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]

For the fiscal year ended December 31, 1996

[ ] 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.
--------------------------------
(Exact 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. $183,616

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).
$1,545,105 (based on an estimated market value of $0.08 per share)

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, 1997 was: 37,034,270.

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 small interests in three wells in North Dakota,  but the revenue
from these wells is insubstantial and Management considers these interests of no
value.

The Company  has  approximately  2,312 net acres of mineral  rights in the Raton
Basin of South Central Colorado.  One gas well was drilled on these interests by
Evergreen Resources,  Inc. in 1995 and that well was completed in the Raton coal
beds at depths ranging from 1,000 feet to 1,200 feet, with an initial  potential
of 478 MCF per day. The Company owns a 6 1/4 percent  interest in the well.  The
well has been connected to a pipeline to market the gas.

Infinity,  Inc. , has staked 28  locations  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 will be a priority
during  1997.  In  February  of 1997,  the  Company  sold its  interest in these
properties to Rabalais Oil and Gas Interests for $60 per acre.

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
------------------------------------------------------------------------

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  Southwest  Gobe Oil
Field. The Company owns a 2 1/2% interest in the PPL 56 Joint Venture Group that
owns the  Southwest  Gobe Oil Field.  In 1995,  the  Chevron PPL 161 Group moved
approximately  1 mile  northwest  of the  Southeast  Gobe  Field and made an oil
discovery which increased the Company's oil reserves of the Southeast Gobe field
by approximately 108,500 barrels

The Southeast  Gobe Oil Field and the Gobe Main oil field,  upon which there are
located 5 oil wells  belonging to the Southeast Gobe Unit have now been unitized
with Chevron  being  elected to be the operator for all projects  related to the
fields.  The  entire  producing  area is now over 12 miles  long.  The  field is
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  100,000  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. The Group is making  engineering  studies to place the
Group's  wells on  production  and connect  them to Chevron's  pipeline.  At the
present time,  Chevron is predicting  that the first oil  production  will be in
March of 1998.

There are no roads in the area of the  Southeast  Gobe Oil  Field  except a road
which the Chevron Group built paralleling its pipeline.  A road from the Chevron
Group's  pipeline  road to the  Joint  Venture's  production  facilities  may be
constructed  to permit access to the Joint Ventures  production and  maintenance
facilities.  In the absence of any roads,  all access to the field and the Joint
Ventures facilities has been by helicopter.

During  1996,  PPL 56 expired of its own terms.  PPL 56 was refiled into two new
licenses.  The southern part of PPL 56 was refiled as PPL 189. The northern part
of PPL 56 was refiled as PPL 190. The  Southeast  Gobe Field Unit was refiled as
Petroleum  Development  License No. 3. The  Company's  interest in the  unitized
fields,  after the exercise by the  government to acquire a 22 % interest in the
fields, is approximately .8718%. After a realignment of interests in the two new
exploration  licenses,  The Company  now 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 increases the Company's gas reserves in Papua New Guinea.

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

PPL 189 which contains the Barikewa gas field has other prospects located on it.
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  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. 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.  The #1 Makas well was drilled on the structure
as a 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.

2. WASUMA  STRUCTURE.  This structure is located between the Masaka structure on
the north and the Gobe structure on the south. Most of the anticline lies in PPL
190. Plans are to drill this structure in the future.

3. 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 Makas 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 methenol 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.

During 1995,  the Beaver #1 wildcat well was drilled and abandoned by the PPL 56
Group on the Anesi  anticline  located  approximately  15 miles east of the S.E.
Gobe Filed. The Company  understands that this drilling attempt encountered good
oil shows in three zones but the PPL 56 Group has not  announced  whether or not
it intends to conduct additional exploration of this License at this time.

In 1995, all of the Company's  interest in PPL Licenses  number 174 and 143 were
sold to Gedd,  Inc.  for  $200,000  with the  proceeds of the sale to be used to
cover  the  costs  of the  work  program  of PPL  165,  the  newest  New  Guinea
prospecting license acquired by the Company. On April 24, 1996, the Company sold
PPL 165 to Gedd, Inc. subject to approval of the Papua New Guinea  Department of
Mines and  Petroleum,  which on the date of this Form  10-KSB had not  occurred.
Under the terms of the  agreement  with Gedd,  Inc.,  Gedd,  Inc. is to fund the
third and fourth years work program established for the license. Both Gedd, Inc.
and the Company  anticipate  that the license will eventually be farmed out to a
third  party or parties.  The Company is to receive 25% of the  proceeds to GEDD
from any sale of the property and the Company may elect to reacquire  25% of any
interest  retained by GEDD in the License.  It is  anticipated  that any farmout
will require that if a drillable  structure is  confirmed,  any company to which
the  license  will be farmed out will be  required to drill at least one well to
test the structure.

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

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.

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

The managing  partner of the PPL 56 Joint  Venture has 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, 1996:

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, 1996 were as follows:

     Oil and Gas Properties              $2,642,285
     Mineral Interests                       40,083
                                         ----------
                                         $2,682,368
                                         ==========

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.  The Company's  share of costs in the Venture has been loaned to the
Company by its Venture 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,  1996,  in the amount of
$2,576,730.

     1996 Production
     ---------------

     Oil                           Avg. Sales               Avg. Lifting
                 (Bbls)            Price (Bbl)              Costs (Bbl)
                 ------            -----------              -----------
                  121                $18.00                    $6.30

     Gas                           Avg. Sales              Avg. Lifting
                  (MCF)            Price (MCF)              Costs (MCF)
                 ------            -----------              -----------
                 22,994              $0.95                     $0.45

Drilling Activities.
--------------------

     Exploratory Wells:          Productive                     Dry
                                Gross     Net             Gross     Net
                                -----     ---             -----     ---
     1995                         1      .0625              -         -
     1996                         -        -                1       .025
                                -----    -----            -----    ------
     Totals                       1      .0625              1       .025
                                ======   =====            =====    ======

     Development Wells:          Productive                     Dry
                                Gross     Net             Gross     Net
                                -----     ---             -----     ---
     1995                         1      .0625              1      .025
     1996                         -        -                -        -
                                -----    -----            -----    -----
     Totals                       1      .0625              1      .025
                                =====    =====            =====    =====

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

     At December 31, 1996, the Company held  approximately  the  following gross
     and net undeveloped oil and gas acreage:

              Leases                 Gross Acres             Net Acres (1) (2)
              ------                 -----------             ---------
     Colorado Mineral Interests           2,494                 2,072
     PNG PPL 56 (3)                     903,000                22,575
     PNG PPL 189                        480,000                24,245
     PNG PPL 190                        460,000                17,309
                                      ---------               -------
     Totals                           1,053,494               172,647
                                      =========               =======
__________
(1) Computed using the Company's net revenue interest. Net Acres include working
interests and overriding royalty interests.
(2) The Company has the present  right to acquire 25% of the  interest  owned by
GEDD,  Inc. in the PPL 165 License.  If that right were  exercised,  gross acres
would increase by 148,000 acres and net acres would increase by 37,000 acres.
(3) Of these totals, 168,000 gross, 4,200 net, acres are held by production.

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. Neither the Company nor the PPL 56 Joint Venture Manager has prepared or
had prepared for them 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 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 Nasdaq  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 1995 and 1996 are as
follows

                           Bid Prices                              Bid Prices
                           ----------                              ----------
                           High   Low                              High   Low
                           ----   ---                              ----   ---
     March 31, 1996       .07     .0625        March 31, 1995       .03    .01
     June 30, 1996        .0625   .03125       June 30, 1995        .03    .01
     September 30, 1996   .0625   .03125       September 30, 1995   .045   .01
     December 31, 1996    .0625   .03          December 31, 1995    .09    .01

There were  approximately  2,000 holders of the Company's  common stock on March
15, 1997.

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,  1996,  oil and gas sales  were  $24,129,
compared to $12,352 for the same period in the prior year. Significant increases
in such revenues are not anticipated by management to occur during the remainder
of the current fiscal year or until there is production  from the Southeast Gobe
Oil and Gas Field.

During the current  quarter certain  transactions  involving the Company's Papua
New Guinea  operations  occurred that will have a material effect on the Company
in future quarters and years. The original Petroleum  Prospecting License No. 56
(PPL 56) expired in early December 1996. The partners in that License have taken
following the actions relating to that License,  which have been approved by the
government.

a. The three oil wells in which the Company has an interest  have been  included
in an application for a Petroleum  Development  License (PDL). The oil wells and
certain  lands  within  PPL 56  included  within the PDL will be  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. Development of these
fields is well under way with an anticipated first production  scheduled shortly
after the first of 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, will be a net 0.88% interest which will result in an anticipated initial
production to the  Company's  interest of  approximately  200 barrels of oil per
day. The Company's  expenses in this unit is to be carried until production from
the wells existing on PPL 56 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,  at the  production  rate  of 200  barrels  per day to the
Company's interest will take approximately 36 months to pay out after production
begins.

b. The southern part of PPL 56 has been reissued as Forland PPL 189 Application,
which  contains  approximately  483,661 acres (24,429 net acres to the Company's
interest.) As a result of a reallocation of interests, the Company's interest in
this  License  has been  increased  from 2.5% to 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 over the next year.

c.  The  northern  part  of PPL 56 has  been  reissued  as  Fold  Belt  PPL  190
Application.  This  block of  approximately  462,632  acres  (17,409  net to the
Company's  interest) has many very prospective surface structures located on it.
One of these  structures  will be  drilled  during  the  first  two years of the
license.  A  reallocation  of interests has increased the Company's  interest in
this license from 2.5% to 3.763%. During the first few months of the new License
existence,  the  Company  will have to fund its share of a new  seismic  program
which is estimated to cost approximately $1,000,000.  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 six years.  Of the total costs
that must be incurred by the  Company on this new  License,  2.5% are subject to
the carried interest granted in PPL 56,  therefore,  the Company is obligated to
pay only 1.263% of the total costs incurred prior to production  from any of the
properties  originally  encompassed  by PPL 56.  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, owned by the Company and Gedd PNG is
being evaluated at this time. An aeromagnetic  survey has been completed and the
Company is awaiting the results of the survey  which will  determine if there is
one or more  drillable  structures  on the  license.  Gedd is  funding  the work
program of this license.

With the increased  activity and development in Papua New Guinea, the Company is
now seeking funds to carry forward the programs  which are currently  under way.
With oil production only a little over a year away and the gas reserves in Papua
New Guinea currently being studied for early development,  the Company should be
able to acquire the necessary funds, either through borrowing or through sale of
equity, to meet its payment obligations under each of the licenses. However, 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 has  experienced  a decline in cash but has  increased  total assets
through the first nine months of the current fiscal year. The Company's  primary
liability is a continually developing carried interest in certain New Guinea oil
and gas rights.  Total  liabilities aside from this obligation are approximately
$40,000.  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.

               Report of Independent Certified Public Accountants

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, 1996, and the related
statements of  operations,  stockholders'  equity,  and cash flows for the years
ended  December  31,  1996,  and  1995.  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  interest in an oil and gas property as described
in Note 3 to the financial statements;  nor were we able to satisfy ourselves as
to the carrying value of the oil and gas property by other auditing procedures.

We were also unable to determine  MWEX's portion of revenues and expenses of the
partnership investment described in Note 10; therefore, no revenues and expenses
are recorded in the statement of  operations  for this  investment  for the year
ended December 31, 1996, and the investment  recorded on the balance sheet as of
December 31, 1996 has not been  adjusted for MWEX's  portion of the revenues and
expenses  of the  partnership.

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, 1996, and the results of its
operations and its cash flows for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.


                                                            ERICKSON ALLEN, P.C.

Albuquerque, New Mexico
March 4, 1997


                        Mountains West Exploration, Inc.
                                 Balance Sheet
                               December 31, 1996

Assets
Current assets
  Cash (Note 11) ...........................................        $    38,876
  Accrued interest receivable (Note 4) .....................              6,424
                                                                    -----------
    Total current assets ...................................             45,300
                                                                    -----------
Furniture and equipment
  Furniture and equipment, at cost .........................             17,119
  Less accumulated depreciation ............................             (9,174)
                                                                    -----------
    Net furniture and equipment ............................              7,945
                                                                    -----------
Oil and gas properties, using the
  successful efforts method (Note 3) .......................          2,642,285
Less accumulated depreciation, depletion,
  amortization, and valuation allowance ....................            (14,779)
                                                                    -----------
    Net oil and gas properties .............................          2,627,506
                                                                    -----------
Other assets
  Term deposit account - restricted (Note 9) ...............             53,042
  Investment in partnership (Note 10) ......................             15,000
  Note receivable - officer (Note 4) .......................            100,000
  Mineral interests (Note 5) ...............................             40,083
                                                                    -----------
    Total other assets .....................................            208,125
                                                                    -----------
    Total assets ...........................................        $ 2,888,876
                                                                    ===========

Liabilities and Stockholders' Equity

Current liabilities
  Accounts payable ............................................     $    16,002
  Accrued liabilities .........................................              56
  Advances (Note 11) ..........................................          24,363
  Accounts payable - officer (Note 4) .........................             206
  Notes payable - officer (Note 4) ............................          16,900
  Due to affiliates (Note 6) ..................................       2,576,730
                                                                    -----------
    Total current liabilities .................................       2,634,257

Commitments (Notes 3, 11, and 12) .............................            --
Stockholders' equity (Note 7)
  Common stock of $.001 par value per share, authorized
    50,000,000 shares; issued 37,103,770 shares;
    outstanding, 37,034,270 shares ............................          37,035
  Capital in excess of par value ..............................       1,608,757
  Accumulated deficit .........................................      (1,391,173)
                                                                    -----------
    Total stockholders' equity ................................         254,619
                                                                    -----------
    Total liabilities and stockholders' equity ................     $ 2,888,876
                                                                    ===========

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


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

                                                       1996            1995
                                                   ------------    ------------

Revenues

Oil and gas sales ..............................   $     24,129    $     12,352
Sale of interests in oil and gas property
  (Note 4) .....................................        159,487         200,000
                                                   ------------    ------------
  Total revenues ...............................        183,616         212,352
                                                   ------------    ------------
Expenses

Production costs ...............................          5,107           4,949
Exploration costs ..............................        121,809          21,180
Depreciation, depletion and valuation allowance           3,991           5,158
Consulting .....................................            753             955
General and administrative .....................        142,776         114,867
                                                   ------------    ------------
  Total expenses ...............................        274,436         147,109
                                                   ------------    ------------

(Loss) earnings from operations ................        (90,820)         65,243
                                                   ------------    ------------
Other income (expense)
Interest income ................................          8,783           8,432
Interest expense ...............................            (14)           (973)
                                                   ------------    ------------
  Total other income (expense) .................          8,769           7,459
                                                   ------------    ------------

Net (loss) earnings ............................   $    (82,051)   $     72,702
                                                   ============    ============

(Loss) earnings per common share (Note 2)
   Net (loss) earnings per common share ........   $     (0.002)   $      0.002
                                                   ============    ============
Weighted average number of shares
  outstanding ..................................     36,683,233      36,618,470
                                                   ============    ============

(Loss) earnings per common share - assuming
        full dilution (Note 2)

   Net (loss) earnings per common share ........   $     (0.002)   $      0.002
                                                   ============    ============
Weighted average number of shares
  outstanding ..................................     36,683,233      36,618,470
                                                   ============    ============

   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, 1996 and 1995
<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, 1994     36,635,720    $    36,636    $ 1,562,538   $    46,687    $(1,376,373)   $      --      $   269,488

Purchase of treasury stock .       (49,500)          --             --            --             --           (3,480)        (3,480)

Net earnings for the year
  ended December 31, 1995 ..          --             --             --            --           72,702           --           72,702
                               -----------    -----------    -----------   -----------    -----------    -----------    -----------

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
                               ===========    ===========    ===========   ===========    ===========    ===========    ===========
</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,

                                                            1996         1995
                                                         ---------    ---------
Cash flows from operating activities

Cash received from customers .........................   $ 194,129    $ 212,352
Cash paid to suppliers and employees .................    (271,609)    (135,544)
Interest received ....................................       6,658        4,133
Interest paid ........................................         (14)        (973)
                                                         ---------    ---------
  Net cash (used in) provided by
    operating activities .............................     (70,836)      79,968
                                                         ---------    ---------
Cash flows from investing activities

Purchase of partnership interest .....................     (15,000)        --
Purchases of furniture and equipment .................        (285)      (4,829)
Purchases of oil and gas properties
  and mineral interests ..............................     (28,432)      (2,208)
Proceeds from advances ...............................      95,150       10,000
Purchases related to oil and gas
  venture ............................................     (71,910)      (8,877)
                                                         ---------    ---------
        Net cash (used in)
          investing activities .......................     (20,477)      (5,914)
                                                         ---------    ---------
Cash flows from financing activities

Proceeds from notes payable - officer ................      16,900         --
Repurchase of common stock ...........................      (2,040)      (3,480)
                                                         ---------    ---------
  Net cash provided by (used in)
    financing activities .............................      14,860       (3,480)
                                                         ---------    ---------

Net (decrease) increase in cash ......................     (76,453)      70,574

Cash, beginning of year ..............................     115,329       44,755
                                                         ---------    ---------

Cash, end of year ....................................   $  38,876    $ 115,329
                                                         =========    =========

Reconciliation of net (loss) earnings to cash flows
  from operating activities

Net (loss) earnings ..................................   $ (82,051)   $  72,702
Adjustments
  Depreciation, depletion, amortization,
    and valuation allowance ..........................       3,991        5,158
  Adjustment to oil and gas sales ....................      10,513         --
  Decrease in income taxes receivable ................        --          2,430
  Increase in due to officer .........................         206         --
  Decrease in deposit ................................        --          5,000
  Increase in accrued interest receivable ............      (2,125)      (4,299)
  Decrease increase in accounts payable ..............        --             (2)
  Decrease in accrued liabilities ....................      (1,370)      (1,021)
                                                         ---------    ---------
    Net cash (used in) provided by
      operating activities ...........................   $ (70,836)   $  79,968
                                                         =========    =========

Noncash investing and financing activities

MWEX was loaned $713,274 and $325,305 in 1996 and 1995, respectively,  which was
invested in its oil and gas property in Papua, New Guinea (Note 3).

MWEX retired  69,500  shares of its common stock in 1996, of which 49,500 shares
were purchased in 1995 for $5,520.

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, 1996 and 1995


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
     ---------------------------------------------
     Net  earnings  (loss)  per  common  share  has 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 1995, as
     they  were  antidilutive.  During  1996,  warrant  holders  elected  not to
     exercise their options (Note 7).

     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, 1996, are as follows:

                                                                   1996
                                                                ----------
        Proved developed properties                             $   14,779
        Proved shut-in property                                  2,627,506
                                                                ----------
                                                                 2,642,285
        Accumulated depreciation,
          depletion, and amortization,
          and valuation allowances                                 (14,779)
                                                                ----------
        Net capitalized costs                                   $2,627,506
                                                                ==========

     Costs incurred, whether capitalized or expensed, related  to MWEX's oil and
     gas activities as of December 31, 1996, are as follows:

                                                     Papua
                                      United          New
                                      States         Guinea       Total
                                    ----------     ----------   ----------
        Acquisition of properties
          - Proved                  $   14,779     $     -      $   14,779
          - Proved - shut-in              -         2,627,506    2,627,506
                                    ----------     ----------   ----------
             Total                  $   14,779     $2,627,506   $2,642,285
                                    ==========     ==========   ==========
     Exploration costs              $     -        $  121,809   $  121,809
                                    ==========     ==========   ==========
     Development costs              $    3,991     $     -      $    3,991
                                    ==========     ==========   ==========

     In 1984, MWEX acquired a 2.5% interest in the Petroleum Prospecting License
     (PPL) #56 Joint  Venture  (the "Joint  Venture")  in Papua New Guinea.  The
     Joint Venture owns three oil wells in the Southeast Gobe Field and the Gobe
     Main oil field.  The  remaining  oil wells in these fields are owned by the
     Chevron  PPL#161 Group in which MWEX owns no interest.  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.  New  licenses  were  issued  by the  government
     subsequent to December 31, 1996 (Note 12).

     The Joint  Operating  Agreement  between the PPL#56  Joint  Venture  owners
     provides  that the owners  will  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  accrues
     interest at eight percent (8%) per annum. In addition to the amount loaned,
     accrued interest of $134,213 and $79,518 has been  capitalized  during 1996
     and  1995,  respectively,  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.

     Information  pertaining to the discounted  future cash flows from the Papua
     New Guinea property was not available at December 31, 1996 and 1995.

     In April 1996, MWEX finalized its agreement to sell PPL#165 to Gedd,  Inc.,
     a related party (Note 4). At the time of execution of the  agreement,  MWEX
     has 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
     provides  MWEX will receive 25% of any interest  retained by Gedd,  Inc. in
     the license.  The letter agreement of PPL#165 has been submitted to the New
     Guinea  government  for approval  during 1996.  This  approval had not been
     obtained as of December 31, 1996.

     During 1995,  MWEX sold its interests in PPL#143 and PPL#174 to Gedd,  Inc.
     for a gain of $200,000.

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,  the President of MWEX was paid $78,000 and $80,000 during the
     years ended December 31, 1996 and 1995, respectively.  Amounts due from and
     to the President of MWEX at December 31, 1996, 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                   $    6,024
                                                            ==========
       Note payable on demand, interest at 13%,
         uncollateralized                                   $   12,500

       Note payable on demand, interest at 17%,
         uncollateralized                                        4,400
                                                            ----------
         Total notes payable - officer                      $   16,900
                                                            ==========

       Accounts payable                                     $      206
                                                            ==========

     Robert A. Doak, Jr. owned  10,480,548 and 11,400,198 of MWEX's common stock
     at December 31, 1996 and 1995, respectively. These shares represent 28% and
     31% of the total common stock shares  outstanding  at December 31, 1996 and
     1995,  respectively.  The wife of Robert A. Doak, Jr.,  Frances Doak, owned
     255,000 shares of these shares.

     The  President  of Gedd,  Inc. is also on the Board of  Directors  of MWEX.
     During 1996,  MWEX sold  PPL#165 to Gedd,  Inc. and sold two other PPL's to
     Gedd, Inc. in 1995 (Note 3).

5)   Mineral Interest

     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, 1996:

          Due to owners of PPL#56 joint venture,
            interest 8% per annum, payable from
            future production                          $ 2,576,730
                                                       ===========

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  $1,323,700 and $1,244,700 of federal net operating
     loss carryforwards at December 31, 1996 and 1995, respectively. The federal
     net operating loss  carryforwards  on December 31, 1996,  expire on various
     dates between 1999 and 2011.  MWEX also had  approximately  $1,189,100  and
     $1,161,200 of state net operating loss  carryforwards  at December 31, 1996
     and 1995,  respectively.  The state net  operating  loss  carryforwards  on
     December 31, 1996, 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.  MWEX had the following
     temporary differences at December 31:

                                           1996            1995
                                        ---------       ----------

        Intangible drilling costs       $     -         $    2,525
        Accumulated depreciation             1,147           1,623
                                        ----------      ----------
                                        $    1,147      $    4,148
                                        ==========      ==========

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

                                           1996            1995
                                        ---------       ---------

        Federal statutory rate             19%             18%
        Use of net operating loss         (15)%           (14)%
        State income tax benefit           (4)%            (4)%
                                        ---------       ---------
                                            -               -
                                        =========       =========

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

                             December 31, 1996             December 31, 1995
                           -----------------------       ----------------------
                                        Deferred                    Deferred
                                        Income                      Income
                                        Tax Asset                   Tax Asset
                           Amount      (Liability)       Amount     (Liability)
                           ------      -----------       ------     -----------
Federal net operating
  loss carryforwards    $ 1,323,652    $   450,000    $ 1,244,665   $   423,200
State net operating
  loss carryforwards      1,189,138         59,500      1,161,248        58,100
Intangible drilling
  costs .............          --             --            2,525          (985)
Accumulated
  depreciation ......         1,147           (500)         1,623          (615)
                                       -----------                  -----------
                                           509,000                      479,700
Deferred income tax
  asset valuation
  allowance .........                     (509,000)                    (479,700)
                                       -----------                  -----------
Net deferred income
  tax asset .........                  $      --                    $      --
                                       ===========                  ===========

9)   Term Deposit Account - Restricted

     MWEX has $53,042 of cash in a term deposit  account that is restricted  for
     the purpose of  guaranteeing  a  performance  bond related to PPL#165.  The
     performance  bond  was  acquired  in 1995  to  guarantee  that  exploratory
     procedures  would be performed on the property.  The ownership of this cash
     remains with MWEX even though PPL#165 was sold Gedd, Inc. (Note 3).

10)  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.

11)  Cash and Advances

     During 1996 and 1995,  participants  in a project known as the Peru Oriente
     Project  (the  "Project")  advanced  $22,150 to MWEX for current and future
     costs related to the Project. MWEX is required to spend these funds only on
     costs  related to the  Project.  As of December 31,  1996,  costs  incurred
     related to the Project amounted to $17,373. Cash in the amount of $4,777 at
     December 31, 1996, is restricted for future Project expenses.

     In addition,  as part of MWEX's  agreement with Gedd,  Inc.  related to the
     sale of PPL#165 (Note 3), MWEX received $83,000 from Gedd, Inc. during 1996
     for costs  related to PPL#165.  As of December 31,  1996,  $63,414 had been
     spent on costs  related  to  PPL#165.  Cash in the  amount  of  $19,586  at
     December 31, 1996, is restricted for future PPL#165 expenses.

12)  Subsequent Events

     As noted in Note 3, upon the  expiration  of PPL#56 in December  1996,  the
     Joint Venture  petitioned the New Guinea  government to issue new licenses.
     In February 1997, the New Guinea government  authorized three new licenses,
     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").  The  government of New Guinea has issued an intent to exercise an
     option  which would  allow them to acquire a working  interest in the Unit,
     which  would  result in MWEX having a .8718%  interest in the Unit.  If the
     government  exercises their option,  they would pay for their percentage of
     costs  since  inception,  some of which had been paid by the  PPL#56  Joint
     Venture.  This  reduction of costs to the PPL#56 Joint  Venture  would also
     reduce MWEX's  liability to the other PPL#56 Joint Venture 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#56  Joint
     Venture  will still pay MWEX's 2.5% share of costs as stated in Note 3, and
     MWEX will be  required  to pay for the  costs  related  to the  differences
     between their new ownership  percentages  and the 2.5% interest.

     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  requires 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  will  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 will
     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.
     The sales commission to this party will be paid from the sales proceeds.

13)  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 short-term borrowings
        - the  carrying  amount  approximates  fair  value  because of the short
        periods to maturities.

        Advances - the carrying amount approximates fair value.

        Investment in  partnership  - carrying  amount  approximates  fair value
        because the investment was purchased  during the year ended December 31,
        1996  and  it  is   estimated   that  the  fair  value  would  not  have
        significantly fluctuated from the date of purchase to December 31, 1996.

     It was not  practicable to estimate the fair value of the Due to Affiliates
     liability in the amount of $2,576,730 at December 31, 1996.  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.


                        Mountains West Exploration, Inc.
                           Supplementary Information
                        Oil and Gas Producing Activities
                         at December 31, 1996, and 1995
                                  (Unaudited)

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

                                                             United States
                                                        -----------------------
                                                          1996           1995
                                                        --------       --------
Future cash inflows ..............................      $   --         $ 22,688
Future production and development costs ..........          (176)       (15,332)
Future income tax expenses .......................          --           (2,269)
                                                        --------       --------
Future net cash flows ............................          (176)         5,087

10% annual discount for estimated timing
  of cash flows ..................................          --           (1,308)
Standardized measure of discounted future
  net cash flows .................................      $   (176)      $  3,779
                                                        ========       ========

Future net cash flows during the years ended December 31:

                                                           1996          1995
                                                         --------      --------

Standardized measure, beginning of year ............     $  3,779      $ 12,728
Sales and transfers of oil and gas produced,
  net of production costs ..........................      (19,022)       (7,403)
Net changes in prices and production costs .........         --          (1,758)
Extensions, discoveries, and improved recovery,
        less related costs .........................         --            --
Development costs incurred during the period .......         --            --
Revisions of previous quantity estimates ...........       15,067           212
Accretion of discount ..............................         --            --
Net change in income taxes .........................         --            --
Other ..............................................         --            --
                                                         --------      --------
Standardized measure, end of year ..................     $   (176)     $  3,779
                                                         ========      ========
<TABLE>
<CAPTION>
Reserve quantity information
                                                                                         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>
<TABLE>
<CAPTION>
                                                                                           1995
                                                     ------------------------------------------------------------------------------
                                                               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 .............................          831       393,093       602,500    5,662,500      603,331     6,055,593
   Purchases of minerals in place ................         --            --            --           --           --            --
   Extensions and discoveries, shut-in ...........         --            --            --           --           --            --
   Production ....................................         (145)      (14,353)         --           --           (145)      (14,353)
   Revision of previous estimates ................         (227)       13,995       108,500      200,000      108,273       213,995
                                                     ----------    ----------    ----------   ----------   ----------    ----------
   End of year ...................................          459       392,735       711,000    5,862,500      711,459     6,255,235
                                                     ==========    ==========    ==========   ==========   ==========    ==========

Proved developed reserves
   Beginning of year .............................          831        18,093          --           --            831        18,093
                                                     ==========    ==========    ==========   ==========   ==========    ==========

   End of year ...................................          459        17,735          --           --            459        17,735
                                                     ==========    ==========    ==========   ==========   ==========    ==========
</TABLE>

The foregoing  tables present MWEX's estimated proved oil and gas reserves as of
December 31, 1996, and 1995.  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.


                        Mountains West Exploration, Inc.
                            Supplementary Information
                 Results of Operations for Producing Activities
                 For the Years Ended December 31, 1996, and 1995
                                   (Unaudited)

                                                              United States
                                                           ---------------------
                                                            1996          1995
                                                           -------       -------
Revenues
  Sales ............................................       $24,129       $12,352
                                                           -------       -------
Expenses
  Production costs .................................         5,107         4,949
  Depreciation, depletion, and valuation
    allowance ......................................         2,525         4,055
                                                           -------       -------
    Total expenses .................................         7,632         9,004
                                                           -------       -------
  Results of operations from producing
    activities (excluding corporate
    overhead and interest costs) ...................       $16,497       $ 3,348
                                                           =======       =======

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.     69              Director, President and Treasurer
David G. Shier          56              Vice President, Secretary and Director
James M. Harmon         71              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.

James M. Harmon,  was appointed to the  Company's  Board of Directors on January
17, 1992.  From 1986 to the present,  Mr.  Harmon has been the  President  and a
director of GEDD, Inc., Bloomfield Hills, Michigan, a company engaged in the oil
and gas business.  From 1972 to 1986,  Mr. Harmon was the President of Pounder &
Harmon, Ltd., London, Ontario, Canada, a geologic consulting firm, and from 1962
to 1972 he was a partner in the geologic consulting firm of Beard and Harmon, in
Michigan.  Mr. Harmon is a graduate of the University of Oklahoma (1949), and is
the past president of Ontario Petroleum Institute (OBI).

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, 1996.


                 number of
Capacities in     persons     Salaries and        Insurance     other forms of
Which Served     in group    Directors fees (1)   Benefits       Remuneration
------------     --------    --------------       --------       ------------
Directors           3           -0-                 -0-              -0-
Executive
Officers            1        $78,000 (2)            -0-              -0-

All Officers
and Directors
as a group          3        $78,000 (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 January 1, 1994, the President's  salary was established at $6,500
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, 1996, 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)         28.30%
  common stock      616 Central, S.E., Suite 213      direct
                        Albuquerque, NM 87102

$0.001 par value          David G. Shier              312,511 (2)          0.85%
  common stock         259 N. Commercial St.          direct
                     Trinidad, Colorado 81082

$0.001 par value         James M. Harmon            5,590,800 (3)         15.10%
  common stock        1820 The 600 Building          indirect
                        600 Leopard Street            99,633  (4)         0.269%
                   Corpus Christi, Texas 78473        direct

All Directors and officers as a group(1)(2)(3)(4)  10,892,262             29.41%
                                                      direct
                                                    5,590,800 (3)         15.10%
                                                     indirect
___________
(1) Includes 255,000 shares owned by Mr. Doak's wife.
(2) Includes 1,000 shares owned by Mr. Shier's wife.
(3) Shares are owned by GEDD, Inc., a Michigan  corporation with offices at 1400
North Woodward  Avenue,  Suite 270,  Bloomfield  Hills,  Michigan,  of which Mr.
Harmon is a director and President.
(4) Mr. Harmon acuired these shares as a result of the Company  authorizing that
shares  be  issued  to  holders  of  certain  options.   See  Item  12.  Certain
Relationships and Related Transactions.

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 Direct       15.28%
common stock         1400 North Woodward Ave.
                     Suite 270
                     Bloomfield Hills, Michigan

Item 12. Certain Relationships and Related Transactions.

1.  Effective  January 1, 1994,  Mr. Doak's salary was increased  from $6,000 to
$6,500 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. As discussed earlier in Item 1, in 1995, all of the Company's interest in PPL
Licenses  number 174 and 143 were sold to Gedd,  Inc.  for $200,000 to cover the
costs of the work  program of PPL 165.  In April of 1996,  a sale of PPL License
165 was sold to GEDD,  Inc.,  subject to approval by the New Guinea  government,
which has not yet  occurred.  Gedd,  Inc.  and the  Company  agreed  that if PPL
License 165 is sold,  the Company will receive 25% of all proceeds paid to GEDD,
Inc. If GEDD,  Inc.  retains any  interest in the  License,  the Company has the
right to acquire 25% of such retained  interest.  At the present time GEDD, Inc.
owns 100% of the License and the Company  could elect to acquire a 25%  interest
in the License.
3. During 1996 the Company's  President began  discussions  with certain persons
holding  options to purchase the  Company's  shares to determine  whether  those
options  would be  exercised.  Each of the  option  holders  is a member  of the
management of Gedd,  Inc.,  and each person paid $0.03 per share for the options
when initially granted. 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.  Mr.  Harmon,  a
Company Director, received 99,633 shares through this transaction.

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, 1996 .
            Statements of Operations for the years ended December 31, 1996
              and 1995.
            Statements of Stockholders' Equity for the years ended
              December 31, 1996 and 1995.
            Statements of Cash Flows for the years ended December 31, 1996
              and 1995.
            Notes to Financial Statements at December 31, 1996 and 1995.
            Supplementary Information, Oil and Gas Producing Properties at
              December 31, 1996 and 1995

(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 27, 1997
----------------------------------------
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 27, 1997
-----------------------------
Robert A. Doak, Jr., Director



David G. Shier                                        Date: March 27, 1997
-----------------------------
David G. Shier, Director



James M. Harmon                                       Date: March 27, 1997
----------------------------
James M. Harmon, Director