SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                    FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934

    For the fiscal year ended December 31, 1998    Commission File No. 0-18774


                            Spindletop Oil & Gas Co.
             (Exact name of registrant as specified in its charter)


                Texas                                75-2063001
    -------------------------------             ---------------------
    (State or other jurisdiction of            (IRS Employer or ID #)
     incorporation or organization)

    9319 LBJ, Frwy., #205 Dallas, TX                            75243
   (Address of principal executive offices)                   (Zip Code)
                                    

        Company's telephone number, including area code: (972) 644-2581

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

                                      None

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

                     Common Stock par value $0.01 per share
                                (Title of Class)

Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                    YES X NO

As of March 31, 1999, 7,525,804 shares of the Company's common stock were issued
and outstanding, and the aggregate market value of the voting stock held by
non-affiliates of the company as of that date is not determinable since no
significant public trading market has been established for the Company's common
stock.




                                       1
<PAGE>





                                     PART I


Item 1. Description of Business.
(a) General Business Development.
Spindletop  Oil & Gas Co. is engaged in the exploration, development and  
production of oil and natural gas; the rental of oilfield equipment;and through
one of its subsidiaries, the gathering and marketing of natural gas. The term 
"Company" is used herein to refer to Spindletop Oil & Gas Co. and its wholly 
owned subsidiaries, Prairie Pipeline Co. ("PPL") and Spindletop Drilling 
Company ("SDC") .

The net crude oil and gas reserves of the Company as of December 31, 1998,  were
33,920 barrels of oil and condensate and 1,998,537 MCF (thousand  cubic feet) of
natural  gas.  The  Company  owns  rental   equipment,   including  natural  gas
compressors,  pumping units, natural gas dehydrators and other various pieces of
oilfield  production  equipment.  In addition,  the Company,  through PPL,  owns
approximately  26.1 miles of pipelines located in Texas,  which are used for the
gathering of natural gas. The Company's  principal executive offices are located
at 9319 LBJ  Freeway,  Suite  #205,  Dallas,  Texas.  The  telephone  number  is
(972)644-2581.

                                   BACKGROUND

The Company is a Texas Corporation. The Company was previously known as Prairie
States Energy Co.("PSE"). On July 13, 1990, Spindletop  Oil & Gas Co., a Utah  
Corporation,  ("SOG UTAH")  merged into PSE, and the name of PSE was changed to 
Spindletop Oil & Gas Co., the Company herein.

The Company was originally  incorporated  in Colorado as Mid-America  Drilling &
Exploration, Inc., on August 9, 1978 as a wholly-owned subsidiary of Mid-America
Petroleum,  Inc. ("MAP"). The principal business of the Company at that time was
contract  drilling  of oil and gas wells.  The  initial  public  offering of the
Company  occurred by prospectus  dated  December 13, 1979. In January 1981,  the
shares  of the  Company  owned  by MAP were  distributed  as a  dividend  to the
shareholders   of  MAP.  The  Company's  name  was  changed  to  Prairie  States
Exploration,  Inc. on March 15, 1983.  Prairie States  Exploration,  Inc. became
insolvent  in late  1983,  and  filed for  protection  under  Chapter  11 of the
Bankruptcy Code on December 14, 1983.

Prairie States Exploration, Inc. was successfully reorganized  under Chapter 11 
of the Bankruptcy Code, and the Bankruptcy Court  approved the plan of 
reorganization on September 9, 1985. Pursuant to the Plan, the Company merged 
into a wholly-owned subsidiary,  Prairie States Energy Co., a Texas Corporation.
The Plan of Reorganization was proposed and funded by Paul E. Cash.

Since the  reorganization,  the  Company  has engaged in the general oil and gas
business, including exploration, development, and production of oil and gas, the
rental of oilfield  production  equipment and the ownership and construction and
operation of pipelines  for the gathering and marketing of natural gas. SOG Utah
was  incorporated  on August 15,  1975 as Main  Street  Equities,  Inc.,  a Utah
corporation. SOG Utah sold 5,000,000 shares of common stock in a public offering
in 1976. Until 1981, the business of the company  consisted of minor real estate
operations.  In October  1981 the name was  changed to Aledo Oil and 


                                       2
<PAGE>


Gas Company and in January 1983 the name was changed to Spindletop Oil & Gas Co.

The name  "Spindletop"  has been used by Paul E. Cash since 1975 in  conjunction
with several previous oil and gas businesses in which he was engaged.

On July 13, 1990,  SOG Utah was merged into PSE,  and the name of the  surviving
company was changed to  Spindletop  Oil & Gas Co., a Texas  corporation.  In the
merger,  each shareholder of PSE received  one-half share of the common stock of
the  surviving  company,  the Company,  for each share of PSE owned prior to the
merger.  Each  shareholder  of SOG Utah received one and one-half  shares of the
common stock of the surviving company, for each share of SOG Utah owned prior to
the merger.  After the merger, the Company had outstanding  44,922,564 shares of
common  stock,  32,255,195  of which were owned by the  shareholders  of PSE and
12,667,369 by shareholders of SOG Utah. Shares issued to the former shareholders
of SOG Utah have not been registered with the Securities and Exchange Commission
but according to Rule 144-K these shares would automatically become free trading
three years from date of issuance.  The Company's  management  believes that all
shares  issued to the former  shareholders  of SOG Utah are now free  trading in
accordance with Rule 144-K. On January 31, 1997, the Company  effected a one for
six reverse stock split.  The Company reduced the authorized  common shares from
150,000,000  to  100,000,000  and increased the par value from $.001 to $.01 per
share.

                                PLAN OF OPERATION

In  1995  the  Company  successfully  concentrated  its  efforts  on oil and gas
property  acquisitions.  With  increased  competition  for oil and gas  property
acquisitions  and  with a  corresponding  increase  in oil and gas  prices,  the
Company,  in 1996,  returned  its focus to its  primary  business of oil and gas
exploration and production.  The Company's long-term strategy is to build an oil
and gas production  company through an exploration  program.  Additionally,  the
Company  will  continue  to rework  existing  wells in an  attempt  to  increase
production and reserves.

The Company  will  continue to generate  and  evaluate  prospects  using its own
geological and land staff. The Company intends to fund operations primarily from
cash flow generated by operations.  The Company's  primary area of operation has
been and  will  continue  to be in  Texas  with an  emphasis  in the  geological
provinces known as the Ft.
Worth Basin in Texas.

The  Company  will  attempt to expand its  pipeline  system.  Expansion  will be
dependent upon success in its  exploration  programs,  since the majority of its
existing  pipelines are connected to wells which it operates.  In addition,  the
oilfield rental equipment  business will be expanded as needed, but this segment
also depends upon the success of the exploration and development program.

The  Company  in 1996  expanded  its  current  pipeline  system  by 6.7 miles by
acquiring, at no cost, a pipeline system in Hood County, Texas. The Company sold
this pipeline in 1998 for a price of $30,000.


                                       3
<PAGE>



(b) Financial information relating to Industry Segments
The Company has two identifiable business segments: exploration, development and
production  of oil and natural gas, and gas  gathering  and oil field  equipment
rental.  Footnote 15 to the Consolidated  Financial Statements filed herein sets
forth the relevant  information  regarding revenues,  income from operations and
identifiable assets for these segments.

(c) Narrative Description of Business
The Company and SDC are engaged in the  exploration,  development and production
of oil and natural gas, and the rental of oil and gas production equipment.  PPL
is engaged in the gathering and marketing of natural gas.

(i) Principal Products, Distribution and Availability.
The  principal  products  marketed  by the Company are crude oil and natural gas
which  are  sold  to  major  oil  and  gas  companies,  brokers,  pipelines  and
distributors,  and oil and gas properties which are acquired and sold to oil and
gas development entities.  Reserves of oil and gas are depleted upon extraction,
and the Company is in  competition  with other entities for the discovery of new
prospects.

The  Company is also  engaged in the  gathering  and  marketing  of natural  gas
through  its  subsidiary  PPL.  The  Company  owns 26.1 miles of  pipelines  and
currently  gathers  approximately  518 MCF of gas per day. Gas is gathered for a
fee.  Substantially  all of the gas gathered by the Company is gas produced from
wells which the Company operates and in which it owns a working interest.

The Company is also  engaged in the  business  of rental of oilfield  production
equipment.  The  equipment  is  comprised  of pumping  units,  compressors,  gas
dehydrators  and  related  production  equipment.   Substantially  all  of  such
equipment is located on wells which the Company  operates and in which it owns a
working interest.

(ii)  Patents,  Licenses and  Franchises.  Oil and gas leases of the Company are
obtained  from the owner of the mineral  estate.  The leases are generally for a
primary term of 1 to 5 years,  and in some  instances as long as 10 years,  with
the provision  that such leases shall be extended into a secondary term and will
continue  during  such  secondary  term as long as oil and gas are  produced  in
commercial  quantities  or other  operations  are  conducted  on such  leases as
provided  by the terms of the  leases.  It is  generally  required  that a delay
rental be paid on an annual  basis  during the primary  term of the lease unless
the  lease is  producing.  Delay  rentals  are  normally  $1.00 to $5.00 per net
mineral acre.

The Company currently holds interests in producing and non-producing oil and gas
leases. The existence of the oil and gas leases and the terms of the oil and gas
leases are important to the business of the Company because future  additions to
reserves will come from oil and gas leases  currently owned by the Company,  and
others that may be acquired, when they are proven to be productive.  The Company
is  continuing  to purchase oil and gas leases in areas where it  currently  has
production, and also in other areas.


                                       4
<PAGE>



(iii) Seasonality.
The  Company's  oil and gas  activities  generally are conducted on a year round
basis with only minor interruptions caused by weather.

(iv) Working Capital Items.
The Company  finances the majority of its operations,  including the purchase of
oil and gas leases,  the development of wells, the construction of pipelines and
acquisition of oil field rental  equipment from its internal  working capital as
well as some borrowings.

(v) Dependence on Customers.
The following is a summary of significant  purchasers of the oil and natural gas
produced by the Company for the three year period ended December 31, 1998:

<TABLE>
<CAPTION>


      Purchaser                                December 31, Percent (1)
      ---------                            ------------------------------
                                            1998        1997         1996
                                            ----        ----         ----
<S>                                          <C>         <C>         <C>    
Lone Star Gas Company and affiliates         13%         13%           -%
Mitchell Marketing Co.                       22%         13%          12%
Tristar Gas Company                           -%          -%          10%
Texas Utilities Fuel Co.                      -%         10%          18%

<FN>

(1) Percent of total oil and gas sales


In the past The  Company  sold gas under  long term  contracts  to Lone Star Gas
Company  and its  affiliates.  Such  contracts  are no  longer  in  effect.  Gas
previously  marketed  under those  contracts is now sold to other  parties under
market sensitive, short term contracts.

Sales of natural gas to Texas  Utilities Fuel Company  ("TUFCO") are pursuant to
contracts  expiring in 1994 through 1999.  Gas  previously  marketed under those
contracts  and from those  contracts  that will expire is sold to other  parties
under market sensitive, short-term contracts.
</FN>
</TABLE>

(vi) Competition.
Numerous  entities and individuals,  many of whom have far greater financial and
other  resources  than  the  Company,  are  active  in the  exploration  for and
production of oil and gas. Substantial competition exists for leases,  prospects
and equipment, all of which are necessary for successful operations. Competition
is focused  primarily on the discovery of new  prospects  which can be developed
and made productive.

The market  prices  received for the  Company's  products  depend on a number of
factors beyond the control of the Company,  including consumer demand, worldwide
availability,   transportation   facilities,   and  United  States  and  foreign
government  regulation  of  exports,  imports,  production  and  prices.  Widely


                                       5
<PAGE>


fluctuating  prices for oil and gas over recent years,  have had a direct effect
on the profitability of the Company's operations.

(vii) Development Activities.
The  Company's  primary oil and gas  prospect  acquisition  efforts have been in
known producing areas in the United States with emphasis devoted to Texas.

The Company  intends to use a portion of its available  funds to  participate in
drilling activities.  Any drilling activity is performed by independent drilling
contractors.  The Company does not refine or  otherwise  process its oil and gas
production.

Exploration  for oil and gas is normally  conducted  with the Company  acquiring
undeveloped oil and gas prospects,  and carrying out exploratory drilling on the
prospect  with the  Company  retaining  a  majority  interest  in the  prospect.
Interests in the property are sometimes  sold to key  employees  and  associated
companies at cost. Also, interests may be sold to third parties with the Company
retaining  an  overriding  royalty  interest,   carried  working  interest,   or
reversionary  interest.  A prospect is a  geographical  area  designated  by the
Company for the purpose of searching  for oil and gas  reserves  and  reasonably
expected  by it to  contain  at  least  one oil or gas  reservoir.  The  Company
utilizes  its own  funds  to  acquire  oil and gas  leases  covering  the  lands
comprising  the  prospects.  These  leases are  selected  by the Company and are
obtained  directly from the  landowners,  as well as from  landmen,  geologists,
other oil  companies,  some of whom may be affiliated  with the Company,  and by
direct purchase,  farm-in,  or option agreements.  After an initial test well is
drilled on a property, any subsequent development of such prospect will normally
require the Company's participation for the development of the discovery.

(viii) Environmental Regulation.
The Company's oil and gas exploration  and production  activities are subject to
Federal,  State  and  environmental  quality  and  pollution  control  laws  and
regulations.  Such  regulations  restrict  emission and discharge of wastes from
wells,  may require permits for the drilling of wells,  prescribe the spacing of
wells and rate of production, and require prevention and clean-up of pollution.

Although the Company has not in the past incurred substantial costs in complying
with  such  laws  and   regulations,   future   environmental   restrictions  or
requirements may materially increase the Company's capital expenditures,  reduce
earnings,  and delay or prohibit certain activities.  However, such restrictions
and  requirements  would  also  apply to the  Company's  competitors,  and it is
unlikely that  compliance by the Company  would  adversely  affect the Company's
competitive position.


(ix) Additional Government Regulation.
In addition to environmental regulations, the production and sale of oil and gas
is subject to regulation by Federal,  State and local  governmental  authorities
and  agencies.  Such  regulations  encompass  matters  such as the  location and
spacing of wells,  the  prevention of waste,  the rate of  production,  the sale
price of certain oil and gas, conservation, and safety.


                                       6
<PAGE>

Oil Price Regulation
Historically, regulatory policy affecting crude oil pricing was derived from the
Emergency  Petroleum  Allocation  Act of 1973,  as amended,  which  provided for
mandatory  crude  oil price  controls  until  June 1,  1979,  and  discretionary
controls through September 30,1981. On April 5, 1979,  President Carter directed
the Department of Energy to complete administrative procedures designed to phase
out, commencing June 1, 1979, price controls on all domestically  produced crude
oil by October 1, 1981. However,  on January 28, 1981,  President Reagan ordered
the  elimination  of  remaining  federal  controls on domestic  oil  production,
effective  immediately.  Consequently,  oil may currently be sold at unregulated
prices.

Gas Price Regulation.
The Natural Gas Act of 1938 ("NGA") regulates the interstate  transportation and
certain  sales for resale of natural  gas.  The  Natural  Gas Policy Act of 1978
("NGPA")  regulates  the maximum  selling  prices of certain  categories of gas,
whether sold in so-called  "first sales" in  interstate or intrastate  commerce.
These  statutes are  administered  by the Federal Energy  Regulatory  Commission
("FERC").  The NGPA established  various  categories of natural gas and provided
for  graduated  deregulation  of price  controls  for  first  sales  of  several
categories  of natural gas.  With  certain  exceptions,  all price  deregulation
contemplated  under the NGPA as  originally  enacted in 1978 has  already  taken
place.  Under  current  market  conditions,  deregulated  gas  prices  under new
contracts  tend to be  substantially  lower than most  regulated  price ceilings
prescribed by the NGPA.

On July 26, 1989,  the Natural Gas Wellhead  Decontrol  Act of 1989  ("Decontrol
Act") was enacted.  The  Decontrol Act amended the NGPA to remove as of July 27,
1989 both price and  non-price  controls from natural gas not subject to a first
sale  contract in effect on July 26, 1989.  The  Decontrol Act also provided for
the phasing out of all price regulation under the NGPA by January 1, 1993.

(x)  Special Tax Provisions.
See footnote 8 to Consolidated Financial Statements

(xi) Employees.
The  Company  employs a total of 9 people, 4 persons in its offices in Dallas 
and 5 in its field  operations. All are full-time employees.

(d)Financial information about foreign and domestic operations and export sales.

All of the Company's business is conducted domestically, with no export sales.



                                       7
<PAGE>







Item 2. Properties
Oil and Gas Properties.
The following table sets forth pertinent data with respect to the  Company-owned
oil and gas  properties,  all located within the continental  United States,  as
estimated by the Company:

<TABLE>
<CAPTION>


                                                Year Ended December 31,
                                           1998          1997          1996
                                       ----------    ----------     ----------
<S>                                    <C>           <C>            <C>
Gas and Oil Properties (net) (1):
Proved Developed Gas Reserves-MCF (2)   1,699,425     2,122,247      2,181,212

Proved Undeveloped Gas Reserves-MCF(3)    299,112       299,112        289,962
                                       ----------    ----------     ----------
Total Proved Gas Reserves-MCF           1,998,537     2,421,359      2,471,174
                                       ==========    ==========     ========== 
Proved Developed Crude Oil and
 Condensate Reserves-Bbls (2)              33,920        61,646         72,091

Proved Undeveloped Crude Oil and
 Condensate Reserves-Bbls (3)                 -             -              -
                                       ----------    ----------     -----------
Total Proved Crude Oil and
 Condensate Reserves-Bbls                 33,920         61,646         72,091
                                       ==========    ===========    ===========

                       (See footnotes on Page 9 following)

                                       8
<PAGE>





                                               Year Ended December 31,
                                       1998             1997            1996
                                    -----------      -----------     ----------

Present Value of Estimated
 Future Net Revenues
 From Proved Reserves (4) (5):
  Developed                       $ 1,405,000       $ 2,107,000     $ 2,228,000
  Developed and Undeveloped         1,599,000         2,283,000       2,381,000

Productive Wells (6):
 Gas Wells
  Gross                                   228               236             247
  Net                                   27.59             29.34           33.98
 Oil Wells
  Gross                                   212               216             224
  Net                                   14.56             14.83           15.43
Acreage:
 Developed Acres (Producing)
  Gross                                81,073            82,042          83,642
  Net                                   7,685             7,864           8,600
 Undeveloped Acres
  Gross                                86,868            86,868          81,805
  Net                                  13,856            13,856           8,793

                 (See footnotes below and on Page 10 following)
<FN>

(1) The estimate of the net proved oil and gas reserves,  future net  revenues,
and the present value of future net revenues.

(2) "Proved Developed Oil and Gas Reserves" are reserves that can be expected to
be recovered  through  existing  wells with  existing  equipment  and  operating
methods.

(3) "Proved Undeveloped Reserves" are reserves that are expected to be recovered
from new wells on undrilled  acreage,  or from existing wells where a relatively
major expenditure is required for recompletion.

(4) "Estimated  Future Net Revenues" are computed by applying  current prices of
oil and gas, less the estimated future  expenditures (based on current costs) to
be incurred in developing and producing the proved reserves.

(5) "Present Value of Estimated  Future Net Revenues" is computed by discounting
the  Estimated  Future Net Revenues at the rate of ten percent (10%) per year in
accordance with the Securities and Exchange Commission Rules and Regulations.
</FN>
</TABLE>


                                       9
<PAGE>


(6)   Operated Wells having multiple completions are as follows:
<TABLE>
<CAPTION>
                             1998                1997              1996
                      -----------------    -----------------  --------------
                      Gross         Net    Gross       Net    Gross       Net
<S>                    <C>         <C>      <C>       <C>       <C>      <C> 
Gas                    6           2.55     6         2.55      7        1.66
Oil                   -0-           -0-    -0-         -0-     -0-        -0-
<FN>
The Company has  interests  in numerous  wells which are operated by third party
operators.  Information as to multiple  completions  with respect to third party
operated wells is not available to the Company.
</FN>
</TABLE>

The Company's  working  interests in exploration and development wells completed
during the years indicated were as follows:
<TABLE>
<CAPTION>

                                               Year Ended December 31,
                                        1998            1997           1996
                                   --------------  ------------   -------------
                                   Gross      Net   Gross   Net   Gross    Net
                                   -----     ----   -----  ----   -----    ----
<S>                                <C>       <C>    <C>    <C>    <C>      <C>
Exploratory wells:
  Productive                         -         -      -      -      1        -
  Non-Productive                     -         -      2    1.6      -        -
                                   -----     ----   -----  ----   -----    ----
Total                                -         -      2    1.6      1        -
                                   -----    -----   -----  -----  -----    -----

Development wells:
  Productive                         -         -      -     -       -        -
  Non-Productive                     -         -      -     -       -        -
                                   -----    -----   -----  ----   -----   -----
Total                                -         -      -     -       -        -
                                   -----    -----   -----  ----   -----   -----



Total Exploratory and Development
wells:
  Productive                         -         -      -      -       1        -
  Non-Productive                     -         -      2    1.6       -        -
                                   -----     -----  ----- -----   -----    -----
 Total                               -         -      2    1.6       1        -
                                   -----     -----  ----- ------  -----    -----


</TABLE>



                                       10
<PAGE>






The following  tables set forth  additional data with respect to production from
Company-owned oil and gas properties,  all located within the continental United
States:
<TABLE>
<CAPTION>

                                                Year Ended December 31,
                                  ---------------------------------------------
                                    1998      1997     1996     1995     1994
                                  --------  --------  -------- -------  -------
<S>                               <C>       <C>       <C>      <C>      <C>   
Oil and Gas Production (net):
 Gas-                              350,566   357,166   371,074  322,465  284,903
 Crude Oil and Condensate - Bbls    13,304    14,998    17,276   17,873   11,584

Average Sales Price Per Unit
 Produced: Gas - per Mcf            $ 1.97   $  2.66   $  2.48   $ 2.28   $ 2.57

 Crude Oil and Condensate-per Bbl  $ 11.97   $ 20.29   $ 21.16  $ 16.61   $15.71

Average Production Cost Per 
EquivalentBarrel (1) (2)           $  7.37   $ 8.90    $  8.90  $  8.81   $7.62
<FN>

(1)  Includes severance taxes and ad valorem taxes.
(2) Gas  production  is  converted  to  equivalent  barrels  at the rate of six
 MCF per  barrel,  representing  the estimated relative energy content of 
 natural gas to oil.
</FN>
</TABLE>

The Company owns producing  royalties and overriding  royalties under properties
located in Texas. The revenues from these properties is not significant.

Current Activities - March 15, 1999.
Gross Wells in Process of Drilling          -0-
Net Wells in Process of Drilling            -0-
Waterfloods in Process of Installation      -0-
Pressure Maintenance Operations             -0-

The Company is not aware of any major  discovery  or other  favorable or adverse
event that is  believed  to have caused a  significant  change in the  estimated
proved reserves since December 31, 1998.

Office Space.

The Company leases office space as follows:

Location                     Square Feet               Lease Expires
Dallas, Texas                   5,393                   Nov. 30, 1999



                                       11
<PAGE>



Pipelines.
The Company owns,  through its  subsidiary  Prairie  Pipeline Co., 26.1 miles of
natural gas  pipelines  in Parker,  Hood and  Eastland  Counties,  Texas.  These
pipelines  are  steel  and  polyethylene  and  range in size  from 2 inches to 6
inches.  These pipelines primarily gather natural gas from wells operated by the
Company and in which the  Company  owns a working  interest,  but also for other
parties.  The Company  normally  does not purchase  and resell  natural gas, but
gathers gas for a fee. The fees charged in some cases are subject to regulations
by the State of Texas and the  Federal  Energy  Regulatory  Commission.  Average
daily volumes of gas gathered by the pipelines owned by the Company was 518, 615
and 484 MCF per day for 1998, 1997, and 1996 respectively.

Oil Field Production Equipment.
The Company owns various natural gas compressors, pumping units, dehydrators and
various other pieces of oil field production equipment.

Substantially all of the equipment is located on oil and gas properties in which
the Company owns a working  interest and which are operated by the Company.  The
rental fees are charged as lease operating fees to each property and each owner.

Item 3.  Legal Proceedings
Neither the Registrant nor its  subsidiaries  nor any officers or directors is a
party to any material  pending legal  proceedings  for or against the Company or
its subsidiary nor are any of their properties subject to any proceedings.

Item 4.  Submission of Matters of Security Holders to a Vote
None

                                     PART II

Item 5.  Market for the Company's Common Stock and Related Stockholder Matters.
No  significant  public trading  market has been  established  for the Company's
common stock.  The common stock of the Company is traded on an occasional  basis
by dealers in the over the counter market,  the terms of which are not available
to the Company.  The Company  does not believe  that  listings of bid and asking
prices for its stock in the pink sheets are  indicative  of the actual trades of
its  stock,  since  trades are made  infrequently.  There is no amount of common
stock  which is subject to  outstanding  options or  warrants  to  purchase,  or
securities  convertible into, common stock of the Company.  On January 31, 1997,
the  Company  effected a one for six  reverse  stock  split.  At that time,  the
Company reduced the authorized common shares from 150,000,000 to 100,000,000 and
increased the par value from $.001 to $.01 per share.

The approximate  number of record holders of the Company's Common Stock on March
15, 1999, was 638.

The Company has not paid any dividends  since its  reorganization  and it is not
contemplated  that  it  will  pay  any  dividends  on its  Common  Stock  in the
foreseeable  future.  There are no financing  agreements in place which restrict
payment of dividends.

The Registrant currently serves as its own stock transfer agent and registrar.



                                       12
<PAGE>


Item 6.  Selected Financial Data
The selected financial  information presented should be read in conjunction with
the consolidated financial statements and the related notes thereto.
<TABLE>
<CAPTION>

                                     Years Ended December 31,
                      1998        1997         1996         1995         1994
                   -----------  -----------  -----------  ----------  ----------
<S>                <C>          <C>          <C>          <C>         <C>       
Total Revenue      $ 1,239,000  $ 1,685,000  $ 1,693,000  $1,448,000  $1,396,000
Net Incom             (229,000)      83,000      141,000       7,000     102,000
Earnings Per 
Share(1)                 (.03)          .01          .02          -         .01

At End of 
Periods
Total Assets          1,793,000   2,225,000    2,154,000   1,949,000   2,212,000
Long-Term Debt              -           -            -           -         3,000
<FN>

 (1) After 1 for 6 stock split  discussed  in Note 2 to  Consolidated  Financial
Statements.
</FN>
</TABLE>

Item 7.  Management's Discussion and Analysis of Financial Condition and
    Results  of Operations
Liquidity and Capital Resources
The Company's  operating  capital needs, as well as its capital spending program
are generally funded from cash flow generated by operations. Because future cash
flow is subject to a number of variables,  such as the level of  production  and
the sales price of oil and  natural  gas,  the Company can provide no  assurance
that its operations will provide cash  sufficient to maintain  current levels of
capital  spending.  Accordingly,  the Company may be required to seek additional
financing from third parties in order to fund its  exploration  and  development
programs.

Results of Operations:

1998 Compared to 1997
Oil and gas  revenues  decreased  primarily  because of decreases in oil and gas
prices. There was also a slight decrease in production.

Lease  operating  expenses  decreased  because  of a sale  of  some  oil and gas
properties  and an overall  decrease in the amount of repairs  and  maintencance
required on existing wells in 1998.

Gas pipeline sales and gas pipeline purchases  decreased because of the sale the
pipeline in 1998 for $30,000.  This pipeline had been  obtained at no cost.  The
$30,000 gain is reflected in other income

1997 Compared to 1996
Gas pipeline sales of $89,000 and related gas pipeline  purchases of $64,000 did
not exist in 1996. The pipeline was purchased in December 1996.

Revenue from lease operations  decreased  $28,000 in 1997. The Company decreased
its monthly overhead fee on several wells that it operates.


                                       13
<PAGE>


1996 Compared to 1995
Oil and gas revenues  increased due to an increase in production and an increase
in oil and gas prices. Severance taxes also increased due to the same reason.


Item 8. Consolidated Financial Statements and Schedules, index at page 21.


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

The  accountants  for the  Company  are Farmer,  Fuqua,  Hunt &  Munselle,  P.C.
Certified  Public  Accountants,  who have  prepared  audit reports for the years
ended December 31, 1996, 1997, and 1998.

There have been no disagreements  between the Company and Farmer,  Fuqua, Hunt &
Munselle,  P.C. on any matter of accounting  principles or practices,  financial
statement disclosure, or auditing scope or procedure.





                                       14
<PAGE>





                                    PART III


Item 10.  Directors  and  Executive  Officers of the  Registrant  (a) and (b)The
Directors  and  Executive  Officers  of  the  Company  and  certain  information
concerning them is set forth below:


    Name                       Age        Position
------------                   ---   ------------------------
Paul E. Cash                    66    Director and President
K. Paul Cash                    42    Director, Vice President
                                      and Secretary
Gary Goodnight                  44    Director, Vice President, and Treasurer
David Goodhart                  34    Director and Vice President


All directors hold office until the next annual meeting of the  shareholders  or
until their  successors are duly elected and qualified.  Officers of the Company
serve at the discretion of the board of directors.

(c) Significant employees
        Not applicable

(d) Family relationships
        Paul E. Cash is the father of K. Paul Cash.
        David Goodhart is the son-in-law of Paul E. Cash

(e) Business experience
Paul E. Cash is a graduate of The University of Texas (B.B.A.-Accounting) and is
a Certified  Public  Accountant.He has been active in the oil and gas  industry
for over 25 years,  during  which time he has served as  financial officer of 
two  publicly-owned  companies,  Texas Gas Producing Co. and Landa Oil Co., and
also served as president of  publicly-owned  Continental  American Royalty Co., 
Bloomfield Royalty Co., Southern Bankers Investment Co., Spindletop Oil & Gas 
Co. (a Utah Corporation), Double River Oil & Gas Co., and Loch Exploration Inc. 
Mr. Cash has also been an officer and part owner of several private oil and gas 
companies and  partnerships,  Mr. Cash also  formerly  served as Mayor of the 
City of Sunnyvale, Texas.

Gary Goodnight, a Certified Public Accountant, is a Director, Vice President,  
Treasurer, Controller and Principal Accounting Officer.  Mr.  Goodnight  joined 
the Company in November 1986. Mr.  Goodnight was employed by KPMG Peat Marwick  
LLP from 1977 to 1979.  From 1979 until  joining  the  Company,  Mr.  Goodnight
was employed  by various independent  oil and gas  exploration  companies.  He 
received a B.B.A.  from the  University of Texas at Austin in 1977.

David I.  Goodhart,  Director  and  Vice-President/General  Counsel,  joined the
Company in June 1998. Prior to joining the Company, Mr. Goodhart was employed as
an attorney for  Thompson & Knight,  P.C. in Dallas,  Texas,  and as an attorney
with Sildon & Evans,  P.C. in Kansas  City,  Missouri.  He receive a Bachelor of


                                       15
<PAGE>


Business  Administration  degree in accounting  from The  University of Texas at
Austin  in  1987;  a  Masters  of  Science  degree  in Tax  Accounting  from the
University of  Missouri-Kansas  City in 1989; and a Juris Doctorate  degree from
the University of Missouri-Kansas City in 1994.

K. Paul Cash, Director, Vice President and Secretary, joined the Company in 
1993. Prior to joining the Company he had been a Director and  President of 
Daltex Oil & Gas Co., a privately  held company for more than five years.  
K. Paul Cash is a geologist, having received a degree in geology from the 
University of Texas at Arlington in 1981.

(f) Involvement in certain legal proceedings.
None of the directors or executive  officers of the Registrant,  during the past
five  years,  has been  involved  in any civil or  criminal  legal  proceedings,
bankruptcy  filings or has been the  subject of an order,  judgment or decree of
any Federal or State authority involving Federal or State securities laws.

Item 11.  Executive Compensation
(a) Cash Compensation
For the year ended December 31, 1998, none of the Company's  executive  officers
were paid cash  compensation  at the annual  rate in excess of  $60,000.  During
1998, the Company paid cash compensation of approximately $173,000 to all of its
officers.

(b) Compensation Pursuant to Plan.  None

(c) Other Compensation
Key employees of the Company, other than Mr. Cash, are permitted to purchase, at
cost,  a small  interest  (usually  a  maximum  of 1 to 2% each) of the  working
interest in prospects to be drilled by the Company. Mr. Cash usually purchases a
working interest of 20 to 50% at cost.

Key  employees  of the  Company,  except Paul E. Cash,  are  sometimes  assigned
overriding  royalty  interests  and/or  carried  working  interest in  prospects
acquired by or generated  by the Company.  These  interests  normally  vary from
one-half to one percent for each employee. There is no set formula or policy for
such  program,  and the  frequency  and amounts are  largely  controlled  by the
economics of each particular prospect.

(d) Compensation of Directors
Directors are not currently  compensated  nor are there plans to compensate them
for their services on the board.

(e) Termination of Employment and Change of Control Arrangement
There are no plans or  arrangements  for payment to officers or  directors  upon
resignation or a change in control of the Registrant.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.
(a) & (b) Security ownership of certain beneficial owners and managers
The table below sets forth the information  indicated regarding the ownership of
the  Registrant's  common stock,  $.01 par value,  the only  outstanding  voting
securities,  as of December 31, 1998 with respect to: (i)any person who is known
to the  Registrant  to be the  owner  of  more  than  five  percent  (5%) of the



                                       16
<PAGE>

Registrant's  common stock;(ii) the common stock of the Registrant  beneficially
owned by each of the directors of the Registrant  and, (iii) by all officers and
directors  as a group.  Each person has sole  investment  and voting  power with
respect to the shares indicated,  except as otherwise set forth in the footnotes
to the table.
<TABLE>
<CAPTION>
                                                                    %BASED ON
                                                   NATURE OF       OUTSTANDING
 NAME AND ADDRESS OF                 NUMBER OF    BENEFICIAL       PERCENT OF
 BENEFICIAL OWNER                     SHARES       OWNERSHIP          CLASS
 ----------------                     ------       ---------          -----
<S>                                   <C>          <C>                 <C>   
Paul E. Cash                          6,169,357      Direct            81.97%
9319 LBJ Frwy, Suite 205
Dallas, TX  75243

K. Paul Cash                             72,667      Direct             0.97%
9319 LBJ Frwy, Suite 205
Dallas, TX  75243

Gary Goodnight                          103,334      Direct             1.38%
9319 LBJ Frwy, Suite 205
Dallas, TX  75243

All officers and directors
 as a group                           6,345,358                        84.32%
</TABLE>

(c) Changes in control
The  Company is not aware of any  arrangements  or pledges  with  respect to its
securities which may result in a change in control of the Company.



Item 13. Certain  Relationships  and Related  Transactions (a) Transactions with
management and others.
A portion  of the  business  of the  Company is the  development  of oil and gas
drilling prospects.  In some instances,  prospects are developed on leases owned
by Paul E. Cash, President, Director and Majority Shareholder of the Registrant.
Prospects  have been  developed  on leases  owned by Mr.  Cash,  and the Company
expects  that  prospects  will be  developed  on leases owned by Mr. Cash in the
future.  In the event that the Company  develops the prospect on leases owned by
Mr.  Cash,  the company  will  acquire all or a portion of such  leases,  at the
actual cost to Mr. Cash or the fair market value thereof, whichever is less. Mr.
Cash may retain an interest in the leases and  participate  in the  drilling and
development of wells thereon on an actual cost basis.

In addition,  Mr. Cash and other employees of the Company may participate in the
drilling  of wells on  leases  owned by the  Company.  In the  event  that  such
participation occurs, Mr. Cash and the employees of the Company will participate
on an actual cost basis to the Company.

The  Company  operates  approximately  100 oil and gas wells.  Mr.  Cash owns an
interest in approximately 90 of these wells, with an average working interest in
such wells of 50.6%.  The  Registrant  believes  that all of the overhead  rates
charged are  reasonable,  and are at rates which would not be less than would be
charged by third party  operators.  In addition,  officers and  directors of the
Company, other than Mr. Cash, own small interests in a few of the wells operated
by the company.


                                       17
<PAGE>


(b) Certain Business Relationships

Key  employees  of the  Company,  except Paul E. Cash,  are  sometimes  assigned
overriding  royalty  interests  and/or  carried  working  interests in prospects
acquired by or generated  by the Company.  These  interests  normally  vary from
one-half to one percent for each employee. There is no set formula or policy for
such  program,  and the  frequency  and amounts are  largely  controlled  by the
economics of each particular prospect.









                                       18
<PAGE>













Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

                                     PART IV

    (a)  The following documents filed as part of this Report
           1. Independent Auditors' Report
              Consolidated  Balance  Sheets  at  December  31,  1998  and 1997
              Consolidated  Statements  of  Income (Loss) for the  years  ended
              December 31, 1998, 1997, and 1996
              Consolidated Statements of Changes in Shareholders' Equity for
              the years ended December 31, 1998, 1997, and 1996
              Consolidated Statements of Cash Flows for the years ended
              December 31, 1998, 1997, and 1996
              Notes to Consolidated Financial Statements
           2. Financial Statement Schedules required to be filed by Item 8 and
              Paragraph (d) of this Item 14
              Schedule II  Valuation  and  Qualifying  Accounts 
              All other schedules have been omitted because they are not
              applicable or required under the rules of Regulation S-X or the  
              information has been supplied in the consolidated financial 
              statements or notes thereto.
              Such schedules and reports are at page 42 of this Report.
           3. The Exhibits are listed in the index of Exhibits Required by Item
              601 of Regulation S-K at Item (c) below and included at page 43.

       (b) No reports on Form 8-K were  filed  during  the last  quarter of the
           period covered by this Report.
       (c) The Index of Exhibits is included  following the Financial  Statement
           Schedules beginning at page 43 of this Report.
       (d) The Index to Consolidated Financial Statements and Supplemental
           Schedules is included following the signatures, beginning at page 21
           of this Report.




                                       19
<PAGE>














                                   SIGNATURES


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


                                               SPINDLETOP OIL & GAS CO.



Dated April 12, 1999                          By /S/ Paul E. Cash   
                                                     -------------------
                                                     Paul E. Cash
                                                     President, Director


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




    Signatures                         Capacity                      Date
Principal Executive Officers:

                                            
                                 
/s/ Paul E. Cash               President, Director             April 12, 1999  
----------------
    Paul E. Cash
                                
/s/ K. Paul Cash               Secretary, Director             April 12, 1999
----------------
    K. Paul Cash

/s/ David Goodhart             Vice President, Director        April 12, 1999
------------------                       
    David Goodhart

                                
/s/ Gary Goodnight             Treasurer, Director             April 12, 1999
-----------------
    Gary Goodnight




                                       20
<PAGE>




                    SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
            Index to Consolidated Financial Statements and Schedules


                                                                      Page

Independent Auditors' Report...........................................22

Consolidated Balance Sheets - December 31, 1998
and 1997............................................................23-24

Consolidated Statements of Income (Loss) for the years
ended December 31, 1998, 1997 and 1996.................................25

Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1998,
1997, and 1996.........................................................26

Consolidated Statements of Cash Flows for the
years ended December 31, 1998, 1997
and 1996...............................................................27

Notes to Consolidated Financial Statements..........................28-41

Schedules for the years ended December 31, 1998,
1997 and 1996
         II - Valuation and Qualifying Accounts........................42


All other  schedules  have been  omitted  because they are not  applicable,  not
required,  or the  information has been supplied in the  consolidated  financial
statements or notes thereto.


                                       21
<PAGE>










                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
Spindletop Oil & Gas Co.

We have audited the accompanying consolidated balance sheets of Spindletop Oil &
Gas Co. (a Texas Corporation) and subsidiaries as of December 31, 1998 and 1997,
and the related  consolidated  statements  of income (loss), changes in  
shareholders' equity and cash flows for each of the three years in the period  
ended  December 31, 1998. 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  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  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 consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Spindletop Oil & Gas Co. and  subsidiaries as of December 31, 1998 and 1997, and
the  consolidated  results of their  operations and their cash flows for each of
the three years in the period  ended  December  31,  1998,  in  conformity  with
generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
consolidated  financial statements taken as a whole. The schedules listed in the
index of  consolidated  financial  statements  are  presented  for  purposes  of
complying with the Securities and Exchange  Commission's  rules and are not part
of the  basic  consolidated  financial  statements.  These  schedules  have been
subjected  to the  auditing  procedures  applied  in  the  audits  of the  basic
consolidated  financial  statements  and, in our opinion,  fairly state,  in all
material  respects,  the  financial  data  required  to be set forth  therein in
relation to the basic consolidated financial statements taken as a whole.

FARMER, FUQUA, HUNT & MUNSELLE, P.C.



Dallas, Texas
April 5, 1999



                                       22
<PAGE>



<TABLE>
                    SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<CAPTION>


                                                         December 31,
                                                    1998             1997
                                                 ------------    ------------
                     ASSETS
<S>                                              <C>             <C>
Current Assets
  Cash                                           $   288,000     $    448,000
  Accounts receivable                                284,000          414,000
  Accounts receivable, related parties                33,000           40,000
  Shareholder Loans                                    8,000            3,000
  Inventory                                               -             8,000
                                                  -----------     ------------
               Total Current Assets                  613,000          913,000
                                                  -----------     ------------

Property and Equipment - at cost
  Oil and gas properties (full cost method)        3,008,000         2,881,000
  Rental equipment                                   338,000           329,000
  Gas gathering systems                              151,000           151,000
  Other property and equipment                       191,000           199,000
                                                  ----------        -----------
                                                   3,688,000         3,560,000
Accumulated depreciation and amortization         (2,548,000)       (2,300,000)
                                                  -----------       ------------
                                                   1,140,000         1,260,000
                                                  ----------         ----------


Other Assets, net of accumulated 
amortization of $89,000 and $77,000 at 
December 31,1998 and 1997 respectively                40,000            52,000
                                                  ----------         ----------
Total Assets                                    $  1,793,000      $  2,225,000
                                                  ==========        ===========

<FN>

The accompanying notes are an integral part of these statements.
</FN>
</TABLE>



                                       23
<PAGE>







<TABLE>
                    SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEETS - (Continued)
<CAPTION>


                                                          December 31,
                                                     1998            1997
                                                  ----------       ----------

         LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                              <C>              <C>
Current liabilities
  Accounts payable and accrued liabilities       $  426,000       $   628,000
  Notes payable                                         -               1,000
  Tax savings benefit pay                            97,000            97,000
                                                  ----------       ----------
    Total Current Liabilities                       523,000           726,000
                                                  ----------       ----------

Shareholders' Equity
 Common stock, $.01 par value;100,000,000 
 shares authorized;7,525,804 shares 
 issued and outstanding (7,525,804 at 
 December 31, 1997)                                  75,000            75,000
 Additional paid-in capital                         733,000           733,000
 Retained earnings                                  462,000           691,000
                                                 -----------       ----------
                                                  1,270,000         1,499,000
                                                 -----------       ----------

Total Liabilities And Shareholders'Equity       $ 1,793,000       $ 2,225,000
                                                 ============      ==========
<FN>

The accompanying notes are an integral part of these statements.
</FN>
</TABLE>


                                       24
<PAGE>



<TABLE>
                    SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<CAPTION>


                                            Years ended December 31,
                                         1998           1997             1996
                                      -----------    -----------    -----------
Revenues
<S>                                  <C>             <C>            <C>        
 Oil and gas revenues                $ 850,000       $ 1,255,000    $ 1,287,000
 Revenue from lease operations         176,000           187,000        215,000
 Gas pipeline sales                     35,000            89,000             -
 Gas gathering fees                     17,000            19,000         19,000
 Equipment rental                      121,000           114,000        114,000
 Interest income                         5,000             9,000          4,000
 Other                                  35,000            12,000         54,000
                                     ----------       -----------   -----------
                                      1,239,000        1,685,000      1,693,000
                                     ----------       -----------   -----------
Expenses
 Pipeline and rental operations         86,000            70,000         69,000
 Gas pipeline purchases                 19,000            64,000             -
 Lease operations                      529,000           663,000        704,000
 Depreciation and amortization         260,000           257,000        237,000
 General and administrative            574,000           547,000        539,000
 Interest expense                          -               1,000          3,000
                                     ----------        ----------    ----------
                                     1,468,000         1,602,000      1,552,000
                                     ----------        ----------    ----------

Net Income (Loss)                  $  (229,000)      $    83,000    $   141,000
                                     ==========        ==========    ==========

Earnings Loss) Per Share
 Of Common Stock                        $(0.03)          $  0.01         $ 0.02
                                        ======             ======        ======
                                              
Weighted average shares outstanding  7,525,804          7,492,992     7,488,304
                                    ==========         ==========    ==========


<FN>

 The accompanying notes are an integral part of these statements.
</FN>
</TABLE>




                                       25
<PAGE>








<TABLE>
                    SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1998, 1997, and 1996
<CAPTION>

                                                                               
                                                                             
                                                 Additional                    
                                 Common Stock      Paid-in    Treasury  Retained
                               Shares   Amount     Capital     Stock    Earnings
                           -----------  -------  ---------  ---------  ---------

<S>                         <C>         <C>      <C>        <C>        <C>      
Balance January 1, 1996     53,654,479  $54,000  $ 885,000  $(136,000) $467,000
Other                              -        -       (1,000)       -          -
Effect of 1 for 6 
 stock split               (44,711,903) (45,000)    45,000        -          -
Effect of change in 
 par value                         -     81,000    (81,000)       -          -
Retirement of treasury 
 stock                      (1,454,272) (15,000)  (121,000)   136,000        -
Net income                         -        -          -          -     141,000
                          ------------  --------  --------  ---------   --------
Balance December 31,1996    7,488,304    75,000    727,000        -     608,000
Stock issued in exchange
for pipeline                   37,500       -        6,000        -          -
Net income                        -         -          -          -      83,000
                          ------------  --------  --------  ---------   --------
Balance December 31, 1997   7,525,804    75,000   733,000         -     691,000
Net loss                          -         -         -           -    (229,000)
                          ------------  --------  --------  ---------  ---------
Balance December 31, 1998  7,525,8048  $ 75,000  $733,000  $      -   $ 462,000
                          ===========   ========  ========  =========  =========



<FN>

The accompanying notes are an integral part of these statements.
</FN>
</TABLE>




                                       26
<PAGE>





<TABLE>
                    SPINDLETOP OIL & GAS CO AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>


                                               Years ended December 31,
                                         1998            1997         1996
                                        ---------     ----------   ----------
<S>                                   <C>            <C>           <C>
Cash Flows from Operating 
 Activities:
 Net Income (Loss)                    $ (229,000)    $   83,000    $  141,000
 Reconciliation of net income to 
  net cash provided by (used for) 
  operating activities:
 Depreciation and amortization           260,000        257,000       237,000
(Increase) decrease in accounts 
  receivable                             137,000        (21,000)      (30,000)
(Increase) decrease in inventory           8,000         23,000       (24,000)
Increase (decrease) in accounts payable (202,000)       (10,000)       46,000
                                        ---------     ----------   ----------
Net cash provided by (used for) 
 operating activities                    (26,000)       332,000       370,000
                                        ---------     ----------   ----------

Cash Flows from Investing Activities
 Capitalized acquisition, exploration
  and development costs                 (188,000)      (429,000)     (132,000)
 Proceeds from sale of property 
  and equipment                           69,000         70,000        47,000
 Purchase of property and equipment       (9,000)       (21,000)      (14,000)
                                       ----------      ----------   ----------
Net cash used by investing activities   (128,000)      (380,000)      (99,000)
                                       ----------      ---------      --------

Cash Flows from Financing Activities
 Repayment of notes payable               (1,000)       (19,000)      (11,000)
 Proceeds from borrowings                    -            8,000           -
 Repayment of shareholder loans              -          245,000           -
 Advances to shareholder                  (5,000)      (214,000)          -
 Net repayments from shareholder             -              -         (12,000)
 Other                                       -              -          (1,000)
                                       ----------      ----------     ---------
Net cash used by financing activities     (6,000)        20,000       (24,000)
                                       ----------      ----------     ---------

Increase (decrease) in cash             (160,000)       (28,000)       247,000
Cash at beginning of period              448,000        476,000        229,000
                                       ----------      ----------     ---------

Cash at end of period                 $  288,000      $ 448,000      $ 476,000
                                       ==========      ==========      ========

<FN>

The accompanying notes are an integral part of these statements.
</FN>
</TABLE>



                                       27
<PAGE>












                    SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION AND ORGANIZATION
Merger and Basis of Presentation
On July 13, 1990, Prairie  States Energy Co., a Texas corporation, (the Company)
merged with Spindletop Oil & Gas Co., a Utah corporation (the Acquired Company).
The name of Prairie States Energy Co. was changed to Spindletop Oil & Gas Co. 
at the time of the merger.

Organization and Nature of Operations
The  Company  was  organized  as a  Texas  Corporation  in  September  1985,  in
connection with the Plan of Reorganization  (the Plan),  effective  September 9,
1985,  of  Prairie  States   Exploration,   Inc.,   (Exploration),   a  Colorado
Corporation, which had previously filed for Chapter 11 bankruptcy. In connection
with the Plan,  Exploration was merged into the Company,  with the Company being
the surviving  corporation.  After giving effect to the stock split discussed in
Note 2, up to a total of 166,667 of the Company's common shares may be issued to
Exploration's  former  shareholders.  As of December 31, 1997,  1996,  and 1995,
122,436, 122,436, and 122,436 shares,  respectively,  have been issued to former
shareholders in connection with the Plan.

Spindletop Oil & Gas Co. is engaged in the exploration,  development and 
production of oil and natural gas; the rental of oilfield  equipment; and 
through one of its subsidiaries, the gathering and marketing of natural gas.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant  accounting  policies  consistently  applied in the
preparation of the accompanying financial statements follows:

Consolidation
-------------
The consolidated financial statements include the accounts of Spindletop Oil & 
Gas Co. and its wholly-owned  subsidiaries,  Prairie Pipeline Co. and Spindletop
Drilling Company.  All significant intercompany transactions and accounts have 
been eliminated.

Oil and Gas Properties
----------------------
The  Company  follows  the full cost  method of  accounting  for its oil and gas
properties. Accordingly, all costs associated with acquisition,  exploration and
development  of oil and gas reserves are  capitalized  and accounted for in cost
centers,  on a  country-by-country  basis.  If  unamortized  costs within a cost
center  exceed the cost center  ceiling (as  defined),  the excess is charged to
expense during the year in which the excess occurs.

Depreciation  and  amortization for each cost center are computed on a composite
unit-of-production  method,  based on estimated proved reserves  attributable to
the respective cost center. All costs associated with oil and gas properties are
currently  included in the base for  computation  and  amortization.  Such costs
include all acquisition, exploration and development costs. All of the Company's
oil and gas properties are located within the continental United States.


                                       28
<PAGE>




Gains and losses on sales of oil and gas  properties  are treated as adjustments
of capitalized costs. Gains or losses on sales of property and equipment,  other
than oil and gas properties, are recognized as part of operations.  Expenditures
for  renewals  and  improvements  are   capitalized,   while   expenditures  for
maintenance and repairs are charged to operations as incurred.

Property and Equipment
----------------------
The Company, as operator,  leases equipment to owners of oil and gas wells, on a
month-to-month basis.

The Company,  as operator,  transports gas through its gas gathering systems, in
exchange for a fee.

Depreciation is provided in amounts sufficient to relate the cost of depreciable
assets to  operations  over  their  estimated  service  lives (5 to 10 years for
rental equipment and gas gathering  systems, 4 to 5 years for other property and
equipment).  The  straight-line  method of  depreciation  is used for  financial
reporting purposes, while accelerated methods are used for tax purposes.

Inventory
---------
Inventory  consists of oil field materials and supplies,  stated at the lower of
average cost or market.

Goodwill
--------
The goodwill resulting from the contingent  consideration,  as discussed in Note
7, is being amortized over the remaining life of the net operating loss existing
at the time of the Plan discussed in Note 1, which expires in 1998.

Income Taxes
------------
The Company  accounts  for income  taxes  pursuant  to  Statement  of  Financial
Accounting  Standards No. 109  "Accounting  for Income Taxes" (SFAS 109),  which
requires the recognition of deferred tax liabilities and assets for the expected
future tax  consequences  of events that have been  recognized  in the Company's
financial statements or tax returns. Under this method, deferred tax liabilities
and  assets  are  determined  based  on the  difference  between  the  financial
statement  carrying  amounts  and tax bases of  assets  and  liabilities,  using
enacted tax rates in effect in the years in which the  differences  are expected
to  reverse.  These  temporary  differences  primarily  relate to  depreciation,
depletion and  intangible  drilling  costs.  The Company has  established a full
valuation allowance against these carryforward  benefits,  due to uncertainty as
to the Company's ability to utilize the loss carryforwards.

Investment Tax Credits
----------------------
Investment  tax credits are  accounted  for by the  "flow-through"  method which
recognizes  the  credits as a  reduction  of income tax  expense in the year the
credit is utilized.


                                       29
<PAGE>




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

Stock Split
-----------
In December 1996 the Board of Directors  declared a 1-for-6  reverse stock split
on the Company's  common stock.  The record date was January 31, 1997. All share
and per share data as appropriate,  reflect this split.  The effect of the split
is presented  retroactively  within stockholders' equity at December 31, 1996 by
transferring  the par value for the  additional  shares  issued from  additional
paid-in capital to the common stock accounts.

Treasury Stock
--------------
Effective December 31, 1996 the Company retired all treasury shares. The Company
transferred the appropriate  amounts to the common stock and additional  paid-in
capital accounts.


3.  ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
                                                      December 31,
                                                1998            1997
                                              ---------      ----------
<S>                                          <C>             <C>       
Trade                                        $  387,000      $  354,000
Accrued revenues                                146,000         289,000
Other                                             1,000           1,000
                                              ---------      ----------
                                                534,000         644,000
Less allowance for losses                      (250,000)       (230,000)
                                              ---------       ---------
                                             $  284,000      $  414,000
                                              =========       =========
</TABLE>



4.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>

                                                December 31,
                                           1998           1997
                                         --------      --------

<S>                                     <C>            <C>      
Trade payables                          $  62,000      $  69,000
Production proceeds payable               230,000        451,000
Accrued production taxes                    4,000         10,000
Other                                     130,000         98,000
                                         --------      --------
                                        $ 426,000      $ 628,000
                                         ========      =========
</TABLE>


                                       30
<PAGE>



5.  NOTES PAYABLE
<TABLE>
<CAPTION>
                                                           December 31,
                                                      1998             1997
                                                   -----------     -----------
<S>                                                <C>            <C>
Note payable to a bank, bearing 
interest at 8%,  collaterlized by 
equipment with an original cost of 
$8,000, payable in monthly installments
of $713. Loan paid off in January 1998              $    -         $    1,000
                                                    -----------     -----------
                                                         -              1,000
Less current portion                                     -             (1,000)
                                                    -----------     -----------
                                                    $    -         $      -
<FN>
                                                     =========      ==========
Substantially all of the Company's debt is personally guaranteed by Mr.Paul E. 
Cash, the majority shareholder(Mr. Cash).
</FN>
</TABLE>

6.  RELATED PARTY TRANSACTIONS

From March 1994 until 1998, the Company has provided various  personnel,  office
space, supplies and other administrative  services to a related company,  Double
River Oil & Gas Co. (Double River) for a fee of $575 per month.

At December 31, 1998, and 1997,  approximately  $2,000 and $4,000  respectively,
are due from Double River.

Included in the accompanying balance sheets are the following amounts related 
to Mr. Cash:

                                                       December 31,
                                                     1998        1997
                                                  ---------   ---------
Shareholder loans, non-interest bearing          $  8,000     $  3,000



Key employees of the Company, except Mr. Cash, are sometimes assigned overriding
royalty  interests and/or carried working  interest in prospects  acquired by or
generated by the Company.  These  interests  normally  vary from one-half to one
percent for each  employee.  There is no set formula or policy for such program,
and the  frequency  and amounts are largely  controlled by the economics of each
particular prospect.

7.     SUBSEQUENT EVENTS
On April 5, 1999,  the Company  acquired  for $1,000 a 50% interest in 352 Stone
Canyon, L.P., a Texas limited partnership ("Limited Partnership"),  becoming its
sole general partner.  The Limited Partnership is a single-asset entity designed
to be the development arm of a 66.57 acre residential  tract of land in the Town
of Sunnyvale,  Texas. The Limited  Partnership plans to develop the tract into a
luxury  residential  subdivision.  the remaining limited partners of the Limited
Partnership are Paul E. Cash, K. Paul Cash, and David Goodhart,  all of whom are
officers  and  directors  of the  Company.  Contributions  of  capital  for  the
remaining  limited  partners,  respectively,  are $1,000 each. Paul E. Cash also
loaned the Limited Partnership approximately $300,000.


                                       31
<PAGE>



8.  INCOME TAXES

The Company  accounts  for income  taxes  pursuant  to  Statement  of  Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
utilizes the liability method of computing deferred income taxes.

For Federal income tax purposes,  the Company has net operating loss and  
investment credit carryovers of approximately $579,000 and $1,000, respectively,
which expire at various dates through 2013.
<TABLE>
<CAPTION>

            Expires              Net Operating Loss          Investment Tax 
          December 31,             Carryforward                  Credit
     --------------------   ------------------------      ------------------
              <C>                   <C>                        <C>      
              2000                  $    -                     $   1,000
              2005                    55,000                         -
              2007                   146,000                         -
              2010                    28,000                         -
              2012                    27,000                         -
              2013                   323,000                         -
                                 --------------              --------------
                                   $ 579,000                   $   1,000
                                   ===========                  ===========
</TABLE>

In connection  with the Plan  discussed in Note 1, the Company agreed to pay, in
cash, to Exploration's unsecured creditors,  as defined,  one-half of the future
reductions of Federal  income taxes which were  directly  related to any allowed
carryovers of  Exploration's  net operating  losses and  investment tax credits.
Such payments are to be made on a pro-rata  basis.  Amounts  incurred under this
agreement,  which are  considered  contingent  consideration  under APB No.  16,
totaled $ -0-, $3,000, and $9,000 in 1998, 1997 and 1996, respectively, and have
been recorded as goodwill.  As of December 31, 1998 the Company has not received
a ruling from the Internal Revenue Service concerning the net operating loss and
investment  credit  carryovers.  Until the tax  savings  which  result  from the
utilization  of these  carryforwards  is assured,  the  Company  will not pay to
Exploration's unsecured creditors any of the tax savings benefit. As of December
31,  1998 and 1997,  the  Company  owes  $97,000  and  $97,000  respectively  to
Exploration's unsecured creditors.

In calculating tax savings benefits described above,  consideration was given to
the alternative minimum tax, where applicable,  and the tax effects of temporary
differences, as shown below:
<TABLE>
<CAPTION>

                                              1998          1997          1996
                                           -----------   -----------  ----------
<S>                                        <C>           <C>          <C>       
Intangible drilling costs                  $ (175,000)   $ (183,000)  $(110,000)
Differences between book and tax
depreciation, depletion and amortization       36,000        49,000      32,000
<FN>

Deferred income taxes reflect the effects of temporary  differences  between the
tax bases of assets and liabilities and the reported amounts of those assets and
liabilities for financial reporting purposes. Deferred income taxes also reflect
the value of net  operating  losses,  investment  tax credits and an  offsetting
valuation  allowance.  The Company's total deferred tax assets and 


                                       32
<PAGE>


corresponding valuation allowance at December 31,1998 and 1997 consisted of the 
following:
</FN>
</TABLE>

<TABLE>
<CAPTION>

                                                         December 31,
                                                  1998               1997
                                               ----------       ------------
Deferred tax assets
<S>                                        <C>                 <C>        
  Net operating loss carryforwards         $       145,000     $   339,000
  Investment tax credit carryforwards                1,000           1,000
  Depreciation, depletion and amortization         139,000         130,000
  Other, net                                         7,000           7,000
                                               ------------     ---------------
      Total                                        292,000         477,000
Deferred tax liabilities
  Intangible drilling costs                     (  227,000)       (184,000)
                                              -------------    ----------------
Net deferred tax assets                             65,000             293,000
  Less valuation allowance                      (   65,000)           (293,000)
                                           ----------------    ----------------
Net deferred tax asset                     $             -     $             -
                                           ===============     ===============
<FN>

SFAS 109  requires  that a valuation  allowance  be recorded  against tax assets
which are not  likely to be  realized.  The  Company's  carryforwards  expire at
specific  future dates and  utilization of certain  carryforwards  is limited to
specific  amounts  each  year.  However,  due to the  uncertain  nature of their
ultimate  realization  based upon past  performance  and expiration  dates,  the
Company has established a full valuation  allowance  against these  carryforward
benefits and is recognizing the benefits only as reassessment  demonstrates they
are  realizable.  Realization  is entirely  dependent  upon  future  earnings in
specific  tax  jurisdictions.  While the need for this  valuation  allowance  is
subject to periodic review, if the allowance is reduced, the tax benefits of the
carryforwards  arising  prior to  reorganization  will be credited to additional
paid-in capital, because they bear no relationship to current operations,  while
the tax benefits of carryforwards  arising after reorganization will be recorded
in future operations as a reduction of the Company's income tax expense.
</FN>
</TABLE>

9.  CASH FLOW INFORMATION
The Company does not consider any of its assets to meet the definition of a cash
equivalent.

Net cash provided by operating activities includes cash payments for interest of
$ -0-, $1,000 and $3,000 in 1998, 1997, and 1996, respectively.


                                       33
<PAGE>






Excluded from the Consolidated Statements of Cash Flows were the effects of 
  certain non-cash investing and financing activities, as follows:
<TABLE>
<CAPTION>

                                              1998          1997         1996
                                          -----------    -----------   ---------
<S>                                       <C>            <C>           <C>
Purchase of equipment for
 notes payable                            $     -        $      -      $ 20,000

Retirement of fully depreciated 
 assets                                         -               -        23,000

Goodwill capitalized as additional 
 cost of acquired company                       -            3,000        9,000

Tax savings benefit payable                     -            3,000        9,000

Retirement of treasury stock                    -               -       136,000

Effect of 1 for 6 reverse stock split 
and change in par value                         -               -       137,000

Issuance of common stock to acquire
 gas gathering system                           -            6,000          -

Acquisition of oil and gas properties
 in exchange for forgiveness of accounts
 receivable                                     -               -        10,000
</TABLE>


10.  EARNINGS PER SHARE
Earnings per share EPS) are calculated in accordance with Statement of Financial
Accounting  Standards No. 128,  Earnings per Share (SFAS 128), which was adopted
in 1997 for all  years  presented.  Basic EPS is  computed  by  dividing  income
available to common shareholders by the weighted average number of common shares
outstanding during the period.  Diluted EPS does not apply to the Company due to
the absence of dilutive  potential  common shares.  All  calculations  have been
adjusted for the effects of the stock split discussed in Note 2. The adoption of
SFAS 128 had no effect on previously reported EPS.

11.  CONCENTRATIONS OF CREDIT RISK
As of December 31, 1998,  one of the Company's  subsidiaries  had  approximately
$172,000 in checking accounts at one bank.

Most of the Company's business activity is in Texas.  Accounts  receivable as of
December 31, 1998 and 1997 are primarily  from a wide variety of individual  and
institutional  owners of joint  interests in oil and gas wells. A portion of the
Company's  ability to collect  these  receivables  is  dependent  upon  revenues
generated from sales of oil and gas produced by the related wells.


                                       34
<PAGE>





12. FINANCIAL INSTRUMENTS

The estimated fair value of the Company's financial  instruments at December 31,
1998 and 1997 follow:
<TABLE>
<CAPTION>
                                             1998                 1997         
                                   ----------------------  --------------------
                                    Carrying       Fair    Carrying      Fair
                                     Amount        Value    Amount       Value
                                    --------    --------   ---------  ---------
<S>                                <C>         <C>         <C>        <C>      
 Cash                              $ 288,000   $  288,000  $ 448,000  $ 448,000
 Accounts receivable                 284,000      284,000    414,000    414,000
 Accounts receivable,  
  related parties                     33,000       33,000     40,000     40,000
 Shareholder loans                     8,000        8,000      3,000      3,000
 Notes payable                           -            -        1,000      1,000
<FN>

 The fair value  amounts  for each of the  financial  instruments  listed  above
approximate carrying amounts due to the short maturities of these instruments.
</FN>
</TABLE>

13.  COMMITMENTS AND CONTINGENCIES
The Company's  lease for office space expires in November 1999.  Rent expense  
incurred  under this  operating  lease was  approximately  $39,000,  $39,000 and
$39,000 in 1998, 1997 and 1996, respectively.

Future minimum rentals under the non-cancelable operating lease are 
 approximately as follows:

                     Year ended December 31,              Amount
                     -----------------------             -------
                                                             
                            1999                        $ 48,000
                            2000                          44,000
                            2001                             -
                            2002                             -
                            2003                             -
                         Thereafter                          -
                                                        --------
                                                        $ 92,000
                                                        ========
In connection with the Plan of  Reorganization  discussed in Note 1, the Company
agreed to pay,  in cash,  to  Exploration's  unsecured  creditors,  as  defined,
one-half of the future  reduction of Federal  income  taxes which were  directly
related to any allowed  carryovers of  Exploration's  net  operating  losses and
investment  tax credits  existing at the time of the  reorganization.  These net
operating losses expire in 1998 and the investment tax credits expired in 1997.

In June 1993,  Spindletop  Drilling  Company entered into an agreement with Loch
Exploration,  Inc.,  whereby the  parties  agreed to combine  their  talents and
resources  to  evaluate  and acquire  producing  and  non-producing  oil and gas
properties at various auctions.  Any such properties acquired under the terms of
this  agreement  are to be acquired by initial  assignment  to the Company.  The
Company has agreed to provide Loch with a recordable assignment of its interest,
such interest to be determined by the proportionate share of monies expended for
the acquisition of said properties. All costs are to be borne by the Company and
Loch in the  same  proportions  as their  respective  ownership  


                                       35
<PAGE>




interests. The Company will serve as administrator  for properties  acquired in 
connection with this agreement, and will be entitled to an overhead 
reimbursement for properties for which the Company serves as operator.  This 
agreement had an initial term of six months,  and continues month to month  
thereafter,  until canceled by either party.

In March 1994, the Company  entered into an agreement  with PGC Gas Company,  an
unaffiliated  entity,  under terms similar to those of the  agreement  with Loch
Exploration,  Inc.,  described above.  This agreement has an initial term of six
months,  and will continue month to month  thereafter,  until canceled by either
party.

The Company's oil and gas exploration  and production  activities are subject to
Federal,  State  and  environmental  quality  and  pollution  control  laws  and
regulations.  Such  regulations  restrict  emission and discharge of wastes from
wells,  may require permits for the drilling of wells,  prescribe the spacing of
wells and rate of production, and require prevention and clean-up pollution.

Although the Company has not in the past incurred substantial costs in complying
with  such  laws  and   regulations,   future   environmental   restrictions  or
requirements may materially increase the Company's capital expenditures,  reduce
earnings, and delay or prohibit certain activities.

14.  ADDITIONAL OPERATIONS AND BALANCE SHEET INFORMATION
Certain information about the Company's  operations for the years ended December
31, 1998, 1997, and 1996 follows.

Significant Oil and Gas Purchasers
The  Company's  oil sales are made on a day to day  basis at  approximately  the
current  area  posted  price.  The loss of any oil  purchaser  would not have an
adverse  effect upon  operations.  The Company  generally  contracts to sell its
natural gas to purchasers  pursuant to both short-term and long-term  contracts.
Additionally,  some of the Company's  natural gas not under  contract is sold at
the then current prevailing "spot" price on a month to month basis. Following is
a summary of  significant  oil and gas  purchasers  during the three year period
ended December 31, 1998.

<TABLE>
<CAPTION>


                                                       Year Ended
                                                       December 31,
                                               1998      1997       1996
                                               ----      ----       ----
<S>                                             <C>       <C>       <C>    
Lone Star Gas Company and Affiliates            13%       13%         -%
Mitchell Marketing Co.                          22        13         12
Tristar Gas Company                              -         -         10
Texas Utilities Fuel Company                     -        10         18
<FN>

There are no other customers of the Company which  individually  accounted for 
more than 10% of the Company's oil and gas revenues during the three years ended
December 31, 1998.
</FN>
</TABLE>


                                       36
<PAGE>




<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                          1998            1997          1996
                                       ------------   -----------   -----------
<S>                                   <C>             <C>           <C>
Capitalized costs relating to
 oil and gas producing activities:
  Unproved properties                  $  89,000      $   139,000   $    21,000
  Proved properties                    2,919,000        2,742,000     2,501,000
                                       -----------    ------------   -----------

  Total Capitalized Costs              3,008,000        2,881,000     2,522,000
  Accumulated amortization            (1,965,000)      (1,758,000)   (1,560,000)
                                       -----------     ------------   ----------
                                      $1,043,000     $  1,123,000   $   962,000
                                       ===========     ============   ==========
</TABLE>

<TABLE>
<CAPTION>

                                               Year ended December 31,
                                          1998         1997          1996
                                        -------    ---------     -----------
<S>                                    <C>         <C>           <C>
Costs incurred in oil and
 gas property acquisition,
 exploration  and development:
Acquisition of Properties              $     -     $   81,000     $   43,000
Exploration Costs                        122,000      327,000         31,000
Development Costs                         66,000       21,000         68,000
                                        ---------    ---------      -----------
                                       $ 188,000   $  429,000     $  142,000
                                        =========    ==========     ==========
</TABLE>
<TABLE>
<CAPTION>

                                             Year ended December 31,          
                                          1998          1997           1996
                                          ----          ----           ----
<S>                                     <C>         <C>            <C>
Results of operations from 
 producing activities:                  
Sales of oil and gas                    $ 850,000   $ 1,255,000    $ 1,287,000
                                         --------     ---------     -----------

Production costs                          529,000       663,000        704,000
Amortization of oil and gas properties    207,000       198,000        174,000
                                         ---------    ----------    -----------
                                          736,000       861,000        878,000
                                         ---------    ----------    -----------
                                       $  114,000   $   394,000    $   409,000
                                         ==========    =========     ===========
</TABLE>

<TABLE>
<CAPTION>
                                                     Year ended December 31,
                                            1998           1997          1996

<S>                                     <C>            <C>          <C>      
Sales price per equivalent Mcf          $   1.97       $  2.81      $    2.71
                                          =======        =======      ========
Production cost per equivalent Mcf      $   1.23       $  1.48      $    1.48
                                          =======        =======      ========
Amortization per equivalent Mcf         $    .48       $   .44      $     .37
                                          =======        =======      ========
Costs incurred in gas gathering
 and equipment rental
Acquisition of property and equipment   $     -        $     -      $      -
                                          ========       ========     ========
</TABLE>


<TABLE>
<CAPTION>

Results of operations from gas 
gathering and equipment rental:
<S>                                     <C>            <C>          <C>       
Revenues                                $ 173,000      $  222,000   $  149,000
                                          --------       ---------    --------
Gas pipeline purchases                     19,000          64,000         -
Operating Expenses                         86,000          70,000       57,000
Depreciation                               21,000          20,000       28,000
                                          -------         -------     --------
                                          126,000         154,000       85,000
                                         --------         --------    --------
                                       $   47,000      $   68,000  $    64,000
                                         ========         =======     ========
</TABLE>


                                       37
<PAGE>




15.  BUSINESS SEGMENTS
The Company's two business segments are (1) oil and gas exploration,  production
and  operations  and  (2)  transportation  of  natural  gas,  including  related
equipment rental.  Management has chosen to organize the Company into the two
segments based on the products or services provided. The following is a summary
of selected  information for these segments for the three-year period 
ended December 31, 1998:
<TABLE>
<CAPTION>

                                    1998             1997            1996
                                --------------   ------------   ------------
<S>                              <C>             <C>             <C>
Revenues:(3)
Oil and gas exploration, 
 production and operations       $ 1,026,000      $ 1,442,000     $ 1,502,000
Gas gathering and equipment 
 rental                              173,000          222,000         133,000
                                  ----------       -----------    ------------
                                 $ 1,199,000      $ 1,664,000     $ 1,635,000
                                  ==========       ===========    ===========

Depreciation, depletion
 and amortization expense:
 Oil and gas exploration,
  production and operations       $   207,000      $   198,000     $   174,000
 Gas gathering and equipment 
  rental                               21,000           20,000          27,000
                                   ----------       -----------    ------------
                                  $   228,000      $   218,000     $   201,000 
                                  ===========      ===========     =========== 

Income from operations:
 Oil and gas exploration, 
 production and operations       $   290,000      $   581,000     $   624,000
 Gas gathering and equipment 
  rental                             47,000            68,000          37,000
                                   ---------        ----------     -----------
                                    337,000           649,000         661,000
Corporate and other (1)            (566,000)         (566,000)       (520,000)
                                   ---------        ----------     -----------
Consolidated net income          $  (229,000)     $    83,000     $   141,000
                                   =========        =========       ==========

Identifiable assets:
  Oil and gas exploration, 
  production and operations      $ 1,043,000      $ 1,124,000     $   962,000
  Gas gathering & rental equipment    71,000           83,000          98,000
                                   ---------       -----------      ----------
                                   1,114,000        1,207,000       1,060,000
Corporate and other (2)              679,000        1,018,000       1,094,000
                                   ---------       -----------      -----------
                                 $ 1,793,000      $ 2,225,000     $ 2,154,000
                                   =========       ==========       ==========
<FN>

(1) Corporate and other  includes  general and  administrative  expenses,  other
non-operating income and expense and income taxes.

(2) Corporate and other includes cash, accounts and notes receivable, inventory,
other property and equipment and intangible assets.

(3) All reported revenues are from external customers
</FN>
</TABLE>


                                       38
<PAGE>







16.  SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
                                                       Charged
                                                 Directly to Expense
                                              1998      1997         1996
                                              ----      ----         ----
<S>                                        <C>        <C>        <C>      
Maintenance and Repairs                    $ 86,000   $ 49,000   $  70,000
Production taxes                             45,000     68,000      74,000
Taxes, other than payroll and income taxes   23,000     21,000      19,000
</TABLE>

17.  SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
The Company's net proved oil and gas reserves as of December 31, 1997,  1996 and
1995 have been  estimated by Company  personnel in  accordance  with  guidelines
established  by  the  Securities  and  Exchange  Commission.   Accordingly,  the
following  reserve  estimates  were based on  existing  economic  and  operating
conditions.  Oil and gas prices in effect at December 31 of each year were used.
Operating costs,  production and ad valorem taxes and future  development  costs
were based on current costs with no escalation.

There are numerous  uncertainties  inherent in  estimating  quantities of proved
reserves  and in  projecting  the  future  rates of  production  and  timing  of
development  expenditures.  The following reserve data represents estimates only
and should not be construed as being exact.  Moreover, the present values should
not be  construed  as the  current  market  value of the  Company's  oil and gas
reserves or the costs that would be incurred to obtain equivalent reserves.
<TABLE>

Changes in Estimated Quantities of Proved Oil and Gas Reserves
<CAPTION>
                                       Oil                   Gas
                                       Bbls                  Mcf
                                       ----                  ---
<S>                                   <C>               <C>
Proved reserves:
Balance December 31, 1995              72,068           2,025,187
Extensions and discoveries                  -             118,963
Sales of reserves in place             (2,631)            (10,329)
Revisions of previous estimates        19,930             708,427
Production                            (17,276)           (371,074)
                                      --------          ----------
Balance December 31, 1996              72,091           2,471,174
Sales of reserves in place                  -              (4,554)
Acquired properties                         -             176,266
Revisions of previous estimates         4,553             135,639
Production                            (14,998)           (357,166)
                                      --------          ----------
Balance December 31, 1997              61,646           2,421,359
Sales of reserves in place                                (50,843)
Revisions of previous estimates       (14,422)            (21,413)
Production                            (13,304)           (350,566)
                                      --------          ----------
Balance December 31, 1998              33,920           1,998,537
                                      =======           =========

Proved Developed Reserves:
Balance December 31, 1996              72,091           2,181,212
Balance December 31, 1997              61,646           2,122,247
Balance December 31, 1997              33,920           1,699,425
</TABLE>


                                       39
<PAGE>



16.  SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - Continued

          Standardized Measure of Discounted Future Net Cash Flows and
             Changes Therein Relating to Proved Oil and Gas Reserves
                                   (Unaudited)

The Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating  to Proved  Oil and Gas  Reserves  ("Standardized  Measures")  does not
purport to present the fair market value of a company's oil and gas  properties.
An estimate of such value  should  consider,  among other  factors,  anticipated
future  prices  of oil and gas,  the  probability  of  recoveries  in  excess of
existing proved reserves,  the value of probable reserves and acreage prospects,
and perhaps  different  discount  rates.  It should be noted that  estimates  of
reserve quantities,  especially from new discoveries,  are inherently  imprecise
and subject to substantial revision.

Future net cash flows  were  computed  using the  contract  price  which was not
escalated.  Future production  includes  operating costs and taxes. No deduction
has  been  made  for  interest,  general  corporate  overhead,  depreciation  or
amortization.  Future  income tax  payable was not  computed  because of the net
operating  loss  carryforward  (See Note 7). The annual  discount  of  estimated
future  net cash  flows  is  defined,  for use  herein,  as  future  cash  flows
discounted at 10% per year, over the expected period of realization
<TABLE>
<CAPTION>

                                                       December 31,
                                          1998            1997           1996
                                      -------------- --------------  -----------
Standardized Measures of Discounted 
Future Net Cash Flows:

<S>                                    <C>           <C>             <C>       
Future production revenue              $ 4,487,000   $  6,302,000    $6,429,000
Future development costs                  (110,000)      (110,000)     (128,000)
Future production costs                 (2,238,000)    (3,167,000)   (3,171,000)
                                       ------------   -------------  -----------

Future net cash flows before Federal
income tax                               2,139,000      3,025,000     3,130,000
Future Federal income tax                      -             -              -
                                       -----------     -----------   -----------
Future net cash flows                    2,139,000      3,025,000     3,130,000
Effect of discounting 10%
per year                                  (540,000)      (741,000)     (749,000)
                                       -----------     -----------   ----------
                                       $ 1,599,000   $  2,284,000   $ 2,381,000
                                        ==========     ===========   ===========

</TABLE>



                                       40
<PAGE>










<TABLE>
<CAPTION>


                                               1998       1997          1996
                                              -----      ------        -----
Change Relating to the Standardized
Measures of Discounted Future Net Cash
Flows:
<S>                                      <C>           <C>          <C>        
Beginning balance                        $ 2,284,000   $ 2,381,000  $ 1,625,000
Oil and gas sales, net of production
 costs                                      (321,000)     (592,000)    (583,000)
Net change in prices, net of production
costs                                       (211,000)       99,000      668,000
Extensions and discoveries                       -             -        187,000
Purchase of reserves in place                    -         124,000          -
Sales of reserves in place                   (73,000)       (4,000)      (9,000)
Revisions of quantity estimates             (124,000)      204,000      999,000
Accretion of discount                        228,000       238,000      163,000
Other                                       (184,000)     (166,000)    (669,000)
                                           ---------   ------------   ----------
                                         $ 1,599,000   $ 2,284,000   $ 2,381,000
                                           ==========  ============   ==========

</TABLE>



                                       41
<PAGE>









<TABLE>
                                                                               

                   SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES     SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<CAPTION>



                                         Charged To
                                  Beginning    Costs and                Ending
      Description                  Balance      Expenses  Deductions    Balance
-------------------------------   ---------  ----------   ---------    --------
Allowance for Doubtful Accounts
-------------------------------
<S>      <C> <C>                <C>            <C>                    <C>      
December 31, 1996               $  200,000     30,000        -        $ 230,000
                                   =======     =======      =======     =======
December 31, 1997               $  230,000        -          -        $ 230,000
                                   =======     =======      =======     =======
December 31, 1998               $  230,000     20,000        -        $ 250,000
                                   =======     =======      =======     =======

</TABLE>





                                       42
<PAGE>













                    SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES


                                Index to Exhibits
                                                               PAGE


22.  Subsidiaries of the Registrant                             44










                                       43
<PAGE>






                    SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES


                           Subsidiaries the Registrant



Prairie Pipeline Co. incorporated June 22, 1983, under the laws of the State of 
Texas, is a wholly-owned subsidiary of Registrant.


Spindletop Drilling Company,  incorporated  September 5, 1975, under the laws of
the State of Texas, is a wholly-owned subsidiary of the Registrant.




                                       44
<PAGE>