UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

For the Quarterly Period Ended March 31,June 30, 2006

OR

Commission file number: 001-7940

GOODRICH PETROLEUM CORPORATION

(Exact name of registrant as specified in its charter)

(Registrant’s telephone number, including area code): (713) 780-9494

Securities Registered Pursuant to Section 12 (b) of the Act:

Securities Registered Pursuant to Section 12 (g) of the Act:

None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yesþx    No¨

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

Large accelerated filer  ¨            Accelerated filer  þx            Non-accelerated filer  ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes¨    Noþx

The number of shares outstanding of the Registrant’s common stock as of May 5,August 4, 2006 was 24,932,898.24,962,966.

GOODRICH PETROLEUM CORPORATION

TABLE OF CONTENTS

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

See notes to consolidated financial statements

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

(Unaudited)

See notes to consolidated financial statements

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

See notes to consolidated financial statements

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

(Unaudited)

See notes to consolidated financial statements

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A—Basis of Presentation

The consolidated financial statements of Goodrich Petroleum Corporation (“Goodrich” or “the Company” or “we”) included in this Form 10-Q have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, accordingly, certain information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States has been condensed or omitted. The consolidated financial statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation. Significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior year statements to conform to the current year presentation.

The accompanying consolidated financial statements of the Company should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2005. The results of operations for the threesix months ended March 31,June 30, 2006 are not necessarily indicative of the results to be expected for the full year.

NOTE B—Recent Accounting Pronouncements

In MarchJuly 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), to clarify certain aspects of Financial Accounting Standard (“SFAS”)accounting for uncertain tax positions, including issues related to the recognition and measurement of those tax positions. This interpretation is effective for fiscal years beginning after December 15, 2006. We are in the process of evaluating the impact of the adoption of this interpretation on our consolidated financial position, results of operations or cash flows.

In March 2006, the FASB issued SFAS No.156, “Accounting for Servicing of Financial Assets” (“SFAS 156”), which requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value. SFAS 156 permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. Adoption is required as of the beginning of the first fiscal year that begins after September 15, 2006. Early adoption is permitted. The adoption of SFAS 156 is not expected to have a material effect on our consolidated financial position, results of operations or cash flows.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140” (“SFAS 155”). SFAS 155 clarifies certain issues relating to embedded derivatives and beneficial interests in securitized financial assets. The provisions of SFAS 155 are effective for all financial instruments acquired or issued after fiscal years beginning after September 15, 2006. We are currently assessing the impact that the adoption of SFAS 155 will have on our consolidated financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), replacing SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), and superceding Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). SFAS 123R requires recognition of share-based compensation in the financial statements. SFAS 123R iswas effective as of the first annual reporting period that beginsbegan after June 15, 2005 and was adopted on January 1, 2006. See Note C for further details.

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C—Stock-Based Compensation

Share-Based Employee Compensation Plans

On February 1,In May 2006, our Board of Directorsshareholders approved our 2006 Long-Term Incentive Plan (the “2006 Plan”), subject to stockholder approval at our annual meeting of stockholders in May 2006.stockholders. The 2006 Plan is similar to and will, upon shareholder approval, replacereplaces our previously adopted 1995 Incentive Plan (the “1995 Plan”) and 1997 Non-Employee Directors’ Stock Option Plan (the “Directors’ Plan”). No further awards will be granted under the previously adopted plans, however, those plans shall continue to apply to and govern awards made thereunder. Under the 2006 Plan, a maximum of 2.0 million new shares are reserved for issuance as

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

awards of share options to officers, employees and non-employee directors. Share options granted to officers and employees will generally become exercisable in 33%one-third increments over a three year period and to the extent not exercised, expire on the tenth anniversary of the date of grant. Share options granted to non-employee directors will usually be immediately exercisable and to the extent not exercised, expire on the tenth anniversary of the date of grant. The exercise price of share options granted under the 2006 Plan will equal the market value of the underlying stock on the date of grant. The 1995 Plan expired according to its original terms on August 16, 2005. However, on February 1, 2006, our Board of Directors approved the extension of the 1995 Plan through December 31, 2005 and the granting of a total of 101,129 shares of restricted stock and 525,000 stock options to certain of our employees and directors as of December 6, 2005, subject to approvalwhich was approved at our 2006 annual meeting of stockholders in May 2006. For accounting purposes, such restricted shares and options have been valued as of February 9, 2006, the date on which our directors and executive officers reached a level of more than 50% ownership of our common stock, so that shareholder approval of those actions was no longer uncertain.

Share options previously granted under the 1995 Plan become exercisable in 33%one-third increments over a three year period and to the extent not exercised, expire on the tenth anniversary of the date of grant. Share options previously granted under the Directors’ Plan generally become exercisable immediately and expire, if not exercised, ten years thereafter. The exercise price of share options granted under the 1995 Plan and the Directors’ Plan equals the market value of the underlying stock on the date of grant. At March 31,June 30, 2006, options to purchase 1,044,500100,000 shares of our common stock were outstanding under the 2006 Plan and options to purchase 979,500 shares of our common stock were outstanding under the 1995 Plan and the Directors’ Plan. In order to satisfy share option exercises, shares are issued from authorized but unissued common stock.

Adoption of New Accounting Pronouncement

Stock based compensation for the three and six months ended March 31,June 30, 2006 of $0.9$1.4 million and $2.3 million, respectively, has been recognized as a component of general and administrative expenses in the accompanying Consolidated Financial Statements.

Effective January 1, 2006 we adopted SFAS 123R, which requiresrequired us to measure the cost of employee services received in exchange for all equity awardsstock based compensation granted, including stock options and restricted stock, based on the fair market value of the award as of the grant date, net of estimated forfeitures. SFAS 123R supersedes SFAS 123 and APB 25. We have adopted SFAS 123R using the modified prospective application method of adoption, which requiresrequired us to record compensation cost related to unvested stock awards as of December 31, 2005 by recognizing the unamortized grant date fair value of these awards over the remaining service periods of those awards with no change in historical reported earnings. Awards granted after December 31, 2005 are valued at fair value in accordance with provisions of SFAS 123R and recognized on a straight line basis over the service periods of each award. We estimated forfeiture rates for the first quarter of 2006all unvested awards based on our historical experience. The January 1, 2006 balance of unamortized restricted stock awards of $2.1 million was reclassified against additional paid-in-capital upon adoption of SFAS 123R. In fiscal 2006 and future periods, common stock par value will be recorded when the restricted stock is issued and additional paid-in-capital will be increased as the restricted stock compensation cost is recognized for financial reporting purposes.

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Prior to 2006, we accounted for stock-based compensation in accordance with APB 25 using the intrinsic value method, which did not require that compensation cost be recognized for our stock options provided the option exercise price was established at 100% of the common stock fair market value on the date of grant. Under APB 25, we were required to record expense over the vesting period for the value of restricted stock granted. Prior to 2006, we provided pro forma disclosure amounts in accordance with SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (SFAS 148)(“SFAS 148”), as if the fair value method defined by SFAS 123 had been applied to our stock-based compensation. Our net loss and net loss per share for the three and six months ended March 31,June 30, 2005 would have been greater if compensation cost related to stock options had been recorded in the financial statements based on fair value at the grant dates.

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSPro forma net loss as if the fair value based method had been applied to all awards for the three and six months ended June 30, 2005 is as follows (in thousands, except per share amounts):

The estimated fair value of the options granted during 2006 and prior years was calculated using a Black Scholes Merton option pricing model (Black Scholes). The following summarizesschedule reflects the various assumptions usedincluded in this model as it relates to the 2006 Black Scholes model:valuation of our options:

The Black Scholes model incorporates assumptions to value stock-based awards. The risk-free rate of interest for periods within the expected term of the option is based on a zero-coupon U.S. government instrument over the expected term of the equity instrument. Expected volatility is based on the historical volatility of our common stock. We generally use the midpoint of the vesting period and the life of the grant to estimate employee option exercise timing (expected term) within the valuation model. This methodology is not materially different from our historical data on exercise timing. In the case of director options, we used historical exercise behavior. Employees and directors that have different historical exercise behavior with regard to option exercise timing and forfeiture rates are considered separately for valuation and attribution purposes.

Pro forma net loss as if the fair value based method had been applied to all awards is as follows (in thousands, except per share amounts):

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the components of our stock-based compensation programs recorded as expense (in thousands):

As of March 31,June 30, 2006, $4.1$3.8 million and $8.1$8.0 million of total unrecognized compensation cost related to restricted stock and stock options, respectively, is expected to be recognized over a weighted average period of approximately 2.01.8 years for restricted stock and 2.42.2 years for stock options.

Option activity under our stock option plans as of March 31,June 30, 2006 and changes during the threesix months ended March 31,June 30, 2006 were as follows:

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of the firstsecond quarter of 2006 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31,June 30, 2006. The amount of aggregate intrinsic value will change based on the fair market value of our stock. The total intrinsic value of options exercised during the six months ended June 30, 2006 and 2005 was $233,000 and $772,300, respectively.

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information on unvested restricted stock outstanding as of March 31,June 30, 2006:

In May 2006, an officer of the Company resigned and the Company accelerated the vesting of (1) options to purchase 10,000 shares and (2) 2,916 shares of previously unvested restricted stock that had been issued to the officer in 2004. The affected options are required to be accounted for as a modification of an award with a service vesting condition under SFAS 123R. The fair market value was calculated immediately prior to the modification and immediately after the modification to determine the incremental fair market value. This incremental value and the unamortized balance of the restricted stock resulted in the immediate recognition of compensation expense of approximately $0.1 million.

NOTE D—Asset Retirement Obligations

SFAS 143 provides accounting requirements for retirement obligations associated with tangible long-lived assets and requires that an asset retirement cost should be capitalized as part of the cost of the related long- lived asset and subsequently allocated to expense using a systematic and rational method. We adopted SFAS 143 on January 1, 2003 and recorded an incremental liability for asset retirement obligations of $1.4 million, additional oil and gas properties, net of accumulated depletion, depreciation and amortization, in the amount of $1.1 million and a net of tax cumulative effect of change in accounting principle of $0.2 million. The reconciliation of the beginning and ending asset retirement obligation for the period ending March 31,June 30, 2006 is as follows (in thousands):

NOTE E—Long-Term Debt

Long-term debt consisted of the following balances (in thousands):

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On November 17, 2005, we amended our existing credit agreement and entered into an amended and restated senior credit agreement (the “Amended and Restated Credit Agreement”) and a funded $30.0 million second lien term loan (the “Second Lien Term Loan Agreement”) that expanded our borrowing capabilities and extended our credit facility for an additional two years. Total lender commitments under the Amended and Restated Credit Agreement were increased from $50.0 million to $200.0 million and the maturity was extended from February 25, 2008 to February 25, 2010. Revolving borrowings under the Amended and Restated Credit Agreement are subject to periodic redeterminations of the borrowing base which is currently established at $75.0$105.0 million, and is currently scheduled to be redetermined in Maythe third quarter of 2006, based upon our 2005 year-end2006 internally prepared mid-year reserve report. With a portion of the net proceeds of the offering of our 5.375% Series B Cumulative Convertible Preferred Stock (the “Series B Convertible Preferred Stock”) in December 2005, we fully repaid all outstanding indebtedness on our revolver in the amount of $47.5 million leaving a zero balance outstanding as of December 31, 2005 (see Note F).2005. Interest on revolving borrowings under the Amended and Restated Credit Agreement accrues at a rate calculated, at

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

our option, at either the bank base rate plus 0.00% to 0.50%, or LIBOR plus 1.25% to 2.00%, depending on borrowing base utilization. BNP Paribas (“BNP”) is the lead lender and administrative agent under the amended credit facility with Comerica Bank and Harris Nesbit Financing, Inc. as co-lenders.

The terms of the Amended and Restated Credit Agreement require us to maintain certain covenants. Capitalized terms are defined in the credit agreement. The covenants include:

As of March 31,June 30, 2006, we were in compliance with all of the financial covenants of the Amended and Restated Credit Agreement.

The Second Lien Term Loan Agreement provides for a 5-year, non-revolving loan of $30.0 million which was funded on November 17, 2005 and is due in a single maturity on November 17, 2010. Optional prepayments of term loan principal can be made in amounts of not less than $5.0 million during the first year at a 1% premium and without premium after the first year. Interest on term loan borrowings accrues at a rate calculated, at our option, at either base rate plus 3.50%, or LIBOR plus 4.50%, and is payable quarterly. BNP is the lead lender and administrative agent under the Second Lien Term Loan Agreement.

The terms of the Second Lien Term Loan Agreement require us to maintain certain covenants. Capitalized terms are defined in the loan agreement. The covenants include:

As of March 31,June 30, 2006, we were in compliance with all of the financial covenants of the Second Lien Term Loan Agreement.

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F—Preferred Stock

In December 2005, 1,650,000 shares of our Series B Convertible Preferred Stock were issued in a private placement for net proceeds of $79.8 million (after offering costs of $2.7 million). On January 23, 2006, the initial purchasers exercised their option to purchase an additional 600,000 shares of Series B Convertible Preferred Stock at the same price per share, resulting in net proceeds of $29.0 million.

As part of this transaction we filed a registration statement with the SEC on April 20, 2006 for the purpose of registering the resale of the shares of common stock issuable pursuant to the purchase agreement. As of the date we filed this Form 10-Q, theThe registration statement had not beenwas declared effective by the SEC.SEC on August 9, 2006.

During the first quarter of 2006 we completed the redemption of our Series A Convertible Preferred Stock. Of the previously outstanding shares of Series A Convertible Preferred Stock, holders of 15,539 shares elected to convert such shares into a net total of 6,466 shares of our common stock and the remaining shares were redeemed in cash for $12 per share, plus accrued dividends. The total redemption cost to us was approximately $9.3 million and was funded from available cash resources. This amount includes a $1.5 million redemption premium which is treated in the same manner as preferred stock dividends on the Consolidated Statement of Operations.

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE G—Net Income (Loss) Per Share

Net income (loss) applicable to common stock was used as the numerator in computing basic and diluted income (loss) per common share for the three and six months ended March 31,June 30, 2006 and 2005. The following table reconciles the weighted average shares outstanding used for these computations (in thousands):

NOTE H—Hedging Activities

Commodity Hedging Activity

We enter into swap contracts, costless collars or other hedging agreements from time to time to manage the commodity price risk for a portion of our production. We consider these to be hedging activities and, as such, monthly settlements on these contracts are reflected in our crude oil and natural gas sales, provided the contracts are deemed to be “effective” hedges under FAS 133. Our strategy, which is administered by the Hedging Committee of the Board of Directors, and reviewed periodically by the entire Board of Directors, has been to generally hedge between 30% and 70% of our production. As of March 31,June 30, 2006, the commodity hedges we utilized were in the form of: (a) swaps, where we receive a fixed price and pay a floating price, based on NYMEX quoted prices; and (b) collars, where we receive the excess, if any, of the floor price over the reference price, based on NYMEX quoted prices, and pay the excess, if any, of the reference price over the ceiling price. Hedge ineffectiveness results from difference changes indifferences between the NYMEX contract terms and the physical location, grade and quality of our oil and gas production.

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of March 31,June 30, 2006, our open forward position on our outstanding commodity hedging contracts was as follows:

Table continued on following page

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of the oil and gas hedging contracts in place at March 31,June 30, 2006 resulted in a net liability of $14.7$9.9 million. As of March 31,June 30, 2006, $2.8$3.3 million (net of $1.5$1.8 million in income taxes) of deferred losses on derivative instruments accumulated in other comprehensive loss are expected to be reclassified into earnings during the next twelve months. For the threesix months ended March 31,June 30, 2006, $0.7 million of previously deferred losses (net of $0.4 million in income taxes) was reclassified out of accumulated other comprehensive loss as the cash flow settlement of the hedged items was recognized in earnings. For the six months ended June 30, 2006, we recognized in earnings a gain on derivatives not qualifying for hedge accounting in the amount of $13.5$19.4 million (also includedwhich includes $2.4 million in this amount are settlement payments on ineffective gas hedges).hedges and a $0.5 million gain on interest rate derivatives. This unrealized gain was recognized because our gas swaps have been deemed ineffective since the fourth quarter of 2004, and accordingly, the changes in fair value of such hedges could no longer be reflected in other comprehensive loss. In addition, threeall of our collars did not qualify for hedge accounting treatment and those changes in fair value have been recognized in earnings. For the three months ended March 31, 2006, $0.5 million of previously deferred losses (net of $0.2 million in income taxes) was reclassified from accumulated other comprehensive loss to oil and gas sales as the cash flow of the hedged items was recognized.

Despite the measures taken by us to attempt to control price risk, we remain subject to price fluctuations for natural gas and crude oil sold in the spot market. Prices received for natural gas sold on the spot market are volatile due primarily to seasonality of demand and other factors beyond our control. Domestic crude oil and gas prices could have a material adverse effect on our financial position, results of operations and quantities of reserves recoverable on an economic basis.

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interest Rate Swaps

We have a variable-rate debt obligationobligations that exposesexpose us to the effects of changes in interest rates. To partially reduce our exposure to interest rate risk, from time to time we enter into interest rate swap agreements. At March 31,June 30, 2006 we had the following interest rate swaps in place with BNP (in millions):

The fair value of the interest rate swap contracts in place at March 31,June 30, 2006, resulted in an asset of $0.5$0.8 million. As of March 31,June 30, 2006, $153,000 (net of $83,000$82,000 in income taxes) of deferred net gains on derivative instruments accumulated in other comprehensive income are expected to be reclassified into earnings during the next twelve months. During the quarter ended March 31, 2006, $28,000 of previously deferred gains (net of $14,500 in income taxes) were reclassified from accumulated other comprehensive income to interest expense as the cash flow of the hedged items was recognized.

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We entered into two interest rate swaps to protect against movements in interest rates during the fourth quarter of 2005. The documentation was not prepared at the time of inception for these hedges and as a result, we were not entitled to apply hedge accounting to these instruments. The failure to qualify for hedge accounting requires that all changes in the fair value of the interest rate swap be recorded in the consolidated statements of operations. Accordingly, for the threesix months ended March 31,June 30, 2006, we recognized in earnings a gain of approximately $0.2$0.5 million, which is included in the aforementioned total gain of $13.5$19.4 million.

NOTE I—Commitments and Contingencies

In July 2005, we received a Notice of Proposed Tax Due from the State of Louisiana asserting that we underpaid our Louisiana franchise taxes for the years 1998 through 2004 in the amount of $0.5 million. The Notice of Proposed Tax Due includes additional assessments of penalties and interest in the amount of $0.4 million for a total asserted liability of $0.9 million. We believe that we have fully paid our Louisiana franchise taxes for the years in question; therefore, we intend to vigorously contest the Notice of Proposed Tax Due. We have commenced our analysis of this contingency and have not recorded any provision for possible payment of additional Louisiana franchise taxes nor any related penalties and interest.

We are party to additional lawsuits arising in the normal course of business. We intend to defend these actions vigorously and believe, based on currently available information, that adverse results or judgments from such actions, if any, will not be material to our financial position or results of operations.

NOTE J—Disposition of Assets

In June 2006, we assigned 50% of our interest solely in the deep rights in our Cotton prospect in East Texas, defined as rights below the top of the Knowles Lime formation at 12,901’ below the surface, while reserving all of our rights to and above the Upper, Middle and Lower Travis Peak section in approximately 20,500 net acres for approximately $1.6 million. We had received one-half of the sales price as of June 30, 2006 and one-half has been recorded as a receivable in the consolidated financial statements. Pursuant to the agreement, within 18 months of the assignment, the assignee will either pay all of our share of drilling costs to a depth of 16,500’ feet in a well (the “carried well”) drilled on the acreage or pay us a non participation fee of $4.0 million should no well be drilled. The transaction was accounted for as a recovery of cost.

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Disclosure Regarding Forward Looking Statement

Certain statements in this Quarterly Report on Form 10-Q regarding future expectations and plans for future activities may be regarded as “forward looking statements” within the meaning of Private Securities Litigation Reform Act of 1995. They are subject to various risks, such as financial market conditions, operating hazards, drilling risks and the inherent uncertainties in interpreting engineering data relating to underground accumulations of oil and gas, as well as other risks discussed in detail in our Annual Report on Form 10-K, and such changes to these factors which are discussed in Part II, Item 1A of this Form 10-Q. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct.

Executive Overview

General

We are an independent oil and gas company engaged in the exploration, exploitation, development and production of oil and natural gas properties primarily in the Cotton Valley Trendtrend of East Texas and Northwest Louisiana and in the transition zone of South Louisiana.

Our business strategy is to provide long term growth in net asset value per share, through the growth and expansion of our oil and gas reserves and production. We focus on adding reserve value through the development of our relatively low risk development drilling program in the Cotton Valley Trend,trend, while maintaining our drilling activities in select high impact well locations in South Louisiana. We continue to aggressively pursue the acquisition and evaluation of prospective acreage, oil and gas drilling opportunities and potential property acquisitions.

Source of Revenue

We derive our revenues from the sale of oil and natural gas that is produced from our properties. Revenues are a function of both the volume produced and the prevailing market price at the time of sale. Production volumes, while somewhat predictable after wells have begun producing, can be impacted for various reasons. Hurricanes Katrina and Rita in the third quarter of 2005 are an example of how production volumes can be impacted to defer volumes from the current period to future periods. The price of oil and natural gas is a primary factor affecting our revenues. To achieve more predictable cash flows and to reduce our exposure to downward price fluctuations, we utilize derivative instruments to hedge future sales prices on a portion of our oil and natural gas production. While the derivative instruments may protect downward price fluctuation, the use of certain types of derivative instruments may prevent us from realizing the full benefit of upward price movements.

FirstSecond Quarter 2006 Highlights

Our development, financialProduction and operating performance for the first quarter 2006 included the following highlights:Revenue Growth

Drilling Activity

Cotton Valley Trend

A more complete overview and discussion of our operations can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2005 Form 10-K, as amended.

Hurricanes Katrina and Rita Update

In August and September 2005, Hurricanes Katrina and Rita caused damage to our assets on the Gulf Coast. The most significant damage was concentratedCoast, significantly on one producing well (Norton) and offshore facilities in our Burrwood/West Delta 83 field. As of March 31,June 30, 2006, we have incurred costs associated with Hurricane Katrina of approximately $2.3 million in this field, which are net of our share of insurance proceedshurricane related costs in these fields is approximately $6.8 million and we have received and accrued to date, and our partners’ shareproceeds of costs incurred to date.$4.2 million. We anticipate that we will be fully reimbursedultimately receive reimbursement for all but $0.9 million of our remaining insured losses, after deductibles are met. We have an approximate 63% working interest in the Burrwood/West Delta field and the remaining 37% working interest owners participate in the costs, insurancewhich represents our deductible and amounts exceeding insurance proceeds that are ultimately received. We anticipate that additional costs related to Hurricane Katrina are still to be incurred, although we do not believe the amount to be significant.

Repairs caused by Hurricane Rita related to our Second Bayou field are substantially complete and we incurred net damage costs of approximately $0.2 million. We have recorded a loss of $0.2limits, $0.4 million to date representing amounts incurred that will not ultimately be covered by insurance, of which an additional $20,000 was recordedhas been expensed in the first quarter of 2006. We have an approximate 26% working interest in the Second Bayou field and the remaining 74% working interest owners participate in the costs, insurance deductible and insurance proceeds that are ultimately received.

As claims are submitted to the insurance companies, they are reviewed and preliminary payments made until all losses are incurred and documented. A final payment will be made once we and our insurers agree on the total measurement value of the claim, which is expected sometime during the secondthird quarter of 2006.

Results of Operations

Three Months Ended March 31,June 30, 2006 Compared to Three Months Ended March 31,June 30, 2005

For the three months ended March 31,June 30, 2006, we reported net income applicable to common stock of $8.6$2.8 million, or $0.34$0.11 per basic share on total revenue of $25.3$30.6 million as compared with a net loss applicable to common stock of $6.3$0.6 million, or $0.30$0.03 per basic share, on total revenue of $12.6$13.5 million for the three months ended March 31,June 30, 2005.

Oil and Natural Gas Revenues

Revenues presented in the table and the discussion below represent revenue from sales of our oil and natural gas production volumes and include the realized gains and losses on the effective portion of our derivative instruments as further described under Note H to the Consolidated Financial Statements.

Table continued on following page

		Three Months Ended June 30,								% Change from 2005 to 2006
		2006				2005
Average sales price per unit:
Natural gas (per Mcf)		$	6.91			$	7.14			(3	)%
Effects of cash flow hedges (per Mcf)			—				—			—
Total (per Mcf)		$	6.91			$	7.14			(3	)%
Oil and condensate (per Bbl)		$	68.39			$	48.63			41	%
Effects of cash flow hedges (per Bbl)			(10.35	)			(11.28	)		(8	)%
Total (per Bbl)		$	58.04			$	37.35			55	%
Natural gas, oil and condensate (per Mcfe)		$	7.68			$	7.51			2	%
Effects of cash flow hedges (per Mcfe)			(0.29	)			(0.74	)		(60	)%
Total (per Mcfe)		$	7.39			$	6.77			9	%

Excluding the effects of settled derivatives, revenues from production increased 88%107% in the firstsecond quarter of 2006 compared to the same period in 2005 due primarily to a substantial increase in Cotton Valley Trendtrend production. Revenues were also impacted favorably by a 10%2% increase in our sales price per unit.

Other. We own an approximate 2.5% working interest in the Yscloskey gas processing plant in South Louisiana. As a plant owner, we retain that same percentage of natural gas liquid (“NGL”) revenue extracted from third party gas as a fee for the services provided by the plant. In addition, some third party non-plant owners that process their gas at Yscloskey are required to pay the plant owners a monetary processing fee. We retain our 2.5% share of this fee. For the three months ended June 30, 2006, other revenue includes $1.1 million of such plant related revenues. The plant sustained extensive damage during Hurricane Katrina and normal operations did not resume until late June 2006.

Lease Operating.Lease operating expenseexpenses (“LOE”) for the firstsecond quarter of 2006 increased on an absolute basisto $4.7 million ($3.6 million compared to $2.2 million) but decreased on a per unit basis ($1.09 per Mcfe compared to $1.171.18 per Mcfe) from $2.3 million ($1.17 per Mcfe) in the firstsecond quarter of 2005. This decrease in unit costsincrease was primarily attributable to a greater proportionthe aforementioned increase in production. Also contributing to this increase is an additional loss of our production volumes coming from the lower cost environment in the Cotton Valley Trend. Our South Louisiana lease operating expenses were negatively impacted by an accrual$0.4 million of $350,000 for the estimatedhurricane related costs of cleaning up an oil spill that occurred from a non-producing well in our Plumb Bob field on March 21, 2006. The spill of an estimated 1,000 to 1,500 barrels of oil was quickly contained and the costs of site restoration will not be covered by our insurance once a deductible is met. Our cost accrual for site restoration reflects our sharereimbursement and $0.3 million of the insurance deductible.additional abandonment costs related to outside operated wells.

Production Taxes.Production taxes increased to $1.6 million for the firstsecond quarter of 2006 compared to $0.8$1.0 million for the comparable period in 2005 due to an increase in production volumes and product prices. OurMost of our Cotton Valley Trendtrend wells qualify for the “Tight Gas Sands” credit allowed for severance tax in the State of Texas. While we have only partially reflected such credits inon wells that have been approved by the first quarter of 2006,State, we anticipate that we will incur a gradually lower production tax rate in the future as we add further Cotton Valley wells to our production base and as reduced rates are approved and credits are received.

Transportation.Emerging Issues Task Force Issue 00-10, “Accounting for Shipping and Handling Fees and Costs” (“EITF 00-10”), requires that transportation expenses be shown as an expense in the statement of operations and not deducted from revenues. Transportation costs of $1.7 million for the three months ended June 30, 2006 includes the reclassification of $0.5 million of costs previously classified in the first quarter of 2006 as a deduction from oil and gas revenues in that quarter. The increase in 2006 compared to 2005 is primarily due to increased production in our Cotton Valley Trend and the utilization of different marketing arrangements.

Depreciation, Depletion and Amortization. Depreciation, depletion and amortization (“DD&A”) expense increased to $9.8$13.0 million from $5.8$5.7 million for the same period in 2005 primarily due to higher levels of production. The average DD&A rate decreasedincreased to $2.99$3.29 per Mcfe in the firstsecond quarter of 2006 compared to $3.05$2.93 per Mcfe in the same quarter of 2005 due to a higher percentage of production coming from fields with lowerhigher average DD&A rates.

Exploration. Exploration expense for the second quarter of 2006 decreased to $1.9 million compared to $2.4 million for the second quarter of 2005. This decrease was primarily due to the fact that we incurred no dry hole costs in 2006 while incurring $1.6 million in dry hole costs in the second quarter of 2005.

General and Administrative.General and administrative expense increased to $3.8$4.2 million for the firstsecond quarter of 2006 compared to $1.6$1.8 million for the same period of 2005. This increase was primarily due to higher compensation related costs due to an approximate 40% increase in the number of employees at March 31, 2006 versus March 31, 2005. With the implementation of SFAS 123R which increased non cash stock based compensation expense increased approximately $0.7by $1.1 million from the firstsecond quarter of 2005 due to expensing the fair value of stock options granted. See Note C to the Consolidated Financial Statements for more information. In addition, an approximate 40% increase in the number of employees at June 30, 2006 versus June 30, 2005 generated higher compensation related costs.

Other.We own an approximate 2.5% working interest in the Yscloskey gas processing plant in South Louisiana. As a plant owner, we share in the costs of operating the plant. For the three months ended June 30, 2006, we recorded $1.2 million of such plant related expenses. The plant sustained extensive damage during Hurricane Katrina and normal operations resumed in late June 2006.

Interest Expense.Interest expense increased to $0.7$1.5 million from the firstsecond quarter 2005 amount of $0.3$0.5 million as a result of a higher average interest rate and higher borrowings in the firstsecond quarter of 2006.

Gain (Loss) on Derivatives Not Qualifying for Hedge Accounting. Gain on derivatives not qualifying for hedge accounting was $13.5$5.9 million for the firstsecond quarter of 2006 compared to a loss of $9.8$0.3 million for the firstsecond quarter of 2005. The gain in 2006 includes an unrealized gain of $15.9$5.4 million for the changes in fair value of our ineffective oil and gas hedges, and a realized lossgain of $2.6$0.2 million for the effect of settled derivatives on our ineffective gas hedges. Our natural gas hedges were deemed ineffective, beginning in the fourth quarter of 2004, and we have been required to reflect the changes in the fair value of our natural gas hedges in earnings rather than in accumulated other comprehensive loss, a component of stockholders’ equity. Also included in the 2006 amount is an unrealized gain of $0.2$0.3 million related to interest rate swaps that did not qualify for hedge accounting treatment. To the extent that our hedges do not qualify for hedge accounting in the future, we will likewise be exposed to volatility in earnings resulting from changes in the fair value of our hedges.

Income taxes. Income taxes were ana non cash expense of $6.2$2.3 million for the firstsecond quarter of 2006 compared to a benefit of $3.3$0.2 million for the firstsecond quarter of 2005. The amounts in both periods essentially represented 35% of pre-tax income (loss). We did not however, incur any income taxes on a current basis due to our substantial tax net operating loss carrryforwards.carrryforwards and significant drilling activity.

Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005

For the six months ended June 30, 2006, we reported net income applicable to common stock of $11.4 million, or $0.46 per basic share on total revenue of $55.9 million as compared with a net loss applicable to common stock of $6.9 million, or $0.31 per basic share, on total revenue of $26.4 million for the six months ended June 30, 2005.

Oil and Natural Gas Revenues

Revenues presented in the table and the discussion below represent revenue from sales of our oil and natural gas production volumes and include the realized gains and losses on the effective portion of our derivative instruments as further described under Note H to the Consolidated Financial Statements.