FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark One)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [FEE REQUIRED]

the fiscal year ended December 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 [NO FEE REQUIRED
For the transition period from _______________ to ____________
                  
Commission File Number:  0-9500

                        MOUNTAINS WEST EXPLORATION, INC.
              (Name of small business issuer in its charter)

                  New Mexico                              85-0280415    
        (State or other jurisdiction of                 I.R.S. Employer 
        incorporation or organization)                identification no.)

      616 Central, S.E., Suite 213, Albuquerque, New Mexico         87102
          (Address of principal executive offices)               (Zip Code)
 
Issuer's telephone number, including area code: 505-243-4949

Securities registered pursuant to Section 12(b) of the Act:     None

Securities registered pursuant to Section 12(g) of the Act:
     $0.001 Par Value Common Stock
           (Title of Class)

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  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-KSB
or any amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year. $243,081

State the  aggregate  market  value of the voting  stock held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days.  (See  definition  of  affiliate  in  Rule  12b-2  of the  Exchange  Act).
$2,450,359 (based on an ask market value of $0.09 per share on March 20, 1998)

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest  practicable  date: $0.001 par value common stock, its
only class of equity securities, as of March 15, 1998 was: 38,019,270.


                                     PART I

Item 1. Description of Business.

The Company
-----------

Mountains West Exploration, Inc. (the "Company") was incorporated under the laws
of the State of New Mexico on September 17, 1979.

The Company,  is an independent oil and gas company engaged in the  acquisition,
exploration  and  development of oil and gas leases and  concessions  located in
Colorado and North Dakota.  Recent and more important  exploratory  efforts have
been centered in Australia, Papua New Guinea, Central America and South America.
The Company is  aggressively  pursuing its major objective of increasing its oil
and gas reserves and production.  During the past several years, the Company has
been establishing itself as a foreign exploration company.  With most of the oil
and gas industry  concentrating in foreign  countries,  the Company is now in an
excellent position to take advantage of the experience of its management and its
foreign concession and license interests.

For the past several years,  as resources have  permitted,  the Company has been
increasing its  activities and oil and gas production is rising,  but it has yet
to obtain  significant  oil or gas  income.  Management's  time and the  limited
Company  resources  have been used to maintain the  properties  held, to acquire
additional  properties  and  to  participate  to  the  extent  possible  in  the
development of its properties. (See Item 2. Properties).

Domestic Exploration and Production
-----------------------------------

The  Company   owns  small   interests  in  seven  oil  and  gas  wells  in  the
Denver-Julesburg basin in Eastern Colorado. These wells have been producing from
the "J" and Codel  sandstones  and are  believed by Company  Management  to have
reached their economic limits. Small undeveloped reserves are behind the pipe in
most of these wells and will be developed in the near future,  but are no longer
considered to have any value to the Company.
        
The Company has approximately 2,312 net acres of mineral rights in South Central
Colorado.  Of those 2,312 acres, 1770 acres are located in the southwestern part
of the Raton  Basin.  Consolidated  Industrial  Services  Oil and Gas,  Inc.,  a
subsidiary of Infinity,  Inc. , has now drilled and completed  approximately  28
gas wells to the north and southwest of these interests.  This is in addition to
4 wells drilled by Montana-Dakota to the south of the interests.  Development of
the Company's 1,770 acres was not accomplished during 1997 because of a reported
10th Circuit opinion that placed in question certain coal bed methane leases. As
a result of that  opinion,  the lease of the  properties  that was reported last
year was voided. The Court's opinion was subsequently  clarified and development
of this  property  will remain a priority  during  1998.  The  Company  does not
presently  have the resources to  development  these  properties,  therefore,  a
decision will be made whether the  properties  will be held until such time that
the Company  has the  necessary  resources  for the  development  or whether the
properties will be leased to others for development.

Access to all  domestic  properties  in which the Company  owns any  interest is
readily  available  from  state and  county  highways  and roads on a year round
basis.

Foreign Exploration.
--------------------

Activities Related to Previously Reported Papua New Guinea Oil Interests
------------------------------------------------------------------------

Petroleum Development License No. 3
-----------------------------------

The  Company's  interest  in the  unitized  fields  discussed  below,  after the
exercise by the  government  to acquire a 22-1/2%  interest  in the  fields,  is
approximately .8718%.

In 1984, the Company  acquired  Papua New Guinea  Petroleum  Prospecting  Permit
number PPL 56, which after several  farmouts of interest became owned by the PPL
56 Joint Venture Group, that was formed to conduct exploration activities on the
License.  In 1991, a significant  oil discovery was made on the License with the
#1 S.E. Gobe well which production  tested for 4,250 barrels of oil per day from
the Jurassic Iagifu  sandstone.  Also in 1991, the #2 S.E. Gobe well was drilled
approximately  one mile to the Southeast of the #1 well and tested 8,907 barrels
of oil per day, which was one of the biggest flows of oil ever recorded in Papua
New Guinea.  In 1992,  the #3 S.E.  Gobe well was drilled and competed for 6,300
barrels of oil and 22.1  million  cubic feet of gas per day.  These  three wells
established  a gross  vertical  oil column in excess of 330 feet on the License.
The area upon which these wells are located is known as the  Southeast  Gobe Oil
Field.

The Southeast Gobe Oil Field, upon which there are located 5 oil wells belonging
to the Southeast  Gobe Unit have now been  unitized,  and Chevron was elected as
the operator for all projects related to the unitized field and Gobe Main Field.
A road from the  Chevron  Group's  pipeline  road to the  Southeast  Gobe  Filed
production  facilities  has been completed to the extent deemed by Chevron to be
necessary to permit access to the production  and  maintenance  facilities.  The
entire producing area, including the Gobe Main Field, is over 12 miles long. The
fields are located in mountainous  country of the Papuan Fold Belt.  Eight miles
to the south, Chevron has established and is operating a pipe line through which
it is presently  transporting  approximately  90,000 barrels of oil per day from
its fields in the Kutubu area located  several miles  northwest of the Southeast
Gobe and Gobe Main oil fields. Chevron began production from the Gobe Main Field
in March of 1988 and  production  from the wells in the Southeast  Gobe Field is
predicted to begin in early April,  1998. At that time,  for the first time, the
Company's interests will produce income. However, until the debt associated with
the cost of  developing  the  Company's  interest  in the fields and  production
facilities  has been repaid,  the Company will not experience any cash flow that
it might use for any other purpose.

Activities Related to New Papua New Guinea Gas Interests
--------------------------------------------------------

After the area covered by the PDL #3 was  determined  during 1996,  the original
Petroleum exploration license (PPL 56) that PDL #3 had been part of expired, the
Joint  Venture  refilled  for the  remaining  acreage to be  included in two new
prospecting  licenses.  The southern part of PPL 56 was refilled as PPL 189. The
northern  part  of PPL 56 was  refilled  as PPL  190.  After  a  realignment  of
interests in the two new exploration licenses, the Company has a 5.051% interest
in PPL 189 and a 3.763% interest in PPL 190. The increase in the Company's share
of the new licenses  greatly  increased  the Company's gas reserves in Papua New
Guinea.

PPL 189  contains  the  Barikewa  gas  field.  A seismic  program  is  currently
evaluating this structure for drilling in the near future.  A huge NW-SE surface
structure,  the Orie  Anticline,  was  drilled  several  years ago but failed to
encounter any sand development.  The structure  remains  prospective to the west
along the  upper  crest of the  anticline  (TABE  prospect)  and along the south
western  flanks of the high where large  stratigraphic  traps could  exist.  New
studies  indicate  Tertiary  reefs are  present  in the area  which are known to
produce to the east and southeast.

PPL 190 has numerous  anticlines  located on it. The most  important ones are as
follows:

1.   WASUMA STRUCTURE. This structure is located between the Masaka structure on
     the  north  and the  Gobe  structure  on the  south.  A  large  part of the
     anticline  lies in PPL 190. A seismic line was shot across the structure in
     1997.  Several  interpretations  have been made of the information from the
     seismic,  which has confirmed that a structure  exists.  A wildcat drilling
     attempt is now  planned  to  commence  during the summer of 1998,  with the
     Chevron group giving a cash contribution to the cost of the test drilling.

2.   MASAKA STRUCTURE. This is a northwest southeast trending anticline parallel
     to and located about six miles north of the Gobe Structure. This feature is
     larger than the Gobe anticline.  Chevron drilled the #1 Makasa well located
     on the structure as a possible  discovery well. High pressures in two upper
     zones,  as yet not  known  to  produce,  prevented  this  well  from  being
     completed as a commercial  well.  The  structure  extends over into PPL 190
     trending  eastward for several miles.  The Company has a 3.763% interest in
     this feature.

3.   TABE STRUCTURE . The Tabe prospect is located on the  northwestern  part of
     the Orie  Anticline.  The Orie  structure is very large (30 miles long) and
     should have  excellent  reservoir  conditions  along the west and southwest
     portions of the  anticline.  The  prospect is near the  Southeast  Gobe oil
     field and is very prospective for production.

4.   ANESI  STRUCTURE.  The Anesi  anticline  was  tested by the  Beaver #1 well
     drilled  during 1996.  The well was a dry hole but  encountered  sufficient
     shows of oil and gas to indicate that the western one half of the structure
     which lies in PPL 190 is still very prospective.

New discoveries such as the #1 Makasa and a new Chevron discovery, #1 Moran, are
finding new  reserves in  quantities  far  exceeding  those found to date in the
existing fields.

Prior to 1984, two discoveries of gas were made(the expired PPL 56 License), the
Iehi gas field,  which is now located on PPL 190 License  and the  Barikewa  gas
field, now located on PPL 189 License.  Both fields are awaiting  development as
soon as a  pipeline  is  available.  Three  separate  groups of  companies  have
announced that they are conducting feasibility studies for liquefied natural gas
plants to be constructed  in Papua New Guinea.  The Company has been told that a
feasibility study of a methanol plant is also being done.  Chevron has announced
its intention to lay a pipeline from Papua New Guinea to northern Australia with
an anticipated  completion  date for the pipeline of 2001. The Iehi and Barikewa
fields are primary  targets for feedstock  for any LNG and methanol  plants that
might  eventually  be  constructed.   Preliminary  proven  reserve  calculations
indicate  that there are 163 to 450 billion  cubic feet of gas for the  Barikewa
field and 23.5 to 88  billion  cubic feet of gas for the Iehi  field.  Using the
average of each field,  the Company will own reserves of  approximately 9 BCF in
the two fields.

Competitive Factors
-------------------

The petroleum industry is volatile and highly competitive. Earnings from oil and
gas production are primarily dependent upon prices of crude oil and natural gas.
The costs  and  prices of crude  oil,  natural  gas and  refined  products  have
fluctuated  substantially  in  recent  years,  often  in  a  divergent  fashion.
Competition  exists in every  aspect of oil and gas  operations,  including  the
acquisition, exploration, discovery and development of new oil and gas reserves,
as well as purchasing, gathering, transporting,  refining and marketing of crude
oil, natural gas and petroleum products.

Many companies and  individuals  are engaged in the oil and gas business in both
the U.S.  and  foreign  markets.  Many such  companies  are very  large and well
established with substantial capabilities and long earnings records. The Company
has, and will continue, to encounter strong competition in acquiring oil and gas
leases,  licenses  and  concessions  from  these  and other  companies.  In most
instances  the Company is not able to compete  with these other more  adequately
capitalized  companies in meeting price,  exploration  and bonding  requirements
established by the land owners or foreign governments. The Company has, however,
had success in acquiring more adequately  capitalized  partners with whom it has
joined to acquire  properties  and  conduct  operations  thereon  leading to the
discovery of commercial quantities of oil and gas.

The acquisition,  exploration,  development,  production and sale of oil and gas
interests are subject to many factors  which are outside the Company's  control.
These  factors  include  worldwide and United States  economic  conditions,  oil
import and export quotas,  availability of drilling rigs and pipelines,  weather
conditions,  supply and price of other fuels,  and the regulation of production,
transportation and marketing by both domestic and foreign governmental agencies.
Foreign  Governmental  preferences  for major  international  oil companies over
small  independent  companies  may also have an adverse  effect on the Company's
ability  to compete  with such major  companies,  even if it  otherwise  has the
capital to do so.

Environmental Regulations
-------------------------

On a worldwide basis,  environmental  laws and regulations vary greatly.  In the
United  States  compliance  with State and Federal laws may require  significant
capital expenditure and will effect decisions  regarding  acquisition of certain
properties,  methods of production and  distribution  of the oil and gas and the
Company's earning  potential from any property.  The managing partner of the PPL
56 Joint  Venture has not  informed  the  Partners  in the Joint  Venture of any
environmental  laws,  rules or regulations  established by Papua New Guinea that
might be expected to have any unusual or adverse  impact upon the  operations of
the Joint Venture or the production of oil and gas from its license interests.

Governmental Regulations
------------------------

1. United States
----------------

In the United States,  the production of oil and gas is subject to regulation by
the  various  state  regulatory   authorities.   In  general,  these  regulatory
authorities  are empowered to make and enforce  regulations  to prevent waste of
oil and gas, and to fix  allowable  production  rates for oil and gas within the
limits of maximum rates of production and reasonable  market demands for oil and
gas. In addition,  the Company will be required to comply with spacing and other
conservation  rules of the various  states within which the Company owns oil and
gas leases upon which exploration  activities are conducted.  Also, with respect
to  United  States  leases,   the  Company  will  be  required  to  comply  with
requirements  established  for  exploration and development by the United States
Geological Survey and the Bureau of Land Management.

Natural gas production and prices are regulated by the Federal Energy Regulatory
Commission  and are subject to the Natural Gas Policy Act. New natural gas, some
onshore gas production and interstate gas were deregulated  effective January 1,
1985.
 
The  Company  will  also  be  subjected  to  varying  taxes  that  are or may be
established on producers of oil and gas relating to prices received in excess of
certain established norms.

2. Papua New Guinea
-------------------

The managing partners of the Joint Venture Groups have not informed the Partners
in the Joint Venture of any production limits, pricing procedures or other laws,
rules or  regulations  established by Papua New Guinea that might be expected to
have any unusual or adverse  impact upon the  operations of the Joint Venture or
the production of oil and gas from its concession.

Personnel 
---------

The  Company has one full time  employee,  that being its  President,  Robert A.
Doak,  Jr. The Company has retained  the services of outside  parties for legal,
accounting,  drafting,  geological, and lease acquisition services to the extent
that it has been able to afford such expenses.

Item 2. Description of Properties.

Offices
-------

The Company  rents its offices at 616  Central,  N.W.,  Albuquerque,  New Mexico
87102,  under a  month-to-month  lease at a monthly  rental  of $546.  The suite
consists of  approximately  728 sq.  feet,  which  Management  believes  will be
adequate for the Company's need for the foreseeable  future.  Approximately  one
half of the space is sub-let to another party for a monthly rent of $245.

Productive Wells and Acreage
----------------------------

The following table reflects the approximate  total gross and net productive oil
and gas wells and approximate  total gross and net developed acreage at December
31, 1997:

Productive Wells
                               Oil Wells                     Gas Wells
                        Gross (1)       Net (2)       Gross (1)       Net (2)
                         ------         ------         ------         ------
        Colorado            --            --                3          .3125
        PNG (Unit)            5           .044            --             -- 
                         ------         ------         ------         ------
             Totals           5           .044              3          .3125 
                         ======         ======         ======         ======

Developed Acreage                       Gross            Net
                                        ------         ------
        Colorado                           240            30
        PNG                              2,000            50 
________
(1)  Gross well or acres is a well or acre in which a working interest is owned.
     Not  included  are wells in Billings  County,  North  Dakota,  in which the
     Company  holds  overriding  royalty  interest  aggregating  less  than  one
     percent.
(2)  A net  well or acre is  deemed  to  exist  when  the sum or the  fractional
     ownership working interests in gross wells or acres equal one. As a working
     interest holder,  the Company,  along with other working interest  holders,
     pay 100% of production costs.

Oil and Gas Properties
----------------------

Capitalized costs related to the Company's oil and gas activities as of December
31, 1997 were as follows:

        Oil and Gas Properties          $ 3,986,918
        Mineral Interests                    50,683
                                        -----------
                                        $ 4,037,601
                                        ===========

In 1984,  the Company  acquired a 2-1/2%  interest in the Petroleum  Prospecting
License #56 in Papua,  New Guinea.  In 1991 and 1992, three wells were completed
and shut in pending  availability of gathering  system,  pipeline and processing
facilities.  In 1996, the license was reissued as one production license (PDL#3)
and two new  exploration  licenses (PPL 189 and PPL 190).  Also during 1996, the
Government  exercised  its option to acquire a 22 % interest in PDL#3 and repaid
certain of the  Company's  costs in that portion of the license.  As a result of
the  election and the  inclusion of the PDL in a unitized  program with the Main
Gobe Oil Field, the Company's  interest in the fields became a net 0.8718%.  The
Company's  share of costs in the  Venture  has been loaned to the Company by its
partners,  including  interest  at  8%,  to  be  repaid  from  the  proceeds  of
production.  accordingly, the Company has recorded the liability to its partners
and the related asset at December 31, 1997, in the amount of $3,889,971.

1997 Production
---------------
                      Avg. Sales                     Avg. Lifting

      Oil         (Bbls)     Price (Bbl)              Costs (Bbl)
                  ------     -----------              -----------
                   122         $18.00                    $6.30

      Gas         (MCF)      Price (MCF)              Costs (MCF)
                  ------     -----------              -----------
                  32,938       $ 1.01                    $0.45

Drilling Activities
-------------------
                                    Productive               Dry
                                   -------------       -------------
                                   Gross    Net        Gross    Net
                                   -----   -----       -----   -----
        Exploratory Wells:
        
        1996                         --      --           1     .025
        1997                         --      --          --      --
                                   -----   -----       -----   -----
        Totals                       --      --           1     .025
                                   =====   =====       =====   =====
        
        Development Wells:         
        
        1996                         --      --          --      --             
        1997                         --      --          --      --
                                   -----   -----       -----   ----- 
        Totals                       --      --          --      --
                                   =====   =====       =====   =====

Undeveloped Properties
----------------------

(1)  At December 31, 1997, the Company held  approximately  the following  gross
     and net undeveloped oil and gas acreage:

                Leases                    Gross Acres          Net Acres (1)   
                ------                    -----------          -------------
        Colorado Mineral Interests             2,494                2,072
        PNG PDL #3                            23,000                  437
        PNG PPL 189                          480,000               24,245
        PNG PPL 190                          460,000               17,309
        PNG PPL 203                          276,000               13,800
                                           ---------               ------ 
        Totals                             1,241,494               57,863
                                           =========               ======
__________
Computed  using the Company's net revenue  interest.  Net Acres include  working
interests and overriding royalty interests.
        
Reserves
--------

The Company has not filed any reports  containing oil or gas reserves  estimates
with any Federal or foreign government or authority or agency within the past 12
months.  The Company has not prepared or had prepared for it any reserve reports
related to the properties  discussed  herein except those that are included with
this Report.

Item 3. Legal Proceedings.

Insofar as is known to the Company's management,  there are no legal proceedings
now pending,  threatened, or contemplated,  or unsatisfied judgments outstanding
which have not been  provided for in any court or agency to which the Company or
any of its  officers  or  directors,  in such  capacity,  are or may be a party,
except as discussed below.

In 1987, the Company's former independent  auditors,  Arthur Andersen obtained a
judgment   against  the  Company  for  unpaid   audit  fees  in  the  amount  of
approximately  $6,000.  This judgment  remains  outstanding  at the date of this
Report.

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

No  matters were submitted  to a vote of shareholders  during the fourth quarter
quarter of the Company's fiscal year.


PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

The Company's common stock is traded  over-the-counter.  Prior to November 1983,
the  Company's  common stock was traded on the  Bulletin  Board system under the
symbol MWEX.  Since that time, the Company's common stock has been listed by the
National Daily  Quotation  Bureau,  Inc. in its Pink Sheets and the OTC Bulletin
Board.  The high and low bid prices  during each quarter of 1996 and 1997 are as
follows

                           Bid Prices                              Bid Prices
                           ----------                              ----------
                          High     Low                            High     Low
                          ----     ---                            ----     ---

   March 31, 1996        .07      .0625     March 31, 1997        .03     .02
   June 30, 1996         .0625    .03125    June 30, 1997         .025    .025
   September 30, 1996    .0625    .03125    September 30, 1997    .075    .025
   December 31, 1996     .0625    .03       December 31, 1997     .10     .055

There were  approximately  2,000 holders of the Company's  common stock on March
15, 1998.

The Company has never paid dividends on its common stock.

Item 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Plan of Operations
------------------

During  the year  ended  December  31,  1997,  oil and gas sales  were  $41,912,
compared to $24,129 during the same period in the prior year.  Increases in such
revenues  are  expected  to  increase   significantly   upon  production   being
established from PDL#3, which is expected to commence in April, 1998. All of the
Company's  revenue from that  license will be devoted to repaying the  Company's
debts to its partners for its share of the costs of establishing the production,
which  at  December  31,  1997,  were   approximately   $3,889,871.   Management
anticipates  that  the  Company's  share of the  production  from  this  license
initially will be  approximately  200 barrels per day. As the development of the
license continues,  Management  anticipates that the production from the license
will increase as will the Company's share of the revenue from the production.

At the  time  production  commences  from  the  property,  the  Company  will be
obligated  to pay its share of all costs  incurred  on any  license  in which it
holds an interest. The Company owns interests in the following licenses:

a)   The three oil wells in which the Company has an interest have been included
     in Petroleum  Development License #3 (PDL#3). As stated earlier,  these oil
     wells and certain other lands included within PDL#3 have been unitized with
     Chevron Oil Company's  existing PDL to the north.  The two new PDLs will be
     developed  into  the  Southeast  Gobe  Oil  and  Main  Gobe  Fields.  First
     production is scheduled for mid-April,  1998. The Company's interest in the
     unitized  PDLs,  after exercise by the government of its right to acquire a
     22 1/2% interest in the fields, is a net 0.8718% interest which will result
     in the  anticipated  initial  production  discussed  above.  The  Company's
     expenses in this unit is to be carried until  production is sold. The costs
     of getting  the oil from the unit to sale has been  estimated  at more than
     $175,000,000,  none of which will be borne by the  Company  until after the
     first sale of  production.  After that time, all of the money realized from
     the sale of the oil will be devoted to repayment of the carried cost of the
     project, now estimated to be approximately $300,000,000,  which, Management
     estimates at the  production  rate of 200 barrels per day at a price of $20
     per barrel to the Company's  interest will take  approximately 36 months to
     pay out after  production  begins.  Because of the recent  depressed  world
     price  for  oil,  the  payout  may  well  be   substantially   longer  than
     anticipated.

b)   PPL 189  contains  approximately  480,000  acres  (24,245  net acres to the
     Company's  interest.)  As a result  of a  reallocation  of  interests,  the
     Company's interest in this License is 5.051%. This license has the Barikewa
     shut-in  gas field  located  on it.  The  Barikewa  field has gas  reserves
     estimated  from 163  billion  cubic feet to as high as 1590  billion  cubic
     feet.  Further  evaluation  will be made to more precisely  define the true
     reserves  of this  field.  Plans to build at least one LNG plant  near Port
     Moresby has been  announced and Chevron has announced  plans to build a gas
     pipeline from Papua New Guinea into Northern Australia. Either an LNG plant
     or the  proposed  pipeline  should  greatly  increase  the value of the gas
     reserves  at  Barikewa.  The  Company  will  have to fund  most of the work
     program of this license  which calls for an  expenditure  of  approximately
     $6,250,000 over a period of six years, with  approximately  $56,000 of that
     amount to be paid during the current  year.  A seismic  survey is currently
     being made of the Barikewa Structure.

c)   Belt  PPL 190  contains  approximately  460,000  acres  (17,309  net to the
     Company's interest) has many very prospective surface structures located on
     it. It is anticipated  that one of these  structures will be drilled during
     the next year. A  reallocation  of interests  has  increased  the Company's
     interest in this  license to 3.763%.  The Company  must fund its share of a
     new seismic  program which is estimated to cost  approximately  $1,000,000.
     The manager of the joint venture will issue cash calls to each partner, who
     will each then pay the amount of the stated cash call. The Iehi shut-in gas
     field lies on this license but the reserves are insignificant at this time.
     The Company will have to fund most of the work program of the license which
     calls  for  an  expenditure  of  $13,500,000  over  the  next  five  years.
     Management  estimates that the Company's  cost in this new concession  over
     the next year will be approximately $200,000.

d)   Petroleum  Prospecting  License No. 165, has been  reissued as PPL 203. Oil
     Search Ltd., is the operator with an 85% ownership interest in the license.
     Gedd,  Inc. owns 10% while the Company owns a 5% carried  interest  until a
     well is  commenced  on the  property.  A new work  program of  seismic  and
     surface  mapping is to  commence  during the  current  year.  A part of the
     reorganization  of the  license,  the Company will receive from Oil Search,
     Ltd.,  a payment of  $177,500 as a refund  form  previous  work done on the
     license.

As stated,  the Company faces cash calls on each of the licenses in which it has
interests, while the bulk of its revenue will be devoted to paying debt incurred
over the part two decades while  production was being  established on PDL#3. The
Company  must find the funds to meet the cash calls  through  the sale of stock,
borrowings  or sale of interests in its  properties.  No specific  source of the
required funds is known at the time of this report. The failure to meet the cash
calls when made could  result in the Company  losing its interest in some or all
of the licenses.

The Company does not presently  have the liquidity that may be necessary to meet
any call for payment of expenses and the Company has no present assurance of the
availability  of any of the funds  that may be needed  at the time  needed.  The
failure  of the  Company  to meet any cash  call made on it for its share of the
expenses  incurred on any concession  could result it its losing its interest in
the concession.

Changes in Financial Condition
------------------------------

The  Company  continues  to  experience  a decline  in cash.  As a result of the
election  by the Papua New Guinea  government  to acquire a 22%  interest in the
Company's oil and gas reserves in Papua New Guinea declined from 711,000 bbl and
10,317,435  mcf in 1996 to  470,000  bbl and  9,096,130  in 1997.  Total  assets
increased from  $2,888,876 in 1996 to $4,384,484 in 1997. The Company's  primary
liability is a continually developing carried interest in certain New Guinea oil
and gas rights which  increased  from  $2,576,730 in 1996 to $3,889,871 in 1997.
Total liabilities aside from this obligation are approximately  $144,000.  It is
Management's  belief  that  the  Company  will be able to  continue  to meet its
financial commitments during the coming fiscal year.

Item 7. Financial Statements.


                          Independent Auditors' Report

Board of Directors
                        Mountains West Exploration, Inc.


We have audited the  accompanying  balance sheet of Mountains West  Exploration,
Inc. (a New Mexico  corporation) (MWEX) as of December 31, 1997, and the related
statements of  operations,  stockholders'  equity,  and cash flows for the years
ended  December  31,  1997  and  1996.   These  financial   statements  are  the
responsibility of MWEX's management. Our responsibility is to express an opinion
on these financial statements based on our audits.

Except as  discussed in the  following  paragraphs,  we conducted  our audits in
accordance with generally accepted auditing  standards.  Those standards require
that we plan and perform the audits 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.

We were unable to obtain  information  pertaining to the  discounted  future net
cash flows  relating to MWEX's oil and gas  properties as described in Note 3 to
the  financial  statements;  nor  were we able to  satisfy  ourselves  as to the
carrying values of the oil and gas properties by other auditing procedures.

We were also unable to determine  MWEX's portion of revenues and expenses of the
partnership investment described in Note 9; therefore,  no revenues and expenses
are recorded in the statement of  operations  for this  investment  for the year
ended December 31, 1997, and the investment  recorded on the balance sheet as of
December 31, 1997 has not been  adjusted for MWEX's  portion of the revenues and
expenses of the partnership for the year ended December 31, 1997.

In our  opinion,  except for the effects of such  adjustments,  if any, as might
have been  determined  to be necessary  had we been able to examine the evidence
regarding the discounted  future net cash flows and carrying value of an oil and
gas property and had the  financial  information  necessary to determine  MWEX's
portion  of the  revenues  and  expenses  of  the  partnership  investment  been
available to properly record this investment,  the financial statements referred
to above present fairly,  in all material  respects,  the financial  position of
Mountains West Exploration, Inc. as of December 31, 1997, and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1996, in
conformity with generally accepted accounting principles.


Albuquerque, New Mexico
March 19, 1998


                        Mountains West Exploration, Inc.
                                 Balance Sheet
                               December 31, 1997

Assets

Current assets
        Cash ...................................................    $     2,743
        Accounts receivable (Note 3) ...........................        177,500
        Due from officer (Note 4) ..............................            499
        Deposit ................................................            476
        Accrued interest receivable (Note 4) ...................         10,424
                                                                    -----------
                Total current assets ...........................        191,642
                                                                    -----------
Furniture and equipment
        Furniture and equipment, at cost .......................         12,470
        Less accumulated depreciation ..........................        (10,492)
                                                                    -----------
                Net furniture and equipment ....................          1,978
                                                                    -----------
Oil and gas properties, using the
        successful efforts method (Note 3) .....................      3,986,918
Less accumulated depreciation, depletion,
        amortization, and valuation allowance ..................        (14,779)
                                                                    -----------
                Net oil and gas properties .....................      3,972,139
                                                                    -----------
Other assets
        Term deposit account ...................................         53,042
        Investment in partnership (Note 9) .....................         15,000
        Note receivable - officer (Note 4) .....................        100,000
        Mineral interests (Note 5) .............................         50,683
                                                                    -----------
                Total other assets .............................        218,725
                                                                    -----------

                Total assets ...................................    $ 4,384,484
                                                                    ===========

Liabilities and Stockholders' Equity
Current liabilities
        Accounts payable .......................................    $    16,002
        Accrued payroll and related taxes ......................         42,856
        Accrued liabilities (Note 3) ...........................         38,400
        Notes payable - officer (Note 4) .......................          8,231
        Notes payable - related party (Note 4) .................          3,200
        Note payable (Note 11) .................................         35,000
        Due to affiliates (Note 6) .............................      3,889,871
                                                                    -----------
                Total current liabilities ......................      4,033,560
                                                                    -----------
Commitments (Notes 3 and 11)

Stockholders' equity (Note 7)
        Common stock of $.001 par value per share, authorized
                50,000,000 shares; issued 38,103,770 shares;
                outstanding, 38,019,270 shares .................         38,020
        Capital in excess of par value .........................      1,617,757
        Accumulated deficit ....................................     (1,304,853)
                                                                    -----------
                Total stockholders' equity .....................        350,924
                                                                    -----------

                Total liabilities and stockholders' equity .....    $ 4,384,484
                                                                    ===========

   The accompanying notes are an integral part of these financial statements.


                        Mountains West Exploration, Inc.
                            Statements of Operations
                          For Years Ended December 31,

                                                         1997             1996
    
Revenues
Oil and gas sales ....................................   $  41,912    $  24,129
Other operating income ...............................     219,713         --   
(Loss) gain on disposition of interests
        in oil and gas properties (Note 3) ...........     (18,544)     159,487
                                                         ---------    ---------
        Total revenues ...............................     243,081      183,616
                                                         ---------    ---------
Expenses
Production costs .....................................       5,689        5,107
Exploration costs ....................................          38      121,809
Depreciation, depletion and valuation allowance ......       1,319        3,991
Consulting ...........................................       1,343          753
General and administrative ...........................     150,363      142,776
                                                         ---------    ---------
        Total expenses ...............................     158,752      274,436
                                                         ---------    ---------

Earnings (loss) from operations ......................      84,329      (90,820)
                                                         ---------    ---------
Other income (expense)
Interest income ......................................       6,490        8,783
Interest expense .....................................      (3,838)         (14)
                                                         ---------    ---------
        Total other income ...........................       2,652        8,769
                                                         ---------    ---------

Net earnings (loss) ..................................   $  86,981    $ (82,051)
                                                         =========    =========

Earnings (loss) per common share (Notes 2 and 12)

        Net earnings (loss) per common share .........   $    .002    $  (0.002)
                                                         =========    =========
Earnings (loss) per common share - assuming
        full dilution (Notes 2 and 12)

        Net earnings (loss) per common share .........   $    .002    $  (0.002)
                                                         =========    =========

   The accompanying notes are an integral part of these financial statements.


                        Mountains West Exploration, Inc.
                       Statements of Stockholders' Equity
                 For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
                                                               Capital in                                                Total   
                                                               Excess of      Stock       Accumulated     Treasury     Stockholders'
                                        Common Stock           Par Value     Warrants       Deficit        Stock         Equity  
                                 -------------------------    -----------   ----------    -----------    ----------    -----------
                                    Shares        Amount  
                                 -----------    ----------    
<S>                              <C>            <C>           <C>           <C>           <C>            <C>           <C>        
Balances, December 31, 1995 ..    36,586,220    $   36,636    $ 1,562,538   $   46,687    $(1,303,671)   $   (3,480)   $   338,710

Retirement of common stock ...       (20,000)          (20)          --           --           (2,020)         --           (2,040)
Retirement of treasury stock .          --             (49)          --           --           (3,431)        3,480           --   
Common stock issued (Note 7) .       468,050           468         46,219      (46,687)          --            --             --   
Net loss for the year ended
        December 31, 1996 ....          --            --             --           --          (82,051)         --          (82,051)
                                 -----------    ----------    -----------   ----------    -----------    ----------    -----------

Balances, December 31, 1996 ..    37,034,270        37,035      1,608,757         --       (1,391,173)         --          254,619
Retirement of common stock ...       (15,000)          (15)          --           --             (661)         --             (676)
Common stock issued ..........     1,000,000         1,000          9,000         --             --            --           10,000
Net income for the year ended
        December 31, 1997 ....          --            --             --           --           86,981          --           86,981
                                 -----------    ----------    -----------   ----------    -----------    ----------    -----------

Balances, December 31, 1997 ..    38,019,270    $   38,020    $ 1,617,757   $     --      $(1,304,853)   $     --      $   350,924
                                 ===========    ==========    ===========   ==========    ===========    ==========    ===========
</TABLE>
   The accompanying notes are an integral part of these financial statements.


                        Mountains West Exploration, Inc.
                            Statements of Cash Flows
                        For the Years Ended December 31,
 
                                                          1997         1996    
                                                        ---------    ---------
Cash flows from operating activities
Cash received from oil and gas sales and operations .   $  70,230    $ 194,129
Cash paid to suppliers and employees ................    (115,815)    (271,609)
Interest received ...................................       2,490        6,658
Interest paid .......................................      (3,838)         (14)
                                                        ---------    ---------
        Net cash used in operating activities .......     (46,933)     (70,836)
                                                        ---------    ---------
Cash flows from investing activities
Purchase of partnership interest ....................        --        (15,000)
Proceeds from sales deposits ........................      38,400         --
Purchases of furniture and equipment ................        --           (285)
Purchases of oil and gas properties
        and mineral interests .......................     (39,349)     (28,432)
(Payments) proceeds on advances .....................     (27,107)      95,150
Purchases related to oil and gas venture ............        --        (71,910)
                                                        ---------    ---------
        Net cash used in investing activities .......     (28,056)     (20,477)
                                                        ---------    ---------
Cash flows from financing activities
Proceeds from notes payable - officer ...............      11,234       16,900
Proceeds from notes payable - related party .........       3,200         --   
Proceeds from notes payable - bank ..................      35,000         --   
Proceeds from sales of common stock .................      10,000         --   
Payments on notes payable - officer .................     (19,903)        --   
Repurchase of common stock ..........................        (675)      (2,040)
                                                        ---------    ---------
        Net cash provided by financing activities ...      38,856       14,860
                                                        ---------    ---------

Net decrease in cash ................................     (36,133)     (76,453)

Cash, beginning of year .............................      38,876      115,329
                                                        ---------    ---------

Cash, end of year ...................................   $   2,743    $  38,876
                                                        =========    =========

Reconciliation of net earnings (loss) to cash flows
        from operating activities
Net earnings (loss) .................................   $  86,981    $ (82,051)
Adjustments
        Depreciation, depletion, amortization,
                and valuation allowance .............       1,318        3,991
        Adjustment to oil and gas sales .............        --         10,513
        Noncash loss on disposition of oil
                and gas property ....................       4,649         --   
        Increase in due to/from officer .............        (705)         206
        Increase in accounts receivable .............    (177,500)        --   
        Increase in deposits ........................        (476)        --   
        Increase in accrued interest receivable .....      (4,000)      (2,125)
        Increase (decrease) in accrued liabilities ..      42,800       (1,370)
                                                        ---------    ---------

                Net cash used in operating activities   $ (46,933)   $ (70,836)
                                                        =========    =========

Noncash investing and financing activities

MWEX was loaned  $1,313,141 and $713,274 in 1997 and 1996,  respectively,  which
was invested in its oil and gas properties in Papua, New Guinea (Note 3).

During  1997,  MWEX's  asset  and  liability  related  to  certain  oil  and gas
properties in New Guinea were reduced due to the  acquisition  of an interest in
these properties by the New Guinea government (Note 3).

During  1996,  468,050  shares of common  stock were issued to previous  warrant
holders who elected not to exercise their warrants (Note 7).

   The accompanying notes are an integral part of these financial statements.


                        Mountains West Exploration, Inc.
                         Notes to Financial Statements
                           December 31, 1997 and 1996

1)      Organization

        Mountains West Exploration, Inc. (MWEX) was organized for the purpose of
        acquiring  interests  in  undeveloped  oil and gas and  mineral  leases,
        reselling all or part of its interest in these leases to other companies
        in the  oil  and  gas  industry  and  engaging  in  other  oil  and  gas
        activities.  MWEX operates in the United  States and in several  foreign
        countries.

2)      Summary of Significant Accounting Policies

        Furniture and Equipment
        -----------------------
        Furniture  and  equipment  are  capitalized  at  acquisition   cost  and
        depreciated utilizing the straight-line method over its estimated useful
        life of five years. Maintenance,  repairs and minor renewals are charged
        to  operations  as  incurred.   Major  renewals  and  betterments  which
        substantially  extend the useful life of the property and  equipment are
        capitalized.

        Oil and Gas Properties
        ----------------------
        MWEX uses the  successful  efforts  method of accounting for oil and gas
        producing  activities.  Costs  to  acquire  interests  in  oil  and  gas
        properties,  to drill  and equip  exploratory  wells  that  find  proved
        reserves,  and to drill and  equip  development  wells are  capitalized.
        Costs to drill  exploratory  wells  that do not  find  proved  reserves,
        geological and  geophysical  costs,  and costs of carrying and retaining
        unproved properties are expensed.

        Unproved oil and gas properties  that are  individually  significant are
        periodically  assessed for impairment of value, and a loss is recognized
        at the time of impairment by providing an  impairment  allowance.  Other
        unproved   properties  are  amortized  based  on  MWEX's  experience  of
        successful  drilling and average  holding period.  Capitalized  costs of
        producing  oil  and  gas   properties,   after   considering   estimated
        dismantlement and abandonment  costs and estimated  salvage values,  are
        depreciated and depleted by the unit-of-production method.

        Income Recognition on Sale of Oil and Gas Leases
        ------------------------------------------------
        Sales of interests in  undeveloped  oil and gas leases are accounted for
        utilizing the cost recovery method. Accordingly, for financial reporting
        purposes,  gain on sales of interests in such leases is recognized  only
        to the extent that total  proceeds of the sale  exceed  MWEX's  original
        cost  in the  leases.  Gain  is not  recognized  on  sales  in  which  a
        substantial obligation for future performance exists.

        Net Earnings (Loss) per Share of Common Stock
        ---------------------------------------------
        Financial  Accounting  Standard No. 128, Earnings per Share, was adopted
        by MWEX for the year ended December 31, 1997.  This standard  simplifies
        computation of earnings per share.  Loss per share  calculations for the
        year ended December 31, 1996 were  recalculated  for the  application of
        this  standard;  however,  the  standard  had no affect  on the  amounts
        previously reported.

        Use of Estimates
        ----------------
        The  preparation  of financial  statements in conformity  with generally
        accepted accounting principles requires management to make estimates and
        assumptions  that affect the reported  amounts of assets and liabilities
        at the date of the  financial  statements  and the  reported  amounts of
        revenues and expenses during the reporting period.  Actual amounts could
        differ from those estimates.

3)      Oil and Gas Properties

        Capitalized costs using the successful  efforts method related to MWEX's
        oil and gas activities as of December 31, 1997, are as follows:



           Proved developed properties ................   $    14,779
           Proved shut-in property ....................     3,972,139
                                                          -----------
                                                            3,986,918
           Accumulated depreciation, depletion, and
              amortization, and valuation allowances ..       (14,779)
                                                          -----------
 
           Net capitalized costs ......................   $ 3,972,139
                                                          ===========

        Costs incurred,  whether capitalized or expensed,  related to MWEX's oil
        and gas activities as of December 31, 1997, are as follows:

                                        Papua
                                         United        New
                                         States       Guinea       Total   
                                       ----------   ----------   ----------
     
           Acquisition of properties
            Proved .................   $   14,779   $     --     $   14,779
            Proved - shut-in .......         --      3,972,139    3,972,139
                                       ----------   ----------   ----------
               Total ...............   $   14,779   $3,972,139   $3,986,918
                                       ==========   ==========   ==========

        Exploration costs ..........   $     --     $       38   $       38
                                       ==========   ==========   ==========

        Development costs ..........   $    1,319   $     --     $    1,319
                                       ==========   ==========   ==========

        Until  December  1996,  MWEX  owned  a 2.5%  interest  in the  Petroleum
        Prospecting  License  (PPL) #56 Joint  Venture (the "Joint  Venture") in
        Papua  New  Guinea.  The  Joint  Venture  owned  three  oil wells in the
        Southeast Gobe Field. The Gobe Main oil field and its wells are owned by
        the  Chevron  PPL#161  Group in which MWEX owns no  interest.  The Joint
        Operating  Agreement  between the PPL#56 Joint Venture  owners  provided
        that  the  owners  would  advance  for  MWEX's  benefit  all  the  costs
        associated  with the  operation of the Joint  Venture until such time as
        oil or gas is produced  and sold from the  concession.  This  obligation
        accrued interest at eight percent (8%) per annum.

        The PPL#56 license  expired in December 1996. Upon the expiration of the
        license, the Joint Venture petitioned the New Guinea government to issue
        new  licenses  to replace  the old  license.  The New Guinea  government
        issued  three new  licenses  in  February  1997,  Petroleum  Development
        License (PDL) #3, PPL#189, and PPL#190. The oil wells previously located
        on PPL#56 are now  located on PDL#3 which has been  unitized  with other
        PDL's that  include oil wells owned by the Chevron  PPL#161  Group.  The
        name of the new unit is the Southeast  Gobe Unit (the  "Unit").  All the
        previous owners in the Joint Venture  continue to own interests in PDL#3
        and will continue to advance  MWEX's  portion of the costs of operations
        which will accrue interest at 8%.

        During 1997, the New Guinea government exercised an option which allowed
        them to acquire a working  interest in the Unit.  This  resulted in MWEX
        interest being reduced to .8718% in the Unit.  With the exercise of this
        option, the government agreed to pay for their percentage of costs since
        inception,  some of which had been paid by the PPL#56 Joint  Venture.  A
        further reduction due to an equalization  payment by the Chevron PPL#161
        Group  resulted in a total  reduction  of costs of $744,010 of principal
        and $34,972 of interest.  These  reductions  reduced MWEX's liability to
        the other  owners,  as well as the asset  that has been  capitalized  by
        MWEX.

        The gas wells previously  located on PPL#56,  are now located on PPL#189
        and  PPL#190.  One of the owners of the  former  PPL#56  elected  not to
        continue its full interest in the new licenses, which resulted in MWEX's
        interests in the new licenses  increasing from 2.5% to a 5.051% interest
        in PPL#189 and to a 3.763% interest in PPL#190.

        The other owners of the PPL#189 and  PPL#190will  continue to pay MWEX's
        2.5%  share of  costs  related  to the new  licenses,  and MWEX  will be
        required to pay for the costs related to the  differences  between their
        new ownership percentages and the 2.5% interest.


        During 1997 and 1996,  interest in the amount of $177,173 and  $134,213,
        respectively,  has been capitalized, and is included in the total proved
        shut-in property category. If production is established on the property,
        MWEX  will be  required  to pay for its  share of costs to that date and
        also will be required to participate financially in any further drilling
        and  development  or risk the loss of its  working  interest  in  future
        wells.

        In April 1996,  MWEX sold PPL#165 to Gedd,  Inc., a related  party (Note
        4). At the time of execution of the sales  agreement,  MWEX had expended
        approximately  $127,000 for  application  fees and costs  related to the
        development of a two year work program  related to PPL#165.  Gedd,  Inc.
        paid $170,000 for the license, resulting in a gain of $159,487 for MWEX,
        and  agreed  it would pay MWEX 25% of the  total  net  revenue  from any
        subsequent  sale by  Gedd,  Inc.  to a third  party.  In  addition,  the
        agreement  provided MWEX would  receive 25% of any interest  retained by
        Gedd,  Inc. in the  license.  The letter  agreement  of PPL#165 had been
        submitted to the New Guinea  government for approval  during 1996.  This
        approval had not been obtained as of December 31, 1996.

        During 1997, Gedd, Inc. sold an interest in PPL#165 to Oil Search,  Ltd.
        As a result  of this  sale,  MWEX  would  be  entitled  to a 5%  working
        interest.  The other owners of the license would advance  MWEX's benefit
        all the costs  associated  with the  operation of the license until such
        time as the first  exploration  well is  commenced.  As of December  31,
        1997, no costs had been advanced on MWEX's behalf.  The sales  agreement
        also resulted in MWEX being  reimbursed  by Oil Search,  Ltd. For 75% of
        its work program ts related to PPL#165 since inception,  up to a maximum
        of  $200,000,  and  MWEX  retaining  ownership  of the term  deposit  of
        $53,042.

        MWEX also  agreed to pay Gedd,  Inc.  $22,500  for their  aeromag  costs
        related to PPL# 165 which will be taken  directly  from the $200,000 due
        from Oil Search,  Ltd.,  resulting in a net amount of $177,500 which had
        been accrued as of December  31, 1997.  PPL#165 was refiled with the New
        Guinea government as PPL#203. This license was approved in January 1998.

        As stated above,  MWEX is obligated to pay cash calls on certain oil and
        gas properties. The failure of MWEX to meet the cash call obligations as
        they come due could  result in MWEX losing its  interests in the related
        licenses.

        MWEX also  entered  into an agreement in January 1997 to sell an 80% net
        revenue interest  assignment of oil and gas leases located in Las Animas
        County,  Colorado for a total of $60 per mineral acre, or $144,600.  The
        agreement  required  the  purchaser  to drill or cause to be drilled one
        well each six months beginning no later than July 1, 1997. A total of 15
        drilled wells would satisfy the  purchaser's  obligation.  At the end of
        the  purchaser's  drilling  obligation and at such time as the purchaser
        has  recovered  all  costs  of  drilling  and  operation  incurred,  the
        purchaser would assign MWEX a one-eighth  working interest in the lease,
        wells, and production equipment.  This sale was the result of efforts of
        a third party whose commission would be paid from the sales proceeds.

        MWEX received  $38,400 from the purchaser during 1997;  however,  due to
        unanticipated  difficulties  with  the  title  which  were  subsequently
        resolved, the sale never occurred.  MWEX has agreed to remit the $38,400
        to the  purchaser  but had not done so as of  December  31,  1997.  This
        amount is recorded as an accrued liability as of December 31, 1997. MWEX
        also paid $13,895 in sales  commissions  during 1997 related to the sale
        which are recorded as a loss on disposition of oil and gas properties in
        the statement of operations.

        Information  pertaining to the discounted  future cash flows from MWEX's
        oil  and  gas  properties  was  not  available  at  December  31,  1997.
        Information  pertaining to the discounted  future cash flows from MWEX's
        oil  and gas  properties  located  only  in  Papua  New  Guinea  was not
        available at December 31, 1996.

4)      Related Party Transactions

        MWEX  reimburses  its  president,  Robert  A.  Doak,  Jr.,  for  various
        expenditures  made  on  behalf  of  MWEX  consisting  mainly  of  travel
        expenses. In addition, as President of MWEX, Robert A Doak, Jr.'s salary
        was  $96,000 and $78,000  during the years ended  December  31, 1997 and
        1996,  respectively.  Amounts due from and to the  President  of MWEX at
        December 31, 1997, are as follows:

            Note receivable due May 15, 1998, interest
                   at 4% per annum, mortgage on real estate
                   and 3,000,000 shares of Mountains West
                   Exploration, Inc. common stock are
                   pledged as collateral ..................   $100,000
                                                              ========
            Accrued interest - note receivable ............   $ 10,024
                                                              ========
            Note payables on demand, interest at 13%
                   to 17%,uncollateralized ................   $  8,231
                                                              ========
            Due from officer ..............................   $    499
                                                              ========

        Robert A. Doak, Jr. owned  10,480,548 of MWEX's common stock at December
        31, 1997 and 1996.  These shares represent 28% of the total common stock
        shares  outstanding at December 31, 1997 and 1996. The wife of Robert A.
        Doak, Jr., Frances Doak,  owned 255,000 shares of these shares.  Frances
        also loaned MWEX $3,200 during 1997, with interest at 6%.

        The President of Gedd, Inc. was on the Board of Directors of MWEX during
        the first six months of 1997 and all of 1996. During 1997 and 1996, MWEX
        had various transactions with Gedd, Inc. (Note 3).

5)      Mineral Interests

        MWEX owns  various  mineral  deeds of  property  in Las  Animas  County,
        Colorado. The property is subject to a previous deed which reserved to a
        prior owner any coal located on the property.

6)      Due to Affiliates

        Amounts due to affiliates include the following at December 31, 1997:


            Due to owners of PPL#56 joint venture,
              interest 8% per annum, payable from
              future production .................   $3,889,871
                                                    ==========

7)      Stock Warrants

        During  1991,  MWEX sold  1,556,234  warrants to purchase  its $.001 par
        value  common stock for $.03 per share.  Each warrant  granted the owner
        the option to  purchase  one share of $.001 par value  common  stock for
        $.10 per share.  During  1996,  all the warrant  holders  elected not to
        exercise  their  warrants  and  received  shares of common stock of MWEX
        equal to their option fee divided by $.10. A total of 468,050  shares of
        common stock were issued in 1996 to the previous warrant holders.

8)      Income Taxes

        MWEX  had  approximately   $1,234,000  and  $1,323,700  of  federal  net
        operating   loss   carryforwards   at   December   31,  1997  and  1996,
        respectively.  The federal net operating loss  carryforwards on December
        31, 1997,  expire on various dates between 2000 and 2011.  MWEX also had
        approximately  $1,110,750  and  $1,189,100 of state net  operating  loss
        carryforwards at December 31, 1997 and 1996, respectively. The state net
        operating  loss  carryforwards  on December 31, 1997,  expire on various
        dates between 1999 and 2011.

        Temporary differences under SFAS 109 result from differences in bases of
        assets and  liabilities  for book and tax  purposes.  For the year ended
        December 31, 1997, MWEX had a temporary difference in the amount of $854
        related  to the net basis of fixed  assets due to  different  methods of
        depreciation.

        A reconciliation  of differences  between the effective tax rate of MWEX
        and the U.S. federal statuary rate for 1997 and 1996 is as follows:

                                                       1997    1996
                                                       ----    ----

            Federal statutory rate .................    21%     19%
            Use of net operating loss ..............   (17)%   (15)%
            State income tax benefit ...............    (4)%    (4)%
                                                       ----    ----
                                                        --      --
                                                       ====    ====

        MWEX's  deferred tax assets and deferred tax  liabilities as of December
        31 are as follows:

                                       1997                      1996
                             -----------------------    -----------------------
                                          Deferred                   Deferred
                                           Income                     Income
                                          Tax Asset                  Tax Asset
                               Amount    (Liability)      Amount    (Liability)
                             ----------   ----------    ----------   ----------

        Federal net
          operating loss
          carryforwards ..   $1,233,962   $  420,000    $1,323,652   $  450,000
        State net
          operating loss
          carryforwards ..    1,110,751       42,500     1,189,138       59,500
        Accumulated
          depreciation ...          854         (400)        1,147         (500)
                                          ----------                 ----------
                                             462,100                    509,000
        Deferred income
          tax asset
          valuation
          allowance ......                  (462,100)                  (509,000)
                                          ----------                 ----------
        Net deferred
          income tax
          asset ..........                $     --                   $     --   
                                          ==========                 ==========

9)      Investment in Partnership

        During 1996, MWEX obtained a .75% interest in the Urubamba Placer Mining
        Company (A Limited Partnership) for a cost of $15,000.  This partnership
        was formed to mine and sell the  minerals in the  Urubamba  and Yanatili
        rivers in Peru.  The  profits  and losses of the  partnership  are to be
        shared in proportion to the ownership percentages of the partners.

10)     Financial Instruments

        Statement of Financial  Accounting  Standards No. 107, Disclosures about
        the Fair Value of Financial  Instruments,  requires  disclosure  of fair
        value  information  of  financial  instruments.  MWEX  has a  number  of
        financial instruments,  none of which are held for trading purposes. The
        following  methods and assumptions were used to estimate the fair values
        of each class of financial  instruments  for which it is  practicable to
        estimate the values:

           Cash - the carrying amount approximates fair value.

           Note receivable, accrued interest receivable, and notes payable - the
           carrying amount  approximates fair value because of the short periods
           to maturities.

           Investment in partnership - carrying amount  approximates  fair value
           because the investment  was purchased  during the year ended December
           31,  1996 and no  significant  changes  occurred  in the  partnership
           during 1997 that would significantly change the fair value.

        It was  not  practicable  to  estimate  the  fair  value  of the  Due to
        Affiliates  liability in the amount of  $3,889,871 at December 31, 1997.
        This liability is to be paid from production of the oil and gas property
        (Note 3).  Because of the  difficulty  in estimating  the amount,  sales
        prices, and timing of future oil and gas production of this property, an
        estimate of the timing and amounts of payments of this liability  cannot
        be reasonably determined.

11)     Note Payable

        At December 31, 1997, MWEX had an outstanding  note payable to a bank in
        the  amount  of  $35,000.  Monthly  interest  payments  of 1% above  the
        corporate base interest rate of the bank are due until the maturity date
        of the note,  April 1, 1998. At December 31, 1997, the interest rate was
        9.5%. Receivables, furniture, and equipment are pledged as collateral.

12)     Earnings (Loss) Per Share

        The following presents the information used to calculate earnings (loss)
        per share for the years ended December 31:

                                                        1997    
                                      --------------------------------------
                                        Income         Shares      Per-Share
                                      (Numerator)   (Denominator)   Amount
                                      --------------------------------------
           Earnings per share
             Income available
             to common stockholders   $   86,981     37,523,020    $    .002
                                                                   =========
           Earnings per share
           - assuming full
           dilution
             Income available
             to common stockholders   $   86,981     37,523,020    $    .002
                                                                   =========

                                                        1996
                                      --------------------------------------    
                                          Loss         Shares      Per-Share
                                      (Numerator)   (Denominator)   Amount  
                                      --------------------------------------
        Loss per share
             Loss available
             to common stockholders   $  (82,051)    36,683,233    $   (.002)
                                                                   =========    
        Loss per share
        - assuming full
        dilution
          Loss available to
          common stockholders         $  (82,051)    36,683,233    $   (.002)
                                                                   =========

        This net earnings  (loss) per common share have been  computed  based on
        the  weighted  average  number of shares  outstanding  during each year.
        Stock  warrants were not included in the full dilution  computation  for
        1996, as they were  antidilutive.  During 1996,  warrant holders elected
        not  to  exercise  their  options  (Note  7).  No  stock  warrants  were
        outstanding during 1997.

13)     Concentrations

        A financial  instrument that potentially subjects MWEX to credit risk at
        December 31, 1997 is the $177,500  receivable from Oil Search Ltd. (Note
        3).  This also  accounts  for 73% of total  revenue  for the year  ended
        December 31, 1997.  This  receivable is  uncollateralized.  As stated in
        Note 3, a large  portion  MWEX's oil and gas  properties  are located in
        Papua New Guinea.


                        Mountains West Exploration, Inc.
                           Supplementary Information
                        Oil and Gas Producing Activities
                              at December 31, 1996
                                  (Unaudited)

Standardized measure of discounted future net cash flows
and changes therein relating to proved oil and gas reserves

                                                                        United  
                                                                        States
                                                                       --------

Future cash inflows ..........................................         $   --   
Future production and development costs ......................             (176)
Future income tax expenses ...................................             --   
                                                                       --------

Future net cash flows ........................................             (176)
10% annual discount for estimated timing of cash flows .......             --
                                                                       --------

Standardized measure of discounted future net cash flows .....         $   (176)
                                                                       ========

Future net cash flows during the year ended December 31, 1996:

Standardized measure, beginning of year ......................         $  3,779
Sales and transfers of oil and gas produced,
        net of production costs ..............................          (19,022)
Net changes in prices and production costs ...................             --   
Extensions, discoveries, and improved recovery,
        less related costs ...................................             --   
Development costs incurred during the period .................             --   
Revisions of previous quantity estimates .....................          15,067
Accretion of discount ........................................            --   
Net change in income taxes ...................................            --   
Other ........................................................            --
                                                                       --------
Standardized measure, end of year ............................         $   (176)
                                                                       ========

<TABLE>
<CAPTION>
Reserve quantity information
                                                                                       1997    
                                                 ----------------------------------------------------------------------------------
                                                           United                      Papua
                                                           States                   New Guinea                      Total         
                                                 --------------------------    ----------------------    --------------------------
                                                  Oil (bbl)      Gas (Mcf)     Oil (bbl)   Gas (Mcf)      Oil (bbl)      Gas (Mcf)
                                                 -----------    -----------    --------   -----------    -----------    -----------
<S>                                              <C>            <C>            <C>        <C>            <C>            <C>        
Proved developed and undeveloped reserves
   Beginning of year .........................          --          375,000     711,000    10,317,435        711,000     10,692,435
   Purchases of minerals in place ............          --             --          --            --             --             --   
   Extensions and discoveries, shut-in .......          --             --          --            --             --             --   
   Production ................................          (122)       (32,938)       --            --             (122)       (32,938)
   Revision of previous estimates ............           122        (97,446)   (241,000)   (1,221,305)      (240,878)    (1,318,751)
                                                 -----------    -----------    --------   -----------    -----------    -----------
   End of year ...............................          --          244,616     470,000     9,096,130        470,000      9,340,746
                                                 ===========    ===========    ========   ===========    ===========    ===========

Proved developed reserves
   Beginning of year .........................          --             --          --            --             --             --   
                                                 ===========    ===========    ========   ===========    ===========    ===========

   End of year ...............................          --          244,616        --            --             --          244,616
                                                 ===========    ===========    ========   ===========    ===========    ===========
</TABLE>
<TABLE>
<CAPTION>
                                                                        1996    
                                                 ----------------------------------------------------------------------------------
                                                           United                      Papua
                                                           States                   New Guinea                      Total         
                                                 --------------------------    ----------------------    --------------------------
                                                  Oil (bbl)      Gas (Mcf)     Oil (bbl)   Gas (Mcf)      Oil (bbl)      Gas (Mcf)
                                                 -----------    -----------    --------   -----------    -----------    -----------
<S>                                              <C>            <C>            <C>        <C>            <C>            <C>     
Proved developed and undeveloped reserves
   Beginning of year .........................           459        392,735     711,000     5,862,500        711,459      6,255,235
   Purchases of minerals in place ............          --             --          --            --             --             --   
   Extensions and discoveries, shut-in .......          --             --          --            --             --             --   
   Production ................................          (121)       (22,994)       --            --             (121)       (22,994)
   Revision of previous estimates ............          (338)         5,259        --       4,454,935           (338)     4,460,194
   Sales of minerals in place ................          --             --          --            --             --             --   
                                                 -----------    -----------    --------   -----------    -----------    -----------
   End of year ...............................          --          375,000     711,000    10,317,435        711,000     10,692,435
                                                 ===========    ===========    ========   ===========    ===========    ===========

Proved developed reserves
   Beginning of year .........................           459         17,735        --            --              459         17,735
                                                 ===========    ===========    ========   ===========    ===========    ===========

   End of year ...............................          --             --          --            --             --             --   
                                                 ===========    ===========    ========   ===========    ===========    ===========
</TABLE>

The foregoing  tables present MWEX's estimated proved oil and gas reserves as of
December 31, 1997, and 1996.  Reserve quantities of oil and gas are presented in
barrels and thousands of cubic feet (Mcf),  respectively.  Reserve estimates are
inherently imprecise and may not reflect realizable values or fair market values
of the  oil  and  gas  ultimately  extracted  and  recovered.  Estimates  of new
discoveries  are more  imprecise  than those of producing oil and gas properties
and,  accordingly,  the estimates  are expected to change as future  information
becomes   available.   The  estimate  of  reserve  quantities  was  prepared  by
independent  petroleum  engineers  in  accordance  with  rules  adopted  by  the
Securities and Exchange Commission.

As used in the  foregoing  tabulation,  proved  oil  and  gas  reserves  are the
estimated  quantities  of crude oil,  natural gas and natural gas liquids  which
geological and engineering  data  demonstrate  with  reasonable  certainty to be
recoverable in future years from known  reservoirs  under existing  economic and
operating  conditions.  The proved reserves are further  classified as developed
and undeveloped.

Proved  developed  oil and gas reserves are reserves  that can be expected to be
recovered through existing wells with existing equipment and operating methods.


                                                               United States
                                                          ----------------------
                                                           1997           1996 
                                                          -------        -------
   
Revenues
   Sales .........................................        $41,912        $24,129
                                                          -------        -------
Expenses
   Production costs ..............................          5,689          5,107
   Depreciation, depletion,
   and valuation allowance .......................           --            2,525
                                                          -------        -------
      Total expenses .............................          5,689          7,632
                                                          -------        -------

   Results of operations
      from producing activities
      (excluding corporate overhead
      and interest costs) ........................        $36,223        $16,497
                                                          =======        =======

Item  8.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
          Financial Disclosure.

No  principal  independent   accountant  resigned  (or  declined  to  stand  for
re-election) or was dismissed  during the Company's two most recent fiscal years
or any later interim period.


PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act.

The following individuals are the Company's directors and executive officers:

Name                    Age             Positions held with Company    
----                    ---             ---------------------------

Robert A. Doak, Jr.     70              Director, President and Treasurer
David G. Shier          57              Vice President, Secretary and Director 

Background information about each director and executive officer is as follows:

Robert A. Doak,  Jr.,  was an  organizer of the Company and became a director of
the  Company  at its  organizational  meeting  in  1979.  He has  served  as the
President and a Director of the Company since 1979.  Prior to becoming  employed
by the  Company,  Mr.  Doak  was  self-employed  as a  consulting  geologist  in
Trinidad, Colorado and Santa Fe, New Mexico from 1969 to 1979.

David G. Shier,  became a Company  director and the Company's Vice President and
Secretary in 1981 and has held those positions continuously since that time. Mr.
Shier has been self-employed in real estate sales and real estate investments in
Trinidad,  Colorado from 1977 to present;  executive  Vice President of Trinidad
National Bank from 1974 to 1977.

No  director,  officer  or  beneficial  owner of more than 10% of the  Company's
common stock, its only equity securities, or any other person subject to Section
16 of the Exchange Act failed to file reports  required by Section  16(a) of the
Exchange Act during the most recent fiscal year or prior fiscal years.

There are no family  relationships  among the members of the Board of  Directors
and Management.
 
Item 10. Executive Compensation.

The following table sets forth certain  information  concerning the remuneration
paid by the Company for the fiscal year ended December 31, 1997.
                        
                      Number                                          Other
Capacities in       of Persons    Salaries and         Insurance     Forms of
Which Served         in Group    Directors fees (1)    Benefits     Remuneration
------------         --------    -----------------     --------     ------------

Directors               2             -0-                -0-           -0-
Executive Officers      1          $96,000 (2)           -0-           -0-

All Officers and 
Directors as a group    2          $96,000 (1)(2)        -0-           -0-
_________
(1)  Directors are to be paid $300 per meeting attended by such director.  Other
     than the  remuneration  discussed  above,  the Company  has no  retirement,
     pension, profit sharing, stock option or similar program for the benefit of
     its officers, Directors or employees.
(2)  Effective July 1, 1997, the  President's  salary was  established at $8,500
     per month,  to the extent of funds being  available for such  payment.  Any
     payment  of  salary  not made in any  month  is  carried  forward,  without
     interest,  to be paid from the first  otherwise  uncommitted  and available
     funds.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth,  as of March 15, 1998, the beneficial  ownership
of Common  Stock by each person who is known by the Company to own  beneficially
more than 5% of the issued and outstanding Common Stock and the shares of Common
Stock owned by each  nominee and all officers  and  Directors  as a group.  Each
person has sole voting and  investment  power as to all shares unless  otherwise
indicated.

Directors
---------
                          (2)                        (3)
     (1)            Name and address          Amount and nature        (4)
   Title of               of                          of             Percent  
    Class           Beneficial owner         Beneficial ownership    of class
    -----           ----------------         --------------------    --------

$0.001 par value   Robert A. Doak, Jr.          10,480,548 (1)       27.57%
common stock       616 Central, S.E.               direct
                   Suite 213                    
                   Albuquerque, NM 87102    

$0.001 par value   David G. Shier                  312,511 (2)        0.82%
common stock       259 N. Commercial St.           direct
                   Trinidad, Colorado 81082                

All Directors and officers as a group (1) (2)   10,892,262           28.39%
___________
(1)  Includes 255,000 shares owned by Mr. Doak's wife.
(2)  Includes 1,000 shares owned by Mr. Shier's wife.

Beneficial Owner 
----------------

                          (2)                        (3)   
     (1)            Name and address          Amount and nature        (4)
   Title of              of                          of              Percent  
    Class           Beneficial owner         Beneficial ownership    of class
    -----           ----------------         --------------------    --------

$0.001 par value   GEDD, Inc.                    5,590,800           14.71%
common stock       1400 North Woodward Ave.        direct
                   Suite 270
                   Bloomfield Hills, Michigan(1)
        
Item 12. Certain Relationships and Related Transactions.

1.   Effective  July 7, 1997,  Mr. Doak's  salary was  increased  from $6,500 to
     $8,500 per month,  to the extent of funds being available for such payment.
     Any  payment  of  salary  not made in any month is to be  carried  forward,
     without interest, to be paid from the first funds otherwise uncommitted.
2.   During 1997, Mr. Doak loaned $8,200 to the Company on a demand note bearing
     interest at 13.27% per annum and Mrs.  Doak loaned the Company  $3,200 on a
     demand  not  bearing  interest  at the  rate of 6% per  annum.  Both  notes
     remained unpaid at the end of the year.
3.   PPL License 165 was sold to Oil Search,  Ltd. and then refilled as PPL 203.
     Oil  Search,  Ltd.  owns  85% of the  license  and is the  operator  of the
     license. Gedd, Inc. owns 10 % of the license and the Company owns 5% of the
     license.  The new license was not issued  until after the end of the fiscal
     year and the Company has not yet received its payment from the sale.  It is
     anticipated that the Company will receive $177,500 before the end of March,
     1998.
4.   During 1996  certain  person who were  members of the  management  of Gedd,
     Inc.,  held options which they had acquired for a price of $0.03 per share.
     It was  agreed  between  the  Company  and the option  holders  that if the
     options  were not  exercised  the Company  would  issue each option  holder
     shares of the  Company's  stock,  valued at $0.10 per share,  for the money
     paid by the holders for their options. The shares, totaling 468,050 shares,
     were issued to the option holders at the end of the fiscal year.

Item 13. Exhibits and Reports on Form 8-K.

(a)  Documents filed as a part of this report:
     -----------------------------------------

     (1) Financial Statements.
             Independent Auditors' report
             Balance Sheets at December 31, 1997 .
             Statements of Operations for the years ended December 31, 1997
                 and 1996. 
             Statements of Stockholders' Equity for the years ended
                 December 31, 1997 and 1996.
             Statements of Cash Flows for the years ended December 31,
                 1997 and 1996.
             Notes to Financial Statements at December 31, 1997 and 1996.
             Supplementary Information, Oil and Gas Producing Properties 
                 at December 31, 1997 and 1996.

(b)  Reports on Form 8-K: 
     --------------------

     The Registrant filed no reports on Form 8-K during the last quarter of 
             the period covered by this report.

c) Exhibits:
   ---------

      (1) The Registrant's Articles of Incorporation and Bylaws are
             incorporated herein by reference to SEC file No. 2-69024, 
             filed September 2, 1980.

      (11) Statement re computation of per share earnings.  
                        See Note 2 to the financial statements.

There  are no  other  exhibits  specified  in Item 601 of  Regulation  S-B to be
included with this filing.

                                   SIGNATURES

In accordance  with Section 13 or 15(d) of the Exchange Act, the  registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

MOUNTAINS WEST EXPLORATION, INC.

Robert A. Doak, Jr.                            Date: March 31, 1998
-----------------------------------------
Robert A. Doak, Jr.,  President and Chief
                      Executive Officer and 
                      Chief Financial Officer

In  accordance  with the Exchange  Act, 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 A. Doak, Jr.                            Date: March 31, 1998
-----------------------------
Robert A. Doak, Jr., Director



David G. Shier                                 Date: March 31, 1998
------------------------
David G. Shier, Director