Approach Resources Inc (Form: 10-Q, Received: 12/13/2007 17:23:41)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2007


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

For the transition period from to

Commission file number: 001-33801

APPROACH RESOURCES INC.

(Exact name of registrant as specified in its charter)


Delaware		51-0424817
(State or other jurisdiction of		(I.R.S. employer
incorporation or organization)		identification number)

One Ridgmar Centre
6500 W. Freeway, Suite 800
Fort Worth, Texas		76116
(Address of principal executive offices)		(Zip Code)

(817) 989-9000
(Registrant’s telephone number, including area code)

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. Yes o No þ

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. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of December 10, 2007 was 20,622,746.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	Item 1. Financial statements
	Item 2. Management’s discussion and analysis of financial condition and results of operations
	Item 3. Quantitative and qualitative disclosures about market risk
	Item 4. Controls and procedures
PART II — OTHER INFORMATION
	Item 1. Legal proceedings
	Item 1A. Risk factors
	Item 2. Unregistered sales of equity securities and use of proceeds
	Item 3. Defaults upon senior securities
	Item 4. Submission of matters to a vote of security holders
	Item 5. Other information
	Item 6. Exhibits
SIGNATURES
Index to Exhibits
Restated Certificate of Incorporation
Restated Bylaws
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I — FINANCIAL INFORMATION

Item 1. Financial statements.

APPROACH RESOURCES INC. AND AFFILIATED ENTITIES
UNAUDITED COMBINED BALANCE SHEETS


	September 30,			December 31,
	2007			2006
CURRENT ASSETS:
Cash	$	17,755,892		$	4,911,241
Accounts receivable:
Joint interest owners		3,997,226			4,812,439
Oil and gas sales		3,831,504			3,457,948
Unrealized gain on commodity derivatives		2,182,400			4,504,996
Prepaid expenses and other current assets		1,183,906			424,081

Total current assets		28,950,928			18,110,705

PROPERTIES AND EQUIPMENT:
Oil and gas properties, at cost, using the successful efforts method of accounting		186,490,333			155,627,580
Furniture, fixtures and equipment		313,909			255,451

		186,804,242			155,883,031

Less accumulated depletion, depreciation and amortization		(32,978,704	)		(23,771,187	)

Net properties and equipment		153,825,538			132,111,844

INVESTMENT		917,100			¾
UNREALIZED GAIN ON COMMODITY DERIVATIVES		205,872			¾
OTHER ASSETS		919,114			86,169

Total assets	$	184,818,552		$	150,308,718


CURRENT LIABILITIES:
Accounts payable	$	7,390,769		$	7,513,219
Oil and gas sales payable		3,408,137			4,940,415
Accrued liabilities		6,637,569			2,967,780

Total current liabilities		17,436,475			15,421,414

NON-CURRENT LIABILITIES:
Long-term debt		53,292,000			47,619,000
Convertible debt		20,000,000			¾
Deferred income taxes		19,416,416			17,549,107
Asset retirement obligations		183,898			147,644

Total liabilities		110,328,789			80,737,165

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Preferred stock		¾			¾
Common stock		96,175			97,353
Additional paid-in capital		39,232,815			43,000,301
Retained earnings		35,160,773			30,658,223
Loans to stockholders		¾			(4,184,324	)

Total stockholders’ equity		74,489,763			69,571,553


Total liabilities and stockholders’ equity	$	184,818,552		$	150,308,718

See accompanying notes to these combined financial statements.

APPROACH RESOURCES INC. AND AFFILIATED ENTITIES
UNAUDITED COMBINED STATEMENTS OF OPERATIONS


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
REVENUES:
Oil and gas sales	$	8,292,482		$	10,397,342		$	27,374,413		$	36,787,037

EXPENSES:
Lease operating expense		760,260			822,179			2,783,104			2,814,497
Severance and production taxes		399,971			540,394			1,148,462			1,381,831
Exploration		—			572,008			632,958			1,564,451
General and administrative		1,374,837			500,302			4,105,006			1,734,300
Depletion, depreciation and amortization		3,109,180			3,796,270			9,217,028			10,768,987

Total expenses		5,644,248			6,231,153			17,886,558			18,264,066


OPERATING INCOME		2,648,234			4,166,189			9,487,855			18,522,971

OTHER:
Interest expense, net		(1,107,628	)		(1,058,196	)		(3,062,046	)		(2,766,608	)
Realized gain on commodity derivatives		1,079,390			1,125,850			3,323,360			4,210,377
Change in fair value of commodity derivatives		785,080			3,694,750			(2,116,724	)		9,141,701


INCOME BEFORE PROVISION FOR INCOME TAXES		3,405,076			7,928,593			7,632,445			29,108,441

PROVISION FOR INCOME TAXES		1,312,273			2,864,456			3,129,895			10,299,030


NET INCOME	$	2,092,803		$	5,064,137		$	4,502,550		$	18,809,411


EARNINGS PER SHARE:
Basic	$	0.22		$	0.52		$	0.47		$	1.93

Diluted	$	0.20		$	0.51		$	0.41		$	1.87


WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		9,538,883			9,735,312			9,507,449			9,754,712

Diluted		11,636,944			10,025,982			11,632,889			10,045,382

See accompanying notes to these combined financial statements.

APPROACH RESOURCES INC. AND AFFILIATED ENTITIES
UNAUDITED COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007


												Loans to
												Stockholders
							Additional					Including
	Common Stock						Paid-in			Retained		Accrued
	Shares			Amount			Capital			Earnings		Interest			Total
BALANCE, January 1, 2007		9,735,312		$	97,353		$	43,000,301		$	30,658,223	$	(4,184,324	)	$	69,571,553
Retirement of loans to stockholders		(253,650	)		(2,536	)		(4,181,788	)		¾		4,184,324			¾
Issuance of restricted stock		63,750			637			(637	)		¾		¾			¾
Issuance of stock upon exercise of stock options		72,114			721			239,659			¾		¾			240,380
Share-based compensation expense		¾			¾			175,280			¾		¾			175,280
Net income		¾			¾			¾			4,502,550		¾			4,502,550

BALANCE , September 30, 2007		9,617,526		$	96,175		$	39,232,815		$	35,160,773	$	¾		$	74,489,763

See accompanying notes to these combined financial statements.

APPROACH RESOURCES INC. AND AFFILIATED ENTITIES
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS


	Nine Months Ended
	September 30,
	2007			2006
OPERATING ACTIVITIES:
Net income	$	4,502,550		$	18,809,411
Adjustments to reconcile net income to net cash provided by operating activities:
Depletion, depreciation and amortization		9,217,028			10,768,987
Amortization of loan origination fees		84,790			59,640
Change in fair value of commodity derivatives		2,116,724			(9,141,701	)
Dry hole costs		632,958			1,564,451
Stock-based compensation expense		175,280			33,612
Deferred income taxes		1,867,309			9,785,906
Changes in operating assets and liabilities:
Accounts receivable		441,657			7,316,720
Prepaid expenses and other current assets		(759,825	)		(369,014	)
Accounts payable		(122,450	)		(10,972,481	)
Oil and gas sales payable		(1,532,278	)		(1,195,735	)
Accrued liabilities		3,669,789			(63,532	)

Cash provided by operating activities		20,293,532			26,596,264

INVESTING ACTIVITIES:
Investments		(917,100	)		¾
Additions to oil and gas properties		(31,468,968	)		(49,777,894	)
Additions to other property and equipment, net		(58,458	)		(11,250	)

Cash used in investing activities		(32,444,526	)		(49,789,144	)

FINANCING ACTIVITIES:
Proceeds from issuance of common stock		240,380			6,500,000
Borrowings under credit facility, net		53,541,500			99,526,000
Repayments of borrowings under credit facility		(47,868,500	)		(80,783,000	)
Proceeds from issuance of convertible debt		20,000,000			¾
Borrowing from stockholder		¾			3,500,000
Purchase of common stock		¾			(997,463	)
Stock option cancellation payment		¾			(273,547	)
Deferred offering costs		(774,358	)		¾
Income taxes on interest income from loans to stockholders		¾			(60,995	)
Loan origination fees		(143,377	)		(76,616	)

Cash provided by financing activities		24,995,645			27,334,379


CHANGE IN CASH AND CASH EQUIVALENTS		12,844,651			4,141,499

CASH AND CASH EQUIVALENTS , beginning of period		4,911,241			3,219,463


CASH AND CASH EQUIVALENTS , end of period	$	17,755,892		$	7,360,962


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	3,360,497		$	2,189,523

Cash paid for income taxes	$	1,200,000		$	450,000


SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTION:
Conversion of stockholder note into common stock	$	¾		$	3,500,000

Retirement of loans to stockholders in exchange for shares of common stock	$	4,184,324		$	333,499

See accompanying notes to these combined financial statements.

APPROACH RESOURCES INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)

1. Organization and nature of operations

Approach Resources Inc. (“ARI”) is a Delaware corporation formed September 13, 2002. ARI has three wholly-owned subsidiaries. In November 2004, Approach Oil & Gas Inc. (“AOG”) was formed. AOG has four wholly-owned subsidiaries. Collectively, ARI and AOG are referred to as “we,” “our,” “Approach” or “the Company.” Together, ARI, AOG and their subsidiaries are engaged in the exploration, development, exploitation, production and acquisition of unconventional natural gas and oil properties.

Immediately prior to the closing of the initial public offering of its common stock (“IPO”) on November 14, 2007, the Company acquired all of the outstanding capital stock of AOG. The stockholders of AOG received an aggregate of 989,157 shares of Company common stock.

On November 7, 2007, the Company’s board of directors approved a three-for-one stock split in the form of a stock dividend on the issued and outstanding shares of the Company’s common stock, which became effective at the completion of the Company’s IPO.

All common shares and per share amounts in the accompanying combined financial statements and notes to combined financial statements have been adjusted for all periods to give effect to the stock split and the acquisition of AOG.

See further discussion in Note 11 — Subsequent events .

2. Summary of significant accounting policies

Basis of presentation and use of estimates

The interim combined financial statements of the Company are unaudited and contain all adjustments (consisting primarily of normal recurring accruals) necessary for a fair statement of the results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full year or for previously reported periods due in part, but not limited to, the volatility in prices for crude oil and natural gas, future commodity prices for commodity derivative contracts, interest rates, estimates of reserves, drilling risks, geological risks, transportation restrictions, the timing of acquisitions, product demand, market competition and interruptions of production. You should read these combined interim financial statements in conjunction with the audited combined financial statements and notes thereto included in our Prospectus dated November 7, 2007 and filed with the Securities and Exchange Commission on November 8, 2007.

The accompanying combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of ARI and its wholly-owned subsidiaries and AOG and its wholly-owned subsidiaries. Intercompany accounts and transactions are eliminated. In preparing the accompanying financial statements, management has made certain estimates and assumptions that affect reported amounts in the financial statements and disclosures of contingencies. Actual results may differ from those estimates. Significant assumptions are required in the valuation of proved oil and natural gas reserves, which may affect the amount at which oil and natural gas properties are recorded. It is at least reasonably possible these estimates could be revised in the near term, and these revisions could be material.

New accounting pronouncements

In September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), was issued. SFAS 157 provides guidance for using fair value to measure assets and liabilities. It applies whenever other standards require or permit assets or liabilities to be measured at fair value, but it does not expand the use of fair value in any new circumstances. The provisions of SFAS 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007. The effect of adopting SFAS 157 has not been determined, but it is not expected to have a significant effect on our reported financial position or earnings.

In February 2007, SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS 159”), was issued. SFAS 159 permits an entity to choose to measure many financial instruments and certain other items at fair value. The fair value option established by SFAS 159 permits all entities to choose to measure eligible items at fair value at specified election dates. Unrealized gains and losses on items for which the fair value option has been elected are to be recognized in earnings at each subsequent reporting date. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The effect of adopting SFAS 159 has not been determined, but it is not expected to have a significant effect on our reported financial position or earnings.

In July 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”), was issued. FIN 48 clarifies financial statement recognition and disclosure requirements for uncertain tax positions taken or expected to be taken in a tax return. Financial statement recognition of the tax position is dependent on an assessment of a 50% or greater likelihood that the tax position will be sustained upon examination, based on the technical merits of the position. We adopted FIN 48 on January 1, 2007, and it did not have an impact on our reported financial position or earnings.

Earnings (loss) per common share

We report basic earnings (loss) per common share, which excludes the effect of potentially dilutive securities, and diluted earnings (loss) per common share, which includes the effect of all potentially dilutive securities unless their impact is anti-dilutive. The following are reconciliations of the numerators and denominators of our basic and diluted earnings per share:


	Three Months Ended September 30, 2006
	Income (numerator)		Shares (denominator)		Per-share amount
Basic earnings per share:
Net income	$	5,064,137		9,735,312	$	0.52
Effect of dilutive securities:
Stock options, treasury method				290,670

Net income plus assumed conversions	$	5,064,137		10,025,982	$	0.51


	Three Months Ended September 30, 2007
	Income (numerator)		Shares (denominator)		Per-share amount
Basic earnings per share:	$	2,092,803		9,538,883	$	0.22
Net income
Effect of dilutive securities:
Stock options, treasury method				208,514
Non-vested restricted shares(1)				63,750
Convertible debt, if-converted method(2)		227,040		1,825,797

Net income plus assumed conversions	$	2,319,843		11,636,944	$	0.20


	Nine Months Ended September 30, 2006
	Income (numerator)		Shares (denominator)		Per-share amount
Basic earnings per share:	$	18,809,411		9,754,712	$	1.93
Net income
Effect of dilutive securities:
Stock options, treasury method				290,670

Net income plus assumed conversions	$	18,809,411		10,045,382	$	1.87


	Nine Months Ended September 30, 2007
	Income (numerator)		Shares (denominator)		Per-share amount
Basic earnings per share:	$	4,502,550		9,507,449	$	0.47
Net income
Effect of dilutive securities:
Stock options, treasury method				235,893
Non-vested restricted shares(1)				63,750
Convertible debt, if-converted method(2)		241,848		1,825,797

Net income plus assumed conversions	$	4,744,398		11,632,889	$	0.41


(1)		We issued these shares in March 2007. Prior to that time, there were no restricted shares outstanding.

(2)		The outstanding principal and interest under our convertible debt was converted on November 7, 2007 into shares of common stock (see Note 11 for further discussion). We issued the convertible debt that gives rise to these dilutive securities during June 2007. Prior to that time, there was no convertible debt outstanding.

3. Loans to stockholders and stockholder notes payable

During each of the years ended December 31, 2003 and 2004, we issued 1,350,000 shares of common stock in exchange for $585,000 in cash and $3.9 million in full-recourse notes receivable from employees and entities owned by or affiliated with management. The notes had an outstanding principal balance of

$3.6 million at December 31, 2006. On January 8, 2007, the remaining notes and accrued interest of $570,474 were repaid in exchange for 253,650 shares of common stock held by management, based on the fair value of ARI common shares of $16.50 per share at that date. The notes provided for interest at 6.00% and were payable upon the earlier of December 31, 2008, the registration of the underlying common stock or upon a merger with another entity or upon a divestiture of our assets. The notes were collateralized by the underlying common stock purchased and are reported in the accompanying balance sheet as loans to stockholders including accrued interest, reducing stockholders’ equity. Interest earned was reported net of related income tax as a component of additional paid-in capital in the accompanying statement of changes in stockholders’ equity.

4. Line of credit

We have a revolving loan agreement with The Frost National Bank (the “Agreement”), which provides a borrowing base determined by the bank based on oil and gas reserve values. The bank determines our borrowing base semi-annually on or before each March 1 and September 1 based on our oil and gas reserves. We or the bank can each request one additional borrowing base redetermination each calendar year. In February 2007, the line of credit was raised to $100 million and the borrowing base was increased to $75 million. In June 2007, the maturity date of the Agreement was extended to July 2010. The borrowings bear interest based on the bank’s prime rate, or the sum of the LIBOR plus an applicable margin ranging from 1.25% to 2.00% based on the borrowings outstanding compared to the borrowing base. The interest rate applicable to our outstanding borrowings was approximately 7.75% as of December 31, 2006 and 7.39% as of September 30, 2007. Principal payments are not required until the final maturity date of the agreement, at which time any outstanding loan balances shall be due and payable in full. In addition, the Agreement requires payment of a quarterly fee equal to three eighths of one percent (0.375%) of the unused portion of the borrowing base. The borrowings are collateralized by substantially all of our oil and gas properties. The Agreement contains various covenants, the most restrictive of which requires us to maintain a modified current ratio of at least one. The modified current ratio represents the quotient of our current assets, less any unrealized gains on commodity derivatives plus amounts available under the Agreement divided by our current liabilities less unrealized losses on commodity derivatives. We were in compliance with the covenants at December 31, 2006 and September 30, 2007.

We also have outstanding unused letters of credit under the Agreement totaling $3 million at September 30, 2007, which reduce amounts available for borrowing under the Agreement.

5. Stockholders’ equity and share-based compensation

Stockholders’ equity on our combined balance sheets as of September 30, 2007 and December 31, 2006 include the following authorized and outstanding shares and their related par values:


PREFERRED STOCK:
Par value, per share	$	0.01
Shares authorized		10,000,000
Shares issued and outstanding at:
September 30, 2007		—
December 31, 2006		—

COMMON STOCK:
Par value, per share	$	0.01
Shares authorized		90,000,000
Shares issued and outstanding at:
September 30, 2007		9,617,526
December 31, 2006		9,735,312

On March 14, 2007, we granted 63,750 restricted shares to an executive officer in connection with his employment. Such shares had a grant-date fair value of $16.50 per share, and vest in three equal

increments – one third on the earlier of the closing date of an IPO of Approach common stock, or February 21, 2008 (the “Initial Vesting Date”), and one-third on each of the two following anniversaries of the Initial Vesting Date. The grant-date fair value of the restricted shares was determined by the management based upon an analysis of management’s estimates of the equity value of the Company. These estimates of equity value were based on an analysis of estimated cash flow and net asset value for the Company relative to comparable public companies’ cash flow, net asset valuations and equity valuations. As of September 30, 2007, all of the restricted shares were unvested.

In June 2007, the board of directors and stockholders approved the 2007 Stock Incentive Plan (“the 2007 Plan”). Under the 2007 Plan, we may grant stock options, stock appreciation rights, restricted stock units, performance awards, unrestricted stock awards and other incentive awards. The 2007 Plan reserves 10 percent of our outstanding common shares as adjusted each year, plus shares of common stock that were available for grant of awards under our prior plan. Awards of any stock options are to be priced at not less than the fair market value at the date of the grant. The vesting period of any stock option award is to be determined by the board at the time of the grant. The term of each stock option is to be fixed at the time of grant and may not exceed 10 years. In June 2007, our board of directors authorized the grant of a total of 300,000 shares of common stock to our named executive officers and a member of our technical team. In October, 2007, an additional 22,500 share grant was approved by our board to one of our executive officers. In addition, our board of directors authorized the grant of options to purchase 225,000 shares of common stock to key employees. These grants became effective on November 7, 2007 in connection with the execution and delivery of the underwriting agreement relating to our IPO. The exercise price for the authorized stock options will be the initial public offering price of our common stock ($12.00 per share). In addition, on November 27, 2007, the compensation committee of our board authorized the grant of options to purchase 15,000 shares of common stock to a key employee at an exercise price equal to the closing price of our common stock on November 27, 2007 ($12.63 per share). At September 30, 2007, no awards had been made under the 2007 Plan.

In July 2007, we received $240,380 in cash pursuant to an exercise of options to purchase 72,114 shares of our common stock.

6. Income taxes

Total income tax expense (benefit) differed from the amounts computed by applying the U.S. Federal statutory tax rates and estimated state rates to pre-tax income for the nine months ended September 30, 2006 and 2007 due primarily to adjustments to the valuation allowance applied to net operating loss carryovers of AOG. AOG provided a valuation allowance related to its deferred tax assets resulting primarily from net operating loss carryforwards based upon management’s inability to assess the amount to be realized until completion of the Contribution Agreement.

7. Derivatives

At September 30, 2007, we had the following commodity derivative positions outstanding:


	Volume (MMBtu)				$/MMBtu
Period	Monthly		Total		Floor		Ceiling		Fixed
NYMEX – Henry Hub
Fixed price swaps 2007		230,000		690,000					$	9.22
Costless collars 2008		186,000		2,232,000	$	7.50	$	11.45
WAHA differential
Fixed price swaps 2007		230,000		690,000					$	(1.02	)
Fixed price swaps 2008		186,000		2,232,000						(0.69	)

In November 2007, we entered into a costless collar for 2009 for 180,000 MMBtu per month with a $7.50 floor and a $10.50 ceiling. In addition, we entered into a 2009 WAHA differential fixed price swap for 200,000 MMBtu per month at $0.61 per MMBtu.

Realized gains and losses and changes in unrealized gains and losses are reflected in other income (expense) on our statements of operations. The net unrealized gain is reflected as a current and long-term asset based on the associated production months. The fair value of our fixed price swaps was estimated based on the present value of the difference in exchange-quoted forward price curves and contractual settlement prices multiplied by notional quantities. We obtained mark-to-market valuations for our collar positions from our counterparty and reviewed such valuations for reasonableness based on forward prices in relation to our contractual ceiling and floor prices.

We are exposed to credit loss in the event of nonperformance by the counterparty on our oil and gas swaps. However, we do not anticipate nonperformance by the counterparty over the term of the swaps.

8. Commitments and contingencies

Employment agreements

We have employment agreements with certain of our executive officers and one key other employee. These agreements are automatically renewed for successive terms of one year unless employment is terminated at the end of the term by written notice given to the employee not less than 60 days prior to the end of such term. Our maximum commitment under the employment agreements, which would apply if the employees covered by these agreements were all terminated without cause, is approximately $1.3 million at September 30, 2007.

Operating leases

In April 2007, we signed a five-year lease for approximately 13,000 square feet of office space in Fort Worth, Texas. That lease calls for minimum monthly rent payments of approximately $20,000 from January 2008 through December 2012.

9. Convertible debt

On June 25, 2007, Yorktown Energy Partners VII, L.P. and Lubar Equity Fund, LLC loaned an aggregate of $20 million to AOG under two convertible promissory notes of $10 million each. These notes bore interest at a rate of 7.00% per annum and had a maturity date of June 25, 2010, at which time all principal and interest would have been due. These notes were initially convertible at the election of the lender into shares of equity securities of AOG at $100 per share on December 31, 2007, or earlier if we sold substantially all of the assets of AOG. Upon consummation of our IPO, the notes automatically, and

without further action required by any person, converted into shares of ARI common stock. The number of shares of ARI common stock issued upon the automatic conversion of these notes was equal to the quotient obtained by dividing (a) the outstanding principal and accrued interest on each respective note by (b) the IPO price per share, less any underwriting discount per share for the shares of ARI common stock that were issued in our IPO. The shares of our common stock issued to Yorktown Energy Partners VII, L.P. and Lubar Equity Fund, LLC upon such automatic conversion are entitled to the same registration rights as those provided to certain holders of our common stock in connection with the contribution agreement. The total principal and interest owed under these notes as of September 30, 2007 was $20.4 million, consisting of $10.2 million owed to each of Yorktown Energy Partners VII, L.P. and Lubar Equity Fund, LLC. Yorktown Energy Partners VII, L.P. is an affiliate of Yorktown Partners LLC, which has one representative, Bryan H. Lawrence, who serves as a member of our board of directors. Lubar Equity Fund, LLC is an affiliate of Sheldon B. Lubar, who serves as a member of our board of directors.

The automatic conversion of the notes into shares of ARI common stock upon the closing of our IPO constituted a contingent beneficial conversion feature because the price per share into which these notes were convertible is less than the price paid by other parties acquiring ARI common stock. Immediately upon the closing of our IPO, we were required to measure the intrinsic value of the beneficial conversion feature and record such value as a charge to interest expense. The value of the beneficial conversion feature, and therefore the amount of interest expense, that would have been recognized if the notes were converted on September 30, 2007, amounted to $1.5 million.

See further discussion in Note 11 – Subsequent events .

10. Canadian unconventional gas investment

In May 2007, we acquired shares of common stock of a Canadian-based private exploration company focused on tight gas and shale gas opportunities in Canada. Our investment amounted to approximately $917,000 and is a non-controlling interest accounted for using the cost method.

11. Subsequent events

Contribution agreement

Immediately prior to the closing of the IPO, the Company acquired all of the outstanding capital stock of AOG and acquired the 30% working interest in the Ozona Northeast field (the “Neo Canyon interest”) that the Company did not already own from Neo Canyon Exploration, L.P. (“Neo Canyon” or “Selling Stockholder”). Upon the closing of the transactions contemplated by the contribution agreement, Neo Canyon and each of the stockholders of AOG received shares of Company common stock in exchange for their respective contributions. Neo Canyon received an aggregate of 4,239,243 shares of Company common stock, of which 2,061,290 shares were offered in the IPO, 156,805 shares were subject to the over-allotment option granted to the underwriters and 2,021,148 shares were redeemed by the Company for cash. The stockholders of AOG received an aggregate of 989,157 shares of Company common stock.

The acquisition cost of the Neo Canyon interest was $50.9 million, representing 4,239,243 shares of Approach Resources Inc. common stock at $12.00 per share, our IPO, and the assumption of related asset retirement obligations at that date. The following is a pro forma summary of the purchase price and its allocation (in thousands) based on our estimates described above assuming the acquisition occurred on September 30, 2007:


Purchase price:
Issuance of 4,239,243 shares of Approach Resources Inc. common stock valued at $12.00 per share	$	50,871
Plus: assumption of asset retirement obligations		67

Total purchase price	$	50,938

Allocation:
Mineral interests in oil and gas properties	$	3,708
Wells and equipment and related facilities		47,230

Total	$	50,938

The following condensed pro forma information gives effect to the acquisition as if it had occurred on January 1, 2006. The pro forma information has been included in the notes as required by generally accepted accounting principles and is provided for comparison purposes only. The pro forma financial information is not necessarily indicative of the financial results that would have occurred had the acquisition been effective on the dates indicated and should not be viewed as indicative of operations in the future.


	Nine Months
	Ended September 30,
	2007		2006
Operating revenues	$	38,509,000	$	52,110,000
Total expenses	$	22,850,000	$	24,708,000
Earnings applicable to common stock	$	8,535,000	$	24,403,000
Net earnings per share – basic	$	0.62	$	2.04
Net earnings per share — diluted	$	0.55	$	1.99

Initial public offering

On November 14, 2007 the Company completed the IPO of its common stock. The Company sold 5,605,377 shares and the Selling Stockholder sold 2,061,290 shares of Company common stock, in each case, at $12.00 per share less underwriting discounts. After deducting underwriting discounts of approximately $4.7 million, the Company received net proceeds of approximately $62.5 million. In conjunction with the IPO, the underwriters were granted an option to purchase 1,150,000 additional shares of Company common stock (993,195 shares from the Company and 156,805 shares from the Selling Stockholder). The underwriters fully exercised this option and purchased the additional shares on November 16, 2007. After deducting underwriting discounts of approximately $0.8 million, the Company received net proceeds of approximately $11.1 million. The aggregate net proceeds of approximately $73.6 million received by the Company (in millions) at the closings on November 14, 2007 and November 16, 2007 were utilized as follows:


Repayment of revolving credit facility	$	51.1
Repurchase of common stock held by Selling Stockholder	$	22.5

Stock split

A three-for-one stock split in the form of a stock dividend on the issued and outstanding shares of Company common stock was declared on November 7, 2007, and was paid subsequent to the effectiveness of the Company’s Restated Certificate of Incorporation and concurrently with the consummation and closing of the IPO in authorized but unissued shares of Company common stock to holders of record of shares of common stock at the close of business on the day immediately preceding the consummation and closing of the IPO, so that each share of common stock outstanding on that date entitled its holder to receive two additional shares of common stock.

Convertible notes

Upon the consummation of the IPO, the convertible notes and related accrued interest were automatically converted into shares of Company common stock. The number of shares of Company common stock issued upon the automatic conversion of these notes was 920,631 to Yorktown Energy Partners VII, L.P. and 920,631 to Lubar Equity Fund, LLC. The shares of Company common stock that were issued to Yorktown Energy Partners VII, L.P. and Lubar Equity Fund, LLC upon such automatic conversion are entitled to the same registration rights as those provided to certain holders of Company common stock in connection with the contribution agreement.

* * * * * * * * * *

Item 2. Management’s discussion and analysis of financial condition and results of operations.

The following discussion is intended to assist in understanding our results of operations and our financial condition. This section should be read in conjunction with management’s discussion and analysis contained in our Prospectus dated November 7, 2007 and filed with the Securities and Exchange Commission on November 8, 2007. Our combined financial statements and the accompanying notes included elsewhere in this prospectus contain additional information that should be referred to when reviewing this material. Statements in this discussion may be forward-looking. These forward-looking statements involve risks and uncertainties, which could cause actual results to differ from those expressed.

Overview

We are an independent energy company engaged in the exploration, development, exploitation, production and acquisition of unconventional oil and gas properties onshore in the United States and Western Canada. We are focusing our growth efforts primarily on finding and developing natural gas reserves in known tight gas sands and shale areas and have assembled leasehold interests aggregating approximately 277,100 gross (189,400 net) acres. We expect to leverage our management team’s proven track record of finding and exploiting unconventional reservoirs through application of advanced completion, fracturing and drilling techniques. As the operator of substantially all of our proved reserves, we have a high degree of control over capital expenditures and other operating matters.

We currently operate in five areas: West Texas (Wolfcamp, Canyon Sands and Ellenburger), East Texas (Cotton Valley Sands, Bossier and Cotton Valley Lime), Northern New Mexico (Mancos Shale), Western Kentucky (New Albany Shale) and Western Canada (Triassic Shale and tight gas sands). As of December 31, 2006, all of our proved reserves and production were located in our West Texas operating area and substantially all of those reserves and production were located in the Ozona Northeast field.

Our financial results depend upon many factors, particularly the price of oil and gas. Commodity prices are affected by changes in market demand, which is impacted by overall economic activity, weather, pipeline capacity constraints, inventory storage levels, gas price differentials and other factors. As a result, we cannot accurately predict future oil and gas prices, and therefore, we cannot determine what effect increases or decreases will have on our capital program, production volumes and future revenues. In addition to production volumes and commodity prices, finding and developing sufficient amounts of oil and gas reserves at economical costs are critical to our long-term success. Future finding and development costs are subject to changes in the industry, including the costs of acquiring, drilling and completing our projects.

Higher oil and gas prices have led to higher demand for drilling rigs, operating personnel and field supplies and services and have caused increases in the costs of those goods and services. To date, the higher sales prices have more than offset the higher drilling and operating costs. Given the inherent volatility of gas prices, which are influenced by many factors beyond our control, we plan our activities and budget based on conservative sales price assumptions, which generally are lower than the average sales prices received. We focus our efforts on increasing gas reserves and production while controlling costs at a level that is appropriate for long-term operations. Our future cash flow from operations will depend on our ability to manage our overall cost structure.

Like all oil and gas production companies, we face the challenge of natural production declines. Oil and gas production from a given well naturally decreases over time. Additionally, our reserves have a rapid initial decline. We will attempt to overcome this natural decline by drilling to develop and identify additional reserves and by acquisitions. Our future growth will depend upon our ability to continue to add oil and gas reserves in excess of production at a reasonable cost. We will maintain our focus on the costs of adding reserves through drilling and acquisitions as well as the costs necessary to produce such reserves.

We also face the challenge of financing future acquisitions. After completion of our initial public offering of our common stock (“IPO”) as more fully described below, we repaid all amounts outstanding on our revolving credit facility. We believe we have adequate unused borrowing capacity under our revolving credit facility for possible acquisitions, temporary working capital needs and any expansion of our drilling program. Funding for future acquisitions also may require additional sources of financing, which may not be available.

Recent developments

Contribution Agreement. Immediately prior to the closing of the IPO, the Company acquired all of the outstanding capital stock of AOG and acquired the 30% working interest in the Ozona Northeast field that the Company did not already own from Neo Canyon Exploration, L.P. (“Neo Canyon” or the “Selling Stockholder”). Upon the closing of the transactions contemplated by the contribution agreement, Neo Canyon and each of the stockholders of AOG received shares of Company common stock in exchange for their respective contributions. Neo Canyon received an aggregate of 4,239,243 shares of Company common stock, of which 2,061,290 shares were offered in the IPO, 156,805 shares were subject to the over-allotment option granted to the underwriters and 2,021,148 shares were redeemed by the Company. The stockholders of AOG received an aggregate of 989,157 shares of Company common stock.

Initial Public Offering. On November 14, 2007 the Company completed the IPO of its common stock. The Company sold 5,605,377 shares and Neo Canyon sold 2,061,290 shares of Company common stock, in each case, at $12.00 per share. After deducting underwriting discounts of approximately $4.7 million, the Company received net proceeds of approximately $62.5 million. In conjunction with the IPO, the underwriters were granted an option to purchase 1,150,000 additional shares of Company common stock (993,195 shares from the Company and 156,805 shares from the Selling Stockholder). The underwriters fully exercised this option and purchased the additional shares on November 16, 2007. After deducting underwriting discounts of approximately $0.8 million, the Company received net proceeds of approximately $11.1 million. The aggregate net proceeds of approximately $73.6 million received by the Company (in millions) at the closings on November 14, 2007 and November 16, 2007 were utilized as follows:


Repayment of revolving credit facility	$	51.1
Repurchase of stock held by Selling Stockholder	$	22.5

Stock Split. A three-for-one stock split in the form of a stock dividend on the issued and outstanding shares of Company common stock was declared on November 7, 2007, and was paid subsequent to the effectiveness of the Company’s Restated Certificate of Incorporation and concurrently with the consummation and closing of the IPO in authorized but unissued shares of Company common stock to holders of record of shares of common stock at the close of business on the day immediately preceding the consummation and closing of the IPO, so that each share of common stock outstanding on that date entitled its holder to receive two additional shares of common stock.

Convertible Notes. On June 25, 2007, Yorktown Energy Partners VII, L.P. and Lubar Equity Fund, LLC loaned an aggregate of $20 million to AOG under two convertible promissory notes of $10 million each, which notes bore interest at a rate of 7.00% per annum and had a maturity date of June 25, 2010, at which time all principal and interest was due. These notes were convertible at the election of the lender into shares of equity securities of AOG at $100 per share on December 31, 2007, or earlier if the Company sold substantially all of the assets of AOG Upon the consummation of the IPO, the notes were automatically converted into shares of Company common stock. The number of shares of Company common stock issued upon the automatic conversion of these notes was 920,631 to Yorktown Energy Partners VII, L.P. and 920,631 to Lubar Equity Fund, LLC. The shares of Company common stock that were issued to Yorktown Energy Partners VII, L.P. and Lubar Equity Fund, LLC upon such automatic conversion are entitled to the same registration rights as those provided to certain holders of Company common stock in connection with the contribution agreement.

Cautionary statement regarding forward-looking statements

Various statements in this report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future reserves, production, revenues, income and capital spending. When we use the words “believe,” “intend,” “expect,” “may,” “should,” “anticipate,” “could,” “estimate,” “plan,” “predict,” “project” or their negatives, other similar expressions or the statements that include those words, it usually is a forward-looking statement.

The forward-looking statements contained in this report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors detailed below and discussed in our Prospectus dated November 7, 2007 and filed with the Securities Exchange Commission (“SEC”) pursuant to Rule 424(b) on November 8, 2007. All forward-looking statements speak only as of the date of this report. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us, or persons acting on our behalf. The risks, contingencies and uncertainties relate to, among other matters, the following:

•		our business strategy;

•		estimated quantities of gas and oil reserves;

•		technology;

•		uncertainty of commodity prices in oil and gas;

•		our financial position;

•		our cash flow and liquidity;

•		declines in the prices we receive for our gas and oil affecting our operating results and cash flow;

•		economic slowdowns that can adversely affect consumption of gas and oil by businesses and consumers;

•		uncertainties in estimating our gas and oil reserves;

•		replacing our gas and oil reserves;

•		uncertainty regarding our future operating results;

•		uncertainties in exploring for and producing gas and oil;

•		our inability to obtain additional financing necessary to fund our operations and capital expenditures and to meet our other obligations;

•		availability of drilling and production equipment and field service providers;

•		disruptions to, capacity constraints in or other limitations on the pipeline systems which deliver our gas and other processing and transportation considerations;

•		competition in the oil and gas industry;

•		marketing of gas and oil;

•		exploitation or property acquisitions;

•		our inability to retain and attract key personnel;

•		the effects of government regulation and permitting and other legal requirements;

•		costs associated with perfecting title for mineral rights in some of our properties; and

•		plans, objectives, expectations and intentions contained in our Prospectus dated November 7, 2007 and filed with the SEC pursuant to Rule 424(b) on November 8, 2007 that are not historical.

Results of operations


	Three Months				Nine Months
	Ended				Ended
	September 30,				September 30,
	2007		2006		2007		2006
Revenues (in thousands):
Gas		7,194		9,371		24,110		33,048
Oil		1,099		1,026		3,264		3,739

Total oil and gas sales		8,293		10,397		27,374		36,787
Realized gain on commodity derivatives		1,079		1,126		3,323		4,210

Total oil and gas sales including derivative impact		9,372		11,523		30,697		40,997
Production:
Gas (MMcf)		1,135		1,484		3,511		4,849
Oil (MBbl)		16		15		55		57

Total (MMcfe)		1,232		1,573		3,840		5,192
Average prices:
Gas, per Mcf		6.34		6.32		6.87		6.82
Oil, per Bbl		68.10		68.81		59.51		65.37

Total, per Mcfe		6.73		6.61		7.13		7.08
Realized gain on commodity derivatives, per Mcfe		0.88		0.72		0.86		0.82

Total per Mcfe including derivative impact		7.61		7.33		7.99		7.90
Costs and expenses (per Mcfe):
Lease operating expenses		0.62		0.52		0.72		0.54
Severance and production taxes		0.32		0.34		0.30		0.27
Depletion, depreciation and amortization		2.52		2.41		2.40		2.07
Exploration		—		0.36		0.16		0.30
General and administrative		1.12		0.32		1.07		0.33

Three months ended September 30, 2007 compared to three months ended September 30, 2006

Oil and gas sales . Oil and gas sales decreased $2.1 million, or 20.2%, for the three months ended September 30, 2007 to $8.3 million from $10.4 million for the three months ended September 30, 2006. The decrease in gas sales principally resulted from the natural decline in production of our tight gas sands in the Ozona Northeast field. Further, we had four rigs drilling in the second half of 2005 and the first half of 2006, which significantly increased production in the three months of 2006 from new wells placed in production compared to the use of only one rig in the latter part of 2006 and the first half of 2007. The average price per Mcfe we received for our production remained relatively unchanged as reflected in the table above. Gas sales represented 86.8% of the total oil and gas sales for the three months ended September 30, 2007 compared to 90.1% for the three months ended September 30, 2006.

Commodity derivative activities . Realized gains from our commodity derivative activity increased our earnings $1.1 million for both the three months ended September 30, 2007 and 2006. Realized gains are derived from the relative movement of the NYMEX gas prices in relation to the fixed notional pricing for the respective time periods.

Lease operating expense . Our lease operating expenses decreased $62,000, or 7.5%, for the three months ended September 30, 2007 to $760,000 ($0.62 per Mcfe) from $822,000 ($0.52 per Mcfe) for the three months ended September 30, 2006. The primary factor in the slight decrease in lease operating expense was the release in mid-2006 of one of our seven rented compressors.

Severance and production taxes . Our production taxes decreased $140,000, or 26%, for the three months ended September 30, 2007 to $400,000 from $540,000 for the three months ended September 30, 2006. The decrease in production taxes was a function of the reduced oil and gas sales in 2007.

Exploration . We recorded no dry hole costs for the three months ended September 30, 2007 as compared to $572,000 for the three months ended September 30, 2006. Exploration expense in 2006 resulted primarily from two dry holes drilled on our Pecos County project, which was abandoned in the fourth quarter of 2006.

General and administrative . Our general and administrative expenses increased $875,000 or 174.8%, to $1.4 million for the three months ended September 30, 2007 from $500,000 for the three months ended September 30, 2006. The increase in general and administrative expense was principally due to bonus payments made in the third quarter of 2007 after filing of our initial registration statement and the increased staffing costs in 2007.

Depletion, depreciation and amortization (DD&A) . Our DD&A expense decreased $687,000, or 18.1%, to $3.1 million for the three months ended September 30, 2007 from $3.8 million for the three months ended September 30, 2006. Our DD&A expense per Mcfe produced increased by $0.11, or 4.6%, to $2.52 per Mcfe for the three months ended September 30, 2007, as compared to $2.41 per Mcfe for the three months ended September 30, 2006. The decrease in DD&A was primarily attributable to decreased production, which was slightly offset by the higher expense per Mcfe consistent with increased capital costs.

Interest income (expense), net. Our interest expense increased $49,000, or 4.7%, to $1.1 million for the three months ended September 30, 2007 from $1.1 million for the three months ended September 30, 2006. This increase was a function of increased borrowings between the two periods to fund our development of the Ozona Northeast field, partially offset by lower interest rates in the 2007 period.

Income taxes . Our provision for income taxes decreased $1.6 million, or 54.2%, to $1.3 million for the three months ended September 30, 2007, from a provision of $2.9 million for the three months ended September 30, 2006. The decrease in income tax expense is consistent with the decrease in our income before income taxes. Our effective income tax rate for the three months ended September 30, 2006 amounted to 36.1% compared with 38.5% for the three months ended September 30, 2007. The increase in the effective rate results primarily from changes in the valuation allowance provided against net operating loss carryovers for AOG We do not recognize a tax benefit for the net operating loss carryovers of AOG based on our assessment of the likelihood of AOG being able to utilize those carryovers to reduce future taxable income. Subsequent to the combination of AOG and ARI, the net operating loss carryovers of AOG will be available to offset our future taxable income, subject to certain limitations.

Nine months ended September 30, 2007 compared to nine months ended September 30, 2006

Oil and gas sales . Oil and gas sales decreased $9.4 million, or 25.6%, for the nine months ended September 30, 2007 to $27.4 million from $36.8 million for the nine months ended September 30, 2006. The decrease in gas sales principally resulted from the natural decline in production of our tight gas sands in the Ozona Northeast field. Further, we had four rigs drilling in the second half of 2005 and the first half of 2006, which significantly increased production in the first nine months of 2006 from new wells placed in production compared to the use of only one rig in the latter part of 2006 and early 2007. The average price per Mcfe we received for our production remained relatively unchanged as reflected in the table above. Gas sales represented 88.1% of the total oil and gas sales for the nine months ended September 30, 2007 compared to 89.8% for the nine months ended September 30, 2006.

Commodity derivative activities . Realized gains from our commodity derivative activity increased our earnings $3.3 million for the nine months ended September 30, 2007. In comparison, our commodity derivative activity increased our earnings $4.2 million for the nine months ended September 30, 2006. Realized gains are derived from the relative movement of the NYMEX gas prices in relation to the fixed notional pricing for the respective time periods.

Lease operating expense . Our lease operating expenses decreased $31,000, or 1.1%, for the nine months ended September 30, 2007 to $2.8 million ($0.72 per Mcfe) from 2.8 million ($0.54 per Mcfe) for the nine months ended September 30, 2006. The primary factor in the slight decrease in lease operating expense was the release in mid-2006 of one of our seven rented compressors and an amine unit as partially offset by higher estimated ad valorem tax in the 2007 period.

Severance and production taxes . Our production taxes decreased $233,000, or 16.9%, for the nine months ended September 30, 2007 to $1.1 million from $1.4 million for the nine months ended September 30, 2006. The decrease in production taxes was a function of the reduced oil and gas sales in 2007, offset partly by the timing of severance tax refunds in the 2006 period.

Exploration . Our dry hole costs associated with exploratory drilling decreased $931,000 to $633,000 for the nine months ended September 30, 2007 from $1.6 million for the nine months ended September 30, 2006. The 2007 dry hole costs resulted from a mechanical failure in the drilling of a test well in our Boomerang prospect. Exploration expense in 2006 resulted primarily from two dry holes drilled on our Pecos County project, which we abandoned in the fourth quarter of 2006.

General and administrative . Our general and administrative expenses increased $2.4 million or 136.7%, to $4.1 million for the nine months ended September 30, 2007 from $1.7 million for the nine months ended September 30, 2006. The increase in general and administrative expense was principally due to bonus payments made in the first nine months of 2007 to cover tax liabilities incurred by management in connection with the repayment of management notes, bonus payments made upon filing of our initial registration statement in the third quarter and increased staffing in the 2007 period. Additionally, the 2007 period includes a severance obligation of $350,000 related to a former employee.

Depletion, depreciation and amortization (DD&A) . Our DD&A expense decreased $1.6 million, or 14.4%, to $9.2 million for the nine months ended September 30, 2007 from $10.8 million for the nine months ended September 30, 2006. Our DD&A expense per Mcfe produced increased by $0.33, or 15.9%, to $2.40 per Mcfe for the nine months ended September 30, 2007, as compared to $2.07 per Mcfe for the nine months ended September 30, 2006. The decrease in DD&A was primarily attributable to decreased production, which was slightly offset by the higher expense per Mcfe consistent with increased capital costs.

Interest income (expense), net . Our interest expense increased $295,000, or 10.7%, to $3.1 million for the nine months ended September 30, 2007 from $2.8 million for the nine months ended September 30, 2006. This increase was a function of increased borrowings between the two periods to fund our development of the Ozona Northeast field.

Income taxes . Our provision for income taxes decreased $7.2 million, or 69.6%, to $3.1 million for the nine months ended September 30, 2007, from a provision of $10.3 million for the nine months ended September 30, 2006. The decrease in income tax expense is consistent with the decrease in our income before income taxes. Our effective income tax rate for the nine months ended September 30, 2006 amounted to 35.4% compared with 41% for the nine months ended September 30, 2007. The increase in the effective rate results primarily from changes in the valuation allowance provided against net operating loss carryovers for AOG We do not recognize a tax benefit for the net operating loss carryovers of AOG

based on our assessment of the likelihood of AOG being able to utilize those carryovers to reduce future taxable income. Subsequent to the combination of AOG and ARI, the net operating loss carryovers of AOG will be available to offset our future taxable income, subject to certain limitations.

Pro forma information . The following pro forma information gives effect to the acquisition of the Neo Canyon interest as if it had occurred on January 1, 2006. The pro forma financial information is not necessarily indicative of the financial results that would have occurred had the acquisition been effective on the dates indicated and should not be viewed as indicative of operations in the future.


	Pro forma
	Nine Months Ended
	September 30,
	2007		2006
Revenues (in thousands):
Gas	$	34,005	$	46,806
Oil		4,504		5,304

Total oil and gas sales		38,509		52,110
Realized gain on commodity derivatives		3,323		4,210

Total oil and gas sales including derivative impact		41,832		56,320
Production:
Gas (MMcf)		4,979		6,876
Oil (MBbl)		75		81

Total (MMcfe)		5,429		7,365
Average prices:
Gas, per Mcf	$	6.83	$	6.81
Oil, per Bbl		60.00		65.13

Total, per Mcfe		7.09		7.08
Realized gain on commodity derivatives, per Mcfe		0.61		0.57

Total per Mcfe including derivative impact		7.70		7.65
Costs and expenses (per Mcfe):
Lease operating expenses	$	0.71	$	0.56
Severance and production taxes		0.30		0.28
Depletion, depreciation and amortization		2.27		2.04
Exploration		0.12		0.21
General and administrative		0.82		0.27

Liquidity and capital resources

Prior to the completion of our IPO, cash generated from operations, borrowings under our existing credit facilities and funds from partner contributions have been our primary sources of liquidity. Following completion of our IPO, we will rely on cash generated from operations, future public equity and debt offerings and borrowings under our revolving credit facility with The Frost National Bank to satisfy our liquidity needs. Our ability to fund planned capital expenditures and to make acquisitions will depend upon our future operating performance, and more broadly, on the availability of equity and debt financing, which will be affected by prevailing economic conditions in our industry and financial, business and other factors, some of which are beyond our control.

Our cash flow from operations is driven by commodity prices and production volumes. Prices for oil and gas are driven by seasonal influences of weather, national and international economic and political environments and, increasingly, from heightened demand for hydrocarbons from emerging nations, particularly China and India. Our working capital is significantly influenced by changes in commodity prices and significant declines in prices could decrease our exploration and development expenditures.

Cash flows from operations were primarily used to fund exploration and development of our mineral interests.

For the nine months ended September 30, 2007, the majority of our cash was generated from operating and financing activities. We used $25.7 million of net proceeds from bank and convertible debt borrowings and cash flow from operations of $20.3 million to fund $31.5 million of capital expenditures related to our drilling program activities and our $917,000 investment in a Canadian-based private exploration company. During the same nine months in 2006, we used $26.6 million of cash flow from operations and $22.2 million of proceeds from borrowings under a note with one of our stockholders and our revolving credit facility, and proceeds from the issuance of our common stock of $6.5 million to fund $49.8 million for our drilling program and $1.3 million to repurchase shares and options.

The following table summarizes our sources and uses of funds for the periods noted:


	Nine Months Ended
	September 30,
(in thousands)	2007			2006
Cash flows provided by operating activities	$	20,294		$	26,596
Cash flows used in investing activities		(32,445	)		(49,789	)
Cash flows provided by financing activities		24,996			27,334

Net increase (decrease) in cash and cash equivalents	$	12,845		$	4,141

Operating activities

For the nine months ended September 30, 2007, our cash flow from operations was used for drilling activities. The $20.3 million in cash flow generated in the first nine months of 2007 decreased $6.3 million from the first nine months of 2006 due mostly to lower oil and gas sales and higher general and administrative expenses in the 2007 period.

Investing activities

Of the cash flows used in investing activities in the first nine months of 2007, $18.6 million was for the continued development of the Ozona Northeast field, $2.8 million for the drilling of wells in Cinco Terry, $2.4 million for development of our North Bald Prairie field, $1.1 million for the drilling of the test wells in our Boomerang prospect, $2.4 million for the acquisition of the El Vado East leasehold and $4.9 million for our Canadian project including investment in a Canadian-based private exploration company, leasehold acquisition and drilling costs. For the comparable period of 2006, $44.1 million was for the drilling of Ozona Northeast wells, $3.5 million was for the acquisition of the Boomerang leasehold and $2.2 million was used for acreage cost and the drilling of Cinco Terry wells.

We have established an exploratory and development budget of $48.6 million and $64.3 million for 2007 and 2008, respectively, after the completion of the acquisition of the Neo Canyon interest. Our budgets are established based on expected volumes to be produced and commodity prices.

Financing activities

We borrowed $25.7 million net under convertible notes and our revolving credit facility in the first nine months of 2007 as compared to $18.7 million net in the first nine months of 2006. In addition, $6.5 million of proceeds from issuance of common stock and $3.5 million of borrowing from a stockholder

provided additional capital in the first nine months of 2006. $1.3 million was spent in the first nine months of 2006 to purchase common stock and related options from a former employee.

In February 2007, we entered into an amended and restated $100 million revolving credit facility with The Frost National Bank. In June 2007, we amended our credit facility agreement to extend the due date of any balance outstanding at maturity to July 2010. As of September 30, 2007, we had an outstanding balance under the credit facility of approximately $53.3 million, with a borrowing base of $75 million. The borrowing base is subject to adjustment twice each year. The assessment by the bank petroleum engineers is based on their evaluation of the future cash flows from proved oil and gas reserves using the bank’s pricing parameters.

Our goal is to actively manage our borrowings to help us maintain the flexibility to expand and invest, and to avoid the problems associated with highly leveraged companies of large interest costs and possible debt reductions restricting ongoing operations.

We believe that cash flow from operations and borrowings under our revolving credit facility will finance substantially all of our anticipated drilling, exploration and capital needs through 2008. We will also use our revolving credit facility for possible acquisitions, temporary working capital needs and any expansion of our drilling program through 2008.

Future capital expenditures for 2007 and 2008

The following table summarizes information regarding our estimated 2007 and 2008 capital expenditures. The 2007 and 2008 estimates give effect to the acquisition of the Neo Canyon interest in combination with the interest of ARI and AOG as of November 14, 2007. We will be required to meet our needs from our internally generated cash flow, debt financings, equity financings and borrowings under our revolving credit facility. The estimated capital expenditures are subject to change depending upon a number of factors, including the results of our development and exploration efforts, the availability of sufficient capital resources to us and other participants for drilling prospects, economic and industry conditions at the time of drilling, including prevailing and anticipated prices for oil and gas and the availability of drilling rigs and crews, our financial results and the availability of leases on reasonable terms and our ability to obtain permits for the drilling locations.


	Estimated(1)
	Year Ending
	December 31,
(in thousands)	2007		2008
Capital expenditures:
Ozona Northeast	$	23,400	$	29,500
Cinco Terry		6,600		10,900
East Texas		8,500		14,400
Northern New Mexico		—		3,600
Western Kentucky		900		1,800
Western Canada		1,200		3,200
Lease acquisition, geological, geophysical and other		8,000		900

Total capital expenditures	$	48,600	$	64,300


(1)		Estimated capital expenditures for 2007 and 2008 include additional capital expenditures attributable to the approximately 30% working interest we acquired from Neo Canyon on November 14, 2007, but do not include the capital expenditure associated with our acquisition of that interest.

Credit facility

In February 2007, we entered into an amended and restated $100 million revolving credit facility with The Frost National Bank. In June 2007, we amended our credit facility agreement to extend the due date of any balance outstanding at maturity to July 2010. In July 2007, we amended the credit facility agreement to allow the bank to issue letters of credit for the account of AOG. In September 2007, we amended our credit facility agreement to clarify the annual date for delivery of our year-end reserve report from our independent engineering firm. The availability of funds under our revolving credit facility is subject to a borrowing base which was initially set at, and currently is, $75 million. The borrowing base will be redetermined every six months or, upon the election by us or the bank, one additional time each calendar year.

Our revolving credit facility provides for interest on outstanding amounts to accrue at a rate calculated, at our option, at either (i) the base rate, which is the bank’s prime rate, or (ii) the sum of the LIBOR plus a margin which ranges from 1.25% to 2.0% per annum, as applicable, as amounts outstanding under our revolving credit facility increase as a percentage of the borrowing base. In addition, we pay an annual commitment fee of 0.375% of non-utilized borrowings available under our revolving credit facility.

We are subject to a financial covenant requiring maintenance of a minimum modified ratio of current assets to current liabilities. In addition, we are subject to covenants restricting cash dividends and other restricted payments, transactions with affiliates, incurrence of other debt, consolidations and mergers, the level of operating leases, assets sales, investments in other entities and liens on properties.

Loans under our revolving credit facility are secured by first priority liens on substantially all of our West Texas assets including equity interests in our subsidiaries. All outstanding amounts under our revolving credit facility are due and payable in July 2010.

As of December 31, 2006 and September 30, 2007, the outstanding balance under our revolving credit facility was $47.6 million and $53.3 million, respectively. After the completion of the IPO, we paid off our balance outstanding under the revolving credit facility.

Off-balance sheet arrangements

From time to time, we enter into off-balance sheet arrangements and transactions that can give rise to off-balance sheet obligations. As of September 30, 2007, the off-balance sheet arrangements and transactions that we have entered into include undrawn letters of credit, operating lease agreements and gas transportation commitments. We do not believe that these arrangements are reasonably likely to materially affect our liquidity or availability of, or requirements for, capital resources.

Item 3. Quantitative and qualitative disclosures about market risk.

Some of the information below contains forward-looking statements. The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changes in oil and gas prices, and other related factors. The disclosure is not meant to be a precise indicator of expected future losses, but rather an indicator of reasonably possible losses. This forward-looking information provides an indicator of how we view and manage our ongoing market risk exposures. Our market risk sensitive instruments were entered into for commodity derivative and investment purposes, not for trading purposes.

Commodity price risk

We enter into financial swaps and collars to hedge future oil and gas production to mitigate portions of the risk of market price fluctuations.

To designate a derivative as a cash flow hedge, we document at the commodity derivative’s inception our assessment as to whether the derivative will be highly effective in offsetting expected changes in cash flows from the item hedged. This assessment, which is updated at least quarterly, is generally based on the most recent relevant historical correlation between the derivative and the item hedged. The ineffective portion of the commodity derivative, if any, is calculated as the difference between the change in fair value of the derivative and the estimated change in cash flows from the item hedged.

If, during a commodity derivative’s term, we determine the commodity derivative is no longer highly effective, commodity derivative accounting is prospectively discontinued and any remaining unrealized gains or losses on the effective portion of the derivative are reclassified to earnings when the underlying transaction occurs. If it is determined that the designated commodity derivative transaction is not likely to occur, any unrealized gains or losses are recognized immediately in the consolidated statements of income as a derivative fair value gain or loss.

As of September 30, 2007, we had the following commodity derivative positions outstanding:


	Volume (MMBtu)				$/MMBtu
Period	Monthly		Total		Floor		Ceiling		Fixed
NYMEX – Henry Hub
Fixed price swaps 2007		230,000		690,000						$	9.22
Costless collars 2008		186,000		2,232,000	$	7.50	$	11.45
WAHA differential
Fixed price swaps 2007		230,000		690,000						$	(1.02	)
Fixed price swaps 2008		186,000		2,232,000							(0.69	)

At December 31, 2006 and September 30, 2007, the fair value of our open derivative contracts was an asset of approximately $4.5 million and $2.4 million, respectively.

We have reviewed the financial strength of our commodity derivative counterparty and believe our credit risk to be minimal. Our commodity derivative counterparty is a participant in our credit facility and the collateral for the outstanding borrowings under our revolving credit facility is used as collateral for our commodity derivatives.

Item 4. Controls and procedures.

Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of September 30, 2007. Based on this evaluation, our chief executive officer and chief financial officer have concluded that, as of September 30, 2007, our disclosure controls and procedures were effective, in that they ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is

(1) recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and (2) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

No changes to our internal control over financial reporting occurred during the nine months ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The SEC’s rules under Section 404 of the Sarbanes-Oxley Act of 2002 become applicable to us beginning with our Annual Report on Form 10-K for the year ending December 31, 2008 to be filed in the first quarter of 2009. We cannot give any assurance, however, that our internal controls will be effective when Section 404 becomes applicable to us. Ineffective internal controls could cause investors to lose confidence in our reported financial information and could result in a lower trading price for our securities.

PART II — OTHER INFORMATION

Item 1. Legal proceedings.

None.

Item 1A. Risk factors.

For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our prospectus dated November 7, 2007, filed with the SEC in accordance with Rule 424(b) of the Securities Act on November 8, 2007, which is accessible on the SEC’s website at www.sec.gov. There have been no material changes to the risk factors disclosed in the prospectus.

Item 2. Unregistered sales of equity securities and use of proceeds.

On November 14, 2007, we completed the IPO of our common stock pursuant to our registration statement on Form S-1 (File 333-144512) declared effective by the SEC on November 8, 2007. The underwriters for the offering were J.P. Morgan Securities Inc., Wachovia Capital Markets, LLC, KeyBanc Capital Markets Inc. and Tudor, Pickering, Holt & Co. Securities, Inc. Pursuant to the registration statement, we registered the offer and sale of 8,816,667 shares of our $0.01 par value common stock, which included 2,061,290 shares sold by the Selling Stockholder and 1,150,000 shares subject to an option granted to the underwriters by us to cover over-allotments. The underwriters exercised their over-allotment option on November 14, 2007. The sale of the shares in our IPO closed on November 14, 2007 and the sale of the shares covered by the over-allotment option closed on November 16, 2007. Our IPO terminated upon completion of the closing.

The gross proceeds of our IPO, including the gross proceeds from over-allotment option, based on the IPO price of $12.00 per share, were approximately $81.1 million, which resulted in net proceeds to the Company of $73.6 million after deducting underwriter discounts and commissions of approximately $5.5 million and the net proceeds to the Selling Stockholder of approximately $23.0 million. We did not receive any proceeds from the sale of the shares by the Selling Stockholder. We also paid for legal fees incurred by the Selling Stockholder. Other than for such fees, no fees or expenses have been paid, directly or indirectly, to any officer, director or 10% stockholder or other affiliate. The net proceeds from our IPO were used to (i) repay a portion of our revolving credit facility in November 2007 totaling $51.1 million and (ii) repurchase 2,021,148 shares of our common stock held by the Selling Stockholder for approximately $22.5 million.

Item 3. Defaults upon senior securities.

None.

Item 4. Submission of matters to a vote of security holders.

On July 12, 2007, a special meeting of the Company’s stockholders was held to adopt the Restated Certificate of Incorporation and the Restated Bylaws. Each of the Restated Certificate of Incorporation and the Restated Bylaws were so adopted.

Item 5. Other information.

None.

Item 6. Exhibits.

	3.1		Restated Certificate of Incorporation of Approach Resources Inc.

	3.2		Restated Bylaws of Approach Resources Inc.

	4.1		Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A filed October 18, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.1		Form of Indemnity Agreement between Approach Resources Inc. and each of its directors and officers (filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.2		Contribution Agreement by and among Approach Resources Inc. and the equity holders identified therein, dated June 29, 2007 (filed as Exhibit 10.2 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

	10.3		Employment Agreement by and between Approach Resources Inc. and J. Ross Craft dated January 1, 2003 (filed as Exhibit 10.3 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

	10.4		Employment Agreement by and between Approach Resources Inc. and Steven P. Smart dated January 1, 2003 (filed as Exhibit 10.4 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

	10.5		Employment Agreement by and between Approach Resources Inc. and Glenn W. Reed dated January 1, 2003 (filed as Exhibit 10.5 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

	10.6		Approach Resources Inc. 2007 Stock Incentive Plan, effective as of June 28, 2007 (filed as Exhibit 10.6 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

	10.7		Convertible Promissory Note issued by Approach Oil & Gas Inc. to Yorktown Energy Partners VII, L.P. dated June 25, 2007 (filed as Exhibit 10.7 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

	10.8		Convertible Promissory Note issued by Approach Oil & Gas Inc. to Lubar Equity Fund, LLC dated June 25, 2007 (filed as Exhibit 10.8 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

	10.9		$100,000,000 Revolving Amended and Restated Credit Agreement by and among Approach Resources I, LP, as borrower, The Frost National Bank, as administrative agent and lender, and the financial institutions part thereto, dated February 15, 2007 (filed as Exhibit 10.9 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

	10.10		Amendment to Amended and Restated Credit Agreement dated as of February 15, 2007 between Approach Resources I, LP, The Frost National Bank, as administrative agent and lender, and the lenders party thereto, dated June 15, 2007 (filed as Exhibit 10.10 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

	10.11		Form of Business Opportunities Agreement among Approach Resources Inc. and the other signatories thereto (filed as Exhibit 10.11 to the Company’s Registration Statement on Form S-1/A filed October 18, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.12		Form of Option Agreement under 2003 Stock Option Plan (filed as Exhibit 10.12 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

	10.13		Restricted Stock Award Agreement by and between Approach Resources Inc. and J. Curtis Henderson dated March 14, 2007 (filed as Exhibit 10.13 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

	10.14		Form of Summary of Stock Option Grant under Approach Resources Inc. 2007 Stock Incentive Plan (filed as Exhibit 10.14 to the Company’s Registration Statement on Form S-1/A filed October 18, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.15		Form of Stock Award Agreement under Approach Resources Inc. 2007 Stock Incentive Plan (filed as Exhibit 10.15 to the Company’s Registration Statement on Form S-1/A filed October 18, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.16		Second Amendment to Amended and Restated Credit Agreement dated as of February 15, 2007 between Approach Resources I, LP, The Frost National Bank, as administrative agent, and the lenders party thereto, dated July 20, 2007 (filed as Exhibit 10.16 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.17		Registration Rights Agreement dated as of November 14, 2007, by and among Approach Resources Inc. and investors identified therein (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed December 3, 2007 and incorporated herein by reference).

	10.18		Gas Purchase Contract dated May 1, 2004 between Ozona Pipeline Energy Company, as Buyer, and Approach Resources I, L.P. and certain other parties identified therein (filed as Exhibit 10.18 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.19		Agreement Regarding Gas Purchase Contract dated May 26, 2006 between Ozona Pipeline Energy Company, as Buyer, and Approach Resources I, L.P. and certain other parties identified therein (filed as Exhibit 10.19 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.20		Third Amendment to Amended and Restated Credit Agreement dated as of February 15, 2007 between Approach Resources I, LP, The Frost National Bank, as administrative agent, and the lenders party thereto, dated September 1, 2007 (filed as Exhibit 10.20 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.21		Partial Assignment of Oil and Gas Leases and Related Property dated effective August 1, 2006 among Neo Canyon Exploration, L.P. and the other assignors identified therein, and Approach Resources I, L.P., as assignee (filed as Exhibit 10.21 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.22		Carry and Earning Agreement dated July 13, 2007 by and between EnCana Oil & Gas (USA) (filed as Exhibit 10.22 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.23		Oil & Gas Lease dated February 27, 2007 between the lessors identified therein and Approach Oil & Gas Inc., as successor to Lynx Production Company, Inc. (filed as Exhibit 10.23 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.24		Specimen Oil and Gas Lease for Boomerang prospect between lessors and Approach Oil & Gas Inc., as successor to The Keeton Group, LLC, as lessee (filed as Exhibit 10.24 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.25		Gas Purchase Contract dated June 1, 2006 by and between Approach Operating, L.P. and Belvan Partners, L.P. (filed as Exhibit 10.25 to the Company’s Registration Statement on Form S-1/A filed October 18, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.26		Lease Crude Oil Purchase Agreement dated May 1, 2004 by and between ConocoPhillips and Approach Operating LLC (filed as Exhibit 10.26 to the Company’s Registration Statement on Form S-1/A filed October 18, 2007 (File No. 333-144512) and incorporated herein by reference).

	10.27		Gas Purchase Agreement dated as of November 21, 2007 between WTG Benedum Joint Venture, as Buyer, and Approach Oil & Gas Inc. and Approach Operating, LLC, as Seller (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 28, 2007 and incorporated herein by reference).

	31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

Date: December 13, 2007

Index to Exhibits


Exhibit
Number		Exhibit

3.1	—	Restated Certificate of Incorporation of Approach Resources Inc.

3.2	—	Restated Bylaws of Approach Resources Inc.

4.1	—	Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A filed October 18, 2007 (File No. 333-144512) and incorporated herein by reference).

10.1	—	Form of Indemnity Agreement between Approach Resources Inc. and each of its directors and officers (filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

10.2	—	Contribution Agreement by and among Approach Resources Inc. and the equity holders identified therein, dated June 29, 2007 (filed as Exhibit 10.2 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

10.3	—	Employment Agreement by and between Approach Resources Inc. and J. Ross Craft dated January 1, 2003 (filed as Exhibit 10.3 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

10.4	—	Employment Agreement by and between Approach Resources Inc. and Steven P. Smart dated January 1, 2003 (filed as Exhibit 10.4 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

10.5	—	Employment Agreement by and between Approach Resources Inc. and Glenn W. Reed dated January 1, 2003 (filed as Exhibit 10.5 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

10.6	—	Approach Resources Inc. 2007 Stock Incentive Plan, effective as of June 28, 2007 (filed as Exhibit 10.6 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

10.7	—	Convertible Promissory Note issued by Approach Oil & Gas Inc. to Yorktown Energy Partners VII, L.P. dated June 25, 2007 (filed as Exhibit 10.7 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

10.8	—	Convertible Promissory Note issued by Approach Oil & Gas Inc. to Lubar Equity Fund, LLC dated June 25, 2007 (filed as Exhibit 10.8 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

10.9	—	$100,000,000 Revolving Amended and Restated Credit Agreement by and among Approach Resources I, LP, as borrower, The Frost National Bank, as administrative agent and lender, and the financial institutions part thereto, dated February 15, 2007


Exhibit
Number		Exhibit

		(filed as Exhibit 10.9 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

10.10	—	Amendment to Amended and Restated Credit Agreement dated as of February 15, 2007 between Approach Resources I, LP, The Frost National Bank, as administrative agent and lender, and the lenders party thereto, dated June 15, 2007 (filed as Exhibit 10.10 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

10.11	—	Form of Business Opportunities Agreement among Approach Resources Inc. and the other signatories thereto (filed as Exhibit 10.11 to the Company’s Registration Statement on Form S-1/A filed October 18, 2007 (File No. 333-144512) and incorporated herein by reference).

10.12	—	Form of Option Agreement under 2003 Stock Option Plan (filed as Exhibit 10.12 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

10.13	—	Restricted Stock Award Agreement by and between Approach Resources Inc. and J. Curtis Henderson dated March 14, 2007 (filed as Exhibit 10.13 to the Company’s Registration Statement on Form S-1 filed July 12, 2007 and incorporated herein by reference).

10.14	—	Form of Summary of Stock Option Grant under Approach Resources Inc. 2007 Stock Incentive Plan (filed as Exhibit 10.14 to the Company’s Registration Statement on Form S-1/A filed October 18, 2007 (File No. 333-144512) and incorporated herein by reference).

10.15	—	Form of Stock Award Agreement under Approach Resources Inc. 2007 Stock Incentive Plan (filed as Exhibit 10.15 to the Company’s Registration Statement on Form S-1/A filed October 18, 2007 (File No. 333-144512) and incorporated herein by reference).

10.16	—	Second Amendment to Amended and Restated Credit Agreement dated as of February 15, 2007 between Approach Resources I, LP, The Frost National Bank, as administrative agent, and the lenders party thereto, dated July 20, 2007 (filed as Exhibit 10.16 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

10.17	—	Registration Rights Agreement dated as of November 14, 2007, by and among Approach Resources Inc. and investors identified therein (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed December 3, 2007 and incorporated herein by reference).

10.18	—	Gas Purchase Contract dated May 1, 2004 between Ozona Pipeline Energy Company, as Buyer, and Approach Resources I, L.P. and certain other parties identified therein (filed as Exhibit 10.18 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

10.19	—	Agreement Regarding Gas Purchase Contract dated May 26, 2006 between Ozona Pipeline Energy Company, as Buyer, and Approach Resources I, L.P. and certain other parties identified therein (filed as Exhibit 10.19 to the Company’s Registration


Exhibit
Number		Exhibit

		Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

10.20	—	Third Amendment to Amended and Restated Credit Agreement dated as of February 15, 2007 between Approach Resources I, LP, The Frost National Bank, as administrative agent, and the lenders party thereto, dated September 1, 2007 (filed as Exhibit 10.20 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

10.21	—	Partial Assignment of Oil and Gas Leases and Related Property dated effective August 1, 2006 among Neo Canyon Exploration, L.P. and the other assignors identified therein, and Approach Resources I, L.P., as assignee (filed as Exhibit 10.21 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

10.22	—	Carry and Earning Agreement dated July 13, 2007 by and between EnCana Oil & Gas (USA) (filed as Exhibit 10.22 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

10.23	—	Oil & Gas Lease dated February 27, 2007 between the lessors identified therein and Approach Oil & Gas Inc., as successor to Lynx Production Company, Inc. (filed as Exhibit 10.23 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

10.24	—	Specimen Oil and Gas Lease for Boomerang prospect between lessors and Approach Oil & Gas Inc., as successor to The Keeton Group, LLC, as lessee (filed as Exhibit 10.24 to the Company’s Registration Statement on Form S-1/A filed September 13, 2007 (File No. 333-144512) and incorporated herein by reference).

10.25	—	Gas Purchase Contract dated June 1, 2006 by and between Approach Operating, L.P. and Belvan Partners, L.P. (filed as Exhibit 10.25 to the Company’s Registration Statement on Form S-1/A filed October 18, 2007 (File No. 333-144512) and incorporated herein by reference).

10.26	—	Lease Crude Oil Purchase Agreement dated May 1, 2004 by and between ConocoPhillips and Approach Operating LLC (filed as Exhibit 10.26 to the Company’s Registration Statement on Form S-1/A filed October 18, 2007 (File No. 333-144512) and incorporated herein by reference).

10.27	—	Gas Purchase Agreement dated as of November 21, 2007 between WTG Benedum Joint Venture, as Buyer, and Approach Oil & Gas Inc. and Approach Operating, LLC, as Seller (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 28, 2007 and incorporated herein by reference).

31.1	—	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	—	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	—	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	—	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION
OF
APPROACH RESOURCES INC.

J. Ross Craft hereby certifies that:

ONE: He is the duly elected and acting President and Chief Executive Officer of Approach Resources Inc., a Delaware corporation originally incorporated as of September 12, 2002.

TWO: This Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation in accordance with the provisions of Sections 242 and 245 of the Delaware General Corporation Law and was duly adopted by vote of the stockholders of the Corporation in accordance with the provisions of Sections 228 and 242 of the Delaware General Corporation Law.

THREE: The Certificate of Incorporation of this corporation is hereby amended and restated in its entirety to read as follows:

Article 1. NAME

The name of this corporation is Approach Resources Inc. (the “ Corporation ”).

Article 2. REGISTERED OFFICE AND AGENT

The registered office of the Corporation shall be located at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 in the County of New Castle. The registered agent of the Corporation at such address shall be The Corporation Trust Company.

Article 3. PURPOSE AND POWERS

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the " DGCL ”). The Corporation shall have all power necessary or convenient to the conduct, promotion or attainment of such acts and activities.

Article 4. CAPITAL STOCK

4.1. Authorized Shares

The total number of shares of all classes of stock that the Corporation shall have the authority to issue is 100,000,000, of which 90,000,000 of such shares shall be Common Stock, all of one class, having a par value of $0.01 per share (“ Common Stock ”), and 10,000,000 of such shares shall be Preferred Stock, having a par value of $0.01 per share (“ Preferred Stock ”).

4.2. Common Stock

(a) The holders of the Common Stock shall have and possess all rights as stockholders of the Corporation except as such rights may be limited by the preferences, privileges and voting powers, and the restrictions and limitations of the outstanding Preferred Stock. All Common Stock, when duly issued, shall be fully paid and nonassessable. The holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors.

(b) Each stockholder of record shall have one vote for each share of Common Stock standing in his name on the books of the Corporation and entitled to vote.

(c) The holders of shares of the Common Stock shall be entitled to participate ratably on a per share basis in all distributions in any dissolution, liquidation or winding up of the Corporation, subject to the payment of any preferences thereto applicable to outstanding Preferred Stock.

4.3. Preferred Stock

The Corporation may divide and issue the Preferred Stock in series. Preferred Stock of each series when issued shall be designated to distinguish them from the shares of all other series. The Board of Directors hereby is expressly vested with authority to divide the class of Preferred Stock into series and to fix and determine the relative rights, limitations and preferences of the shares of any such series so established to the full extent permitted by this Certificate of Incorporation and the DGCL in respect of the following:

(a) The number of shares to constitute such series, and the distinctive designations thereof;

(b) The rate and preference of any dividends and the time of payment of any dividends, whether dividends are cumulative and the date from which any dividends shall accrue;

(d) The amount payable upon shares in event of involuntary liquidation;

(e) The amount payable upon shares in event of voluntary liquidation;

(f) Sinking fund or other provisions, if any, for the redemption or purchase of shares;

(g) The terms and conditions on which shares may be converted, if the shares of any series are issued with the privilege of conversion;

(h) Voting rights, if any; and

(i) Any other relative rights and preferences of shares of such series, including without limitation any restriction on an increase in the number of shares of any series theretofore authorized and any limitation or restriction of rights or powers to which shares of any future series shall be subject.

Notwithstanding the fixing of the number of shares constituting the particular series upon the issuance thereof, the Board of Directors may at any time thereafter authorize the issuance of additional shares of the same series or may reduce the number of shares constituting such series.

The Board of Directors expressly is authorized to vary the provisions relating to the foregoing matters between the various series of Preferred Stock, but in all other respects the shares of each series shall be of equal rank with each other, regardless of series. All Preferred Stock in any one series shall be identical in all respects.

4.4. Preemptive Rights

Ownership of shares of any class of the capital stock of the Corporation shall not entitle the holders thereof to any preemptive rights to subscribe for or purchase or to have offered to them for subscription or purchase any additional shares of capital stock of any class of the Corporation or any securities convertible into any class of capital stock of the Corporation, whether now or hereafter authorized, however acquired, issued or sold by the Corporation, it being the purpose and intent hereof that the Board of Directors shall have the full right, power and authority to offer for subscription or sell or to make any disposal of any or all unissued shares of the capital stock of the Corporation or any securities convertible into stock or any or all shares of stock or convertible securities issues and thereafter acquired by the Corporation, for such consideration, in money or property, as the Board of Directors in its sole discretion may determine.

Article 5. BOARD OF DIRECTORS

5.1. Management

(a) The governing body of this Corporation shall be known as the Board of Directors, and the number of directors of the Corporation may from time to time be increased or decreased in such manner as shall be provided by the Bylaws of the Corporation. The exact number of directors shall be fixed from time to time pursuant to a resolution adopted by the directors or as provided in the Bylaws of the Corporation.

(b) The Board of Directors shall be and is divided into three (3) classes as nearly as equal in size as is practicable, hereby designated Class I, Class II and Class III. If a fraction is contained in the quotient arrived at by dividing the authorized number of directors by three, then, if such fraction is one-third, the extra director shall be a member of Class III, and if such fraction is two-thirds, one of the extra directors shall be a member of Class II and one of the extra directors shall be a member of Class III, unless otherwise provided from time to time by resolution adopted by the Board of Directors.

(c) Holders of Common Stock shall elect all directors of the Corporation. Elections of directors need not be by written ballot except as and to the extent provided in the Bylaws of the Corporation. Cumulative voting for the election of directors is not allowed.

(d) Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected; provided , that each initial director in Class I shall serve for a term expiring at the Corporation’s annual meeting held in 2008; each initial director in Class II shall serve for a term expiring at the Corporation’s annual meeting held in 2009; and each initial director in Class III shall serve for a term expiring at the Corporation’s annual meeting held in 2010; provided, further , that the term of each director shall continue until the election and qualification of his successor and shall be subject to his earlier death, resignation or removal.

(e) The initial directors of the Corporation, who shall serve as the directors of the Corporation until their successors are elected and qualify or until their earlier death, resignation or removal from office, and their respective classifications and terms shall be as follows:


Class	Expiration of Term	Directors
I	Next succeeding annual meeting	Sheldon B. Lubar
		Christopher J. Whyte

II	Second succeeding annual meeting	James H. Brandi
		James C. Crain

III	Third succeeding annual meeting	J. Ross Craft
		Bryan H. Lawrence

(f) Subject to the rights of the holders of any series of Preferred Stock to remove directors under specified circumstances, (i) no director may be removed without cause and (ii) the affirmative vote of the holders of at least sixty-seven (67%) of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to remove any director or the entire Board of Directors for cause.

(g) In the event of any increase or decrease in the authorized number of directors, (i) each director then serving as such shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term, subject to his earlier death, resignation or removal, and (ii) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors in accordance with the provisions of subsection (b) above. To the extent possible, consistent with the provisions of subsection (b) above, any newly created directorships shall be added to those classes

whose terms of office are to expire at the latest dates following such allocation, and any newly eliminated directorships shall be subtracted from those classes whose terms of offices are to expire at the earliest dates following such allocation, unless otherwise provided from time to time by resolution adopted by the Board of Directors.

(h) Unless and until filled by the stockholders, any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board, may be filled by a vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected to hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of his successor and to his earlier death, resignation or removal.

5.2. Stockholder Nominations of Directors and Introduction of Business

Advanced notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner and to the extent provided in the Bylaws of the Corporation.

Article 6. DIRECTOR AND OFFICER LIABILITY

6.1 Elimination of Director and Officer Liability

To the fullest extent permitted by the DGCL as the same exists or may hereafter be amended, no director or officer of the corporation shall be personally liable to the corporation or any of its stockholders for damages for breach of fiduciary duty as a director or officer occurring on or after the date of incorporation; provided, however, that the foregoing provision shall not eliminate or limit the liability of a director or officer (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, fraud or a knowing violation of law, (iii) the payment of dividends in violation of Section 174 of the DGCL or (iv) for any transaction for which the director derived an improper personal benefit. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. Any repeal or modification of this Section 6.1 by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director or officer of the Corporation for acts or omissions prior to such repeal or modification.

6.2 Indemnification and Insurance

(a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “ proceeding ”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was

a director or officer of the Corporation, or serves, in any capacity, any corporation, partnership or other entity in which the Corporation has a partnership or other interest, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, the Corporation shall indemnify any such person seeking indemnification pursuant to this subsection in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The Corporation may, by action of its Board of Directors, provide indemnification to employees or agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers.

(b) Nonexclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article 6 shall not be exclusive of any right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

(c) Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.

(d) Severability. If any subsection of this Section 6.2 shall be deemed to be invalid or ineffective in any proceedings, the remaining subsections hereof shall not be affected and shall remain in full force and effect.

Article 7. TERM

The Corporation shall have perpetual existence.

Article 8. BYLAWS

The Board of Directors shall have the power to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the total number of directors fixed by resolution of the Board of Directors regardless of whether there exist any vacancies in such fixed

number of directorships. The stockholders shall also have the power to adopt, amend or repeal the Bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of capital stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least sixty-seven percent (67%) of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the Corporation in the event of such a vote.

Article 9. STOCKHOLDER MEETINGS

Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. Only the Board of Directors, the Chairman of the Board of Directors or the Chief Executive Officer shall be permitted to call a special meeting of stockholders.

Article 10. AMENDMENT TO CERTIFICATE OF INCORPORATION

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 statute, and all rights conferred upon stockholders herein are granted subject to this reservation; provided however, that the affirmative vote of the holders of at least sixty-seven percent (67%) of the shares of capital stock of the Corporation issued and outstanding and entitled to vote, voting together as a single class, shall be required to alter, amend or repeal Articles 5, 6 and 9 of this Certificate of Incorporation; provided, however, that this Article 10 shall not apply to, and such sixty-seven percent (67%) vote shall not be required for, any amendment, repeal or adoption unanimously recommended by the Board of Directors.

Article 11. RENUNCIATION OF BUSINESS OPPORTUNITIES

(a) Renouncement of Business Opportunities . The Corporation hereby renounces any interest or expectancy in any business opportunity, transaction or other matter in which any Designated Party participates or desires or seeks to participate in and that involves any aspect of the E&P Business (each, a “ Business Opportunity ”) other than a Business Opportunity that (i) is first presented to a Designated Party solely in such person’s capacity as a director of the Corporation or its Subsidiaries and with respect to which, at the time of such presentment, no other Designated Party has independently received notice of or otherwise identified such Business Opportunity or (ii) is identified by a Designated Party solely through the disclosure of information by or on behalf of the Corporation (each Business Opportunity other than those referred to in clauses (i) or (ii) are referred to as a “ Renounced Business Opportunity ”). No Designated Party shall have any obligation to communicate or offer any Renounced Business Opportunity to the Corporation, and any Designated Party may pursue a Renounced Business Opportunity. The Corporation shall not be prohibited from pursuing any Business Opportunity with respect to which it has renounced any interest or expectancy as a result of this Article 11.

Nothing in this Article 11 shall be construed to allow any director to usurp a Business Opportunity of the Corporation or its Subsidiaries solely for his or her personal benefit.

(b) Consent . Any Person purchasing or otherwise acquiring any interest in shares of the capital stock of the Company shall be deemed to have consented to these provisions.

(c) Amendment . Any proposed amendment to this Article 11 shall require the approval of at least 67% of the outstanding voting stock of the Corporation entitled to vote generally in the election of directors.

(d) Term . The provisions of this Article 11 shall terminate and be of no further force and effect at such time as no Designated Party serves as a director (including Chairman of the Board) of the Company or its Subsidiaries.

(e) As used in this Article 11, the following definitions shall apply:

(i) “ Affiliate ” means with respect to a specified person, a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified, and any directors, officers, partners or 5% or more owners of such person.

(ii) “ Designated Parties ” means James H. Brandi, James C. Crain, Bryan H. Lawrence, Sheldon B. Lubar, Christopher J. Whyte, all Affiliates of the foregoing, Yorktown Energy Partners V, L.P., Yorktown Energy Partners VI, L.P., Yorktown Energy Partners VII, L.P., any other investment fund sponsored or managed by Yorktown Partners LLC, including any fund still to be formed, and such other persons as the Board of Directors of the Corporation shall, from time to time, determine by resolution.

(iii) “ E&P Business ” means the oil and gas exploration, exploitation, development and production business and includes without limitation (a) the ownership of oil and gas property interests (including working interests, mineral fee interests and royalty and overriding royalty interests), (b) the ownership and operation of real and personal property used or useful in connection with exploration for Hydrocarbons, development of Hydrocarbon reserves upon discovery thereof and production of Hydrocarbons from wells located on oil and gas properties and (c) the ownership of debt of or equity interests in corporations, partnerships or other entities engaged in the exploration for Hydrocarbons, the development of Hydrocarbon reserves and the production and sale of Hydrocarbons.

(v) “ Hydrocarbons ” means oil, gas or other liquid or gaseous hydrocarbons or other minerals produced from oil and gas wells.

(vi) “ Person ” means an individual, corporation, partnership, limited liability company, trust, joint venture, unincorporated organization or other legal or business entity.

(vii) “ Subsidiary ” or “ Subsidiaries ” means, with respect to any Person, any other Person the majority of the voting securities of which are owned, directly or indirectly, by such first Person.

* * * * *

IN WITNESS WHEREOF , Approach Resources Inc. has caused this Restated Certificate of Incorporation to be executed by its President and Chief Executive Officer who hereby certifies that the facts hereinabove stated are truly set forth, this 5th day of November, 2007.


	APPROACH RESOURCES INC.
	By:	/s/ J. Ross Craft
		J. Ross Craft,
		President and Chief Executive Officer

Exhibit 3.2

Restated Bylaws
of
Approach Resources Inc.

ARTICLE I
OFFICES

Section 1. Name . The name of the corporation is Approach Resources Inc. (hereinafter called the “ Corporation ”).

Section 2. Registered Office . The registered office of the Corporation required by the state of incorporation of the Corporation to be maintained in the state of incorporation of the Corporation shall be the registered office named in the certificate of incorporation of the Corporation, or such other office as may be designated from time to time by the Board of Directors in the manner provided by law.

Section 3. Other Offices . The Corporation shall also have such offices, and keep the books and records of the Corporation as may be required by law, and at such other place or places as the Board of Directors may from time to time determine or the business of the Corporation require.

ARTICLE II
MEETINGS OF STOCKHOLDERS

Section 1. Annual Meetings . The annual meetings of stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held during each calendar year on a date and at such hour as may be fixed by the Board of Directors, beginning in 2008, at such place as designated by the Board of Directors in the notice of such meeting.

Section 2. Special Meetings . Special meetings of the stockholders for any purpose or purposes may be called by a majority of the entire Board of Directors, the Chairman of the Board of Directors or the Chief Executive Officer. Only such business as is specified in the notice of any special meeting of the stockholders shall come before such meeting.

Section 3. Notice of Meetings . Except as otherwise provided by law, written notice of each meeting of the stockholders, whether annual or special, shall be given, either by personal delivery or by mail, not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to notice of the meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. Each such notice shall state the place, date and hour of the meeting, and the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy without protesting, prior to or at the commencement of the meeting, the lack of proper notice to such stockholder.

Notice of adjournment of a meeting of stockholders need not be given if the time and place to which it is adjourned are announced at such meeting, unless the adjournment is for more than thirty (30) days or, after adjournment, a new record date is fixed for the adjourned meeting.

Section 4. Quorum; Adjournment of Meetings .

(a) Unless otherwise required by law or provided in the certificate of incorporation of the Corporation (the “ Certificate of Incorporation ”) or these Bylaws, (i) the holders of a majority of the shares of stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of the stockholders for the transaction of business and (ii) where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy shall constitute a quorum entitled to take action with respect to the vote on that matter. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

(b) Notwithstanding the other provisions of the Certificate of Incorporation or these Bylaws, the chairman of the meeting or the holders of a majority of the issued and outstanding stock, present in person or represented by proxy and entitled to vote thereat, at any meeting of stockholders, whether or not a quorum is present, shall have the power to adjourn such meeting from time to time, without any notice other than announcement at the meeting of the time and place of the holding of the adjourned meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at such meeting. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted that might have been transacted at the meeting as originally called.

Section 5. Voting . At each meeting of the stockholders, in all matters, other than the election of directors (except as otherwise provided in the Certificate of Incorporation), the affirmative vote of the holders of a majority of such stock so present or represented by proxy at any meeting of stockholders at which a quorum is present shall constitute the act of the stockholders. There shall be no separate votes of classes of capital stock, except as specifically required by law, the Certificate of Incorporation, or the Bylaws. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of the directors. Where a separate vote by a class or classes is required, the affirmative vote of the majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. Each stockholder entitled to vote at any meeting of stockholders may authorize any person or persons to act for such stockholder by a proxy signed by such stockholder or such stockholder’s attorney-in-fact.

Unless otherwise required by law or provided in the Certificate of Incorporation, each stockholder shall on each matter submitted to a vote at a meeting of stockholders have one vote for each share of the stock entitled to vote which is registered in his name on the record date for the meeting. For the purposes hereof, each election to fill a directorship shall constitute a separate matter. Shares registered in the name of another entity, domestic or foreign, may be voted by such officer, agent or proxy as the organizational documents of such entity may

determine. Shares registered in the name of a deceased person may be voted by the executor or administrator of such person’s estate, either in person or by proxy.

All voting, except as required by the Certificate of Incorporation or where otherwise required by law, may be by a voice vote; provided, however, upon request of the chairman of the meeting or upon demand therefor by stockholders holding a majority of the issued and outstanding stock present in person or by proxy at any meeting, a stock vote shall be taken. Every stock vote shall be taken by written ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. All elections of directors shall be by written ballots, unless otherwise provided in the Certificate of Incorporation.

At any meeting at which a vote is taken by written ballots, the chairman of the meeting may appoint one or more inspectors, each of whom shall subscribe an oath or affirmation to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of such inspector’s ability. Such inspector shall receive the written ballots, count the votes and make and sign a certificate of the result thereof. The chairman of the meeting may appoint any person to serve as inspector, except no candidate for the office of director shall be appointed as an inspector.

Unless otherwise provided in the Certificate of Incorporation, cumulative voting for the election of directors shall be prohibited.

Section 6. Participation in Meeting by Means of Communication Equipment . Any stockholder may participate in any meeting of the stockholders by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting.

Section 7. Notice of Stockholder Business . At an annual or special meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting of stockholders, business must be (i) specified in the notice of meeting (or any supplement thereto) given at the direction of the Board of Directors, (ii) properly brought before the meeting by or at the direction of the Board of Directors or (iii) properly brought before a meeting by a stockholder who is a stockholder of record on the date of the giving of the notice provided for in this Section 7 and on the record date for the determination of stockholders entitled to vote at such annual meeting and who complies with the notice provisions set forth in this Section 7. For business to be properly brought before a meeting by a stockholder, it must be a proper matter for stockholder action under the Delaware General Corporation Law, and the stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

To be timely, notice by a stockholder must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than ninety (90) and no more than one hundred twenty (120) calendar days prior to the one year anniversary of the date of the Corporation’s proxy statement issued in connection with the prior year’s annual meeting in the case of an annual meeting, and not less than sixty (60) days prior to the meeting in the case of a special meeting; provided however, that if a public announcement of the date of the special

meeting is not given at least seventy (70) days before the scheduled date for such special meeting, then a stockholder’s notice shall be timely if it is received at the principal executive offices of the Corporation within ten (10) days following the date public notice of the meeting date is first given, whether by press release or other public filing.

To be in proper written form, notice by a stockholder to the Secretary of the Corporation shall set forth as to each matter the stockholder proposes to bring before the annual or special meeting (i) a description of the business desired to be brought before the meeting, (ii) the name and address of the stockholder proposing such business and of the beneficial owner, if any, on whose behalf the business is being brought, (iii) the class, series and number of shares of the Corporation which are beneficially owned by the stockholder and such other beneficial owner, (iv) any material interest of the stockholder and such other beneficial owner in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual or special meeting to bring such business before such meeting. In no event shall an announcement of an adjournment or postponement of a meeting of stockholders commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

Section 8. Nomination of Director Candidates . Subject to any provision of the Certificate of Incorporation or any Certificate of Designations establishing the rights of holders of any class or series of capital stock then outstanding, nominations for the election or re-election of directors at a meeting of the stockholders may be made by (i) the Board of Directors or a duly authorized committee thereof or (ii) any stockholder entitled to vote in the election of directors generally who complies with the procedures set forth in these Bylaws and who is a stockholder of record at the time notice is delivered to the Secretary of the Corporation and on the record date for the determination of stockholders entitled to vote at such annual meeting and who complies with the notice provisions set forth in this Section 8. Subject to any provision of the Certificate of Incorporation or any Certificate of Designations establishing the rights of holders of any class or series of capital stock then outstanding, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election or re-election as directors at an annual meeting only if timely notice of such stockholder’s intent to make such nominations has been given in writing to the Secretary of the Corporation.

To be timely, notice of a stockholder nomination for a director to be elected must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than ninety (90) and no more than one hundred twenty (120) calendar days prior to the one year anniversary of the date of the Corporation’s proxy statement issued in connection with the prior year’s annual meeting in the case of an annual meeting, and not less than sixty (60) days prior to the meeting the case of a special meeting; provided however, that if a public announcement of the date of the special meeting is not given at least seventy (70) days before the scheduled date for such special meeting, then a stockholder’s notice shall be timely if it is received at the principal executive offices of the Corporation within ten (10) days following the date public notice of the meeting date is first given, whether by press release or other public filing.

To be in proper written form, notice by a stockholder to the Secretary of the Corporation shall set forth as to each matter the stockholder proposes to bring before the annual or special meeting (i) the name and address of the stockholder who intends to make the nomination, of the beneficial owner, if any on whose behalf the nomination is being made and of each person to be nominated, (ii) a representation that the stockholder is the holder of record of stock of the

Corporation entitled to vote for the election of directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate each person specified in the notice, (iii) a description of all the arrangements or understandings between the stockholder or such beneficial owner and each nominee and any other person (naming such person) pursuant to which the nomination is to be made by the stockholder, (iv) such other information regarding each nominee proposed by such stockholder as would be required to be included in solicitations of proxies for the election of directors in an election contest or is otherwise required pursuant to the federal securities laws and regulations, had the nominee been nominated, or intended to be nominated, by the Board of Directors and (v) the consent of each nominee to serve as a director of the Corporation if so elected.

Notwithstanding the foregoing, in the event that the number of directors to be elected at an annual meeting is increased and there is no public announcement by the Corporation naming the nominees for the additional directorships at least 130 days prior to such meeting, a stockholder’s notice required by this Section 8 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary of the Corporation no later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. In no event shall an announcement of an adjournment or postponement of a meeting of stockholders commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

Section 9. Stockholder List . A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in the name of such stockholder, 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 (10) 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 meeting is to be held. The stockholder 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.

Section 10. Proxies .

Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy. Proxies for use at any meeting of stockholders shall be filed with the Secretary, or such other officer as the Board of Directors may from time to time determine by resolution, before or at the time of the meeting. A written proxy may be in the form of a telegram, cablegram or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram or other means of electronic transmission was authorized by the person. All proxies shall be received and taken charge of and all ballots shall be received and canvassed by the secretary of the meeting, who shall decide all questions touching upon the qualification of voters, the validity of the proxies, and the acceptance or rejection of votes, unless an inspector or inspectors shall have been appointed by the chairman of the meeting, in which event such inspector or inspectors shall decide all such questions.

No proxy shall be valid after three (3) years from its date, unless the proxy provides for a longer period. Each proxy shall be revocable unless expressly provided therein to be irrevocable and coupled with an interest sufficient in law to support an irrevocable power.

Should a proxy designate two or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting thereby conferred, or if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such powers in respect of such portion of the shares as is equal to the reciprocal of the fraction equal to the number of proxies representing such shares divided by the total number of shares represented by such proxies.

Section 11. Treasury Stock . The Corporation shall not vote, directly or indirectly, shares of its own stock owned by it and such shares shall not be counted for quorum purposes. Nothing in this Section 11 shall be construed as limiting the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.

Section 12. Stockholder Action . Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.

ARTICLE III
BOARD OF DIRECTORS

Section 1. Number . The Board of Directors shall consist of not less than three (3) and not more than nine (9) directors, and the exact number of directors which shall constitute the Board of Directors shall be fixed from time to time by resolution of the Board; provided, however, that no decrease in the number of directors constituting the Board shall have the effect of shortening the term of any incumbent director. None of the directors needs to be a stockholder of the Corporation or a resident of the State of Delaware.

Section 2. Vacancies . Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the authorized number of directors, may be filled only by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders and until their successors are duly elected and qualified or until their earlier resignation or removal. If there are no directors in office, then an election of directors may be held in the manner provided by statute.

Section 3. Quorum and Manner of Acting . A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board, and the vote of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board. In the absence of a quorum, a majority of the directors present may adjourn the meeting to another time and place. At any adjourned meeting at which a quorum is present, any business that might have been transacted at the meeting as originally called may be transacted.

Section 4. Regular and Special Meetings . Regular meetings of the Board of Directors shall be held at such times and places as the Board shall from time to time by resolution determine. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, the President, or by at least two (2) of the directors.

Section 5. Participation in Meeting by Means of Communication Equipment . Any one or more members of the Board of Directors or any committee thereof may participate in any meeting of the Board or of any such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting.

Section 6. Committees . The Board of Directors may, by unanimous resolution, designate one or more committees, each committee to consist of two (2) or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

Section 7. Compensation . The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as a director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

Section 8. Resignations . Any director of the Corporation may at any time resign by giving written notice to the Board of Directors, the Chairman of the Board, the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 9. Reliance upon Books, Reports and Records . A member of the Board of Directors, or a member of any committee designated by the Board of Directors, shall, in the performance of such person’s duties, be protected to the fullest extent permitted by law in relying upon the records of the Corporation and upon information, opinions, reports or statements presented to the Corporation.

Section 10. Consents . Any action which may be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting in compliance with Delaware General Corporation Law.

ARTICLE IV
NOTICES

Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these Bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by prepaid telegram, facsimile, or reputable courier service.

Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these Bylaws, 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.

ARTICLE V
OFFICERS

Section 1. Number, Term of Office . The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents, a Treasurer, a Secretary and such other officers or agents with such titles and such duties as the Board of Directors may from time to time determine (including a Chief Operating Officer), each to have such authority, functions or duties as in these Bylaws provided or as the Board may from time to time determine, and each to hold office for such term as may be prescribed by the Board and until such person’s successor shall have been chosen and shall qualify, or until such person’s death or resignation, or until such person’s removal in the manner hereinafter provided. The Chairman of the Board shall be elected from among the directors. One person may hold the offices and perform the duties of any two or more of said officers; provided, however, that no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required by law, the Certificate of Incorporation of the Corporation or these Bylaws to be executed, acknowledged or verified by two (2) or more officers. The Board may from time to time authorize any officer to appoint and remove any such other officers and agents and to prescribe their powers and duties. The Board may require any officer or agent to give security for the faithful performance of such person’s duties.

Section 2. Removal . Any officer may be removed, either with or without cause, by the Board of Directors at any meeting thereof called for that purpose, or, except in the case of any officer elected by the Board, by any committee or superior officer upon whom such power may be conferred by the Board.

Section 3. Resignation . Any officer may at any time resign by giving written notice to the Board of Directors, the President or the Secretary of the Corporation. Any such resignation shall take effect at the date of receipt of such notice or at any later date specified

therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 4. Vacancies . A vacancy in any office because of death, resignation, removal or any other cause may be filled for the unexpired portion of the term by the Board of Directors in the manner prescribed in these Bylaws for election to such office.

Section 5. Chairman of the Board . The Chairman of the Board of Directors shall preside at meetings of the Board of Directors and of the stockholders. He shall have general power to execute bonds, mortgages and other instruments requiring a seal, under the seal of the Corporation, except when the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent. When the Board of Directors designates the Chairman of the Board as the Chief Executive Officer of the Corporation he shall have general supervision, direction and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chairman of the Board shall have such other specific duties as shall be assigned to him by the Board of Directors from time to time.

Section 6. Chief Executive Officer . The Chief Executive Officer shall be the chief executive officer of the Corporation and as such shall have general supervision and direction of the business and affairs of the Corporation, subject to the control of the Board of Directors. The Chief Executive Officer shall, if present and in the absence of the Chairman of the Board, preside at meetings of the stockholders and at meetings of the Board of Directors. The Chief Executive Officer shall perform such other duties as the Board may from time to time determine. The Chief Executive Officer may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments authorized by the Board of Directors or any committee thereof empowered to authorize the same, except when the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent.

Section 7. President . The President, in the absence or disability of the Chairman of the Board of Directors and the Chief Executive Officer, shall preside at meetings of the Board of Directors and of the stockholders and shall perform the duties and exercise the powers of the Chairman of the Board of Directors. He shall have general power to execute deeds, mortgages, bonds, contracts or other instruments authorized by the Board of Directors or any committee thereof empowered to authorize the same, except when the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. When designated as Chief Executive Officer of the Corporation, the President shall have general supervision, direction and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect; otherwise, he shall be the chief operating officer of the Corporation and shall perform such other duties as may be prescribed by the Board of Directors or by the Chairman of the Board of Directors.

Section 8. Vice Presidents . Each Vice President shall have such powers and duties as shall be prescribed by the Chairman of the Board, the President or the Board of Directors. Any Vice President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments authorized by the Board or any committee thereof empowered to authorize the same, except when the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent.

Section 9. Treasurer . The Treasurer shall perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to the Treasurer by the Chairman of the Board, the President or the Board of Directors.

Section 10. Secretary . It shall be the duty of the Secretary to act as secretary at all meetings of the Board of Directors and of the stockholders and to record the proceedings of such meetings in a book or books to be kept for that purpose; the Secretary shall see that all notices required to be given by the Corporation are duly given and served; the Secretary shall be custodian of the seal of the Corporation and shall affix the seal or cause it to be affixed to all certificates of stock of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these Bylaws. The Secretary shall have charge of the stock ledger and also of the other books, records and papers of the Corporation and shall see that the reports, statements and other documents required by law are properly kept and filed; and the Secretary shall in general perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to such person by the Chairman of the Board, Chief Executive Officer, President or the Board of Directors.

Section 11. Assistant Treasurers and Secretaries . The Assistant Treasurers and the Assistant Secretaries shall perform such duties as shall be assigned to them by the Treasurer or Secretary, respectively, or by the Chairman of the Board, Chief Executive Officer, President or the Board of Directors.

ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS

Section 1. Power to Indemnify in Actions, Suits or Proceedings . Subject to Section 2 of this Article VI, the Corporation shall indemnify and hold harmless to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), any person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “ proceeding ”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, against all expense, liability and loss (including attorneys’ fees, judgments, fines or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in Article VI, Section 2 of these Bylaws, the Corporation shall indemnify any such person seeking indemnification in connection with a

proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this section of Article VI shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition.

Section 2. Indemnification by a Court . Notwithstanding anything to the contrary contained herein, any director or officer may apply to any court of competent jurisdiction in the State of Delaware for indemnification. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because he has met the applicable standards of conduct set forth in the Delaware General Corporation Law. Notice of any application for indemnification pursuant to this Section 2 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.

Section 3. Expenses Payable in Advance . Expenses incurred by a director or officer in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized this Article VI.

Section 4. Nonexclusivity of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by or granted pursuant to this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in this Article VI shall be made to the fullest extent permitted by law. The provisions of this Article VI shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this Article VI but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise.

Section 5. Insurance . The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan 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 or the obligation to indemnify him against such liability under the provisions of this Article VI.

Section 6. Certain Definitions . For purposes of this Article VI, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its

separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such 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 have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VI, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the Corporation.

Section 7. Survival of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 8. Limitation on Indemnification . Notwithstanding anything contained in this Article VI to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 2 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.

Section 9. Indemnification of Employees and Agents . The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VI to directors and officers of the Corporation.

ARTICLE VII
CAPITAL STOCK

Section 1. Certificates of Stock . The Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of its capital stock shall be uncertificated shares. The certificates for shares of the capital stock of the Corporation shall be in such form, not inconsistent with that required by law and the certificate of incorporation of the Corporation, as shall be approved by the Board of Directors. Every holder of capital stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board, the Chief Executive Officer, President, a Vice President or such other officer as designated by the Board of Directors and the Secretary or an assistant Secretary or the Treasurer or an assistant Treasurer of the Corporation representing the number of shares (and, if the capital stock of the Corporation shall be divided into classes or series, certifying the class and series of such shares) owned by such stockholder which are registered in certified form; provided, however, that any of or all the signatures on the certificate

may be facsimile. The stock record books and the blank stock certificate books shall be kept by the Secretary or at the office of such transfer agent or transfer agents as the Board of Directors may from time to time determine. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature or signatures shall have been placed upon any such certificate or certificates shall have ceased to be such officer, transfer agent or registrar before such certificate is issued by the Corporation, such certificate may nevertheless be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The stock certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued and shall exhibit the holder’s name and number of shares.

Section 2. Transfer of Shares . In respect of certificated shares of capital stock, such shares of capital stock of the Corporation shall be transferable only on the books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives upon surrender and cancellation of certificates for a like number of shares. Upon surrender to the Corporation or a transfer agent of the Corporation of such certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. In respect of uncertificated shares of capital stock, such shares of capital stock of the Corporation shall be transferable only on the books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives upon the compliance with such rules and procedures as may be proscribed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or such other officer as designated by the Board of Directors.

Section 3. Ownership of Shares . The Corporation shall be entitled to treat the holder of record of any share or shares of capital stock of the Corporation as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the state of incorporation of the Corporation.

Section 4. Regulations Regarding Certificates . The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of certificates for shares of capital stock of the Corporation.

Section 5. Lost or Destroyed Certificates . The Board of Directors may determine the conditions upon which the Corporation may issue a new certificate for shares of capital stock in place of a certificate theretofore issued by it which is alleged to have been lost, stolen or destroyed and may require the owner of such certificate or such owner’s legal representative to give bond, with surety sufficient to indemnify the Corporation and each transfer agent and registrar against any and all losses or claims which may arise by reason of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate in the place of the one so lost, stolen or destroyed.

ARTICLE VIII
MISCELLANEOUS

Section 1. Seal . The corporate seal shall have inscribed thereon the name of the corporation and shall be in such form as may be approved from time to time by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed, affixed, imprinted or in any manner reproduced.

Section 2. Facsimile Signatures . In addition to the provision for the use of facsimile signatures elsewhere in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors.

Section 3. Application of Bylaws . In the event that any provision of these Bylaws is or may be in conflict with any law of the United States, of the state of incorporation of the Corporation or of any other governmental body or power having jurisdiction over the Corporation, or over the subject matter to which such provision of these Bylaws applies, or may apply, such provision of these Bylaws shall be inoperative to the extent only that the operation thereof unavoidably conflicts with such law or provision, and shall in all other respects be in full force and effect.

ARTICLE IX
AMENDMENTS

These Bylaws may be altered, amended or repealed or new bylaws may be adopted by the stockholders or by the Board of Directors at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such special meeting. Any adoption, amendment or repeal of these Bylaws or adoption of new bylaws by the Board of Directors shall require the approval of a majority of the total number of directors fixed by resolution of the Board of Directors regardless of whether there exist any vacancies in such fixed number of directorships. In addition to any vote of the holders of any class or series of capital stock of the Corporation required by law or by the certificate of incorporation, the affirmative vote of the holders of at least sixty-seven percent (67%) of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the Corporation or to adopt new bylaws.

Date of adoption: July 12, 2007

Exhibit 31.1

Certifications

I, J. Ross Craft, certify that:

	1.		I have reviewed this quarterly report on Form 10-Q of Approach Resources Inc.;

	2.		Based on my knowledge, this quarterly 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 quarterly report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

	4.		The registrant’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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), or for causing such controls and procedures to be established and maintained, for the registrant 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 registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’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 registrant’s internal control over financial reporting.



	By:	/s/ J. ROSS CRAFT
		J. Ross Craft
		President and Chief Executive Officer

Date: December 13, 2007

Exhibit 31.2

Certifications

I, Steven P. Smart, certify that:

	6.		I have reviewed this quarterly report on Form 10-Q of Approach Resources Inc.;

	7.		Based on my knowledge, this quarterly 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 quarterly report;

	8.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

	9.		The registrant’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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), or for causing such controls and procedures to be established and maintained, for the registrant 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 registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

10.

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’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 registrant’s internal control over financial reporting.



	By:	/s/ STEVEN P. SMART
		Steven P. Smart
		Chief Financial Officer

Date: December 13, 2007

Exhibit 32.1

Certification of Chief Executive Officer of Approach Resources Inc.
(Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with the Quarterly Report of Approach Resources Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Ross Craft, Chief Executive Officer of the Company, hereby 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) or 15(d) of the Securities Exchange Act of 1934, as amended; and

	(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


	APPROACH RESOURCES INC.
	By:	/s/ J. ROSS CRAFT
		J. Ross Craft,
		President and Chief Executive Officer

December 13, 2007

Exhibit 32.2

Certification of Chief Financial Officer of Approach Resources Inc.
(Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with the Quarterly Report of Approach Resources Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven P. Smart, Chief Financial Officer of the Company, hereby 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) or 15(d) of the Securities Exchange Act of 1934, as amended; and

	(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


	APPROACH RESOURCES INC.
	By:	/s/ STEVEN P. SMART
		Steven P. Smart,
		Chief Financial Officer

December 13, 2007

APPROACH RESOURCES INC.

/s/ J. ROSS CRAFT

J. Ross Craft
President and Chief Executive Officer