is comprised of two components: routine lease operating expenses and workovers. Routine expenses typically include such items as daily well maintenance, utilities, fuel, water disposal, minor surface equipment repairs, and marketing and transportation costs. Workovers, on the other hand, which primarily include downhole repairs, are generally random in nature. Although workovers are expected, they can be much more frequent in some wells than others and their cost can be significant. Therefore, workovers account for more dramatic fluctuations in oil and gas production expense from period to period.

Routine lease operating expense increased $116,000 (27%) from $427,000 in 2007 to $543,000 in 2008, primarily due to higher production volumes, while workover expense increased $66,000 (49%) from $134,000 in 2007 to $200,000 in 2008. Routine lease operating expense per BOE decreased 14% from $15.71 in 2007 to $13.47 in 2008 while workover expense per BOE increased 1% from $4.92 in 2007 to $4.96 in 2008.

Production taxes, which are generally a percentage of sales revenue, decreased $60,000 (33%) in 2008 compared to 2007 primarily due to the decline of oil prices. Production taxes, as a percent of sales revenue decreased from 9% in 2007 to 5% in 2008.  The overall lifting cost (oil and gas production expense and production taxes) per BOE decreased 21% from $27.24 in 2007 to $21.41 in 2008.

Depreciation and depletion expense increased $384,000 (219%) in 2008 compared to 2007 as a result of a decrease in our reserve values due to the decline in oil and gas prices.  In addition, we recorded an impairment write down of $2,694,000 representing the excess of capitalized costs over the ceiling, as calculated in accordance with full cost rules for both the quarter and nine months ended December 31, 2008. For further discussion concerning the ceiling test limitations, see Note 2 under “Oil and Gas Property.”  

General and administrative expense increased $179,000 (92%) in 2008 over 2007. These increases were primarily the result of increased expenditures attributable to the restatement of our financial statements, along with increases in consulting fees, and to a lesser extent, increases in the number of office personnel.  G&A expense per BOE increased 29% from $7.19 in 2007 to $9.28 in 2008. As a percent of total sales revenue, G&A expense increased from 9% in 2007 to 17% in 2008.

Nine Months Ended December 31, 2008 Compared to Nine Months Ended December 31, 2007

Revenues. Oil and gas sales revenue increased $2,701,000 (49%) in 2008 from 2007. Oil sales revenue increased $1,767,000 (36%). Gas sales revenue increased $934,000 (161%) in 2008 from 2007.

Volumes and Prices. Oil sales volumes increased 6%, from 68,300 barrels in 2007 to 72,700 barrels in 2008 while there was a 28% increase in the average price per barrel from $71.61 in 2007 to $91.57 in 2008. Gas sales volume increased 67%, from 88.1 million cubic feet (MMcf) in 2007 to 147 MMcf in 2008, while the average price per Mcf increased 12%, from $6.60 in 2007 to $7.39 in 2008. The increase in gas sales volume is primarily due to production brought online from our 16-well drilling program in Weld County, Colorado. On an equivalent barrel (BOE) basis, sales volume increased 17% from 83,000 BOE in 2007 to 97,200 BOE in 2008.

Expenses. Oil and gas production expense increased $354,000 (23%) in 2008 over 2007. Oil and gas production expense is comprised of two components: routine lease operating expenses and workovers. Routine expenses typically include such items as daily well maintenance, utilities, fuel, water disposal and minor surface equipment repairs. Workovers, on the other hand, which primarily include downhole repairs, are generally random in nature. Although workovers are expected, they can be much more frequent in some wells than others and their cost can be significant. Therefore, workovers account for more dramatic fluctuations in oil and gas production expense from period to period.

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Routine lease operating expense increased $270,000 (22%) from $1,211,000 in 2007 to $1,481,000 in 2008 primarily due to higher production volumes, while workover expense increased $84,000 (27%) from $307,000 in 2007 to $391,000 in 2008. Routine lease operating expense per BOE increased 4% from $14.59 in 2007 to $15.24 in 2008 while workover expense per BOE increased 9% from $3.70 in 2007 to $4.02 in 2008.

Production taxes, which are generally a percentage of sales revenue, increased $155,000 (33%) in 2008 over 2007. Production taxes, as a percent of sales revenue decreased from 8% in 2007 to 7% in 2008. The overall lifting cost (oil and gas production expense and production taxes) per BOE increased 7% from $23.87 in 2007 to $25.62 in 2008.

Depreciation and depletion expense increased $445,000 (84%) in 2008 over 2007 as a result of a decrease in our reserve values due to the decline in oil and gas prices.  In addition, we recorded an impairment write down of $2,694,000 representing the excess of capitalized costs over the ceiling, as calculated in accordance with full cost rules for both the quarter and nine months ended December 31, 2008.  For further discussion concerning the ceiling test limitations, see Note 2 under “Oil and Gas Property.” 

General and administrative expense increased $414,000 (80%) in 2008 over 2007. These increases were primarily the result of increased expenditures attributable to the restatement of our financial statements, implementation of Sarbanes-Oxley 404 requirements, along with increases in consulting fees, and to a lesser extent, increases in the number of office personnel. G&A expense per BOE increased 53% from $6.25 in 2007 to $9.59 in 2008. As a percent of total sales revenue, G&A expense increased from 10% in 2007 to 11% in 2008.

Income Tax Expense. For the nine months ended December 31, 2008 we recorded income tax expense of $151,000. This includes a current year expense of $444,000 and a deferred tax provision of $(293,000).  Our effective income tax rate decreased from 53.56% for the nine months ended December 31, 2007 to 15.96% for 2008. Our effective income tax rate was lower for 2008 primarily due to an increase in estimated deductions for statutory depletion relative to pre-tax net income.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a crude oil and natural gas producer, our revenue, cash flow from operations, other income and profitability, reserve values, access to capital and future rate of growth are substantially dependent upon the prevailing prices of crude oil and natural gas. Declines in commodity prices will materially and adversely affect our financial condition, liquidity, ability to obtain financing and operating results. Lower commodity prices may reduce the amount of crude oil and natural gas that we can produce economically. Prevailing prices for such commodities are subject to wide fluctuation in response to relatively minor changes in supply and demand and a variety of additional factors beyond our control, such as global, political and economic conditions. Historically, prices received for crude oil and natural gas production have been volatile and unpredictable, and such volatility is expected to continue. Most of our production is sold at market prices. Generally, if the commodity indexes fall, the price that we receive for our production will also decline. Therefore, the amount of revenue that we realize is to a large extent determined by factors beyond our control.

Item 4. Controls and Procedures

The Company maintains a system of disclosure controls and procedures that are designed for the purpose of ensuring that information required to be disclosed in its SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

For the quarter ended December 31, 2008 we carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Principal Accounting Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, it was concluded that the Company’s disclosure controls and procedures are effective for the purposes discussed above.

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s quarter ended December 31, 2008 that have materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities

The following table summarizes stock repurchase activity for the three months ended December 31, 2008:

	Total Number of Shares Purchased (1)		Average Price Paid Per Share	Number of Shares Purchased as Part of a Publicly Announced Plan (1)	Maximum Shares that May Yet be Purchased under the Plan (1)
October 1, 2008—October 31, 2008	—	$	—	—	500,000
November 1, 2008—November 30, 2008	—		—	—	500,000
December 1, 2008—December 31, 2008	21,600	$	0.6653	21,600	478,400
Total	21,600			21,600

(1) In October 2008, the Company’s Board of Directors authorized a stock buyback program for the Company to repurchase up to 500,000 shares of its common stock. The program does not have a specified expiration date, it does not require the Company to repurchase any specific number of shares, and the Company may terminate the repurchase program at any time.  During the three months ended December 31, 2008, 21,600 shares were repurchased under the stock buyback program and 478,400 shares remain available for future repurchase.

Item 3. Defaults Upon Senior Securities

None.

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

On December 8, 2008, the Company held its Annual Meeting of Shareholders to elect three directors to its Board of Directors. In the election of directors, each nominee was elected by a vote of the shareholders as follows:

Director	For	Withheld
Monroe W. Robertson	13,881,297	3,584,288
Richard Rodgers	13,168,648	4,296,937
Ray Singleton	13,168,248	4,297,337

There were no other matters submitted to a vote at the Annual Meeting of Shareholders.

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Item 5. Other Information

On January 14, 2009, FieldPoint Petroleum Corporation announced that it had filed a Registration Statement on Form S-4 to register shares of its common stock proposed to be issued in connection with a potential exchange offer for a minimum of 51% and a maximum of 100% of the outstanding shares of the Company’s common stock.  The exchange ratio that FieldPoint has disclosed is one share of FieldPoint common stock for every two shares of the Company’s common stock and would be subject to a number of conditions.  FieldPoint did not have any substantive communications with the Company before issuing its press release. 

On February 5, 2009, the Company filed a Current Report on Form 8-K to report that the Company’s Board of Directors had adopted a Stockholders Rights Plan and declared a dividend of one preferred share purchase right for each outstanding share of common stock, payable to holders of record on February 17, 2009.

On February 4, 2009, the Board of Directors amended the Company’s Bylaws to add a provision requiring a stockholder who seeks to present business or to nominate directors for election at a stockholders’ meeting to provide notice to the Company in advance of the meeting and to include in such notice certain disclosures about the stockholder and the business to be proposed.  A copy of the Company’s Bylaws, as amended, is filed with this report and is incorporated herein by reference.

To propose nominations for director at a meeting of stockholders, a stockholder must timely submit a stockholder’s notice in accordance with Section 6 of the Company’s bylaws.  To be timely, a stockholder must provide notice to the Company’s secretary not less than 90 days nor more than 120 days prior to the date of the meeting.  A stockholder’s notice regarding nominations of persons for election to the Board of Directors must set forth: (a) as to each proposed nominee, (i) the name, age, business address and residence address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) the class or series and number of shares of capital stock of the corporation that are owned beneficially or of record by the nominee and (iv) any other information relating to the nominee that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice, (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the corporation which are owned beneficially or of record by such stockholder, (iii) all other ownership interests of such stockholder, including derivatives, hedged positions, synthetic and temporary ownership techniques, swaps, securities, loans, timed purchases and other economic and voting interests, (iv) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (v) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in such stockholder’s notice and (vi) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder.

Such stockholder’s notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.  In addition, each proposed nominee will be required to complete a questionnaire, in a form to be provided by the Company, to be submitted with the stockholder’s notice. The Company may also require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as an independent director of the Company or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee.

Determinations of the chairman of the meeting as to whether those procedures were complied with in a particular case shall be final and binding.

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Item 6. Exhibits

Exhibit No.	Document
3(i)	Restated Certificate of Incorporation of Basic Earth Science Systems, Inc., effective May 12, 1981, as amended by (i) Certificate of Amendment of Certificate of Incorporation, effective November 20, 1986; (ii) Certificate of Amendment of Certificate of Incorporation, effective July 1, 1996; and (iii) Certificate of Designations of Series A Junior Participating Preferred Stock, effective February 5, 2009.
3(ii)	Bylaws of Basic Earth Science Systems, Inc., dated July 15, 1986, as amended by First Amendment to Bylaws, dated February 4, 2009.
10.1	Amendment of Credit Agreement, dated effective December 31, 2008, by and between Basic Earth Science Systems, Inc. and American National Bank.
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Ray Singleton, Chief Executive Officer).
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Joseph Young, Principal Accounting Officer).
32.1	Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Ray Singleton, Chief Executive Officer).
32.2	Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Joseph Young, Principal Accounting Officer).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed by the following authorized persons on behalf of Basic.

BASIC EARTH SCIENCE SYSTEMS, INC.

By: /s/ Ray Singleton  

Ray Singleton 

President and Chief Executive Officer 

By: /s/ Joseph Young  

Joseph Young

Principal Accounting Officer 

Date: February 17, 2009

EX-3.I

EXHIBIT 3(i)

RESTATED CERTIFICATE OF INCORPORATION

OF

BASIC EARTH SCIENCE SYSTEMS, INC.

We, THE UNDERSIGNED, in order to Restate The Certificate of Incorporation, under and pursuant to the provisions of the General Corporation Laws of the State of Delaware, do hereby certify as follows:

FIRST

The name of the corporation is BASIC EARTH SCIENCE SYSTEMS, INC.

SECOND

The registered office of the corporation is to be located in the City of Wilmington, in the County of New Castle, in the State of Delaware.  The name of its Registered Agent is THE CORPORATION TRUST COMPANY, whose address is 100 W. 10th Street, Wilmington, Delaware, 19801.

THIRD

The nature of the business of the corporation and the objects or purposes proposed to be transacted, promoted or carried on by it are:

A.To conduct geological and geo-physical researches and investigations of every kind and description throughout the world with the aim of securing geological information for sale to natural resource companies.

B.To provide consulting services and supervisory services to companies engaged in the exploration and development of natural resources of any description.

C.To enter into leases, joint ventures, limited partnerships, participation plans, working interests, overriding royalty, and other royalty arrangements and to buy, sell, hypothecate, assign and transfer by any means such interests, and to retain same and to engage in the management of oil, gas, and mineral exploration and development programs for itself and for others and to perform technological services for other companies.

D.To purchase or otherwise acquire, hold, sell, pledge, transfer or otherwise dispose of, and to reissue or cancel the shares of its own capital stock or any securities or other obligations of the corporation in the manner and to the extent now or hereafter permitted by the laws of the State of Delaware.

E.To acquire all or any part of the securities, good will, rights, property or assets of all kinds and to undertake or assume the whole or any part of the obligations or liabilities of any corporation, association, partnership, syndicate, entity, person, or governmental, municipal or public authority, domestic or foreign, located in or organized under the laws of any authority in any part of the world, and to pay for the same in cash, stocks, bonds, debentures or other securities of this or any other corporation, or otherwise in any manner permitted by laws; and to conduct in any lawful manner the whole or any part of any business so acquired.

1

F.To enter into any lawful arrangement for sharing profits, union of interest, reciprocal concession or cooperation with any corporation, association, partnership, syndicate, entity, person, or governmental, municipal or public authority, domestic or foreign, located in or organized under the laws of the authority in any part of the world, or in the carrying on of any business which the corporation is authorized to carry on, or any business or transaction deemed necessary, convenient or incidental to carrying out any of the purposes of the corporation.

G.To borrow or raise moneys for any of the purposes of the corporation and from time to time, without limit as to amount, to draw, make, accept, endorse, guarantee, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment thereof and of the interest thereon by mortgage on, or pledge, conveyance or assignment in trust of, the whole or any part of the assets of the corporation, real, personal, or mixed, including contract rights, whether at the time owned or thereafter acquired, and to sell, pledge or otherwise dispose of such securities or other obligations of the corporation for its corporate purposes.

H.To lend money, either without any collateral security or on the security of real or personal property, and to enter into, make, perform and carry out, or cancel and rescind contracts of every kind and for any lawful purpose with any person, firm, association, partnership, corporation, syndicate, governmental, municipal or public authority, domestic or foreign, or others.

I.To apply for, obtain, register, purchase, lease, or otherwise acquire, and to hold, use, pledge, lease, sell, assign, or otherwise dispose of formulas, secret processes, distinctive marks, improvements, processes, trade names, trade-marks, copyrights, patents, licenses, concessions and the like, whether used in connection with or secured under letters patent of or issued by any country or authority, or otherwise; and to issue, exercise, develop and grant licenses in respect thereof or otherwise turn the same to account.

J.To make any guaranty respecting securities, indebtedness, dividends, interest, contracts or other obligations so far as the same may be permitted to be done by a corporation organized under the laws of the State of Delaware.

K.To acquire, purchase, own, hold, operate, develop, lease, mortgage, pledge, exchange, sell, transfer or otherwise dispose of and to invest, trade, or deal in, real and personal property of every kind and description or any interest therein.

L.To engage in any mercantile, manufacturing, or trading business of any kind or character whatsoever throughout the world, and to do all things incidental to any such business.

M.To do everything necessary, proper, advisable or convenient for the accomplishment of any of the purposes or the attainment of any of the objects or the furtherance of any powers herein set forth and to every other act and thing incidental thereto or connected therewith, provided the same be not forbidden by the laws of Delaware.

N.In general, to carry on any business and to have and exercise all of the powers conferred by the laws of the State of Delaware upon corporations formed thereunder; and to do any and all of the acts and things herein set forth and to the same extent as natural persons could do, and in any part of the world, as principal, factor, agent, contractor, trustee or otherwise, either alone, as a partner, or in syndicates or otherwise in conjunction with any person, entity, syndicate, partnership (either general or limited, or both), association or corporation, governmental, municipal or public authority, domestic or foreign; to establish and maintain offices and agencies and to exercise all or any of its corporate powers and rights throughout the world.

2

The foregoing clauses shall be construed as powers as well as objects and purposes, and the matters expressed in each clause shall, unless herein otherwise expressly provided, be in no wise limited by reference to or inference from the terms of any other clause, but shall be regarded as independent objects, purposes and powers; and the enumeration of specific objects, purposes and powers shall not be construed to limit or restrict in any manner the meaning of general terms or the general powers of the corporation; nor shall the expression of one thing be deemed to exclude another not expressed, although it be of like nature.

FOURTH

The total number of shares of stock which the corporation is authorized to issue is Thirty-Five Million Shares (35,000,000) of a par value of Ten Cents ($0.10) each, for the aggregate par value of Three Million Five Hundred Thousand Dollars ($3,500,000.00) consisting of Three Million Shares (3,000,000) of preferred stock and Thirty-Two Million Shares (32,000,000) of common stock and the Board of Directors is authorized to issue such shares without further authorization from the shareholder and, as to the preferred shares the Board of Directors is granted the authority to provide for the issuance of preferred shares in series, the designation, voting powers, full, limited, or no voting powers, and such designations, preferences, conversion rights, redemption rights, dividend rights, preemptive rights, participating rights, optional rights, or other special rights, qualifications, limitations, or restrictions.

FOURTH-A

The Board of Directors is authorized to issue from time to time bonds or debentures, unsecured or secured by mortgage or pledge of the corporation’s property, convertible or non-convertible, and without further authorization or consent of the stockholders.

FIFTH

The minimum amount of capital with which the corporation will commence business in Three Thousand Dollars ($3,000.00).

SIXTH

The stockholders of this corporation shall not have a pre-emptive right to subscribe to any or all of additional issues of stock of the corporation of any or all classes.

SEVENTH

The following provisions are inserted for the management of the business and for the conduct of the affairs of this corporation, and for further definition, limitation and regulation of the powers of this corporation and of its directors and stockholders:

(1)The number of directors of the corporation shall be such as from time to time shall be fixed by, or in the manner provided in the By-Laws, but shall not be less than three (3).  Election of directors need not be by ballot unless the By-Laws so provide.

     (2)At all elections of the directors of this corporation, every stockholder entitled to vote at such election shall have the right to vote in person or by proxy the number of shares owned by him for as many persons as there are directors to be elected and for whose election he is entitled to vote.  It is expressly prohibited for any stockholder to cumulate his votes in any election of directors.

     (3)The Board of Directors shall have power:

(a)To make, alter, amend, change, add to, or repeal the by-Laws of this corporation; to fix and vary the amount ot be reserved for any proper purposes; to authorize and cause to be executed mortgages and lines upon any part of the property of the corporation provided it be less than substantially all; to determine the use and disposition of any surplus or net profits and to fix the time for the declaration and payment of the dividends.

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(b)To determine from time to time whether and to what extent, and at what times and places, and under what conditions and regulations the accounts and books of the corporation (other than the stock ledger) or any of them shall be open to the inspection of the stockholders.

      (4)The directors in their discretion may submit any contract or act for approval or ratification at any annual meeting of the stockholders or at any meeting of the stockholders called for the purpose of considering any such act or contract, and any contract or act that shall be approved or be ratified by the vote of the holders of a majority of the stock of the corporation which is represented in person or by proxy at such meeting and entitled to vote thereat (provided that a lawful quorum of stockholders be there represented in person or by proxy) shall be as valid and as binding upon the corporation and upon all the stockholders as though it had been ratified by every stockholder of the corporation, whether or not the contract or act would otherwise be open to legal attack because of directors’ interest, or for any other reason.

      (5)In addition to the powers and authorities hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and to do all such acts and things as may be exercised or done by the corporation; subject, nevertheless, to the provisions of the statutes of Delaware, of this certificate, and to any By-Laws from time to time made by the stockholders; provided, however, that no By-Law so made shall invalidate any prior act of the directors which would have been valid if such By-Law had not been made.

EIGHTH

No contract or other transaction between the corporation and any other corporation shall be affected or invalidated by the fact that any one or more of the directors of this corporation is or are interested in, or is a director or officer, or are directors or officers of such other corporation, and any director or directors, individually or jointly, may be a party or parties to or may be interested in any contract or transaction of this corporation or in which this corporation is interested, and no contract, act or transaction of this corporation with any person or persons, firm or association shall be affected or invalidated by the fact that any director or directors of this corporation is a party, or are parties to, or interested in such contract, or act, or transaction, or in any way connected with such person or persons, firm or association, and each and every person who may become a director of this corporation is hereby relieved from any liability that might otherwise exist from contract with the corporation for the benefit of himself or any firm or corporation in which he may be in any way interested.

NINTH

Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the court directs.  If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.

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TENTH

The corporation shall, to the full extent permitted by Section 145 of the Delaware General Corporation Law, as amended from time to time, indemnify all persons whom it may indemnify pursuant thereto.

ELEVENTH

The corporation reserves the right to amend, alter, change, or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on stockholders, directors and officers are subject to this reserved power.

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CERTIFICATE OF AMENDMENT

OF

RESTATED CERTIFICATE OF INCORPORATION

OF

BASIC EARTH SCIENCE SYSTEMS, INC.

Adopted November 7, 1986

Basic Earth Science Systems, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:

FIRST:  That at a meeting of the Board of Directors of Basic Earth Science Systems, Inc. resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof.  The resolution setting forth the proposed amendment is as follows:

RESOLVED, that the Restated Certificate of Incorporation of this corporation is amended by adding to Article TENTH a new and additional paragraph reading as follows:

“This Corporation shall, as authorized by Section 102(7) of the Delaware General Corporation Law, limit to a maximum of Ten Thousand Dollars ($10,000.00) the personal liability of a director to the corporation and its stockholders for monetary damages for breach of fiduciary duty as a director of Basic Earth Science Systems, Inc., provided that such provision shall not limit the liability of a director (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of this Title, (relating to Liability of Directors for unlawful payment of dividends or unlawful stock purchase or redemption; Exoneration from Liability; Contribution among Directors; Subrogation), or (iv) for any transaction from which the director derived an improper personal benefit.  No such provision shall limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective.”

SECOND:  That thereafter, pursuant to resolution of its Board of Directors, an annual meeting of the stockholders of said corporation was duly called and held at 44 Inverness Drive East, Building E, Englewood, Colorado, on Friday, November 7, 1986, at 2:30 p.m., Mountain Standard Time, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.

THIRD:  That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

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IN WITNESS WHEREOF, said Basic Earth Science Systems, Inc. has caused this certificate to be signed by G. W. Breuer, its President, and attested by Robert L. Poley, its Secretary, this 7th day of November, 1986.

BASIC EARTH SCIENCE SYSTEMS, INC.

By       /s/ G. W. Breuer                                                                  

            G. W. Breuer – President

ATTEST:

By    /s/ Robert L. Poley                                        

Robert L. Poley – Secretary

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CERTIFICATE OF AMENDMENT

TO THE

RESTATED CERTIFICATE OF INCORPORATION

OF

BASIC EARTH SCIENCE SYSTEMS, INC.

PURSUANT TO the General Corporation Law of the State of Delaware, the undersigned corporation adopts the following Certificate of Amendment to the Restated Certificate of Incorporation:

ARTICLE I

Name

The name of the corporation is BASIC EARTH SCIENCE SYSTEMS, INC. (the “Corporation”).

ARTICLE II

Amendment Adopted

Pursuant to approval of the holders of the majority of the Corporation’s outstanding stock obtained at a meeting of the shareholders of the Corporation held on October 6, 1995, the Fourth Article of the Restated Certificate of Incorporation of the Corporation was amended and restated in its entirety as follows:

“FOURTH

The total number of shares of stock which the corporation is authorized to issue is Thirty-five Million Shares (35,000,000) of a par value of $0.001 each, consisting of Three Million Shares (3,000,000) of preferred stock and Thirty-two Million Shares (32,000,000) of common stock and the Board of Directors is authorized to issue such shares without further authorization from the shareholders and, as to the preferred shares, the Board of Directors is granted the authority to provide for the issuance of preferred shares in series, the designation, voting powers, full, limited or no voting powers, and such designations, preferences, conversion rights, redemption rights, dividend rights, preemptive rights, participating rights, optional rights, or other special rights, qualifications, limitations, or restrictions.”

ARTICLE III

Stated Capital

As a result of the change in par value of the Corporation’s capital, the stated capital of the Corporation shall be reduced by the re-allocation of capital from the stated capital account to the capital surplus account.

CERTIFICATE

Pursuant to the General Corporation Law of the State of Delaware, the undersigned corporation does hereby certify that this Certificate of Amendment to the Restated Certificate of Incorporation of Basic Earth Science Systems, Inc. has been duly adopted pursuant to the approval and vote of the holders of the majority of said corporation’s outstanding stock in accordance with Section 242 of the General Corporation Law of the State of Delaware.

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Dated:  March 31, 1996

BASIC EARTH SCIENCE SYSTEMS, INC.

By       /s/ Ray Singleton                                                                   

            Ray Singleton, President

ATTEST:

By    /s/ David J. Flake                                        

David J. Flake, Secretary

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CERTIFICATE OF DESIGNATIONS

of

SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

of

BASIC EARTH SCIENCE SYSTEMS, INC.

(Pursuant to Section 151 of the

Delaware General Corporation Law)

____________________

Basic Earth Science Systems, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the “Corporation”), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on February 4, 2009:

RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the “Board of Directors” or the “Board”) in accordance with the provisions of the Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, par value $0.001 per share, of the Corporation (the “Preferred Stock”), and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows:

Series A Junior Participating Preferred Stock:

Section 1.  Designation and Amount.  The shares of such series shall be designated as “Series A Junior Participating Preferred Stock” (the “Series A Preferred Stock”) and the number of shares constituting the Series A Preferred Stock shall be 100,000.  Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock.

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Section 2.  Dividends and Distributions.

(A)           Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $0.001 per share (the “Common Stock”), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock.  In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(B)           The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

(C)           Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date.  Accrued but unpaid dividends shall not bear interest.  Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding.  The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.

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Section 3.  Voting Rights.  The holders of shares of Series A Preferred Stock shall have the following voting rights:

(A)           Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation.  In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(B)           Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.

(C)           Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

Section 4.  Certain Restrictions.

(A)           Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

(i)           declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;

(ii)           declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

(iii)           redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or

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(iv)           redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(B)           The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

Section 5.  Reacquired Shares.  Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof.  All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law.

Section 6.  Liquidation, Dissolution or Winding Up.  Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up.  In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 7.  Consolidation, Merger, Etc.  In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged.  In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

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Section 8.  No Redemption.  The shares of Series A Preferred Stock shall not be redeemable.

Section 9.  Rank.  The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation’s Preferred Stock.

Section 10.  Amendment.  The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class.

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IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its President and attested by its Secretary this 4th day of February, 2009.

/s/ Ray J. Singleton, Jr.                                                                             

RAY J. SINGLETON, JR.

Attest:

/s/ Karen Mercer                                                                  

Secretary

EX-3.II

EXHIBIT 3(ii)

BY-LAWS

OF

BASIC EARTH SCIENCE SYSTEMS, INC.

ARTICLE I

OFFICES

SECTION 1.   REGISTERED OFFICE.  --  The registered office shall be established and maintained at the office of The Corporation Trust Company, in the City of Wilmington, in the County of New Castle, in the State of Delaware, and said corporation shall be the registered agent of this corporation in charge thereof.  (Amended by 6-14-71 minutes.)

SECTION 2.   OTHER OFFICES.  ---  The corporation may have other offices, either within or without the State of Delaware, at such place or places as the Board of Directors may from time to time appoint or the business of the corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 1.   ANNUAL MEETINGS.  ---  Annual Meetings of stockholders shall be held on the third Thursday of July, if not a legal holiday, and if a legal holiday, then on the next succeeding business day, either within or without the State of Delaware, at 10:00 o’clock a.m. local time, or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, which meeting shall be for the election of Directors and for such other business as shall be stated in the notice of the meeting.

The record date for determining stockholders entitled to notice of and to vote at the Annual Meeting of the Stockholders shall be at the close of business on a date as may be designated by the Board of Directors within the time permitted and specified by the General Corporation Laws of Delaware.  (Amended by Resolution at 5-21-70 Directors’ meeting, reamended by Resolution at 6-9-70 Directors’ meeting and completely amended by Resolution at 6-20-72 Directors’ meeting.)

SECTION 2.   OTHER MEETINGS.  ---  Meetings of the stockholders for any purpose other than the election of directors may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting.

SECTION 3.   VOTING.  ---  Each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation and in accordance with the provisions of these By-Laws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder, but no proxy shall be voted after three years from its date unless such proxy provides for a longer period.  Upon the demand of any stockholder, the vote for directors and the vote upon any question before the meeting, shall be by ballot.  At all elections of the directors of this corporation, every stockholder entitled to vote at such election shall have the right to vote in person or by proxy the number of shares owned by him for as many persons as there are elected and for whose election he is entitled to vote.  It is expressly prohibited for any stockholder to cumulate his votes in any election of directors.  All questions shall be decided by a majority vote except as otherwise provided by the Certificate of Incorporation or the laws of the State of Delaware.

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A complete list of the stockholders entitled to vote at the ensuring election, arranged in alphabetical order, with the address of each, and the number of shares held by each, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meting is to be held.  The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.  (Amended by Resolution at 1-7-71 Directors’ meeting.)

SECTION 4.   QUORUM.  ---  Except as otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the presence, in person or by proxy, of stockholders holding a majority of the stock of the corporation entitled to vote shall constitute a quorum at all meetings of the stockholders.  In case a quorum shall not be present at any meeting, a majority in interest of the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock entitled to vote shall be present.  At any such adjourned meeting at which the requisite amount of stock entitled to vote shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof.

SECTION 5.   SPECIAL MEETINGS.  ---  Special meetings of the stockholders for any purpose or purposes may be called by the President or Secretary, or by resolution of the directors or by stockholders holding no less than one-fifth (1/5) of the voting power of the corporation.

SECTION 6.   NOTICE OF MEETINGS.  ---  Written notice, stating the place, date, and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at his address as it appears on the records of the corporation, not less than ten (10) nor more than fifty (50) days before the date of the meeting.  No business other than that stated in the notice shall be transacted at any meeting without the unanimous consent of all the stockholders entitled to vote thereat.  (Amended by 9-3-73 minutes.)

SECTION 7.   ACTION WITHOUT MEETING.  ---  Except as otherwise provided by the Certificate of Incorporation, whenever the vote of stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, the meeting and vote of stockholders may be dispensed with, if all the stockholders who would have been entitled to vote upon the action if such a meeting were held, shall consent in writing to such corporate action being taken.

ARTICLE III

DIRECTORS

SECTION 1.   NUMBER AND TERM.  ---  The number of directors shall be as fixed by these By-Laws but shall not be less than three (3) nor more than nine (9).  The directors shall be elected at the annual meeting of the stockholders, and each director shall be elected to serve until his successor shall be elected and shall qualify.  Directors need not be stockholders.

SECTION 2.   RESIGNATIONS.  ---  Any director, member of a committee or other officer may resign at any time.  Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the President or Secretary.  The acceptance of a resignation shall not be necessary to make it effective.

SECTION 3.   VACANCIES.  ---  If the office of any director, member of a committee or other officer becomes vacant, the remaining directors in office, thought less than a quorum by a majority vote, may appoint any qualified person to fill such vacancy, who shall hold office for the unexpired term and until his successor shall be duly chosen.

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SECTION 4.   REMOVAL.  ---  Any director or directors may be removed either for or without cause at any time by the affirmative vote of the holders of a majority of all the shares of stock outstanding and entitled to vote, at a special meeting of the stockholders called for the purpose and the vacancies thus created may be filled, at the meeting held for the purpose of removal, by the affirmative vote of a majority in interest of the stockholders entitled to vote.

SECTION 5.   INCREASE OR DECREASE OF NUMBER.  ---  The number of directors may be increased or decreased by amendment of these By-Laws by the affirmative vote of a majority of the directors, though less than a quorum, or, by the affirmative vote of a majority in interest of the stockholders, at the annual meeting or at a special meeting called for that purpose, and by like vote the additional directors may be chosen at such meeting to hold office until the next annual election and until their successors are elected and qualify; provided, however, that the number shall not be less than three (3).

SECTION 6.   POWERS.  ---  The Board of Directors shall exercise all of the powers of the corporation except such as are by law, or by the Certificate of Incorporation of the corporation, or by these By-Laws conferred upon or reserved to the stockholders.

SECTION 7.   COMMITTEES.  ---  (Repealed in its entirety by 10-25-73 minutes)

SECTION 8.   MEETINGS.  --- The newly elected directors may hold their first meeting for the purpose of organization and the transaction of business, if a quorum be present, immediately after the annual meeting of the stockholders; or the time and place of such meeting may be fixed by consent in writing of all the directors.

Regular meetings of the directors may be held without notice at such places and times as shall be determined from time to time by resolution of the directors.

Special meetings of the board may be called by the President or by the Secretary on the written request of any two directors on at least two days notice to each director and shall be held at such place or places as may be determined by the directors, or as shall be stated in the call of the meeting.

Presence at any special meeting shall constitute a waiver of notice and consent to the holding thereof.

A draft of the minutes of any regular or special meeting will be prepared and mailed to each director as soon after the adjournment of the meeting as is reasonably possible.  (amended by addition by 8-31-72 minutes and by deletion by 10-25-73 minutes.)

SECTION 9.   QUORUM.  ---  A majority of the directors shall constitute a quorum for the transaction of business.  If at any meeting of the board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned.

SECTION 10.   COMPENSATION.  ---  Directors shall not receive any stated salary for their services as directors or as members of committees, but by resolution of the board a fixed fee and expenses of attendance may be allowed for attendance at each meeting.  Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent or otherwise, and receiving compensation therefor.

SECTION 11.   ACTION WITHOUT MEETING.  ---  Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the board, or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee.

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ARTICLE IV

OFFICERS

SECTION 1.   OFFICERS.  ---  The officers of the corporation shall be a President, a Treasurer, and a Secretary, all of whom shall be elected by the Board of Directors and who shall hold office until their successors are elected and qualified.  In addition, the Board of Directors may elect a Chairman, one or more Vice-Presidents and such Assistance Secretaries and Assistant Treasurers as they may deem proper.  None of the officers of the corporation need be directors.  The officers shall be elected at the first meeting of the Board of Directors after each annual meeting.  More than two offices may be held by the same person.

SECTION 2.   OTHER OFFICERS AND AGENTS.  ---  The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.

SECTION 3.   CHAIRMAN.  ---  The Chairman of the Board of Directors, if one be elected, shall preside at all meetings of the Board of Directors and he shall have and perform such other duties as from time to time may be assigned to him by the Board of Directors.

SECTION 4.   PRESIDENT.  ---  The President shall be the chief executive officer of the corporation and shall have the general powers and duties of supervision and management usually vested in the office of the President of a corporation.  He shall preside at all meetings of the stockholders if present thereat, and in the absence or non-election of the Chairman of the Board of Directors, at all meetings of the Board of Directors, and shall have general supervision, direction and control of the business of the corporation.  Except as the Board of Directors shall authorize the execution thereof in some other manner, he shall execute bonds, mortgages and other contracts in behalf of the corporation, and shall cause the seal to be affixed to any instrument requiring it and when so affixed the seal shall be attested by the signature of the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer.

SECTION 5.   VICE PRESIDENT  ---  Each Vice President shall have such powers and shall perform such duties as shall be assigned to him by the directors.

SECTION 6.   TREASURER.  ---  The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the corporation.  He shall deposit all moneys and other valuables in the name and to the credit of the corporation in such depositaries as may be designated by the Board of Directors.

The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, or the President, taking proper vouchers for such disbursements.  He shall render to the President and Board of Directors at the regular meetings of the Board of Directors, or whenever they may request it, an account of all his transactions as Treasurer and of the financial condition of the corporation.  If required by the Board of Directors, he shall give the corporation a bond for the faithful discharge of his duties in such amount and with such surety as the board shall prescribe.

SECTION 7.   SECRETARY.  ---  The Secretary shall give, or cause to be given, notice of all meetings of stockholders and directors, and all other notices required by law or by these By-Laws, and in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the President, or by the directors, or stockholders, upon whose requisition the meeting is called as provided in these By-Laws.  He shall record all the proceedings of the meetings of the corporation and of the directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him by the directors or the President.  He shall have the custody of the seal of the corporation and shall affix the same to all instruments requiring it, when authorized by the directors or the President, and attest the same.

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SECTION 8.   ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.  ---  Assistant Treasurers and Assistant Secretaries, if any, shall be elected and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the directors.

SECTION 9.   DUTIES MAY BE DELEGATED.  ---  In case of the absence of any officer of the corporation, or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may delegate, for the time being, all or part of the powers or duties of such officer to any other officer or any director.

ARTICLE V

MISCELLANEOUS

SECTION 1.   CERTIFICATES OF STOCK.  ---  Certificates of stock, signed by the Chairman or Vice Chairman of the Board of Directors, if they be elected, President or Vice-President, and the Treasurer or an Assistant Treasurer, or Secretary or an Assistant Secretary, shall be issued to each stockholder certifying the number of shares owned by him in the corporation.  When such certificates are countersigned (1) by a registrar other than the corporation or its employee, or, (2) by a transfer agent other than the corporation or its employee, the signatures of such officers may be facsimiles.

SECTION 2.   LOST CERTIFICATES  ---  A new certificate of stock may be issued in the place of any certificate theretofore issued by the corporation, alleged to have been lost or destroyed, and the directors may, in their discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the corporation a bond, in such sum as they may direct, not exceeding double the value of the stock, to indemnify the corporation against any claim that may be made against it on account of the alleged loss of any such certificate, or the issuance of any such new certificate.

SECTION 3.   TRANSFER OF SHARES.  ---  The shares of stock of the corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers, or to such other person as the director may designate, by whom they shall be cancelled, and new certificates shall thereupon be issued.  A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer.

SECTION 4.   STOCKHOLDERS RECORD DATE.  ---  In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action.  A determination of stockholders of the record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

SECTION 5.   DIVIDENDS.  ---  Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient.  Before declaring any dividend there may be set apart out of any funds of the corporation available for dividends, such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interests of the corporation.

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SECTION 6.   SEAL.  ---  The corporate seal shall be circular in form and shall contain the name of the corporation, the year of its creation and the words “CORPORATE SEAL DELAWARE”.  Said seal may be used by causing it or facsimile thereof to be impressed or affixed or reproduced or otherwise.

SECTION 7.   FISCAL YEAR.  ---  The fiscal year of the corporation shall be the calendar year, unless otherwise determined by resolution of the Board of Directors.  (Fiscal year March 31 per Resolution at 5-21-70 Board of Directors Meeting.)

SECTION 8.   CHECKS.  ---  All checks, drafts or other orders for the payment of money, notes or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner as shall be determined from time to time by resolution of the Board of Directors.

SECTION 9.   NOTICE AND WAIVER OF NOTICE.  ---  Whenever any notice is required by these By-Laws to be given, personal notice is not meant unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage prepaid, addressed to the person entitled thereto at his address as it appears on the records of the corporation, and such notice shall be deemed to have been given on the day of such mailing.  Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by Statute.

Whenever any notice whatever is required to be given under the provisions of any law, or under the provisions of the Certificate of Incorporation of the corporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

SECTION 10.   INSPECTION OF CORPORATE RECORDS.  ---  The stock register or duplicate stock register, the books of account, and the minutes of proceedings of the stockholders and directors shall be open to inspection upon the written demand of any stockholder or the holder of a voting trust certificate, at any reasonable time, and for a purpose reasonably related to his interests as a stockholder; and shall be produced at any time when required by the demand of ten percent (10%) of the stocks represented at any stockholders’ meeting.  Such inspection may be made in person or by an agent or attorney, and shall include the right to make extracts.  Demand of inspection other than at a stockholders’ meeting shall be made in writing upon the President, Secretary or Assistant Secretary of the corporation.  Every such demand, unless granted, shall be referred by such officer to the Board of Directors.

SECTION 11.   CONTRACTS, ETC. – HOW EXECUTED.  ---  The Board of Directors, except as in the By-Laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; and unless so authorized by these By-Laws or resolution of the Board of Directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contact or engagement or to pledge its credit or to render it liable for any purpose or to any amount.

SECTION 12.   REPRESENTATION OF STOCKS HELD BY OTHER CORPORATIONS.  ---  Stocks of the corporation standing in the name of another corporation may be voted or represented, and all rights incident thereto may be exercised on behalf of such other corporation, or by any officer thereof authorized so to do by resolution of its By-Laws, or by any person duly authorized so to do by proxy or power of attorney duly executed by the President or Vice President, and Secretary of Assistant Secretary of such corporation, or by authority of the Board of Directors thereof.

SECTION 13.   INSPECTION OF BY-LAWS  ---  The corporation shall keep in its principal office for the transaction of business the original or a copy of the By-Laws as amended or otherwise altered to date, certified by the Secretary, which shall be open to inspection by the stockholders at all reasonable times during office hours.

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SECTION 14.   INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.

(a)The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of “nolo contendere” or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that this conduct was unlawful.

(b)The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

(c)To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b), or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.

(d)Any indemnification under subsections (a) and (b) (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b).  Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders.

(e)Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the board of directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this section.

(f)The indemnification provided by this section shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

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(g)The corporation may, upon approval of the board of directors, purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section.

(h)For the purposes of this section, references to “the corporation” include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this section with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity.  (Amended by Resolution 1-81-71 Board meeting)

ARTICLE VI

AMENDMENTS

These By-Laws may be altered, amended, changed or repealed by the affirmative vote of a majority of the Board of Directors, at any regular meeting of the Board of Directors or at any special meeting if notice of the proposed alteration, amendment, change or repeal be contained in the notice of such special meeting.  These By-Laws also may be altered, amended, changed or repealed at the annual meeting of the stockholders or any special meeting if notice of the proposed alteration, amendment, change or repeal be contained in the notice of the meeting, by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote thereat.

Following the adoption of any amendment to these By-Laws, the Secretary shall make an appropriate notation in the margin showing the date of the meeting and the page in the Minute Book where the amendment shall be found.  (Amended by addition — 8-31-72 minutes)

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FIRST AMENDMENT TO BYLAWS

The undersigned, being the Secretary of Basic Earth Science Systems, Inc., a Delaware corporation (the “Company”), hereby certifies that the Company’s Bylaws, dated July 15, 1986, were amended by a resolution of the Board of Directors of the Company (the “Board of Directors”), adopted on February 4, 2009, as follows:

1.           Article II, Section 6, of the Bylaws is amended and restated in its entirety and replaced with the following:

SECTION 6.   NOTICE OF BUSINESS TO BE TRANSACTED AT MEETINGS OF STOCKHOLDERS.  No business may be transacted at any meeting of stockholders, including the nomination or election of persons to the Board of Directors, other than business that is either: (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the meeting by any stockholder of the corporation (1) who is a stockholder of record on the date of the giving of the notice provided for in this Section 6 and on the record date for the determination of stockholders entitled to vote at such meeting and (2) who complies with the notice procedures set forth in this Section 6.  In addition to any other applicable requirements, for business to be properly brought before a meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the corporation.  The notice procedures set forth in this Section 6 shall not be deemed to affect any rights of stockholders to request inclusion of proposals in the Company’s proxy statement pursuant to, and in compliance with the requirements of, Rule 14a-8 of the Exchange Act of 1934.

(a)               To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the date of the meeting; provided, however, that in the event that public disclosure of the date of the meeting is first made less than one hundred (100) days prior to the date of the meeting, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such public disclosure of the date of the meeting was made.

(b)               To be in proper written form, a stockholder’s notice to the Secretary regarding any business other than nominations of persons for election to the Board of Directors must set forth as to each matter such stockholder proposes to bring before the meeting: (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the corporation that are owned beneficially or of record by such stockholder, (iv) all other ownership interests of such stockholder, including derivatives, hedged positions, synthetic and temporary ownership techniques, swaps, securities, loans, timed purchases and other economic and voting interests, (v) a description of all other arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (vi) a representation that such stockholder intends to appear in person or by proxy at the meeting to bring such business before the meeting.

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(c)               To be in proper written form, a stockholder’s notice to the Secretary regarding nominations of persons for election to the Board of Directors must set forth: (a) as to each proposed nominee, (i) the name, age, business address and residence address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) the class or series and number of shares of capital stock of the corporation that are owned beneficially or of record by the nominee and (iv) any other information relating to the nominee that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice, (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the corporation which are owned beneficially or of record by such stockholder, (iii) all other ownership interests of such stockholder, including derivatives, hedged positions, synthetic and temporary ownership techniques, swaps, securities, loans, timed purchases and other economic and voting interests, (iv) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (v) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in such stockholder’s notice and (vi) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder.  Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.  Each proposed nominee will be required to complete a questionnaire, in a form to be provided by the Corporation, to be submitted with the stockholder’s notice. The Corporation may also require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee.

(d)               No business shall be conducted at any meeting of stockholders, and no person nominated by a stockholder shall be eligible for election as a director, unless proper notice was given with respect to the proposed action in compliance with the procedures set forth in this Section 6.  Determinations of the chairman of the meeting as to whether those procedures were complied with in a particular case shall be final and binding.

Dated:  February 4, 2009                                     /s/ Karen Mercer                                                                  

Karen Mercer

Secretary of Basic Earth Science Systems, Inc.

EX-10.1

EXHIBIT 10.1

AMENDMENT OF CREDIT AGREEMENT

THIS AMENDMENT OF CREDIT AGREEMENT (this "Amendment"), dated as of December 31, 2008, is by and between BASIC EARTH SCIENCE SYSTEMS, INC. ("BESSI"), and AMERICAN NATIONAL BANK, a national banking association ("ANB"), f/k/a THE BANK OF CHERRY CREEK, N.A. ("BOCC").

RECITALS

A.  BESSI and BOCC entered into a letter agreement dated March 4, 2002, as previously amended (as so amended, the "Credit Agreement"), setting forth the terms upon which BOCC would make advances to BESSI and by which such advances would be governed and repaid.  Capitalized terms used herein but not defined herein shall have the same meanings as set forth in the Credit Agreement.

B.  ANB is the successor in interest to the rights and obligations of BOCC under the Credit Agreement and all related documents.

C.  BESSI and ANB desire that this Amendment be executed and delivered in order to amend certain terms and provisions of the Credit Agreement.

AMENDMENT

NOW, THEREFORE, in consideration of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.   Credit Agreement. The Credit Agreement shall be, and hereby is, amended as follows as of the date hereof:

a.   The following shall be substituted for the section entitled “Maturity Date” on page 2 of the Credit Agreement:

Maturity Date: “December 31, 2010, on which date the Borrower agrees to repay the remaining balance of the Loan in its entirety, including all outstanding principal interest, fees, expenses, and other amounts due in connection therewith”.

b.   The following shall be substituted for the section entitled “Revolving Period” on page 2 of the Credit Agreement:

Revolving Period: “From the date of this agreement through December 31, 2010.  During the Revolving Period Borrower may borrow, repay, and re-borrow funds.  At no time, however, may the aggregate outstanding principal balance of all Advances exceed the Commitment Amount”.

c.   The following shall be substituted for the section entitled “Interest Rate” on page 2 of the Credit Agreement:

Interest Rate: “Interest on the outstanding principal balance of the Line of Credit shall accrue at an annual rate equal to the greater of (a) the fluctuating Prime Rate (as defined in the Note) plus ¼%, or (b) 6.5% per annum. After the occurrence of an Event of Default, interest on the Line of Credit shall accrue at a rate equal to the Prime Rate at the time of default plus five percentage points per annum. Borrower shall pay interest monthly on the 1st day of each calendar month and on the Maturity Date”.

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d.   The following new section entitled “Accounts” shall be added to the end of page 2 of the Credit Agreement:

Accounts: “Borrower will continue to maintain their primary operating accounts and payroll accounts with ANB during the term of this commitment and prior to payment in full of this Loan”.

2.   The Amended Note.  The Amended Note shall be amended to reflect the interest rate floor of 6.5% per annum, such amendment to be affected by an Allonge (the “Allonge”), between Borrower and ANB, to be attached to the Amended Note and to be substantially in the form of Exhibit A attached hereto and made a part hereof.

3.   Loan Documents.  All references in any document to the Credit Agreement shall be deemed to refer to the Credit Agreement, as amended pursuant to this Amendment.

4.   Conditions Precedent.  The obligations of the parties under this Amendment are subject, at the option of ANB, to the prior satisfaction of the condition that BESSI shall have delivered to ANB the following (all documents to be satisfactory in form and substance to ANB and, if appropriate, duly executed and/or acknowledged on behalf of the parties other than ANB):

a.   This Amendment.

b.   The Allonge

5.   Certification by BESSI. BESSI hereby certifies to ANB that as of the date of this Amendment: (a) all of BESSI’s representations and warranties contained in the Credit Agreement are true, accurate and complete in all material respects, (b) BESSI has performed and complied with all agreements and conditions required to be performed or complied with by it under the Credit Agreement and/or any Loan Document on or prior to this date, and (c) neither any Event of Default nor any other event or condition which, with the giving of notice, the lapse of time, or both, would constitute an Event of Default has occurred under the Credit Agreement.

6.   Continuation of the Credit Agreement. Except as specified in this Amendment, the provisions of the Credit Agreement shall remain in full force and effect, and if there is a conflict between the terms of this Amendment and those of the Credit Agreement or any other document executed and delivered in connection therewith, the terms of this Amendment shall control.

7.   Miscellaneous. This Amendment shall be governed by and construed under the laws of the State of Colorado and shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns.  This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

EXECUTED as of December 31, 2008.

BASIC EARTH SCIENCE SYSTEMS, INC.

By:  /s/ Ray Singleton  

 Ray Singleton

 President

 AMERICAN NATIONAL BANK f/k/a

  THE BANK OF CHERRY CREEK, N.A.

By:  /s/ Kevin Donaldson  

 Kevin Donaldson

 Vice President

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ALLONGE

Reference is made to an Amended Promissory Note dated March 4, 2002 (the "Note"), in the face amount of $20,000,000, made by BASIC EARTH SCIENCE SYSTEMS, INC. (“Borrower"), payable to the order of AMERICAN NATIONAL BANK (“ANB").

The Note is hereby modified as follows, effective as of the date hereof:

1.   The following shall be substituted for the first sentence of the fifth paragraph on page 1 of the Note:

“Except as otherwise provided below with respect to amounts not paid when due, interest on the Loan shall accrue at an annual rate equal to the greater of (a) the Prime Rate (as defined below) plus ¼%, or (b) 6.5% per annum”.

2.   In line 2 of the forth paragraph on page 1 of the Note, “December 31, 2008” shall be changed to “December 31, 2010”.

EXECUTED as of December 31, 2008.

BASIC EARTH SCIENCE SYSTEMS, INC.

By: /s/ Ray Singleton  

      Ray Singleton

      President

AMERICAN NATIONAL BANK

By: /s/ Kevin Donaldson  

      Kevin Donaldson

      Vice President

EX-31.1

Exhibit 31.1

CERTIFICATION CHIEF EXECUTIVE OFFICER

I, Ray Singleton, hereby certify that:

1.	I have reviewed this report on Form 10-Q for Basic Earth Science Systems, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4.	The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer and its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s last quarter of the current fiscal year that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting.

5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the Audit Committee of the small business issuer’s Board of Directors:

(a)	all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize, and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

EXECUTED this 17th day of February, 2009.

By: /s/ Ray Singleton   

Ray Singleton

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER

I, Joseph Young, hereby certify that:

1.	I have reviewed this report on Form 10-Q for Basic Earth Science Systems, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4.	The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer and its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s last quarter of the current fiscal year that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting.

5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the Audit Committee of the small business issuer’s Board of Directors:

(a)	all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize, and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

EXECUTED this 17th day of February, 2009.

By: /s/ Joseph Young  

Joseph Young

Principal Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Basic Earth Science Systems, Inc. (the “Company”) on Form 10-Q for the period ended December 31, 2008 to be filed with the Securities and Exchange Commission on February 17, 2009 (the “Report”), I, Ray Singleton, as President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By: /s/ Ray Singleton	February 17, 2009
Ray Singleton, President and
Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Basic Earth Science Systems, Inc. (the “Company”) on Form 10-Q for the period ended December 31, 2008 to be filed with the Securities and Exchange Commission on February 17, 2009 (the “Report”), I, Joseph Young, as Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By: /s/ Joseph Young	February 17, 2009
Joseph Young,
Princpal Accounting Officer