<PAGE>   1
                       SECURITIES AND EXCHANGE COMMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-KSB

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

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

                 FOR THE TRANSITION PERIOD FROM ______TO ______

                          COMMISSION FILE NUMBER 0-7406

                             PRIMEENERGY CORPORATION
             (Exact name of registrant as specified in its charter)

              DELAWARE                                           84-0637348
   (state or other jurisdiction of                            (I.R.S. Employer
   incorporation or organization)                            Identification No.)

         ONE LANDMARK SQUARE                                        06901
        STAMFORD, CONNECTICUT                                    (Zip Code)
 (Address of principal executive offices)

       Registrant's telephone number, including area code: (203) 358-5700

           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 $.10 PER SHARE
                                (Title of Class)

      Indicate whether Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.                                                    Yes [X]  No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

     The Registrant's revenues for its most recent fiscal year were $25,520,000.

     The aggregate market value of the voting stock of the Registrant held by
non-affiliates, computed on the average bid and asked prices of such stock in
the over-the-counter market, as of March 24, 2000, was $5,147,646.

     The number of shares outstanding of each class of the Registrant's Common
Stock as of March 24, 2000 was: Common Stock, $0.10 par value, 4,335,097.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's proxy statement to be furnished to
stockholders in connection with its Annual Meeting of Stockholders to be held in
May, 2000, are incorporated by reference in Part III hereof.

     Transitional Small business Disclosure Format (check one)   Yes [ ]  No [X]


<PAGE>   2
                             PRIMEENERGY CORPORATION

                            FORM 10-KSB ANNUAL REPORT
                            FOR THE FISCAL YEAR ENDED
                                DECEMBER 31, 1999

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

GENERAL

       This report contains forward-looking statements that are based on
management's current expectations, estimates and projections. Words such as
"expects," "anticipates," "intends," "plans," "believes," "projects" and
"estimates," and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, and are subject to the safe harbors created thereby. These
statements are not guarantees of future performance and involve risks and
uncertainties and are based on a number of assumptions that could ultimately
prove inaccurate and, therefore, there can be no assurance that they will prove
to be accurate. Actual results and outcomes may vary materially from what is
expressed or forecast in such statements due to various risks and uncertainties.
These risks and uncertainties include, among other things, volatility of oil and
gas prices, competition, risks inherent in the Company's oil and gas operations,
the inexact nature of interpretation of seismic and other geological and
geophysical data, imprecision of reserve estimates, the Company's ability to
replace and expand oil and gas reserves, and such other risks and uncertainties
described from time to time in the Company's periodic reports and filings with
the Securities and Exchange Commission. Accordingly, stockholders and potential
investors are cautioned that certain events or circumstances could cause actual
results to differ materially from those projected.

       PrimeEnergy Corporation (the "Company") was organized in March, 1973,
under the laws of the State of Delaware.

       The Company is engaged generally in the oil and gas business through the
acquisition, exploration, development, and production of crude oil and natural
gas. The Company's properties are located primarily in Texas, Oklahoma, West
Virginia and Louisiana. The Company's wholly-owned subsidiary, PrimeEnergy
Management Corporation ("PEMC"), acts as the managing general partner in 51 oil
and gas limited partnerships (the "Partnerships") of which five are publicly
held, and acts as the managing trustee of two asset and income business trusts
("the Trusts"). The Company, through its wholly-owned subsidiaries, Prime
Operating Company and Eastern Oil Well Service Company, acts as operator and
provides well servicing support operations for many of the oil and gas wells in
which the Partnerships, the Trusts and the Company have an interest, primarily
in Texas, Oklahoma and West Virginia. In addition, through a subsidiary,
Southwest Oilfield Construction Company, the Company provides site preparation
and construction services for oil and gas drilling and re-working operations,
both in connection with the Company's activities and providing contract services
for third parties. The Company is also active in the acquisition of producing
oil and gas properties through joint ventures with industry partners and private
investors.

THE PARTNERSHIPS AND TRUSTS

       A substantial portion of the assets and revenues of PEMC are derived from
the interest of PEMC in the oil and gas properties acquired by the Partnerships
and Trusts. As the managing general partner in each of the Partnerships and
managing trustee of the Trusts, PEMC receives approximately from 5% to 12% of
the net revenues of each Partnership and Trust as a carried interest in the
Partnership's and Trust's properties.

       Since 1975, PEMC has sponsored a total of 59 limited partnerships, 22 of
which were offered publicly and 37 of which were offered in private placements
and two Delaware business trusts, both of which were offered publicly. The
aggregate number of limited partners in the Partnerships and beneficial owners
of the Trusts now administered by PEMC is approximately 7,500. The Partnership
and Trust interests were sold by broker-dealers which are members of the
National Association of Securities Dealers, Inc. through a managing dealer. The
total funds contributed to the Partnerships and Trusts was about $157,550,000.

       A significant portion of the Company's business is now conducted through
the Partnerships and Trusts, either through its ownership of interests in
various properties derived through the Partnerships and Trusts, or as operator
of oil and gas wells in which the Partnerships and Trusts have interests.

       PEMC, as managing general partner of the Partnerships and managing
trustee of the Trusts, is responsible for all Partnership and Trust activities,
including the review and analysis of oil and gas properties for acquisition, the
drilling of development wells and the production and sale of oil and gas from
productive wells. PEMC also provides administration, accounting and tax
preparation for the Partnerships and Trusts. PEMC is liable for all debts and
liabilities of the Partnerships and Trusts, to the extent that the assets of a
given limited partnership or trust are not sufficient to satisfy its
obligations.

JOINT VENTURES

       PEMC organizes and the Company participates in various joint ventures
formed for the purpose of acquiring and developing oil and gas assets. The
Company receives varying interest in the net revenues of each joint venture as a
carried

<PAGE>   3

interest in the joint venture properties. The Company's participation in the
joint ventures varies from none to approximately 68%. The Company's carried
interest is generally 10% of funds contributed by outside investors. Since 1987,
our joint venture partners have invested $26 million with the Company.

WELL OPERATIONS

       The Company's operations are conducted through a central office in
Houston, Texas, and district offices in Houston and Midland, Texas, Oklahoma
City, Oklahoma, and Charleston, West Virginia. The Company currently operates
about 1,659 oil and gas wells, 504 through the Houston office, 170 through the
Midland office, 484 through the Oklahoma City office and 501 through the
Charleston, West Virginia office. Substantially all of the wells operated by the
Company are wells in which the Company, the Partnerships, the Trusts or our
joint venture partners have an interest.

       The Company operates wells pursuant to operating agreements which govern
the relationship between the Company as operator and the other owners of working
interests in the properties, including the Partnerships, Trusts and joint
venture participants. For each operated well, the Company receives monthly fees
that are competitive in the areas of operations and also is reimbursed for
expenses incurred in connection with well operations.

EXPLORATION, DEVELOPMENT AND ACQUISITION ACTIVITIES; OTHER MATTERS

       The Company's focus is on the acquisition and development of producing
oil and gas properties. The Company will continue to engage in exploratory
operations and will continue to engage in development drilling of properties in
which it has an interest. The Company attempts to assume the position of
operator in all acquisitions of producing properties.

RECENT ACTIVITIES

       In August of 1998, the Company operated and participated in the drilling
of the Francis L. Martin et al No. 1 well on the West Ridge Prospect in
Lafayette Parish, Louisiana. The well reached total depth at 13,200 feet on
October 1, 1998 and has been completed in a sand at 12,850 feet in depth. The
well went on production January 27, 1999 and is producing at a rate of 14,000
Mcf of gas per day and 200 barrels of condensate per day. The Company owns a
12.7% working interest and 9.33% net revenue interest in this property.

       In October of 1998, the Company re-entered and sidetracked the Stutes, et
al No. 1 well bore located in the Duson area of Lafayette Parish, Louisiana. The
sidetrack hole reached its total measured depth at 12,717 feet January 29, 1999,
and has been completed in the Upper Stutes sand at 11,800 feet measured depth.
The Company owns a 45.75% working interest, and a 32.94% net revenue interest in
this well, which began producing in May 1999.

       In November of 1998, the Company operated and participated in the
drilling of the Hamel No. 3 well in Hamel field of Colorado County, Texas. The
well was successfully completed February 2, 1999 in the Wilcox 9000' sand for
24.7 (11.9 net) barrels of oil per day and 260 (125 net) Mcf of gas per day. In
March 1999, additional perforations in the Upper 9000' sand increased the daily
production to 40 (19.2 net) barrels of oil per day and 260 (125 net) Mcf of gas.
The Company owns a 2.26 % working interest and a 1.78% net revenue interest in
the well.

         In December 1998, the Company drilled the State Tract 15159 No. 1 well
to a total depth of 9,680 feet on the Four League Bay area in Terrebonne Parish,
Louisiana. The well did not encounter a hydrocarbon accumulation and has been
temporarily abandoned. Operations continued on the property in January 1999 and
the State Tract 15160 No. 1 well was drilled to a depth of 12,000 feet. This
well was plugged and abandoned. The Company had a 34.5% working interest in this
well.

         The Company participated in the drilling of the St. Andrews No. l well
in Ramrod field of Matagorda County, Texas. The well was spud in December of
1998, drilled to a depth of 16,000 feet and was completed in a Tex. Miss. Sand.
Initial production from the well was 1400 Mcf of gas and 42 barrels of
condensate per day. The Company owns a 20.75% working interest and 14.8% net
revenue interest in the well.

         In January 1999, the Company participated in the drilling of the
Chandler No. 1 well on the Normana Prospect in Bee County, Texas. The well was
drilled to a total depth of 9,100 feet and encountered several potentially
productive gas sands in the Wilcox Formation. In May, 1999 the well was
completed in the Luling sand and tested 250 (193 net) Mcf of gas per day. The
Company owns a 68.27% working interest and a 52.57 % net revenue interest in the
well.

         In February 1999, the Company participated in the drilling of the
Hernandez No. 1 well on the West Judice Prospect in Lafayette Parish, Louisiana.
The well was drilled to a depth of 14,582 feet and plugged and abandoned. The
Company owned a 16.5% working interest in this well.

         Also in February of 1999, the Company participated in the drilling of
the St. George No. 2 well on the Ramrod Prospect, of Matagorda County, Texas.
Lower and Middle Frio sands were tested with fracture stimulations. The well was
plugged and abandoned in October 1999. The Company owned a 24.46% working
interest in the well.


                                       2
<PAGE>   4

         In September of 1999, the Company operated and participated in the
drilling of the Arnett No. 1 well of Midland County, Texas. The well was drilled
to a total depth of 4,323 feet and in November of 1999 was completed in the San
Andres formation for an initial production rate of 26 (7.8 net) barrels of oil
and 39 barrels of water per day. The Company owns a 30% working interest and a
24.4% net revenue interest in the well.

         On November 15, 1999, the Company purchased interests in approximately
131 oil and gas wells located in various counties in Oklahoma. The Company
already owned, and was the operator of, the majority of the properties
purchased. The purchase price was $1,813,000, plus possible additional
compensation contingent on the performance of the properties.

         In December of 1999, the Company operated and participated in the
drilling of the Wing No. 86 well in Segno field of Polk County, Texas. The well
reached a total depth of 8416 feet and was plugged and abandoned. The Company
owned a 50% working interest in the well.

         In January of 2000, the Company drilled the Stroud No. 1 well in
Midland County Texas. The well reached a total depth of 5325 feet in the San
Andres Formation and was plugged and abandoned. The Company owned 100% of the
working interest in this well.

         The Company will continue to evaluate prospects for leasehold
acquisitions and for exploration and development operations in areas in which it
owns interests and is actively pursuing the acquisition of producing properties.

         In order to diversify and broaden its asset base, the Company will
consider acquiring the assets or stock in other entities and companies in the
oil and gas business. The main objective of the Company in making any such
acquisitions will be to acquire income producing assets so as to increase the
Company's net worth and increase the Company's oil and gas reserve base.

         The Company presently owns producing and non-producing properties
located primarily in Texas, Oklahoma, West Virginia and Louisiana. The Company
does not own any significant properties other than its leasehold, mineral and
royalty interest and related pipeline and gas gathering systems, and does not
own any drilling equipment or refinery or marketing facilities. All of the
Company's oil and gas properties and interests are located in the continental
United States.

         In the past, the supply of gas has exceeded demand on a cyclical basis,
and the Company is subject to a combination of shut-in and/or reduced takes of
gas production during summer months. Prolonged shut-ins could result in reduced
field operating income from properties in which the Company acts as operator.

         Exploration for oil and gas requires substantial expenditures
particularly in exploratory drilling in undeveloped areas, or "wildcat
drilling." As is customary in the oil and gas industry, substantially all of the
Company's exploration and development activities are conducted through joint
drilling and operating agreements with others engaged in the oil and gas
business.

         Summaries of the Company's oil and gas drilling activities, oil and gas
production, and undeveloped leasehold, mineral and royalty interests are set
forth under Item 2., "Description of Property," below. Summaries of the
Company's oil and gas reserves, future net revenue and present value of future
net revenue are also set forth under Item 2., "Description of Property -
Reserves" below.

REGULATION

         The Company's oil and gas operations are subject to a wide variety of
federal, state and local regulations. Administrative agencies in such
jurisdictions may promulgate and enforce rules and regulations relating to,
among other things, drilling and spacing of oil and gas wells, production rates,
prevention of waste, conservation of natural gas and oil, pollution control, and
various other matters, all of which may affect the Company's future operations
and production of oil and gas. The Company's natural gas production and prices
received for natural gas are regulated by the Federal Energy Regulatory
Commission ("FERC"), the Natural Gas Act of 1938 ("NGA") and the Natural Gas
Policy Act of 1978 ("NGPA") and various state regulations. The Company is also
subject to state drilling and proration regulations affecting its drilling
operations and production rates.

         Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. The Company cannot predict when or if any such
proposals might become effective, or their effect, if any, on the Company's
operations. The natural gas industry historically has been very heavily
regulated; therefore, there is no assurance that the less stringent regulatory
approach recently pursued by the FERC and Congress will continue indefinitely
into the future.

         In the event the Company conducts operations on federal, state or
Indian oil and gas leases, such operations must comply with numerous regulatory
restrictions, including various nondiscrimination statutes, and certain of such
operations must be conducted pursuant to certain on-site security regulations
and other appropriate permits issued by the Bureau of Land Management ("BLM") or
Minerals Management Service ("MMS") or other appropriate federal or state
agencies.

         The Mineral Leasing Act of 1930 ("Mineral Act") prohibits direct or
indirect ownership of any interest in federal onshore oil and gas leases by a
foreign citizen of a country that denies "similar or like privileges' to
citizens of the United States. Such restrictions on citizens of a
"non-reciprocal" country include ownership or holding or controlling stock in a
corporation that holds a federal onshore oil and gas lease. If this restriction
is violated, the corporation's lease can be canceled in a proceeding instituted


                                       3
<PAGE>   5

by the United States Attorney General. Although the regulations of the BLM
(which administers the Mineral Act) provide for agency designations of
non-reciprocal countries, there are presently no such designations in effect.
The Company owns interest in federal onshore oil and gas leases. It is possible
that Common Stock could be acquired by citizens of foreign countries, which at
some time in the future might be determined to be non-reciprocal under the
Mineral Act.

TAXATION

         The Company's oil and gas operations are affected by federal income tax
laws applicable to the petroleum industry. The Company is permitted to deduct
currently, rather than capitalize, intangible drilling and development costs
incurred or borne by it. As an independent producer, the Company is also
entitled to a deduction for percentage depletion with respect to the first 1,000
barrels per day of domestic crude oil (and/or equivalent units of domestic
natural gas) produced by it, if such percentage depletion exceeds cost
depletion. Generally, this deduction is computed based upon the lesser of 100%
of the net income, or 15% of the gross income from a property, without reference
to the basis in the property. For certain marginal wells, the net income
limitation does not apply, and the gross income limitation percentage varies
annually based on average prices. The amount of the percentage depletion
deduction so computed which may be deducted in any given year is limited to 65%
of taxable income. Any percentage depletion deduction disallowed due to the 65%
of taxable income test may be carried forward indefinitely.

         The Company is entitled to credits for producing fuel from a
non-conventional source under Section 29 of the Internal Revenue Code, primarily
from certain of the Company's operations in West Virginia.

        See Notes 1 and 9 to the consolidated financial statements included in
this Report for a discussion of accounting for income taxes and availability of
federal tax net operating loss carryforwards and alternative minimum tax credit
carryforwards.

COMPETITION AND MARKETS

         The business of acquiring producing properties and non-producing leases
suitable for exploration and development is highly competitive. Competitors of
the Company in its efforts to acquire both producing and non-producing
properties include oil and gas companies, independent concerns, income programs
and individual producers and operators, many of which have financial resources,
staffs and facilities substantially greater than those available to the Company.
Furthermore, domestic producers of oil and gas must not only compete with each
other in marketing their output, but must also compete with producers of
imported oil and gas and alternative energy sources such as coal, nuclear power
and hydroelectric power. Competition among petroleum companies for favorable oil
and gas properties and leases can be expected to increase.

         The availability of a ready market for any oil and gas produced by the
Company at acceptable prices per unit of production will depend upon numerous
factors beyond the control of the Company, including the extent of domestic
production and importation of oil and gas, the proximity of the Company's
producing properties to gas pipelines and the availability and capacity of such
pipelines, the marketing of other competitive fuels, fluctuation in demand,
governmental regulation of production, refining, transportation and sales,
general national and worldwide economic conditions, and use and allocation of
oil and gas and their substitute fuels. There is no assurance that the Company
will be able to market all of the oil or gas produced by it or that favorable
prices can be obtained for the oil and gas production.


        The Company does not currently own or lease any bulk storage facilities
or pipelines other than adjacent to and used in connection with producing wells
and the interests in certain gas gathering systems. While the Company is not
dependent on any one purchaser of its production, oil and gas revenue in 1999
generated from sales to Conoco, Inc. and Unimark, LLC represented about 16% and
15%, respectively, of the Company's total revenue from oil and gas sales.
Although there are no long-term gas purchasing agreements with these purchasers,
the Company believes that they will continue to purchase its gas products and,
if not, could be replaced by other purchasers.

ENVIRONMENTAL MATTERS

         Over the past 20 year, the petroleum industry has been affected by a
wide variety of environmental issues. Throughout the 1970's and 1980's federal
and state environmental regulations have been enacted that affect all aspects of
the Company's operations. These regulations have primarily focused on correcting
existing environmental concerns and implementing preventive controls to reduce
future pollution.

         The Company's activities are subject to existing federal, state and
local laws and regulations governing environmental quality and pollution
control. It is anticipated that, absent the occurrence of an extraordinary
event, compliance with existing federal, state and local laws, rules and
regulations regulating the release of materials in the environment or otherwise
relating to the protection of the environment will not have a material effect
upon the operations, capital expenditures, earnings or the competitive position
of the Company. The Company cannot predict what effect additional regulation or
legislation, enforcement policies thereunder, and claims for damages to
property, employees, other persons and the environment resulting from the
Company's operations or ownership of its property could have on its activities.

         Activities of the Company with respect to natural gas facilities,
including the operation and construction of pipelines, plants and other
facilities for transporting, processing, treating or storing natural gas and
other products, are subject to stringent environmental regulation by state and
federal authorities including the Environmental Protection Agency ("EPA"). Such
regulation


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<PAGE>   6

can increase the cost of planning, designing, installing and operating such
facilities. In most instances, the regulatory requirements relate to water and
air pollution control measures. Although the Company believes that compliance
with environmental regulations will not have a material adverse effect on it,
risks of substantial costs and liabilities are inherent in natural gas facility
operations, and there can be not assurance that significant costs and
liabilities will not be incurred. Moreover, it is possible that other
developments, such as stricter environmental laws and regulations, and claims
for damages to property or persons resulting from operation of natural gas
facilities, would result in substantial costs and liabilities to the Company.

         The Company currently owns or leases, and has in the past owned or
leased, numerous properties that have been used for production of oil and gas
for many years. Although the Company has utilized operating and disposal
practices that were standard in the industry at the time, hydrocarbons or other
wastes may have been disposed of or released on or under the properties owned or
leased by the Company. In addition, many of these properties have been operated
by third parties over whom the Company had no control as to such entities'
treatment of hydrocarbons or other wastes and the manner in which such
substances may have been disposed of or released. State and federal laws
applicable to oil and gas wastes and properties have gradually become stricter.
Under these new laws, the Company could be required to remove or remediate
previously disposed wastes (including wastes disposed of or released by prior
owners or operators) or property contamination (including groundwater
contamination) or to perform remedial plugging operations to prevent future
contamination.

         The Company may generate wastes, including hazardous wastes, that are
subject to the Federal Resource Conservation and Recovery Act and comparable
state statutes. The EPA has limited the disposal options for certain hazardous
wastes and is considering the adoption of stricter disposal standards for
non-hazardous wastes. Furthermore, certain wastes generated by the Company's oil
and gas operations that are currently exempt from treatment as "hazardous
wastes" may in the future by designated as "hazardous wastes," and therefore be
subject to more rigorous and costly operating and disposal requirements.

         In addition, legislation has been proposed in Congress from time to
time that would reclassify certain oil and gas exploration and production wastes
as "hazardous wastes," which would make the reclassified wastes subject to much
more stringent handling, disposal and clean-up requirements. If such legislation
were to be enacted, it could have a significant impact on the operating costs of
the Company, as well as the oil and gas industry in general. Initiatives to
further regulate the disposal of oil and gas wastes are also pending in certain
states, and these various initiatives could have a similar impact on the
Company.

         The Federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as the "Superfund" law, imposes joint and
several liability, without regard to fault or the legality of the original
conduct, on certain classes of persons with respect to the release of a
"hazardous substance" into the environment. These persons include the current
owner and operator of a site and persons that disposed of or arranged for the
disposal of the hazardous substances found at a site. CERCLA also authorizes the
EPA and, in some cases, third parties to take actions in response to threats to
the public health or the environment and to seek to recover from the responsible
classes of persons the costs of such action. In the course of its operations,
the Company may have generated and may generate wastes that fall within CERCLA'S
definition of "hazardous substances." The Company may also be an owner of sites
on which "hazardous substances" have been released by previous owners or
operators. The Company may be responsible under CERCLA for all or part of the
costs to clean up sites at which such wastes have been released. Neither the
Company nor, to its knowledge, its predecessors has been named a potentially
responsible person under CERCLA nor does the Company know of any prior owners or
operators of its properties that are named as potentially responsible parties
related to their ownership or operation of such property.

         The Company has a proactive environmental policy that management feels
benefits the Company through increased operating profits, improved landowner
relations and an overall enhanced Company image. To this end, the Company has
also adopted a stringent environmental evaluation prior to purchasing a
property. This pre-acquisition assessment, usually referred to as an
Environmental Site Assessment, typically consists of a historical review of the
property combined with a site inspection and limited testing, when necessary.
The objective of this pre-acquisition assessment is to document conditions at
the time of acquisition and to assign liability to the seller for past
operations.

EMPLOYEES

         At March 24, 2000, the Company had 166 full-time and 15 part-time
employees, 22 of whom were employed by the Company at its principal offices in
Stamford, Connecticut, 25 in Houston, Texas, at the offices of Prime Operating
Company and Eastern Oil Well Service Company, and 134 employees who were
primarily involved in the district operations of the Company in Houston and
Midland, Texas, Oklahoma City, Oklahoma and Charleston, West Virginia.

ITEM 2. DESCRIPTION OF PROPERTY.

         The Company's executive offices and those of PEMC, are located at One
Landmark Square, Stamford, Connecticut, in leased premises of about 8,860 square
feet. The executive offices of Prime Operating Company and Eastern Oil Well
Service Company are located in leased premises in Houston, Texas, and the
offices of Southwest Oilfield Construction Company are in Oklahoma City,
Oklahoma.

         The Company maintains district offices in Houston and Midland, Texas,
Oklahoma City, Oklahoma and Charleston, West Virginia, and has field offices in
Carrizo Springs and Midland, Texas, Kingfisher, and Marshall, Oklahoma, and
Arnoldsburg and Orma, West Virginia.


                                       5
<PAGE>   7

       The Company owns several parcels of land in Oklahoma, on which oil and
gas wells it owns and operates are located. These properties were purchased
primarily to simplify operations of these properties.

         Substantially all of the Company's oil and gas properties are subject
to a mortgage given to collateralize indebtedness of the Company, or are subject
to being mortgaged upon request by the Company's lender for additional
collateral.

         The information set forth below concerning the Company's properties,
activities, and oil and gas reserves include the Company's interests in the
Partnerships, Trusts and joint ventures.

         The following table sets for the exploratory and development drilling
experience with respect to wells in which the Company participated during the
five years ended December 31,1999.

<TABLE>
<CAPTION>
                       1999            1998            1997            1996            1995
                  -------------   -------------   -------------   -------------   -------------
                  Gross    Net    Gross    Net    Gross    Net    Gross    Net    Gross    Net
                  -----   -----   -----   -----   -----   -----   -----   -----   -----   -----
<S>               <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>
Exploratory:
    Oil               1    .300       1    .468      --      --      --      --      --      --
    Gas               1    .683       2    .387       2      .8      --      --      --      --
    Dry               2    .510       2    .686       2    .509       1       1      --      --

Development:
    Oil              --      --       1    .145       5    .796       3    .740       8   1.046
    Gas               2    .015       5    .316       5   2.037      17   1.292       3    .235
    Dry               2    .745      --      --       3   1.030       1    .371       2    .350

Total:
    Oil               1    .300       2    .613       5    .796       3    .740       8   1.046
    Gas               3    .698       7    .703       7   2.837      17   1.292       3    .235
    Dry               4   1.255       2    .686       5   1.539       2   1.371       2    .350
                  -----   -----   -----   -----   -----   -----   -----   -----   -----   -----
                      8   2.253      11   2.002      17   5.172      22   3.403      13   1.631
                  =====   =====   =====   =====   =====   =====   =====   =====   =====   =====
</TABLE>

OIL AND GAS PRODUCTION

       As of December 31, 1999, the Company had ownership interests in the
following numbers of gross and net producing oil and gas wells and gross and net
producing acres (1).

<TABLE>
<CAPTION>
       Producing wells (1):                                Gross       Net
                                                          -------     ------
<S>                                                       <C>         <C>
           Oil Wells ...................................      976     177.16
           Gas Wells ...................................    1,205     180.69
       Producing Acres .................................  340,200     62,410
</TABLE>

(1)    A gross well or gross acre is a well or an acre in which a working
       interest is owned. A net well or net is the sum of the fractional revenue
       interests owned in gross wells or gross acres. Wells are classified by
       their primary product. Some wells produce both oil and gas.

       The following table shows the Company's net production of crude oil and
natural gas for each of the five years ended December 31, 1999. "Net" production
is net after royalty interests of others are deducted and is determined by
multiplying the gross production volume of properties in which the Company has
an interest by percentage of the leasehold, mineral or royalty interest owned by
the Company.

<TABLE>
<CAPTION>
                         1999        1998        1997        1996        1995
                       ---------   ---------   ---------   ---------   ---------
<S>                      <C>         <C>         <C>         <C>         <C>
Oil (barrels) ......     264,000     277,000     277,000     249,000     155,000
Gas (Mcf) ..........   3,289,000   3,621,000   3,901,000   2,888,000   1,952,000
</TABLE>

       The following table sets forth the Company's average sales price per
barrel of crude oil and average sales prices per one thousand cubic feet ("Mcf")
of gas, together with the Company's average production costs per unit of
production for the five years ended December 31, 1999.

<TABLE>
<CAPTION>
                                  1999       1998       1997       1996       1995
                                --------   --------   --------   --------   --------
<S>                             <C>           <C>        <C>        <C>        <C>
Average sales price
  per barrel ................   $  15.41      12.39      19.35      21.11      16.53
Average sales price
  Per Mcf ...................   $   2.32       2.19       2.57       2.36       1.85
Average production
  costs per net equivalent
  barrel(1) .................   $   7.76       7.60       7.59       8.09       8.92
</TABLE>

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

(1) Net equivalent barrels are computed at a rate of 6 Mcf per barrel.


                                       6
<PAGE>   8

UNDEVELOPED ACREAGE

         The following table sets forth the approximate gross and net
undeveloped acreage in which the Company has leasehold, mineral and royalty
interests as of December 31, 1999. "Undeveloped acreage" is that acreage on
which wells have not been drilled or completed to a point that would permit the
production of commercial quantities of oil and gas, regardless of whether or not
such acreage contains proved reserves.

<TABLE>
<CAPTION>
                           Leasehold            Mineral             Royalty
                           Interests           Interests           Interests
                        ----------------    ----------------    ----------------
                        Gross      Net      Gross      Net      Gross      Net
      State             Acres     Acres     Acres     Acres     Acres     Acres
      -----             ------    ------    ------    ------    ------    ------
<S>                     <C>       <C>       <C>       <C>       <C>       <C>
Colorado                    --        --       799        23        --        --
Louisiana                   16         3        --        --        --        --
Montana                     --        --    13,984        59       786         5
Nebraska                    --        --     2,553       331        --        --
North Dakota                --        --       640         1        --        --
Oklahoma                    --        --       320         1        --        --
Texas                   16,085     5,752       680        16        --        --
Wyoming                  1,000       125     5,043        35       140        35
                        ------    ------    ------    ------    ------    ------
TOTAL                   17,101     5,880    24,019       466       926        40
                        ======    ======    ======    ======    ======    ======
</TABLE>

RESERVES

         The Company's interests in proved developed and undeveloped oil and gas
properties have been evaluated by Ryder Scott Company, L.P. for the years ended
December 31, 1995, 1996, 1997, 1998 and 1999. All of the Company's reserves are
located within the continental United States. The following table summarizes the
Company's oil and gas reserves at each of the respective dates (figures
rounded):

<TABLE>
<CAPTION>
                              Reserve Category
           ------------------------------------------------------
               Proved Developed              Proved Undeveloped                  Total
           ------------------------         ---------------------       ------------------------
As of         Oil           Gas              Oil            Gas            Oil            Gas
12-31        (bbls)        (Mcf)            (bbls)         (Mcf)          (bbls)         (Mcf)
-----      ---------     ----------         ------        -------       ---------     ----------
<S>        <C>           <C>                <C>           <C>           <C>           <C>
1995         905,000     13,549,000             --         52,000         905,000     13,601,000
1996       1,453,000     19,036,000         13,000         29,000       1,466,000     19,065,000
1997       1,364,000     16,661,000         77,000             --       1,441,000     16,661,000
1998       1,122,000     17,341,000         78,000             --       1,200,000     17,341,000
1999       2,110,000     22,046,000             --        156,000       2,110,000     22,202,000
</TABLE>


         The estimated future net revenue (using current prices and costs as of
those dates, exclusive of income taxes) and the present value of future net
revenue (at a 10% discount for estimated timing of cash flow) for the Company's
proved developed and proved undeveloped oil and gas reserves at the end of each
of the five years ended December 31, 1999, are summarized as follows (figures
rounded):

<TABLE>
<CAPTION>
                Proved Developed              Proved Undeveloped                  Total
           --------------------------      -------------------------    -------------------------
                        Present Value                  Present Value                Present Value
As of       Future Net    Of Future        Future Net    Of Future      Future Net    Of Future
12-31        Revenue     Net Revenue        Revenue     Net Revenue      Revenue     Net Revenue
-----      -----------  -------------      ----------  -------------    ----------  -------------
<S>        <C>           <C>                <C>           <C>           <C>           <C>
1995       $15,727,000    9,530,000          39,000        18,000       15,766,000     9,548,000
1996       $51,077,000   35,025,000         273,000       167,000       51,350,000    35,192,000
1997       $30,056,000   21,306,000         833,000       531,000       30,889,000    21,837,000
1998       $20,839,000   13,444,000         359,000       212,000       21,198,000    13,656,000
1999       $41,103,000   26,057,000         258,000       151,000       41,361,000    26,208,000
</TABLE>

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

         Since January 1, 1999, the Company has not filed any estimates of its
oil and gas reserves with, nor were any such estimates included in any reports
to, any federal authority or agency, other than the Securities and Exchange
Commission, except Form EIA-23, Annual Survey of Domestic Oil and Gas Reserves,
filed with The Energy Information Administration of the U.S. Department of
Energy.


                                       7
<PAGE>   9

ITEM 3. LEGAL PROCEEDINGS.

         The Company is not a party to, nor is any of its property the subject
of, any legal proceedings, actual or threatened involving any claim for damages
which exceed 10 percent of the Company's current assets.

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

         No matters were submitted during the fourth quarter of the fiscal year
ended December 31, 1999, to a vote of the Company's security-holders through the
solicitation of proxies or otherwise.


                                     PART II

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

         The Company's Common Stock is traded in the NASDAQ Stock Market,
trading symbol "PNRG". The high and low bid quotations for each quarterly period
during the two years ended December 31, 1999, were as follows:

<TABLE>
<CAPTION>
           1999                 High      Low                1998                High      Low
           ----                ------    ------              ----               ------    ------
<S>                            <C>       <C>      <C>                           <C>       <C>
First Quarter...............   $ 5.59    $ 5.32   First Quarter...............  $ 8.06    $ 7.79
Second Quarter..............     4.94      4.74   Second Quarter..............    7.46      7.08
Third Quarter...............     5.13      5.08   Third Quarter...............    7.00      6.72
Fourth Quarter..............     4.93      4.82   Fourth Quarter..............    6.66      6.60
</TABLE>

         The above quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions, and may not represent actual transactions.

         The approximate number of record holders of the Company's Common Stock
as of March 20, 2000 was 1,135.

         No dividends have been declared or paid during the past two years on
the Company's Common Stock. Provisions of the Company's line of credit agreement
restrict the Company's ability to pay dividends. Such dividends may be declared
out of funds legally available therefore, when and as declared by the Company's
Board of Directors.

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

         This discussion should be read in conjunction with the financial
statements of the Company and notes thereto. The Company's subsidiaries are
defined in Note 1 of the financial statements. PEMC is the managing general
partner or managing trustee in several Limited Partnerships and Trusts
(collectively, the "Partnerships").

LIQUIDITY AND CAPITAL RESOURCES

         During 1998 and 1999, the Company was party to a line of credit
agreement with a bank with a non-reducing borrowing base of $20 million. In
February 1999, the credit agreement was revised to require that the $20 million
borrowing base, reestablished on October 14, 1998, would begin reducing monthly
by $300,000 beginning February 1, 1999. Effective September 22, 1999, the credit
agreement was amended, revising the borrowing base to $23.7 million, reducing
monthly by $350,000 beginning on October 1, 1999. The credit agreement provides
for interest on outstanding borrowings at the bank's base rate, as defined,
payable monthly, or at rates ranging from 1 1/2% to 2% over the London
Inter-Bank Offered Rate (LIBO rate) depending upon the Company's utilization of
the available line of credit, payable at the end of the applicable interest
period.

         The average interest rates paid on outstanding borrowings subject to
interest at the bank's base rate during 1999 and 1998 were 7.48% and 8.46%,
respectively. During the same periods, the average rates paid on outstanding
borrowings bearing interest based upon the LIBO rate were 7.34% and 8.04%. As of
December 31, 1999 and 1998, the total outstanding borrowings were $19.2 million
and $16.5 million, respectively, of which $15.5 million and $14.3 million
accrued interest at the LIBO rate option.

         Advances pursuant to the agreement are limited to the borrowing base as
defined in the agreement. Most of the Company's oil and gas properties as well
as certain receivables and equipment are pledged as security under this
agreement. Under the Company's credit agreement, the Company is required to
maintain, as defined, a minimum current ratio, tangible net worth, debt coverage
ratio and interest coverage ratio.

         On November 15, 1999, the Company purchased interests in approximately
131 oil and gas wells located in various counties in Oklahoma. The Company
already owned, and was the operator of, the majority of the properties
purchased. The Company paid $1,813,000 for the properties, and may owe
additional compensation contingent on the performance of the properties in the
first three years after the purchase.


                                       8
<PAGE>   10

         The Company spent $2,095,000 on the Ramrod property in 1999, including
the drilling of new wells and repairs to existing wells. As discussed below, a
large impairment was recorded on the property in 1999.

         During 1988, a drilling program was established whereby the Company,
along with several of its joint venture partners, identified six wells to be
drilled. Approximately $3,297,000 in costs were incurred in connection with this
drilling in 1998, and $1,962,000 in 1999, including $1,355,000 and $788,000,
respectively, in dry hole costs.

         In total, $8,510,000 was spent on the acquisition and development of
oil and gas properties in 1999, including $1,038,000 spent to repurchase limited
partnership interests from investors in its oil and gas Partnerships.

         The Company spent $479,000 on field service equipment in 1999, and an
additional $112,000 on computers, software, and related equipment. In the first
quarter of the year 2000, three service rigs were purchased in Midland Texas for
a total of $441,000, and a backhoe was purchased in Oklahoma for $29,000. The
Company hopes to increase district operating income through the utilization of
this equipment.

         The Company spent $547,000 to repurchase shares of its treasury stock
in 1999.

         Most of the Company's capital spending is discretionary, and the
ultimate level of expenditures will be dependent on the Company's assessment of
the oil and gas business environment, the number of oil and gas prospects, and
oil and gas business opportunities in general.

RESULTS OF OPERATIONS:

         1999 AS COMPARED TO 1998

         The Company incurred a loss of $2,138,000 in 1999 as compared to a loss
of $1,692,000 in 1998. The 1999 loss was caused by a $2,703,000 impairment on
the Ramrod Property, located in Matagorda County, Texas. The 1998 loss was
primarily caused by exploration costs of $1,706,000 combined with extremely low
oil and gas prices.

         The Company sold 50% of its interest in the Ramrod field and turned
over operations to the purchaser in November 1998. The new operator increased
flow rates on the most significant well on this property, the St. George # 1,
and soon afterwards the well began to experience mechanical problems. Despite
several expensive attempts to repair this well throughout 1999, production rates
are currently about an eighth of what they were before the mechanical problems
began, and the estimated future reserves at January 1, 2000 declined drastically
from the prior year estimates. Additionally, the Company incurred $1,582,000 in
drilling costs on the property in 1999, and while some reserves were found, the
future net revenue associated with these reserves is greatly below the costs
incurred.

         Oil and gas sales increased by $409,000, to 11,763,000 in 1999 as
compared to $11,354,000 in 1998, as increased prices more than offset production
declines.

         Oil production declined by 13,000 barrels, to 264,000 barrels in 1999
as compared to 277,000 barrels in 1998, due primarily to natural decline curves
on existing properties. Gas production declined by 332,000 Mcf to 3,289,000 Mcf
in 1999 from 3,621,000 Mcf in 1998, as a drop of 561,000 Mcf in production from
the Ramrod property and the natural decline curve of existing properties was
only partially offset by production from additional interests in properties
purchased during the year, and wells which came on line in 1999. The most
significant well to come on line in 1999 was the Francis Martin well, which
began production in January and produced 510,000 Mcf of gas during the year. The
Company's participation in this well was subject to a provision whereby the
Company's interest is reduced when it reaches payout and again upon reaching
200% of payout. These events occurred in August 1999 and February 2000. The
Company's original 13.44% net revenue interest has been reduced to 9.33%.

         The Oklahoma properties purchased in November of 1999 produced 72,000
Mcf of gas and 6,800 barrels of oil during the 1 1/2 months the Company owned
these properties in 1999.

         The average price received for a barrel of oil increased to $15.41 in
1999 as compared to $12.39 in 1998, and the average gas price received increased
to $2.32 in 1999, as compared to $2.19 in 1998.

         Lease operating expenses decreased by $306,000 to $6,305,000 in 1999 as
compared to $6,611,000 in 1998, due to lower volumes produced.

         District operating income increased by $462,000, to $11,407,000 in 1999
as compared to $10,945,000 in 1998, as the Company continued to expand its well
servicing operations. The Company hopes to further increase its district
operating in 2000 through the utilization of service rigs and other equipment
purchased in the first quarter of 2000.

         Administrative revenue, which represents the reimbursement of general
and administrative overhead expanded on behalf of the Partnerships and the
Company's joint venture partners decreased by $50,000 to 1,673,000 in 1999 as
compared to 1,723,000 in 1998. In both years, amounts received from certain of
the Partnerships were substantially less than the amounts


                                       9
<PAGE>   11
allocable to these Partnerships under the partnership agreements. The lower
amounts reflect PEMC's continuing efforts to reduce costs, both incurred and
allocated to the Partnerships.

         Reporting and management fees are earned from providing the accounting
and reporting functions for certain of the Partnerships.

         The Company receives reimbursement for costs incurred related to the
evaluation and acquisition of properties on behalf of the Partnerships and other
joint venture partners. To the extent that these property acquisition costs are
expended at the district level, the reimbursements are recorded as a reduction
of total district operating expenses. When expenses are incurred at the
corporate headquarters level, such reimbursements are recorded as a reduction of
total general and administrative expenses. During 1999 and 1998 the Company's
total reimbursements for property acquisition costs were approximately
$1,450,000 and $1,690,000 respectively.

         Depletion expense decreased by $1,393,000 to $4,581,000 in 1999 as
compared to $5,974,000 in 1998 due to lower volumes produced, and lower
depletion rates on many properties due to increased reserve estimates at
year-end. These increased reserve estimates are partly due to an increase in
prices.

         Exploration costs of $869,000 in 1999 consist primarily of dry hole
costs on wells which were part of the Company's 1998 drilling program.

         1998 AS COMPARED TO 1997

         The Company incurred a loss of $1,692,000 in 1998 as compared to income
of $1,024,000 in 1997. The primary reason for this change was sharply lower
prices received for oil and gas production.

         Oil and gas sales of $11,354,000 in 1998 represent a decrease of 26%,
or $4,049,000 over the 1997 sales. The average price received per barrel of oil
for all production was $12.39 as compared to $19.35 in 1997 and the average gas
price was $2.19 in 1998 as compared to $2.58 in 1997. Based on total production
of 3,621,000 Mcf of gas, and 277,000 barrels of oil, the Company would have
received an additional $3,334,000 in gross oil and gas revenue if it had
received the same average prices for oil and gas production in 1998 as it did in
1997.

         Oil production in 1998 was roughly equivalent to 1997 production, as
the natural decline curve on existing properties was roughly offset by increased
production related to partnership interests of about 12,000 barrels, due to
additional interests in the Partnerships being purchased during the year.

         Gas production declined from 3,895,000 Mcf in 1997 to 3,621,000 Mcf in
1998. The purchase of the South Powderhorn property was subject to a provision
wherein the seller obtains a 25% working interest in the property at such time
as the Company and its joint venture partners have received net cash from the
property equal to 200% of their costs (Payout). This Payout occurred in January
of 1998. Due to this provision, and a high natural decline curve on the
property, the Company's share of production from this property declined from
1,326,000 Mcf in 1997 to 570,000 Mcf in 1998. This was in large part offset by
an increase in production from the Ramrod property due to the Saint George # 1
well coming online in March of 1998. The Ramrod property in total contributed
680,000 Mcf of production in 1998 as compared to 54,000 Mcf in 1997.

         Lease operating expenses decreased by 5% in 1998 as compared to 1997.
Per unit costs were approximately $7.60 per barrel of oil equivalent in both
years.

         Administrative revenue, which represents the reimbursement of general
and administrative overhead expended on behalf of the Partnerships and the
Company's joint venture partners increased 2% in 1998 as compared to 1997. In
both years, amounts received from certain of the Partnerships are substantially
less than the amounts allocable to these Partnerships under the partnership
agreements. The lower amounts reflect PEMC's continuing efforts to reduce costs,
both incurred and allocated to the Partnerships.

         Reporting and management fees are earned from providing the accounting
and reporting functions for certain of the Partnerships.

         The Company receives reimbursement for costs incurred related to the
evaluation and acquisition of properties on behalf of the Partnerships and other
joint venture partners. To the extent that these property acquisition costs are
expended at the district level, the reimbursements are recorded as a reduction
of total district operating expenses. When expenses are incurred at the
corporate headquarters level, such reimbursements are recorded as a reduction of
the total general and administrative expenses. During 1998 and 1997 the
Company's total reimbursements for property acquisition costs were approximately
$1,690,000 and $1,751,000 respectively.

         Exploration costs of $1,706,000 were incurred in 1998. The primary
components of this amount were $845,000 spent on the drilling of a dry hole in
Lafayette Parish, Louisiana, and $510,000 incurred up to December 31, 1998 in
connection with a dry hole in Terrebonne Parish Louisiana. This well completed
drilling in 1999, and approximately $325,000 in costs incurred during 1999 will
be written of as an expense in the first quarter of the year.


                                       10
<PAGE>   12

         A tax benefit of $183,000 was recognized in 1998. This includes $72,000
of federal income tax refunds expected to be received due to the filing of net
operating loss carry back claims, with the balance being primarily attributable
to the reversal of deferred tax liabilities previously recognized.


ITEM 7. FINANCIAL STATEMENTS.

         Included on pages F-1 through F-24 of this Report. The Index to
Financial Statements is at page F-1 of this Report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

         None.


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
        COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

         Information relating to the Company's Directors, nominees for Directors
and executive officers is included in the Company's definitive proxy statement
relating to the Company's Annual Meeting of Stockholders to be held in May,
2000, which will be filed with the Securities and Exchange Commission within 120
days of December 31, 1999, and which is incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION.

         Information relating to executive compensation is included in the
Company's definitive proxy statement relating to the Company's Annual Meeting of
Stockholders to be held in May, 2000, which will be filed with the Securities
and Exchange Commission within 120 days of December 31, 1999, and which is
incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         Information relating to security ownership of certain beneficial owners
and management is included in the Company's definitive proxy statement relating
to the Company's Annual Meeting of Stockholders to be held in May, 2000, which
will be filed with the Securities and Exchange Commission within 120 days of
December 31, 1999, and which is incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Information relating to certain transactions by Directors and executive
officers of the Company is included in the Company's definitive proxy statement
relating to the Company's Annual Meeting of Stockholders to be held in May,
2000, which will be filed with the Securities and Exchange Commission within 120
days of December 31, 1999, and which is incorporated herein by reference.


                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      Exhibits:

         No.

         3.1      Restated Certificate of Incorporation of PrimeEnergy
                  Corporation. (filed herewith)

         3.2      Bylaws of PrimeEnergy Corporation. (filed herewith)

         10.1     PrimeEnergy Corporation 1983 Incentive Stock Option Plan
                  (Incorporated herein by reference to Exhibit 3.2 of
                  PrimeEnergy Corporation Form 10-KSB for the year ended
                  December 31, 1994)

         10.3     Massachusetts Mutual Flexinvest 401(k) Plan as amended and
                  restated. (Incorporated herein by reference to Exhibit 10.3 of
                  PrimeEnergy Corporation Form 10-KSB for the year ended
                  December 31, 1994)(1)


                                       11
<PAGE>   13

         10.7     Credit Agreement dated April 26, 1995, between PrimeEnergy
                  Corporation, PrimeEnergy Management Corporation and Bank One,
                  Texas, National Association. (Incorporated herein by reference
                  to Exhibit 10.7 to PrimeEnergy Corporation Form 8-K dated
                  April 26, 1995)

         10.7.1   First Amendment to Credit Agreement Among PrimeEnergy
                  Corporation and PrimeEnergy Management Corporation, as
                  Borrowers, Bank One, Texas, National Association, as Agent,
                  and the Lenders Signatory Hereto, effective as of October 6,
                  1995. (Incorporated herein by reference to Exhibit 10.7.1 to
                  PrimeEnergy Corporation Form 10-KSB for the year ended
                  December 31, 1995)

         10.7.2   Second Amendment to Credit Agreement Among PrimeEnergy
                  Corporation and PrimeEnergy Management Corporation, as
                  Borrowers, Bank One, Texas, National Association, as Agent,
                  and the Lenders Signatory Hereto, effective as of February 6,
                  1997. (Incorporated by reference to Exhibit 10.7.2 of
                  PrimeEnergy Corporation Form 10-KSB for the year ended
                  December 31, 1996)

         10.7.3   Third Amendment to Credit Agreement Among PrimeEnergy
                  Corporation and PrimeEnergy Management Corporation, as
                  Borrowers, Bank One, Texas, National Association, as Agent,
                  and the Lenders Signatory Hereto, effective as of January 2,
                  1998 (Incorporated by reference to Exhibit 10.7.3 of
                  PrimeEnergy Corporation Form 10-KSB for the year ended
                  December 31, 1997)

         10.8     Mortgage, Deed or Trust, Indenture, Security Agreement,
                  Financing Statement and Assignment of Production dated May 27,
                  1994, as ratified and amended April 26, 1995, between
                  PrimeEnergy Corporation, PrimeEnergy Management Corporation
                  and Bank One, Texas, National Association. (Incorporated by
                  reference to Exhibit 10.8 of PrimeEnergy Corporation Form 8-K
                  dated April 26, 1995)

         10.17    Amended Marketing Agreement between PrimeEnergy Management
                  Corporation and Charles E. Drimal, Jr. (Incorporated herein by
                  reference to Exhibit 10.17 of PrimeEnergy Corporation Form
                  10-KSB for the year ended December 31, 1994)(1)

         10.18    Composite copy of Non-Statutory Option Agreements
                  (Incorporated by reference to Exhibit 10.18 of PrimeEnergy
                  Corporation for 10KSB for the year ended December 31, 1997)(1)

         10.19    Purchase and Sale Agreement dated as of May 7, 1996, by and
                  between Internationale Nederlanden (U.S.) Capital Corporation
                  and PrimeEnergy Corporation (Incorporated herein by reference
                  to Exhibit 10.19 to PrimeEnergy Corporation Form 8-K dated May
                  29, 1996)

         10.20    Assignment, Conveyance and Bill of Sale dated as of May 7,
                  1996, by Saratoga Resources, Inc., a Texas corporation, et
                  al., to PrimeEnergy Corporation (Incorporated herein by
                  reference to Exhibit 10.20 to PrimeEnergy Corporation Form 8-K
                  dated May 29, 1996)

         10.21    Purchase and Sale Agreement dated November 16, 1999 between
                  Southern Pacific Petroleum U.S.A. and PrimeEnergy Corporation
                  (Incorporated herein by reference to Exhibit 10.21 to
                  PrimeEnergy Corporation Form 8-K dated November 24, 1999)

         21       Subsidiaries. (filed herewith)

         23       Consent of Ryder Scott Company, L.P. (filed herewith)

         27       Financial Data Schedule. (filed herewith)

-----------

(1)      Management contract or compensatory plan or arrangement required to be
         filed as an Exhibit to this Form 10-KSB.

         (b)      Reports on Form 8-K:

                  A report dated November 24, 1999, was filed on Form 8-K to
                  report under Item 2. Acquisition or Disposition of Assets, the
                  acquisition of certain oil and gas and related properties. The
                  pro forma financial information required to be filed in
                  connection with that Form 8-K was filed by amendment on
                  January 14, 2000 under cover of Form 8.


                                       12
<PAGE>   14

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 2000.

                                       PrimeEnergy Corporation

                                       By: /s/ CHARLES E. DRIMAL, JR.
                                           -------------------------------------
                                           Charles E. Drimal, Jr.
                                           President

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the 30th day of March, 2000.


/s/CHARLES E. DRIMAL, JR.      Director and President;
----------------------------   The Principal Executive Officer
Charles E. Drimal, Jr.

/s/ BEVERLY A. CUMMINGS        Director, Executive Vice President and Treasurer;
----------------------------   The Principal Financial and Accounting Officer
Beverly A. Cummings

/s/ SAMUEL R. CAMPBELL          Director
----------------------------
Samuel R. Campbell

                                Director
----------------------------
James E. Clark

/s/ MATTHIAS ECKENSTEIN         Director
----------------------------
Matthias Eckenstein

/s/ H. GIFFORD FONG             Director
----------------------------
H. Gifford Fong

/s/ THOMAS S.T. GIMBEL          Director
----------------------------
Thomas S.T. Gimbel

/s/ CLINT HURT                  Director
----------------------------
Clint Hurt

                                Director
----------------------------
Robert de Rothschild

/s/ JARVIS K. SLADE             Director
----------------------------
Jarvis J. Slade

/s/ JAN K. SMEETS               Director
----------------------------
Jan K. Smeets

                                Director
----------------------------
Gaines Wehrle

/s/ MICHAEL WEHRLE              Director
----------------------------
Michael Wehrle


                                       13
<PAGE>   15
                          INDEX TO FINANCIAL STATEMENTS

Financial Statements (Included herein at pages F-1 through F-24):

<TABLE>
<S>                                                                                        <C>
Report of Independent Public Accountants                                                   F-2

Financial Statements:

       Consolidated Balance Sheets -- December 31, 1999 and 1998                           F-3

       Consolidated Statements of Operations -- for the years ended December 31,
       1999 and 1998                                                                       F-5

       Consolidated Statements of Stockholders' Equity -- for the years ended
       December 31, 1999 and 1998                                                          F-6

       Consolidated Statements of Cash Flows -- for the years ended December 31,
       1999 and 1998                                                                       F-7

       Notes to Consolidated Financial Statements                                          F-8

       Supplementary Information:                                                          F-18

                Capitalized Costs Relating to Oil and Gas Producing Operations,
                December 31, 1999 and 1998                                                 F-19

                Costs Incurred in Oil and Gas Property Acquisition, Exploration and
                Development Activities, years ended December 31, 1999 and 1998             F-19

                Standardized Measure of Discounted Future Net Cash Flows Relating
                to Proved Oil and Gas reserves, years ended December 31, 1999 and 1998     F-20

                Standardized Measure of Discounted Future Net Cash Flows and Changes
                Therein Relating to Proved Oil an Gas Reserves, years ended December 31,
                1999 and 1998                                                              F-21

                Reserve Quantity Information, years ended December 31, 1999 and 1998       F-22

                Results of Operations from Oil and Gas Producing Activities, years ended
                December 31, 1999 and 1998                                                 F-22

                Notes to Supplementary Information                                         F-24
</TABLE>


                                      F-1
<PAGE>   16

                         PUSTORINO, PUGLISI, & CO., LLP

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of PrimeEnergy Corporation:

We have audited the accompanying consolidated balance sheets of PrimeEnergy
Corporation and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PrimeEnergy
Corporation and Subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.

/s/ PUSTORINO, PUGLISI & CO., LLP
Pustorino, Puglisi & Co., LLP
New York, New York
March 30, 2000


                                      F-2
<PAGE>   17

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

             CONSOLIDATED BALANCE SHEETS, December 31, 1999 and 1998


<TABLE>
<CAPTION>
                                                        1999            1998
                                                    ------------    ------------
<S>                                                 <C>             <C>
ASSETS:
Current assets:
     Cash and cash equivalents                      $  1,771,000    $  1,167,000
     Restricted cash and cash
        equivalents (Note 11)                          1,854,000       1,080,000
     Accounts receivable, net (Note 3)                 3,635,000       2,890,000
     Due from related parties (less allowance for
        doubtful accounts of $800,000 in 1999
        and 1998) (Note 10)                            2,844,000       2,952,000
     Prepaid expenses                                     84,000          79,000
     Other current assets                                204,000         351,000
     Deferred income taxes (Notes 1 and 8)                    --          18,000
                                                    ------------    ------------
         Total current assets                         10,392,000       8,537,000
                                                    ------------    ------------

Property and equipment, at cost (Notes 1 and 2):
     Oil and gas properties (successful
       efforts method):
         Developed                                    49,249,000      40,582,000
         Undeveloped                                     235,000       1,284,000
     Furniture, fixtures and equipment
       including leasehold improvements                6,395,000       6,571,000
                                                    ------------    ------------
                                                      55,879,000      48,437,000
     Accumulated depreciation, depletion
       and amortization                              (36,742,000)    (29,310,000)
                                                    ------------    ------------
       Net property and equipment                     19,137,000      19,127,000
                                                    ------------    ------------

Other assets (Note 10)                                   621,000         622,000
Due from affiliates (Note 10)                            325,000         325,000
                                                    ------------    ------------
       Total assets                                 $ 30,475,000    $ 28,611,000
                                                    ============    ============
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-3
<PAGE>   18

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

             CONSOLIDATED BALANCE SHEETS, December 31, 1999 and 1998


<TABLE>
<CAPTION>
                                                                   1999            1998
                                                               ------------    ------------
<S>                                                            <C>             <C>
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
     Accounts payable (Note 13)                                $  7,900,000    $  6,315,000
     Current portion of other long-term obligations (Note 5)          4,000              --
     Accrued liabilities:
       Payroll, Benefits and Related Items                          798,000         552,000
       Taxes (Notes 1 and 8)                                         53,000              --
       Interest and other                                           626,000         832,000
     Due to related parties (Note 10)                               943,000         731,000
                                                               ------------    ------------
       Total current liabilities                                 10,324,000       8,430,000
                                                               ------------    ------------

Long-term bank debt (Note 4)                                     19,200,000      16,505,000
Other long term obligations (Note 5)                                 17,000              --
Deferred income taxes (Notes 1 and 8)                                    --          57,000
                                                               ------------    ------------
       Total liabilities                                         29,541,000      24,992,000
                                                               ------------    ------------

Stockholders' equity:
     Preferred stock, $.10 par, authorized
       5,000,000 shares in 1999 and 10,000,000 shares
       in 1998; none issued                                              --              --
     Common stock, $.10 par value, authorized
       10,000,000 shares in 1999 and 15,000,000 shares
       in 1998; issued 7,607,970 in 1999 and
       7,607,970 in 1998                                            761,000         761,000
     Paid in capital                                             10,902,000      10,902,000
     Accumulated deficit                                         (2,859,000)       (721,000)
                                                               ------------    ------------
                                                                  8,804,000      10,942,000
     Treasury stock, at cost, 3,266,063
       common shares in 1999 and 3,158,376
       common shares in 1998                                     (7,870,000)     (7,323,000)
                                                               ------------    ------------
       Total stockholders' equity                                   934,000       3,619,000
                                                               ------------    ------------
         Total liabilities and equity                          $ 30,475,000    $ 28,611,000
                                                               ============    ============
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-4
<PAGE>   19

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

                      CONSOLIDATED STATEMENTS of OPERATIONS

                 for the years ended December 31, 1999 and 1998


<TABLE>
<CAPTION>
                                                            1999            1998
                                                        ------------    ------------
<S>                                                     <C>             <C>
Revenue:
     Oil and gas sales                                  $ 11,763,000    $ 11,354,000
     District operating income                            11,407,000      10,945,000
     Administrative revenue (Note 10)                      1,673,000       1,723,000
     Reporting and management fees (Note 10)                 319,000         301,000
     Interest income                                         146,000         139,000
     Other income                                            212,000         333,000
                                                        ------------    ------------
                                                          25,520,000      24,795,000
                                                        ------------    ------------

Costs and expenses:
     Lease operating expense                               6,305,000       6,611,000
     District operating expense                            8,671,000       8,265,000
     Depreciation and depletion of
       oil and gas properties                              4,581,000       5,974,000
     Impairment of oil and gas properties (Note 1)         2,703,000          64,000
     General and administrative expense                    3,149,000       2,899,000
     Exploration costs                                       869,000       1,706,000
     Interest expense (Note 4)                             1,358,000       1,337,000
                                                        ------------    ------------
                                                          27,636,000      26,856,000
                                                        ------------    ------------
     Loss from operations                                 (2,116,000)     (2,061,000)

Other income:
Gain on sale and exchange of assets                            8,000         186,000
                                                        ------------    ------------
     Loss before (benefit) provision for income taxes     (2,108,000)     (1,875,000)

(Benefit) provision for income taxes                          30,000        (183,000)
                                                        ------------    ------------
     Net loss                                           $ (2,138,000)   $ (1,692,000)
                                                        ============    ============


Basic net loss per common share (Notes 1 and 14)        $      (0.48)   $      (0.38)
                                                        ============    ============
Diluted net loss per common share (Notes 1 and 14)      $      (0.48)   $      (0.38)
                                                        ============    ============
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-5
<PAGE>   20

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

                 CONSOLIDATED STATEMENT of STOCKHOLDERS' EQUITY

                 for the years ended December 31, 1999 and 1998


<TABLE>
<CAPTION>
                                                                            Retained
                                                              Additional    Earnings
                                       Common Stock            Paid In    (Accumulated     Treasury
                                   Shares        Amount        Capital      Deficit)         Stock          Total
                                 ---------    -----------    -----------  ------------    -----------    -----------
<S>                              <C>          <C>            <C>          <C>             <C>            <C>
Balance at December 31, 1997     7,597,970    $   760,000    $10,888,000   $   971,000    $(6,003,000)   $ 6,616,000

Purchased 169,215 shares of
 common stock                                                                              (1,320,000)    (1,320,000)

Stock options exercised             10,000          1,000         14,000                                      15,000

Net loss                                                                    (1,692,000)                   (1,692,000)
                                 ---------    -----------    -----------   -----------    -----------    -----------
Balance at December 31, 1998     7,607,970        761,000     10,902,000      (721,000)    (7,323,000)     3,619,000

Purchased 107,687 shares of
 common stock                                                                                (547,000)      (547,000)

Net loss                                                                    (2,138,000)                   (2,138,000)
                                 ---------    -----------    -----------   -----------    -----------    -----------
Balance at December 31, 1999     7,607,970    $   761,000    $10,902,000   ($2,859,000)   ($7,870,000)   $   934,000
                                 =========    ===========    ===========   ===========    ===========    ===========
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-6
<PAGE>   21

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

                      CONSOLIDATED STATEMENTS of CASH FLOWS

                 for the years ended December 31, 1999 and 1998

                                   ----------


<TABLE>
<CAPTION>
                                                                            1999            1998
                                                                        ------------    ------------
<S>                                                                     <C>             <C>
Cash flows from operating activities:
     Net loss                                                           $ (2,138,000)   $ (1,692,000)
     Adjustments to reconcile net loss to net cash provided
       by operating activities:
            Depreciation, depletion and amortization                       5,529,000       6,930,000
            Impairment of oil and gas properties                           2,703,000          64,000
            Dry hole and abandonment costs                                   818,000       1,606,000
            Gain on sale of properties                                        (8,000)       (186,000)
            Provision (benefit) of deferred income taxes                     (39,000)       (102,000)
            Changes in assets and liabilities:
            (Increase) decrease in accounts receivable                      (745,000)      1,590,000
            (Increase) decrease in due from related parties                  108,000        (498,000)
            (Increase) decrease in other assets                              120,000        (204,000)
            (Increase) decrease in prepaid expenses                           (5,000)         28,000
            Increase (decrease) in accounts payable                          811,000        (213,000)
            Increase in accrued liabilities                                  311,000         181,000
            Increase (decrease) in due to related parties                    212,000        (658,000)
                                                                        ------------    ------------
                 Net cash provided by operating activities                 7,677,000       6,846,000
                                                                        ------------    ------------

Cash flows from investing activities:
     Proceeds from sale of properties and equipment                           59,000       2,349,000
     Additions to property and equipment                                  (9,308,000)     (7,360,000)
     Decrease in notes receivable                                             28,000          10,000
                                                                        ------------    ------------
           Net cash used in investing activities                          (9,221,000)     (5,001,000)
                                                                        ------------    ------------

Cash flows from financing activities:
     Purchase of stock for treasury                                         (547,000)     (1,320,000)
     Repayment of long-term bank debt and other long-term obligations    (25,770,000)    (33,221,000)
     Increase in long-term bank debt and other long-term obligations      28,465,000      30,861,000
     Proceeds from exercised stock options                                        --          15,000
                                                                        ------------    ------------
           Net cash provided by (used in) financing activities             2,148,000      (3,665,000)
                                                                        ------------    ------------
           Net increase (decrease) in cash                                   604,000      (1,820,000)

Cash and cash equivalents, beginning of year                               1,167,000       2,987,000
                                                                        ------------    ------------
Cash and cash equivalents, end of year                                  $  1,771,000    $  1,167,000
                                                                        ============    ============

Supplemental disclosures:
     Income taxes paid during the year                                  $         --    $     46,000
     Net income tax refunds received during the year                    $     84,000    $         --
     Interest paid during the year                                      $  1,367,000    $  1,346,000

Supplemental information of noncash investing and financing activities:
     In 1999, the Company recorded capital lease obligations in the
     amount of $22,000.
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-7
<PAGE>   22

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

                   NOTES to CONSOLIDATED FINANCIAL STATEMENTS

                                    ---------

1.       DESCRIPTION OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

         Nature of Operations:

         PrimeEnergy Corporation ("PEC"), a Delaware corporation, was organized
         in March 1973. PrimeEnergy Management Corporation ("PEMC"), a
         wholly-owned subsidiary, acts as the managing general partner,
         providing administration, accounting and tax preparation services for
         53 private and publicly-held limited partnerships and trusts
         (collectively, the "Partnerships"). PEC owns Eastern Oil Well Service
         Company ("EOWSC") and Southwest Oilfield Construction Company ("SOCC"),
         both of which perform oil and gas field servicing. PEC also owns Prime
         Operating Company ("POC") which serves as operator for most of the
         producing oil and gas properties owned by the Company and affiliated
         entities. PrimeEnergy Corporation and its wholly-owned subsidiaries are
         herein referred to as the "Company."

         The Company is engaged in the development, acquisition and production
         of oil and natural gas properties. The Company owns leasehold, mineral
         and royalty interests in producing and non-producing oil and gas
         properties across the continental United States, including Colorado,
         Kansas, Louisiana, Mississippi, Montana, Nebraska, Nevada, New Mexico,
         North Dakota, Oklahoma, Texas, Utah, West Virginia and Wyoming. The
         Company operates 1,659 wells and owns non-operating interests in 843
         additional wells. Additionally, the Company provides well-servicing
         support operations, site-preparation and construction services for oil
         and gas drilling and re-working operations, both in connection with the
         Company's activities and providing contract services for third parties.
         The Company is publicly traded on the NASDAQ under the symbol "PNRG."

         The markets for the Company's products are highly competitive, as oil
         and gas are commodity products and prices depend upon numerous factors
         beyond the control of the Company, such as economic, political and
         regulatory developments and competition from alternative energy
         sources.

         Certain items on the prior year income statement have been reclassified
         to conform with current year classification.

         Principles of Consolidation:

         The consolidated financial statements include the accounts of
         PrimeEnergy Corporation and its wholly-owned subsidiaries. All material
         inter-company accounts and transactions between these entities have
         been eliminated. Oil and gas properties include ownership interests in
         the Partnerships. The statement of operations includes the Company's
         proportionate share of revenue and expenses related to oil and gas
         interests owned by the Partnerships.

         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.

         Estimates of oil and gas reserves, as determined by independent
         petroleum engineers, are continually subject to revision based on
         price, production history and other factors. Depletion expense, which
         is computed based on the units of production method, could be
         significantly impacted by changes in such estimates. Additionally, FAS
         121 requires that if the expected future cash flow from an asset is
         less than its carrying cost, that asset must be written down to its
         fair market value. As the fair market value of an oil and gas property
         will usually be significantly less than the total future net revenue
         expected from that property, small changes in the estimated future net
         revenue from an asset could lead to the necessity of recording a
         significant impairment of that asset.

         The Company has significant deferred tax assets which have been fully
         reserved against based upon the assumption that at current and expected
         future levels of taxable income, and considering the Section 29 credits
         the Company expects to generate, the availability of these
         carryforwards will not lead to significant reductions in the Company's
         tax liability as compared to what it would pay if such carryforwards
         did not exist. Increases in estimates of future taxable income could
         lead to significant reductions in the amount of this reserve, which
         could have a material effect on the net income of the Company.


                                      F-8
<PAGE>   23
                    PRIMEENERGY CORPORATION and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

                                    ---------

         Property and Equipment

         The Company follows the "successful efforts" method of accounting for
         its oil and gas properties. Under the successful efforts method, costs
         of acquiring undeveloped oil and gas leasehold acreage, including lease
         bonuses, brokers' fees and other related costs are capitalized.
         Provisions for impairment of undeveloped oil and gas leases are based
         on periodic evaluations. Annual lease rentals and exploration expenses,
         including geological and geophysical expenses and exploratory dry hole
         costs, are charged against income as incurred. Costs of drilling and
         equipping productive wells, including development dry holes and related
         production facilities, are capitalized. Costs incurred by the Company
         related to the acquisition of producing oil and gas properties on
         behalf of the Partnerships or joint ventures are deferred and charged
         to the related entity upon the completion of the acquisition. To the
         extent that the Company acquires an interest in the property, an
         appropriate allocation of internal costs are capitalized as part of the
         depletable base of the property.

         All other property and equipment are carried at cost. Depreciation and
         depletion of oil and gas production equipment and properties are
         determined under the unit-of-production method based on estimated
         proved recoverable oil and gas reserves, primarily at a field level.
         Depreciation of all other equipment is determined under the
         straight-line method using various rates based on useful lives. The
         cost of assets and related accumulated depreciation is removed from the
         accounts when such assets are disposed of, and any related gains or
         losses are reflected in current earnings.

         The net basis of assets are periodically compared to the expected
         future net revenue to be generated from the assets, and if the basis
         exceeds future net revenue, an impairment is recorded. In 1999 and
         1998, the Company recorded noncash impairment charges of $2,703,000 and
         $64,000, respectively. The 1999 impairment was recorded on the
         Company's Ramrod property, located in Matagorda County, Texas. The most
         significant well on this property, the Saint George #1, experienced
         significant mechanical difficulties in 1999, and current estimates of
         future production from the well are significantly below prior year
         estimates. Additionally, significant sums were spent on drilling to
         develop this property in 1999, and although reserves were found, the
         drilling costs incurred greatly exceed the value of those reserves. The
         carrying value of the property was written down to its fair market
         value, based on projected discounted future net cash flows, using the
         Company's estimates of future commodity prices.

         Income Taxes:

         The Company records income taxes in accordance with Statement of
         Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
         Taxes." SFAS No. 109 is an asset and liability approach to accounting
         for income taxes, which requires the recognition of deferred tax assets
         and liabilities for the expected future tax consequences of events that
         have been recognized in the Company's financial statements or tax
         returns.

         Deferred tax liabilities or assets are established for temporary
         differences between financial and tax reporting bases and are
         subsequently adjusted to reflect changes in the rates expected to be in
         effect when the temporary differences reverse. A valuation allowance is
         established for any deferred tax asset for which realization is not
         likely.

         General and Administrative Expenses:

         General and administrative expenses represent costs and expenses
         associated with the operation of the Company. Certain of the
         Partnerships sponsored by the Company reimburse general and
         administrative expenses incurred on their behalf.


         Income Per Common Share:

         Income per share of common stock has been computed based on the
         weighted average number of common shares outstanding during the
         respective periods in accordance with SFAS No. 128, "Earnings per
         Share".

         Statements of Cash Flows:

         For purposes of the consolidated statements of cash flows, the Company
         considers short-term, highly liquid investments with original
         maturities of less than ninety days to be cash equivalents.

         Concentration of Credit Risk:

         The Company maintains significant banking relationships with financial
         institutions in the State of Texas. The Company limits its risk by
         periodically evaluating the relative credit standing of these financial
         institutions. The Company's oil and gas production purchasers consist
         primarily of independent marketers and major gas pipeline companies.


                                      F-9
<PAGE>   24
                    PRIMEENERGY CORPORATION and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

                                    ---------

         Hedging:

         From time to time, the Company may enter into futures contracts in
         order to reduce its exposure related to changes in oil and gas prices.
         In accordance with Statement of Financial Accounting Standards No. 80,
         any gain or loss on such contracts is treated as an adjustment to oil
         and gas revenue. Cash activity related to hedging transactions is
         treated as operating activity on the Statements of Cash Flows. The
         Company did not have any open hedging transactions at December 31,
         1999.

         Recently Issued Accounting Standards:

         In June 1998, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting
         for Derivative Instruments and Hedging Activities". SFAS No. 133
         establishes accounting and reporting standards requiring that every
         derivative instrument (including certain derivative instruments
         embedded in other contracts) be recorded in the balance sheet as either
         an asset or liability measured at its fair value. It also requires that
         changes in the derivative's fair value be recognized currently in
         earnings unless specific hedge accounting criteria are met. Special
         accounting for qualifying hedges allows a derivative's gains and losses
         to offset related results on the hedged item in the income statement,
         and requires that a company must formally document, designate, and
         assess the effectiveness of transactions that receive hedge accounting.
         SFAS No. 133 is effective for fiscal years beginning after June 15,
         1999 and cannot be applied retroactively. The Company has not yet
         quantified the impacts of adopting SFAS No. 133 on its financial
         statements. However, SFAS No. 133 could increase volatility in earnings
         and other comprehensive income.

         In June 1997, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
         Comprehensive Income". SFAS No. 130 requires the reporting of
         comprehensive income (non-owner changes in equity) and its components
         in the financial statements. In 1999, the Company did not have any
         equity changes from non-owner sources that would be classified as
         comprehensive income.

2.       SIGNIFICANT  ACQUISITIONS AND DISPOSITIONS

         1999

         On November 15, 1999, the Company purchased interests in approximately
         131 oil and gas wells located in various counties in Oklahoma. The
         Company already owned, and was the operator of, the majority of the
         properties purchased. The purchase price was $1,813,000, plus possible
         additional compensation contingent on the performance of the
         properties.

         As more fully described in Note 6, the company is committed to offer to
         repurchase the interests of the limited partners and trust unitholders
         in certain of the Partnerships. During 1999, the Company purchased such
         interests in an amount totaling $1,038,000.

         1998

         Effective October 1, 1998, the Company sold 50% of its interests in the
         Ramrod field for $2,075,000. The Company recorded a gain of $150,000 on
         the sale.

         During 1998, a drilling program was established whereby the Company,
         along with several of its joint venture partners, identified six wells
         to be drilled. Costs incurred in connection with this program totaled
         $3,297,000 in 1998 and $1,962,000 in 1999, including $1,355,000 and
         $788,000, respectively, in dry hole costs. The most significant well in
         this program was the Francis Martin et al No. 1 well, which began
         production in January 1999 and contributed 510,000 Mcf of gas and 8,800
         barrels of oil to the Company's production during 1999.

         In 1998, the Company spent $831,000 to repurchase interests in the
         Partnerships.

3        ACCOUNTS RECEIVABLE

         Accounts receivable at December 31, 1999 and 1998 consisted of the
         following:


                                      F-10
<PAGE>   25
                    PRIMEENERGY CORPORATION and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

                                    ---------

<TABLE>
<CAPTION>
                                                             December 31,
                                                      --------------------------
                                                         1999           1998
                                                      -----------    -----------
<S>                                                   <C>            <C>
           Joint interest billing                     $ 1,738,000    $ 1,395,000
           Trade receivables                              550,000        264,000
           Oil and gas sales                            1,423,000      1,287,000
           Other                                           61,000         71,000
                                                      -----------    -----------
                                                        3,772,000      3,017,000
              Less, allowance for doubtful accounts      (137,000)      (127,000)
                                                      -----------    -----------
                                                      $ 3,635,000    $ 2,890,000
                                                      ===========    ===========
</TABLE>

4.      LONG-TERM BANK DEBT

        During 1998 and 1999, the Company was party to a line of credit
        agreement with a bank with a non-reducing borrowing base of $20 million.
        In February 1999, the credit agreement was revised to require that the
        $20 million borrowing base, reestablished on October 14, 1998, would
        begin reducing monthly by $300,000 beginning February 1, 1999. Effective
        September 22, 1999, the credit agreement was amended, revising the
        borrowing base to $23.7 million, reducing monthly by $350,000 beginning
        on October 1, 1999. Under the terms of the loan agreement, the borrowing
        base will be redetermined in the first half of 2000. As one of the
        criteria for determining the base is the value of the Company's
        reserves, and these reserves have increased significantly since the
        last determination, the borrowing base will be increased significantly.
        Management has therefore classified the entire amount of bank debt as
        long term. The credit agreement provides for interest on outstanding
        borrowings at the bank's base rate, as defined, payable monthly, or at
        rates ranging from 1 1/2% to 2% over the London Inter-Bank Offered Rate
        (LIBO rate) depending upon the Company's utilization of the available
        line of credit, payable at the end of the applicable interest period.

        The average interest rates paid on outstanding borrowings subject to
        interest at the bank's base rate during 1999 and 1998 were 7.48% and
        8.46%, respectively. During the same periods, the average rates paid on
        outstanding borrowings bearing interest based upon the LIBO rate were
        7.34% and 8.04%. As of December 31, 1999 and 1998, the total outstanding
        borrowings were $19.2 million and $16.5 million, respectively, of which
        $15.5 million and $14.3 million accrued interest at the LIBO rate
        option.

        Advances pursuant to the agreement are limited to the borrowing base as
        defined in the agreement. Most of the Company's oil and gas properties
        as well as certain receivables and equipment are pledged as security
        under this agreement. Under the Company's credit agreement, the Company
        is required to maintain, as defined, a minimum current ratio, tangible
        net worth, debt coverage ratio and interest coverage ratio.

5.       COMMITMENTS

         Operating Leases:

         The Company has several noncancelable operating leases, primarily for
         rental of office space, that have a term of more than one year. Total
         rent paid in 1999 was $493,000.

         Capital Leases:

         The Company has one capital lease for office equipment in other long
         term obligations.


                                      F-11
<PAGE>   26
                    PRIMEENERGY CORPORATION and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

                                    ---------

         Future minimum lease payments under operating and capital leases are as
         follows:

<TABLE>
<CAPTION>
                                         Operating Leases      Capital Leases
<S>                                      <C>                   <C>
               2000                        $  473,000             $ 5,000
               2001                           486,000               6,000
               2002                           432,000               5,000
               2003                           373,000               6,000
               2004                            22,000               3,000
               Thereafter                          --                  --
                                           ----------             -------
               Total minimum payments      $1,786,000             $25,000
                                           ==========
               Less Imputed interest                               (4,000)
                                                                  -------
               Present value of minimum
                 lease payments                                   $21,000
                                                                  =======
</TABLE>

6.       CONTINGENT LIABILITIES

         The Company, as managing general partner of the affiliated
         Partnerships, is responsible for all Partnership activities, including
         the review and analysis of oil and gas properties for acquisition, the
         drilling of development wells and the production and sale of oil and
         gas from productive wells. The Company also provides the
         administration, accounting and tax preparation work for the
         Partnerships, and is liable for all debts and liabilities of the
         affiliated Partnerships, to the extent that the assets of a given
         limited Partnership are not sufficient to satisfy its obligations.

         The Company is subject to environmental laws and regulations.
         Management believes that future expenses, before recoveries from third
         parties, if any, will not have a material effect on the Company's
         financial condition. This opinion is based on expenses incurred to date
         for remediation and compliance with laws and regulations which have not
         been material to the Company's results of operations.

         As a general partner, the Company is committed to offer to purchase the
         limited partners' interest in certain of its managed Partnerships at
         various annual intervals. Under the terms of a partnership agreement,
         the Company is not obligated to purchase an amount greater than 10% of
         the total partnership interest outstanding. In addition, the Company
         will be obligated to purchase interests tendered by the limited
         partners only to the extent of one hundred fifty (150) percent of the
         revenues received by it from such partnership in the previous year.
         Purchase prices are based upon annual reserve reports of independent
         petroleum engineering firms discounted by a risk factor. Based upon
         historical production rates and prices, management estimates that if
         all such offers were to be accepted, the maximum annual future purchase
         commitment would be approximately $500,000.

7.       STOCK OPTIONS AND OTHER COMPENSATION

         In May 1989, non-statutory stock options were granted by the Company to
         four key executive officers for the purchase of shares of common stock.
         Such options are exercisable, on a cumulative basis, as to twenty
         percent of the shares subject to option in each year, beginning one
         year after the granting of the option. At December 31, 1999 and 1998,
         options on 802,500 shares were outstanding and exercisable at prices
         ranging from $1.00 to $1.25 per share.

         On January 27, 1983, the Company adopted the 1983 Incentive Stock
         Option Plan. At December 31, 1999 and 1998, options on 103,000 and
         111,000 were exercisable at $1.50 per share, respectively, and no
         additional shares were available for granting.

         PEMC has a marketing agreement with its current President to provide
         assistance and advice to PEMC in connection with the organization and
         marketing of oil and gas partnerships and joint ventures and other
         investment vehicles of which PEMC is to serve as general or managing
         partner. The Company had a similar agreement with its former Chairman.
         Although that agreement has expired, the former Chairman is still
         entitled to receive certain payments relating to partnerships formed
         during the time the agreement was in effect. The President is entitled
         to a percentage of the Company's carried interest depending on total
         capital raised and annual performance of the Partnerships and joint
         ventures.


                                      F-12
<PAGE>   27
                    PRIMEENERGY CORPORATION and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

                                    ---------

8.       INCOME TAXES

         The components of the provision for income taxes for the years ended
         December 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                               1999             1998
                             ---------        ---------
<S>                          <C>              <C>
Federal:
    Current                  $  32,000        $ (89,000)
    Deferred                        --          (11,000)
State:
    Current                     37,000            7,000
    Deferred                   (39,000)         (90,000)
                             ---------        ---------
Total                        $  30,000        $(183,000)
                             =========        =========
</TABLE>

         The components of net deferred tax assets (liabilities) are as follows:

<TABLE>
<CAPTION>
                                                          December 31,   December 31,
                                                             1999           1998
                                                          ------------   ------------
<S>                                                       <C>            <C>
Current assets:
     Compensation and benefits                            $   103,000    $   120,000
     Allowance for doubtful accounts                            8,000          9,000
     Less, valuation allowance                               (111,000)      (111,000)
                                                          -----------    -----------
                                                                   --         18,000
                                                          -----------    -----------
Noncurrent assets:
     Depreciation                                             215,000        836,000
     Due from related parties reserve                         312,000        316,000
     Federal net operating loss carryforwards                 758,000        862,000
     State net operating loss                                  51,000             --
     Percentage depletion carryforwards                     1,016,000      1,033,000
     Alternative minimum tax credits                          716,000        685,000
     Less, valuation allowance                             (1,676,000)    (1,670,000)
                                                          -----------    -----------
                                                            1,392,000      2,062,000
                                                          -----------    -----------
Noncurrent liabilities:
     Basis differences relating to limited partnerships      (749,000)      (812,000)
     Depletion                                               (643,000)    (1,307,000)
                                                          -----------    -----------
                                                           (1,392,000)    (2,119,000)
                                                          -----------    -----------
Net deferred tax liabilities:                             $        --    $   (39,000)
                                                          ===========    ===========
</TABLE>


                                      F-13
<PAGE>   28

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

                                    ---------

         The total provision for income taxes for the years ended December 31,
         1999 and 1998 varies from the federal statutory tax rate as a result of
         the following:

<TABLE>
<CAPTION>
                                                            December 31,  December 31,
                                                               1999          1998
                                                            ------------  ------------
<S>                                                         <C>           <C>
            Expected tax benefit                              717,000       638,000
            State income tax, net of federal benefit            2,000        83,000
            Overaccrual of prior year refunds receivable      (30,000)           --
            Effect of valuation reserve against tax assets   (717,000)     (538,000)
                                                             --------      --------
            Tax benefit (expense)                             (30,000)      183,000
                                                             ========      ========
</TABLE>

         The Company had a federal net operating loss (NOL) for the tax year
         1998, and filed refund claims based on the carryback of this loss. It
         was originally estimated that the refunds to be received would total
         $72,000. The difference between this amount, which was accrued at
         December 31, 1998, and the actual refunds received in 1999 of $40,000
         is an expense in the current year.

         The Company has a current state tax liability primarily due to the
         profitability of its oil and gas producing properties in the state of
         Oklahoma, which requires that income from oil and gas activities in
         that state be allocated directly.

         The Company has approximately $2,229,464 of regular tax, and $1,855,000
         of alternative minimum tax net operating loss carryforwards. For both
         regular and alternative minimum tax purposes, $365,000 of these
         carryforwards will expire in each of the years 2000 through 2002, and
         the remainder of which will expire in the years 2013 and 2014. The
         Company also has NOL carryforwards in several of the states in which it
         does business. The entire amount of the company's net tax assets, both
         federal and state, have been fully reserved against as it is not clear
         that the Company will have future taxable income to offset with its
         various tax assets.

         The Company has percentage depletion carryforwards of approximately
         $2,811,000 for regular tax purposes and $2,507,000 for alternative
         minimum tax purposes. The Company has approximately $685,000 in
         alternative minimum tax credit carryforwards.

         Both the percentage depletion deductions and the alternative minimum
         tax credits may be carried forward indefinitely for tax purposes.

9.       SEGMENT INFORMATION AND MAJOR CUSTOMERS

         The Company operates in one industry - oil and gas exploration,
         development, operation and servicing. The Company's oil and gas
         activities are entirely in the continental United States.

         The Company sells its oil and gas production to a number of purchasers.
         While the Company is not dependent on any one purchaser of its
         production, oil and gas revenue in 1999 included sales to individual
         purchasers of $1,777,000 and $1,103,000 which represented approximately
         16 and 15%, respectively of the Company's total revenue from oil and
         gas sales in 1999. In 1998, sales to individual purchasers of
         $2,061,000 and $1,192,000 represented 18% and 11%, respectively, of the
         Company's total oil and gas revenue. The above sales were made under
         various contractual arrangements, some of which are month-to-month;
         however, the Company believes that these purchasers will continue to
         purchase oil and gas products and, if not, could be replaced by other
         purchasers.


                                      F-14
<PAGE>   29

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

                                    ---------

10.      RELATED PARTY TRANSACTIONS


         PEMC is a general partner in several oil and gas Partnerships in which
         certain directors have limited and general partnership interests. As
         the managing general partner in each of the Partnerships, PEMC receives
         approximately 5% to 12% of the net revenues of each Partnership as a
         carried interest in the Partnerships' properties.


         The Partnership agreements allow PEMC to receive management fees for
         various services to the Partnerships as well as a reimbursement for
         property acquisition and development costs incurred on behalf of the
         Partnerships and general and administrative overhead, which is reported
         in the statements of operations as administrative revenue.

         In 1991, the Company loaned approximately $325,000 at 12% interest to a
         real estate limited partnership in which a company director is a
         general partner. This loan is secured by a second mortgage on the
         underlying real estate in the partnership and the Company received a
         23% equity participation in the partnership. The loan agreement
         provides for interest payments on a quarterly basis provided the cash
         flow from operations of the limited partnership is sufficient to pay
         interest for the quarter. If cash flows are not sufficient, then the
         accrued interest is added to the principal. During 1999 and 1998, the
         Company received several loan payments from the borrower, and the
         amount due under the loan was reduced by approximately $28,000 in 1999
         and $10,000 in 1998. Amounts due, included in other non-current assets
         on the balance sheet, were $442,000 and $470,000 at December 31, 1999
         and 1998, respectively.

         Due to related parties at December 31, 1999 and December 31, 1998
         primarily represent receipts collected by the Company, as agent, from
         oil and gas sales net of expenses. The amount of such receipts due the
         affiliated Partnerships was $943,000 and $731,000 at December 31, 1999
         and 1998, respectively. Receivables from related parties consist of
         reimbursable general and administrative costs, lease operating expenses
         and reimbursements for property acquisitions, development, and related
         costs.

         In the fourth quarter of 1999, the Company purchased 41,800 shares of
         its common stock from the President's brother for an aggregate price of
         $209,000.

11.      RESTRICTED CASH AND CASH EQUIVALENTS

         Restricted cash and cash equivalents includes $1,854,000 and $1,080,000
         at December 31, 1999 and 1998, respectively, of cash primarily
         pertaining to unclaimed royalty payments. There were corresponding
         accounts payable recorded at December 31, 1999 and 1998 for these
         liabilities.

12.      SALARY DEFERRAL PLAN

         The Company maintains a salary deferral plan (the "Plan") in accordance
         with Internal Revenue Code Section 401(k), as amended. The Plan
         provides for discretionary and matching contributions which
         approximated $217,000 and $218,000 in 1999 and 1998, respectively.


                                      F-15
<PAGE>   30

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

                                    ---------

13.      ACCOUNTS PAYABLE

         A summary of accounts payable at December 31, 1999 and 1998 is as
         follows:

<TABLE>
<CAPTION>
                                                 1999         1998
                                              ----------   ----------
<S>                                           <C>          <C>
         Payables to unaffiliated interests   $7,851,000   $6,266,000
         Other                                    49,000       49,000
                                              ----------   ----------
                                              $7,900,000   $6,315,000
                                              ==========   ==========
</TABLE>

14.       EARNINGS PER SHARE

          Basic earnings per share are computed by dividing earnings available
          to common stockholders by the weighted average number of common shares
          outstanding during the period. Diluted earnings per share reflect per
          share amounts that would have resulted if dilutive potential common
          stock had been converted to common stock. The following reconciles
          amounts reported in the financial statements:

<TABLE>
<CAPTION>
                                                         Year Ended                                  Year Ended
                                                     December 31, 1999                           December 31, 1998
                                          ----------------------------------------    ----------------------------------------
                                             Net          Number of     Per Share        Net          Number of     Per Share
                                             Loss          Shares        Amount         Income         Shares         Amount
                                          -----------    -----------   -----------    -----------    -----------   -----------
<S>                                       <C>            <C>           <C>            <C>            <C>           <C>
          Net loss per
             common share                 $(2,138,000)     4,423,838   $     (0.48)   $(1,692,000)     4,471,201   $     (0.38)
          Effect of dilutive securities:
             Options (1)                           --             --            --             --             --            --
                                          -----------    -----------   -----------    -----------    -----------   -----------

          Diluted net loss
            per common share              $(2,138,000)     4,423,838   $     (0.48)   $(1,692,000)     4,471,201   $     (0.38)
                                          ===========    ===========   ===========    ===========    ===========   ===========
</TABLE>

         (1) For the years ended December 31, 1999 and 1998, the number of
         options excluded from diluted loss per common share calculations were
         706,604 and 771,186, respectively, as the conversion of these would
         have had an anti-dilutive effect on net loss per share.


                                      F-16
<PAGE>   31
                    PRIMEENERGY CORPORATION and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued

                                    ---------

15.      SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                 Year Ended
                                December 31,      Fourth           Third         Second           First
                                    1999          Quarter         Quarter        Quarter         Quarter
<S>                             <C>             <C>             <C>            <C>             <C>
Revenue                         $ 25,520,000    $  7,574,000    $  6,512,000   $  6,120,000    $  5,314,000

Operating income (loss)           (2,116,000)     (1,623,000)             --         (3,000)       (490,000)

Net income (loss)                 (2,138,000)     (1,691,000)          2,000          1,000        (450,000)

Net income (loss) per common
share                           $      (0.48)   $      (0.38)   $        .00   $        .00    $       (.10)

Diluted net income (loss) per
common share                    $      (0.48)   $      (0.38)   $        .00   $        .00    $       (.10)
</TABLE>


<TABLE>
<CAPTION>
                                 Year Ended
                                December 31,      Fourth           Third         Second           First
                                    1998          Quarter         Quarter        Quarter         Quarter
<S>                             <C>             <C>             <C>            <C>             <C>
Revenue                         $ 24,795,000    $  5,837,000    $  6,208,000   $  6,573,000    $  6,177,000

Operating income (loss)           (2,061,000)     (2,379,000)         12,000        221,000          85,000

Net income (loss)                 (1,692,000)     (2,037,000)         11,000        207,000         127,000

Net income (loss) per common
share                           $      (0.38)   $      (0.46)   $        .00   $        .05    $        .03

Diluted net income (loss) per
common share                    $      (0.38)   $      (0.46)   $        .00   $        .04    $        .02
</TABLE>


                                      F-17
<PAGE>   32

                    PRIMEENERGY CORPORATION AND SUBSIDIARIES

                            SUPPLEMENTARY INFORMATION

                                   ----------

                                   (UNAUDITED)


                                      F-18
<PAGE>   33

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

         CAPITALIZED COSTS RELATING to OIL and GAS PRODUCING ACTIVITIES

                           December 31, 1999 and 1998

                                    ---------

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                 1999          1998
                                                              -----------   -----------
<S>                                                           <C>           <C>
Developed oil and gas properties                              $49,249,000   $40,582,000
Undeveloped oil and gas properties                                235,000     1,284,000
                                                              -----------   -----------

                                                               49,484,000    41,866,000

Accumulated depreciation, depletion and valuation allowance    32,342,000    25,077,000
                                                              -----------   -----------

         Net capitalized costs                                $17,142,000   $16,789,000
                                                              ===========   ===========
</TABLE>


               COSTS INCURRED in OIL and GAS PROPERTY ACQUISITION,
                     EXPLORATION and DEVELOPMENT ACTIVITIES

                     Years ended December 31, 1999 and 1998

                                    ---------

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                  1999         1998
                                                              -----------   -----------
<S>                                                           <C>           <C>
Acquisition of properties:
         Developed                                            $ 3,042,000   $   870,000
         Undeveloped                                              189,000     1,310,000

Exploration costs, excluding valuation allowance                  806,000     1,484,000

Development costs                                               4,473,000     2,718,000
</TABLE>


              See accompanying notes to supplementary information.


                                      F-19
<PAGE>   34

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

                    STANDARDIZED MEASURE of DISCOUNTED FUTURE
             NET CASH FLOWS RELATING to PROVED OIL and GAS RESERVES

                     years ended December 31, 1999 AND 1998

                                    ---------

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                            1999             1998
                                                        -------------    -------------
<S>                                                     <C>              <C>
Future cash inflows                                     $ 100,177,000    $  49,136,000

Future production and development costs                   (58,807,000)     (27,931,000)

Future income tax expenses                                 (4,229,000)        (986,000)
                                                        -------------    -------------

         Future net cash flows                             37,141,000       20,219,000

10% annual discount for estimated timing of cash flow     (13,281,000)      (6,938,000)
                                                        -------------    -------------
         Standardized measure of discounted
           future net cash flow                         $  23,860,000    $  13,281,000
                                                        =============    =============
</TABLE>


              See accompanying notes to supplementary information.


                                      F-20
<PAGE>   35

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

                    STANDARDIZED MEASURE of DISCOUNTED FUTURE
                   NET CASH FLOWS and CHANGES THEREIN RELATING
                         to PROVED OIL and GAS RESERVES

                     years ended December 31, 1999 and 1998

                                    ---------

                                   (Unaudited)


The following are the principal sources of change in the standardized measure of
discounted future net cash flows during 1999 and 1998

<TABLE>
<CAPTION>
                                                               1999            1998
                                                           ------------    ------------
<S>                                                        <C>             <C>
Sales of oil and gas produced, net of production costs     $ (5,458,000)   $ (4,659,000)
Net changes in prices and production costs                    3,192,000      (8,728,000)
Extensions, discoveries and improved recovery,
         less recovery costs                                  6,188,000       9,057,000
Revisions of previous quantity estimates                      2,178,000      (3,482,000)
Reserves purchases, net of development costs                  4,818,000         984,000
Net change in development costs                                 150,000         (33,000)

Reserves sold                                                        --      (3,527,000)


Accretion of discount                                         1,328,000       2,069,000

Net change in income taxes                                   (1,973,000)        769,000
Other                                                           156,000         138,000
                                                           ------------    ------------

         Net change                                          10,579,000      (7,412,000)

Standardized measure of discounted future net cash flow:

         Beginning of year                                   13,281,000      20,693,000
                                                           ------------    ------------
         End of year                                       $ 23,860,000    $ 13,281,000
                                                           ============    ============
</TABLE>


               See accompanying notes to supplementary information


                                      F-21
<PAGE>   36

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

                          RESERVE QUANTITY INFORMATION

                     years ended December 31, 1999 and 1998

                                    ---------

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                        1999                          1998
                                             --------------------------    --------------------------
                                                 Gas           Oil             Gas           Oil
                                                (Mcf)         (bbls.)         (Mcf)         (bbls.)
                                             -----------    -----------    -----------    -----------
<S>                                          <C>            <C>            <C>            <C>
Proved developed and undeveloped reserves:
         Beginning of year                    17,341,000      1,200,000     16,661,000      1,441,000
         Extensions, discoveries
            and improved recovery              1,732,000        554,000      5,993,000         80,000
         Revisions of previous
            estimates                          1,853,000        346,000     (1,125,000)      (103,000)
         Sales                                        --             --     (2,047,000)       (28,000)
         Purchases                             4,565,000        274,000      1,480,000         87,000
         Production                           (3,289,000)      (264,000)    (3,621,000)      (277,000)
                                             -----------    -----------    -----------    -----------

         End of year                          22,202,000      2,110,000     17,341,000      1,200,000
                                             ===========    ===========    ===========    ===========

Proved developed reserves                     22,046,000      2,110,000     17,341,000      1,122,000
                                             ===========    ===========    ===========    ===========
</TABLE>


               See accompanying notes to supplementary information


                                      F-22
<PAGE>   37

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

           RESULTS of OPERATIONS from OIL and GAS PRODUCING ACTIVITIES

                     years ended December 31, 1999 and 1998

                                    ---------

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                            1999            1998
                                                        ------------    ------------
<S>                                                     <C>             <C>
Revenue:
         Oil and gas sales                              $ 11,763,000    $ 11,354,000
                                                        ------------    ------------

Costs and expenses:
         Lease operating expense                           6,305,000       6,695,000
         Exploration costs                                   869,000       1,706,000
         Depreciation and depletion                        4,581,000       6,038,000
         Write down of oil and gas properties              2,703,000              --
         Income tax (benefit) expense                         30,000        (183,000)
                                                        ------------    ------------
                                                          14,488,000      14,256,000
                                                        ------------    ------------

Results of operations from producing activities
    (excluding corporate overhead and interest costs)   $ (2,725,000)   $ (2,902,000)
                                                        ============    ============
</TABLE>


               See accompanying notes to supplementary information


                                      F-23
<PAGE>   38

                    PRIMEENERGY CORPORATION and SUBSIDIARIES

                       NOTES to SUPPLEMENTARY INFORMATION

                                    ---------

                                   (Unaudited)


1.       PRESENTATION OF RESERVE DISCLOSURE INFORMATION

         Reserve disclosure information is presented in accordance with the
         provisions of Statement of Financial Accounting Standards No. 69 ("SFAS
         69"), "Disclosures About Oil and Gas Producing Activities".

2.       DETERMINATION OF PROVED RESERVES

         The estimates of the Company's proved reserves were determined by an
         independent petroleum engineer in accordance with the provisions of
         SFAS 69. The estimates of proved reserves are inherently imprecise and
         are continually subject to revision based on production history,
         results of additional exploration and development and other factors.
         Estimated future net revenues were computed by reserves, less estimated
         future development and production costs based on current costs.

3.       RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES

         The results of operations from oil and gas producing activities were
         prepared in accordance with the provisions of SFAS 69. General and
         administrative expenses, interest costs and other unrelated costs are
         not deducted in computing results of operations from oil and gas
         activities.

4.       STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND
         CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES

         The standardized measure of discounted future net flows relating oil
         and gas reserves and the changes of standardized measure of discounted
         future net cash flows relating to proved oil and gas reserves were
         prepared in accordance with the provisions of SFAS 69.

         Future cash inflows are computed as described in Note 2 by applying
         current prices to year-end quantities of proved reserves.

         Future production and development costs are computed estimating the
         expenditures to be incurred in developing and producing the oil and gas
         reserves at year-end, based on year-end costs and assuming continuation
         of existing economic conditions.

         Future income tax expenses are calculated by applying the year-end U.S.
         tax rate to future pre-tax cash inflows relating to proved oil and gas
         reserves, less the tax basis of properties involved. Future income tax
         expenses give effect to permanent differences and tax credits and
         allowances relating to the proved oil and gas reserves.

         Future net cash flows are discounted at a rate of 10% annually
         (pursuant to SFAS 69) to derive the standardized measure of discounted
         future net cash flows. This calculation does not necessarily represent
         an estimate of fair market value or the present value of such cash
         flows since future prices and costs can vary substantially from
         year-end and the use of a 10% discount figure is arbitrary.


                                      F-24
<PAGE>   39
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>
3.1            Restated Certificate of Incorporation of PrimeEnergy Corporation
               (filed herewith)

3.2            Bylaws of PrimeEnergy Corporation. (filed herewith)

21             Subsidiaries

23             Consent of Ryder Scott Company, L.P. (filed herewith)

27             Financial Data Schedule (filed herewith)
</TABLE>