<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549
                            ----------------------

                                 FORM 10-Q SB

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


               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996


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


                         COMMISSION FILE NUMBER 1-9933
                         -----------------------------



                           AMERAC ENERGY CORPORATION
            (Exact name of Registrant as specified in its charter)


     STATE OF DELAWARE                                       75-2181442
     (State or other incorporation)                          (I.R.S. Employer
                                                             Identification No.)
                                                    
     1201 LOUISIANA, SUITE 3350                      
     HOUSTON, TEXAS                                          77002
     (Address of principal executive offices)                (Zip Code)



     Registrant's telephone number, including area code: (713) 308-5250
 
 
     Indicate by check mark whether the registrant (1) has filed all reports
required by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
     Yes X   No
        ---    ---   
 
     The number of shares of Common Stock, $.05 par value, outstanding on
November 1, 1996 was 42,530,252.
 
================================================================================
<PAGE>
 
                           AMERAC ENERGY CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                         DECEMBER 31,   SEPTEMBER 30,
                                                                             1995            1996
                                                                        --------------  --------------
                                                                                          (unaudited)
<S>                                                                     <C>             <C>
                        A S S E T S
Current Assets
  Cash and cash equivalents                                             $     144,000   $     100,000
  Receivables
    Receivable from property sale                                           1,005,000             ---
    Trade receivables                                                       1,104,000       2,035,000
                                                                        -------------   -------------
 
  Total current assets                                                      2,253,000       2,135,000
                                                                        -------------   -------------
Property and Equipment (using successful efforts accounting)
    Oil and gas properties at cost                                         20,614,000      33,442,000
    Less accumulated depreciation, depletion and amortization             (12,020,000)    (13,055,000)
                                                                        -------------   -------------
  Net property and equipment                                                8,594,000      20,387,000
                                                                        -------------   -------------
Other Assets                                                                  347,000         583,000
                                                                        -------------   -------------
 
TOTAL ASSETS                                                            $  11,194,000   $  23,105,000
                                                                        =============   =============
 
 L I A B I L I T I E S  A N D  S T O C K H O L D E R S'  E Q U I T Y
 
Current Liabilities
    Accrued liabilities and payables                                    $     606,000   $   1,038,000
    Current portion of notes payable banks                                        ---       3,849,000
                                                                        -------------   -------------
      Total current liabilities                                               606,000       4,887,000
                                                                        -------------   -------------
Long-term Liabilities
    Notes payable banks                                                     3,547,000       8,650,000
    Contract obligation                                                       641,000         174,000
    Other long-term liabilities                                               406,000         323,000
                                                                        -------------   -------------
      Total long-term liabilities                                           4,594,000       9,147,000
                                                                        -------------   -------------
Contingencies (Note 6)
Stockholders' Equity
  Preferred stock, $1 par value 10,000,000 shares authorized:
   $4.00 Senior Preferred, 1,786,347 outstanding at December 31, 1995
   and zero outstanding at September 30, 1996.                              1,786,000             ---
  Common Stock, $.05 par value; 50,000,000 shares authorized;
   outstanding 20,629,416 shares at December 31, 1995 and
   42,530,252 at September 30, 1996                                         1,031,000       2,126,000
  Additional paid-in capital                                              142,211,000     144,507,000
  Accumulated deficit                                                    (139,034,000)   (137,562,000)
                                                                        -------------   -------------
Stockholders' equity                                                        5,994,000       9,071,000
                                                                        -------------   -------------
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              $  11,194,000   $  23,105,000
                                                                        =============   =============
</TABLE>


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

                                       2
<PAGE>
 
                           AMERAC ENERGY CORPORATION

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATION

                                  (UNAUDITED)

<TABLE>
<CAPTION>
 
                                                            Three Months Ended               Nine Months Ended
                                                               September 30,                   September 30,
                                                       ---------------------------     ---------------------------
                                                           1995            1996            1995            1996
                                                       -----------     -----------     -----------     -----------     
<S>                                                    <C>             <C>             <C>             <C>
REVENUE
      Oil and gas                                      $   953,000     $ 2,584,000     $ 2,780,000     $ 7,432,000
      Other                                                 46,000          (4,000)         65,000          42,000
                                                       -----------     -----------     -----------     -----------
                                                           999,000       2,580,000       2,845,000       7,474,000
                                                       -----------     -----------     -----------     -----------
                                                                                                     
EXPENSES                                                                                             
      Lease operating                                      230,000         597,000         761,000       1,577,000
      Exploration                                           26,000          22,000         241,000          29,000
      Depreciation, depletion and amortization             286,000         699,000         811,000       1,693,000
      General and administrative                           452,000         627,000       1,182,000       1,749,000
      Interest Expense                                      16,000         245,000         159,000         662,000
      (Gain) Loss on sale of properties and other              ---             ---        (111,000)       (124,000)
                                                       -----------     -----------     -----------     -----------
                                                         1,010,000       2,190,000       3,043,000       5,586,000
                                                       -----------     -----------     -----------     -----------
                                                                                                     
Income (loss) before taxes                                 (11,000)        390,000        (198,000)      1,888,000
Provision for taxes                                            ---          (5,000)            ---          (5,000)
                                                       -----------     -----------     -----------     -----------
                                                                                                     
NET INCOME (Loss)                                      $   (11,000)    $   385,000     $  (198,000)    $ 1,883,000
      Preferred dividends                                 (204,000)            ---        (597,000)       (411,000)
                                                       -----------     -----------     -----------     -----------
                                                                                                     
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS    $  (215,000)    $   385,000     $  (795,000)    $ 1,472,000
                                                       ===========     ===========     ===========     ===========
                                                                                                     
NET INCOME (LOSS) PER COMMON STOCK                     $      (.01)    $       .01     $      (.04)    $       .05
                                                       ===========     ===========     ===========     ===========
                                                                                                     
Weighted average Common Stock outstanding               20,471,000      42,420,000      19,230,000      30,465,000
                                                       ===========     ===========     ===========     ===========
</TABLE>



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

                                       3
<PAGE>
 
                           AMERAC ENERGY CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                  NINE MONTHS ENDED
                                                                    SEPTEMBER 30,
                                                              --------------------------
                                                                  1995          1996
                                                              -----------   ------------
<S>                                                           <C>           <C>
 
CASH FLOW FROM OPERATING:
    Net Income (Loss)                                         $  (198,000)  $  1,883,000
    Adjustments needed to reconcile to net cash flows:      
    Depreciation, depletion and amortization                      811,000      1,693,000
    Amortization of discount                                       22,000            ---
    Exploration expenses                                          241,000         29,000
    Stock issued for compensation                                  15,000        180,000
    Gain on sale of properties                                   (111,000)      (124,000)
    Recognition of deferred revenue                              (263,000)      (105,000)
    Changes in current items relating to operations:        
        Accounts receivables and other                             92,000       (931,000)
        Accounts payables                                          (5,000)        72,000
        Accrued and other long-term-liabilities                  (170,000)       (84,000)
                                                              -----------   ------------
 
NET CASH FLOW PROVIDED BY OPERATIONS                              434,000      2,613,000
                                                              -----------   ------------
 
CASH FLOW FROM INVESTING:
    Oil and gas expenditures                                   (4,124,000)   (12,995,000)
    Proceeds from sale of assets                                  136,000      1,281,000
    Other property and equipment                                      ---       (268,000)
                                                              -----------   ------------
 
NET CASH FLOW PROVIDED BY INVESTING                            (3,988,000)   (11,982,000)
                                                              -----------   ------------
 
CASH FLOW FROM FINANCING:
    Debt repayments                                            (1,929,000)    (1,930,000)
    Bank borrowings                                             2,447,000     10,881,000
    Sales of Common Stock                                             ---        364,000
    Other                                                        (139,000)        10,000
                                                              -----------   ------------
 
NET CASH FLOW PROVIDED BY FINANCING                               379,000      9,325,000
                                                              -----------   ------------
 
NET INCREASE(DECREASE)IN CASH AND EQUIVALENTS                  (3,175,000)       (44,000)
    Cash and equivalents at beginning of period                 3,437,000        144,000
                                                              -----------   ------------
 
CASH AND EQUIVALENTS AT END OF PERIOD                         $   262,000   $    100,000
                                                              ===========   ============
 
SUPPLEMENTAL DISCLOSURE:
    Interest paid during the period                           $   153,000   $    662,000
                                                              ===========   ============
 
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING:
    Paid dividends in-kind on the Senior Preferred Stock      $   597,000   $    411,000
    Paid compensation in Common Stock                         $    15,000   $    180,000
    Common Stock issued in Fremont Acquisition                $       ---   $    640,000
    Conversion of Senior Preferred Stock to Common Stock      $       ---   $        ---
 
</TABLE>



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

                                       4
<PAGE>
 
                           AMERAC ENERGY CORPORATION

      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

                    DECEMBER 31, 1995 TO SEPTEMBER 30, 1996
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                   $4.00 SENIOR              COMMON SHARES
                                  PREFERRED STOCK           ($.05 PAR VALUE)        ADDITIONAL     
                             ------------------------   ------------------------     PAID-IN       ACCUMULATED
                               SHARES        AMOUNT       SHARES        AMOUNT       CAPITAL         DEFICIT        TOTAL
                             ----------   -----------   ----------    ----------   ------------   -------------   ----------
<S>                          <C>          <C>           <C>           <C>          <C>            <C>             <C>
                                                                                                                 
BALANCE -                                                                                                        
   December 31, 1995          1,786,347   $ 1,786,000   20,629,416    $1,031,000   $142,211,000   $(139,034,000)  $5,994,000
                             ----------   -----------   ----------    ----------   ------------   -------------   ----------
                                                                                                                 

   Fremont Acquisition              ---           ---    3,293,310       165,000        475,000             ---      640,000
   Stock issued for                                                                                              
      Compensation                                                                                               
      and other                     ---           ---      714,373        36,000        154,000             ---      190,000
      $4.00 Senior Preferred:                                                                                    
      Stock Dividend             81,237        82,000          ---           ---        329,000        (411,000)         ---
      Conversion             (1,867,584)   (1,868,000)  16,808,256       840,000      1,028,000             ---          ---
   Sale of Common Stock             ---           ---    1,084,897        54,000        310,000             ---      364,000
                                                                                                                 
   Net Income                       ---           ---          ---           ---            ---       1,883,000    1,883,000
                             ----------   -----------   ----------    ----------   ------------   -------------   ----------
                                                                                                                 
BALANCE -                                                                                                        
   September 30, 1996        $      ---   $       ---   42,530,252    $2,126,000   $144,507,000   $(137,562,000)  $9,071,000
                             ==========   ===========   ==========    ==========   ============   =============   ==========
</TABLE>



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

                                       5
<PAGE>
 
                           AMERAC ENERGY CORPORATION

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)

  1. ORGANIZATION AND NATURE OF BUSINESS
 
     Amerac Energy Corporation, ("Amerac" or the "Company") was formed in 1969
  and is headquartered in Houston, Texas.  The Company is engaged in the
  acquisition, development and enhancement of oil and gas properties in the
  United States.
 
  2. SUMMARY OF SIGNIFICATION ACCOUNTING POLICIES
 
     The results of operations for the interim periods shown in this report are
  not necessarily indicative of results to be expected for the year.  In the
  opinion of management, the accompanying unaudited financial statements
  contain all adjustments necessary to present fairly the financial position as
  of September 30, 1996, and the results of operations for the three months and
  nine months ended September 30, 1995 and 1996, and cash flow for the nine
  months ended September 30, 1995 and 1996.  These financial statements and the
  notes thereto should be read in conjunction with the Company's annual report
  on Form 10-K for the year ended December 31, 1995.
 
     Net income (loss) per share is computed by dividing the net income or loss
  attributable to common shareholders by the weighted average number of shares
  of Common Stock outstanding. In determining the net income (loss) attributable
  per share for the periods shown other than for the three months ended
  September 30, 1996, the Company decreased income by the preferred stock
  dividend and accretion of discount. The stock options are not material or are
  anti-dilutive and are not included in the average shares outstanding during
  the periods presented.
  
     From 1991 until 1996, the Company has accounted for its investment in
  Petroleum Financial Inc. ("PFI") on the cost method of accounting.  PFI
  performs certain financial, accounting, tax, administrative, land, computer
  operations and shareholder relations activities for Amerac. In July 1995, the
  Company's interest in PFI increased from 15% to 26%; thus, commencing in
  1996, the Company began accounting for its investment in PFI on the equity
  method of accounting.
 
  3. INDEBTEDNESS
 
     On August 15, 1996, the Company amended its revolving line of credit
  agreement with Bank One, Texas National Association ("Bank Credit
  Agreement").  The amendment, among other things, increases the Company's line
  of credit from $15 to $30 million and extended the due date to May 31, 1998.
  In addition, the Company also executed a $1 million bridge loan agreement
  ("Bridge Loan") a portion of which the Company has used to fund acquisitions
  and development expenditures.  The Bridge Loan must be repaid on the earlier
  of the date of receipt of any funds from any equity offerings or February 16,
  1997 and bears interest at the Bank One Texas Base Rate plus two and one-half
  percent which is currently 10.75%.  Both of these agreements are secured by
  all of the Company's oil and gas properties, and contain various covenants
  which may, if not met, cause the Company to be in default or reduce its
  access to additional borrowings.  At November 1, 1996, there was $849,000
  outstanding under the bridge loan facility and $11.7 million was outstanding
  under the Bank Credit Agreement.  The Company's borrowing base was $11.7
  million at November 1, 1996 with a mandatory reduction of $250,000 each
  month.  The Bank Credit Agreement bears interest at the Bank One Texas Base
  Rate plus three quarter percent (9%) at September 30, 1996.

  4. SHAREHOLDER'S EQUITY
 
     COMMON STOCK
 
     The Company has called a Special Meeting of Stockholders for November 20,
  1996, for the purpose of approving an amendment to the Company's Certificate
  of Incorporation (the "Amendment").  The Amendment would provide for a one-
  for-fifteen reverse split of Common Stock.  If this Amendment is approved,
  the outstanding stock will be reduced from 42,530,252 at November 1, 1996 to
  2,835,350.

                                       6
<PAGE>
 
                           AMERAC ENERGY CORPORATION

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

                                  (UNAUDITED)

                                        
   At the Company's annual meeting of Shareholders on July 11, 1996, the
Shareholders approved an amendment to convert each share of $4.00 Senior
Preferred Stock (the "Senior Preferred") outstanding to nine (9) shares of
Common Stock thus eliminating the Senior Preferred Stock.  The Shareholders also
approved an amendment to the Certificate of Incorporation that increased the
authorized Common Stock to 100 million shares.  In June 1996, the Company
completed a private sale of approximately 1.08 million restricted shares of
Common Stock at an average price of $.34 per share.

   Supplemental Pro Forma Earning (Loss) Per Share would have been $.00 for the
three months ended September 30, 1995 and $(.01) for the nine months ended
September 30, 1995, if the Senior Preferred Stock conversion occurred on January
1, 1995. The Supplemental Pro Forma Earning Per Share would have been unchanged
at $.01 for the three months ended September 30, 1996 and $.05 for the nine
months ended September 30, 1996.

   As a result of the conversion of the Senior Preferred Stock the utilization
of the Net Operating Tax Loss Carryforward of approximately $200 million will be
limited to an annual utilization of approximately $300,000 per year.  The
Company's statutory depletion carryforwards will not be limited as a result of
the Senior Preferred Stock Conversion.

5. ACQUISITION ACTIVITIES
 
   Effective January 1, 1996, the Company acquired the Common Stock of Fremont
Energy Corporation ("Fremont"), an Oklahoma-based oil and gas company, for $7
million paid in cash and 3.3 million shares of Common Stock of the Company.
Fremont has 131 wells located predominately in central Oklahoma and Kansas
concentrated in three major fields. Fremont's estimated net proved reserves at
December 31, 1995, totaled approximately 13.4 billion cubic feet equivalent
("BCFE").
 
   The Company acquired on August 16, 1996 a majority interest in sixteen gas
wells in the Texan Gardens Field, located in Hidalgo County, Texas. The field,
situated in the heart of the Vicksburg Trend of the Texas Gulf Coast region,
produces gas from multiple sands between depths of 7,700 feet to 9,400 feet. The
Company's average working interest in these properties approximates 58%, with a
net revenue interest averaging 40%. Based on a March 1, 1996 effective date, the
Company estimated that proved reserves associated with this $1.8 million
acquisition totaled 4.4 BCFE, of which seventy percent are behind pipe.
 
   The Company acquired on August 19, 1996 a majority non-operated interest in
22 producing wells from numerous working interest owners on the McLemore-
Drummonds Ranch and the Sloan X's Ranch in Shackelford, Stephens, Throckmorton,
and Haskell Counties of Central Texas (The "Throckmorton" acquisition).
Production in this acreage is predominantly from the Mississippian at
approximately 4,800 feet and the Caddo at approximately 2,800 feet. Amerac's
working interest in the McLemore-Drummonds Ranch and the Sloan X's Ranch
approximates 76% and 82%, respectively. The net revenue interests in the two
ranches are 57% and 65%, respectively. Based on a June 1, 1996 effective date,
the company estimated that proved reserves associated with the $1.1 million
acquisitions totaled 224,700 barrels of oil equivalent ("BOE"), of which one
hundred percent are producing.

   The Company also acquired in August 1996, a producing lease on the east flank
of the Cosden Field for approximately $190,000. Based on a July 1, 1996
effective date, the Company estimated the proved reserves associated with this
acquisition totaled 679 MMCFE. In addition to the production associated with a
deep well on this new lease, the leasehold interests that come with the
acquisition include rights to a behind pipe zone in a currently inactive well
already owned by the Company. The Company intends to recomplete this inactive
well in the behind pipe zone.

                                       7
<PAGE>
 
                           AMERAC ENERGY CORPORATION

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

                                  (UNAUDITED)


   These acquisitions are accounted for under purchase accounting and results of
operations will be consolidated from the date of the respective consummation.

   The pro forma impact of the Fremont acquisition, the Texan Gardens Field
acquisition, the 1995 Cosden acquisition, and the December 1995 sale of N.W.
Arapahoe, assuming the transactions had occurred at January 1, 1995, would have
been as follows for the nine months ended September 30, 1996 and September 30,
1995. The 1996 Throckmorton acquisition and the 1996 Cosden acquisition would
not have a material impact on the Pro Forma Statement of Operations, and, thus
have not been included.

<TABLE>
<CAPTION>
 
                                September 30, 1996  September 30,1995
                                ------------------  ------------------
<S>                             <C>                 <C>
 Revenues                           $7,829,000          $5,367,000
 Net Income (Loss)                  $1,811,000          $      ---
 Net Income (Loss) applicable                         
  to Common Shareholder             $1,400,000          $   (1,000)
 Net Income (Loss) per share        $      .05          $     (.03)
 
</TABLE>

6. CONTINGENCIES

   The Company's Shurly Ranch Properties were the subject of litigation related
to the proper settlement of a take-or-pay payment received by the Company from
El Paso Natural Gas Company ("El Paso"). The Company is obligated under a
settlement agreement dated January 8, 1994, to allow El Paso to recover the
prepayment by delivering 65% of the monthly gas production volumes at an imputed
price of $3.25 per MMBTU through February 1997. Beginning in March 1997, the
Company has the option of (1) continuing to deliver gas until it is unable to
meet the minimum delivery requirement or (2) paying the remaining unrecovered
balance, not to exceed $360,000. Due to the uncertainty of El Paso's gas
requirements, the Company has reviewed, in conjunction with the annual year end
reserve analysis prepared by an independent petroleum engineering firm, the
current economic reserve life and production capabilities of the properties to
determine their ability to deliver the volumes necessary to satisfy the
remaining prepayment. The Company believes that its current contract obligation
of $534,000 is sufficient to cover any remaining obligation under the settlement
agreement at September 30, 1996. The Company has classified the maximum
unrecovered balance of $360,000 as a current obligation as of September 30,
1996.

   The Company is subject to various contingencies which arise primarily from
interpretation of federal and state laws, and regulations affecting the oil and
gas industry. Such contingencies include differing interpretations as to the
prices at which oil and gas sales may be made, the prices at which royalty
owners may be paid for production from their leases and other matters. Although
management believes it has complied with the various laws and regulations,
administrative rulings and interpretations thereof, adjustment could be required
as new interpretations and regulations are issued. In addition, production
rates, marketing and environmental matters are subject to regulation by various
federal and state agencies.

                                       8
<PAGE>
 
                           AMERAC ENERGY CORPORATION

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

STRATEGY

   The Company focuses on acquisitions where a substantial portion of the value
is in proved developed producing reserves which are currently generating cash
flow. Management is relatively impartial as to the acquisition of gas versus
oil. Although management would prefer operatorship of the properties, the
Company does not pass up any opportunities for that reason. At this point, the
Company has not restricted itself to seeking acquisitions in specific
geographical regions.

   Along with the acquisition of properties, the Company looks for ways to
exploit existing and acquired reserves by increasing production rates,
accelerating reserve recoveries and, improving and extending the economic
viability of the properties. Exploitation activities may include workovers,
recompletions, new stimulation technology, development drilling, horizontal
drilling, pressure maintenance projects, and other methods of enhanced recovery.
Although the Company does not participate in rank exploration, it may
participate in exploratory drilling on leases associated with existing or
acquired producing properties.

   While the Company is actively pursuing these avenues, there can be no
assurance that it will have successful results in its acquisition, exploitation
and exploration efforts. There is a tremendous amount of competition in the
industry and the prices paid for in-place reserves make it difficult to achieve
attractive rates of return.

ACQUISITION AND DIVESTITURE ACTIVITIES

   The Company has closed four acquisitions in 1996. See Note 5.

   The Company is in discussion with a third party concerning the sale of its
short lived South Timbalier 198 property. South Timbalier 198 is the Company's
only offshore property and is the last remaining significant property not
acquired under the strategy being executed by current management. There is no
assurance that a sale will take place.

DEVELOPMENT ACTIVITIES

   With the completion of two new wells on the Throckmorton property, located in
Throckmorton County, the Company has successfully completed nine development
wells since it changed its focus in mid 1994 to acquisitions. All of these
development wells have been drilled on properties acquired by the Company since
mid 1994. The Company plans additional development activities to take place
primarily in 1997.

                                       9
<PAGE>
 
                           AMERAC ENERGY CORPORATION

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)

RESULTS OF OPERATIONS

Nine Months Ended September 30, 1995 compared with Nine Months Ended
September 30, 1996

   Oil and gas revenues increased from $2.8 million in the first nine months of
1995 to $7.4 million during the comparable period in 1996 as a result of an
increase in oil and gas production as due to acquisitions and improved prices.
Gas production for the nine months increased from approximately 3.1 MMCF per day
in the first nine months of 1995 to approximately 7 MMCF per day for the
comparable period in 1996. Oil production increased from 302 barrels per day to
487 barrels per day in 1996. The average prices received for gas increased from
$1.50 per Mcf for the first nine months of 1995 production to $2.37 per Mcf for
the first nine months of 1996, the average price received for oil production
increased from $16.82 per Bbl during the first nine months of 1995 to $19.96 per
Bbl during the comparable period in 1996.

   Lease operating expenses increased from $761,000 in the first nine months of
1995 to $1.6 million for the comparable period in 1996, as a result of the
additional wells added through the acquisitions and development drilling.
Depreciation and amortization expense also increased from $811,000 during the
first nine months of 1995 to $1.7 million for the comparable period in 1996 as a
result of an increase in asset growth from acquisition and production, and a
decline in gas reserves from the Company's offshore properties.

   Administrative expenses increased from $1.2 million for the first nine months
of 1995 to $1.7 million for the comparable period in 1996, due to the
acquisition activities and related increases in overhead, as well as the cost of
conversion of the Preferred Stock and related Shareholder costs.

   Interest expense increased from $159,000 in the first nine months of 1995 to
$662,000 for the comparable period in 1996 as a result of additional bank
indebtedness incurred for the acquisitions.

Three Months Ended September 30, 1995 compared with Three Months Ended
September 30, 1996

   Oil and gas revenues increased from $953,000 in the third quarter of 1995 to
$2.6 million during the comparable period in 1996 due to an increase in oil and
gas production as a result of acquisitions and improved prices. Gas production
increased from approximately 3.4 MMCF per day in the third quarter of 1995 to
approximately 7.9 MMCF per day for the comparable period in 1996. Oil production
increased from 306 barrels per day in 1995 to 505 barrels per day. The average
prices received for gas increased from $1.48 per Mcf for the third quarter of
1995 production to an average of $2.37 per Mcf for the third quarter of 1996,
the average price received for oil production increased for oil from $16.87 per
Bbl during the third quarter of 1995 to $20.42 per Bbl during the comparable
period in 1996.

   Lease operating expenses increased from $230,000 in the third quarter of 1995
to $597,000 in the comparable period in 1996 as a result of the additional wells
added through the acquisitions and development drilling. Depreciation and
amortization expense also increased from $286,000 during the third quarter of
1995 to $699,000 for the comparable period in 1996 as result of an increase in
asset growth from acquisition and production, and a decline in gas reserves from
the Company's offshore properties.

   Administrative expenses increased from $452,000 for the third quarter of 1995
to $627,000 for the comparable period in 1996 due to the acquisition activities
and related increases in overhead as well as the cost of conversion of the
Preferred Stock and related Shareholder costs.

   Interest expense increased from $16,000 in the third quarter of $245,000 for
the comparable period in 1996 as result of additional bank indebtedness incurred
for the acquisitions.

                                       10
<PAGE>
 
                           AMERAC ENERGY CORPORATION

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES

   The Company has improved its overall financial condition in the last three
years through restructuring its equity and its financing arrangements with its
bank. The Company however, must continually seek additional sources of financing
in order to support its acquisition and exploitation activities. The Company has
financed these acquisitions, including the Fremont acquisition, through the use
of working capital, bank borrowings and equity. The Company has financed the
acquisition of Texan Gardens and Cosden with increased bank borrowings based on
increases in its reserve base resulting from such acquisitions and the Bridge
Loan. The Company currently plans to utilize internally generated cash flows and
bank financing to support future acquisitions together with other types of
financing, which may be more expensive, such as mezzanine, production payments
and additional equity financing. However, there is no assurance that the Company
will be successful in obtaining such additional financing. In June 1996, the
Company completed a private sale of approximately 1.08 million restricted shares
of Common Stock at an average price of $.34 per share. At November 1, 1996, the
Company has essentially fully utilized its bank financing capabilities and,
therefore, future bank borrowings will be limited by its additions to its
borrowing base and Bridge Loan. The Company has revised its Bank Credit
Agreement (see note 3). The Company intends to repay the current portion of Bank
Debt from cash flow provided by operations and additional funds raised through
the private placement of equity.

   The Company is currently negotiating with private investors regarding a
potential private placement of approximately $4 million of equity. Certain of
these private investors are also considering investing approximately $1.25
million in an exploitation project on the Eastern Shelf of the Permian Basin
with the Company. There is no assurance that either of these private placements
will take place.

NEW ACCOUNTING STANDARDS

   In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets for the Long-Lived Assets to be Disposed Of" ("SFAS 121"),
which is effective for fiscal years beginning after December 15, 1995. Effective
January 1, 1996, the Company adopted SFAS 121 which requires that long-lived
assets (i.e., property, plant and equipment) held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the net book value of the asset may not be recoverable. The Company did not
have a material impact upon adoption of SFAS 121.

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<PAGE>
 
                          PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

   See Note 6 - The Condensed Consolidated Financial Statements.


ITEM 6.  REPORTS ON FORM 8-K DURING THE THIRD QUARTER OF 1996

   None

EXHIBITS
--------

10-(13)  Credit Agreement between Amerac Energy Corporation and Bank One dated
         August, 15, 1996.

10-(14)  First Amendment to Amended and Restated Credit Agreement dated January
         16, 1996.

10-(15)  Second Amendment to Amended and Restated Credit Agreement dated August
         15, 1996.

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<PAGE>
 
                                   SIGNATURE


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


                                         AMERAC ENERGY CORPORATION
                                                (Registrant)



                                         By:     /s/ JEFFREY L. STEVENS
                                            ------------------------------------
                                                     Jeffrey L. Stevens
                                              Senior Vice President and Chief
                                                     Financial Officer



Date: November 14, 1996



 
 

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