U.S. Securities and Exchange Commission
                     Washington, D.C. 20549

                            FORM 10-K
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
     SECURITIES EXCHANGE ACT OF 1934
     For the fiscal year ended December 31, 1999

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
     For the transition period from      to     .
                                    ----    ----

                   Commission File No.0-21472

                American Resources Offshore, Inc.
         (Name of small business issuer in its charter)

          Delaware                               86-0713506
(State or other jurisdiction of               (I.R.S. Employer
incorporation or organization)               Identification No.)


     801 Travis, Suite 2100
     Houston, Texas                                 77002
(Address of principal executive offices)          (Zip Code)


Issuer's telephone number, including area code:   713-227-7660

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

Securities registered pursuant to Section 12(g) of the Exchange
Act:

           Preferred Stock, par value $12.00 per share
                        (Title of Class)

            Common Stock, par value $.00001 per share
                        (Title of Class)

                Warrants to Purchase 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 filed such reports), and (2) has
     been subject to such filing requirements for the past 90
     days.

                         YES   xx            NO
                            -------             -----

X    Indicate by check mark if disclosure of delinquent filers in
response to Item 405 of Regulation S-K (Section 229.405 of this
Chapter) is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.

     The aggregate market value of the voting stock held by non-
affiliates of the Registrant was approximately $2,432,918 as of
March 15, 2000, based upon the closing sale price of the Common
Stock on the OTC Bulletin Board on March 15, 2000 of $0.19 per
share.  As of March 15, 2000, Registrant had 52,522,136 shares of
Common Stock, par value $.00001 per share, and 39,682 shares of
Series 1993 Preferred Stock, par value $12.00 per share,
outstanding.


               DOCUMENTS INCORPORATED BY REFERENCE

     The following documents are incorporated by reference in
     this report in the Part(s) indicated:

     None.


                        TABLE OF CONTENTS
                                                             Page
                             PART I

Item 1.   Business ...........................................  1

Item 2.   Property ...........................................  9

Item 3.   Legal Proceedings .................................. 13

Item 4.   Submission of Matters to a Vote of
          Security Holders ................................... 14

                             PART II

Item 5.   Market for Common Equity and Related
          Stockholder Matters ................................ 16

Item 6.   Selected Financial Data ............................ 17

Item 7.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations ...... 18

Item 8.   Financial Statements ............................... 24

Item 9.   Changes in and Disagreements with Accountants
          on Accounting and Financial Disclosure ............. 24

                            PART III

Item 10.  Directors and Executive Officers ................... 26

Item 11.  Executive Compensation ............................. 30

Item 12.  Security Ownership of Certain Beneficial
          Owners and Management .............................. 33

Item 13.  Certain Relationships and Related Transactions ..... 34

                             PART IV

Item 14.  Exhibits and Reports on Form 8-K ................... 36

Signatures ................................................... 74

Exhibit Index ................................................ 75

                             PART I

ITEM 1.   BUSINESS:

OVERVIEW:

     American Resources Offshore, Inc. is an independent oil and
gas company engaged in the exploration, development, and
production of oil and gas properties in the Gulf Coast region
offshore Louisiana and Texas.  We own interests in 27 wells and
42 lease blocks located offshore in the Gulf of Mexico.  In
December 1999, our stockholders approved the sale of
substantially all of our assets, including our Appalachian oil
and gas properties and operations, an 80% interest in our assets
located in the Gulf of Mexico and other assets.  These
transactions and other related matters are discussed in greater
detail below.

     Our 1999 Restructuring. As a result of our financial
condition, we were forced to restructure our company.  We were in
default on approximately $82.1 million of our long-term debt and
we experienced a significant decrease in revenues.  On July 30,
1999, we entered into agreements with Blue Dolphin Exploration
Company ("Blue Dolphin Exploration") and Fidelity Oil Holdings,
Inc. ("Fidelity Oil"), and on December 2, 1999, we:

     -    sold to Blue Dolphin Exploration 39,509,457 shares of
          our common stock, resulting in Blue Dolphin Exploration
          owning approximately 75% of the combined voting power
          of all classes of our voting securities.  The purchase
          price for the shares was $4,517,734 after giving effect
          to post closing price adjustments.  We refer to the
          contract between us and Blue Dolphin Exploration
          relating to this transaction as the "Investment
          Agreement."

     -    sold to Fidelity Oil an 80% interest in all of our oil
          and gas properties located in the Gulf of Mexico.  The
          purchase price for the 80% interest was $24,238,318
          after giving effect to post closing price adjustments.
          We refer to the contract between us and Fidelity Oil
          relating to this transaction as the "Purchase and Sale
          Agreement."

     We also entered into other related transactions which are
described below.

     -    In October 1999, we sold all of our Appalachian oil and
          gas properties and operations located in Kentucky and
          Tennessee to Nami Resources Company LLC ("Nami
          Resources") in exchange for:

          --   the assumption by Nami Resources of $12.5 million
               of our senior debt held by Den norske Bank and our
               release by Den norske Bank from any further
               liability on the indebtedness assumed by Nami
               Resources (we refer to the several promissory
               notes evidencing our senior debt held by Den
               norske Bank collectively as the "DnB Note," which
               was secured by a first lien on substantially all
               of our assets); and

          --   our release from any further obligation under a
               guarantee we issued to Austin Energy Funding with
               respect to the future production rates of wells
               located on the Appalachian oil and gas properties
               we sold to Nami Resources.

     In December 1999, we sold the stock of Southern Gas Co. of
     Delaware, Inc. ("Southern Gas"), our subsidiary that
     formerly owned the Appalachian oil and gas properties we
     sold to Nami Resources, to an affiliate of one of our former
     directors, Leonard K. Nave, in exchange principally for our
     release from certain liabilities we owed to Mr. Nave and his
     affiliates and the buyer's agreement to indemnify us for
     past operations and activities of Southern Gas.

     -    We paid down $27 million on the DnB Note, and Den
          norske Bank sold the DnB Note and all related security
          interests and liens to Blue Dolphin Exploration.  Den
          norske Bank also received the right to receive a
          contingent, future payment if the combined, cumulative
          net revenues received by us and Fidelity Oil Holdings
          that are attributable to our proved oil and gas
          resources in the Gulf of Mexico as of January 1, 1999
          exceed $30.0 million during the period from January 1,
          1999 through December 31, 2001.  If that occurs, Den
          norske Bank will be entitled to an amount equal to 50%
          of those net revenues in excess of $30.0 million during
          that three-year period.  If any contingent amount
          becomes payable to Den norske Bank, 80% of it will be
          paid by Fidelity Oil Holdings and we will pay 20%.

     -    When Blue Dolphin Exploration purchased our DnB Note,
          it modified the note and related loan documents so that
          it:

          --   reduced the principal amount we owe under the DnB
               Note to $5.0 million;

          --   deferred its right to receive payments under the
               DnB Note through December 31, 2000, if we remain
               in compliance with the modified loan documents and
               the Investment Agreement through that same date;

          --   agreed to forgive all of the remaining
               indebtedness, including all principal and
               interest, under the DnB Note, if we remain in
               compliance with the modified loan documents and
               the Investment Agreement through December 31,
               2000; and

          --   agreed to refrain from exercising or enforcing
               through December 31, 2001, any of its rights that
               arose because of our defaults under the DnB Note
               and related liens and loan documentation before
               they were modified, if we remain in compliance
               with the modified loan documents and the
               Investment Agreement through December 31, 2001.

TECHNOLOGY:

     We intend to continue to use 3-D seismic surveys to evaluate
our exploratory prospects in the Gulf Coast Region prior to
drilling thereon. The availability of 3-D data at reasonable cost
makes it an attractive risk management tool for the shallow
waters of the Gulf of Mexico. The use of 3-D seismic technology
will provide us with substantially more accurate and
comprehensive geological data for the evaluation of drilling
prospects than 2-D seismic technology and traditional evaluation
methods. We believe that our use of 3-D seismic technology
improves its likelihood of drilling success and provides us with
an advantage over those companies that do not regularly use
similar technology.

MARKETING AND CUSTOMERS:

     We sell substantially all of our current oil and gas
production through contracts administered by the operators of our
properties.  The price we receive is based on current market
prices.  Previously, forward sales contracts were used to reduce
the effect of fluctuations in gas prices.

COMPETITION:

     The oil and gas industry is highly competitive, particularly
with respect to the acquisition of producing properties and
proved undeveloped acreage.  Major and independent oil and gas
companies actively bid for desirable oil and gas properties, as
well as for the equipment and labor required to operate and
develop such properties.  Many of our competitors have financial
and personnel resources and exploration and development budgets
that are substantially greater than ours, which may affect our
ability to compete with these companies.

REGULATIONS:

     ENVIRONMENTAL.  Our activities with respect to (1)
exploration, development, and production of oil and natural gas
and (2) the operation and construction of pipelines, plants, and
other facilities for the transportation and treatment of natural
gas and natural gas liquids are subject to stringent
environmental regulation by local, state and federal authorities,
including the U.S. Environmental Protection Agency ("EPA").  Such
regulation has increased the cost of planning, designing,
drilling, operating and in some instances, abandoning wells.
Similarly, such regulation has also increased the cost of design,
construction, and operation of natural gas pipelines and
treatment facilities.  In most instances, the regulatory
requirements relate to the handling and disposal of drilling
production waste and waste created by water and air pollution
control procedures or equipment.  Although we believe that
compliance with existing environmental regulations will not have
a material adverse effect on operations or earnings, the risks of
substantial costs and liabilities are inherent in oil and gas
operations, and there can be no assurance that significant costs
and liabilities, including civil and criminal penalties, will not
be incurred.  Moreover, it is possible that other developments,
such as stricter environmental laws and regulations, and claims
for damages to property or persons resulting from our operations
could result in substantial costs and liabilities to us.

     The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as the "Superfund" law,
imposes liability, without regard to fault or the legality of the
original conduct, on certain classes of persons with respect to
the release of a "hazardous substance" into the environment.
These persons include the owner or operator of the disposal site
or sites where the release occurred and companies that disposed
or arranged for the disposal of the hazardous substances found at
the site.  Persons who are or were responsible for releases of
hazardous substances under CERCLA may be subject to joint and
several liability for the costs of cleaning up the hazardous
substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for
neighboring landowners and other third parties to file claims for
personal injury or property damages allegedly caused by the
hazardous substances released into the environment.  At least two
federal courts have held that certain wastes associated with the
production of crude oil may be classified as hazardous substances
under CERCLA.  At this time, neither ARO nor its predecessors has
been designated as a potentially responsible party under CERCLA.

     We generate or have generated in the past wastes, including
hazardous wastes, that are subject to the federal Resource
Conservation and Recovery Act ("RCRA") and comparable state
statutes.  EPA and various state agencies have promulgated
regulations that limit the disposal options for certain hazardous
and nonhazardous wastes.  Furthermore, it is possible that
certain wastes generated by our oil and gas operations that are
currently exempt from treatment as "hazardous wastes" may in the
future be designated as "hazardous wastes" under RCRA or other
applicable statutes and therefore be subject to more rigorous and
costly operating and disposal requirements.

     We currently own or lease, or have in the past owned or
leased, numerous properties that for many years have been either
used for the exploration and production of oil and gas or used to
store and maintain equipment that was regularly used in these
operations.  Although we utilized operating and disposal
practices that were standard for the industry at the time,
hydrocarbons or other wastes may have been disposed of or
released on or under the properties owned or leased by us or on
or under other locations where such wastes have been taken for
disposal.  In addition, many of these properties have from time
to time been operated by third parties whose treatment and
disposal or release of hydrocarbons or other wastes was not under
our control.  These properties and the waste disposed thereon may
be subject to CERCLA, RCRA, and analogous state laws.  Under such
laws, we could be required to remove or remediate previously
disposed wastes (including wastes disposed of or released by
prior owners or operators) or property contamination (including
groundwater contamination) or to perform remedial plugging
operations to prevent future contamination.

     The Oil Pollution Act ("OPA") amends certain provisions of
the Federal Water Pollution Control Act of 1972, commonly
referred to as the Clean Water Act ("CWA") and other statutes as
they pertain to the prevention of and response to oil spills into
the navigable waters of the United States.  OPA subjects owners
and operators of facilities to strict joint and several liability
for all containment and cleanup costs and certain other public
and private damages arising from a spill, including, but not
limited to, the costs of responding to a release of oil to
surface waters.  OPA establishes a liability limit for onshore
facilities of $350 million and for offshore facilities of all
removal costs plus $75 million, however a party cannot take
advantage of the liability limits if the spill is caused by gross
negligence or willful misconduct or resulted from a violation of
a federal safety, construction, or operating regulation.  If a
party fails to report a spill or cooperate in the cleanup,
liability limits likewise do not apply.  OPA also imposes ongoing
requirements on responsible parties, including proof of financial
responsibility for potential oil spills.  OPA originally required
owners and operators of offshore oil and gas facilities to
establish $150 million in financial responsibility.  Under the
rule, the responsible party can establish financial
responsibility through insurance, guaranty, indemnity, surety
bond, letter of credit, qualification as a self-insurer, or a
combination thereof.  On September 30, 1996, Congress passed
legislation lowering the minimum financial responsibility
requirement for offshore facilities in United States waters under
OPA to $35 million, subject to increases up to a maximum of $150
million if the risk posed by a potential oil spill indicates the
increase is warranted.  The United States Department of the
Interior Minerals Management Service ("MMS") has proposed a final
rule to implement these financial assurance requirements.  See 62
Fed. Reg. 14,052 (March 25, 1997).  MMS has not yet issued the
final financial responsibility rule.  While the financial
assurance requirements under OPA may impose additional costs on
us, the impact of the rule is not expected to be any more
burdensome to us than it will be to other similarly situated
owners and operators with operations within or adjacent to the
waters of the United States.

     The CWA provides penalties for any discharges of petroleum
product in reportable quantities and imposes substantial
liability for the costs of removing a spill.  State laws for the
control of water pollution also provide varying civil and
criminal penalties and liabilities in the case of releases of
petroleum or its derivatives into surface waters or in the
ground.  Federal regulations under the CWA and OPA require
certain owners or operators of facilities that store or otherwise
handle oil, such as us, to prepare and implement spill
prevention, control and countermeasure plans and facility
response plans relating to the possible discharge of oil into
surface waters.  In addition, the CWA and analogous state laws
require permits to authorize discharges into surface waters or to
construct facilities in wetland areas.  With respect to certain
of its operations, we are required to maintain such permits or
meet general permit requirements.  In 1992, EPA adopted
regulations concerning the discharge of storm water runoff.  This
program requires that covered facilities obtain individual
permits, participate in a group permit, or seek coverage under an
EPA general permit.  We believe that we are in substantial
compliance with the requirements of the CWA and OPA and that any
non-compliance would not have a material adverse effect on us.

     FEDERAL REGULATION OF SALES AND TRANSPORTATION OF NATURAL
GAS.  Historically, the transportation and sale for resale of
natural gas in interstate commerce have been regulated pursuant
to the Natural Gas Act of 1938 (the "NGA"), the Natural Gas
Policy Act of 1978 (the "NGPA") and the regulations promulgated
thereunder by the FERC.  Maximum selling prices of certain
categories of natural gas sold in "first sales," whether sold in
interstate or intrastate commerce, were regulated pursuant to the
NGPA.  On July 29, 1989, the Natural Gas Wellhead Decontrol Act
(the "Decontrol Act") was enacted, which removed, as of January
1, 1993, all remaining federal price controls from natural gas
sold in "first sales," such as sales by us of our own production.
The FERC's jurisdiction over natural gas transportation was
unaffected by the Decontrol Act.

     Our sales of natural gas are affected by the availability,
terms and cost of transportation.  The price and terms for access
to pipeline transportation remain subject to extensive federal
and state regulation.  Several major regulatory changes have been
implemented by Congress and the FERC from 1985 to the present
that affect the economics of natural gas production,
transportation and sales.  In addition, the FERC continues to
promulgate revisions to various aspects of the rules and
regulations affecting those segments of the natural gas industry,
most notably interstate natural gas transmission companies, that
remain subject to the FERC's jurisdiction.  These initiatives may
also affect the intrastate transportation of gas under certain
circumstances.  The stated purpose of many of these regulatory
changes is to promote competition among the various sectors of
the natural gas industry and these initiatives generally reflect
more light-handed regulation of the natural gas industry.  The
ultimate impact of the complex rules and regulations issued by
the FERC since 1985 cannot be predicted.  In addition, many
aspects of these regulatory developments have not become final
but are still pending judicial and FERC final decisions.  We
cannot predict what further action the FERC will take on these
matters; however, we do not believe that we will be affected by
any action taken materially differently than other natural gas
producers and marketers with which we compete.

     The Outer Continental Shelf Lands Act (the "OCSLA") requires
that all pipelines operating on or across the OCS provide open-
access, non-discriminatory service.  Although the FERC has opted
not to impose the regulations of Order No. 509, in which the FERC
implemented the OCSLA, on gatherers and other non-jurisdictional
entities, the FERC has retained the authority to exercise
jurisdiction over those entities if necessary to permit non-
discriminatory access to service on the OCS. While we do not
currently own or operate any gathering lines on the OCS, future
expansion of our business in the Gulf of Mexico may be impacted
by the OCSLA.

     Additional proposals and proceedings that might affect the
natural gas industry are pending  before Congress, the FERC and
the courts.  The natural gas industry historically has been very
heavily regulated; therefore, there is no assurance that the less
stringent regulatory approach recently pursued by the FERC and
Congress will continue.

     FEDERAL LEASES.  Certain of our operations are located on
federal oil and gas leases, which are administered by the MMS.
Such leases are issued through competitive bidding, contain
relatively standardized terms and require compliance with
detailed MMS regulations and orders pursuant to the OCSLA (which
are subject to change by the MMS).  For offshore operations,
lessees must obtain MMS approval for exploration plans and
development and production plans prior to the commencement of
such operations.  In addition to permits required from other
agencies (such as the Coast Guard, the Army Corps of Engineers
and the Environmental Protection Agency), lessees must obtain a
permit from the MMS prior to the commencement of drilling.  The
MMS has promulgated regulations requiring offshore production
facilities located on the OCS to meet stringent engineering and
construction specifications. The MMS also has regulations
restricting the flaring or venting of natural gas and has
recently proposed to amend such regulations to prohibit the
flaring of liquid hydrocarbons and oil without prior
authorization. Similarly, the MMS has promulgated other
regulations governing the plugging and abandonment of wells
located offshore and the removal of all production facilities.
To cover the various obligations of lessees on the OCS, the MMS
generally requires that lessees post substantial bonds or other
acceptable assurances that such obligations will be met.  The
cost of such bonds or other surety can be substantial, and there
is no assurance that bonds or other surety can be obtained in all
cases.  Under certain circumstances, the MMS may require any of
our operations on federal leases to be suspended or terminated;
and the MMS has recently proposed, but not yet enacted,
regulations that would allow it to expel unsafe operators from
existing OCS platforms and bar them from obtaining future leases.
Any such suspension, termination or bar could materially and
adversely affect our financial condition and operations.  The MMS
also intends to adopt financial responsibility regulations under
the OPA, as described below.

     The MMS issued a notice of proposed rulemaking in which it
proposes to amend its regulations governing the calculation of
royalties and the valuation of crude oil produced from federal
leases. This proposed rule would modify the valuation procedures
for both arm's length and non-arm's length crude oil transactions
to decrease reliance on oil posted prices and assign a value to
crude oil that better reflects market value, establishing a new
MMS form for collecting value differential data, and amend the
valuation procedure for the sale of federal royalty oil. We
cannot predict what action the MMS will take on this matter, nor
can we predict at this stage of the rulemaking proceeding how we
might be affected by this amendment to the MMS' regulations.

     In April 1997, after two years of study, the MMS withdrew
proposed changes to the way it values natural gas for royalty
payments. These proposed changes would have established an
alternative market-based method to calculate royalties on certain
natural gas sold to affiliates or pursuant to non-arm's length
contracts.  Informed discussions among MMS and industry officials
are continuing, although it is uncertain whether and what changes
may be proposed regarding gas royalty valuation.  In addition,
MMS announced its intention to issue a proposed rule that would
require all but the smallest producers to be capable of reporting
production information electronically.

     Recently, the MMS has issued a final rule to clarify the
types of costs that are deductible transportation costs for
purposes of royalty valuation of production sold off the lease.
In particular, under the rule, the MMS will not allow deduction
of costs associated with marketer fees, cash out and other
pipeline imbalance penalties, or long-term storage fees. We
cannot predict what, if any effect the new rule will have on our
operations.

     STATE AND LOCAL REGULATION OF DRILLING AND PRODUCTION.
Production of oil and gas by us is also affected by state
regulations.  We conduct operations in Texas state waters in the
Gulf of Mexico.  State regulations are generally intended to
prevent waste of oil and gas and to protect correlative rights to
produce oil and gas between owners of a common reservoir.  Such
regulations include requiring permits for the drilling of wells,
maintaining bonding requirements in order to drill or operate
wells, and regulating the location of wells, the method of
drilling and casing wells, the surface use and restoration of
properties upon which wells are drilled, the plugging and
abandoning of wells, and the disposal of fluids used in
connection with operations.  Our operations are also subject to
various conservation laws and regulations including the
regulation of the size of drilling spacing units or proration
units, the density of wells that may be drilled, and the
unitization or pooling of oil and gas properties.  In addition,
state conservation laws establish maximum rates of production
from oil and natural gas wells, generally prohibit the venting or
flaring of natural gas, and impose certain requirements regarding
the ratability of production.  The effect of these regulations
may limit the amount of oil and natural gas that we can produce
from our wells and may limit the number of wells or the locations
at which we can drill.  To the extent any of our natural gas
gathering facilities are subject to state regulations, regulation
of gathering facilities generally includes various safety,
environmental, and in some circumstances nondiscriminatory take
requirements, but does not generally entail rate regulation.
Inasmuch as such laws and regulations are periodically expanded,
amended and reinterpreted, we are unable to predict the future
cost or impact of complying with such regulations; however, we do
not believe we will be affected by these laws and regulations
materially differently than the other oil and natural gas
producers with which we compete.

     OIL PRICE CONTROLS AND TRANSPORTATION RATES.  Sales of crude
oil, condensate and gas liquids by us are not currently regulated
and are made at market prices. Commencing in October 1993, the
FERC issued a series of rules (Order Nos. 561 and 561-A)
establishing an indexing system under which oil pipelines will be
able to change their transportation rates, subject to prescribed
ceiling levels.  The indexing system, which allows or may require
pipelines to make rate changes to track changes in the Producer
Price Index for Finished Goods, minus one percent, became
effective January 1, 1995.  In certain circumstances, these rules
permit oil pipelines to establish rates using traditional cost of
service or other methods of rate making.  The effect that these
rules may have on the cost of moving our product to market is
uncertain.

OPERATING HAZARDS AND INSURANCE:

     The oil and gas business involves a variety of operating
risks, including the risk of fire, explosions, blow-outs, pipe
failure, casing collapse, abnormally pressured formations and
environmental hazards such as oil spills, gas leaks, ruptures and
discharges of toxic gases, the occurrence of any of which could
result in substantial losses to us due to injury or loss of life,
severe damage to or destruction of property, natural resources
and equipment, pollution or other environmental damage, clean-up
responsibilities, regulatory investigation and penalties and
suspension of operations.  In addition to the foregoing, our
operations are currently offshore and subject to the additional
hazards of marine operations, such as capsizing, collision and
adverse weather and sea conditions.

     In accordance with customary industry practice, we maintain
insurance against some, but not all, of the risks described
above.  We maintain insurance to cover business interruption and
loss of revenues on our proved producing properties; however,
there can be no assurance that any insurance obtained by us will
be adequate to cover any losses or liabilities.  We cannot
predict the continued availability of insurance or the
availability of insurance at premium levels that justify its
purchase.  The occurrence of a significant event not fully
insured or indemnified against could materially and adversely
affect our financial condition and operations.

EMPLOYEES:

     On March 15, 2000, we had no full time employees due to our
contractual arrangement with Blue Dolphin Services for management
and administrative services as well as our consulting arrangement
with some of our former management personnel through February
2001.  From time to time, we also use a series of independent
consultants and contractors to perform various professional
services, particularly in the areas of geology and environmental
assessment.

ITEM 2.   PROPERTY:

     As a result of the transactions previously described, as of
December 31, 1999, all of our oil and gas properties are located
in the Gulf Coast Region and represent 100% of our PV-10 Value
for proved reserves.  This region is a well established oil and
gas producing basin with a substantial history of exploration and
development activity.

     The following table provides proved reserve information for
our major fields as of December 31, 1999:
                                                          % of
                                              Gas         Proved
                           Oil      Gas       Equivalent  PV-10
Fields:                    (Bbl*)   (MMcf*)   (MMcfe*)    Value
------                     ------   -------   --------    -----

West Cameron 172 .......    4,861      860       889       24%
South Timbalier 211 ....    3,365      613       633       12%
South Timbalier 148 ....   67,204    1,450     1,853       31%
Ship Shoal 150 .........   58,006      118       466       14%
Galveston 394/395 ......       30      178       178        5%
Other ..................   11,802    1,130     1,202       14%
                          -------    -----     -----      ----

   Total net proved
    reserves              145,268    4,349     5,221      100%
                          =======    =====     =====      ====

*(Bbl - barrels; MMcf - million cubic feet; MMcfe - million cubic
feet equivalent.)

FIELDS:

     As of December 31, 1999, we owned interests in 42 leases in
the offshore Gulf of Mexico.  These leases cover a total of
195,000 acres, and we own working interests ranging from 19% to
1% with an average working interest of 5.96%.  Of the leases
located in Federal OCS waters, 23 are offshore Louisiana and 18
are offshore Texas.  Two leases are in state waters offshore
Louisiana, and one lease is in the state waters of offshore
Texas.  Ten of the leases are currently producing, and the
remainder are in prospect inventory and scheduled for
development.  Those leases not producing are under primary term.
The expiration of primary terms of the currently undeveloped
leases occurs as follows: 9 in 2000, 17 in 2001, 5 in 2002, and 1
in 2003.

     WEST CAMERON 172.  West Cameron Block 172 is located 25
miles offshore Louisiana in an average water depth of 40 feet.
We own a 5.4% working interest in the lease that covers 5,000
acres.  We currently own working interest in two producing wells
on the lease operated by IP Petroleum Company, Inc. ("IPP")  We
own a reversionary, after-payout interest in a third well that is
expected to reach payout in the first quarter of 2000.  We do not
currently plan to participate in any further development of the
lease.

     SOUTH TIMBALIER 211.  South Timbalier Block 211 is located
42 miles offshore Louisiana in an average water depth of 140
feet.  We own a 6.00012% working interest in the lease that
covers 5,000 acres.  We own working interest in two producing
wells on the lease operated by IPP.  We own an overriding royalty
interest in one well on the lease that was drilled under a
farmout by Spinnaker Exploration Company, LLC, during 1999 and is
anticipated to commence production in the first quarter of 2000.
There is developmental drilling opportunity on the lease.

     SOUTH TIMBALIER 148.  South Timbalier Block 148 is located
30 miles offshore Louisiana in an average water depth of 100 feet
and is operated by Newfield Exploration Company.  We own a
working interest in the lease on the west half of the block that
covers 2,500 acres. We own interest in seven producing wells on
three production platforms.  Our working interest in the wells
ranges from 9% to 1%, and there are multiple development drilling
opportunities on the lease.

     SHIP SHOAL 150.  Ship Shoal Block 150 is located 31 miles
offshore Louisiana in an average water depth of 53 feet. We own a
10% working interest in 4,297 acres of the lease that covers the
entire 5,000 acre block.  We own working interest in two
producing wells on the lease operated by Century.  We own
overriding royalty interest in one producing well on the lease
operated by PennzEnergy, LLC.  We do not currently plan to
participate in any further development on the lease.

     GALVESTON 394/395. Galveston Blocks 394 and 395 are located
21 miles offshore Texas in an average water depth of 85 feet.  We
own 6.66666% working interest in both leases, each of which
covers 5,760 acres.  We own working interest in one producing
well one each lease, both of which are operated by IPP.  An
additional developmental opportunity exists on Galveston Block
418, an adjacent lease to the south in which we own an interest.
Successful development on Block 418 would be tied back to the
Galveston Block 395 facility.

     OTHER.  Other leases that contain proven reserves are West
Cameron Block 368, offshore Louisiana, accounting for 212 MMcfe;
Galveston 213, offshore Texas, accounting for 114 MMcfe; and Ship
Shoal 97, offshore Louisiana, accounting for 876 MMcfe.  The
development of these reserves requires the drilling of new wells
on each property.

OIL AND GAS OPERATIONS:

     OIL AND GAS RESERVES.  Estimated net quantities and the
related costs and present values of our oil and gas reserves are
set out in "Oil and Gas Producing Activities (Unaudited)" to the
Financial Statements included in Item 8 to this Report on Form 10-
K.  No estimates of our total, proved net oil or gas reserves
have been filed with, or included in, reports to any other
federal authority or agency since the beginning of the last
fiscal year.

     PRODUCTION.  The following tables set forth for each of the
last three fiscal years by the primary geographic areas in which
we own or owned production, which are identified as the
Appalachian Region of Kentucky and the Gulf Coast Region, the
average sale price and production cost per barrel of oil or
thousand cubic feet ("Mcf") of gas produced by wells we own or
owned.  The amounts include only marketable production of oil or
gas (on an "as sold" basis) and produced to our interest, less
royalties and production due others.  We do not own any oil
properties in Kentucky.

                      KENTUCKY (GAS ONLY)*

                   Average Sales          Average Production
Fiscal             Price Per Unit           Cost Per Unit
 Year                Gas (Mcf)                Gas (Mcf)
------               ---------                ---------

 1999                  $1.99                      $0.76
 1998                  $2.19                      $0.49
 1997                  $2.24                      $0.79


*For the years 1999, 1998 and 1997, the Average Sales Price and
Production Cost per Unit were calculated using the weighted
average method, comparing volumes delivered with the price for
each category previously reported.  As further described in Part
I, Item 1, "Our Business," of this Report on Form 10-K, we sold
our Appalachian properties and operations during the fourth
quarter of 1999.

                 GULF COAST REGION (OIL AND GAS)

                Average Sales              Average Production
                Price Per Unit               Cost Per Unit
Fiscal   ---------------------------  ----------------------------
 Year    Oil (per bbl) Gas (per Mcf)  Oil (per bbl)  Gas (per Mcf)
------   ------------- -------------  -------------  -------------

1999           $16.88        $2.22*          $2.16        $0.41
1998           $12.59        $2.47*          $2.16        $0.41
1997           $18.08        $2.64*          $1.56        $0.27

*Includes effect of hedging activities.

     PRODUCTIVE WELLS AND ACREAGE AS OF DECEMBER 31, 1999.  The
following tables set forth as of December 31, 1999, the total
gross and net productive wells in which we had an interest
(expressed separately for oil and gas), and the total gross and
net developed acres in which we had an interest by geographic
area.  Productive wells are producing wells and wells capable of
production, including gas wells awaiting pipeline connections and
oil wells awaiting connection to production facilities.  Wells
that are completed in more than one producing horizon are counted
as one well.

                 GULF COAST REGION (OIL AND GAS)

  Total Gross       Total Net
Productive Wells Productive Wells
---------------- ----------------  Total Gross      Total Net
 Oil      Gas     Oil     Gas    Developed Acres Developed Acres
 ---      ---     ---     ---    --------------- ---------------

  17       10     .73     .61         45,497         2,820


     UNDEVELOPED ACREAGE AS OF DECEMBER 31, 1999.  The following
table sets forth as of December 31, 1999, the amount of
undeveloped gross and net leasehold acreage in which we had an
interest.

                        GULF COAST REGION

       Gross           Net
    Undeveloped    Undeveloped      Acreage       Remaining
       Acres          Acres      Concentration       Term
       -----          -----      -------------       ----

      149,205         8,971            *              **


*Not less than the legal spacing required by applicable
 authorities.
**The remaining term of the leases varies.

     DRILLING ACTIVITIES.  The following table describes our
drilling activity for the last three fiscal years.

        Net Productive    Net Dry     Net Productive Net Dry
         Exploratory    Exploratory   DevelopmentalDevelopmental
Fiscal      Wells          Wells          Wells       Wells
 Year      Drilled        Drilled        Drilled     Drilled
------     -------        -------        -------     -------

 1999      0.00            0.27(1)       0.00          0.00
 1998      1.20(2)         2.10(3)       8.30(2)       0.00
 1997      0.60(4)         1.70(5)       1.00(4)       0.00

(1)  We drilled the D-3 well on West Cameron 172, in which we had
     a 27% working interest.

(2)  We owned working interests ranging between 26.95% and 33.33%
     in 4 exploratory wells drilled in the Gulf Coast Region,
     100% working interest in 6 developmental wells drilled in
     the Kentucky region, together with working interests ranging
     between 27% and 100% in 3 developmental wells drilled in the
     Gulf Coast Region.

(3)  We drilled 6 dry exploratory wells in which we had working
     interests ranging between 16.2% and 100%.  All of these
     wells were located in the Gulf Coast Region.

(4)  We owned a 100% working interest in 1 developmental well
     drilled in Kentucky, together with working interests ranging
     between 6% and 23% in 5 exploratory wells drilled in the
     Gulf Coast Region.

(5)  We drilled 7 dry exploratory wells in which we had working
     interests ranging between 3.5% and 48%.  All of the wells
     were located in the Gulf Coast Region.

ITEM 3.   LEGAL PROCEEDINGS:

     Neither our Company nor any of our properties is subject to
any material pending legal proceedings.  From time to time we are
a party to litigation in the ordinary course of our business,
none of which is expected to have a material adverse effect on
our financial condition or operations.

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

     On December 1, 1999, we held our 1999 Annual Meeting, at
which our stockholders voted upon and approved or ratified the
following matters:

     PROPOSAL #1    The Investment Agreement under which we sold
                    to Blue Dolphin Exploration 39,509,457 shares
                    of common stock.

      For            Against        Abstain      Broker Non-votes
      ---            -------        -------      ----------------

   8,132,376          29,764         8,950          4,277,880


     PROPOSAL #2    The Purchase Agreement under which we sold to
                    Fidelity Oil Holdings an undivided 80%
                    interest in all of our assets in the Gulf of
                    Mexico.

      For            Against        Abstain      Broker Non-votes
      ---            -------        -------      ----------------

   8,112,676          49,664         8,750          4,277,880


     PROPOSAL NO. 3 The sale of our Appalachian oil and gas
                    properties and operations to Nami Resources.

      For            Against        Abstain      Broker Non-votes
      ---            -------        -------      ----------------

   8,130,764          31,248         9,078          4,277,880


     PROPOSAL NO. 4 The sale of all of our stock in our wholly-
                    owned subsidiary that formerly owned our
                    Appalachian assets, Southern Gas, to Southern
                    Gas Holding, LLC, which is controlled by
                    Leonard K. Nave, who was one of our
                    directors.

      For            Against        Abstain      Broker Non-votes
      ---            -------        -------      ----------------

   8,127,122          34,368         9,600          4,277,880


     PROPOSAL NO. 5 An amendment to our Amended and Restated
                    Certificate of Incorporation (the
                    "Certificate of Incorporation") to increase
                    the number of authorized shares of common
                    stock from 50,000,000 to 70,000,000.


      For            Against        Abstain      Broker Non-votes
      ---            -------        -------      ----------------

   12,237,110        133,065         14,650           64,145


     PROPOSAL NO. 6 An amendment to our Certificate of
                    Incorporation to eliminate Article Eleven to
                    end the classification of the Board of
                    Directors so that all directors serve terms
                    of one year or until their successors are
                    duly elected and qualified.

      For            Against        Abstain      Broker Non-votes
      ---            -------        -------      ----------------

   8,074,296          52,653         18,050         4,303,971


     PROPOSAL NO. 7 The election of Ivar Siem, Michael J.
                    Jacobson, John P. Atwood, Andrew R. Agosto
                    and Douglas L. Hawthorne to the Board of
                    Directors.

                  For                    Withhold
                  ---                    --------

               12,411,302                 37,668


     PROPOSAL NO. 8 The election as directors of the following
                    three nominees to serve for terms of three
                    years each or until the closing of the
                    Investment Agreement, whichever occurs first:


Name                             For               Withhold
----                             ---               --------

Leonard K. Nave               12,233,598           215,372
Len Aldridge                  12,326,898           122,072
Robert L. McIntyre            12,327,298           121,672


     PROPOSAL NO. 9 Ratification of the selection of Ernst &
                    Young LLP to serve as our auditors for the
                    year ending December 31, 1999.

             For            Against           Abstain
             ---            -------           -------

          12,427,438         21,277             255


                             PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS:

MARKET INFORMATION:

     Our common stock is quoted on the OTC Bulletin Board under
the trading symbol "GASS.OB."  Prior to August 19, 1999, our
common stock was traded on the NASDAQ SmallCap Market under the
trading symbol "GASS."

     The following table sets forth the high and low sales prices
of the common stock for the periods indicated as reported by
NASDAQ and the OTC Bulletin Board.  These prices are believed to
be representative inter-dealer quotations, without retail mark-
up, mark-down or commissions and may not represent prices at
which actual transactions occurred.

                                 1999                1998
                           ---------------     ---------------
                            High      Low       High      Low
                            ----      ---       ----      ---

First Quarter ...........  $0.563    $0.25     $3.44     $2.25

Second Quarter ..........  $0.50     $0.156    $3.22     $2.25

Third Quarter ...........  $0.344    $0.13     $2.59     $0.81

Fourth Quarter ..........  $0.188    $0.063    $1.41     $0.22

HOLDERS:

     On March 15, 2000, the last sale price of our common stock
as reported on the OTC Bulletin Board was $0.19; and there were
approximately 405 holders of record of our common stock and
approximately 12 holders of record of our Series 1993 Preferred
Stock.

Dividends:

     Holders of shares of our $12.00 par value Series 1993
Preferred Stock are entitled to receive, when declared,
cumulative dividends at the rate of 8% per share based upon the
total number of shares outstanding.  Such dividends are payable
semi-annually to holders of record on the 15th day of January and
July of each year.  All dividends payable on our capital stock
are payable in cash or common stock, at our election.

     We have not paid, nor do we intend to pay, dividends on our
common stock or cash dividends on our Series 1993 Preferred Stock
in the foreseeable future.  We intend to retain earnings, if any,
for the future operation and development of our business.  In
addition, the payment of cash dividends on any share of any class
of our capital stock is prohibited by the terms of our credit
facility.  See Note 4 to Notes to Financial Statements included
in Item 8 of this Report on Form 10-K.

ITEM 6.   SELECTED FINANCIAL DATA

<TABLE>
                                                  Year Ended December 31,
                                              (In thousands except share data)
                         -------------------------------------------------------------------------
                              1999            1998          1997              1996         1995
                              ----            ----          ----              ----         ----

<S>                         <C>              <C>           <C>              <C>           <C>
Operating Revenues           $22,523         $36,137       $38,032          $33,039       $17,215

Income (loss) from
 continuing operations      $(26,768)(2)(3)  $(46,224)(2)   $(1,847)(2)         $912          $266

Income (loss) from
 continuing operations
 per common share (1)         $(1.61)         $(4.61)       $(0.21)           $0.14            --

Weighted Average
 number of common
 shares outstanding       16,607,830      10,029,415     9,021,810        6,123,635     4,067,677

Income (loss) from
 continuing operations
 per diluted common
 share (1)                    $(1.52)         $(4.61)       $(0.21)           $0.13            --

Weighted average
 number of common
 shares and dilutive
 potential common
 shares outstanding       17,582,675      10,029,415     9,021,810        6,895,446     5,722,432

Net Income (loss)            $18,598        $(46,224)      $(1,847)            $912          $266

Working Capital (deficit)       $644        $(88,495)        $(821)         $(5,112)    $(613,302)

Total Assets                  $8,169         $76,224       $61,566          $64,838       $44,197

Long-term debt                $5,000         $83,239       $30,300          $25,936       $19,192
</TABLE>

(1)  Income from continuing operations per common share and
     dilutive common share in 1999, 1998, 1997, 1996 and 1995 is
     based on the weighted average number of common shares
     outstanding.

(2)  Includes a non-cash impairment of oil and gas properties
     effective December 31, 1999, 1998 and 1997.

(3)  Excludes extraordinary gain from forgiveness of debt.

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

     The following discussion is intended to assist in an
understanding of our financial position and results of operations
for each year of the three-year period ended December 31, 1999
and should be read in conjunction with the "Selected Financial
Data" and the related notes included herein.  Our consolidated
financial statements and the notes thereto which follow contain
detailed information that should be referred to in conjunction
with the following discussion.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995:

     Statements, other than historical facts, contained in this
Report on Form 10-K, including statements of estimated oil and
gas production and reserves, drilling plans, future cash flows,
anticipated capital expenditures and Management's strategies,
plans and objectives, are "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended.  Although we believe that our forward looking statements
are based on reasonable assumptions, we caution that such
statements are subject to a wide range of risks and uncertainties
incident to the exploration for, acquisition, development and
marketing of oil and gas; and we can give no assurance that our
estimates and expectations will be realized.  Important factors
that would cause actual results to differ materially from the
forward looking statements include, but are not limited to,
changes in production volumes, worldwide demand, and commodity
prices for petroleum natural resources; the timing and extent of
our success in discovering, acquiring, developing and producing
oil and gas reserves; risks incident to the drilling and
operation of oil and gas wells; future production and development
costs; the effect of existing and future laws, governmental
regulations and the political and economic climate of the United
States and foreign countries in which we operate, if any; the
effect of hedging activities; and conditions in the capital
markets.  Other risk factors are discussed elsewhere in this Form
10-K.

RECENT DEVELOPMENTS:

     To improve our financial condition, in and prior to December
1999, we:

     -    sold an 80% interest in our Gulf of Mexico properties;

     -    sold all of our Appalachian oil and gas properties; and

     -    issued 39,509,507 shares of our common stock to Blue
          Dolphin Exploration Company.

     As a result of these transactions, we expect that our
revenues, production expenses and results of operations will
decrease materially from those of prior years.

RESULTS OF OPERATIONS:

          YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR
                     ENDED DECEMBER 31, 1998

     REVENUES.  Our total revenues decreased 38% to $22.5 million
for 1999 from $36.1 million for the comparable period in 1998.
Oil and gas production revenue decreased 38% to $16.5 million due
to reduced commodity prices and significantly reduced production
volumes.  Reduced production from our South Timbalier 148 and 211
properties accounted for approximately 96% of the decrease; and
the sale of an 80% interest in our Gulf of Mexico properties as
of December 2, 1999 and our Appalachian properties and operations
effective July 1, 1999 accounted for the remainder of the
decrease of oil and gas production revenue.  Marketing revenues
decreased approximately $4 million, or 51%, primarily due to the
sale of our Appalachian properties and operations effective July
1, 1999.

     The following table summarizes production volumes, average
sales prices and period to period comparisons for our oil and gas
operations for the periods indicated:


                                       Year Ended
                                      December 31,         %
                                     --------------     Increase
                                     1999      1998    (Decrease)
                                     ----      ----    ----------

Production volumes:
 Natural gas (MMcf) ..............   5,267     9,428     (44)
 Oil (MBbls) .....................     284       374     (24)
 Total (MMcfe) ...................   6,969    11,671     (40)
Average sale prices:*
 Natural gas (per Mcf) ...........   $2.22     $2.44      (9)
 Oil (per Bbl) ...................  $16.88    $12.59      34
 Per Mcfe ........................   $2.36     $2.30       3
Expenses (per Mcfe):
 Lease operating (including
   production taxes) .............   $0.41     $0.43      (5)
 Depreciation, depletion and
   amortization ..................   $1.67     $1.55       8
 Administrative ..................   $0.68     $0.39      74

*Includes effect of hedging.

     OIL AND GAS PRODUCTION EXPENSE.  Oil and gas production
expense decreased 42% to $2.9 million in 1999 due primarily to a
significant decrease in our production volumes.  Oil and gas
production expense was $0.41 per Mcfe for 1999 compared with
$0.43 for the same period in 1998, a decrease of 5%.

     EXPLORATION COSTS.  During 1999, costs of approximately $2.4
million were attributable to dry hole expense and the purchase of
seismic data, analysis of such data and other directly allocable
geological and geophysical costs.  Exploration costs for 1998
were approximately $5 million.

     IMPAIRMENT OF ASSETS.  As of January 1, 1996, we began
assessing the impairment of capitalized costs of proved oil and
gas properties and other long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121 (SFAS No.
121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of."  SFAS No. 121 requires that
an impairment loss be recognized whenever the carrying amount of
an asset exceeds the sum of the estimated future undiscounted
cash flows of the asset.  For each asset determined to be
impaired, an impairment loss equal to the difference between the
carrying value and the fair value of the asset was recognized.
With respect to our oil and gas properties, fair value was
estimated to be the present value of expected future cash flows
computed by applying estimated future natural gas and oil prices,
as determined by Management, to estimated future production of
oil and gas reserves over the economic lives of the reserves.
During 1999, we recorded an impairment of oil and gas properties
of $2.4 million compared with $34.7 million during 1998.  The
write down was primarily the result of a decline in the value of
certain blocks based upon a third party evaluation.

     ADMINISTRATIVE EXPENSE.  Administrative expense increased 2%
to $4.8 million in 1999, and was $0.68 per Mcfe, an increase of
74% from the prior year.  The per unit increase occurred as the
result of decreased production volumes.  In 1999, as part of our
restructuring efforts, we reduced our New Orleans staff to one
geologist and one accountant as well as moved to a smaller office
within the same building.  Also, our Kentucky office was reduced
as a result of the sale of our Appalachian properties and was
completely eliminated in December 1999 pursuant to the Investment
Agreement with Blue Dolphin Exploration.  However, these reductions
were offset due to the administrative costs associated with the
restructuring activities.

     DEPRECIATION, DEPLETION AND AMORTIZATION (DD&A) EXPENSE.
DD&A expense decreased 36% to $11.6 million in 1999 and was $1.67
per Mcfe, an increase of 8% from the prior year.  The decrease in
total DD&A was due primarily to our significantly reduced
production volumes.

     LOSS ON SALE OF ASSETS.  In 1999, we experienced a loss on
the sale of assets of approximately $13.4 million, resulting
primarily from the sale of 80% of our Gulf of Mexico properties and
the sale of all of our Appalachian properties and operations.

     EXTRAORDINARY GAIN.  During the fourth quarter of 1999, we
recorded an extraordinary gain of $45.4 million, net of no tax
provisions, due to the extinguishment and forgiveness of our
debts held by Den norske Bank and TECO.

          YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR
                     ENDED DECEMBER 31, 1997

     REVENUES.  Our total revenues decreased 4.9% to $36.1
million for 1998 from $38 million for the comparable period in
1997.  Oil and gas production revenue increased 37.3% to $26.7
million in 1998, due primarily to production attributable to
wells acquired and drilled on acreage acquired from TECO.
Marketing revenues decreased approximately $9.6 million, or 62%,
primarily due to the termination of the gas sales contract with
Southern Resources, Inc., resulting from our decision to focus on
exploration and development activities.  However, due to the
small profit margins and administrative expenses associated with
the Southern Resources gas sales contract, the termination had no
significant adverse effect on our net income as reflected by a
corresponding $9.5 million reduction in marketing expense.

     The following table summarizes production volumes, average
sales prices and period to period comparisons for our oil and gas
operations for the periods indicated:

                                       Year Ended
                                      December 31,         %
                                     --------------     Increase
                                     1998      1978    (Decrease)
                                     ----      ----    ----------

Production volumes:
 Natural gas (MMcf) ..............   9,428     4,579     106
 Oil (MBbls) .....................     374       426     (12)
 Total (MMcfe) ...................  11,671     7,134      64
Average sale prices:*
 Natural gas (per Mcf) ...........  $ 2.44     $2.57      (5)
 Oil (per Bbl) ...................  $12.59    $18.08     (32)
 Per Mcfe ........................  $ 2.30     $2.73     (16)
Expenses (per Mcfe):
 Lease operating (including
   production taxes) .............  $ 0.43     $0.36      19
 Depreciation, depletion and
   amortization ..................  $ 1.55     $1.21      28
 Administrative ..................  $ 0.39     $0.47     (17)

*Includes effect of hedging.

     OIL AND GAS PRODUCTION EXPENSE.  Oil and gas production
expense increased 92% to $5 million in 1998 due primarily to
operating costs associated with increased production.  Oil and
gas production expense was $0.43 per Mcfe for 1998 compared with
$0.36 for the same period in 1997, an increase of 19%.

     EXPLORATION COSTS.  During 1998, costs of approximately $5
million were attributable to dry hole expense and the purchase of
seismic data, analysis of such data and other directly allocable
geological and geophysical costs which must be expensed under our
accounting method.  Exploration costs for 1997 were approximately
$785,000.

     IMPAIRMENT OF ASSETS.  As of January 1, 1996, we began
assessing the impairment of capitalized costs of proved oil and
gas properties and other long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121 (SFAS No.
121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of."  SFAS No. 121 requires that
an impairment loss be recognized whenever the carrying amount of
an asset exceeds the sum of the estimated future undiscounted
cash flows of the asset.  For each asset determined to be
impaired, an impairment loss equal to the difference between the
carrying value and the fair value of the asset was recognized.
With respect to our oil and gas properties, fair value was
estimated to be the present value of expected future cash flows
computed by applying estimated future natural gas and oil prices,
as determined by Management, to estimated future production of
oil and gas reserves over the economic lives of the reserves.
During 1998, we recorded an impairment of oil and gas properties
of $34.7 million compared with $5 million during 1997.  The
impairment includes a $8.2 million write down of our Appalachian
properties based on our efforts to sell the Kentucky properties
and operations.  The Appalachian impairment allowance is included
in our accumulated depreciation, depletion and amortization.  We
also recognized a $22.5 million impairment on the TECO
properties.  The write down was primarily the result of a
significant decline in the production on several of the TECO
wells coupled with a substantial decline in oil and gas prices in
1998.  An additional $4 million impairment was recognized on
other oil and gas properties.  We also recognized a $2 million
impairment on our holding of Century stock.

     ADMINISTRATIVE EXPENSE.  Administrative expense increased
37.5% to $4.6 million in 1998, and was $0.39 per Mcfe, a decrease
of 17% from the prior year.  The per unit decrease occurred as
the result of increased production volumes, principally
attributable to new Gulf Coast Region wells.  In 1998, we
expanded our Gulf Coast operations by staffing our Louisiana
office with technical personnel experienced in Gulf Coast Region
exploration and development activities.

     DEPRECIATION, DEPLETION AND AMORTIZATION (DD&A) EXPENSE.
DD&A expense increased 110% to $18 million in 1998 and was $1.55
per Mcfe, an increase of 28% from the prior year.  The increase
resulted primarily from the TECO acquisition and increased
depletion attributable to the acquisition costs and successful
drilling activities.

     INTEREST EXPENSE.  Interest expense increased 171% to $7.4
million in 1998 due to additional borrowings to fund the TECO
acquisition and expanded exploration and development activities.

LIQUIDITY AND CAPITAL RESOURCES:

     As of December 31, 1999, we had cash and cash equivalents of
approximately $299,000 compared with approximately $255,000 for
1998.

     As a result of our transactions with Blue Dolphin
Exploration, Fidelity Oil and certain of our creditors, our
financial condition was substantially improved; and as of
December 31, 1999:

     -    Our secured indebtedness was $5 million, reduced from
          approximately $83.2 million as of December 31, 1998;

     -    Our liabilities to trade creditors were approximately
          $1.6 million, reduced from approximately $7.2 million
          as of December 31, 1998;

     -    We had positive working capital of approximately $.6
          million, as compared to a working capital deficit of
          approximately $6 million (excluding current portion of
          long-term debt) as of December 31, 1998; and

     -    Our stockholders' equity was approximately $1.4 million
          as compared to a deficit of ($21.7) million at December
          31, 1998.

     As of September 30, 1999, we owed TECO principal and
interest in the approximate amount of $23.1 million.  As part of
the closing of the Investment Agreement, we settled the TECO Note
in full for $990,400; therefore, we recognized an extraordinary
gain of $20.8 million.  We also received an immaterial amount of
funds for the exercise of warrants and other options in 1999.

     During the third quarter of 1999, we were released from
$12.5 million of Den norkse Bank debt as a result of the sale
of our Appalachian properties and operations.  Immediately after
the sale of the 80% interest in our Gulf of Mexico properties,
we paid Den norske Bank an additional $27 million.  Den norske
Bank assigned the debt to Blue Dolphin Exploration.  We entered
into an amendment to our credit agreement, and Blue Dolphin
Exploration agreed to reduce the balance due on the debt to
$5 million; therefore, we recognized an extraordinary item of
$24.6 million.

     Funding for our business activities has historically been
provided by operating cash flow, bank borrowings and equity
capital from private placements.  Our principal uses of capital
have been for the acquisition, exploration and development of oil
and gas properties. We have no present agreement, commitment or
understanding with respect to any acquisitions of oil and gas
properties and plan to use all available resources, if any, for
the development of our existing properties.

     During 1999, we expended approximately $3.3 million in our
exploration and development program.  We have established a
preliminary budget of $1.4 million for exploration and
development in 2000; however, this budget is subject to revision
during the year to reflect drilling results and new
opportunities.  We will evaluate each of the exploration and
development opportunities and our available capital resources to
determine whether to participate, sell our interest or sell a
portion of our interest and use the proceeds to participate at a
reduced interest.

     We continuously reevaluate the use of forward sales
contracts for gas production in light of market conditions,
commodity price forecasts, capital spending plans and debt
service requirements in order to achieve more predictable cash
flows and to reduce its exposure to fluctuations in gas prices.
These arrangements are settled on a monthly basis.

     YEAR 2000 ISSUE.  In prior years, we discussed the nature
and progress of our plans to become Year 2000 ready.  In late
1999, we completed our remediation and testing of systems.  As a
result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical
information technology and non-information technology systems and
believe those systems successfully responded to the Year 2000
date change.  We are not aware of any material problems resulting
from Year 2000 issues, either with our products, our internal
systems or the products and services of third parties.  We will
continue to monitor our mission critical computer applications
and those of our suppliers and vendors throughout the year 2000
to ensure that any latent Year 2000 matters that may arise are
addressed promptly.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
          PRICE

     Our Company is exposed to market risk, including adverse
changes in commodity prices and interest rates as discussed
below.

     COMMODITY PRICE RISK.  We produce and sell natural gas and
crude oil.  As a result, our financial results can be
significantly affected if these commodity prices fluctuate widely
in response to changing market forces.  Although we are not
currently using derivative products, we have used them in the
past to manage commodity price risk and may use them again in the
future.

     INTEREST RATE RISK.  Our exposure to changes in interest
rates primarily results from our  long-term debt with a floating
interest rate.  See Note 4 to Consolidated Financial Statements
of American Resources Offshore, Inc. included in Item 8 and
incorporated herein by reference for information relating to our
existing credit facility.  Based upon the current credit facility,
a 10% change in the interest rate would result in a minimal
increase in interest expense.

ITEM 8.   FINANCIAL STATEMENTS:

     The information required hereunder is included in this
report as set forth in the "Index to Financial Statements" on
page F1.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
          ON ACCOUNTING AND FINANCIAL DISCLOSURE:

     On January 6, 1999, we engaged Ernst & Young LLP as our
independent accountants to audit our financial statements for the
year ended December 31, 1998.  This appointment followed the
resignation of KPMG LLP ("KPMG") as our principal accountant, the
acceptance of such resignation having been recommended by our
Audit Committee and approved by our Board of Directors.  KPMG's
report on our financial statements for the years ended December
31, 1997 and December 31, 1996 did not contain an adverse opinion
or a disclaimer of opinion, and such reports were not qualified
as to uncertainty, audit scope or accounting principles.  We had
no disagreements with KPMG during the fiscal years ended December
31, 1997 or December 31, 1996 on any matter of accounting
principles or practice, of financial statement disclosure or of
auditing scope or procedure.  On January 11, 1999, we filed a
Report on Form 8-K reporting the change in our certified
accountant.

                            PART III

Item 10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
          PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
          ACT:

Directors and Executive Officers:

     Prior to the December 2, 1999 closing of the Investment
     Agreement with Blue Dolphin Exploration, our directors and
     officers were as follows:

Name                          Age          Position
----                          ---          --------

Rick G.  Avare ............   37   Director, President and
                                   Chief Executive Officer

Douglas L.  Hawthorne .....   57   Chairman of the Board

Leonard K.  Nave ..........   64   Director

David Fox, Jr. ............   78   Director

Len Aldridge ..............   62   Director

Robert L.  McIntyre .......   53   Director

Joseph P.  Shields ........   42   Director

Ivar Siem .................   53   Director

Michael J. Jacobson .......   53   Director

Ralph A. Currie ...........   45   Vice President of Finance,
                                   Chief Financial Officer
                                   and Treasurer

David J. Stetson ..........   43   Vice President, General
                                   Counsel and Assistant
                                   Corporate Secretary

Karen M. Underwood ........   43   Vice President of Corporate
                                   Compliance and Corporate
                                   Secretary

More specific information as to the business experience of the
above-named directors and officers can be found in our 1999 Proxy
Statement.

     Our current directors and executive officers are as follows:

Name                        Age            Position
----                        ---            --------

Ivar Siem (1) .............   53   Chairman of the Board,
                                   President and Chief
                                   Executive Officer

Michael J. Jacobson .......   53   Director

John P. Atwood ............   48   Director, Vice President
                                   and Secretary

Andrew R. Agosto(1) .......   38   Director

Douglas L. Hawthorne(1) ...   57   Director

G. Brian Lloyd ............   41   Vice President and Treasurer

Roland B. Keller ..........   61   Vice President


(1)  Member of Audit Committee.

     Our directors are elected to hold office for terms of one
year or until their respective successors are duly elected and
qualified.  Our officers are elected annually by the Board of
Directors and hold office until their successors are duly elected
and qualified.  We anticipate holding our 2000 Annual Meeting of
Stockholders in the second or third quarter of 2000.  There is no
longer an Executive Committee due to the reduced size of the
Board of Directors or a Compensation Committee since we no longer
have any employees and are now managed by Blue Dolphin Services.

     IVAR SIEM, age 53, has served as our director since October
1999 and our Chairman of the Board, President and Chief Executive
Officer since December 1999.  He has also served as a director
and Chairman of the Board of Blue Dolphin Energy Company since
1989 and a director of Blue Dolphin Exploration since 1989. Mr.
Siem is currently a member of the boards of directors of Avenir
A/S and Grey Wolf, Inc.  Since 1995, he has served on the Board
of Directors of Grey Wolf, Inc., during which time he served as
Chairman from 1995 to 1998 and interim President in 1995 during
its restructuring.  Since 1985, he has been an international
consultant in energy, technology and finance.  He has served as
Director of Business Development for Norwegian Petroleum
Consultants and as an independent consultant to the oil and gas
exploration and production industry based in London, England.
Mr. Siem holds a Bachelor of Science Degree in Mechanical
Engineering from the University of California, Berkley, and an
executive MBA from Amos Tuck School of Business, Dartmouth
University.

     MICHAEL J. JACOBSON, age 53, has served as our director since
October 1999.  He has also served as President and Chief
Executive Officer of Blue Dolphin Energy Company since 1990 and a
director of Blue Dolphin Exploration since 1990.  Mr. Jacobson
has been a member of several Boards of Directors, including Volvo
Petroleum, Inc., W.L. Somner Company, Inc., and Flagstaff
Corporation.  He has been associated with the energy industry
since 1968, serving in various senior management capacities since
1980.  Mr. Jacobson served as Senior Vice President and Chief
Financial and Administrative Officer for Creole International,
Inc., as well as Vice President of Operations for the parent
holding company, from 1985 until joining the Company in 1990.  He
has also served as Vice President and Chief Financial Officer of
Volvo Petroleum, Inc., and for certain Fred. Olsen oil and gas
interests.  Mr. Jacobson holds a Bachelor of Science Degree in
Finance from the University of Colorado.

     JOHN P. ATWOOD, age 48, has served as our director, Vice
President and Secretary since December 1999.  He is also Vice
President, Finance and Corporate Development of Blue Dolphin
Energy Company.  Mr. Atwood has been associated with the energy
industry since 1974, serving in various management capacities
since 1981.  Prior to joining Blue Dolphin Energy Company in
April 1991, he served as Senior Vice President for Glickenhaus
Energy Corporation.  Mr. Atwood was a member of the senior
management team, directly responsible for the financial
reporting, land and administrative functions of the company.  He
has also served as Area Land Manager for CSX Oil & Gas
Corporation and Division Land Manager for Hamilton Brothers Oil
Company/Volvo Petroleum, Inc.  Mr. Atwood served in various land
capacities for Tenneco Oil Company from 1977 to 1981.  Mr. Atwood
is a Certified Professional Landman and holds a Bachelor of Arts
Degree from Oklahoma City University and a Master of Business
Administration Degree from Houston Baptist University.
Mr. Atwood served as Vice President of Land of Blue Dolphin
Energy Company from 1991 until his appointment as Vice President
of Finance and Corporate Development in 1998.

     ANDREW R. AGOSTO, age 38, has been our director since
December 1999.  He is also Senior Vice President and Chief
Operating Officer of CCNG, Inc.  Mr. Agosto has been associated
with the energy industry in various capacities since 1982.  In
his capacity as Chief Operating Officer of CCNG, Inc., Mr. Agosto
is responsible for the company's activities in the energy sector
including exploration and production, natural gas transportation
and marketing and new business development.  Prior to joining
CCNG, Inc., Mr. Agosto served in various capacities with Shell
Exploration and Production Company from 1986 to 1997, including
Area Manager - Williston Basin, Continental Division.  Mr. Agosto
is a Registered Professional Petroleum Engineer.  He holds a
Bachelor of Science Degree in Chemical Engineering from Texas A&M
University.

     DOUGLAS L. HAWTHORNE, age 57, has served as our director
since March 1993, having been Chairman of the Board from March
1993 until December 1999, and was a director of Southern Gas from
February 1994 until it was sold in 1999, having also served in
this position in March and April, 1993.  Mr. Hawthorne served on
our Executive Committee from its establishment in April 1997
until December 1999 and served on the Board's Compensation
Committee from August 1996 until December 1999.  Mr. Hawthorne
also served on the Audit Committee of our Board from August 1996
until July 1997.  Prior to his positions with us, Mr. Hawthorne
was employed for twenty years with Third National Bank & Society
Bank, N.A., retiring as Chairman and Chief Executive Officer in
1991.  Subsequently, and for brief periods from 1991 to 1995, he
served as principal of Carillon Capital, Inc., investment
bankers, and SPECTRA Group, Inc., management consultants, both
based in Dayton, Ohio.  Mr. Hawthorne also served as a director
of Bullet Sports International, Inc. from 1995 through 1998.

     G. BRIAN LLOYD, age 41, has served as our Vice President and
Treasurer since December 1999.  He is also Vice President,
Treasurer and Secretary of Blue Dolphin Energy Company.  Mr.
Lloyd is a Certified Public Accountant and has been employed by
Blue Dolphin Energy Company since December 1985.  Prior to
joining Blue Dolphin Energy Company, he was an accountant for
DeNovo Oil and Gas Inc., an independent oil and gas company.  Mr.
Lloyd received a Bachelor of Science Degree in Finance from Miami
University, Oxford, Ohio in 1982 and attended the University of
Houston in 1983 and 1984.  Mr. Lloyd has served as Secretary of
the Blue Dolphin Energy Company since May 1989, Treasurer since
September 1989 and Vice President since March 1998.

     ROLAND B. KELLER, age 61, has served as our Vice President
since December 1999.  He is also Executive Vice President of
Exploration and Development for Blue Dolphin Energy Company,
having served in that capacity since September 1990.  Mr. Keller
has been associated with the energy industry since 1962, serving
in senior management capacities since 1976.  Prior to joining
Blue Dolphin Energy Company in 1990, he served as Senior Vice
President of Exploration for Sandefer Oil and Gas Company, an
independent oil and gas company, from 1982.  He served as Vice
President of Exploration and Production for Volvo Petroleum, Inc.
from 1980 to 1982 and Vice President and Division Manager for
Florida Exploration Co. From 1976 to 1980.  Mr. Keller began his
career with Amoco Production Co., serving in various technical
and management capacities from 1962 through 1976.  Mr. Keller
holds Bachelor of Science and Master of Science degrees in
Geology from the University of Florida.

MEETINGS AND COMPENSATION:

     Prior to December 2, 1999, our Board of Directors met on 11
occasions, either in person or telephonically.  Each of our
directors attended at least 75% of the meetings of the Board of
Directors except for Joseph Shields and Robert McIntyre, who
attended 18% and 73%, respectively, of the meetings.  Messrs.
Siem and Jacobson were appointed to the Board of Directors in
October 1999 and attended one meeting.

     During 1999, our non-employee directors from January 1
through December 2, 1999, Messrs. Fox, Aldridge, McIntyre and
Shields, received $750 each quarter as compensation for their
services to us; and they were reimbursed for reasonable travel
expenses incurred, if any, in connection with their attendance at
the meetings.  Our Chairman of the Board from January 1 through
December 2, 1999, Douglas L. Hawthorne, received a total of
$13,750 for his services to us during 1999 and was also
reimbursed for reasonable travel expenses incurred by him during
the year.

     AUDIT COMMITTEE.  Until the December 2, 1999 closing of the
Investment Agreement with Blue Dolphin Exploration, the Audit
Committee was composed of Messrs. Aldridge, Fox and Shields.  The
Audit Committee is currently composed of Messrs. Siem, Agosto and
Hawthorne.  The Audit Committee's duties include:

     -    recommending the selection of independent auditors;

     -    reviewing the scope and results of the audit made by
          our auditors;

     -    ensuring that disagreements, if any, as to the
          application of generally accepted accounting principles
          are resolved to the satisfaction of our auditors; and

     -    reviewing our financial reporting activities and the
          accounting standards and principles we follow.

     The Audit Committee met one time during 1999.

FAMILY RELATIONSHIPS:

     There are no family relationships among our directors,
executive officers or persons nominated or chosen to become
directors or executive officers.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF
1934

     Section 16(a) of the Securities Exchange Act of 1934
requires our officers and directors and persons who own more than
10% of a registered class of our equity securities to file
reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.

     Based solely upon a review of the copies of such forms
furnished to us or written representations that no other reports
were required, we believe that during the 1999 fiscal year, all
filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.

ITEM 11.  EXECUTIVE COMPENSATION:

     The table below sets forth information concerning the annual
and long-term compensation for services to us and our former
subsidiary, Southern Gas, for the fiscal years ended December 31,
1999, 1998 and 1997, our chief executive officer and our
executive officers whose total annual salary and bonus at
December 31, 1999 exceeded $100,000 (the "Named Officers"):

                           SUMMARY COMPENSATION TABLE

<TABLE>
                                                                                     Long-Term
                                     Annual Compensation                            Compensation
                           ----------------------------------------            ---------------------
                                                                    Securities
                                                                    Underlying
 Name and Principal                                    Other Annual   Stock      LTIP     All Other
    Position(6)             Year     Salary    Bonus   Compensation  Options   Payouts   Compensation
    -----------             ----     ------    -----   ------------  -------   -------   ------------

<S>                         <C>     <C>       <C>         <C>        <C>          <C>   <C>
Rick G. Avare               1999    $180,375     -        -             -         -     $129,625(1)
President and Chief         1998    $183,429     -        $11,269(3) 493,204      -      $10,000(2)
Executive Officer           1997    $166,455  $140,000    $12,615(3) 493,204      -       $8,000(2)

Leonard K. Nave             1999    $120,785     -                      -         -       $4,375(2)
Chairman of the Board       1998    $175,781     -         $5,976    271,603      -       $8,757(2)
President & Chief           1997    $175,000     -         $4,655    271,603      -       $8,000(2)
Executive Officer,
Southern Gas

David J. Stetson            1999    $163,638     -        $7,200(5)     -         -     $255,665(4)
Vice President &            1998    $128,915     -        $7,200(5)     -         -       $6,827(2)
General Counsel             1997    $121,821     -        $7,200(5)     -         -       $3,830(2)

</TABLE>



(1)  Represents $125,000 severance payment and $4,625
     contribution made on behalf of the Named Officer to a 401(K)
     plan.

(2)  Represents contribution made on behalf of the Named Officer
     to a 401(K) plan.

(3)  Includes car allowance of $8,937.

(4)  Represents $250,000 severance payment and $5,665
     contribution made on behalf of the Named Officer to a 401(K)
     plan.

(5)  Represents car allowance of $7,200.

(6)  In connection with our reorganization, on December 2, 1999,
     Ivar Siem was elected as Chairman of the Board, Chief
     Executive Officer and President.  Mr. Siem is also a
     director of Blue Dolphin Exploration, our majority
     shareholder, and does not receive any compensation for his
     services to us as an executive officer.

                OPTION GRANTS IN LAST FISCAL YEAR

     No options or stock appreciation rights were granted during
1999.

       AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                  FISCAL YEAR-END OPTION VALUES

     No options to purchase our common stock were exercised by
the Named Officers during 1999; and on or before the closing of
the Investment Agreement with Blue Dolphin Exploration on
December 2, 1999, all options and warrants to purchase our common
stock which had been issued to our management were terminated
pursuant to the terms of the Investment Agreement.

     All employee incentive plans were terminated at the closing
of the Investment Agreement on December 2, 1999, all required
notices of our intention to terminate the plans having been
timely given.

EMPLOYMENT AND SEVERANCE AGREEMENTS:

     The following agreements which we previously entered into or
adopted were terminated on or before the closing of the
Investment Agreement with Blue Dolphin Exploration and the
Purchase and Sale Agreement with Fidelity Oil Holdings:

     -    All employment agreements with our officers and
          employees;

     -    All indemnity agreements with our officers and
          employees; and

     -    Change of Control Agreement with Rick G. Avare dated as
          of November 12, 1996.

     The employment agreements generally provided, among other
things, that in the event we terminated the employee, the
employee would be entitled to a lump sum severance payment for
compensation and benefits the employee would have received for
the remaining term of the agreement.   We negotiated severance
agreements with these executives for severance payments which are
less than those required under their respective employment
agreements as follows:

           Executive Officer        Severance Benefits
           -----------------        ------------------

            William M. Gray             $ 97,500(1)

            Daniel Hall                   30,000

            Jack G. Bryant                55,000

            Karen M. Underwood            65,000

            Ralph A. Currie              125,000(2)

            Rick G. Avare                125,000(3)

            David J. Stetson             250,000(4)



(1)  William M. Gray received office furniture valued at
     approximately $20,000.  Mr. Gray's company, Amerisource, LLC
     was assigned our office lease located at Lakeway II, Suite
     830, Metairie, Louisiana for a nominal sum.

(2)  Ralph A. Currie received office furniture and equipment with
     nominal value.

(3)  Rick G. Avare received office furniture and equipment with
     nominal value and has been assigned all rights under a split-
     dollar agreement which was in effect prior to his
     termination.

(4)  David J. Stetson received office furniture and equipment
     with nominal value.

     With the exception of Jack Bryant, we agreed to provide six
     months of health benefits to the above executives.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT:

     The following table reflects information regarding the
beneficial ownership of our outstanding equity securities as of
March 15, 2000, to the extent known to our Board of Directors.
Such information is included for:

     -    persons who own 5% or more of such equity securities;

     -    directors;

     -    the executive officers identified in the discussion
          under the heading "Executive Compensation" (the "Named
          Officers"); and

     -    our officers and directors as a group.

Unless otherwise indicated, we believe that each person named
below has the sole power to vote and dispose of the equity
securities beneficially owned by such person.

                                           Shares
Beneficial Owner              Title     Beneficially   Percent Of
 Name/Address                Of Class      Owned        Class(1)
 ------------                --------      -----        --------

Blue Dolphin Energy
  Company(2)               Common Stock   39,509,457     75.2%
801 Travis, Suite 2100
Houston, TX 77002

Douglas L. Hawthorne(3)    Common Stock      207,847       *
4325 Delco Dell Road
Kettering, OH  45429

TECO Oil & Gas, Inc.       Common Stock    2,751,852      5.2%
702 N. Franklin Street
Tampa, FL  33602

Rick G. Avare              Common Stock    1,624,046      3.2%
3141 Beaumont Centre Circle
Suite 203
Lexington, KY 40513

David J. Stetson           Common Stock       15,000       *
3141 Beaumont Centre Circle
Suite 203
Lexington, KY 40513

Directors and Executive    All classes    1,846,893       3.5%
Officers as a group
(1 person)

*    Represents less than 1% of our outstanding stock for the
     indicated class.

(1)  Percentage assumes full exercise of outstanding options and
     warrants to purchase shares of our common stock, if any.

(2)  Blue Dolphin Energy Company owns these shares through its
     wholly-owned subsidiary, Blue Dolphin Exploration.

(3)  Includes 181,400 shares held in Mr. Hawthorne's retirement
     plan and 1,792 shares of common stock to which Mr. Hawthorne
     is entitled as a 1/3 beneficiary of the Frances R. Hawthorne
     Trust.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RICK G. AVARE AND AFFILIATES:

     PRIMA CAPITAL, LLC. Prior to September 15, 1997, we owned a
3.5% interest in certain producing and non-producing oil and gas
properties (the "Mississippi Properties") located in Mississippi.
On September 15, 1997, we entered into a Letter of Intent with
Prima, a limited liability company in which Rick G. Avare owned a
20% interest, providing for our acquisition of an additional
interest in the Mississippi Properties.  The transaction was
approved by a majority of our disinterested directors at a
special meeting of the Board of Directors held on September 15,
1997 after reviewing an independent geologist's report on the
Mississippi Properties.  The purchase price for the additional
interest in the Mississippi Properties was $2,800,000 payable
$1,300,000 on or before closing, which occurred on October 10,
1997, and $1,500,000 by delivery of our interest bearing note
with recourse only to the Mississippi Properties.  The Prima note
was settled at the closing of the Investment Agreement with Blue
Dolphin Exploration and is further discussed in the 1999 Proxy
Statement.

     MAP II, LLC. In connection with the Investment Agreement
with Blue Dolphin Exploration, we entered into a consulting
agreement with MAP II.  Rick G. Avare, who was our Chief
Executive Officer, President and a former member of the Board of
Directors until December 2, 1999, is a member of MAP II.
Pursuant to the terms of the consulting agreement, MAP II will
provide us with certain consulting services and, in connection
with providing these services, make available to us
Messrs. Avare, Stetson, Currie and Ms. Underwood.  As
consideration for the consulting services, MAP II will receive
$35,000 per month during the term of the agreement.  Fidelity Oil
Holdings will bear 80% of the fees paid by us under the
consulting agreement; therefore, the monthly cost to us of the
agreement is $7,000 per month plus our 20% share of reimbursable
costs.  Unless extended, the agreement expires on February 28,
2001.

     The extent to which any of the above former members of our
management receive compensation, if any, from MAP II will be
dependent upon the amount of services that individual provides to
MAP II in satisfaction of MAP II's obligations under the
consulting agreement.

LEONARD K. NAVE:

     Leonard K. Nave was a member of our Board of Directors until
December 2, 1999 and is the president of Southern Gas.  Southern
Holding is owned by Mr. Leonard Nave and a family trust in which
Leonard Nave is the trustee.   In connection with the Investment
Agreement with Blue Dolphin Exploration, we entered into a stock
purchase agreement to convey all our shares of Southern Gas and
Alpha Gas Development, Inc. to Southern Holding.  See "Proposal
4" of our 1999 Proxy Statement for a detailed description of our
transaction with Southern Holding.

BLUE DOLPHIN ENERGY COMPANY AND AFFILIATES:

     Blue Dolphin Energy Company is a public company whose common
stock is registered under the Securities Exchange Act of 1934, as
amended, and trades on the Nasdaq SmallCap Market under the
symbol "BDCO."  Blue Dolphin Exploration and Blue Dolphin
Services are wholly-owned subsidiaries of Blue Dolphin Energy
Company.   Ivar Siem, who was recently appointed as Chairman of
our Board of Directors, is a director and Chairman of the Board
of Blue Dolphin Energy Company.  Michael J. Jacobson and John P.
Atwood, also recently-appointed members of our Board of
Directors, are President and Vice President of Finance and
Corporate Development, respectively, of Blue Dolphin Energy
Company and Blue Dolphin Exploration.

     BLUE DOLPHIN EXPLORATION.  As a result of the Investment
Agreement, the purchase of the DnB Note and other agreements,
Blue Dolphin Exploration owns a controlling interest in us and we
are indebted to Blue Dolphin Exploration for approximately $5.0
million.

     BLUE DOLPHIN SERVICES.  In connection with the Investment
Agreement with Blue Dolphin Exploration, we entered into a
Management and Services Agreement pursuant to which Blue Dolphin
Services will provide the management and administrative services
necessary to operate our business.  We will pay Blue Dolphin
Services a management fee of $83,333 per month.  This agreement
will initially expire on December 31, 2000 but will continue on a
year-to-year basis unless terminated.

                             PART IV

ITEM 14.  EXHIBITS AND REPORTS ON FORM 8-K

(a)(1) and (a)(2)  Financial Statements and Financial Statement
                  Schedules.
                  See "Index to Financial Statements" set forth
                  on page F-1.

                  All schedules are omitted because they are not
                  applicable or not required, or because the
                  required information is included in the
                  Company's consolidated financial statements
                  or notes thereto.

(a)(3)         Exhibits:

          The following Exhibits are either attached hereto or
     incorporated herein by reference:

Exhibit
Number                   Description

2.01      Certificate of Ownership and Merger Merging American
          Resources Offshore, Inc., into American Resources of
          Delaware, Inc. (incorporated by reference to Exhibit
          10.96 to ARO's Report on Form 8-K filed on November 12,
          1998).

3.01      By-Laws of ARO, as amended (incorporated by reference
          to Exhibit 3.2 to ARO's Form 10-SB).

3.02      Restated Certificate of Incorporation filed with the
          Delaware Secretary of State (incorporated by reference
          to Exhibit 3.10 to ARO's Form 8-K filed December 12,
          1996).

3.03      Copy of the Certificate eliminating the Series B
          Preferred Stock (incorporated by reference to Exhibit
          3.11 to ARO's Form 8-K filed on April 24, 1997).

3.04      Certificate of Amendment of Restated Certificate of
          Incorporation filed with the Delaware Secretary of
          State on July 11, 1997 (incorporated by reference to
          Exhibit 3.12 to ARO's Form 8-K filed on July 25, 1997).

3.05      Certificate of Amendment dated July 2, 1998 amending
          ARO's Restated Certificate of Incorporation
          (incorporated by reference to Exhibit 10.95 to ARO's
          Report on Form 10-Q for the quarterly period ending
          June 30, 1998).

3.06      Certificate of Amendment of Restated Certificate of
          Incorporation (incorporated by reference to Exhibit
          99.2 to ARO's Report on Form 8-K dated December 10,
          1999).

3.07      Second Restated Certificate of Incorporation
          (incorporated by reference to Exhibit 99.3 to ARO's
          Report on Form 8-K dated December 10, 1999).

4.01      Specimen Common Stock Certificate (incorporated by
          reference to Exhibit 4.1 to the ARO's Form 10-SB).

4.02      Specimen Preferred Stock Certificate (incorporated by
          reference to Exhibit 4.2 to ARO's Form 10-SB).

10.01     Form of Limited Liability Company Agreement of Crescent
          Turnkey & Engineering, L.L.C. dated December 30, 1994
          (incorporated by reference to Exhibit 10.31 to ARO's
          1994 Form 10-KSB).

10.02     Registration Rights Agreement dated July 16, 1997
          between ARO and Den norske Bank ASA (incorporated by
          reference to Exhibit 10.81 to ARO's Form 8-K filed on
          July 25, 1997).

10.03     Copy of the First Amended and Restated Credit Agreement
          between ARO and Den norske Bank, AS (incorporated by
          reference to Exhibit 10.86 to ARO's Form 8-K filed on
          November 19, 1997).

10.04     Promissory Note from American Resources Offshore, Inc.
          in favor of TECO Oil & Gas, Inc. (incorporated by
          reference to Exhibit 10.90 to ARO's Form 8-K filed on
          March 16, 1998).

10.05     Warrant Agreement between American Resources of
          Delaware, Inc. and TECO Oil & Gas, Inc. (incorporated
          by reference to Exhibit 10.91 to ARO's Form 8-K filed
          on March 16, 1998).

10.06     First Amendment to First Amended and Restated Credit
          Agreement dated March 5, 1998 between American
          Resources of Delaware, Inc., Southern Gas Co. of
          Delaware, Inc., American Resources Offshore, Inc. and
          DNB Energy Assets, Inc. (incorporated by reference to
          Exhibit 10.92 to ARO's Report on Form 10-Q for the
          quarterly period ending March 31, 1998).

10.07     Amended Purchase and Sale Agreement between American
          Resources of Delaware, Inc., American Resources
          Offshore, Inc, TECO Oil & Gas, Inc. and TECO Energy,
          Inc. (incorporated by reference to Exhibit 10.93 to
          ARO's Report on Form 8-K/A2 filed on May 19, 1998).

10.08     Intercreditor Agreement between American Resources of
          Delaware, Inc., American Resources Offshore, Inc.,
          Southern Gas Co. of Delaware, Inc., TECO Oil & Gas,
          Inc. and DNB Energy Assets, Inc. (incorporated by
          reference to Exhibit 10.94 to ARO's Report on Form 8-
          K/A2 filed on May 19, 1998).

10.09     Asset Purchase Agreement between Southern Gas Co. of
          Delaware, Inc. and Nami Resources Company, LLC
          (incorporated by reference to Exhibit 10.100 to ARO's
          Report on Form 8-K dated November 9, 1999).

10.10     Stock Purchase Agreement between American Resources
          Offshore, Inc. and Southern Gas Holding, LLC
          (incorporated by reference to Exhibit 10.101 to ARO's
          Report on Form 8-K dated November 9, 1999).

10.11     Investment Agreement by and between American Resources
          Offshore, Inc. and Blue Dolphin Exploration Company, as
          amended (incorporated by reference to Exhibit 99.1 to
          ARO's Report on Form 8-K dated December 17, 1999).

10.12     Purchase and Sale Agreement between American Resources
          Offshore, Inc. and Fidelity Oil Holdings, Inc., as
          amended (incorporated by reference to Exhibit 99.2 to
          ARO's Report on Form 8-K dated December 17, 1999).

10.13     Management and Administrative Services Agreement by and
          between Blue Dolphin Services, Inc. and American
          Resources Offshore, Inc. (incorporated by reference to
          Exhibit 99.5 to ARO's Report on Form 8-K dated December
          17, 1999).

10.14     Fourth Amendment to First Amended and Restated Credit
          Agreement (incorporated by reference to Exhibit 99.6 to
          ARO's Report on Form 8-K dated December 17, 1999).

10.15     Consent, Acknowledgment and Ratification (incorporated
          by reference to Exhibit 99.7 to ARO's Report on Form 8-
          K dated December 17, 1999).

10.16     Consulting Agreement (incorporated by reference to
          Exhibit 99.8 to ARO's Report on Form 8-K dated December
          17, 1999).

16.01     Response letter from KPMG LLP to the Securities and
          Exchange Commission (incorporated by reference to
          Exhibit 16.01 to ARO's Report on Form 8-K/A filed on
          January 15, 1999).

23.1      Consent of Ernst & Young LLP.*

23.2      Consent of Netherland, Sewell & Associates, Inc.*

23.3      Consent of Ryder Scott Company, Petroleum Engineers*

23.4      Consent of Richard M. Russell & Associates, Inc.*

23.5      Consent of KPMG LLP.*

* Filed herewith

(b)  Reports on Form 8-K:

     ARO filed a Report on Form 8-K dated November 9, 1999
reporting the amendment of its original promissory notes, the
sale of the properties and operations of its wholly-owned
subsidiary, Southern Gas Co. of Delaware, Inc., to Nami Resources
Company, LLC, and the sale of all of the outstanding stock to
Southern Gas Co. of Delaware, Inc. to Southern Gas Holding, LLC.

     ARO filed a Report on Form 8-K dated December 10, 1999
reporting the completion of its corporate reorganization through
transactions with Blue Dolphin Exploration Company and Fidelity
Oil Holdings, Inc., together with the results of its annual
meeting of stockholders.

     ARO filed a Report on Form 8-K dated December 17, 1999
reporting:

     -    a change of control as a result of shares issued to
          pursuant to the Investment Agreement with Blue Dolphin
          Exploration Company;

     -    the terms of the Investment Agreement with Blue Dolphin
          Exploration Company; the Purchase and Sale Agreement
          with Fidelity Oil Holdings, Inc.; the Asset Purchase
          Agreement with Nami Resources Company, LLC; the Stock
          Purchase Agreement with Southern Gas Holding, LLC; the
          Management and Administrative Services Agreement with
          Blue Dolphin Services, Inc. and the Consulting
          Agreement with MAP II, LLC; and

     -    the terms of the acquisition and modification of ARO's
          notes with Den norske Bank by Blue Dolphin Exploration
          Company.




                AMERICAN RESOURCES OFFSHORE, INC.
                ---------------------------------

                CONSOLIDATED FINANCIAL STATEMENTS
                ---------------------------------

                       FOR THE YEARS ENDED
                       -------------------
                DECEMBER 31, 1999, 1998 AND 1997
                --------------------------------


<PAGE>
                AMERICAN RESOURCES OFFSHORE, INC.
                ---------------------------------

                CONSOLIDATED FINANCIAL STATEMENTS
                ---------------------------------

                       FOR THE YEARS ENDED
                       -------------------
                DECEMBER 31, 1999, 1998 AND 1997
                --------------------------------



TABLE OF CONTENTS
-----------------

                                                        PAGE NO.
                                                        --------

Independent Auditors' Reports                              F-1

Consolidated Balance Sheets                                F-3

Consolidated Statements of Operations                      F-5

Consolidated Statements of Stockholders' Equity            F-6

Consolidated Statements of Cash Flows                      F-9

Notes to Consolidated Financial Statements                F-12

Oil and Gas Producing Activities (Unaudited)              F-26





                  Independent Auditors' Report



The Board of Directors and Shareholders
American Resources Offshore, Inc.



We have audited the accompanying consolidated balance sheets of
American Resources Offshore, Inc. as of December 31, 1999 and
1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of
the Company's management.  Our responsibility is to express an
opinion of these consolidated financial statements based on our
audits.

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of American Resources Offshore, Inc. as of
December 31, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

                                   Ernst & Young LLP

New Orleans, Louisiana
March 10, 2000





<PAGE>
                Independent Auditors' Report
                ----------------------------


The Board of Directors
American Resources Offshore, Inc.:

We have audited the accompanying consolidated statements of
operations, stockholders' equity, and cash flows of American
Resources Offshore, Inc. (formerly American Resources of
Delaware, Inc.) for the year ended December 31, 1997.  These
consolidated financial statements are the responsibility of
the Company's management.  Our responsibility is to express
an opinion on these consolidated financial statements based
on our audits.

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

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the results of operations and cash flows of American
Resources Offshore, Inc. (formerly American Resources of
Delaware, Inc.) and subsidiaries for the year ended December
31, 1997 in conformity with generally accepted accounting
principles.
                                                 KPMG LLP


Houston, Texas
March 30, 1998



<PAGE>
                AMERICAN RESOURCES OFFSHORE, INC.
                ---------------------------------

                   CONSOLIDATED BALANCE SHEET
                   --------------------------

                   DECEMBER 31, 1999 AND 1998
                   --------------------------



                             ASSETS
                             ------

                                                1999      1998
                                                ----      ----
                                            (Dollars in Thousands)

Current assets:
 Cash and cash equivalents                    $   299   $   255
 Accounts and notes receivable:
  Trade                                         1,956     4,094
  Notes                                             -        99
  Related party                                     -       495
  Allowance for doubtful accounts                   -      (474)
                                              -------   -------
                                                1,956     4,214

Deferred tax asset                                  -       298
Prepaid expenses and other                        144       689
                                              -------   -------

  Total current assets                          2,399     5,456
                                              -------   -------

Oil and gas properties, at cost
 (successful efforts method)                   13,642    98,161
Property and equipment, at cost                   158    14,645
                                              -------   -------
                                               13,800   112,806

Less accumulated depreciation,
 depletion and amortization                    (8,064)  (44,253)
                                              -------   -------
  Net property and equipment                    5,736    68,553

Other assets                                       34     2,215
                                              -------   -------

  Total assets                                $ 8,169   $76,224
                                              =======   =======


                                                    (Continued)

See accompanying notes to consolidated financial statements.

                               F-3


<PAGE>
                AMERICAN RESOURCES OFFSHORE, INC.
                ---------------------------------

             CONSOLIDATED BALANCE SHEET (CONTINUED)
             --------------------------------------

                   DECEMBER 31, 1999 AND 1998
                   --------------------------


              LIABILITIES AND STOCKHOLDERS' EQUITY
              ------------------------------------

                                                1999      1998
                                                ----      ----
                                            (Dollars in Thousands)

Current liabilities:
 Accounts payable - Trade                       1,584     7,162
 Unearned revenue                                  63       667
 Accrued expenses and other                       108     3,589
 Current portion of long-term debt                  -    64,033
 Debt in default                                    -    18,500
                                              -------   -------

  Total current liabilities                     1,755    93,951

Long-term debt, excluding current portion       5,000       706
Unearned revenue                                    -     2,971
Deferred tax liability                              -       298

Stockholders' equity (deficit):
 Series 1993 8% convertible preferred stock,
  par value and liquidation preference
  $12.00 per share; 1,000,000 shares
  authorized                                      322     1,871
 Common stock, par value $.00001 per share;
  70,000,000 shares authorized                      1         -
 Additional paid-in-capital                    28,220    22,860
 Retained earnings (deficit)                  (27,129)  (45,720)
 Treasury stock at cost, representing
  201,890 shares of common stock in 1998            -      (713)
                                              -------   -------

  Total stockholders' equity (deficit)          1,414   (21,702)
                                              -------   -------

Commitments and contingencies

  Total liabilities and stockholders' equity  $ 8,169   $76,224
                                              =======   =======

See accompanying notes to consolidated financial statements.

                               F-4




<PAGE>
                     AMERICAN RESOURCES OFFSHORE, INC.
                     ---------------------------------

                   CONSOLIDATED STATEMENTS OF OPERATIONS
                   -------------------------------------

           FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
           ----------------------------------------------------

                                         1999         1998        1997
                                         ----         ----        ----
                                             (Dollars in thousands,
                                               except share data)

Operating Revenues:
 Oil and gas production               $   16,456   $   26,724  $   19,457
 Transportation                              368          790         870
 Marketing                                 3,794        7,751      17,499
 Other                                     1,905          872         206
                                      ----------   ----------  ----------
                                          22,523       36,137      38,032
                                      ----------   ----------  ----------

Operating Expenses:
 Oil and gas production                    2,869        4,967       2,584
 Transportation                              115          235         404
 Marketing                                 4,227        7,910      17,418
 Exploration costs                         2,415        5,056         785
 Depreciation, depletion and
  amortization                            11,621       18,031       8,606
 Impairment of assets                      2,403       36,735       5,096
 Administrative expenses & other           4,757        4,676       3,461
                                      ----------   ----------  ----------
                                          28,407       77,610      38,354
                                      ----------   ----------  ----------

  Operating income (loss)                 (5,884)     (41,473)       (322)
                                      ----------   ----------  ----------

Other income (expense):
 Interest income                              76          101          46
 Interest expense                         (7,263)      (7,437)     (2,747)
 Gain (loss) on sale of assets           (13,378)         236         (22)
 Other                                      (319)           3           6
                                      ----------   ----------  ----------
                                         (20,884)      (7,097)     (2,717)
                                      ----------   ----------  ----------

     Loss before income tax benefit
       and extraordinary gain            (26,768)     (48,570)     (3,039)

Income tax benefit                             -       (2,346)     (1,192)
                                      ----------   ----------  ----------
Loss before extraordinary gain           (26,768)     (46,224)     (1,847)
Extraordinary gain                        45,366            -           -
                                      ----------   ----------  ----------

     Net income (loss)                $   18,598   $  (46,224) $   (1,847)

Preferred dividends                           (7)         (49)        (48)
                                      ----------   ----------  ----------

     Net income (loss) attributable to
      common shares                   $   18,591   $  (46,273) $   (1,895)
                                      ==========   ==========  ==========

Per common share:
 Basic:
  Loss before extraordinary gain      $    (1.61)  $    (4.61) $    (0.21)
  Extraordinary gain                        2.73            -           -
                                      ----------   ----------  ----------
  Net income (loss)                   $     1.12   $    (4.61) $    (0.21)
                                      ==========   ==========  ==========

Weighted average number of common
 shares outstanding                   16,607,830   10,029,415   9,021,810
                                      ==========   ==========  ==========

  Diluted:
   Loss before extraordinary gain     $    (1.52)  $    (4.61) $    (0.21)
   Extraordinary gain                       2.58            -           -
                                      ----------   ----------  ----------
   Net income (loss)                  $     1.06   $    (4.61) $    (0.21)
                                      ==========   ==========  ==========

Weighted average number of common
 shares and dilutive potential common
 shares                               17,582,675   10,029,415   9,021,810
                                      ==========   ==========  ==========


See accompanying notes to consolidated financial statements.


                                    F-5





<PAGE>
                  AMERICAN RESOURCES OFFSHORE, INC.
                  ---------------------------------
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
            ----------------------------------------------
                 FOR THE YEAR ENDED DECEMBER 31, 1999
                 ------------------------------------

              (Dollars in thousands, except share data)

<TABLE>
                                       8% Preferred Stock            Common Stock
                                   ----------------------------    ----------------
                                    Number             Discount     Number           Additional
                                      of       Par        on          of      Par     Paid-in    Retained  Treasury
                                    Shares    Value   Preferred     Shares   Value    Capital    Earnings   Stock     Total
                                    ------    -----   ---------     ------   -----    -------    --------   -----     -----

<S>                                <C>        <C>       <C>       <C>          <C>    <C>        <C>       <C>       <C>
Balance, December 31, 1998          230,516   $2,766    $(895)    10,251,853    -     $22,860    $(45,720) $(713)    $(21,702)

Conversion of preferred stock
 to common stock                   (190,834)  (2,290)     741        190,834    -       1,549

Issuance of common stock
 dividend                                                             18,442                7          (7)

TECO Warrant Exercise                                              2,751,852    -

Blue Dolphin Exploration
 purchase                                                         39,509,457    1       4,517                           4,518

Retire Treasury Stock                                               (201,890)   -        (713)              713

Net income                                                                                         18,598              18,598
                                   -------    ------    -----     ---------- ----     -------    --------  -----     --------

Balance, December 31, 1999          39,682    $  476    $(154)    52,520,548   $1     $28,220    $(27,129)    $0       $1,414
                                   =======    ======    =====     ========== ====     =======    ========  =====     ========
</TABLE>
See accompanying notes to consolidated financial statements.

                                             F-6


<PAGE>
                  AMERICAN RESOURCES OFFSHORE, INC.
                  ---------------------------------
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
            ----------------------------------------------
                 FOR THE YEAR ENDED DECEMBER 31, 1998
                 ------------------------------------

              (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
                                        8% Preferred Stock            Common Stock
                                    ----------------------------   ----------------
                                    Number             Discount     Number           Additional
                                      of       Par        on          of      Par     Paid-in    Retained  Treasury
                                    Shares    Value   Preferred     Shares   Value    Capital    Earnings   Stock     Total
                                    ------    -----   ---------     ------   -----    -------    --------   -----     -----

<S>                                <C>        <C>       <C>       <C>          <C>    <C>        <C>       <C>       <C>
Balance, December 31, 1997         268,851    $3,226    $(1,044)  10,193,676   -      $22,500    $    553  $(713)    $ 24,522

Conversion of preferred stock
 to common stock                   (38,335)     (460)       149       38,335   -          311           -      -            -

Issuance of common stock
 dividend                                -         -          -       19,842   -           49         (49)     -            -

Net income                               -         -          -            -   -            -     (46,224)     -      (46,224)
                                   -------    ------    -------   ---------- ---      -------    --------  -----     --------
Balance, December 31, 1998         230,516    $2,766    $  (895)  10,251,853   -      $22,860    $(45,720) $(713)    $(21,702)
                                   =======    ======    =======   ========== ===      =======    ========  =====     ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                   F-7




<PAGE>
                  AMERICAN RESOURCES OFFSHORE, INC.
                  ---------------------------------
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
            ----------------------------------------------
                 FOR THE YEAR ENDED DECEMBER 31, 1997
                 ------------------------------------

              (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
                        8% Preferred Stock                   Common Stock
                     ----------------------------          ----------------
                      Number          Discount              Number                      Additional
                        of     Par       on        Net        of      Par   Convertible  Paid-in   Retained  Treasury
                      Shares  Value  Preferred    Value     Shares   Value   Securities  Capital   Earnings   Stock     Total
                      ------  -----  ---------    -----     ------   -----   ----------  -------   --------   -----     -----

<S>                  <C>       <C>      <C>       <C>     <C>            <C>   <C>       <C>       <C>      <C>       <C>
Balance,
 December 31, 1996   268,851   $3,226   $(1,044)  $2,182   6,520,296     -     $4,998    $16,453   $2,537   $ (52)    $26,118

Issuance of common
 stock dividend on
 8% preferred  stock       -        -         -        -      21,508     -          -         48      (48)      -           -

Conversion of warrants
 to common stock           -        -         -        -           8     -          -          -        -       -           -

Conversion of
 convertible securities
 and dividend to
 common stock              -        -         -        -   3,101,864     -     (4,520)     4,599      (79)      -           -

Redemption of
 convertible
 securities                -        -         -        -           -     -       (478)      (100)     (11)      -        (589)

Common stock issued,
 net of placement
 costs                     -        -         -        -     500,000     -          -      1,133        -       -       1,133

Common stock and
 options issued
 for professional
 services                  -        -         -        -      50,000     -          -        117        -       -         117

Exercise of Put
 Warrants                  -        -         -        -           -     -          -        250        -       -         250

Treasury stock
 purchased                 -        -         -        -           -     -          -          -        -    (661)       (661)

Net income                 -        -         -        -           -     -          -          -   (1,846)      -      (1,846)
                     -------   ------   -------   ------  ----------  ----     ------    -------   ------   -----     -------

Balance,
 December 31,
 1997                268,851   $3,226   $(1,044)  $2,182  10,193,676     -          -    $22,500   $  553   $(713)    $24,522
                     =======   ======   =======   ======  ==========  ====     ======    =======   ======   =====     =======
</TABLE>


See accompanying notes to consolidated financial statements.


                                     F-8


<PAGE>
                     AMERICAN RESOURCES OFFSHORE, INC.
                     ---------------------------------

                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                   -------------------------------------

           FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
           ----------------------------------------------------

                                         1999         1998       1997
                                         ----         ----       ----
                                             (Dollars in thousands)

Operating activities:
 Net income (loss)                    $ 18,598     $(46,224)   $ (1,847)
 Adjustments to reconcile net income
  to net cash provided by operating
  activities:
   Depreciation, depletion and
    amortization                        11,621       18,031       8,889
   Impairment of assets                  2,403       36,735       5,096
   Exploration costs                         -        5,056         785
   Deferred income taxes                     -       (2,054)     (1,242)
   (Gain) loss on sale of assets        13,378         (236)         22
   Extraordinary gain                  (45,366)           -           -
   Other                                  (650)         916         330
   Change in operating assets
    and liabilities:
     Change in accounts receivable       2,258          310       1,822
     Change in prepaid expenses
      and other                          2,226         (376)        198
     Change in accounts payable         (5,578)       6,199      (3,898)
     Change in accrued expenses
      and other                          4,153        2,889         (11)
     Change in deferred revenue         (3,575)         723        (714)
                                      --------     --------    --------

  Net cash provided by (used in)
   operating activities               $   (532)    $ 21,969    $  9,430
                                      --------     --------    --------

Investing activities:
 Expenditures on oil and gas
  properties                              (410)     (56,066)     (9,699)
 Expenditures on property and equipment   (524)      (2,711)       (669)
 Proceeds from sales of assets          24,817        2,390           4
 Change in notes receivable                  -           97         209
 Sale of Common Stock of Century
  Offshore                                 124            -      (2,500)
                                      --------     --------    --------

  Net cash provided by (used in)
   investing activities               $ 24,007     $(56,290)   $(12,655)
                                      ========     ========    ========

See accompanying notes to financial statements.

                                    F-9


<PAGE>
                     AMERICAN RESOURCES OFFSHORE, INC.

             Consolidated Statements of Cash Flows (Continued)

           For the Years Ended December 31, 1999, 1998 and 1997


                                         1999         1998        1997
                                         ----         ----        ----
                                             (Dollars in thousands)

Financing activities:
 Proceeds from borrowings             $      -     $40,773     $11,902
 Proceeds from sale of stock
  to Den norske                              -           -       1,330
 Payments on borrowings from
  related parties                            -           -        (490)
 Payments on other borrowings          (27,977)     (6,334)     (7,048)
 Change in deferred financing
  and convertible issuance costs             -      (1,043)       (195)
 Stock issuance and registration costs       -           -        (197)
 Issuance of common stock                4,546           -           -
 Redemption of convertible securities        -           -        (589)
 Purchase of treasury stock                  -           -        (661)
                                      --------     -------     -------

  Net cash provided by (used in)
     financing activities             $(23,431)    $33,396     $ 4,052
                                      --------     -------     -------

  Increase (decrease) in cash               44        (925)        827

Cash and cash equivalents at
 beginning of year                         255       1,180         353
                                      --------     -------     -------

Cash and cash equivalents at
 end of year                          $    299     $   255     $ 1,180
                                      ========     =======     =======


NON-CASH TRANSACTIONS:

During 1999, the Company sold its Appalachian properties and operations in
exchange for the release by Den norske Bank of $12.5 million of
indebtedness.

During 1998, the Company expanded its holdings in the Gulf by acquiring
properties from TECO for $57.7 million. TECO agreed to seller-finance $18.5
million of the purchase price in the form of a promissory note (see Note
3).

During 1997, holders of $5,538,483 of the Convertible Securities converted
the securities into 3,052,188 shares of Common Stock and received 49,676
shares of Common Stock dividends related to the Convertible Securities.
The remaining $461,517 was redeemed by the Company for a price of $589,023.

During 1997, the Company entered into an Amendment to Lead Generation
Agreement with Corporate Relations Group (CRG) to provide additional
services in the public relations area.  The amendment provided for the
termination of options previously granted to CRG by ARO and the issuance to
CRG of 50,000 shares of registered stock in ARO.  The shares were valued at
$1.94 per share which represents the closing bid price on April 21, 1997,
the date of the amendment.

The Company declared stock dividends and issued 18,442, 19,842 and 21,508
shares of common stock to holders of the Series 1993 and Series B Preferred
Stock during 1999, 1998 and 1997, respectively.


See accompanying notes to consolidated financial statements.

                                   F-10




<PAGE>
                AMERICAN RESOURCES OFFSHORE, INC.
                ---------------------------------

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           ------------------------------------------

                DECEMBER 31, 1999, 1998 AND 1997
                --------------------------------


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (A)  GENERAL

          American Resources Offshore, Inc. (ARO), (formerly
          known as American Resources of Delaware, Inc.), a
          Delaware corporation organized on August 14, 1992, was
          formed to acquire the assets and assume certain
          liabilities of Standard Oil and Exploration of
          Delaware, Inc. (SOE) pursuant to SOE's Chapter 11
          Bankruptcy Joint Plan of Reorganization which was
          consummated effective April 22, 1993.

          ARO is involved in the exploration, development and
          production of oil and gas properties in the Gulf Coast
          Region offshore Louisiana and Texas.  During 1999, ARO
          sold its Appalachian oil and gas properties and
          operations and wholly-owned subsidiary, Southern Gas
          Co. of Delaware, Inc. (Southern Gas), which was
          involved in the production, gathering, purchasing,
          processing, transporting and selling of natural gas in
          the State of Kentucky.  These activities are considered
          to be one business segment for financial reporting
          purposes.

     (B)  PRINCIPLES OF CONSOLIDATION

          The consolidated financial statements include the
          accounts of ARO and its former Subsidiary, collectively
          referred to as the Company.  All significant
          intercompany balances and transactions have been
          eliminated in consolidation.

          Certain reclassifications have been made to prior year
          financial statements to conform with the current year
          presentation.

     (C)  CASH EQUIVALENTS

          For purposes of the statement of cash flows, the
          Company considers any liquid investments with an
          original maturity of three months or less when
          purchased as a cash equivalent.

     (D)  OIL AND GAS PROPERTIES

          The Company uses the successful efforts method of
          accounting for its oil and gas operations.  The costs
          of unproved leaseholds are capitalized pending the
          results of exploration efforts.  Significant unproved
          leasehold costs are assessed periodically, on a
          property-by-property basis, and a loss is recognized to
          the extent, if any, that the cost of the property has
          been impaired.  The costs of individually insignificant
          unproved leaseholds estimated to be nonproductive are
          amortized over estimated holding periods based on
          historical experience.  The Company assesses the
          impairment of capitalized costs of proved oil and gas
          properties and other long-lived assets in accordance
          with Statement of Financial Accounting Standards No.
          121 (SFAS No. 121), "Accounting for the Impairment of
          Long-Lived Assets and for Long-Lived Assets to be
          Disposed Of."  Under this method, the Company generally
          assesses its oil and gas properties on a depletable
          unit basis utilizing its current estimate of future
          revenues and operating expenses.  In the event net
          undiscounted cash flow is less than the carrying value,
          an impairment loss is recorded based on estimated fair
          value, which would consider discounted future net cash
          flows.  Impairments of operating assets are included in
          the balance sheet as adjustments to the oil and gas
          properties asset account.  Exploratory dry holes and
          geological and geophysical charges on exploratory
          projects are expensed.

                                                  (Continued)

                              F-11



<PAGE>
          Depletion of proved leaseholds and amortization and
          depreciation of the costs of all development and
          successful exploratory drilling are provided by the
          unit-of-production method based upon estimates of
          proved and proved-developed oil and gas reserves,
          respectively, for each property.  The estimated costs
          of dismantling and abandoning offshore site remediation
          are provided currently using the unit-of-production
          method.  Significant changes in the various estimates
          discussed above could affect the financial position and
          results of operations of the Company.

          On sale of an entire interest in an unproved property
          for cash or cash equivalent, gain or loss on the sale
          is recognized, taking into consideration the amount of
          any recorded impairment if the property had been
          assessed individually.  If a partial interest in the
          unproved property is sold, the amount received is
          treated as a reduction of the cost of the interest
          retained.

     (E)  PROPERTY AND EQUIPMENT

          Property and equipment are stated at cost.
          Expenditures representing additions or improvements are
          capitalized.  Maintenance and repairs are charged to
          expense as incurred.  Upon retirement or disposition,
          costs and accumulated depreciation are removed from the
          accounts and the resulting gain or loss is recognized
          in income.

          Depreciation and amortization are computed using the
          straight-line method over the estimated useful lives of
          the assets.

                                              Estimated
                                             useful lives
                                               (years)


               Pipeline support facilities        7-15
               Field equipment                      7
               Other                              3-7

     (F)  GAS MARKETING ACTIVITIES

          In the conduct of its marketing activities, the Company
          enters into both long-term and short-term contracts to
          purchase and/or sell at a future date specified
          quantities of products at specified prices.  Settlement
          of such contracts may occur through the purchase, sale
          and/or exchange of products in the open market or from
          production.  Resulting gains or losses, if any, are
          recorded in the month of delivery.

     (G)  PIPELINE TRANSPORTATION REVENUE

          Revenue from the transportation of gas is recognized on
          the accrual basis as products are transported.

                                                  (Continued)

                              F-12



<PAGE>
     (H)  DEFERRED FINANCING COSTS

          In connection with obtaining credit facilities, the
          Company has capitalized third party costs directly
          associated with the closing thereof.  The costs are
          being amortized over the period of the credit
          facilities.  For the years ended December 31, 1999,
          1998 and 1997, approximately $1,180,538, $338,000 and
          $96,000, respectively, have been amortized to expense
          in connection with these costs.

     (I)  INCOME TAXES

          The Company follows the asset and liability method of
          accounting for income taxes.  Under this method,
          deferred tax assets and liabilities are recognized for
          the future tax consequences attributable to differences
          between the financial statement carrying amounts of
          existing assets and liabilities and their respective
          tax basis and operating loss and tax credit
          carryforwards.  Deferred tax assets and liabilities are
          measured using enacted tax rates expected to apply to
          taxable income in the years in which those temporary
          differences are expected to be recovered or settled.
          Under the asset and liability method, the effect on
          deferred tax assets and liabilities of a change in tax
          rates is recognized in income in the period that
          includes the enactment date.

     (J)  STOCK-BASED COMPENSATION

          Statement of Financial Accounting Standards No. 123,
          "Accounting for Stock-Based Compensation," (Statement
          No. 123) encourages, but does not require companies to
          record compensation cost for stock-based employee
          compensation plans at fair value.  The Company has
          elected to continue to account for stock-based
          compensation using the intrinsic value method
          prescribed in Accounting Principles Board Opinion No.
          25, "Accounting for Stock Issued to Employees," (APB
          Opinion 25) and related interpretations.  Accordingly,
          compensation cost for stock options issued to employees
          and directors is measured as the excess, if any, of the
          quoted market price of the Company's stock at the date
          of grant over the amount an employee must pay to
          acquire the stock.

     (K)  EARNINGS PER SHARE

          The Company adopted Statement of Financial  Accounting
          Standards No. 128, "Earnings per Share" (SFAS No. 128)
          in 1997.  This statement establishes standards for
          computing and presenting earnings per share and
          requires, among other things, dual presentation of
          basic and diluted earnings per share on the face of the
          statement of operations.

          The following table provides a reconciliation between
          basic and diluted earnings (loss) per share:


                                                  (Continued)

                              F-13



<PAGE>
                                            Weighted
                                            Average
                                             Common       Per
                                Net Income   Shares      Share
                                  (Loss)  Outstanding   Amount*
                                ---------------------   -------
                                (Thousands except share amounts)

Year Ended December 31, 1999:
 Basic (loss) per share          $ 21,002  16,607,830    $ 1.26
 Dilutive effect of stock
  options and convertible
  preferred stock                       -     974,845         -
                                 --------  ----------
 Diluted earnings per share      $ 21,002  17,582,675    $ 1.19
                                 ========  ==========

Year Ended December 31, 1998:
 Basic (loss) per share          $(46,224) 10,029,415    $(4.61)
 Diluted (loss) per share        $(46,224) 10,029,415    $(4.61)
                                 ========  ==========

Year Ended December 31, 1997:
 Basic (loss) per share          $ (1,847)  9,021,810    $(0.21)
 Diluted (loss) per share        $ (1,847)  9,021,810    $(0.21)
                                 ========  ==========

          *Adjusted for preferred stock dividends of $6,555,
          $49,383 and $47,647 for 1999, 1998 and 1997,
          respectively.

          At December 31, 1998 and 1997, the stock options,
          warrants and Convertible Preferred Stock were not
          included in the computation of diluted loss per share
          because the effect of their assumed exercise and
          conversion would have an antidilutive effect on the
          computation of diluted loss per share.

     (L)  USE OF ESTIMATES

          Management of the Company has made a number of
          estimates and assumptions relating to the reporting of
          assets and liabilities and disclosure of contingent
          assets and liabilities to prepare these consolidated
          financial statements in conformity with generally
          accepted accounting principles.  Actual results could
          differ from the estimates.

(2)  1999 CORPORATE RESTRUCTURING

     On December 2, 1999, ARO closed the sale to Blue Dolphin
     Exploration of 39,509,457 shares of its Common Stock,
     resulting in Blue Dolphin Exploration owning approximately
     75% of the combined voting power of all classes of ARO's
     voting securities.  The purchase price for the shares was
     $4,517,734 after taking into consideration contractual price
     adjustments which were determined at the closing of the
     purchase.  The contract between ARO and Blue Dolphin
     Exploration relating to this transaction is referred to as
     the "Investment Agreement."

     Also on December 2, 1999, ARO closed the sale to Fidelity
     Oil Holdings, Inc. (Fidelity Oil) of 80% of its interest in
     all of its oil and gas properties located in the Gulf of
     Mexico.  The purchase price for the 80% interest was
     $24,238,318 after taking into consideration contractual
     price adjustments which were determined at the closing of
     the purchase.  The

                                                  (Continued)


                              F-14


<PAGE>
     contract between ARO and Fidelity Oil  relating to this
     transaction is referred to as the "Purchase and Sale
     Agreement."

     Pursuant to the terms of  the Investment Agreement and
     Purchase and Sale Agreement, prior to or at the closing of
     said agreements, the following transactions were also
     consummated:

     -    ARO sold all of its Appalachian oil and gas properties
          and operations located in Kentucky and Tennessee to
          Nami Resources Company LLC (Nami Resources) in exchange
          for:

               the assumption by Nami Resources of $12.5 million
               of ARO's indebtedness to Den norske Bank and the
               release of ARO by Den norske Bank from any further
               liability on the indebtedness assumed by Nami
               Resources (the several promissory notes evidencing
               ARO's senior debt held by Den norske Bank are
               collectively referred to as the "DnB Note."); and

               ARO's release from any further obligation under
               its guarantee issued to Austin Energy Funding with
               respect to the future production rates of wells
               located on the Appalachian oil and gas properties
               sold to Nami Resources.

          Separately, ARO sold the stock of Southern Gas to an
          affiliate of one of its former directors in exchange
          principally for ARO's release from certain liabilities
          it owed to the former director and his affiliates and
          SGH's agreement to indemnify ARO for past operations
          and activities of Southern Gas.

     -    The DnB Note and all related security interests and
          liens were assigned to Blue Dolphin Exploration under
          terms and conditions more particularly described in
          Note 4.

     -    ARO agreed that Den norske Bank will also be entitled
          to receive a possible future payment for its sale of
          the DnB Note under terms and conditions more
          particularly described in Note 4.

     -    Two holders of approximately 83% of ARO's Series 8%
          Preferred Stock (the "Preferred Stock"), both of whom
          were members of ARO's Board of Directors at the time
          these transactions were approved, converted their
          preferred shares into shares of our Common Stock in
          accordance with the existing terms of the Preferred
          Stock.

     -    ARO amended its Amended and Restated Certificate of
          Incorporation to increase its total authorized capital
          stock from 53,000,000 to 73,000,000 shares and our
          authorized Common Stock from 50,000,000 to 70,000,000
          shares.

     -    ARO amended its Amended and Restated Certificate of
          Incorporation to eliminate staggered, three-year terms
          of office for board members.

     -    ARO's officers and directors were replaced by persons
          selected by Blue Dolphin Exploration.

     -    ARO entered into a consulting arrangement under which
          some of its former management personnel will assist its
          new management selected by Blue Dolphin Exploration
          with transition matters (see Note 9).

                                                  (Continued)

                              F-15



<PAGE>
     -    ARO and Blue Dolphin Services Co. ("Blue Dolphin
          Services"), an affiliate of Blue Dolphin Exploration,
          entered into a contractual arrangement for management
          and administrative services(see Note 9).

     The transactions described above were voted upon and
     approved or ratified by ARO's stockholders on December 1,
     1999.

(3)  TECO ACQUISITION

     On March 5, 1998, the Company purchased interests in 41
     leaseblocks in the Gulf of Mexico from TECO Oil & Gas, Inc.
     (TECO).  The purchase consisted of an average 30% interest
     in approximately 198,300 acres containing 5 producing wells;
     partnership interests in Louisiana Offshore Ventures and
     Texas 3D Ventures and access to approximately 12,500 square
     miles of 3-D seismic data.

     As consideration for the properties, the Company paid $57.7
     million, of which $1.3 million was paid in cash upon
     execution of the Purchase and Sale Agreement, $21.4 million
     was paid from funds borrowed under the Company's credit
     facility, and $16.5 million was paid from funds borrowed
     under bridge loans provided by DNB Energy Assets, Inc.
     (DNB),  successor to Den norske Bank, AS (Den norske Bank),
     $1.5 million of which was due July 1, 1998, with the
     remainder due September 30, 1998.  The balance of
     $18,500,000 was in the form of a promissory note in favor of
     TECO (TECO Note).  The bridge loans from DNB were amended to
     extend the maturity date to December 31, 1998.  DNB also
     amended the interest rate to either the prime rate plus 1%
     or the LIBOR plus 4%.

     Additionally, pursuant to the terms of a warrant agreement
     entered into between the parties relative to the TECO Note,
     TECO was vested with the rights to acquire 600,000 shares of
     ARO's common stock at $2.67 per share if the TECO Note was
     not paid in full by October 1, 1998.  Additionally, the TECO
     warrant agreement granted TECO warrants to acquire Common
     Stock equal to 10% of the Company's outstanding Common Stock
     and options if the TECO Note was not paid in full by October
     1, 1998.  This percentage increased by an additional 5% on
     January 1, 1999, and by an additional 5% on April 1, 1999
     (collectively, "Secondary Warrants").  The price per share
     of Common Stock evidenced by the Secondary Warrants was
     $.00001.  On June 15, 1999, TECO exercised its rights under
     the Warrant Agreement to acquire 2,004,693 shares of Common
     Stock.  By letter dated June 29, 1999, TECO exercised the
     balance of its Secondary Warrants for 747,159 common shares,
     and the shares were issued on July 28, 1999.  Therefore, a
     total of 2,751,852 common shares were issued to TECO
     pursuant to the TECO Warrant Agreement.  The 600,000 First
     Warrants expired by their own terms on July 1, 1999.

     On March 6, 1999, TECO sold the TECO Note to R. Hale Energy
     Services, Inc. (Hale Energy).  This liability was settled on
     December 2, 1999, for a final payment of approximately
     $990,400 and was funded from a portion of the proceeds of
     ARO's sale of Common Stock to Blue Dolphin Exploration
     Company (Blue Dolphin Exploration) which is more
     particularly discussed in Note 2, above.


                                                  (Continued)


                              F-16


<PAGE>
(4)  LONG-TERM DEBT

     A summary of long-term debt follows:

                                       December 31,   December 31,
                                           1999           1998
                                       ------------   ------------
                                         (Dollars in thousands)

Promissory note, payable to Blue
 Dolphin Exploration, due December 31,
 2000, with interest payable at
 maturity at the Floating Rate
 plus 1%,or LIBO Rate plus 4% per
 annum, secured by all of the
 Company's oil and gas properties         $5,000        $48,173

Term Loan A, as amended, payable
 to DNB, due December 31, 1998,
 with interest payable monthly at
 the Floating Rate plus 1%, or LIBO
 Rate plus 4% per annum, secured by
 substantially all of the Company's
 oil and gas   properties.                     -         15,000

Term Loan B payable to DNB, due
 December 31, 1998, with interest
 payable monthly at the Floating Rate
 plus 1%, or LIBO Rate plus 4% per
 annum, secured by substantially all
 of the Company's oil and gas properties.      -            550

Note payable to TECO, with interest
 at 14% per annum, increasing 2% each
 quarter the note remains unpaid, with
 a maximum rate of 18%, due October 1,
 1998.                                         -         18,500

Note payable to related party, recourse
 only to specific properties, interest
 payable at prime rate plus 1% in
 connection with the purchase of oil
 and gas properties from Prima
 Capital, LLC.                                 -            987

Other notes                                    -             29
                                          ------        -------
                                           5,000         83,239

Less - Current portion                         -        (64,033)
Less - Debt in default                         -        (18,500)
                                          ------        -------


Long-term debt                            $5,000        $   706
                                          ======        =======


     As of December 31, 1998, the Company was in default under
     its credit agreement with Den norske Bank.  Effective August
     1, 1999, the Company and DNB entered into a Third Amendment
     to First Amended and Restated Credit Agreement which
     combined the original promissory notes under the credit
     facility and bridge loans, with a current outstanding
     principal balance of $63,723,000, into two promissory notes:
     i) a note in the amount of $51,223,000 which was the primary
     obligation of the Company and is referred

                                                  (Continued)


                              F-17


<PAGE>
     to hereunder as the "DnB Note;" and  ii) a note in the
     amount of $12,500,000 which was the primary obligation of
     Southern Gas and guaranteed by the Company.  Under the terms
     of the Guaranty Agreement entered into between the Company
     and DNB, the Company would be released from its guarantee of
     the Southern Gas note at such time as the Appalachian oil
     and gas operations of Southern Gas were sold.  The sale of
     the Appalachian oil and gas operations of Southern Gas was
     completed during the fourth quarter of 1999; therefore, the
     Company is no longer a guarantor of the loan.

     At the closing of the Investment Agreement with Blue Dolphin
     Exploration on December 2, 1999, the Company paid $27
     million on the DnB Note, after which Den norske Bank sold to
     Blue Dolphin Exploration the DnB Note and all related
     security interests and liens for the right to receive a
     contingent, future payment.

     ARO agreed that Den norske Bank will also be entitled to
     receive a possible future payment for its sale of the DnB
     Note if the combined, cumulative net revenues received by
     ARO and Fidelity Oil  that are attributable to ARO's proved
     oil and gas resources in the Gulf of Mexico as of January 1,
     1999 exceed $30.0 million during the period from January 1,
     1999 through December 31, 2001.  If that occurs, Den norske
     Bank will be entitled to an amount equal to 50% of those net
     revenues in excess of $30.0 million during that three-year
     period.  If any contingent amount becomes payable to Den
     norske Bank, 80% of it will be paid by Fidelity Oil  and ARO
     will pay 20%.

     When Blue Dolphin Exploration purchased ARO's DnB Note, it
     modified the DnB Note and related loan documents so that it:

     -    reduced the principal amount ARO owes under the DnB
          Note to $5.0 million;

     -    deferred its right to receive payments under the DnB
          Note through December 31, 2000, if ARO remains in
          compliance with the modified loan documents and the
          Investment Agreement through that same date;

     -    agreed to forgive all of the remaining indebtedness,
          including all principal and interest, under the DnB
          Note, if ARO remains in compliance with the modified
          loan documents and the Investment Agreement through
          December 31, 2000; and

     -    agreed to refrain from exercising or enforcing through
          December 31, 2001, any of its rights that arose because
          of ARO's defaults under the DnB Note and related liens
          and loan documentation before they were modified, if
          ARO remains in compliance with the modified loan
          documents and the Investment Agreement through December
          31, 2001.

     In order to complete the acquisition of the TECO properties,
     on March 5, 1998, the Company executed the TECO Note.  The
     TECO Note was settled on December 2, 1999, for a final
     payment of approximately $990,400 and was funded from a
     portion of the proceeds of ARO's sale of Common Stock to
     Blue Dolphin Exploration more particularly described in Note
     2.

     On October 10, 1997, the Company borrowed $1.5 million from
     Prima, a limited liability company in which a former
     officer/director owns a 20% interest, providing for the
     acquisition of an interest in certain producing and non-
     producing oil and gas properties.  This note was settled at
     the closing of the Investment Agreement with Blue Dolphin
     Exploration for $550,000.

                                                  (Continued)


                              F-18



<PAGE>
(5)  UNEARNED REVENUE

     On May 22, 1996, the Company conveyed an approximate 2.2
     billion cubic feet (Bcf) volumetric production payment in
     Appalachian wells recently purchased from AKS through a
     facility sponsored by William Energy Services Company, a
     subsidiary of the Williams Companies, Inc. and structured by
     NationsBank.  The Company received $4,300,000 ($4,147,300
     after related costs) for the production payment, which has
     an anticipated six year term, and executed a guarantee in
     favor of Austin Energy Funding with respect to the future
     production rates of the wells.  Of the funds received,
     $2,500,000 was used to reduce the Company's credit facility
     with its primary lender.  The Company used the remainder of
     the funds for working capital and further acquisition and
     development activities in the Gulf Coast Region.  As a
     result of the transaction, the Company recorded unearned
     revenue which was being recognized as the required volumes
     were delivered under the production payment conveyance.  As
     part of the sale of ARO's Appalachian properties and
     operations to Nami Resources during 1999, ARO was released
     from any further obligation under its guarantee to Austin
     Energy Funding.

     ARO sells all of its current gas production through the
     operators of the properties and uses forward sales contracts
     from time to time to achieve more predictable cash flows and
     to reduce the effect of fluctuations in gas prices.  In
     total, a loss of $198,000, included in production revenues,
     was recognized during 1999 relating to losses from hedging
     transactions; and there is $63,000 of unamortized unearned
     revenue as of December 31, 1999.  ARO continuously
     reevaluates its sales contracts in light of market
     conditions, commodity price forecasts, capital spending
     plans and debt service requirements.

(6)  INCOME TAXES

     The provision (benefit) for income taxes for the years ended
     December 31, 1999, 1998 and 1997 is summarized as follows:

                                 1999        1998         1997
                                 ----        ----         ----
                                    (Dollars in thousands)

     Current tax expense        $   -        $   1         $ 49
                                =====        =====         ====

     Deferred tax (benefit)     $   -        $(292)     $(1,242)
                                =====        =====      =======

     The Company's effective tax rate (0%) in 1999 is less than
     the U.S. federal income tax rate of 34% primarily because of
     changes to its valuation allowance for deferred tax assets.
     The Company's effective tax benefit (5%) in 1998 is less
     than the effective tax rate because of changes to its
     valuation allowance for deferred tax assets.  The Company's
     effective tax benefit (39%) in 1997 differs from the U.S.
     federal income tax rate of 34% primarily because of state
     income taxes.

     The tax effects of temporary differences that give rise to
     significant portions of the deferred tax assets and deferred
     tax liabilities at December 31, 1999 and 1998 are presented
     as follows:

                                                  (Continued)

                              F-19


<PAGE>
                                                1999      1998
                                                ----      ----
                                            (Dollars in thousands)

Deferred tax assets:
 Net operating loss carryforwards             $ 7,150   $ 6,970
 Basis differences in oil and gas
  properties                                    1,320    11,978
 Basis differences in unconsolidated
  investee                                          -     1,400
 Allowance for doubtful accounts                    -       298
 Other                                              -        17
                                              -------   -------
   Total gross deferred tax assets              8,470    20,663

Less - Valuation allowance                    ( 8,470)  (19,239)
                                              -------   -------
 Net deferred tax assets                                  1,424

Deferred tax liabilities:
 Basis differences in oil and gas
  properties                                  $     -         -
 Basis differences in property and
  equipment                                         -     1,308
 Other                                              -        16
                                              -------   -------
  Deferred tax liabilities                          -     1,424
                                              -------   -------

  Net deferred tax asset (liability)                -       $(0)
                                              =======   =======

Current deferred tax asset                    $     -     $ 298
                                              =======   =======

Non-current deferred tax liability            $     -      $298
                                              =======   =======


     In assessing the realizability of deferred tax assets,
     management considers whether it is more likely than not that
     some portion or all of the deferred tax assets will not be
     realized.  The Company has established a valuation allowance
     for such deferred tax assets to the extent such amounts are
     not likely to be utilized to offset existing deferred tax
     liabilities reversing in the same period.

     At December 31, 1999, the Company had approximately $21.0
     million of net operating loss (NOL) carryforwards available
     to offset future taxable income for federal purposes.  The
     carryforwards expire from 2000 to 2015.

     The Tax Reform Act of 1986 significantly limits the amount
     of NOL available to offset future taxable income when a
     change of ownership occurs.  Such a limitation of the NOL in
     a given year could prevent the Company from realizing the
     full benefit of the NOL within the 15 year statutory limit.

(7)  FINANCIAL INSTRUMENTS

     The carrying values of cash and cash equivalents,
     receivables and accounts payable approximate fair value due
     to the short term nature of these instruments.

(8)  STOCKHOLDERS' EQUITY

     The Company has authorized seventy million (70,000,000)
     shares of Common Stock.  Outstanding at December 31, 1999
     and 1998 are 52,520,548 and 10,251,853 shares, respectively.

                                                  (Continued)

                              F-20




<PAGE>
     The Company has authorized one million (1,000,000) shares of
     Series 1993 Preferred Stock and two million (2,000,000)
     shares of Series Preferred Stock subject to designation by
     the Board of Directors:

     Series 1993 Preferred Stock is convertible into one share of
     common stock with a liquidation preference of $12 per share.
     Dividends are payable semiannually at the rate of 8% per
     share based upon the total number of shares outstanding.
     Outstanding at December 31, 1999 and 1998 are 39,682 and
     230,516 shares, respectively.

     The Company paid dividends on the Series 1993 Preferred
     Stock through the issuance of 18,442 and 19,842 shares of
     common stock in 1999 and 1998, respectively.

     In conjunction with the purchase of properties from TECO,
     the parties entered into a warrant agreement (TECO Warrant
     Agreement) granting TECO warrants to acquire 600,000 shares
     of common stock of the Company (First Warrants) at a price
     of $2.67 per share if the TECO Note was not paid in full by
     October 1, 1998.  Additionally, the TECO Warrant Agreement
     granted TECO warrants to acquire common stock equal to 10%
     of the Company's outstanding common stock and options if the
     TECO Note was not paid in full by October 1, 1998.  This
     percentage increased by an additional 5% on January 1, 1999,
     and by an additional 5% on April 1, 1999 (collectively,
     Secondary Warrants).  The price per share of common stock
     evidenced by the Secondary Warrants was $.00001.  On June
     15, 1999, TECO exercised its rights under the Warrant
     Agreement to acquire 2,004,693 shares of the Company's
     common stock.  By letter dated June 29, 1999, TECO exercised
     the balance of its Secondary Warrants for 747,159 common
     shares, and the shares were issued on July 28, 1999.
     Therefore, a total of 2,751,852 common shares were issued to
     TECO pursuant to the TECO Warrant Agreement.  The 600,000
     First Warrants expired by their own terms on July 1, 1999.

     In April 1997, due to a decline in the market price of the
     Company's common stock to a level below its book value, the
     Board of Directors authorized the Company to repurchase up
     to $2 million of the Company's common stock in market
     transactions from time to time at prices deemed to be
     favorable by the Company.  As of December 31, 1998, the
     Company had acquired 201,890 shares at an average price of
     $3.54 per share.  During the fourth quarter of 1999, the
     Board of Directors authorized the shares to be retired and
     returned to authorized but unissued shares.

     On January 15, 2000, the Board of Directors declared
     dividends payable in common stock on January 22, 2000, to
     holders of the Series 1993 Preferred Stock totaling 1,588
     shares.

     The Company applied APB Opinion 25 in accounting for the CSO
     and non-plan options.  Accordingly, no compensation cost was
     recognized for the CSO and non-plan options granted in 1997.
     Had compensation cost been determined on the basis
     of fair value pursuant to FASB 123, net income and earnings
     per share would not have been materially different from
     reported amounts.


                                                  (Continued)

                              F-21



     The fair value of each option granted in 1997 is estimated
     on the grant date using the Black-Scholes option-pricing
     model with the following weighted average assumptions:

     Dividend Yield                                   -
     Risk-free interest rate                      5.00%
     Expected life                              5 Years
     Expected volatility                         69.47%

     A summary of the status of CSO and non-plan options granted
     to employees, consultants, officers and directors for the
     purchase of the Company's common stock follows:


                                      CSO          Non-Plan
                                      ---          --------
                                      Weighted           Weighted
                             Number   Average   Number   Average
                               of     Exercise    of     Exercise
                             Shares    Price    Shares    Price
                             ------    -----    ------    -----

Balance,
December 31, 1998           1,738,910   $5.36   953,987   $3.83

Granted                             -       -         -       -
Exercised                           -       -         -       -
Terminated                 (1,738,910)  (5.36) (210,000)  (3.00)
                           ----------   -----  --------   -----

Balance,
December 31, 1999                   0      $0   743,987   $4.07
                                   ==      ==  ========   =====

Weighted average
 fair value of
 options granted
 during 1999               N/A
                           ===

                                                  (Continued)

                              F-22



<PAGE>
                                      CSO          Non-Plan
                                      ---          --------
                                      Weighted           Weighted
                             Number   Average   Number   Average
                               of     Exercise    of     Exercise
                             Shares    Price    Shares    Price
                             ------    -----    ------    -----

Balance,
December 31, 1997          1,976,410    $5.12  1,143,987  $3.83

Granted                            -        -          -      -
Exercised                          -        -          -      -
Terminated                  (237,500)   (3.37)  (190,000) (3.79)
                           ---------    -----  ---------  -----

Balance,
December 31, 1998          1,738,910    $5.36    953,987  $3.83
                           =========    =====  =========  =====

Weighted average fair
 value of options
 granted during 1998       N/A
                           ===


     At December 31, 1998, 1,738,910 CSO options and 783,987 non-
     plan options were fully vested.  The remaining 170,000 non-
     plan options would have vested over the next one to two
     years.

                                      CSO          Non-Plan
                                      ---          --------
                                      Weighted           Weighted
                             Number   Average   Number   Average
                               of     Exercise    of     Exercise
                             Shares    Price    Shares    Price
                             ------    -----    ------    -----

Balance,
December 31, 1996          1,943,910    $5.16  1,426,320  $4.14

Granted                       37,500     3.00    300,000   3.00
Exercised                          -        -          -      -
Terminated                    (5,000)   (6.00)  (582,333) (4.16)
                           ---------    -----  ---------  -----

Balance,
December 31, 1997          1,976,410    $5.12  1,143,987  $3.83
                           =========    =====  =========  =====

Weighted average fair
 value of options
 granted during 1997           $1.31
                               =====

     At December 31, 1997, 1,918,577 CSO options and 843,987 non-
     plan options were fully vested.  The remaining 57,833 CSO
     options and 300,000 non-plan options would have vested over
     the next one to three years.

     The following is a summary of the status of CSO and non-plan
     options outstanding at December 31, 1999:


                                                  (Continued)

                              F-23



<PAGE>
                    Outstanding Options   Exercisable Options
                    -------------------   -------------------
                   Weighted     Weighted              Weighted
 Exercise          Average      Average               Average
  Price           Remaining     Exercise              Exercise
  Range     Number   Life        Price     Number      Price
  -----     ------   ----        -----     ------      -----

 $4.00 -   743,987   1.1         $4.07    743,987      $4.07
  $4.50

     At December 31, 1999, the Company has reserved 611,667
     shares of common stock which are issuable upon the exercise
     of the following warrants:

          In connection with a common stock private placement
          closed in 1995, the Company has issued 41.17 Class A
          Warrants and 41.17 Class B Warrants.  Each Class A and
          Class B Warrant is convertible to 5,000 shares of
          common stock.  The Class A Warrants have exercise
          prices of $3.50 and $5.00 per share, respectively.  The
          Warrants are exercisable for thirty-six months,
          commencing October 8, 1997.  The Company has a call
          right on the Class A and Class B Warrants at a share
          price of $5.50 and $7.00, respectively.

          The Company has outstanding 200,000 common stock
          warrants issued in connection with various consulting
          agreements.  Each Warrant is convertible into one share
          of common stock at an exercise price of $2.75 per
          share.  The warrants expire in May 2000.

     The weighted average price of the 611,667 shares of common
     stock reserved upon exercise of all outstanding warrants is
     $3.76.

(9)  RELATED PARTY TRANSACTIONS

     Significant related party transactions which are not
     disclosed elsewhere in these consolidated financial
     statements are discussed in the following paragraphs (see
     Notes 2, 4 and 10).

     In 1999, 1998 and 1997, pursuant to the terms of an
     employment and stock option agreement, the Company has paid
     or accrued compensation to the Company's former Chairman of
     $13,750, $25,500 and $40,000, respectively.  The former
     Chairman had been assisting Management in various financing
     transactions.

     In 1999, 1998 and 1997, the Company paid $111,442, $189,260
     and $279,421, respectively, to purchase gas from a company
     owned 20% by a former director of the Company and which
     participated as a joint venture partner in drilling various
     wells in the Appalachian area.

     Pursuant to the terms of the Investment Agreement with Blue
     Dolphin Exploration, ARO entered into a consulting
     arrangement under which some of its former management
     personnel will assist its new management selected by Blue
     Dolphin Exploration with transition matters.  For those
     consulting services, they will be paid an aggregate of
     $35,000 per month, plus reimbursable expenses, through
     February 2001.  Fidelity Oil  will bear 80% of the fees paid
     by ARO under the consulting arrangement.  Because of this,
     the monthly cost to ARO of the consulting arrangement will
     be only $7,000 per month, plus its 20% share of reimbursable
     costs.

                                                  (Continued)

                              F-24




<PAGE>
     Also pursuant to the terms of the Investment Agreement with
     Blue Dolphin Exploration, ARO and Blue Dolphin Services Co.
     ("Blue Dolphin Services"), an affiliate of Blue Dolphin
     Exploration, entered into a contractual arrangement pursuant
     to which Blue Dolphin Services will provide management and
     administrative services to ARO.  Blue Dolphin Services will
     be compensated by ARO at the rate of $83,333 per month for
     its services.

(10) LEASES

     Future minimum rental payments for operating leases with
     noncancelable lease terms in excess of one year are as
     follows:

              Years ending
              December 31,
              ------------

                  2000                      $5,048
                  2001                           -
                  2002                           -
                                            ------
                                            $5,048
                                            ======

     The Company rents equipment and office space under various
     operating leases.  Rental expense for the years ended
     December 31, 1999, 1998 and 1997, was approximately
     $112,000, $145,000 and $52,000, respectively.  Included in
     1999, 1998 and 1997 is $24,800, $37,800 and $37,800,
     respectively, paid to a former officer/director of the
     Company related to office space rental.  The lease agreement
     was effective through February 28, 1998 at a monthly rate of
     $3,100 and operated on a month-to-month basis thereafter
     until it was terminated by the Company on August 31, 1999.

(11) DEFINED CONTRIBUTION PLAN

     The Company maintained a Defined Contribution Plan (the
     Plan) for all full-time employees of its former Subsidiary
     until June 30, 1999 when it was terminated by the Board of
     Directors pursuant to and in preparation for the closing of
     the Investment Agreement with Blue Dolphin Exploration.
     Employees were entitled to make contributions based on their
     percentage of compensation.

     The Company provided a matching contribution up to 5% of
     each employee's compensation.  For the years ended December
     31, 1999, 1998 and 1997, approximately $50,800, $69,000 and
     $44,250, respectively, were recognized as a general and
     administrative expense for contributions to the Plan.

(12) SIGNIFICANT CUSTOMER CONCENTRATION

     The Company's market area is the Gulf Coast Region.  The
     Company previously maintained a market in the Appalachian
     Region of Kentucky until August 1, 1999, when the properties
     and operations of Southern Gas were sold.

     Gulf Coast Region:  The Company sells all of its current
     Gulf Coast oil and gas production through contracts
     administered by the operators of the properties.

                                                  (Continued)

                              F-25




<PAGE>
(13) COMMITMENTS AND CONTINGENCIES

     In the normal course of business, the Company enters into
     short-term supply and purchase agreements.  These agreements
     can stipulate either a fixed contract price or a floating
     price based on spot prices.

     Management attempts to schedule deliveries to mitigate any
     possible adverse effects of changing prices; however, gas
     prices are susceptible to change due to industry supply and
     demand positions.




                                                  (Continued)

                              F-26



<PAGE>
                AMERICAN RESOURCES OFFSHORE, INC.
                ---------------------------------

          OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
          --------------------------------------------

      FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
      ----------------------------------------------------



The following supplemental information regarding oil and gas
activities of the Company is presented pursuant to the disclosure
requirements promulgated by the Securities and Exchange
Commission (SEC) and Statement of Financial Accounting Standards
No. 69 (SFAS No. 69), "Disclosures About Oil and Gas Producing
Activities."

                                      1999      1998      1997
                                      ----      ----      ----
                                        (Dollars in thousands)
Capitalized costs relating to oil
and gas producing activities:
 Proved undeveloped oil and
  gas properties                    $    351  $  8,590  $ 4,193
 Proved oil and gas properties        12,167    51,112   45,096
 Unproved oil and gas properties       1,124    38,459    7,884
 Support equipment and facilities        158    10,547    8,190
                                    --------  --------  -------
                                      13,800   108,708   65,363

Less accumulated depreciation,
 depletion, amortization, and
 impairment                           (8,064)  (41,255) (16,737)
                                    --------  --------  -------

  Net capitalized costs             $  5,736  $ 67,453  $48,626
                                    ========  ========  =======

Costs incurred in oil and gas
producing  property acquisition,
exploration and  development
activities:
 Property acquisition costs:
  Proved                                   -  $ 19,119  $ 3,715
  Unproved                                 -    43,005    3,794
 Exploration costs                     2,415         -      929
 Development costs                       934     9,834    1,357
                                    --------  --------  -------

                                    $  3,349  $ 71,958  $ 9,795
                                    ========  ========  =======

Results of operations for oil
and gas activities:
 Oil and gas sales                   $16,456   $26,724  $19,457
 Gain (loss) on sale of oil
  and gas properties                 (11,653)        -        -
 Exploration costs                    (2,415)   (5,056)    (785)
 Production costs                     (2,869)   (4,967)  (2,584)
 Depreciation, depletion,
  and amortization                   (11,254)  (13,403)  (7,676)
 Impairment of oil and
 gas properties                       (2,403)  (34,735)  (3,596)
                                    --------  --------  -------

  Results of operations for oil
  and gas producing activities
  (excluding corporate overhead)    $(14,138) $(31,437) $ 4,816
                                    ========  ========  =======


                                                  (Continued)

                              F-27



<PAGE>
                AMERICAN RESOURCES OFFSHORE, INC.
                ---------------------------------

          OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
          --------------------------------------------

      FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
      ----------------------------------------------------


Reserve Quantity Information for the Year Ended December 31,
1999, 1998 and 1997:

The following estimates of proved developed and proved
undeveloped reserve quantities, and related standardized measure
of discounted net cash flow, are estimates only and have been
provided by Richard M. Russell & Associates, Inc.
(Kentucky/Appalachian Region properties); Netherland, Sewell  &
Associates, Inc. (Gulf Coast Region properties of South Timbalier
148 and Ship Shoal 150); Ryder Scott Company (all Gulf Coast
Region properties except South Timbalier 148 and Ship Shoal 150);
and McConnell Consulting, Inc. (Michigan properties), independent
engineering consulting firms.  The amounts do not purport to
reflect realizable values or fair market values of the Company's
reserves.  The Company emphasizes that reserve estimates are
inherently imprecise and that estimates of new discoveries are
more imprecise than those of currently producing oil and gas
properties.  Accordingly, these estimates are expected to change
as future information becomes available.  All of the Company's
reserves are currently located in the United States in the Gulf
Coast Region.

The success of future development efforts and the amount, timing
and costs thereof may significantly increase or decrease the
Company's total unproved and proved developed reserve volumes,
the "Standardized Measure of Discounted Future Net Flows," and
the components and changes therein.

Proved reserves are estimated reserves of crude oil (including
condensate and natural gas liquids), and natural gas that
geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.  Proved
developed reserves are those expected to be recovered through
existing wells, equipment, and operating methods.  Gas volumes
are expressed in millions of cubic feet and oil reserves in
thousands of barrels.

                                  1999           1998           1997
                                  ----           ----           ----
                              Oil     Gas    Oil     Gas     Oil    Gas
                              ---     ---    ---     ---     ---    ---

Proved developed and
 undeveloped reserves:
  Beginning of year            885   49,231  1,385  35,917  1,202  35,692
  Revisions of previous
    estimates                   29     (843)  (407) (6,787)   137  (4,378)
  Purchases of minerals
    in place                     0        0    269  25,911    268   3,714
  Extensions and discoveries     0        0     50   5,506    204   5,468
  Production                  (283)  (5,268)  (374) (9,428)  (426) (4,579)
  Sales and transfers of
    minerals in place         (486) (38,771)   (38) (1,888)     -       -
                              ----  -------  -----  ------  -----  ------

Total proved developed &
 undeveloped reserves          145    4,349    885  49,231  1,385  35,917
                              ====  =======  =====  ======  =====  ======

Proved developed reserves:

 Beginning of year             665   38,702  1,092  30,175    909  29,033

 End of year                    95    2,531    665  38,702  1,092  30,175
                              ====  =======  =====  ======  =====  ======


                                                  (Continued)

                              F-28




<PAGE>
                AMERICAN RESOURCES OFFSHORE, INC.
                ---------------------------------

          OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
          --------------------------------------------

      FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
      ----------------------------------------------------



STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND
CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES AS OF
DECEMBER 31, 1999, 1998 AND 1997:


The standardized measure of discounted future net cash flows is
computed by applying year-end prices of oil and gas (with
consideration of price changes only to the extent provided by
contractual arrangements) to the estimated future production of
proved gas reserves, less estimated future expenditures (based on
year-end costs) to be incurred in developing and producing the
proved reserves, less estimated future income tax expenses (based
on year-end statutory tax rates, with consideration of future tax
rates already legislated) to be incurred on pre-tax net cash
flows less tax basis of the properties and available credits, and
assuming continuation of existing economic conditions.  The
estimated future net cash flows are then discounted using a rate
of 10% a year to reflect the estimated timing of the future cash
flows.

The average crude oil price at year-end 1999 and 1998 used for
this calculation was $20.96 and $9.53, respectively, per barrel.
The average natural gas price used was $2.31 and $2.13,
respectively, for Gulf Coast, and $2.46 for Kentucky Region for
1998, alone.  In general, oil and natural gas prices declined in
early 1997 and continued to decline in 1998.  In 1999, prices
began to increase again.

At December 31, 1999, 1998 and 1997, the Company's future
discounted net cash flow from proved reserves was located as
follows:

                     Kentucky   Gulf Coast  Michigan     Total
                     --------   ----------  --------     -----
                          (Dollars in thousands)
          1999       $     0     $ 6,101     $     0    $ 6,101
          1998       $13,389     $38,033     $     0    $51,422
          1997       $18,636     $29,092     $    45    $47,773
                     =======     =======     =======    =======


At December 31, 1999, 1998 and 1997, the South Timbalier 148
Field accounted for approximately 31%, 14% and 38%, respectively,
of the Company's future net cash flows from proved reserves in
the Gulf Coast Region.  Other fields with a significant
percentage of proved reserved at December 31, 1999, were West
Cameron 172, Ship Shoal 150 and South Timbalier 211, with 24%,
14% and 12%, respectively, of proved reserves.  Both West Cameron
172 and South Timbalier 211 were a part of the TECO acquisition
in 1998.  At December 31, 1998 and 1997, the Gausdale Field
accounted for approximately 61% and 67% of the Company's future
net cash flows from proved reserves in the Kentucky Region.

                                                  (Continued)

                              F-29




<PAGE>
                AMERICAN RESOURCES OFFSHORE, INC.
                ---------------------------------

          OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
          --------------------------------------------

      FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
      ----------------------------------------------------



                                  1999        1998        1997
                                  ----        ----        ----

Standard measure of discounted
 future net cash flows at
 December 31:
  Future cash inflows           $13,096    $110,468    $113,391
  Future production costs        (2,642)    (20,206)    (20,925)
  Future development costs       (2,740)    (10,703)     (6,982)
  Future taxes                        0      (1,679)     (2,759)
                                -------    --------    --------
                                  7,714      77,880      82,725

Future net cash flows, 10%
 annual discount for
 estimated timing of cash
 flows                           (1,613)    (26,458)    (34,952)
                                -------    --------    --------

 Standardized measure of
  discounted future net cash
  flows relating to proved
  gas reserves                  $ 6,101    $ 51,422    $ 47,773
                                =======    ========    ========

The following reconciles the change in the standardized measure
of discounted future net cash flows during the years 1999, 1998
and 1997:

                                  1999        1998        1997
                                  ----        ----        ----

Beginning of year               $51,422    $47,773     $59,950
Sales of gas produced, net
 of production costs            (13,587)   (21,833)    (16,874)
Net changes in prices and
 production costs                13,097     (8,315)     (8,580)
Extensions and discoveries            0      4,436       9,476
Revisions of previous
 quantity estimates              (1,342)    (7,422)     (4,970)
Change from purchases of
 minerals in place                    0     35,666       3,947
Change from sale and transfers
 of minerals in  place          (49,681)    (2,812)          -
Changes in future development      (478)    (1,295)          -
Changes in future taxes               0        937        (117)
Accretion of discount             5,142      4,777       3,811
Changes in timing and other      (1,528)      (490)      1,130
                                -------    -------     -------
 End of year                    $ 6,101    $51,422     $47,773
                                =======    =======     =======



                              F-30




<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                         AMERICAN RESOURCES OF DELAWARE, INC.



                         By: /s/ Ivar Siem
                            ---------------------------------
                              Ivar Siem
                              President, CEO and Chairman

Date:   March 29, 2000

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

     Signature                                    Date
     ---------                                    ----

/s/ Ivar Siem
--------------------------
Ivar Siem, President
(Chief Executive Officer)                    March 29, 2000


/s/ G. Brian Lloyd
--------------------------
G. Brian Lloyd, Vice President
(Chief Accounting Officer)                   March 29, 2000


/s/ Michael J. Jacobson
--------------------------
Michael J. Jacobson, Director                March 29, 2000


/s/ John P. Atwood
--------------------------
John P. Atwood, Director                     March 29, 2000


/s/ Andrew R. Agosto
--------------------------
Andrew R. Agosto, Director                   March 29, 2000


/s/ Douglas L. Hawthorne
--------------------------
Douglas L. Hawthorne, Director               March 29, 2000



<PAGE>
                          EXHIBIT INDEX

                AMERICAN RESOURCES OFFSHORE, INC.

Exhibit
Number              Description                         Page No.


2.01      Certificate of Ownership and Merger Merging
          American Resources Offshore, Inc., into
          American Resources of Delaware, Inc.
          (incorporated by reference to Exhibit 10.96
          to ARO's Report on Form 8-K filed on November
          12, 1998).                                        *

3.01      By-Laws of ARO, as amended (incorporated by
          reference to Exhibit 3.2 to ARO's Form 10-SB)     *

3.02      Restated Certificate of Incorporation filed
          with the Delaware Secretary of State
          (incorporated by reference to Exhibit 3.10 to
          ARO's Form 8-K filed December 12, 1996).          *

3.03      Copy of the Certificate eliminating the
          Series B Preferred Stock (incorporated by
          reference to Exhibit 3.11 to ARO's Form 8-K
          filed on April 24, 1997).                         *

3.04      Certificate of Amendment of Restated
          Certificate of Incorporation filed with the
          Delaware Secretary of State on July 11, 1997
          (incorporated by reference to Exhibit 3.12 to
          ARO's Form 8-K filed on July 25, 1997).           *

3.05      Certificate of Amendment dated July 2, 1998
          amending ARO's Restated Certificate of
          Incorporation (incorporated by reference to
          Exhibit 10.95 to ARO's Report on Form 10-Q
          for the quarterly period ending June 30,
          1998).                                            *

3.06      Certificate of Amendment of Restated
          Certificate of Incorporation (incorporated by
          reference to Exhibit 99.2 to ARO's Report on
          Form 8-K dated December 10, 1999).                *

3.07      Second Restated Certificate of Incorporation
          (incorporated by reference to Exhibit 99.3 to
          ARO's Report on Form 8-K dated December 10,
          1999).                                            *

4.01      Specimen Common Stock Certificate
          (incorporated by reference to Exhibit 4.1 to
          the ARO's Form 10-SB).                            *

4.02      Specimen Preferred Stock Certificate
          (incorporated by reference to Exhibit 4.2 to
          ARO's Form 10-SB).                                *

10.01     Form of Limited Liability Company Agreement
          of Crescent Turnkey & Engineering, L.L.C.
          dated December 30, 1994 (incorporated by
          reference to Exhibit 10.31 to ARO's 1994 Form
          10-KSB).                                          *

10.02     Registration Rights Agreement dated July 16,
          1997 between ARO and Den norske Bank ASA
          (incorporated by reference to Exhibit 10.81
          to ARO's Form 8-K filed on July 25, 1997).        *

10.03     Copy of the First Amended and Restated Credit
          Agreement between ARO and Den norske Bank, AS
          (incorporated by reference to Exhibit 10.86
          to ARO's Form 8-K filed on November 19,
          1997).                                            *

10.04     Promissory Note from American Resources
          Offshore, Inc. in favor of TECO Oil & Gas,
          Inc. (incorporated by reference to Exhibit
          10.90 to ARO's Form 8-K filed on March 16,
          1998).                                            *

10.05     Warrant Agreement between American Resources
          of Delaware, Inc. and TECO Oil & Gas, Inc.
          (incorporated by reference to Exhibit 10.91
          to ARO's Form 8-K filed on March 16, 1998).       *

10.06     First Amendment to First Amended and Restated
          Credit Agreement dated March 5, 1998 between
          American Resources of Delaware, Inc.,
          Southern Gas Co. of Delaware, Inc., American
          Resources Offshore, Inc. and DNB Energy
          Assets, Inc. (incorporated by reference to
          Exhibit 10.92 to ARO's Report on Form 10-Q
          for the quarterly period ending March 31,
          1998).                                            *

10.07     Amended Purchase and Sale Agreement between
          American Resources of Delaware, Inc.,
          American Resources Offshore, Inc, TECO Oil &
          Gas, Inc. and TECO Energy, Inc. (incorporated
          by reference to Exhibit 10.93 to ARO's Report
          on Form 8-K/A2 filed on May 19, 1998).            *

10.08     Intercreditor Agreement between American
          Resources of Delaware, Inc., American
          Resources Offshore, Inc., Southern Gas Co. of
          Delaware, Inc., TECO Oil & Gas, Inc. and DNB
          Energy Assets, Inc. (incorporated by
          reference to Exhibit 10.94 to ARO's Report on
          Form 8-K/A2 filed on May 19, 1998).               *

10.09     Asset Purchase Agreement between Southern Gas
          Co. of Delaware, Inc. and Nami Resources
          Company, LLC (incorporated by reference to
          Exhibit 10.100 to ARO's Report on Form 8-K
          dated November 9, 1999).                          *

10.10     Stock Purchase Agreement between American
          Resources Offshore, Inc. and Southern Gas
          Holding, LLC (incorporated by reference to
          Exhibit 10.101 to ARO's Report on Form 8-K
          dated November 9, 1999).                          *

10.11     Investment Agreement by and between American
          Resources Offshore, Inc. and Blue Dolphin
          Exploration Company, as amended (incorporated
          by reference to Exhibit 99.1 to ARO's Report
          on Form 8-K dated December 17, 1999).             *

10.12     Purchase and Sale Agreement between American
          Resources Offshore, Inc. and Fidelity Oil
          Holdings, Inc., as amended (incorporated by
          reference to Exhibit 99.2 to ARO's Report on
          Form 8-K dated December 17, 1999).                *

10.13     Management and Administrative Services
          Agreement by and between Blue Dolphin
          Services, Inc. and American Resources
          Offshore, Inc. (incorporated by reference to
          Exhibit 99.5 to ARO's Report on Form 8-K
          dated December 17, 1999).                         *

10.14     Fourth Amendment to First Amended and
          Restated Credit Agreement (incorporated by
          reference to Exhibit 99.6 to ARO's Report on
          Form 8-K dated December 17, 1999).                *

10.15     Consent, Acknowledgment and Ratification
          (incorporated by reference to Exhibit 99.7 to
          ARO's Report on Form 8-K dated December 17,
          1999).                                            *

10.16     Consulting Agreement (incorporated by
          reference to Exhibit 99.8 to ARO's Report on
          Form 8-K dated December 17, 1999).                *

16.01     Response letter from KPMG LLP to the
          Securities and Exchange Commission
          (incorporated by reference to Exhibit 16.01
          to ARO's Report on Form 8-K/A filed on
          January 15, 1999).                                *

23.1      Consent of Ernst & Young LLP.                    79

23.2      Consent of Netherland, Sewell & Associates,
          Inc.                                             80

23.3      Consent of Ryder Scott Company, Petroleum
          Engineers                                        81

23.4      Consent of Richard M. Russell & Associates,
          Inc.                                             82

23.5      Consent of KPMG LLP.                             83

*Previously filed





                          Exhibit 23.1



                 Consent of Independent Auditors



The Board of Directors
American Resources Offshore, Inc.


We consent to incorporation by reference in the Registration
Statement (Form S-8 No. 333-654) pertaining to the Andrew J.
Kacic Severance Agreement of our report dated March 10, 2000,
with respect to the consolidated financial statements of American
Resources Offshore, Inc. included in the Annual Report (Form 10-
K) for the year ended December 31, 1999.

                                   Ernst & Young LLP

New Orleans, Louisiana
March 29, 2000



<PAGE>
                          Exhibit 23.2

NSAI    Netherland, Sewell
                    & Associates, Inc.
--------------------------------------









CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
---------------------------------------------------------

     As independent oil and gas consultants, Netherland, Sewell &
Associates, Inc., hereby consents to: (a) the use of our report
setting forth our estimates of proved reserves and future
revenue, as of December 31, 1999, to the interest of American
Resources Offshore, Inc. (ARO) in certain oil and gas properties;
(b) all references to our firm included in or made a part of
ARO's Annual Report on Form 10-K for the year ended December 31,
1999; (c) the incorporation by reference thereof into ARO's
Registration Statement on Form S-8, Commission File No. 333-654;
and (d) the reference to our firm under the heading "Experts" in
the Prospectus.

                         NETHERLAND, SEWELL & ASSOCIATES, INC.



                         By: /s/ Frederic D. Sewell
                            -------------------------------------
                              Frederic D. Sewell
                         Its: President


Dallas, Texas
March 29, 2000

<PAGE>
                          Exhibit 23.3



RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
-------------------





CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
---------------------------------------------------------

     As independent oil and gas consultants, Ryder Scott Company
hereby consents to: (a) the use of our report setting forth our
estimates of proved reserves and future revenue, as of December
31, 1999, to the interest of American Resources Offshore, Inc.
(ARO) in certain oil and gas properties; (b) all references to
our firm included in or made a part of ARO's Annual Report on
Form 10-K for the year ended December 31, 1999; (c) the
incorporation by reference thereof into ARO's Registration
Statement on Form S-8, Commission File No. 333-654; and (d) the
reference to our firm under the heading "Experts" in the
Prospectus.

                              RYDER SCOTT COMPANY
                              PETROLEUM ENGINEERS



Houston, Texas
March 30, 2000

<PAGE>
                          Exhibit 23.4

RICHARD M. RUSSELL & ASSOCIATES, INC.
-------------------------------------
CONSULTING ENGINEERS







CONSENT OF INDEPENDENT CONSULTING ENGINEER
------------------------------------------

     As independent consulting engineer, Richard M. Russell &
Associates, Inc. consents to: (a) the use of our report dated
February 15, 1999 setting forth our estimates of reserves and
future revenue as of January 1, 1999, to the interest of American
Resources Offshore, Inc. (ARO) in certain oil and gas properties;
(b) all references to our firm included in or made a part of
ARO's Annual Report on Form 10-K for the year ended December 31,
1999; (c) the incorporation by reference thereof into ARO's
Registration Statement on Form S-8, Commission File No. 333-654;
and (d) the reference to our firm under the heading "Experts" in
the Prospectus.

                         Richard M. Russell & Associates, Inc.



                         By: /s/ Richard M. Russell
                            -----------------------------------
                               Richard M. Russell
                               President



Nashville, Tennessee
March 30, 2000



        2003 BLAIR BOULEVARD, NASHVILLE, TENNESSEE 37212
    615-385-5446 FAX 615-292-7375 E MAIL RCYCLE@IX.NETCOM.COM





                          Exhibit 23.5

                 Consent of Independent Auditors
                 -------------------------------



The Board of Directors
American Resources Offshore, Inc.

     We consent to the incorporation by reference in the
following Registration Statements of American Resources Offshore,
Inc., and in the related Prospectuses, of our report dated March
30, 1998, related to the consolidated statements of operations,
stockholders' equity and cash flows of American Resources
Offshore, Inc. (formerly American Resources of Delaware, Inc.)
for the year ended December 31, 1997, which report appears in the
December 31, 1999 Annual Report on Form 10-K of American
Resources Offshore, Inc:


     (a)  The Company's Registration Statement on Form S-8, Commission
          File No. 333-654 (Andrew J. Kacic Severance Agreement).


                                             KPMG LLP


Houston, Texas
March 30, 2000