<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q



/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________


                           COMMISSION FILE NO. 1-12334


                          FORTUNE PETROLEUM CORPORATION
                    Doing business in Texas and Louisiana as
                      FORTUNE NATURAL RESOURCES CORPORATION
             (Exact Name of Registrant as specified in its charter)


             Delaware                                     95-4114732
   (State or other jurisdiction of                     (I.R.S. Employer
    incorporation or organization)                    Identification No.)

 One Commerce Green, 515 W. Greens Rd.,
       Suite 720, Houston, Texas                             77067
(Address of Principal Executive Offices)                  (Zip Code)



                                  281-872-1170
                            -------------------------
                            Issuer's telephone number


                                       N/A
              (Former name, former address and former fiscal year,
                          if changed since last report)



Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes x ______ No ___


Applicable only to corporate issuers:

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
                         12,123,917 as of April 30, 1997

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



<PAGE>

<TABLE>
<CAPTION>

                          FORTUNE PETROLEUM CORPORATION
                                 BALANCE SHEETS

                                     ASSETS
                                                                           March 31,        December 31,
                                                                             1997              1996
                                                                         ------------       ------------
                                                                          (Unaudited)        (Audited)
<S>                                                                      <C>                <C>
CURRENT ASSETS:
    Cash and cash equivalents .....................................      $  1,753,000       $  2,174,000
    Accounts receivable ...........................................           553,000            695,000
    Prepaid expenses ..............................................             7,000             25,000
                                                                         ------------       ------------
        Total Current Assets ......................................         2,313,000          2,894,000
                                                                         ------------       ------------

PROPERTY AND EQUIPMENT:
    Oil and gas properties, accounted for
      using the full cost method ..................................        23,775,000         23,079,000
    Automotive, office and other ..................................           387,000            375,000
                                                                         ------------       ------------
                                                                                              24,162,000
                                                                                              23,454,000
    Less--accumulated depletion, depreciation and amortization ....       (13,229,000)       (12,545,000)
                                                                         ------------       ------------

                                                                           10,933,000         10,909,000
OTHER ASSETS:
    Materials, supplies and other .................................           122,000            188,000
    Bond issuance costs (net of accumulated
      amortization of $266,000 and $238,000 at March 31, 1997
      and December 31, 1996, respectively) ........................            23,000             51,000
    Restricted cash ...............................................         2,238,000          2,293,000
                                                                         ------------       ------------
                                                                            2,383,000          2,532,000

TOTAL ASSETS ......................................................      $ 15,629,000       $ 16,335,000
                                                                         ============       ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                           March 31,        December 31,
                                                                             1997              1996
                                                                         ------------       ------------
CURRENT LIABILITIES:
    Current portion of long term debt .............................      $  2,034,000       $  2,253,000
    Accounts payable ..............................................            58,000             84,000
    Accrued expenses ..............................................           180,000             77,000
    Royalties and working interests payable .......................            50,000            103,000
    Accrued interest ..............................................            35,000            101,000
                                                                         ------------       ------------
        Total Current Liabilities .................................         2,357,000          2,618,000
                                                                         ------------       ------------

LONG-TERM DEBT,  net of current portion ...........................                --            680,000
                                                                         ------------       ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
    Preferred stock, $1.00 par value:
        Authorized--2,000,000 shares
        Issued and outstanding--None ..............................                --                 --
    Common stock, $.01 par value :
        Authorized--40,000,000 shares
        Issued and outstanding 12,123,918 and
        11,853,663 at March 31, 1997 and
        December 31, 1996, respectively ...........................           121,000            119,000
    Capital in excess of par value ................................        30,269,000         29,273,000
    Accumulated deficit ...........................................       (17,118,000)       (16,355,000)
                                                                         ------------       ------------
NET STOCKHOLDERS' EQUITY ..........................................        13,272,000         13,037,000
                                                                         ------------       ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................      $ 15,629,000       $ 16,335,000
                                                                         ============       ============
</TABLE>


                           See accompanying notes to financial statements.

                                       2
<PAGE>

<TABLE>
<CAPTION>
                          FORTUNE PETROLEUM CORPORATION
                            STATEMENTS OF OPERATIONS

                                                              For the Three Months Ended
                                                             ----------------------------
                                                              March 31,         March 31,
                                                                 1997              1996*
                                                             ------------    ------------
                                                                     (Unaudited)
<S>                                                          <C>             <C>
REVENUES
    Sales of oil and gas, net of royalties ...............   $  1,113,000    $  1,225,000
    Other income .........................................         52,000          65,000
                                                             ------------    ------------
                                                                1,165,000       1,290,000

COSTS AND EXPENSES
    Production and operating .............................        193,000         285,000
    Provision for depletion, depreciation and amortization        484,000         432,000
    Impairment to oil and gas properties .................        200,000              --
    General and administrative ...........................        553,000         526,000
    Office relocation and severance ......................             --         105,000
    Debt conversion expense ..............................        316,000              --
    Stock offering cost ..................................        114,000              --
    Interest .............................................         68,000         120,000
                                                             ------------    ------------
                                                                1,928,000       1,468,000

LOSS BEFORE PROVISION FOR INCOME TAXES ...................       (763,000)       (178,000)
PROVISION FOR INCOME TAXES ...............................             --              --

NET LOSS .................................................   $   (763,000)   $   (178,000)
                                                             ============    ============

WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING ..............................     11,974,443      11,168,624
                                                             ============    ============

NET LOSS PER COMMON SHARE ................................   $      (0.06)   $      (0.02)
                                                             ============    ============

</TABLE>

*Restated

                           See accompanying notes to financial statements.

                                       3
<PAGE>
<TABLE>
<CAPTION>

                          FORTUNE PETROLEUM CORPORATION
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                      FOR THE YEAR ENDED DECEMBER 31, 1996
                    AND THE THREE MONTHS ENDED MARCH 31, 1997


                         
                                        Common Stock          Capital in
                                    -----------------------    Excess of     Accumulated
                                       Shares      Amount      Par Value      Deficit          Net
                                    ----------   ----------   -----------   ------------   -----------

<S>                                 <C>          <C>          <C>           <C>            <C>
BALANCE, January 1, 1996*.........  11,139,709   $  111,000   $27,228,000   $(15,025,000)  $12,314,000

Common stock issued for
   exercise of stock options......      46,150        1,000       114,000              -       115,000
Common stock issued for
   exercise of warrants...........     255,638        3,000       813,000              -       816,000
Common stock issued for
   directors' fees................       1,395            -         4,000              -         4,000
Common stock canceled and
   stock issuance cost............      (1,227)           -       (31,000)             -       (31,000)
Common stock issued for
   stock offerings................     412,000        4,000     1,145,000              -     1,149,000
Common stock returned to treasury.          (2)           -             -              -             -
Net loss..........................           -            -             -     (1,330,000)   (1,330,000)
                                    ----------   ----------   -----------   ------------   ----------- 

BALANCE, December 31, 1996........  11,853,663   $  119,000   $29,273,000   $(16,355,000)  $13,037,000
                                    ----------   ----------   -----------   ------------   -----------

Common stock issued for
   exercise of stock options......       6,400            -        18,000              -        18,000
Common stock issued for
   exercise of warrants...........      45,000            -        89,000              -        89,000
Common stock issued in exchange
   for debentures, net of
   offering costs                      218,858        2,000       889,000              -       891,000
Common stock returned to treasury.          (3)           -             -              -             -
Net loss..........................           -            -             -       (763,000)     (763,000)
                                    ----------   ----------   -----------   ------------   ----------- 

BALANCE, March 31, 1997 (unaudited) 12,123,918   $  121,000   $30,269,000   $(17,118,000)  $13,272,000
                                    ==========   ==========   ===========   ============   ===========

</TABLE>


*Restated
                          See accompanying notes to financial statements.

                                       4
<PAGE>
<TABLE>
<CAPTION>
                          FORTUNE PETROLEUM CORPORATION
                            STATEMENTS OF CASH FLOWS


                                                                     For the Three Months Ended
                                                                     --------------------------
                                                                      March 31,      March 31,
                                                                        1997           1996*
                                                                     -----------    -----------
                                                                              (Unaudited)
<S>                                                                  <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss .....................................................   $  (763,000)   $  (178,000)
    Adjustments to reconcile net loss to net
      cash provided by operating activities:
        Common stock issued for directors' fees ..................            --          5,000
        Depletion, depreciation and amortization .................       484,000        432,000
        Non-cash compensation expense ............................         5,000             --
        Amortization of deferred financing cost ..................        14,000         19,000
        Impairment of oil and gas assets .........................       200,000             --
        Debt conversion expense ..................................       316,000             --
        Stock offering cost ......................................       114,000             --
    Changes in assets and liabilities:
        Accounts receivable ......................................       142,000        (55,000)
        Prepaids .................................................        18,000         64,000
        Accounts payable and accrued expenses ....................        78,000         86,000
        Royalties and working interest payable ...................       (53,000)       (42,000)
        Accrued interest .........................................       (66,000)       (64,000)
                                                                     -----------    -----------
    Net cash provided by operating activities ....................       489,000        267,000
                                                                     -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Expenditures for oil and gas properties ......................      (899,000)      (619,000)
    Restricted cash used .........................................        55,000        246,000
    Proceeds from sale of properties and equipment ...............       203,000      1,621,000
    Expenditures for other property and equipment and other assets        (8,000)
                                                                                    -----------
                                                                                       (193,000)
    Net cash provided by used in investing activities ............      (649,000)     1,055,000
                                                                     -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Repayment of long term debt ..................................      (225,000)    (1,304,000)
    Proceeds from issuance of common stock .......................       103,000         71,000
    Expenditures for debenture exchange and stock offering .......      (139,000)       (27,000)
                                                                     -----------    -----------
    Net cash used in financing activities ........................      (261,000)    (1,260,000)
                                                                     -----------    -----------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS ...........................................      (421,000)        62,000

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...................     2,174,000      1,888,000
                                                                     -----------    -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD .........................   $ 1,753,000    $ 1,950,000
                                                                     ===========    ===========
Supplemental information:
    Interest paid in cash ........................................   $    54,000    $   102,000
Non-cash transactions
    Common stock issued or issuable as directors' fees ...........            --          5,000
    Common stock issued for conversion of debt ...................       975,000             --

</TABLE>


*Restated

                 See accompanying notes to financial statements

                                       5
<PAGE>


                          FORTUNE PETROLEUM CORPORATION
                         PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                          NOTES TO FINANCIAL STATEMENTS
                                 March 31, 1997


(1)   LINE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES AND PROCEDURES

      The condensed  financial  statements at March 31, 1997,  and for the three
months then ended  included  herein have been  prepared by the Company,  without
audit,  pursuant to the Rules and  Regulations  of the  Securities  and Exchange
Commission.  Certain information and footnote  disclosures  normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles   have  been  condensed  or  omitted   pursuant  to  such  Rules  and
Regulations,  although the Company believes that the disclosures are adequate to
make  the  information  presented  not  misleading.  These  condensed  financial
statements  should be read in conjunction with the financial  statements and the
notes  thereto  included in the  Company's  latest annual report on Form 10-K/A.
Certain  reclassifications  have been made to prior period amounts to conform to
presentation in the current period. In the opinion of the Company, the financial
statements  reflect  all  adjustments,   consisting  only  of  normal  recurring
adjustments,  necessary  to present  fairly the  financial  position  of Fortune
Petroleum Corporation as of March 31, 1997 and December 31, 1996, the results of
its operations for the three months ended March 31, 1997 and March 31, 1996, and
cash flows for the three  months  ended March 31, 1997 and March 31,  1996.  The
results  of  the  operations  for  such  interim  periods  are  not  necessarily
indicative of the results for the full year.

      In the  fourth  quarter  of  1996,  the  Company  changed  its  method  of
accounting  for oil and gas operations  from the successful  efforts to the full
cost method.  All prior year  financial  statements  presented  herein have been
restated to reflect the change.


(2)   LONG TERM DEBT

      At March 31, 1997, a summary of long-term debt is as follows:

<TABLE>
<CAPTION>

                                                                   March 31,      December 31,
                                                                     1997            1996
                                                                 -----------      -----------
      <S>                                                       <C>               <C>
      Convertible  Subordinated  Debentures  of  $1,725,000
        (net of discount of $19,000 and  $57,000) due
        December  31,  1997,  including  interest of 10-1/2%
        per annum paid semi-annually.........................   $ 1,009,000       $ 1,683,000

      Bank One credit facility due October 1, 1997 including
        interest at 1-1/2% over Bank One, Texas, NA's
        prime rate payable monthly...........................     1,025,000         1,250,000
                                                                -----------       -----------

      Total long-term debt...................................     2,034,000         2,933,000
      Less current installments..............................     2,034,000         2,253,000
                                                                -----------       -----------

      Long-term debt, excluding current installments.........   $         -       $   680,000
                                                                ===========       ===========
</TABLE>

      The 10-1/2% Convertible Subordinated Debentures due December 31, 1997 bear
an  effective  interest  rate of 12.13% and are  convertible  into shares of the
Company's  Common Stock, at a conversion  price of $6.32 per share or 158 shares
per Debenture.  On,  February 26, 1997, the Company closed an Exchange Offer for
these Debentures which resulted in $697,000 ($680,000 net of discount) principal
amount of Debentures  being  converted to 218,858  shares of Common  Stock.  The
Company also issued 174,250 Common Stock  Warrants to the  Debentureholders  who
exchanged their  Debentures in connection  with the Exchange  Offer.  The Common
Stock Warrants are  exercisable  for a period of three years,  one-half at $4.00
per share and one-half at $5.00 per share.  Subsequent  to the  conversion,  the
remaining  balance due on the  Debentures  at December  31, 1997 is  $1,028,000.
Furthermore,


                                       6
<PAGE>

the Company recorded a non-cash debt conversion expense of $316,000
during  the  first  quarter  of  1997.  The  non-cash  debt  conversion  expense
represents  the  difference  between the fair market  value of all of the Common
Stock and Common Stock Warrants issued in connection with the Exchange Offer and
the fair market  value of the lower  number of Common Stock that could have been
issued upon the  conversion of the Debentures  under the Indenture  prior to the
Exchange  Offer.  For  purposes of  calculating  the  non-cash  debt  conversion
expense,  the  Company  valued  the  218,858  shares of Common  Stock  issued in
connection  with the Exchange Offer at $547,502  ($2.625 per share) based on the
closing price of the Common Stock on the American Stock Exchange on February 26,
1997. The Company estimated the value of the Common Stock Warrants issued to the
Debentureholders  at $8,713  ($0.05 per warrant).  As of December 31, 1996,  the
Company classified,  as long term liabilities,  the portion, net of discount, of
the Debentures that were converted to Common Stock in the Exchange Offer.

      The amount the Company may borrow  under the Bank One,  Texas,  N.A.  (the
Bank) credit  facility is determined by the borrowing  base as calculated by the
Bank  semi-annually  on the basis of the  Company's  oil and gas  reserves.  The
credit facility contains various financial  covenants,  is secured by all of the
Company's  oil and gas  producing  properties  and  currently  requires  monthly
principal  payments  of $75,000.  The  Company is not able to borrow  additional
amounts under the credit  facility  because the Bank has set the borrowing  base
equal to the loan balance,  which declines by $75,000 per month. At May 9, 1997,
the remaining balance owed on the credit facility was $875,000.

      All of the Company's outstanding debt is due in 1997.


(3)   INCOME TAX EXPENSE

      No  provision  for income  taxes was  required  for the three months ended
March 31, 1997.

      At March 31, 1997,  the Company  estimates it had cumulative net operating
loss  carryforwards  for federal  income tax purposes of $13.2 million which are
significantly   restricted  under  IRC  Section  382.  These  carryforwards  are
available  to  offset  future  federal  taxable  income,  if any,  with  various
expirations  through 2010. The Company is uncertain as to the  recoverability of
the above  deferred  tax  assets  and has  therefore  applied  a 100%  valuation
allowance.

      The Company has  available  IRC Section 29 Tax Credits that may be used to
reduce  or  eliminate  any  corporate  taxable  income in  future  years.  It is
uncertain at this time to what extent the Company will be able to utilize  these
federal tax credits,  as their utilization is dependent upon the amount, if any,
of future  federal income tax incurred,  after  application of the Company's net
operating loss carryforwards.


(4)   LEGAL PROCEEDINGS

      There are no  pending  material  legal  proceedings  involving  any of the
Company's  properties  or which  involve a claim for damages which exceed 10% of
the Company's current assets.

      On March 26, 1996,  Fortune was served with a lawsuit which had been filed
in the Federal  District  Court in Delaware by one of the  purchasers of Fortune
Common Stock in an offering in December 1995 under Regulation S. Under the terms
of the  subscription  agreement  pursuant to which the  plaintiff  acquired  his
shares,  he was entitled to receive  additional  shares of Fortune  stock if the
market price fell below a stated level during a specified  period  following the
40-day holding period prescribed by Regulation S. Fortune  vigorously  contested
this  action,  believing  that  plaintiff  either  participated  in a scheme  to
unlawfully  manipulate  the market price of the Common  Stock or benefited  from
such  manipulation  by others.  On February 3, 1997,  the plaintiff  voluntarily
dismissed the complaint without  prejudice,  and the court ordered the return to
Fortune of shares of Common Stock which had been voluntarily placed in escrow by
Fortune. Management does not anticipate that the action will be refiled.

      On April 16, 1996,  Fortune was advised that similar  suits had been filed
in Federal  District Court in New York by two other buyers in the same offering.
Fortune  responded  to the suits,  admitting  that the stock price  declined but
alleged that suspicious  trading activity in Fortune stock occurred  immediately
prior to and during the time period in which the additional-share allocation was
computed.  Fortune  believes  that it has  discovered  evidence of active market
manipulation  in the  Common  Stock by  these  plaintiffs;  accordingly,  it has
commenced a countersuit for damages suffered by the Company and its shareholders
as a result of these acts.  Fortune intends to continue to vigorously defend the
remaining litigation.

                                       7
<PAGE>

(5)   COMPUTATION OF LOSS PER SHARE

      Primary  loss per common  share is computed  by  dividing  net loss by the
weighted  average  number of common and common  equivalent  shares  outstanding.
Common  equivalent  shares are shares  which may be  issuable  upon  exercise of
outstanding  stock options and warrants;  however,  they are not included in the
computation for the three month period ended March 31, 1997 since they would not
have a dilutive effect on earnings per share.

      Fully  diluted  earnings  per common  share are not  presented,  since the
conversion of the Company's 10-1/2%  Convertible  Subordinated  Debentures would
have an anti-dilutive effect.


(6)   COMMITMENTS AND CONTINGENCIES

      In July 1996, the Company received invoices from AMPOLEX (USA),  Inc., the
current  operator of the Company's New Mexico  properties,  billing  Fortune for
$232,805 of outstanding  accounts  receivable  attributable to two other working
interest owners in the properties which the operator failed to collect from such
owners. The Company reviewed this matter and determined that it does not owe any
portion of such amounts.  AMPOLEX  (USA),  Inc. has notified the Company that it
concurs with the Company's position and will not pursue the matter further.

(7)   IMPAIRMENT TO OIL AND GAS PROPERTIES

      Had the Company used the oil and gas prices that it was  receiving for its
production  as of March 31, 1997 in its full cost  ceiling test as of that date,
the Company would have recorded an impairment to oil and gas  properties  during
the first  quarter of 1997 of  approximately  $450,000.  Oil and gas prices have
risen  since  March 31,  1997,  thereby  reducing  the amount on any  impairment
expense.  Accordingly,  the  Company  recorded  an  impairment  to oil  and  has
properties during the first quarter of 1997 of $200,000.


                                       8
<PAGE>

                          FORTUNE PETROLEUM CORPORATION


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS


COMPARISONS OF OPERATING  RESULTS FOR FIRST QUARTER OF 1997
TO THE FIRST QUARTER OF 1996.

      During  the first  quarter  of 1997,  Fortune  had a net loss of  $763,000
compared to a net loss of $178,000  for the same 1996  period.  The  increase in
loss in 1997 is primarily  attributable to the $316,000 non-cash debt conversion
expense  incurred in  connection  with closing the Company's  Exchange  Offer on
February 26, 1997 and a $200,000 non-cash impairment to oil and gas properties.

      Net  revenues  from sales of oil and gas  decreased  $112,000  (9%) in the
first  quarter of 1997,  compared to the same 1996 period.  1996  revenues  were
higher because they included revenues from the Company's  California  properties
that were sold in February and March 1996 and a higher ownership interest in the
producing  well at  South  Timbalier  Block 76 in 1996.  On March 8,  1996,  the
Company  sold  25% of its  interest  in the  South  Timbalier  Block 76 well for
$940,000 pursuant to a preexisting arrangement.  Furthermore, 1997 revenues were
adversely affected by shutting in the South Timbalier Block 76 well on March 24,
1997,  for a workover.  The  workover  has been  completed  and the well resumed
production on April 19, 1997. These production declines were partially offset by
significantly  higher oil and gas prices in 1997.  1997  revenues  were  further
helped by the  commencement  of production  at East Bayou Sorrel from  permanent
production  facilities  in  January  1997.  Development  drilling  is  currently
underway at this 1996 exploration discovery.

      Natural gas prices on the Company's  production averaged $3.04 per MCF for
the first quarter of 1997 as compared to $2.39 per MCF for the same 1996 period.
Oil prices  averaged $20.84 per barrel for the first quarter of 1997 compared to
$16.32 per barrel for the same 1996 period.

      Production and operating  expenses decreased by $92,000 (32%) in the first
quarter of 1997 as compared to 1996.  The decrease  results  primarily  from the
Company's sale of its high operating cost California properties in early 1996.

      In the first quarter of 1997, general and administrative expense increased
by $27,000 (5%) over 1996.  1997  general and  administrative  expense  includes
$129,000 of attorney's fees incurred in connection with the litigation discussed
in note 4 to the financial  statements  regarding a Regulation S stock offering.
The Company  incurred  non-recurring  office  relocation  and severance  cost of
$105,000 in the first quarter of 1996 in connection  with the Company's  move to
Houston.  In 1997,  the Company  expensed  $114,000 of costs  associated  with a
public offering that the Company withdrew on April 25, 1997.

      Interest expense  decreased by $52,000 (43%) for the first quarter of 1997
over 1996 due to the lower debt balance.  The Company's provision for depletion,
depreciation  and amortization  increased  $52,000 (12%) in the first quarter of
1997 as compared to 1996 because of higher  property costs and lower reserves in
1997.  The Company  incurred a $200,000  impairment to oil and gas properties in
the first quarter of 1997 as a result of lower oil and gas prices.


LIQUIDITY AND CAPITAL RESOURCES

      Fortune's  operating  cash flow increased for the first quarter of 1997 to
$489,000  as compared to  $267,000  for 1996.  This  increase in cash flow was a
result of lower  production and operating  expense and interest expense in 1997,
as discussed  above. The Company's  working capital,  which is net of all of the
Company's  outstanding  debt,  decreased  to a deficit of $44,000 as compared to
working  capital of $276,000 for  December 31, 1996.  One of the primary uses of
cash in the first  quarter of 1997 was a $357,000  acquisition  of an additional
interest in the East Bayou Sorrel producing field.

      Fortune's  internal  liquidity and capital resources in the near term will
consist  of  working  capital  and cash  flow  from its oil and gas  operations.
Because the  borrowing  base under the credit  facility is currently  set at the
outstanding  debt  balance,  the  Company is not able to borrow  any  additional
amounts at this time  under its credit  facility.  The  credit  facility  is due
October 1, 1997, at which date the loan balance would be $575,000  after payment
of the required monthly  principal  reductions.  Prior to that date, the Company
expects its borrowing base will be 


                                       9
<PAGE>

sufficient to allow the Company to extend the term of its credit facility
or refinance its debt with another lender. The Company has not received a
commitment from the bank to extend the term of the credit facility and there can
be no assurance that the term will be extended or that the Company will be able
to obtain other financing to replace the credit facility. The Company's
remaining outstanding Debentures of $1,028,000 ($1,009,000 net of discount) is
due December 31, 1997. In the event that the Company is unable to refinance and
extend all of its outstanding debt, the Company believes it will be able to
raise, through an equity or debt offering, sufficient cash to pay off all of its
debt prior to the due dates.

      Cash expenditures for oil and gas properties for the first quarter of 1997
were  $899,000  as  compared  to  $619,000  for  1996.  The first  quarter  1997
expenditures  includes the above mentioned $357,000 acquisition of an additional
interest at East Bayou Sorrel. During the first quarter of 1997, the Company was
participating  in the drilling of a development well at East Bayou Sorrel and an
exploratory well at South Lake Arthur. The development well is still in progress
as of the date  hereof.  Although  the  exploratory  well  may have  encountered
hydrocarbons in a shallower zone, the well was temporarily abandoned when it was
determined  that the deeper  primary  objective  was  faulted  out.  The working
interest  owners in the well are  evaluating  whether to attempt a completion in
the shallower zone.

      Fortune's net capital  expenditures for 1997 are currently estimated to be
approximately $2.5 million for its exploration and development  activities.  The
Company  intends to provide for these  expenditures  with its available cash and
its cash flow from operations. Should such funds not be available to the Company
as required  for timely  drilling,  the Company can reduce its working  interest
participation in the wells,  farm-out  additional  interests or, with respect to
the  Zydeco  joint  venture  projects,  put its  interest  back to Zydeco for an
overriding  royalty and  after-payout  working  interest.  Should the  Company's
working  interest in  exploration  projects be  reduced,  the Company  would not
derive as great a benefit in the event of an exploration success.

      Conditions  outside of the control of Fortune  influence the price Fortune
receives  for  oil  and  gas.  As of May 1,  1997,  the  Company  was  receiving
approximately  $18.00 per barrel as an average price for its oil  production and
$2.20 per MCF as an average price for its gas production.

      In  February  1997,  the  Financial   Accounting  Standards  Board  issued
Statement 128,  "Earnings Per Share" (Statement 128).  Statement 128 changes the
calculation  and  financial  statement   presentation  of  earnings  per  share.
Statement  128 will be effective  for  financial  statements  issued for periods
beginning  after December 15, 1997 and requires the  restatement of prior period
earnings  per share  amounts.  The Company does not believe that the adoption of
Statement  128 will have an impact on the loss per share  information  presented
herein.


FORWARD LOOKING STATEMENTS

      This Report on Form 10-Q contains  forward-looking  statements  within the
meaning of Section 27A of the Securities Act of 1933. Forward looking statements
include statements  regarding:  future oil and gas production and prices, future
exploration  and  development  spending,  future  drilling and operating  plans,
reserve and production  potential of the Company's  properties and prospects and
the Company's  strategy.  Actual events or results could differ  materially from
those discussed in the forward-looking statements as a result of various factors
including, without limitation, the factors set forth below and elsewhere in this
10-Q, and in the Company's annual report on Form 10-K/A.

      EXPLORATION  RISKS. The business of exploring for and, to a lesser extent,
of acquiring and developing oil and gas properties is an inherently  speculative
activity that involves a high degree of business and  financial  risk.  Although
available  geological and geophysical  information can provide  information with
respect to a  potential  oil or gas  property,  it is  impossible  to  determine
accurately the ultimate production  potential,  if any, of a particular property
or well.

      DEPENDENCE ON LIMITED NUMBER OF WELLS.  Over one-half of the Company's oil
and gas  revenues,  cash  flow and  proved  oil and gas  reserves  is  currently
accounted for by two wells, the South Timbalier Block 76 well and the East Bayou
Sorrel  well.  Although  the East  Bayou  Sorrel  well only began  producing  in
December  1996,  this field is  expected  to have a  significant  impact on 1997
operations.  The South Timbalier Block 76 well was recently  shut-in for repairs
and was  shut-in for over two months  during 1996 as the result of a  mechanical
failure.  A significant  curtailment or loss of production  from either of these
wells for a prolonged  period  before the  Company  could  replace the  reserves
through new discoveries or acquisitions  would have a material adverse effect on
the Company's projected operating results and financial condition in 1997.

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      VOLATILITY OF OIL AND GAS PRICES.  The Company's  revenues,  profitability
and future rate of growth are  substantially  dependent upon  prevailing  market
prices for natural gas and oil,  which can be  extremely  volatile and in recent
years have been depressed by excess domestic and imported supplies.

      UNCERTAINTY OF ESTIMATES OF PROVED RESERVES AND FUTURE NET REVENUES. There
are numerous  uncertainties inherent in estimating quantities of proved reserves
and  in  projecting  future  rates  of  production  and  timing  of  development
expenditures,  including  many  factors  beyond  the  control  of the  producer.
Estimating quantities of proved reserves is inherently imprecise. Such estimates
are based upon  certain  assumptions  about  future  production  levels,  future
natural gas and crude oil prices and future operating costs made using currently
available geologic engineering and economic data, some or all of which may prove
to be incorrect over time.

      OPERATING AND WEATHER HAZARDS. The cost and timing of drilling, completing
and  operating  wells  is  often  uncertain,  and  drilling  operations  may  be
curtailed,  delayed or canceled  as a result of a variety of factors,  including
unexpected drilling conditions,  equipment failures,  accidents, adverse weather
conditions,  encountering  unexpected  formations  or  pressures in drilling and
completion operations, corrosive or hazardous substances,  mechanical failure of
equipment, blowouts, cratering and fires, which could result in damage or injury
to, or destruction  of,  formations,  producing  facilities or other property or
could result in personal injuries, loss of life or pollution of the environment.

      ADDITIONAL  FACTORS.  Additional factors that could cause actual events to
vary from those  discussed  above and elsewhere in this annual  report  include,
among others:  loss of key company  personnel;  adverse  change in  governmental
regulation;  inability to obtain critical supplies and equipment,  personnel and
consultants; and inability to access capital to pursue the Company's plans.


                                       11
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                          FORTUNE PETROLEUM CORPORATION
                           PART II - OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K


(A)     EXHIBITS

        Exhibit No.   Description
        -----------   ----------------------------------------------------------

         27.1*        Financial Data Schedule
         99.1         Notes to Financial  Statements  included in the
                      Registrant's  Form 10-KSB  filed for the fiscal year ended
                      December 31, 1995 incorporated herein by reference.

(B)     REPORTS ON FORM 8-K / 8K-A

        A  report  on Form  8-K  dated  January  24,  1997  was  filed  with the
Securities and Exchange  Commission (the "Commission") to report the appointment
of a new director and a private placement of Common Stock.

        A  report  on Form 8-K  dated  February  18,  1997  was  filed  with the
Commission to report the dismissal of certain  litigation and the termination of
acquisition discussions on a proposed acquisition.

        A report on Form 8-K dated March 24, 1997 was filed with the  Commission
to report  that the  Company  entered  into the  Espiritu  Santo Bay 3D  Seismic
Project joint venture and to report a workover on the Company's  South Timbalier
Block 76 well.

        A report on Form 8-K dated  April 7, 1997 was filed with the  Commission
to report that the source of the problem which resulted in the workover at South
Timbalier Block 76 had been determined and remedial work was underway.

        A report on Form 8-K dated April 18, 1997 was filed with the  Commission
to report the suspension of drilling on the South Lake Arthur exploratory well.


*Filed herewith.


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                          FORTUNE PETROLEUM CORPORATION

                                   SIGNATURES


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

                                FORTUNE PETROLEUM CORPORATION



                                By:  /s/ TYRONE J. FAIRBANKS
                                     -------------------------------------------
                                     Tyrone J. Fairbanks
                                     President and Chief Executive Officer




                                By:  /s/ J. MICHAEL URBAN
                                     -------------------------------------------
                                     J. Michael Urban
                                     Vice President and Chief Financial
                                        and Accounting Officer


Date:  May 14, 1997


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