SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C. 20549
                    ----------------------------  
                             FORM 10-K
       (Mark One)
     [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
                   SECURITIES EXCHANGE ACT OF 1934
                                   
For the Fiscal Year Ended December 31, 1998      Commission File No. 1-10437

                                  OR

   [  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
                   SECURITIES EXCHANGE ACT OF 1934
                                   
For the transition period from    to     Commission File No. 1-10437
                                  
                     TEXAS VANGUARD OIL COMPANY
       (Exact  name of registrant as specified in its charter)
          Texas                                             74-2075344
(State or other jurisdiction of                            (IRS Employer
 incorporation or organization)                          Identification No.)

9811 Anderson Mill Rd., Suite 202
     Austin, Texas                                            78750
(Address of Principal Executive Offices)                    (Zip Code)

  Registrant's telephone number, including area code (512)  331-6781

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

                        Title of each class: None
    
        Name of each exchange of which registered: Not applicable
                                  
     Securities registered pursuant to Section 12(b) of the Act:

                     Common Stock, $.05 Par Value
                           (Title of Class)

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  X  or No ___.    

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 
of Regulation  S-K is not  contained herein, and will not be contained, to the 
best of registrant's knowledge,  in definitive proxy or information statements
incorporated by reference in Part III  of this  Form 10-K or  any amendment to 
this Form 10-K. [X]

As of March 9, 1999, there were 1,417,087 shares of the registrant's Common
Stock outstanding;  the aggregate  market value of the share of Common Stock
held by non-affiliates of the  registrant (316,572 shares), based on average
bid and asked prices on the aforesaid date, was $296,786.00.

                 DOCUMENTS INCORPORATED BY REFERENCE

The registrant's definitive proxy statement regarding the election of directors
at the registrant's 1998 Annual Stockholders' Meeting filed or to be filed with
the Commission  on or before April 30, 1999, has been incorporated by reference
in Part III of this report.                                    


                                PART I


ITEM  1.  BUSINESS

General

   Texas Vanguard Oil Company (the "Company" or "Registrant") was incorporated
under  the laws of the state of Texas on December 4, 1979. The business of the 
Company  is  to  engage  in the  acquisition,  exploration,  development,  and 
operation of onshore oil and gas  properties in the United States, principally
in  Texas.   In  April 1980,  the Company  completed a  public offering of its 
securities netting  approximately $1,250,000 from the sale of 1,500,000 shares
of common stock to the public.

  The Company engages in oil and natural gas exploration, development and
production  in Texas, New Mexico,  and  Wyoming.  Generally, the  Company
acquires  operated  working interests  in producing oil  and natural  gas
properties which it further develops.

   The executive offices of the Company are located at 9811 Anderson Mill Rd.,
Suite 202, Austin, Texas 78750 and its telephone number is (512) 331-6781.

Markets for Oil and Gas

   The market for the Company's primary products, oil and gas, depends upon a
number of factors, including the availability of other domestic production, 
crude oil imports, the proximity and size of oil and gas pipelines and general
fluctuations in the supply and demand for oil and gas. At present, the Company
sells all of its production to traditional industry purchasers, such as pipeline
and crude oil companies, who have the facilities to transport the oil and gas
from the well site. The Company has recorded revenues in excess of 10% of total
revenue from  Aquila Southwest (21% in 1998 and 12% in 1997), GPM (18% in 1998
and 19% in 1997), Genesis Oil (15% in 1997), Scurlock Permian (14% in 1998, 20%
in 1997, 24% in 1996 and 46% in 1995), Howell Crude Oil (21% in 1996) and EOTT
Energy (22% in 1998, 17% in 1997 and 12% in 1996). The Company does not believe
that the loss of major customers would have a material adverse effect on the
Company because oil production can be sold to any other oil company at a
comparable price. Oil sales are not made under a written contract and the
purchaser and price are not specified in the division order for subject
properties. The nature of the Company's business is not seasonal except to the
extent that adverse weather conditions could affect oil and gas exploration
and production activities. The Company currently has no intention of refining
or marketing its own oil and gas. Since the Company engages independent
contractors for the drilling of any wells, it does not plan to own any
significant amount of drilling equipment. The Company does not contemplate
any material product research and development, any material acquisition of
plants or equipment, or any material changes in its number of employees in
the near future.

Competition

   The oil and gas industry is highly competitive in all aspects. The Company
competes with major oil companies, numerous independent oil and gas producers,
individual proprietors, and investment programs. Many of these competitors 
possess financial and personnel resources substantially in excess of those which
are available to the Company and may, therefore, be able to pay greater amounts
for desirable leases and to define, evaluate, bid for, and purchase a greater 
number of potential producing prospects than the Company's own resources permit.
The Company's ability to generate resources will depend not only on its ability
to develop existing properties, but also on its ability to identify and acquire
proven and unproven acreage and prospects for future exploration.

Environmental Matters

   The Company's operations are subject to numerous federal, state and local 
laws and regulations controlling the discharge of materials into the environment
or otherwise relating to the protection of the environment. Such matters have
not had a material effect on operations of the Company to date, but the Company
cannot predict whether such matters will have any material effect on its capital
expenditures, earnings or competitive position in the future.

Regulations

  The production and sale of crude oil and natural gas are currently subject to
extensive regulation of both federal and state authorities. At the federal 
level, there are price regulations, windfall profits tax, and income tax laws.
At the state level, there are severance taxes, proration of production, spacing
of wells, prevention and clean-up of pollution and permits to drill and produce
oil and gas. Although compliance with their laws and regulations has not had a 
material adverse effect on the Company's operations, the Company cannot predict
whether its future operations will be adversely affected thereby.

Employees

   At December 31, 1998, the executive officers and directors were as follows:
<TABLE>
<CAPTION>
                    Name                          Offices Held
               <S>                                <C> 
               Robert N. Watson, Jr.              President, Chairman of the 
                                                  Board, Chief Executive Officer
                                                  and Director

               Linda R. Watson                    Secretary, Treasurer and
                                                  Director

               Robert L. Patterson                Director
</TABLE>

     
   Robert N. Watson, Jr. (age 56), received his B.A. and B.B.A. degrees from 
The University of Texas at Austin in 1966 and 1967. He is a director and 
President of Robert Watson, Inc., an oil and gas and real estate development
firm, which he founded in 1969. He has been a director of the Company and its
Chief Executive Officer since 1982.

   Linda R. Watson (age 55), received her B.A. degree from The University of
Texas at Austin in 1966. She has been a director and Secretary-Treasurer of
Robert Watson, Inc. for more than the last five years. Also, she is the wife of
Robert N. Watson, Jr.

    Robert L. Patterson (age 59), received his B.S. and M.S. degrees from The 
University of Texas at Austin in 1963 and 1964. He was employed by Union Oil 
Company of California from 1965 through 1975, serving in various engineering
capacities. He was a Vice President of Argonaut Energy Corporation from 1976
through 1982. He was the President of Medallion Equipment Corporation  and 
President of Argonaut Energy Corporation from July, 1985 through January, 1989.
He has also been an independent consulting petroleum engineer since 1983.

  The Company's officers actively manage the Company's activities. There are no
employment contracts with any officers and they earn no salary. In addition to
the Company's officers, at December 31, 1998, the Company had one full-time 
salaried employee. From time to time the Company engages independent petroleum
engineers, geologists and landmen on a fee basis. Robert Watson is a director
of a company as previously described which has oil and gas interests. Due to
this situation a conflict of interest may arise.  However, there have been no
such conflicts in the past five years.  

   Robert Watson, Inc.  owns a small interest in a number of the properties
that the Company has interests in as well as other similar properties in which
the Company does not have an interest.  None of the Company's other directors
own interests in any oil and gas properties in areas in which the Company
operates. The Company presently acquires all of its own properties. 

  The Company and a management company owned by the President of the Company
extended an agreement whereby the latter provides the Company general corporate
management services.  This  agreement is the same as could be obtained from an
independent third party. The affiliated company will receive $12,500 per month,
for one year, effective  January 1, 1999 as compensation for those services.
The affiliated company received $150,000, $150,000,and $144,000 as compensation
for performance of these services during the years ended December 31, 1998,
1997 and 1996, respectively. 

ITEM 2. PROPERTIES

  The Company owns no significant properties other than oil and gas properties.
It leases approximately 2,000 square feet of space for its executive offices at
9811 Anderson Mill Rd., Suite 202, Austin, Texas 78750. The Company  currently 
has a five year lease with a company owned by the President of the Company for
these  facilities  which will  expire  on  June 30, 1999.   The rent for these 
facilities is $1,250 per  month which  is the  same as would  be charged to an 
unaffiliated party.

Well Activity

   All of the Company's oil and gas working and royalty interests, reserves and
activities are located onshore in the continental United States. The following 
table sets forth the  acquisition activity of the Company, for the years ended
December 31, 1994 through 1998.
<TABLE>
<CAPTION>

   Fiscal years ended            Oil                               Gas                   Dry          
       December 31,        Gross             Net            Gross        Net      Gross       Net  
       <S>                  <C>            <C>               <C>       <C>          <C>       <C>
       1994                 26              8.90             12        7.74         ---       ---
       1995                 38             23.35              8        3.35         ---       ---
       1996                 21             18.97              3        2.08         ---       ---
       1997                 30             17.72              1        1.11         ---       ---
       1998                 34             22.22             23       15.12         ---       ---  
</TABLE>

(1)   A gross well is a well in which the Company has an interest.
   
(2)   A net well is 100% of the working interest in a well. If the Company has
      a 12.5% working interest in a well, .125 is shown in the net well column.
   
(3)   A dry well is a well found to be incapable of producing oil or gas in 
      sufficient quantities to justify completion of the well.
   
   The Company is not obligated to provide a fixed and determinable quantity of
oil or gas in the future under existing contracts or agreements.
   
Significant Properties

   Over the past three years, the Company has made  investments in proven oil 
and gas properties that in the aggregate have been significant to the Company.
None  of the  individual properties  has cost  more  than 15%  of the average 
balance in oil and gas properties at the time of purchase.  These investments
have been made in  different fields  and areas,  primarily in  south and west
Texas. At December  31, 1998, the Company  does not have  any single property 
that is significant enough to materially affect its operations.

   As of December 31, 1998, the Company has pledged its interest in certain
properties  and  well  equipment  against bank notes payable.   None of the
individual properties  are significant.  Copies of  the loan documents have
been included as an exhibit to the Form 10-K.

 Production Wells and Acreage

   The following table sets forth by Texas, Wyoming, and New Mexico counties
the Company's gross and  net  productive  wells and  developed acreage as of
December 31, 1998.
<TABLE>
<CAPTION>
                                      Producing Wells (a)                             Developed
                              Oil                            Gas                     Acreage (a)
   County           Gross              Net            Gross        Net          Gross           Net
   <S>              <C>              <C>               <C>       <C>         <C>            <C>        
   Bastrop           55              33.31              39       27.69       1,879.27       1,218.32
   Burleson           1                .79             ---         ---          40.00          31.60
   Chaves (c)       ---                ---               1         .50         160.00          80.00
   Crane (b)          8               6.62               3         .97         200.00          98.45
   DeWitt             0                ---               2         .16         160.00          12.43
   Eastland (b)       0                .00               4         .09         122.00           1.30
   Fayette (b)        3               2.06             ---         ---         400.00         320.00
   Garza (b)          3                .05             ---         ---          30.00            .47
   Howard (b)         1                .02             ---         ---          40.00            .63
   Kent (b)           8               1.22             ---         ---         320.00          43.90
   Lea (b)(c)         2                ---               1         .07         400.00          22.25
   Lee               89              57.05               3        2.38       1,933.43       1,244.09
   Lipscomb           1                .03             ---         ---          80.00           2.50
   Martin             2               1.82             ---         ---         120.00         112.78
   Midland            1                .02             ---         ---          80.00           1.67
   Nolan (b)          1                .03             ---         ---          40.00           1.25
   Parker (b)       ---                ---               1         .01         136.91            .83
   Pecos              1               1.00             ---         ---          40.00          40.00
   Ward             ---                ---               2         .16         720.00          29.20
   Weston (d)         3                .90             ---         ---         120.00          36.17
   Wilson (b)         1                .95             ---         ---          80.00          76.00
                 ------            -------           -----       -----       --------       --------
                    180             105.87              56       32.01       7,101.60       3,378.82
</TABLE>          
  
(a)   A gross well is a well in which the Company owns a working interest. A
      net well is the fractional interest owned by the Company. Gross acres are
      the total acres in a lease.  Net acres are gross acres times the Company's
      interest.
(b)   The Company owns overriding royalty interest in these counties.
(c)   The Chaves, Eddy and Lea County wells are located in New Mexico.
(d)   Weston County wells are located in Wyoming.


Reserve Quantity Information
  
   For information required by Statement of Financial Accounting Standards No.
69, "Disclosures About Oil and Gas Producing Activities," see the "Supplemental
Oil and Gas Information" section included in Item 8. This section also includes
estimates of proven oil and gas reserves.
   
OIL AND GAS STATISTICS
  
   The following summarizes the net oil and gas production, average sales prices
and production costs per unit for the years ended December 31, 1998, 1997 
and 1996.
<TABLE>
<CAPTION>
                                   
                                             1998       1997           1996   
  <S>                                 <C>             <C>             <C>  
  Oil:
     Production volume (barrels)            49,357     47,434         41,708
     Average sales price per barrel   $      12.16      19.30          18.50
  Gas:
     Production volume (MCF)               434,374    324,462        260,241
     Average sales price per MCF      $       1.69      2.40           2.00
  
  Average production costs per
     equivalent barrel                $       5.97      5.88           5.67

</TABLE>
  
   The worldwide crude oil prices of 1998 continue to flucuate in 1999.
The Company  cannot predict how prices will vary during  1999 and  what
effect  they will ultimately have on the Company.

UNDEVELOPED ACREAGE

  
   The following table sets forth by county the Company's gross and net
undeveloped acreage as of December 31, 1998.
<TABLE>
<CAPTION>
  
           County               Gross                Net
          <S>                <C>                  <C>
          Bastrop, TX         2,699.04            1,914.46
          Crane, TX             240.00              174.11
          Crosby, TX          1,120.00              560.00
          DeWitt, TX            308.00               47.37
          Eastland, TX          199.30                2.37
          Eddy, NM              370.00               22.36
          Fayette, TX            96.00                5.91
          Garza, TX           3,250.00              789.28
          Howard, TX             40.00                 .63
          Kent, TX            3,960.00            1,518.00
          Lea, NM             1,094.90              629.90
          Lee, TX             1,869.12            1,260.92
          Martin, TX             40.00               32.78
          Midland, TX           133.33                2.78
          Pecos, TX             280.00              280.00
          Weston, WY            600.00              104.75
          Wilson, TX            129.51              123.03
          Winkler, TX           701.60              701.60
                             ---------            --------
                             17,130.80            8,170.25
                             =========            ========
</TABLE>
  
All of the 8,170.25 net undeveloped acres under lease are being held by
production.

ITEM 3. LEGAL PROCEEDINGS



   On March 16, 1998, the Company, Robert N. Watson, Jr., (President, CEO and
Chairman of the Board), and Linda R. Watson (Secretary-Treasurer) entered into
a consent cease and desist order to settle allegations by the Securities and
Exchange Commission (Commission) that they had violated Sections 9(a)(2), 10(b)
13(d), and 16(a) of the Exchange Act and Rules 10b-5, 13d-2, 16a-2, and 16a-3.
Under terms of the settlement, without admitting or denying any of the
Commission's allegations, the Company, Mr. Watson and Ms. Watson consented to
the entry of an order pursuant to Section 21C of the Exchange Act that each
would cease and desist from committing or causing any future violation of
Sections 9(a)(2), 10(b), 13(d), 16(a) and Rules 10b-5, 13d-2, 16a-2, and 16a-3.
The Commission's allegations related to the Watsons' and the Company's 
purchases of stock from December 1994 to May 1996 which were alleged to have
been made in order to maintain the Company's Boston Stock Exchange (BSE)
listing, which the BSE delisted in May of 1996.  The Commission did not allege
nor did the Watsons make any sales of the Company's stock.  No financial
sanctions were sought nor ordered by the Commission.

   The Company knows of no material litigation pending, threatening or
contemplated, or unsatisfied judgments against it, or any other proceeding in
which  the Company is a party. The Company knows of no material legal actions
pending or threatening or judgments entered against any officers on the board
of directors of the Company in their capacity as such. 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   No matters were submitted to a vote of the security holders during the 
quarter ended December 31, 1998.

                               PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS
   
   On May 3, 1996, the Boston  Stock Exchange  suspended trading  and delisted
the  Company's stock due to a market value float  deficiency which  was not in
line with the Boston Stock Exchange's requirements regarding continued listing.
   The Company's common stock is now quoted on the OTC Bulletin Board with the 
symbol (TVOC). The range of high and low sales price for each quarterly period 
during the past two years is as follows:
<TABLE>
<CAPTION>
                                           Sales Price
                                     High                Low  
      <S>                           <C>                 <S> 
      Fiscal 1998

        First Quarter               1.375               0.875       
        Second Quarter              1.375               0.750       
        Third Quarter               1.375               0.750       
        Fourth Quarter              1.125               0.750       

      Fiscal 1997

        First Quarter               1.250               0.625       
        Second Quarter              1.562               0.687       
        Third Quarter               2.000               0.750
        Fourth Quarter              1.375               0.750       
</TABLE>

   At December 31, 1998, the approximate number of holders of record of the
Company's common stock was 553.  The Company has not paid any dividends and has
no present plans to do so in the immediate future.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>

<CAPTION>
                                       Years ended December 31,
                            1998        1997        1996         1995        1994
<S>                  <C>           <C>          <C>         <C>          <C>           
Oil and gas sales    $  1,298,183   1,496,133    1,230,785      729,536     620,742
Total revenue           1,493,456   1,663,995    1,403,772      896,580     714,618
Total expenses         (1,279,115) (1,305,175)  (1,100,188)    (767,799)   (958,404)
Net earnings (loss)       169,341     236,820      258,175       86,695    (253,896)
Net earnings (loss) 
   per share                .12         .17          .18          .06        (.18)  
Total assets            4,332,767   3,704,635    3,235,502   2,473,759    2,053,923
Short-term debt         1,718,615     944,605    1,074,329     935,009      793,459
Long-term debt            482,606     802,396      560,755     252,247        None
Total liabilities       2,440,987   1,982,196    1,749,883   1,234,352      901,211
Stockholders equity  $  1,891,780   1,722,439    1,485,6119  1,239,407    1,152,712
</TABLE>

 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION       
         AND RESULTS OF OPERATIONS

ANALYSIS OF FINANCIAL CONDITION

   During the year ended December 31, 1998, cash decreased by $5,462. During
the years ended December 31, 1997  and 1996, cash  increased   by $120,026 and
$601,917, respectively. Cash flow from operating activities in 1998 was 
approximately $335,716, a  decrease of  $289,754  from 1997.  The 1997 cash
flows from operating activities had shown an  increase of $12,000  from 1996.
The significant use of cash, other  than for  operating  expenses,  have  been 
investments  in  producing  oil  and gas properties of $805,768, $617,361, and
$479,783 in 1998, 1997 and 1996, respectively. In each of the last three years,
the Company's investment in producing oil and gas  properties was  provided by
cash flow from operating  activities, sales  of other  oil and gas properties,
and from borrowings on notes payable to banks.

   In 1998 and 1996, the Company also increased cash by $10,370, and $56,930,
respectively, through the sales of  producing  oil and  gas properties.  The
Company plans to continue  to  sell  selected  properties  when  it  is more 
economical to  sell  them rather than produce them. As  of December 31, 1998,
the  Company  had a cash balance of $1,099,802 which represents approximately
50% of its notes payable.

   Working capital at December 31, 1998 has decreased to .66 to 1 from 1.12 to
1 at December 31, 1997.  The Company continued it's policy of making strategic 
investments in  producing oil and gas properties in the same or similar fields
to  properties  already  operated by the Company, which are primarily financed 
with short-term notes payable and cash from operations.

LIQUIDITY AND CAPITAL RESOURCES

   During the current fiscal year, the Company's liquidity has remained strong 
enough to meet its short-term cash needs. The sources of liquidity and capital
resources are generated from cash on hand, cash provided by operations and from
credit available from financial institutions. Management believes the Company
will be able to meet its current operating needs through internally generated
cash from operations. Management believes that oil and gas  property investing
activities in 1999 can be financed through cash on hand, cash  from  operating
activities, and bank borrowings. The Company anticipates continued investments
in proven oil and gas properties in 1999 when they can be purchased  at prices
that will provide a short payback period. If bank credit is not available, the
Company may not be able to continue  its  policy  of continued  investment  in
strategic oil and gas  properties.  The Company cannot predict how oil and gas
prices will fluctuate during 1999 and what effect they will ultimately have on
the Company, but management believes that the Company will be able to generate
sufficient cash from  operations  to service  its bank  debt and  provide  for
maintaining current  production of its oil and gas properties. Oil prices have
increased from  approximately  $10.00  per  barrel  at  December  31,  1998 to
approximately $11.50 per barrel at March 9, 1999.The Company had no significant
commitments for capital expenditures at December 31, 1998.

   As of December 31, 1998, the Company owed $600,000, $789,868 and $600,000 to
a bank secured by producing oil and gas properties and well equipment purchased
by the Company. The notes are due in July 1999, July 2001, and July 1999,
respectively (see note 2 of notes to financial statements for further
explanation).

ANALYSIS OF RESULTS OF OPERATIONS

   From 1995 to 1996 oil and gas sales increased  approximately  69%, and from
1996 to 1997 oil and gas sales increased  approximately 22%,  and from 1997 to 
1998 oil and gas sales decreased 13%. In 1996, oil production volume increased
by 31% at the same time  as the average price per barrel  increased  by 13% to 
18.50.  Also, in  1996,  the gas production volume increased  by 35% while the
average  price per  MCF was  $2.00.  In 1997, oil production volume  increased
by 14% at the same time as the average  price  per barrel increased  by  4% to
$19.30.  Also, in 1997,  the gas production volume increased by 25%  which was
complemented by an increase in the average price per MCF to $2.40.In 1998, oil
production volume increased by 4% at the same time as the  average price  per
barrel  decreased by 37% to $12.16. Also, in 1998, the gas  production  volume
increased  by 34% while the average price decreased 30% to $1.69 per MCF. The 
fluctuation in oil and gas prices is solely attributable to changes in market
prices.

    In 1996 the Company sold several sour oil  properties in order to reduce
operating costs and realized a loss of $85,598 on those sales.

   Oil and gas production expenses increased in 1998  and 1997 by 22% and 24%,
because of  higher lease operating costs  associated  with the  4%  and  14% 
increase, respectively, in oil production volume and the 34% and 25% increase,
respectively, in gas production volume.

  Interest expense decreased by 15% in 1998 over 1997 due to lower average
outstanding balances.

   Depreciation, depletion and amortization varies from year to year because of
changes in reserve estimates, changes in quantities of oil and gas produced, as
well  as  the  acquisition, discovery or sale of producing properties. In 1996, 
the Company reduced  the  estimated  average  reservoir  lives  on  its  proved 
developed reserves in conjunction with its reduction in Permian Basin wells and
increase  in Serbin (Taylor Sand) wells.  This had the effect of increasing
depletion expense in 1996. 

   Total general and administrative expenses  increased 6% in 1997 and 22% in
1996, respectively, due primarily to increases in management fees paid to a
company owned by the President of the Company. Total general and administrative
expenses in 1998 were comparable to 1997 as  the Company made every effort to
control the level of these type expenses.  

   In 1998, 1997 and 1996, the Company provided provisions of approximately
$60,165, $170,678 and $102,101, respectively, for the impairment of value of
oil and gas properties due to less than expected production history of specific
wells and for wells that were plugged and abandoned. 

   Inflation is not anticipated to have a significant impact on the Company's
operations.

FORWARD-LOOKING STATEMENTS

   This Management's Discussion and Analysis of Financial Condition and Results
of  Operations  and  other sections of this Annual Report on Form 10(k) contain
forward-looking statements that are based on current expectations and estimates
about the oil and gas  industry and  other  factors  impacting  the  Company's 
operations and financial condition.  These  statements  are not  guarantees of 
future performance and involve  certain risks,  uncertainties and assumptions.
Therefore,  actual outcomes and performance may differ materially from what is
expressed in such forward-looking statements.

YEAR 2000 COMPLIANCE  

   The Company has considered the impact of Year 2000 issues on its computer
systems  and  applications  and  have  determined  that  these  systems  and
application  are  Year  2000  compliant.   As  such, no Year 2000 conversion
expenditures were  incurred  in  1998  and the Company  expects no Year 2000
conversion expenditures in the future.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                    INDEPENDENT AUDITORS' REPORT





The Board of Directors
Texas Vanguard Oil Company:


We have audited the accompanying balance sheets of Texas Vanguard Oil Company 
(the "Company) as of December 31, 1998 and the related statements of earnings,
stockholders' equity and  cash flows  for the year then ended. These  financial
statements  are  the responsibility  of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.  The financial statements of Texas Vanguard Oil Company as of 
December 31, 1997 and 1996, were audited by other auditors whose report dated
February 27, 1998, expressed an unqualified opinion on those statements.

We  conducted  our  audits  in  accordance  with  generally accepted auditing 
standards. Those standards require that we plan and perform the audit to obtain
reasonable  assurance  about  whether  the  financial  statements  are free of
material  misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in  the financial statements.  An audit
also  includes  assessing  the  accounting  principles  used  and  significant
estimates made by  management,  as  well as  evaluating  the overall financial
statement  presentation. We believe that our audits provide a reasonable basis
for our opinion.

In  our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Texas Vanguard Oil Company as
of  December 31, 1998 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.


                                                   Sprouse & Winn, L.L.P.


February 22, 1999

<TABLE>

                        TEXAS VANGUARD OIL COMPANY

                                 Balance Sheets

                          December 31, 1998 and 1997

<CAPTION>
                                     ASSETS
                                                            1998          1997  
<S>                                                   <C>             <C>    
Current assets:
    Cash (including certificates of deposit of
       $200,000 in 1998 and 1997, pledged)            $  1,099,802    1,105,264
    Trade accounts receivable                               87,860       80,404
                                                         ----------   ---------  
            Total current assets                         1,187,662    1,185,668
                                                         ----------   ---------
Oil and gas properties, partially pledged,
    successful efforts method of accounting:
       Proven properties                                 3,327,677    2,593,991
       Unproven properties                                 166,630      166,630
Office furniture and equipment, partially pledged           97,891       97,891
                                                         ---------    ---------    
                                                         3,592,198    2,858,512
      Less accumulated depreciation, depletion and
    amortization                                          (449,293)    (344,653)
                                                         ---------    ---------
                                                         3,142,905    2,513,859
                                                         ---------    ---------
Other assets                                                 2,200        5,108
                                                         ---------    ---------
    TOTAL ASSETS                                      $  4,332,767    3,704,635
                                                         =========    =========
</TABLE>

<TABLE>
<CAPTION>
                 LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                 <C>               <C> 
Current liabilities:
    Trade accounts payable                          $       72,766      113,194
    Notes payable and current installments of 
       long-term debt                                    1,718,615      923,606
    Notes payable to related parties                           ---       21,000
                                                         ---------    ---------  
Total current liabilities                                1,791,381    1,057,800
                                                         ---------    ---------
Deferred tax liability                                     167,000      122,000
Long-term debt, excluding current installments             482,606      802,396
                                                         ---------    ---------
Total Liability                                          2,440,987    1,982,196

Commitments
   
Stockholders' equity:
    Common stock, par value $.05; authorized
    12,500,000 shares; 1,417,087 issued and 
    outstanding in 1998 and 1997,
    respectively                                            70,854       70,854
    Additional paid-in capital                           1,890,005    1,890,005
    Accumulated deficit                                    (69,079)    (238,420)
                                                         ---------    ---------
Total stockholders' equity                               1,891,780    1,722,439
                                                         ---------    --------- 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY            $  4,332,767    3,704,635
                                                         =========    =========

<FN>
See accompanying notes to financial statements.
</TABLE>

<TABLE>
                        TEXAS VANGUARD OIL COMPANY
                         Statements of Earnings
    
                Years ended December 31, 1998, 1997 and 1996
<CAPTION>                                     
                                                        1998        1997        1996
<S>                                              <C>            <C>         <C>     
Revenues:
    Oil and gas sales                            $  1,298,183   1,496,133   1,230,785
    Well operation fees                               147,304     146,613     145,661
    Other, net                                         37,369      10,335      16,264
     Interest income                                   10,600      10,914      11,062
                                                    ---------   ---------   ---------          
       Total revenues                               1,493,456   1,663,995   1,403,772
                                                    ---------   ---------   --------- 
Expenses:
  Production cost                                     726,429     596,678     482,833
  Depreciation, depletion and amortization            117,648     136,370      79,467
  Interest expense                                    123,848     145,391     114,000
  General and administrative                          251,025     251,058     236,189
  Impairment in value of oil and gas property          60,165     170,678     102,101
  Loss on sale of oil and gas property                    ---       5,000      85,598
                                                    ---------   ---------   ---------
       Total expenses                               1,279,115   1,305,175   1,100,188
                                                    ---------   ---------   ---------
  Earnings before income taxes                        214,341     358,820     303,584 

Income Taxes:
  Deferred federal income tax expense                  45,000     122,000      45,409 
                                                     --------   ---------   ---------   
Net earnings                                     $    169,341     236,820     258,175
                                                     ========   =========   =========
Weighted average number of
    shares outstanding                              1,417,087   1,417,087   1,419,754
                                                    =========   =========   =========

Basic and diluted earnings per share             $       .12          .17         .18
                                                    =========   =========   =========

<FN>
See accompanying notes to financial statements.
</TABLE>

<TABLE>
                             TEXAS VANGUARD OIL COMPANY
                         Statements of Stockholders' Equity
       
                    Years ended December 31, 1998, 1997 and 1996

<CAPTION>  
                                                             Additional
                                          Common Stock        Paid-in   Accumulated
                                        Shares     Amount     Capital     Deficit

<S>                                   <C>         <C>        <C>         <C>

Balances at December 31, 1995         1,427,087     71,354   1,901,468   (733,415)

   Shares repurchased and cancelable   (10,000)      (500)    (11,463)       ---  
  
   Net earnings                             ---        ---         ---    258,175 
                                      ---------   --------   ---------   --------- 
Balances at December 31, 1996         1,417,087     70,854   1,890,005   (475,240)  

   Net earnings                             ---        ---         ---    236,820 
                                      ---------   --------   ---------   --------- 
Balances at December 31, 1997         1,417,087     70,854   1,890,005   (238,420)  

   Net earnings                             ---        ---         ---    169,341
                                      _________   ________   _________   ________
Balances at December 31, 1998         1,417,087     70,854   1,890,005    (69,079)
                                      =========   ========   =========   =========

<FN>
See accompanying notes to financial statements.
</TABLE>

<TABLE>
                           TEXAS VANGUARD OIL COMPANY
       
                            Statements of Cash Flows
       
                Years ended December 31, 1998, 1997 and 1996
<CAPTION>
                                                                1998         1997         1996
<S>                                                      <C>              <C>         <C>                               
Cash flows from operating activities:
  Net earnings                                           $    169,341      236,820      258,175
  Adjustments to reconcile net earnings  
    to cash provided by operating activities:
      Depreciation, depletion and amortization                117,648      136,370       79,467
      (Gain) loss on sale of oil and gas properties            (8,553)       5,000       70,635
      Deferred federal income tax expense                      45,000      122,000       45,409 
      Impairment in value of oil and gas property              60,165      170,678      102,101
      Changes in assets and liabilities:
        (Increase) decrease in trade accounts 
          receivable                                           (7,456)     (43,794)     (10,258)
        Increase (decrease) in trade accounts payable         (40,429)      (1,604)      67,703 
                                                             ---------    ---------    ---------    
    Net cash provided by operating activities                 335,716      625,470      613,232
                                                             ---------    ---------    ---------
Cash flows from investing activities:
  Proceeds from sale of oil and gas properties                 10,370          ---       56,930
  Additions to oil and gas properties                        (805,768)    (613,361)    (479,783)
  Additions to furniture and equipment                            ---          ---      (24,327)
                                                             ---------    ---------    ---------  
    Net cash used in investing activities                    (795,398)    (617,361)    (447,180)
                                                             ---------    ---------    ---------
Cash flows from financing activities:
  Borrowings on notes payable                               1,400,000      343,578    1,473,450
  Repayments of notes payable                                (945,780)    (231,661)  (1,025,622)
  Repurchase and cancellation of common stock                     ---          ---      (11,963)
                                                             ---------    ---------    --------- 
    Net cash provided by financing activities                 454,220      111,917      435,865
                                                             ---------    ---------    ---------      
    Net increase (decrease) in cash                            (5,462)     120,026      601,917 
    
    Cash and cash equivalents at
      beginning of year                                     1,105,264      985,238      383,321
                                                            ---------     --------     --------    
    Cash and cash equivalents at
      end of year                                        $  1,099,802    1,105,264      985,238
                                                            ==========   ==========   ==========
Supplemental disclosure of cash flow information:
  Interest paid                                          $    123,848      145,391      114,000
                                                            ==========   ==========   ==========
<FN>    
Supplemental disclosure of non cash investing and financing activity:
  See note 5.

See accompanying notes to financial statements.
</TABLE>


                             TEXAS VANGUARD OIL COMPANY

                           Notes to Financial Statements

                          December 31, 1998, 1997 and 1996


(1) Significant Accounting Policies   

Description of Business - Texas  Vanguard Oil Company  (the Company) engages in
the acquisition, exploration, development, and operation of onshore oil and gas
properties  in  the United  States,  principally  in Texas.   The  Company owns
interests in producing properties and undeveloped  oil and gas leases in Texas,
Wyoming and New Mexico.  The Company sells all of its production to traditional
industry  purchasers  who have the facilities to transport the oil and gas from
the well site.

Oil and Gas Properties - The Company follows the "successful efforts" method of
accounting  for oil and gas exploration and production operations. Accordingly,
costs incurred  in  the acquisition  and exploratory  drilling  of oil and gas
properties are initially capitalized and  either subsequently  expensed if the
properties are determined not  to have  proved  reserves, or reclassified as a
proven property if proved reserves are discovered. Costs of drilling development
wells are capitalized. Geological,  geophysical,  carrying and production costs
are charged to expense as incurred.

Costs related to acquiring unproved lease and royalty acreage are periodically
assessed for possible impairment of value. If the assessment indicates impair-
ment, the costs are charged to expense.

Depreciation, depletion and amortization of proved oil and gas property costs,
including  related equipment and facilities, are provided using the units-of-
production method on a property by property basis.

The  Financial  Accounting  Standards  Board  issued  Statement  of  Financial
Accounting  Standards No. 121,  Accounting  for  the Impairment  of Long-Lived 
Assets to  be  Disposed of ("Statement 121")  in March 1995 for implementation
in fiscal  years beginning  after  December 15, 1995.  The statement addresses
the impact on an enterprise's financial statements when circumstances indicate
the carrying amount of an asset may not  be recoverable.  The  Company adopted
Statement 121  as of  January 1, 1996. There  was no  material impact  on  the
financial statements at adoption.  There has been on impairment loss recognized
in the current year financial statements.

Office Furniture and Equipment - Office furniture and equipment is stated at
cost.  Depreciation is computed using the straight-line method, based on the
following estimated useful lives:

          Office furniture and equipment         7 years
          Automotive equipment                   5 years

Federal Income taxes - The Company uses the "asset  and liability method" of 
income tax accounting which bases the  amount  of current  and  future taxes 
payable on the events recognized in the financial statements and on tax laws
existing at the balance  sheet date.   The effect on deferred tax assets and 
liabilities  of a  change in tax rates is recognized in income in the period
that includes enactment date. 

Cash and Cash Equivalents - The Company considers cash and cash equivalents to
consist of demand deposits and certificates of deposit with an original maturity
of ninety days or less.

Concentration of Credit Risk -  The  Company  sells all  of  its production to
traditional industry purchasers. Oil sales are not made under a written contract
and the purchaser and price  are  not specified  in the division order for the
subject property.  The Company has recorded revenues in excess of 10% of total
revenue from four customers in 1998, five customers in 1997 and three customers
in 1996 as follows: 1998 - 21%, 22%, 18%, 14%,  1997 - 12%, 15% 17%, 19%, 20% 
and 1996 - 12%, 21% and 24%.  The  Company  does not believe the loss of these 
customers  would  have a material adverse effect on its operations as it could
sell its production to other gathering companies. 

Use of Estimates - Consistent  with  the  requirements  of  generally  accepted
accounting principles, management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities in order to
prepare  these  financial statements.   Actual  results could differ from those
estimates.

Earnings Per Share - In February 1997, the FASB issued SFAS 128, "Earnings Per
Share" ("SFAS 128") which established  standards for  computing and presenting
earnings per share ("EPS") by replacing the presentation of primary EPS with a
presentation of basic EPS. Primary EPS includes common stock equivalents while
basic EPS excludes them.  This change simplifies the  computation  of EPS.  It
also requires dual presentation of basic and fully diluted EPS on the face  of
the  income statement  for all entities with complex capital  structures.  The
Company adopted SFAS 128 effective December 31, 1997 and there was no material
impact on its financial statements at adoption. 

Recent Accounting Announcements   -   In June  1997,  FASB  issued  SFAS 130,
"Reporting Comprehensive Income" (SFAS 130").  SFAS 130 established disclosure
standards for reporting comprehensive income in a full set of general purpose
financial statements.  SFAS 130 is  effective for fiscal years beginning after
December 15, 1997.  The Company adopted SFAS 130 effective December 31, 1998,
and there was no material impact on the financial statements at adoption.

In June 1997, the FASB issued  SFAS 131,  "Disclosures about Segments of  an
Enterprise and Related  Information"  ("SFAS 131")  which  is  effective  for
periods beginning after December 15, 1997. SFAS establishes standards for the
way that  public business  enterprises  report  information  about  operating
segments  in annual  financial statements and requires that those enterprises
report  selected  information about  operating  segments in interim financial
reports issued to  stockholders.  It  also  establishes standards for related
disclosures about products and services, geographic areas and major customers.

<TABLE>
(2) Notes Payable 

<CAPTION>
The Company had notes payable and long-term debt to banks as follows at
 December 31:
                                                              1998          1997
<S>                                                     <C>                <C>
Line of credit with a bank under which it may borrow
  up to $200,000. Interest payable quarterly at 7.30%,
  secured by $200,000 of certificates of deposit. The
  line of credit matures on April 28, 1999.             $    200,000           ---

A note with a bank secured by oil and gas properties.
  The original value of the note was $600,000.
  Interest acrues at .5% above the prime  rate
  (7.75% at December 31, 1998), with monthly 
  payments of $12,500 plus accrued interest. The
  note matures on July 29, 1999.                             600,000           ---

A note with a bank secured by oil and gas properties.
  The original amount of the note was   $1,232,700 in
  1997. Interest accrues at .5% above the prime rate
  (7.75% at December 31, 1998), with monthly payments
  of principal of $26,000 plus interest.  The note
  matures on July 29, 2001.                                  789,868     1,102,700
 

Line of credit with a bank under which it may borrow up 
  to $600,000.  Interest payable monthly at prime rate 
  plus .5% (7.75% at December 31, 1998), secured by oil 
  and gas properties.                                        600,000       600,000

Other notes payable, due on demand or in 
  monthly installments, maturing on various
  dates through September, 2000, secured by equipment.        11,353        23,302
                                                           ---------     ---------
Total bank debt                                            2,201,221     1,726,002
Less current installments                                 (1,718,615)     (923,606)
                                                           ---------     ---------
Long-term bank debt, excluding current installments     $    482,606       802,396 
                                                           =========       =======
</TABLE>

All notes and long-term debt are personally guaranteed by Robert N. Watson, Jr.
President.


Future maturities of long-term debt are as follows:

<TABLE>
            <S>            <C>         
            1999           $1,718,615
            2000              316,738
            2001              165,868
                            ---------
                  Total    $2,201,221
                            =========
</TABLE>

                             Texas Vanguard Oil Company

                            Notes to Financial Statements

                           

(3) Related Party Transactions   

The Company and a company owned by the President of the Company have an agree-
ment  whereby  the latter  provides  the  Company general corporate management
services. None of the Company's officers earn a salary. The affiliated company
received $150,000, $150,000, and $144,000 as compensation  for performance  of 
those services  during  the  years  ended  December 31, 1998, 1997  and  1996,
respectively. Effective January 1, 1999 the agreement was continued with terms
of $12,500 per month through December 31, 1999.

The Company leases office space from a company owned by the President of the
Company  under a non-cancelable operating lease. Rent expense incurred under
this lease was $15,000 for the year ended December 31, 1998.  Future minimum
lease payments are as follows:
<TABLE>
                      <S>     <C>  
                      1999    $     7,500
                                   ======
</TABLE>                                  
                                  
As of  December 31, 1997,  the Company  had a  note payable to an individual 
director of the Company in the amount of $21,000.  The note is due on demand
and  bears interest at 10% and is unsecured.  The note was paid during 1998.


(4) Federal Income Taxes   
<TABLE>
The actual federal income tax expense differs from the "expected" tax expense
computed by applying the US Federal corporate income tax rate of 34% to income
before income taxes as follows:
<CAPTION>
                                                                1998        1997
   <S>                                                    <C>             <C>
   Computed tax expense at statutory rate                 $     72,876    122,000
   Deferred tax (benefit)                                      (27,876)      ---
                                                              _________   ________
                                                          $     45,000    122,000
                                                              =========   ========
</TABLE>    
                             Texas Vanguard Oil Company

                           Notes to Financial Statements

(4) Federal Income Taxes cont.

<TABLE>
<CAPTION>
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 1998 and 1997 is presented below:

                                                                        1998        1997 
   <S>                                                          <C>              <C>
   Deferred tax asset:
     Net operating loss carryforward                            $     122,252     121,922
                                                                     ---------   ---------               
     Net deferred tax asset                                           122,252     121,922
                                                                     ---------   ---------
                                                                               
   Deferred tax liability:
     Office furniture and equipment and oil and gas property,
      due to differences in depreciation and abandonment             (289,252)   (243,922)
                                                                     ---------   ---------
   Total deferred tax liability                                 $    (167,000)   (122,000)
                                                                     =========   =========

</TABLE>             


The Company has  accumulated  losses for  Federal  income tax  purposes  of
approximately $360,000 and $359,000 as of December 31, 1998 and 1997, respec-
tively, which may be carried forward and used to reduce taxable income in
future years. The carryforward expires in 2009.

(5) Fair Value of Financial Instruments

Based on the borrowing rates currently available to the Company for bank loans
with  similar  terms and  average  maturities, the fair value of notes payable 
approximates market value at December 31, 1998.

(6) Subsequent Events

During  1998, the Securities and Exchange Commission (SEC) entered an 
order in an administrative proceeding against the Company, Robert N. Watson
Jr., and Linda R. Watson (the Respondents).  The proceeding was directed to
alleged stock purchases made by the Company, Robert N. Watson, Jr. and Linda R.
Watson from December 1994 to May 1996 with the alleged intent to increase the
Company's stock price in order to maintain its listing on the Boston Stock
Exchange. The respondents, without admitting or denying any of the allegations,
have consented to the order issued by the SEC to cease and desist from
committing or causing any violation, or any future violation, of Sections
9(a)(2), 10(b), 13(d) and 16(a) of the Exchange Act and Rules 10b-5, 13d-2,
16a-2, and 16a-3 promulgated thereunder.

                      TEXAS VANGUARD OIL COMPANY
                                   
                 SUPPLEMENTAL OIL AND GAS INFORMATION
                                   
             Years ended December 31, 1998, 1997 and 1996
                             (Unaudited)

Reserve Quantity Information  (Unaudited) 

The  following  reserve related information is based on estimates prepared by
management of the Company. Reserve estimates are inherently imprecise and are
continually subject  to  revisions  based on  production  history, results of
additional exploration and development, price of oil and gas and other factors.
All of the Company's oil and gas reserves are located in the United States.
<TABLE>
<CAPTION>
                                      1998                       1997                       1996
                                 Oil        Gas             Oil         Gas            Oil         Gas 
                                BBLS        MCF            BBLS         MCF           BBLS         MCF 
<S>                          <C>         <C>            <C>          <C>           <C>          <C>        
Proved developed
   and undeveloped
   reserves:
Beginning of year              589,677    4,017,066        590,924    3,913,319     1,639,187    9,639,887
Revisions of 
   previous estimates         (134,306)   1,065,501        (72,921)      41,566    (1,043,355)  (5 950,845)
Extensions 
   and Discoveries               9,111        8,536         19,377          ---           ---          ---
Purchase of
   minerals in place           117,741    1,692,921         99,731      386,643        82,345      484,519
Sale of minerals                   ---       14,007            ---          ---       (45,547)         ---
Production                     (49,357)    (434,374)       (47,434)    (324,462)      (41,708)    (260,242)
                             ----------   ----------     ----------   ----------    ----------   ---------
End of year                    532,866    6,355,643        589,677    4,017,066       590,924    3,913,319
                             ==========   ==========     ==========   ==========    ==========   =========
Proved developed
   reserves:
Beginning of year              589,677    4,017,066        590,924    3,913,319     1,639,189    9,639,887
End of year                    532,866    6,355,643        589,677    4,017,066       590,924    3,913,319
</TABLE>

Standardized Measure of Discounted Future Net Cash Flows (Unaudited)

The following is a standardized measure of discounted future net cash flows and
changes therein relating to proved  oil and gas reserves. Future net cash flows
were computed using year-end prices and costs and relate to existing proved oil
and gas reserves in which the enterprise has  mineral  interests.  The  Company
cannot predict  price  fluctuations  which may  occur in the future. Oil prices
have increased from  approximately  $10.00 at  December 31, 1998  per barrel to
approximately  $11.50  per  barrel at March 9, 1999. Future income tax expenses
were provided  after  estimated  utilization  of Federal income tax loss carry-
forwards.
<TABLE>
<CAPTION>
                                                          December 31,       
                                                     1998           1997           1996 
<S>                                         <C>                <C>            <C>
Future cash inflows                         $    17,864,686     21,580,020     26,513,000
Future production and development costs          (8,694,333)   (10,480,296)    (9,874,307)
Future income tax expenses                       (1,685,710)    (2,510,533)    (4,402,446)
                                                ------------   ------------   ------------
     Future net cash flows                        7,484,643      8,589,191     12,236,247
                                                              
10% annual discount for estimated
 timing of cash flows                            (3,098,297)    (3,400,245)    (5,041,705)
                                                ------------   ------------   ------------
Standardized measure of discounted 
 future net cash flows                      $     4,386,346      5,188,946      7,194,542
                                                ============   ============   ============
</TABLE>
       
                              TEXAS VANGUARD OIL COMPANY

                    SUPPLEMENTAL OIL AND GAS INFORMATION, CONTINUED
                                   (Unaudited)
<TABLE>
The following are the principal sources of change in the standardized measure of
discounted future net cash flows:
<CAPTION>
                                                          1998         1997         1996
<S>                                               <C>               <C>         <C>
Changes:
    Sale of oil and gas produced, net of
      production costs                            $   (1,137,988)  (1,331,340)  (1,080,046)
    Net changes in prices and production costs          (342,888)    (669,657    1,075,630 
    Purchase of minerals in place                        348,974      213,728      322,455
    Extensions and discoveries                             8,254       24,512          ---
        Sales                                             (2,115)         ---     (106,480)
    Revisions of previous quantity estimates             137,819     (253,051)  (4,649,360)
    Accretion of discount                                518,895      719,454      653,935
    Other                                               (333,551)    (709,242)   4,439,050 
                                                      ----------   ----------    ----------
        Net changes                                     (802,600)  (2,005,596)     655,184 
                                        
Beginning balance - standardized measure
    of discounted future net cash flows                5,188,946    7,194,542    6,539,358
                                                      ----------   ----------   -----------
Ending balance - standardized measure of
    discounted future net cash flows              $    4,386,346    5,188,946    7,194,542
                                                      ==========   ==========   ==========
</TABLE>

The Company has not filed with or included in reports to any Federal authority
or agency other than the Securities and Exchange Commission any estimates of
total proved net oil and gas reserves.

<TABLE>
Capitalized Costs Relating to Oil and Gas Producing Activities      
<CAPTION>
                                                       Years ended December 31,  
                                                      1998         1997         1996 
<S>                                           <C>             <C>           <C>    
Unproven oil and gas properties
    (including wells in progress)             $     166,630      166,630      166,630
          
Proven oil and gas properties                     3,327,677    2,593,991    2,175,128

Accumulated depletion and amortization             (375,162)    (276,407)    (184,537)
                                                  ----------   ----------   ----------    
Net capitalized costs                         $   3,119,145    2,484,214    2,157,221
                                                  ==========   ==========   ==========
</TABLE>

<TABLE>
Costs Incurred in Oil and Gas Property
 Acquisition, Exploration and Development Activities     
<CAPTION>
                                              Years ended December 31,  
                                               1998      1997       1996 
<S>                                     <C>           <C>        <C>
Acquisition of properties - unproven    $       ---       ---        ---  
Acquisition of properties - proven          678,041   409,396    348,471
Exploration costs                               ---       ---        ---
Development costs                           127,727   207,966    131,312
</TABLE>

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

                                    PART III

Items 10, 11, 12 and 13 constituting Part III of Form 10-K have been omitted
from this annual report pursuant to the provisions of Instruction G(3) to Form
10-K, as the Company will file a definitive proxy statement pursuant to
Regulation 14A under the Securities Exchange Act of 1934 within 120 days after
the close of its fiscal year.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1). Financial Statements.

Independent Auditors' Report, Balance Sheets at December 31, 1998 and 1997 and
the related Statements of Earnings, Stockholders' Equity, and Cash Flows for
each of the years in the three-year period ended December 31, 1998, and notes
to financial statements are included in Item 8.

(a)(2) Financial Statement Schedules

Not applicable.

<TABLE>
(a)(3). Exhibits
<CAPTION>
Number    Description of Document
<S>    <C>
3      Copies of Articles of Incorporation and Bylaws - Incorporated by 
       reference to Exhibits 4a and 4b to Registration Statement No. 2-66693
       filed by registrant on Form S-2.

3.1    Articles of Amendment to authorize capitalization of common stock,
       previously filed as exhibits to Form 8-K dated May 27, 1983.

3.2    Certificate of Amendment dated February 20, 1990 of Articles of
       Incorporation and Articles of Amendment dated February 16, 1990 to the
       Articles of Incorporation. Filed as Exhibit to 1989 Form 10-K.

10.1   Incentive Stock Option Plan, previously filed as Exhibit 5b to
       Registration Statement No. 2-66693 filed by registrant on Form S-2.

10.2   Management contract between Texas Vanguard Oil Company and Robert Watson,
       Inc., previously filed with Form 8-K dated January 30, 1988.

10.4   Note payable to First State Bank  dated April 28, 1998.

10.5   Note payable to Midland American Bank dated July 29, 1997.

10.6   Note payable to Midland American Bank dated July 29, 1998.

10.7   Note payable to Midland American Bank dated December 23, 1998.

</TABLE>

(b). Reports of Form 8-K

       1.  Change in Registrant's Certifying Accountant filed by Form 8-k
           dated November 13, 1998.

       2.  Certifying Accountant's letter filed as exhibit by Form 8-K
           dated November 19, 1998.

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

                                       TEXAS VANGUARD OIL COMPANY



                                       By: Robert N. Watson, Jr.    
                                           Robert N. Watson, Jr., President
                                           March 24, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.




Robert N. Watson, Jr.                        
Robert N. Watson, Jr., President,           
Director, Chairman of the Board,            
Principal Executive Officer and             
Principal Financial and Accounting
Officer
March 24, 1999

Linda R. Watson                             Robert L. Patterson      
Linda R. Watson, Secretary and              Robert L. Patterson, Director
Treasurer, Director                         March 24, 1999
March 24, 1999


OFFICERS AND DIRECTORS                CORPORATE INFORMATION

Robert N. Watson, Jr.                 CORPORATE OFFICE
President, Chief Executive            9811 Anderson Mill Road, Suite 202
Officer and Director                  Austin, Texas 78750

Linda R. Watson
Secretary/Treasurer                   INDEPENDENT ACCOUNTANTS
and Director                          Sprouse & Winn, L.L.P.
                                      Austin, Texas
Robert L. Patterson
Director                              TRANSFER AGENT
                                      American Securities Transfer & Trust,Inc.
                                      P.O. Box 1596
                                      Denver, Colorado 80201

                                      COMMON STOCK
                                      Quoted on OTC Bulletin Board
                                      Symbol: TVOC

                                      1998 ANNUAL SHAREHOLDERS MEETING
                                      June 3, 1999, at 10:00 A.M.
                                      9811 Anderson Mill Road, Suite 202
                                      Austin, Texas 78750

EXHIBITS:

                               EXHIBIT 10.4

VARIABLE RATE COMMERCIAL PROMISSORY NOTE:

First State Bank ("Lender")
8045 Mesa Drive
Austin, Texas 78731
Travis County

Texas Vanguard Oil Company ("Borrower")
PO Box 202650
Austin, Texas 78720
<TABLE>
<CAPTION>
TERMS:
<S>                    <C>
Interest Rate:         Variable
Principal Amount:     $200,000.00
Funding Date:          July 28, 1998
Maturity Date:         July 28, 1999
</TABLE>

PROMISE TO PAY:

For value received, I promise to pay to you, or your order, at your address
listed above the principal sum of TWO-HUNDRED THOUSAND AND NO/100 DOLLARS, 
$200,000.00.

_X_ Multiple Advance:  The principal sum shown above is the maximum amount of
principal I can borrow under this note.  On April 28, 1998, I will receive the
amount of $00.00 and future principal advances are contemplated.

_X_ Open End Credit:  You and I agree that I may borrow up to the maximum
principal sum more than one time.  This feature is subject to all other
conditions and expires on April 28, 1999 *see below.

Interest:  I agree to pay interest on the outstanding principal balance from
April 28, 1998 at the rate of 7.3000% per year until the first rate change
date.

_X_ Variable Rate:  This rate may then change as state below.

_X_ Index Rate:  The future rate will be 2.00% above the following index rate:
First State Bank, N.A. one year certificate of deposit.

_X_ Ceiling Rate:  The interest rate ceiling for this note is the indicated
ceiling rate announced by the Credit Commissioner from time to time.

_X_ Frequency and Timing:  The rate on this note may change as often as at 
maturity.

Accrual method:  Interest rate will be calculated on a 365 days per year basis.

Post Maturity Rate:  I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:  _X_ at a rate
equal to highest allowable by law.

_X_ Late Charge:  If a payment is made more than 10 days after it is due, I 
agree to pay a late charge of highest allowable by laws.

Payments:  I agree to pay this note as follows:

_X_Interest:  I agree to pay accrued interest on demand, but if no demand is
made, then monthly.

_X_ Principal:  I agree to pay the principal on demand, but if no demand is
made, then at maturity.

Purpose:  The purpose of this loan is working capital line of credit.

Additional Terms:  *This loan is not under chapter 15 of the Texas Credit Code.

Security Interest:  I give you a security interest in all of the property 
described below that I now own and that I may own in the future (including,
but not limited to, all parts, accessories, repairs, improvements, and
accessions to the Property), wherever the Property is or may be located, and
all proceeds and products from the Property.

_X_ Secured property includes, but is not limited by the following:
First State Bank, N.A. certificate of deposit #8188 and any renewals
or replacements thereof.

Signed: Robert N.Watson, Jr.,  President
Texas Vanguard Oil Company


                               EXHIBIT 10.5

VARIABLE RATE COMMERCIAL PROMISSORY NOTE:

Midland American Bank ("Lender")
401 West Texas
Midland, Texas 79701
Midland County

Texas Vanguard Oil Company ("Borrower")
PO Box 202650
Austin, Texas 78720
<TABLE>
<CAPTION>
TERMS:
<S>                    <C>
Interest Rate:         Variable
Principal Amount:     $1,232,669.87
Funding Date:          July 29, 1997
Maturity Date:         July 20, 2001
Customer Number:       76384
Loan Number:           43060
</TABLE>

PROMISE TO PAY:

For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of ONE MILLION, TWO-HUNDRED THIRTY-TWO THOUSAND SIX-
HUNDRED SIXTY-NINE AND 87/100 Dollars ($1,232,669.87) plus interest on the 
unpaid principal balance at the rate and in the manner described below.  All 
amounts received by Lender shall be applied first to expenses, then to accrued
unpaid interest, and then to outstanding principal, or in any other manner as
determined by Lender, in Lender's discretion, as permitted by law.

INTEREST RATE: This Note has a variable interest rate feature.  Interest on the
Note may change from time to time if the Index Rate identified below changes.
Interest shall be computed on the basis of 360 days per year (and in any event,
365 or 366 days per year during periods when the Maximum Lawful Rate, which
is defined on the reverse, is in effect) and the actual number of days elapsed.
Interest on this Note shall be calculated at the variable rate of ONE-HALF OF
ONE percent (0.5000%) per annum over the Index Rate provided that such rate
shall not exceed the Maximum Lawful Rate. Any change in the interest rate
resulting from a change in the Index Rate will be effective on: SAME DAY AS
MIDLAND AMERICAN BANK PRIME RATE CHANGES

INDEX RATE: The Index Rate for this Note shall be: MIDLAND AMERICAN BANK PRIME

If the Index becomes unavailable during the term of the loan, Lender may
substitute another index which is similar.

MINIMUM RATE/MAXIMUM RATE:  The minimum rate on this Note shall be n/a percent
(n/a %) per annum.  The maximum rate on this Note shall not exceed EIGHTEEN AND
NO/1000 percent (18.000%) per annum or the Maximum Lawful Rate, whichever is
less.

DEFAULT RATE:  In the event of a default under this Note, the Lender may, in
its discretion, determine that all amounts owing to Lender shall bear interest
as follows: EIGHTEEN PERCENT or the Maximum Lawful Rate, whichever is less.

PAYMENT SCHEDULE:  Borrower shall pay the principal and interest according to
the following schedule:  47 PAYMENTS OF PRINCIPAL IN THE AMOUNT OF $26,000.00
PLUS ACCRUED INTEREST BEGINNING AUGUST 29, 1997 AND CONTINUING AT MONTHLY TIME
INTERVALS THEREAFTER.  A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE PLUS
ACCRUED INTEREST IS DUE AND PAYABLE ON JULY 29, 2001.

All payments will be made to Lender at its address in the county described 
above and in lawful currency of the United States of America.

RENEWAL: If checked, _X_ this Note is given in renewal of, but not in novation
or discharge of, certain promissory notes dated July 21, 1996 in the original 
principal amount of $849,121.90 and having an original commitment amount of 
$600,000.00 ("Original Notes") from Maker payable to the order of Payee, which 
Original notes are secured by Deeds of Trust as Amended as renewed and extended
under the Deed of Trust as described above. All liens, assignments and security
interests securing the payment of said Original Notes are hereby ratified,
confirmed, renewed, extended, rearranged and brought forward as security for
the payment of this Note.

SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrower's rights, title, and interest in all monies,
instruments, and savings, checking, and other deposit accounts of Borrower's,
(excluding IRA, Keogh, and trust accounts and deposits subject to tax penalties
if so assigned), that are now or in the future in Lender's custody or control.
Upon default, and the extent permitted by applicable law, Lender may exercise
its security interest in all such property which shall be in addition to and
cumulative of Lender's right of common law setoff. __X__ If checked, the 
obligations under this note are also secured by a lien and/or security interest
in the property described in the documents executed in connection with this
Note as well as any other property designated as security for this Note now or
in the future.

PREPAYMENT:  This Note may be prepaid in part or in full on or before its 
maturity date.  If this Note contains more than one installment, all
prepayments shall be as determined by Lender and as permitted by law.

BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.

THIS NOTE AND RELATED DOCUMENTS HAVE BEEN SIGNED IN THE COUNTY OF LENDER'S
ADDRESS UNLESS OTHERWISE SPECIFIED: MIDLAND.

NOTE DATE:  JULY 29, 1997

BORROWER: TEXAS VANGUARD OIL COMPANY
          ROBERT N. WATSON, JR.
          PRESIDENT


                               EXHIBIT 10.6

COMMERCIAL REVOLVING OR DRAW NOTE-VARIABLE RATE:

Midland American Bank ("Lender")
401 West Texas
Midland, Texas 79701
Midland County
(915) 687-3013

Texas Vanguard Oil Company ("Borrower")
PO Box 202650
Austin, Texas 78720
(512) 331-6781
<TABLE>
<CAPTION>
TERMS:
<S>                    <C>
Interest Rate:         Variable
Principal Amount:     $600,000.00
Funding Date:          July 29, 1998
Maturity Date:         July 29, 1999
Customer Number:       76384
Loan Number:           43070
</TABLE>

PROMISE TO PAY:

For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of SIX HUNDRED THOUSAND AND NO/100 Dollars
($600,000.00) plus interest on the unpaid principal balance at the rate and in
the manner described below.  All amounts received by Lender shall be applied
first to expenses, then to accrued unpaid interest, and then to outstanding
principal, or in any other manner as determined by Lender, in Lender's
discretion, as permitted by law.

INTEREST RATE:  This Note has a variable interest rate feature. Interest on the
Note may change from time to time if the Index Rate identified below changes.
Interest shall be computed on the basis of 360 days per year (and in any event,
365 or 366 days per year during periods when the Maximum Lawful Rate, which
is defined on the reverse, is in effect) and the actual number of days elapsed.
Interest on this Note shall be calculated at the variable rate of ONE AND 
NO/1000 percent (1.000%) per annum over the Index Rate provided that such rate
shall not exceed the Maximum Lawful Rate. Any change in the interest rate 
resulting from a change in the Index Rate will be effective on: SAME DAY
AS MIDLAND AMERICAN BANK PRIME RATE CHANGES

INDEX RATE: The Index Rate for this Note shall be: MIDLAND AMERICAN BANK PRIME

If the Index becomes unavailable during the term of the loan, Lender may
substitute another index which is similar.

MINIMUM RATE/MAXIMUM RATE:  The minimum rate on this Note shall be n/a percent
(n/a %) per annum.  The maximum rate on this Note shall not exceed EIGHTEEN AND
NO/1000 percent (18.000%) per annum or the Maximum Lawful Rate, whichever is
less.

DEFAULT RATE:  In the event of a default under this Note, the Lender may, in
its discretion, determine that all amounts owing to Lender shall bear interest
as follows: EIGHTEEN PERCENT or the Maximum Lawful Rate, whichever is less.

PAYMENT SCHEDULE:  Borrower shall pay the principal and interest according to
the following schedule: ON DEMAND OR IF NO DEMAND IS MADE-INTEREST ONLY
PAYMENTS ARE DUE AUGUST 29, 1997 AND CONTINUING AT MONTHLY TIME INTERVALS
THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE PLUS ACCRUED 
INTEREST IS DUE AND PAYABLE ON JULY 29, 1998.

All payments will be made to Lender at its address in the county described 
above and in lawful currency of the United States of America.

RENEWAL: If checked, _X_ this Note is given in renewal of, but not in novation
or discharge of, Loan Number 43070.

SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrower's rights, title, and interest in all monies,
instruments, and savings, checking, and other deposit accounts of Borrower's,
(excluding IRA, Keogh, and trust accounts and deposits subject to tax penalties
if so assigned), that are now or in the future in Lender's custody or control.
Upon default, and the extent permitted by applicable law, Lender may exercise
its security interest in all such property which shall be in addition to and
cumulative of Lender's right of common law setoff. ____ If checked, the 
obligations under this note are also secured by a lien and/or security interest
in the property described in the documents executed in connection with this
Note as well as any other property designated as security for this Note now or
in the future.

PREPAYMENT:  This Note may be prepaid in part or in full on or before its 
maturity date.  If this Note contains more than one installment, all prepayments
shall be as determined by Lender and as permitted by law.

REVOLVING OR DRAW FEATURE: This Note possesses a revolving or draw feature as
indicated below.

_X_  This Note possesses a revolving feature.  Borrower shall be entitle to 
borrow up to the full amount of the Note from time to time during the term of
this Note.

___  This Note possesses a draw feature.  Borrower shall be entitled to make
one or draws under this Note.  The aggregate amount of such draws shall not
exceed the full principal amount of this Note.

Lender shall maintain a written ledger of the amounts loaned to and repaid by
Borrower under this Note. The aggregate unpaid principal amount shown on such
ledger shall be rebuttable presumptive evidence of the outstanding principal
amount owing and unpaid on this Note. The Lender's failure to record the date
and amount of any advance on such ledger shall not limit or otherwise affect
the obligations of the Borrower under this Note to repay the outstanding
principal amount of the advances together with all accrued, unpaid interest
thereon.  Lender shall not be obligated to provide Borrower a copy of the ledger
on a periodic basis, however, Borrower shall be entitled to inspect or obtain
a copy of the ledger during Lender's business hours.

CONDITIONS FOR ADVANCES:  Borrower shall be entitled to borrow monies under
this Note (subject to the limitations described above) under the following
conditions:  CUSTOMER REQUEST/ OFFICER APPROVAL.

ADDITIONAL TERMS:  

Purpose: Provide funds for oil and gas acquisitions. Secured by: Various Oil
and Gas properties in various counties in Texas.

BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.

THIS NOTE AND RELATED DOCUMENTS HAVE BEEN SIGNED IN THE COUNTY OF LENDER'S
ADDRESS UNLESS OTHERWISE SPECIFIED: MIDLAND.

NOTE DATE:  JULY 29, 1998

BORROWER: TEXAS VANGUARD OIL COMPANY
          ROBERT N. WATSON, JR.
          PRESIDENT


                               EXHIBIT 10.7

TERM PROMISSORY NOTE:

Midland American Bank ("Lender")
401 West Texas
Midland, Texas 79701
Midland County

Texas Vanguard Oil Company ("Borrower")
PO Box 202650
Austin, Texas 78720
<TABLE>
<CAPTION>
TERMS:
<S>                    <C>
Interest Rate:         Variable
Principal Amount:     $600,000.00
Funding Date:          December 23, 1998
Maturity Date:         July 29, 1999
Customer Number:       76384
</TABLE>

PROMISE TO PAY:

For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of SIX-HUNDRED THOUSAND DOLLARS ($600,000.00) plus
interest on the unpaid principal balance at the rate and in the manner described
below.  All amounts received by Lender shall be applied first to expenses, then
to accrued unpaid interest, and then to outstanding principal, or in any other
manner as determined by Lender, in Lender's discretion, as permitted by law.

This note is described in and is subject to the terms and provisions of that
certain Loan Agreement dated July 29, 1997 as amended by those certain First
and Second Amendments to Loan Agreement dated July 29, 1998 and December 23, 
1998 (hereinafter collectively referred to as the "Loan Agreement") by, 
between and among Midland American Bank, Maker and Robert N. Watson, Jr., as
"Guarantor."  The Loan Agreement, among other things, contains provisions 
regarding the "Borrowing Base", as defined in the Loan Agreement and for 
acceleration of the maturity hereof upon the happening or omission of certain
stated events upon the terms and conditions therein specified.

INTEREST RATE: This Note has a variable interest rate feature.  Interest on the
date may change from time to time if the Index Rate identified below changes.
Interest shall be computed on the basis of 360 days per year (and in any event,
365 or 366 days per year during periods when the Maximum Lawful Rate, which
is defined on the reverse, is in effect) and the actual number of days elapsed.
Interest on this Note shall be calculated at the variable rate of ONE-HALF OF
ONE percent (0.5000%) per annum over the Index Rate provided that such rate
shall not exceed the Maximum Lawful Rate. Any change in the interest rate
resulting from a change in the Index Rate will be effective on: SAME DAY AS
MIDLAND AMERICAN BANK PRIME RATE CHANGES

INDEX RATE: The Index Rate for this Note shall be: MIDLAND AMERICAN BANK PRIME

If the Index becomes unavailable during the term of the loan, Lender may
substitute another index which is similar.

MINIMUM RATE/MAXIMUM RATE:  The minimum rate on this Note shall be n/a percent
(n/a %) per annum.  The maximum rate on this Note shall not exceed EIGHTEEN AND
NO/1000 percent (18.000%) per annum or the Maximum Lawful Rate, whichever is
less.

DEFAULT RATE:  In the event of a default under this Note, the Lender may, in
its discretion, determine that all amounts owing to Lender shall bear interest
as follows: EIGHTEEN PERCENT or the Maximum Lawful Rate, whichever is less.

PAYMENT SCHEDULE:  Borrower shall pay the principal and interest according to
the following schedule:  6 PAYMENTS OF PRINCIPAL IN THE AMOUNT OF $12,500.00
PLUS ACCRUED INTEREST BEGINNING JANUARY 29, 1999 AND CONTINUING AT MONTHLY TIME
INTERVALS THEREAFTER.  A FINAL PAYMENT OF THE ENTIRE UNPAID PRINCIPAL BALANCE
PLUS ACCRUED INTEREST IS DUE AND PAYABLE ON JULY 29, 1999.

All payments will be made to Lender at its address in the county described 
above and in lawful currency of the United States of America.

SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrower's rights, title, and interest in all monies,
instruments, and savings, checking, and other deposit accounts of Borrower's,
(excluding IRA, Keogh, and trust accounts and deposits subject to tax penalties
if so assigned), that are now or in the future in Lender's custody or control.
Upon default, and the extent permitted by applicable law, Lender may exercise
its security interest in all such property which shall be in addition to and
cumulative of Lender's right of common law setoff. __X__ If checked, the 
obligations under this note are also secured by a lien and/or security interest
in the property described in the documents executed in connection with this
Note as well as any other property designated as security for this Note now or
in the future.

PREPAYMENT:  This Note may be prepaid in part or in full on or before its 
maturity date.  If this Note contains more than one installment, all
prepayments shall be as determined by Lender and as permitted by law.

BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.

THIS NOTE AND RELATED DOCUMENTS HAVE BEEN SIGNED IN THE COUNTY OF LENDER'S
ADDRESS UNLESS OTHERWISE SPECIFIED: MIDLAND.

NOTE DATE:  DECEMBER 23, 1998

BORROWER: TEXAS VANGUARD OIL COMPANY
          ROBERT N. WATSON, JR.
          PRESIDENT