<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 205-49

                                   FORM 20-F
(Mark one)

[ ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [FEE REQUIRED]
                                       OR

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934 [FEE REQUIRED]
                       For the year ended April 30, 1997

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


                             ALLIANCE RESOURCES PLC
             (Exact name of Registrant as specified in its charter)

              UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND
                (Jurisdiction of incorporation or organisation)
                                KINGSBURY HOUSE
                               15-17 KING STREET
                                     LONDON
                                    SW1Y 6QU
                                 UNITED KINGDOM
                    (Address of principal executive office)

 Securities registered or to be registered pursuant to Section 12(b) of the Act
                                      None

 Securities registered or to be registered pursuant to Section 12(g) of the Act
                                      None
                                (Title of class)


 Securities for which there is a reporting obligation pursuant to Section 15(d)
                                   of the Act
                          Ordinary Shares of 40p. each
                                (Title of class)

Indicate the number of outstanding shares of each of the Issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
                    324,152,640 ordinary shares of 1p. each

Indicate by a check mark whether the 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 preceding 12 months (or for such shorter period that the
Registrant was required to file such reports and (2) has been subject to such
filing requirements for the past 90 days.
          YES    X            NO


Indicate by check mark which financial statement item the registrant has elected
to follow:
 
          Item 17  X          Item 18
<PAGE>
 
                                   FORM 20-F
                        FISCAL YEAR ENDED 30 APRIL 1997

                               TABLE OF CONTENTS
                                        
<TABLE>
<CAPTION>
Item                         Item Caption                                                               Page
----                         ------------                                                               ----
<S>           <C>            <C>                                                                        <C>
Part I        Item 1         Description of Business                                                       2
              Item 2         Description of Property                                                       8
              Item 3         Legal Proceedings                                                             8
              Item 4         Control of Registrant                                                         9
              Item 5         Nature of Trading Market                                                      9
              Item 6         Exchange Controls and Other Limitations Affecting                            10
                             Security Holders
              Item 7         Taxation                                                                     10
              Item 8         Selected financial Data                                                      12
              Item 9         Management's Discussion and Analysis of                                      14
                             Financial Condition and Results of Operations
              Item 10        Directors and Officers of Registrant                                         18
              Item 11        Compensation of Directors and Officers                                       19  
              Item 12        Employee Option Plans                                                        20
              Item 13        Interest of Management in Certain Transactions                               20
Part II       Item 14        Description of Securities to be Registered                                   20
Part III      Item 15        Defaults Upon Senior Securities                                              20
              Item 16        Changes in Securities and Changes in                                         20
                             Security for Registered Securities
Part IV       Item 17        Financial Statements                                                         20
              Item 19        Financial Statements and Exhibits                                            21
Definitions                                                                                               A-1
SIGNATURES                                                                                                A-3
</TABLE>



PRESENTATION OF INFORMATION

Alliance Resources PLC (the "Company") conducts its operations directly and
through subsidiaries. The term "Alliance" as used herein refers, unless the
context otherwise requires, to the Company and its consolidated subsidiaries.

In this Report, the term "Ordinary Shares" refers to Ordinary shares of 1p. each
in the Company

FORWARD LOOKING STATEMENTS

This Report contains forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1985. These forward looking
statements are not guarantees of Alliance's future operational or financial
performance and are subject to risks and uncertainties. Certain statements in
this Report under the captions "Item 1. Description of Business", "Item 2.
Description of Property" and Item 9. Management's Discussion and Analysis of
financial Condition and Results of Operations", and elsewhere in this Report
constitute forward looking statements.

Actual operational and financial results may differ materially from Alliance's
expectations contained in the forward looking statements as a result of various
factors many of which are beyond the control of the Company. These factors
include unforeseen changes in the rate of production from Alliance's oil and gas
fields, changes in the price of crude oil, adverse technical factors associated
with exploration, development, product or transportation of  Alliance's crude
oil and natural gas reserves, changes in the political or fiscal regime in
Alliance's areas of  activity, changes in UK or USA tax or similar laws or
regulations, changes in significant capital expenditures, delays in production
starting up due to an industry shortage of skilled  manpower, equipment or
materials and cost inflation. For a discussion of these and other factors and
liquidity see "Management's Discussion and Analysis of Financial Condition and
Results of Operations".





                                       1
<PAGE>
 
                                     Part I

ITEM 1.    DESCRIPTION OF BUSINESS

GENERAL

Alliance is a U.K public limited company whose principal activities are the
acquisition, exploration, development and production of oil and gas properties.
Alliance's strategy is to continue to expand its U.S. reserve base through a
combination of acquisitions and additional exploration and development and to
acquire an international reserve base through targeted acquisitions with
strategic partners.

Alliance was incorporated and registered under the laws of England and Wales on
August 20, 1990.  Alliance's principal executive offices are at Kingsbury House,
15-17 King Street, London SW1Y 6QU, England.  However, Alliance maintains its
principal operating offices at 4200 East Skelly Drive, Suite 1000, Tulsa,
Oklahoma 74135.

Its current business strategy was adopted in connection with a change of
management in 1996. Implementation of this strategy required that Alliance have
sufficient assets and cash flow to fund the acquisitions and development of
suitable international opportunities. Therefore, effective May 1, 1997,
Alliance completed its acquisition of LaTex Resources, Inc., a US independent
oil and gas exploration and production company. Further details of this and
other related transactions are included in Note 22 to Alliance's consolidated
financial statements on Page F-18 of this filing.

The Financial Statements set out on Pages F-1 to F-21 of this filing have been
prepared in accordance with United Kingdom generally accepted accounting
principles ("UK GAAP") and contain in note 25 to the Consolidated Financial
Statements beginning on Page F-19 a statement of significant differences between
UK GAAP and United States generally accepted accounting principles ("US GAAP").
The financial, reserve and associated information set out in this filing are the
historic results of Alliance and have not been restated to reflect the
acquisition of LaTex.

On May 1, 1997, Alliance completed its acquisition of LaTex Resources, Inc.
("LaTex"). The acquisition resulted in the issuance of 21,448,747 shares to the
former shareholders of LaTex compared to the 8,103,816 shares then outstanding.
As a result, the former LaTex shareholders had a controlling interest in the
combined group and so for accounting purposes LaTex is treated as having
acquired Alliance ("Reverse Acquisition"). The historical financial information
for all financial periods ending on or before April 30, 1997 has been restated
in the Form 10-K of Alliance being filed concurrently with this Form 20-F to
reflect the results of operations and assets and assets and liabilities of LaTex
as the predecessor company to Alliance. The financial statements for such
periods contained in the Form 10-K have been prepared in accordance with US
GAAP.

OIL AND GAS INTERESTS

The following is a summary of Alliance's principal oil and gas interests as at
April 30, 1997:-

South Elton Field.
The South Elton Field is located twelve miles north of the town of Jennings in
Jefferson Davis Parish, Louisiana.  Alliance currently has a leasehold of
approximately 664 acres and in April 1997 operated five producing wells, two
saltwater disposal wells and five shut-in wells. In addition Alliance has one
non-operated interest in the Smith Gooch #3 well.  The field was discovered by
Stanolind in the early 1930s.  Production has been established in four
Homeseeker (Middle Frio) Sands, five Ortego (Upper Frio) Sands and two
Marginulina (Lower Anahuac) Sands.  The productive reservoirs occur at depths at
between 7,180 to 9,300 feet.  The reservoir traps are faulted anticlines caused
by south dipping growth faults.

Gross average daily production from the field for the month of April 1997 was
approximately 280 bopd and 202 mcfgpd, and Alliance's net share of production
was 202 bopd and 127 mcfgpd.  Net proved reserves to Alliance as of April 30,
1997 were 380.2 mboe (using a 6:1 conversion factor for gas to oil).

Valentine Field.
The Valentine Field is located south of New Orleans in Lafourche Parish,
Louisiana.  Alliance has a leasehold of approximately 77 acres and in April 1997
operated two producing wells and seven shut-in wells.  In addition, Alliance has
a non-operated interest in the Arrowhead #1 Valentine Sugars well. The field was
discovered in 1935 when Pan American drilled the Marang # 1 well. Production has
been established in Middle Miocene Sands at depths of between 6,450-10,800 feet.
Alliance's oil and gas interests are situated on the west flank of a salt dome.



                                       2
<PAGE>
 
Gross average daily production from Alliance's oil and gas interests in the
field for the month of April 1997 was approximately 114 bopd and 497 mcfgpd, and
Alliance's net share of production was 78 bopd and 68 mcfgpd.  Net proven
reserves to Alliance as of April 30, 1997 were 44.8 mboe.

Jennings Field.
The Jennings Field is located seven miles north of the town of Jennings in
Acadia Parish, Louisiana.  Alliance has a leasehold of approximately 275 acres
and operates 20 producing wells, four saltwater disposal wells and 26 shut-in
wells.  The field was discovered by the Maywood Brothers in 1901.  Production
has been established in multiple Miocene age sandstone reservoirs draped over a
salt dome.

Gross average daily production from the field for the month of April 1997 was
approximately 86 bopd and Alliance's net share was 60 bopd. Net proved reserves
to Alliance as of April 30, 1997 were 68.3 mboe.

North Tepetate Field.
The North Tepetate Field is located 24 miles northeast of the town of Jennings
in Acadia Parish, Louisiana.  Alliance holds approximately 80 acres under lease
and operates one producing well and one saltwater disposal well.  The field was
discovered in the 1940s by Vincent and Welch and production has been established
in Oligocene age sands.  The reservoir trap is an anticlinal closure between two
south dipping growth faults.  The Sweeney #3 well was drilled in July 1983 and
is currently completed in the Marginulina sands at a depth of approximately
7,000 feet.

Gross average daily production from the Sweeney #3 well for the month of April
1997 was approximately 26 bopd and Alliance's net share of production was 10
bopd.  Net proved reserves to Alliance as of April 30, 1997 were 18.9 mboe.

Jefferson Island Field.
The Jefferson Island field is located near the town of Delcambre, approximately
9 miles west of the city of New Iberia in Iberia Parish, Louisiana.  Alliance is
operator for a 525 acre leasehold which is currently being maintained by
production from the Will Drill Resources (Texaco) #4 JISMC well.  The Alliance
lease has five shut-in wells located on it.  The field was discovered by Texaco
in May 1938.  Since then production has been established by various operators in
Siphoni Divisi and Discorbis B age sandstone reservoirs.  The reservoir traps
are combination structural-stratigraphic traps in a salt dome piercement
setting.

Alliance currently has not established production on the lease and net proved
reserves to Alliance as of April 30, 1997 were 312.7 mboe of oil.  A number of
potential drilling locations have been identified on the lease for future
exploration and exploitation activity. Continental Resources Ltd.
("Continental") is currently permitting a 3-D  seismic survey over the lease
which is to be shot and processed in 1998.

Branch Field.
The Branch Field is located 2 miles SE of the town of Branch in Acadia Parish,
Louisiana. Alliance holds approximately 230  acres under lease and has one shut-
in well located on it. Alliance currently has no production from the lease. The
field was discovered by Union of Texas in 1946. Alliance drilled the Donald
Gueno #1 well to a total depth of 9909 feet in July 1995.  Electric logs
confirmed the presence of gas in the Hayes C and  Marg. Harvei sandstone
reservoirs. The well is located on the easterly flank of a faulted anticlinal
structure and the reservoir sands were not tested as it was considered the well
was drilled too far down dip to recover gas in paying quantities.

Non-proprietary 3-D seismic data was acquired by Seitel over the Branch field in
1996-7. Alliance intends to purchase the data over its portion of the field and
drill a well on this prospect in 1998. Net proved reserves to Alliance as of
April 30, 1997 were 93.3 mboe.

OPERATIONS
 
The fiscal year ended April 30, 1997 saw minimal workover and drilling activity
with the Group enjoying a relatively problem-free period of production from its
Louisiana oil and gas properties.  In May 1996 the Group participated in the
drilling of the American Explorer Valentine Sugars #2 well, under a farm-out
agreement.  However, the main objective sand was water wet and the well was
plugged and abandoned in June 1996.



                                       3
<PAGE>
 
The Group completed an extensive review of its operated non-producing wells and
leases with particular emphasis on the Jefferson Island, South Elton, Branch and
Jennings fields.  This review  identified six prospects for future drilling
activities, four of which are located in the Jefferson Island Field, where the
Group has a 100% working interest in a 525 acre lease on the southern flank of
Lake Peigneur, near the town of New Iberia, Louisiana. Following extensive
negotiations the Group signed a farm-out agreement on the Jefferson Island lease
with Continental Resources Ltd. ("Continental") in August 1997, whereby
Continental at its sole expense will acquire 3-D seismic data and drill and
complete two wells on the lease to earn a two thirds working interest in all pay
zones down to a depth of 12,000 feet. Continental operates the lease immediately
to the north of the Group's lease in the same field. The 3-D seismic survey is
anticipated to take approximately eighteen months to permit, shoot and process
and the Group does not anticipate drilling these prospects until completion of
the survey in early 1999.

The two prospects identified for future drilling activities in the South Elton
and Branch Fields are being re-scheduled for drilling in 1998.  This is to allow
the Group to concentrate its efforts on putting into production the large
portfolio of low capital cost proved developed non-producing reserves acquired
by the Group through the merger with LaTex.

In the period January 1997 to April 1997 the Group's activity principally
focused on planning for the commencement of operations  following the
acquisition of LaTex. This has significantly enlarged the Group's oil and gas
production and reserve base and added significant proved non-producing reserves
to the Group's portfolio of oil and gas properties.  These include the addition
of in excess of ninety proved behind pipe zones in existing well bores capable
of recompletion and over twenty new development drilling locations.


PROPERTY SALES

During the year ended April 30, 1997  Alliance disposed of its interest in
several non-core, non-operated properties in the States of  Oklahoma and Texas.
These properties were owned by Alliance through its wholly owned subsidiary,
Arno, Inc. The properties sold included interests in the following fields:



           FIELD                                STATE
           Mocane Laverne                       Oklahoma
           Frost                                Texas
           MacPac                               Texas
           Provident City                       Texas
           Gilmer South                         Oklahoma

The combined sales proceeds and the boe reserves at the effective date of each
sale were $2,227,000 and approximately 426,000 boe respectively. The sales
proceeds approximated to the PV10 value of the properties at the time of the
sales and the loss of cashflow was immaterial to Alliance.


INTERNATIONAL

During the year ended April 30, 1997 the Group completed its studies and
negotiations with Albpetrol in respect of participation in the Delvina gas
condensate field in Albania.  The studies confirmed that at least one new gas
pipeline with a minimum length of in excess of 80 kilometres, connecting Delvina
with the main Albanian gas market, would have to be laid due to the poor
condition of the existing pipeline which is currently unserviceable.  The large
upfront capital expenditure on the new pipeline, in conjunction with the high
costs and risk associated with fracture stimulation of the tight Delvina
limestone unit, render the economics of the project marginal.  The Group's
exclusive rights to negotiate terms of participation in the Delvina field lapsed
in February 1997 and the Group determined that it will not pursue an extension
of these rights.

The Group continues to appraise international opportunities. A number of oil and
gas opportunities in Russia, Kazakhstan  and South America were identified
during the period.  Following a detailed review of these opportunities the Group
decided it was not appropriate to further pursue any of them during the period
due to a combination of fiscal, technical and economic considerations. The Group
intends to vigorously pursue other  international as well as domestic US
opportunities.



                                       4



<PAGE>
 
RESERVES

Lee Keeling and Associates, Inc. ("Lee Keeling"), independent petroleum
engineering consultants, prepared a reserve report of Alliance's proved reserves
at April 30, 1997.

The quantities of Alliance's proved reserves of oil and natural gas presented
below include only those amounts that Alliance reasonably expects to recover in
the future from known oil and gas reservoirs under existing economic and
operating conditions.  Proved developed reserves are limited to those quantities
that are recoverable commercially at current prices and costs, under existing
regulatory practices and with existing technology.  Accordingly, any changes in
prices, operating and development costs, regulations, technology or other
factors could significantly increase or decrease estimates of Alliance's proved
developed reserves.  Alliance's proved undeveloped reserves include only those
quantities that Alliance reasonably expects to recover from the drilling of new
wells based on geological evidence from offsetting wells.  The risks of
recovering these reserves are higher from both geological and mechanical
perspectives than the risk of recovering proved developed reserves.

Set forth below are estimates as of April 30, 1997 of Alliance's net proved
reserves and proved developed reserves and the estimated future net revenues
from such reserves and the present value thereof based upon the standardized
measure of discounted future net cash flows relating to proved oil and gas
reserves in accordance with the provisions of Statement of Financial Accounting
Standards No. 69. "Disclosures about Oil and Gas Producing Activities."
Estimated future net cash flows from proved reserves are determined by using
estimated quantities of proved reserves and the periods in which they are
expected to be developed and produced based on economic conditions at the date
of the report.  The estimated future production is priced at current prices at
the date of the report.  The resulting estimated future cash inflows are then
reduced by estimated future costs to develop and produce reserves based on cost
levels at the date of the report.  No deduction has been made for depletion,
depreciation or income taxes or for indirect costs, such as general corporate
overhead.  Present values were computed by discounting future net revenues at
10% per annum.  Additional information concerning Alliance's reserves is
included in "Supplemental Oil and Gas Data" in the Notes to Alliance's Financial
Statements beginning on page F-21.

The following table sets forth estimates of the proved oil and natural gas
reserves of Alliance at April 30, 1997:-

                            OIL (MBBLS)                   GAS (MMCF)
                   -----------------------------  ----------------------------
                   DEVELOPED  UNDEVELOPED  TOTAL  DEVELOPED  UNDEVELOPED TOTAL

                      424         294       718      144         1904    2048

The following table sets forth amounts as of April 30, 1997 determined in
accordance with the requirements of applicable accounting standards, to the
estimated future net cash flows from production and sale of the proved reserves
attributable to Alliance's oil and gas properties before income taxes and the
present value thereof.  Nymex benchmark prices used in determining the future
net cash flow estimates at April 30, 1997 were $19.70 per barrel for oil and
$1.81  per mmbtu for gas.
 
                                                   AT APRIL 30, 1997
                                           ---------------------------------
                                                    (IN THOUSANDS)
                                            PROVED      PROVED       TOTAL
                                           DEVELOPED  UNDEVELOPED    PROVED
                                           RESERVES    RESERVES     RESERVES
Estimated future net cash flows from                 
proved reserves before income taxes        $5,128      $5,692       $10,820
                                                     
Present value of estimated future net                
cash  flows from proved reserves before              
income taxes (discounted at 10%)           $4,182      $4,223       $ 8,405

The estimation of oil and gas reserves is a complex and subjective process that
is subject to continued revisions as additional information becomes available.
Reserve estimates prepared by different engineers from the same data can vary
widely.  Therefore, the reserve data presented herein should not be construed as
being exact.  Any reserve estimate depends in part on the quality of available
data, engineering and geologic interpretation, and thus represents only an
informed professional judgment.  Subsequent reservoir performance may justify
upward or downward revision of such estimate.

For further information on reserves, costs relating to oil and gas activities,
and results of operations from producing activities, see page F-22 to Alliance's
Consolidated Financial Statements - Supplemental Oil and Gas Data.



                                       5

<PAGE>
 
Productive Wells and Acreage

The following table sets forth Alliance's producing wells at April 30, 1997:-
 
                              PRODUCTIVE WELLS
      --------------------------------------------------------------
            OIL                     GAS                    TOTAL
      --------------            ------------            ------------
      GROSS     NET             GROSS   NET             GROSS   NET
 
       42      36.1               3     0.8               45    36.9

     (Note: Net figures are based on Alliance's working interest in the wells)

Productive wells consist of producing wells and wells capable of production,
including gas wells awaiting pipeline connections to commence deliveries and oil
wells awaiting connection to production facilities. Wells that are completed in
more than one producing horizon are counted as one well. Of the gross wells
reported above, none had multiple completions.

Developed and Undeveloped Acreage
 
The following table sets forth the developed and undeveloped leasehold acreage
held by Alliance at April 30, 1997. Developed acres are acres that are spaced or
assignable to productive wells. Undeveloped acres are acres 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. Gross acres are the total number of acres in which
Alliance has a working interest. Net acres are the sum of Alliance's fractional
interests owned in the gross acres.
                                                 GROSS     NET

               Developed acreage                 17,177   3,130

               Undeveloped acreage                7,521   7,517
                                                 ------  ------
               Total                             24,698  10,647
                                                 ======  ======

States in which Alliance held developed and undeveloped acreage at April 30,
1997, include Louisiana and Kansas.

Production, Unit Prices and Costs

The following table sets forth information with respect to production and
average unit prices and costs for the periods indicated.
 
                                                       YEAR ENDED APRIL 30
                                                       -------------------
                                                       1995    1996   1997
Production:

  Gas (mmcf)                                             238    602    114

  Oil (mbbls)                                             47    125    147

Average Sales Prices:

  Gas (per mcf)                                         1.65   1.73   2.77

  Oil (per bbl)                                        16.53  18.30  21.84

Average Production costs per BOE  (1)                   9.77   9.24   9.58

(1)  The components of production costs may vary substantially among wells
     depending on the methods of recovery employed and other factors, but
     generally include production taxes, lease overhead, maintenance and repair,
     labor and utilities.


                                       6

<PAGE>
 
Drilling Activity

During the periods indicated, Alliance drilled or participated in the drilling
of the following exploratory and development wells:
 
                                      YEAR ENDED APRIL 30
                        ----------------------------------------------
                            1995             1996             1997
                        ------------     -------------    ------------
                        Gross    Net     Gross     Net    Gross    Net
Exploratory                                                    
                                                               
  Productive              1      .70       -         -      -        -
                                                               
  Non-Productive          -        -       2       .60      1     .120
                                                               
Total                     1      .70       2       .60      1     .120
                                                               
Development                                                    
                                                               
    Productive            -        -       2         1      -        -
                                                               
    Non-Productive        -        -       -         -      -    
                                                               
Total                     -        -       2         1      -        -

At April 30, 1997 Alliance was not participating in the drilling or completion
of any oil and gas wells.

PRODUCT MARKETING

Alliance's production is primarily from developed fields close to major
pipelines or refineries and established infrastructure.  As a result, Alliance
has not experienced any difficulty in finding a market for all of its product as
it becomes available or in transporting its product to these markets.

Oil Marketing.  Alliance markets its oil to a variety of purchasers, most of
which are large, established companies. The oil is generally sold under short-
term contracts with the sales price based on an applicable posted price, plus a
negotiated premium. This price is determined on a well-by-well basis and the
purchaser generally takes delivery at the wellhead.

Natural Gas Marketing.  Virtually all of Alliance's natural gas production is
close to existing pipelines and, consequently, Alliance generally has a variety
of options to market its natural gas.  Alliance sells the majority of its
natural gas on the spot market with prices fluctuating month-to-month based on
published pipeline indices with slight premiums or discounts to the  index.

SIGNIFICANT OIL AND NATURAL GAS PURCHASERS

Oil and gas sales from properties operated by the Company are made under 
short-term contracts at the current area market price as adjusted for the 
relevant premium or discount. The Company believes that if any customer ceased 
purchases of oil or gas at any time, numerous other parties are available to 
purchase its production at the market price. As a result, the loss of any 
purchaser would not be expected to have a material adverse effect upon 
operations. For the period ended April 30, 1998, the Company sold approximately 
39% of its net production of oil to Texaco Trading and Transportation, Inc. 
("Texaco"), pursuant to a contract terminable upon 30 days advance written 
notice by either party. The price under which the Company sells its production 
under this contract is based upon Texaco's posted price for the type of crude 
oil produced in the particular field where the crude oil is produced.

EMPLOYEES

At April 1997, Alliance had 6 management and administrative employees and 6
technical and operational employees none of whom belonged to a union.

COMPETITION

The oil and natural gas industry is highly competitive in all its phases.
Alliance encounters strong competition from many other energy companies in
acquiring economically desirable producing properties and drilling prospects and
in obtaining equipment and labor to operate and maintain its properties. In
addition, many energy companies possess greater resources than Alliance.



                                       7

<PAGE>
 
REGULATION

     Production and sale of oil and gas are subject to federal and state
governmental regulations  in a variety of ways  including  environmental
regulations,  labor laws,  interstate  sales,  excise  taxes and  federal and
Indian  lands  royalty payments.  Failure  to  comply  with  these  regulations
may  result  in fines, cancellation of licenses to do business and  cancellation
of leases.

     The production of oil and gas is subject to regulation by the state
regulatory agencies in the states in which Alliance does business. These
agencies make and enforce regulations to prevent waste of oil and gas and to
protect the rights of owners to produce oil and gas from a common reservoir. The
regulatory agencies regulate the amount of oil and gas produced by assigning
allowable production rates to wells capable of producing oil and gas.

ENVIRONMENTAL CONSIDERATIONS

The exploration for, and development of, oil and gas involves the extraction,
production and transportation of materials which, under certain conditions, can
be hazardous or can cause environmental pollution problems. In light of the
current interest in environmental matters, Alliance cannot predict the effect of
possible future public or private action on its business. Alliance is
continually taking actions it believes are necessary in its operations to ensure
conformity with applicable federal, state and local environmental regulations
and does not presently anticipate that compliance with federal, state and local
environmental regulations will have a material adverse effect upon capital
expenditures, earnings or the competitive position of Alliance in the oil and
gas industry.

OPERATIONAL HAZARDS AND INSURANCE

     The operations of Alliance are subject to all risks inherent in the
exploration for and production of oil and gas, including such natural hazards as
blowouts, cratering and fires, which could result in damage or injury to, or
destruction of, drilling rigs and equipment, formations, producing facilities or
other property, or could result in personal injury, loss of life or pollution of
the environment.  Any such event could result in substantial expense to Alliance
which could have a material adverse effect upon the financial condition of
Alliance to the extent it is not fully insured against such risk.  Alliance
carries insurance against certain of these risks but, in accordance with
standard industry practice, Alliance is not fully insured for all risks, either
because such insurance is unavailable or because Alliance elects not to obtain
insurance coverage because of cost.  Although such operational risks and hazards
may to some extent be minimized, no combination of experience, knowledge and
scientific evaluation can eliminate the risk of investment or assure a profit to
any company engaged in oil and gas operations.


ITEM 2    DESCRIPTION OF PROPERTY

Alliance's major property interests are in the oil and gas leases details of
which are set out in Item 1 above under the headings "Oil and gas Interests".

As at April 30, 1997, in addition to its oil and gas interests, Alliance had
ownership and leasehold interests in its office premises located in the United
Kingdom and in Louisiana, USA.


ITEM 3    LEGAL PROCEEDINGS

As at 30 April 1997, Alliance was a party to the following litigation:

(a)  the Group was seeking to recover US$1,300,000 of unpaid drilling costs from
     Drexco Inc., with Drexco Inc. and H Huizenga claiming unspecified damages
     in respect of conduct, and removal of Alliance Resources (USA), Inc. as
     operator of the Valentine field. This action was settled on December 17,
     1997 from an escrow account and the Group incurred no out-of-pocket
     expenses.

(b)  Best Royalties Plc are claiming a sum of US$186,368 and a declaration that
     they are entitled to a sum equal to 40% of Alliance Resources (USA), Inc.'s
     net cash proceeds received from the Arrowhead well (and payment of the said
     sum), alternatively damages, plus interest thereon.  The Group denies the
     claim and are vigorously defending the matter.



                                       8
<PAGE>
 
(c)  In 1994 Associated Storage Corporation ("Associated") filed a lawsuit
     alleging that LaTex has breached a July 21, 1993 agreement between
     Associated and LaTex.  On May 15, 1997 Associated and LaTex entered into a
     settlement agreement pursuant to which LaTex agreed to pay $100,000 in
     twelve monthly installments. The final monthly installment of $8,691 was
     paid on April 15, 1998.

(d)  Germany Oil Company, a subsidiary of Alliance, was a named defendant in
     three wrongful death actions involving an accident which occurred at a
     heater-treatment unit the Blowhorn Creek Millerella Oil Unit lease in Lamar
     county, Alabama. Each plaintiff originally sought damages in the amount of
     $25 million each. The cases were referred to Germany Oil Company's
     insurance carrier. A settlement agreement has been reached and Alliance has
     incurred no out-of-pocket expenses.

(e)  In 1996, Northern Natural Gas Company ("Northern") filed a lawsuit against
     Torch Energy Advisors, Inc. ("Torch") for alleged breach of an agreement
     between Torch, Northern and Panda Resources, Inc. ("Panda") relating to the
     transportation of gas through a facility located in Dewey County, Oklahoma.
     LaTex assumed the defense of this matter pursuant to an indemnification
     agreement entered into in connection with its sale of certain assets. In
     March 1998, LaTex and Alliance entered into a settlement agreement pursuant
     to which Alliance agreed to pay $150,000 in five monthly instalments.

In addition to the foregoing litigation, Alliance is a named defendant in
lawsuits, is a party in governmental  proceedings and is subject to claims of
third parties from time to time arising in the ordinary course of business.
While the outcome of lawsuits or other proceedings and claims against Alliance
cannot be predicted with certainty, management does not expect these additional
matters to have a material adverse effect on the financial position, results of
operations or liquidity of the Group.


ITEM 4         CONTROL OF REGISTRANT

As far as the Company is aware, it is neither directly or indirectly owned or
controlled by one or more corporation or by any government.

The following table sets forth certain information as of April 30, 1997
concerning the executive officers and directors of the Company and concerning
its principal shareholders, who own more than 10% of its outstanding voting
shares


<TABLE>
<CAPTION>
        TITLE OF CLASS               IDENTITY OF ENTITY          NO. OF SHARES       PERCENTAGE OF TOTAL
                                      HOLDING INTEREST                                  VOTING SHARES
                                                                                         OUTSTANDING
---------------------------------------------------------------------------------------------------------
<S>                              <C>                             <C>                 <C>
 
Ordinary shares                  Trans Arabian Energy Ltd.          63,065,000               19.4%

Ordinary shares                  Executive officers and              2,648,333                0.8%
                                 Directors of Alliance
                                 (as a group)
</TABLE>


ITEM 5         NATURE OF TRADING MARKET

The Company's authorised share capital as of April 30, 1997 was
(Pounds)4,650,000 divided into 465,000,000 ordinary shares of 1p. each of which
324,152,640 ordinary shares were issued and outstanding as at April 30, 1997.

The principal trading market for the ordinary shares is the London Stock
Exchange, on which they have been listed since 1991.

The following table sets forth, for the calendar quarters indicated, the
reported highest and lowest prices for the ordinary shares on the London Stock
Exchange derived form the Official Daily List of the London Stock Exchange.


YEAR ENDED DECEMBER 31                       PENCE STERLING PER ORDINARY SHARE
------------------------------------------------------------------------------
                                               High(Y)                Low(Y)
1996
First quarter                                   .050                   .030
Second quarter                                  .0325                  .0276
Third quarter                                   .0276                  .0176
Fourth quarter                                  N/A                     N/A
 
1997
First quarter                                   N/A                     N/A
Second quarter (through April 30, 1997)         N/A                     N/A


                                       9

<PAGE>
 
ITEM 6         EXCHANGE CONTROLS

There are currently no United Kingdom foreign exchange control restrictions on
the payment of dividends on the ordinary shares or on the conduct of the
Company's operations. There are no limitations under the law of the United
Kingdom or under the Articles of Association of the Company on the rights of
non-resident or foreign owners to hold or vote the ordinary shares other than
those which are applicable to holders of the shares generally.


ITEM 7         TAXATION

The following discussion is a summary of the UK tax consequences of ownership
and disposition of Alliance Shares. However, it is not intended to be a complete
discussion of all potential tax effects that might be relevant to the ownership
or disposition of Alliance Shares.

This summary deals only with citizens or residents of the United States or
domestic corporations (each a "U.S. Holder").  It may not be applicable to
certain classes of taxpayers, including, U.S. Holders who are residents (or, in
the case of an individual, resident or ordinarily resident) for UK tax purposes
in the UK or who carry on business in the UK through a branch or agency,
insurance companies, tax-exempt organizations, financial institutions,
securities dealers, broker-dealers, foreign persons and persons who acquired
LaTex Shares pursuant to an exercise of employee stock options or rights or
otherwise as compensation.  These classes of taxpayers should consult their own
tax advisors regarding the specific tax consequences of the ownership and
disposition of Alliance Shares.  Moreover, the state, local and foreign (other
than certain UK) tax consequences of the ownership and disposition of Alliance
Shares are not discussed below.

This summary is based on laws, regulations, rulings, practice and judicial
decisions in effect at the date of this filing.  Legislative, regulatory or
interpretive changes, future court decisions or specific tax treaty provisions
may significantly modify the statements made in this description.  Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences described herein. SHAREHOLDERS ARE URGED TO CONSULT WITH THE
SHAREHOLDER'S OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THE
HOLDER OF THE TRANSACTIONS DISCUSSED IN THIS SECTION, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGE
IN APPLICABLE TAX LAWS.

Taxation of Dividends

Alliance does not expect to pay dividends for the foreseeable future.  Should
Alliance begin paying dividends, it will be required when paying a cash dividend
with respect to Alliance Shares to pay to the UK Inland Revenue a payment known
as Advance Corporation Tax ("ACT"). The current rate of ACT is 25% of the net
dividend paid to a holder of Alliance Shares.  An amount equivalent to the
amount of the ACT paid in this way is, under current English law, normally
allowed as a credit against the UK tax liability of holders of Alliance Shares
who are residents of the United Kingdom. The UK government has announced that
ACT is to be abolished on dividends paid on or after April 6, 1999 and
legislation is due to be enacted in 1998. From April 6, 1999, the value of the
tax credit to which a UK resident individual shareholder will be entitled  will
be reduced to one-ninth of the net dividend paid.

A U.S. Holder will generally be entitled, under the current Convention between
the U.S. and the UK for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income and Capital Gain (the "Income Tax
Convention") and current UK law as applied by the UK Inland Revenue, to receive
from the UK Inland Revenue, in addition to any dividend paid by Alliance, an
amount in the nature of a tax refund (a " Refund") equal to the tax credit to
which a UK resident individual shareholder would have been entitled  in respect
of the dividend, less a UK withholding tax equal to the lesser of  15% of the
sum of the dividend and the related ACT and the refund.  Thus, assuming
continuance of the ACT at a rate of 25%, a net dividend paid to a U.S. holder of
(Pounds)8 (chosen for illustrative purposes only) will entitle the U.S. Holder
to receive, in addition to the dividend and upon compliance with the refund
procedures described below, a Refund of (Pounds)0.5 calculated by reducing the
ACT of (Pounds)2 by a withholding tax of (Pounds)1.5.  Special rules may apply
to certain U.S. Holders, including, without limitation, certain domestic
corporations, partnerships, trusts, estates, residents of the UK and domestic
corporations owning, actually or constructively, 10% or more of the voting stock
of Alliance.

                                      10
<PAGE>
 
A U.S. Holder who is entitled to the  Refund may, subject to agreement with the
UK Inland Revenue, receive payment in respect of the  Refund at the same time as
and together with a payment of the dividend.  In order to do so, a U.S. Holder
must have his Alliance Shares registered in the name of a nominee approved by
the UK Inland Revenue for the purpose, and the nominee must follow certain
procedural requirements.  A U.S. Holder must provide the name of his or her
nominee in order to participate in this arrangement.  In addition, the U.S.
Holder must be either:

1. An individual who (a) is not resident in the UK; (b) has not during the
   previous four years been in the  UK for as much as three months a year on
   average, or for a period or periods amounting in all to six months in the UK
   income tax year to which the claim on his behalf relates; (c) has not been
   absent from the U.S. for a complete U.S. tax year in any of the previous four
   years; (d) does not have a permanent establishment in the UK; (e) does not
   perform professional/personal services from a fixed base in the UK and (f)
   does not own 10% or more of the class of shares in respect of which the
   dividend is paid; or

2. A corporation (a) which is managed and controlled in the U.S. and does not
   have a permanent establishment in the UK; (b) which does not own 10% or more
   of the class of shares in respect of which the dividend is paid; (c) which
   does not, alone or together with one or more associated corporations,
   control, directly or indirectly, 10% of the voting power of Alliance; (d)
   which is liable to U.S. tax on the dividend and (e) at least 75% of the
   capital of which is owned directly or indirectly by persons who are U.S.
   residents.

These arrangements will be extended to trusts, estates in the course of
administration, pension funds, foundations and similar bodies only with the
prior approval of the UK Inland Revenue.  These arrangements can be restricted
without notice by the UK Inland Revenue.

U.S. Holders who wish to receive an ACT Refund but do not qualify to receive the
ACT Refund directly under the UK Inland Revenue arrangements should consult
their tax advisers on their eligibility to receive and the procedures to obtain
an ACT Refund.

The UK Finance Act 1994 contains certain provisions allowing companies to elect
to pay a foreign income dividend ("FID") to which special rules apply and, in
particular, which does not carry any tax credit. Alliance has no present
intention of electing to pay any dividends under the FID scheme and the above
applies only to dividends not paid under the scheme. The UK government has
announced that the ability to pay FIDs will be abolished for dividends paid on
or after April 6, 1999 and legislation is due to be enacted in 1998.

Subject to certain limitations, the UK withholding tax will be treated as a
foreign income tax that may be claimed as a deduction from taxable income or as
a credit against the U.S. federal income tax liability of the U.S. Holder. The
particular circumstances of each U.S. Holder will affect his ability to use the
foreign tax credit.  U.S. Holders should consult their own tax advisor about the
availability and computation of the foreign tax credit.

Taxation of Capital Gains

A U.S. Holder that is not resident (or, in the case of an individual, not
resident or ordinarily resident) in the UK will not normally be liable for UK
taxation on capital gains realized on the sale of such Holder's Alliance Shares
unless such U.S. Holder carries on a trade in the UK through a branch or agency
and such Alliance  Shares are or have been used, held or acquired by or for the
purposes of such trade, branch or agency or used in or for the purpose of such
trade.

A U.S. citizen who is resident or ordinarily resident in the UK, a U.S.
corporation that is resident in the UK because its business is managed or
controlled there or a U.S. citizen who, or a U.S. corporation that, carries on a
trade or business through a permanent establishment in the UK and that acquires
or holds an Alliance Share in connection with that permanent establishment may
be subject to both U.S. and UK tax on its capital gains upon disposition of the
Alliance Share. Subject to certain limitations, however, the U.S. tax laws would
permit a tax credit against U.S. federal income tax liability in the amount of
any UK tax (namely, capital in the case of an individual and corporation tax on
chargeable gains in the case of a corporation) that has been paid in respect of
such gain.

Estate and Gift Tax

Under the U.S.-U.K. double taxation convention relating to estate and gift taxes
(the "Estate and Gift Tax Convention"), an Alliance Share held by an individual
who is domiciled in the U.S. and is not a national of the UK will not be subject
to UK Inheritance Tax on the individual's death or on a transfer of the Alliance
Share in trust by a settlor not domiciled in the U.S. and in the exceptional
case where the Alliance Share is part of the 

                                      11
<PAGE>
 
business property of a UK permanent establishment of an enterprise or pertains
to a UK fixed base of an individual used for the performance of independent
personal services. The Estate and Gift Tax Convention generally provides a
credit for the amount of any tax paid in the UK against the U.S. federal tax
liability in a case where the Alliance Share is subject both to UK Inheritance
Tax and to U.S. federal estate and gift tax.

Stamp Duty and Stamp Duty Reserve Tax

Under current UK law, the transfer of  Alliance Shares will generally give rise
to a liability to UK stamp duty, normally at the rate of 50p for every
(Pounds)100 (or part thereof) of the actual consideration paid. Where there is
no stamped document recording the sale of the shares, a charge to SDRT, also at
the rate of 0.5%, arises. Provided that the transfer is executed and stamped
within six years of the unconditional contract to sell, any obligation to pay
SDRT is canceled and any SDRT paid is refundable.

Special rules apply in relation to depository receipt arrangements and clearance
services.

Section 186 of the Finance Act 1996 provides that there is to be no liability
for stamp duty on the transfer of shares into CREST, the paperless trading
system that started in July 1996.  SDRT is to be chargeable immediately on
entering into an unconditional agreement to transfer shares at the rate of 0.5%
of the actual consideration paid (which SDRT is to be canceled or repaid if the
agreement is completed by a duly stamped transfer).  Subsequent transfers of
shares within CREST will not give rise to a liability to stamp duty, as there
will be no stampable document.

THE SUMMARY OF UK TAX CONSEQUENCES SET FORTH ABOVE IS BASED ON THE INCOME TAX
CONVENTION AND ESTATE TAX CONVENTION, US LAW, UK LAW AND UK INLAND REVENUE
PRACTICE, ALL AS THEY EXIST AS OF THE DATE OF THIS FILING.  THIS SUMMARY DOES
NOT DISCUSS ALL ASPECTS THAT MAY BE RELEVANT TO HOLDERS OF ALLIANCE SHARES IN
LIGHT OF THEIR PARTICULAR CIRCUMSTANCES. IIN PARTICULAR, IT DOES NOT ADDRESS THE
CONSEQUENCES TO HOLDERS OF ALLIANCE SHARES RESIDENT OR DOMICILED IN THE UK OR
DOING BUSINESS IN THE UK  HOLDERS OF ALLIANCE SHARES ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER AND
THE OWNERSHIP AND DISPOSITION OF ALLIANCE SHARES.


ITEM 8    SELECTED CONSOLIDATED FINANCIAL DATA

The selected historical financial information presented in the table below for
and at the end of each of the years ended April 30, 1997, 1996, 1995, 1994 and
1993 is derived from the audited consolidated financial statements of Alliance.
The audited financial statements of Alliance for the years ended April 30, 1997
and 1996 are included in this Filing.  The selected historical financial
information for the years ended April 30, 1995, 1994 and 1993  presented in the
table below are derived from audited financial statements of Alliance that are
not included in this Filing. The selected financial information presented below
should be read in conjunction with Alliance's consolidated financial statements
and the notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations, included elsewhere in this Filing.

The selected consolidated financial data has been prepared in accordance with UK
GAAP. The consolidated financial statements included in Item 19 in this filing
are also prepared under UK GAAP. Included within  these financial consolidated
financial statements in note 25 is a reconciliation between UK and US GAAP in
respect of profit after tax and stockholders equity.

                                      12
<PAGE>
 
                ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES

 
SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION> 
                                                                                   AS OF AND FOR THE YEAR ENDED APRIL 30
                                                                           -----------------------------------------------------
                                                                           1997          1996       1995(2)      1994       1993
                                                                                       (IN $000'S EXCEPT PER SHARE DATA)
<S>                                                                      <C>           <C>        <C>          <C>        <C>
Selected Income Statement Data
Amounts in accordance with UK GAAP
 Total revenues.................................                          3,681         3,686       1,483         837        631
 Depletion, depreciation and amortization.......                          1,117         1,668      14,944         128        278
 (Loss) from continuing operations
  before and after income taxes.................                         (1,827)       (3,593)    (18,213)     (1,177)    (1,627)
Approximate amounts in accordance with US GAAP
 Net (loss).....................................                         (1,413)       (3,428)    (21,641)
 (Loss) per Existing Alliance Share (cents).....                           (0.4)         (1.1)      (15.4)
 
SELECTED BALANCE SHEET INFORMATION
Amounts in accordance with UK GAAP
Working capital (deficiency)....................                          1,806           536      (8,215)     (1,478)    (2,022)
Net Property, Plant and Equipment...............                          4,276         7,311       8,047      14,484     10,594
Long-term debt, net of current liabilities......                             85            92       1,240         925      1,203
Total assets....................................                          8,587         9,845       9,335      16,334     11,132
Total Liabilities...............................                          2,626         2,090      10,773       4,045      5,068
Shareholders' equity............................                          5,961         7,755      (1,438)     12,289      6,064
Approximate amounts in accordance with US GAAP
Total Assets....................................                          6,738         7,582       6,907
Long term debt, net of current liabilities......                             85            92       1,240
Stockholders equity.............................                          4,118         5,492      (3,866)
 
</TABLE>

 
--------------------
(1) All figures are denominated in U.S. currency.

(2) The 1995 figures have been restated, as explained in Note 4 in Alliance's
    Consolidated Financial Statements.

                                      13
<PAGE>
 
ITEM 9  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS

GENERAL

The information in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" refers to the Consolidated Financial
Statements of Alliance included in this Filing which are prepared in accordance
with UK GAAP.  UK GAAP differs in certain significant respects from US GAAP.  A
discussion of the principal differences is set out in Note 25 to Alliance's
Consolidated Financial Statements.  The Consolidated Financial Statements
contain a reconciliation of loss after tax (net loss) and shareholders' equity
to US GAAP.

Alliance's operating results are affected by a variety of factors, the most
significant of which is crude oil and natural gas prices.  Lower product prices
have a negative effect on the operating income and cash flow of Alliance.
Although Alliance is organized in the United Kingdom, all of its operations are
located in the United States and its financial statements are presented in U.S.
dollars.  Therefore, fluctuations in the exchange rate of the pound sterling to
the U.S. dollar do not significantly impact the revenues and net income of
Alliance.

1997 COMPARED WITH 1996

Operating Results

Production.  In the year ended April 30, 1997, Alliance's production amounted to
-----------                                                                    
166,000 boe compared to 225,000 boe in the year to April 30, 1996. The decrease
was principally due to  a number of property disposals during the year.

All Alliance production came from the U.S.  Natural gas represented
approximately 11%  of total production in 1997 compared with 45% in  1996.

Sales.    The decline in the volumes of oil and gas sales during the year was
------                                                                       
offset by the improved price environment for both oil and gas in North America
resulting in an average realized price of $ 21.13 per boe as compared with an
average realized price of $ 14.81 boe in the year ended April 30, 1996.

Total sales for 1997 were virtually unchanged at $3.681 million compared to
$3.686 million for 1996.

Costs and expenses.  During the year non-recurring factors were substantially
-------------------                                                          
less than in previous years consequent upon a settlement having been reached
with Mr. O'Brien in August 1996. Exceptional charges of $0.292 million were
incurred for the year to 30 April 1997 as against $0.589 million for the
previous year.

Other operating costs decreased to $5.319 million compared to $6.559 million in
1996. This reduction is partly explained by the lower lease operating costs and
production taxes at $1.701 million (1996- $2.318 million) largely as a result of
lower production volumes following the disposals, but also as a result of
improved operational efficiency. In addition, the annual depletion charge was
lower at $1.043 million  (1996 - $ 1.612 million). Administrative charges for
the year were only slightly lower at $2.575 million  (1996 - $2.629 million).

Loss before and after tax (Net loss).  The loss before and after tax was $1.827
-------------------------------------                                           
million in 1997 compared with a loss of $3.593 million in 1996.  The 1996 loss
included exceptional charges of $0.589 million and exceptional amounts written
off investments of $0.201 million representing additional charges made to the
profit and loss account in respect of costs incurred in relation to investments
written off in the year to 30 April 1995 of $0.464 million.

Loss per share in 1997 was (0.3p) ($0.05) compared with the loss per share in
1996  of (0.8)p ($0.01).

1996 COMPARED WITH 1995

Operating Results

Production.  In the year ended April 30, 1996, Alliance's production amounted to
-----------
225,000 barrels of oil equivalent ("boe"). The increase of 158% in Alliance's
production over 87,000 boe in the year April 30, 1995 was principally due to the
inclusion of a full year's contribution from Source Petroleum Inc. (which was
acquired by Alliance on January 25, 1995) and a full year's contribution from
the producing assets acquired by Alliance from North American Gas Investment
Trust PLC (NAGIT) on April 10, 1995. Production was also enhanced by the
successful drilling during the year ended April 30, 1996 of a well on the South
Elton field.

                                      14
<PAGE>
 
All Alliance production came from the U.S.  Natural gas represented
approximately 45% of total production in both 1996 and 1995.

Sales.  Louisiana, South Sweet crude oil prices fluctuated between $15.00 per
-----                                                                        
barrel and over $23.25 per barrel during the year ended April 30, 1996.
Alliance's average crude oil price realized in 1996 was $18.36 per barrel
compared with $16.53 per barrel in 1995.  Total sales increased by 148% from
$1.483 million in 1995 to $3.686 million in 1996, reflecting the significant
increase in production.

In 1996 and 1995, all crude oil was sold under contracts with terms of up to six
months.

The average realized natural gas price increased from $1.65 per mcf in 1995 to
$1.73 per mcf in 1996.

Costs and expenses.  1996 operating costs were $2.318 million, compared $0.996
------------------                                                            
million in 1995, an increase of 133%.  This increase reflects the higher
production volumes resulting from a full year's contribution from Source
Petroleum Inc. and the NAGIT assets.  On a per barrel basis, lease operating
costs decreased, largely due to reductions in fixed costs, mainly field labor.

Depreciation, which is calculated on a unit of production (boe) basis, amounted
to $1.612 million, reflecting the higher production volumes.  In the previous
year, depletion was included as part of the exceptional write down of oil and
gas interests totaling $14.881 million.

Exceptional costs arising from irregularities in 1996 were $0.589 million, which
relate primarily to professional fees incurred in connection with the
investigations into the involvement of Mr. O'Brien in the affairs of Alliance,
and are net of the estimated proceeds resulting from the settlement with Mr.
O'Brien. The exceptional costs arising from irregularities in 1995 of $1.787
million reflect the financial loss resulting from a number of transactions
involving Mr. O'Brien or parties now known to have been connected with him.

The general and administrative expenses incurred in 1996 of $2.629 million (1995
- $1.637 million) include a number of non-recurring items which were incidental
to the investigation into the activities of Mr. O'Brien.

Loss before and after tax (Net loss).  The loss before and after tax was $3.593
------------------------------------                                           
million in 1996 compared with a loss of $18.213 million in 1995.  The 1995 loss
included the exceptional write-down of $14.881 million of oil and gas assets to
the carrying value of Alliance's estimated proved oil and gas reserves together
with the exceptional charge of $1.787 million relating to the loss arising from
transactions with certain companies related to Mr. O'Brien.

Net interest income increased from net interest payable of $0.114 million in
1995 to net interest receivable of $0.070 million in 1996.  The increase in
interest receivable from $0.049 million in 1995 to $0.257 million in 1996 arose
as the result of higher cash balances following the receipt of $11.7 million
from the placing and open offer in May 1995.  This also enabled Alliance to
substantially reduce its debt and hence reduce bank interest payable from $0.163
million in 1995 to $0.028 million in 1996.

Exceptional amounts written off investments in 1996 of $0.201 million represent
additional charges made to the profit and loss account in respect of costs
incurred in relation to investments written off in the year to 30 April 1995 of
$0.464 million.

Loss per Share in 1996 was (0.8)p ($0.01) compared with the loss per Existing
Alliance Share in 1995 of (8.1)p ($0.13).

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows and Liquidity

In the year ended April 30, 1997 net cash flow outflow from operations was
substantially reduced to $0.524 million compared to  $5.399 million in the
previous year ended April 30, 1996. During the year ended April 30, 1997 $ 2.227
million was received from the disposal of various non-operated properties and
after allowing for the payment of $1.141 million of expenses associated with the
acquisition of LaTex and related share issue, Alliance ended the year to April
30, 1997 with a small increase in cash of $0.288 million. The Group ended the
year to April 30, 1997 with cash balances of $1.461 million compared to $1.177
million at April 30, 1996.

                                      15
<PAGE>
 
In the year ended April 30, 1996 cash outflow from operating activities was
$5.399 million compared with an inflow in the year ended April 30, 1995 of
$1.987 million.  In the year ended April 30, 1996 a portion of the proceeds from
the placing and open offer was used to reduce operating creditors by almost $3.5
million.  By comparison, in the year ended April 1995, operating creditors had
increased by $4.7 million.

Capital expenditures in the year ended April30, 1997 were $0.311million compared
with $1.672million in the year ended April 30, 1996. The capital expenditure in
the year ended April 30, 1996 included the drilling of three wells, one of
which, in part of the South Elton field, was successful compared with only one
well in the year ended April 30, 1997.

At April 30, 1996 and April 30, 1997 Alliance had no capital commitments.

The domestic spot prices of oil and gas have traded, in a volatile manner over
various periods in recent years  To the extent that oil and gas prices are
volatile,  material fluctuations in revenues from quarter to quarter can be
expected which, in turn, could adversely affect  the Company's ability to
service its debt with its principal bank in a timely manner and to fund  its
ongoing operations and could, under certain circumstances, require a write-down
of the book value of  the Company's oil and gas reserves.

After making enquiries, the Directors have concluded that they have a reasonable
expectation that the Company has adequate resources to continue in operational
existence for the forseeable future. Accordingly, the going concern basis for
preparing the financial statements continues to be used.

In reaching this conclusion the Directors have considered  the satisfactory
progress made in integrating and rationalizing the operations since the
acquisition of LaTex on 1 May 1997. In addition, the Directors have considered
the financing arrangements with the Company's main lender, Bank of America, and
other factors such as the property disposal programme, the remedial work
programme, the proposed recompletion programme, the collateral value of the
Company's oil and gas reserves and the liquidity of the Company.

The Company announced on April 29, 1998 that it is in discussions which may, or
may not, lead to the acquisition of a minority interest in certain United
Kingdom gas interests. Such acquisition would be classified as a reverse
takeover under The Rules of the London Stock Exchange and accordingly subject to
Alliance Resources PLC shareholders approval. Accordingly on April 29, 1998 the
London Stock Exchange, at the Company's request, temporarily suspended the
listing of  the Company's ordinary shares pending shareholders approval of the
acquisition. The Company is currently in discussions with various parties
regarding financing arrangements to allow for the completion of the acquisition.
These discussions include potential revisions to the existing Credit Agreement
with Bank of America to provide the Company with additional funding and
liquidity until completion of the acquisition. On this basis the directors have 
concluded that they have a reasonable expectation that the Company has adequate 
resources to continue in operational existence for the foreseeable future. 
Accordingly the going concern basis for preparing the financial statements 
continues to be used.

Capital Expenditures.

The timing of most of the capital expenditures in relation to the Company's
existing US properties  is discretionary.  Currently, there are no material
long-term commitments associated with the Company's capital expenditure plans.
Consequently, the Company has a significant degree of flexibility to adjust the
level of such expenditures as circumstances warrant.  The Company primarily uses
internally generated cash flow and proceeds from the sale of oil and gas
properties to fund capital expenditures, other than significant acquisitions,
and to fund its working capital deficit.  If the Company's internally generated
cash flows should be insufficient to meet its banking or other obligations, the
Company may reduce the level of discretionary capital expenditures or increase
the sale of non-strategic oil and gas properties in order to meet such
obligations.  The level of the Company's capital expenditures will vary in
future periods depending on energy market conditions and other related economic
factors.  As a result, the Company will continue its current policy of funding
capital expenditures with internally generated cash flow and the proceeds from
oil and gas property divestitures.

Financing Arrangements

In connection with the acquisition of LaTex on May 1, 1997, a subsidiary of the
Company entered into a Credit Agreement (the "Alliance Credit Agreement") with
Bank of America NT & SA (the "Bank") effective as of March 19, 1997, amending
and restating the Credit Agreement in order to restructure LaTex's existing
indebtedness to the Bank.  As a restructuring fee, in connection with entering
into the Alliance Credit Agreement, the Company issued to the Bank the 156,250
Ordinary Shares and zero coupon convertible loan notes convertible into an
additional 115,456  Ordinary Shares.

                                      16
<PAGE>
 
Under the Alliance Credit Agreement principal payments are suspended until
October 31, 1998 following completion of the acquisition of LaTex.  However,
cash flows generated by the Company and its subsidiaries in excess of amounts
shown in the business plan that formed the basis of negotiation with the Bank
will be used to reduce outstanding principal indebtedness.  The maturity date of
the existing line of credit is March 31, 2000.

In connection with the acquisition of LaTex and the Alliance Credit Agreement,
the Company, effective May 1, 1997, acquired the overriding royalty interest in
all LaTex's existing producing oil and gas properties, other than those located
in the State of Oklahoma, the Perkins field in Louisiana, and certain other
minor value properties located in other states from an affiliate of the Bank in
exchange for 1,343,750 ordinary shares of the Company, convertible loan notes
and warrants.

Borrowings under the Alliance Credit Agreement maintained from time to time as a
"Base Rate Loan" bear interest, payable monthly, at a fluctuating rate equal to
the higher of (i) the rate of interest announced from time to time by the Bank
as its "reference rate" plus 1% or (ii) the "Federal Funds Rate" (as defined in
the Alliance Credit Agreement) plus 1  1/4%.  Borrowings under the Alliance
Credit Agreement maintained from time to time as a "LIBO Rate Loan" bear
interest, payable on the last day of each applicable interest period (as defined
in the Alliance Credit Agreement), at a fluctuating rate equal to the LIBO Rate
(Reserve Adjusted) (as defined in the Alliance Credit Agreement) plus 2%.  As at
January 31, 1998, the majority of advances to the Company under the Alliance
Credit Agreement were maintained as LIBO Rate Loans that bore interest at the
annual rate of 7.875%.

As a condition to the Bank making the loans under the credit agreement
previously in place with LaTex, LaTex's subsidiary, LaTex Petroleum, entered
into hedging agreements with the Bank designed to enable LaTex to (a) obtain
agreed upon net realized prices for LaTex's oil and gas production (the "LaTex
Oil and Gas Hedging Agreements") and (b) protect LaTex against fluctuations in
interest rates with respect to the principal amounts of all loans under the
LaTex credit agreement. Under the Alliance Credit Agreement, the Bank agreed to
make available, at its sole discretion, to the Company the amount of $2,500,000
("Tranche B Facility") to reduce or terminate certain oil and gas hedging
agreements entered into with LaTex. As at January 31,1998 $2.472 million had
been drawn under the Tranche B Facility by the Company.

Impact of Inflation and Changing Prices.

The business of the Company is not seasonal but is sensitive to crude oil and
natural gas pricing, margins between crude oil and refined products, and
chemical margins. Inflation impacts the Company by increasing costs of labor and
suppliers, and increasing costs of acquiring and replacing property, plant and
equipment.  The replacement cost of property, plant and equipment is generally
greater than the historical cost as a result of inflation.


ISSUES RELATED TO THE YEAR 2000

As the year 2000 approaches, there are uncertainties concerning whether computer
systems will properly recognize date-sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or fail. Because of the nature of the oil and gas industry and
the necessity for the Company to make reserve estimates and other plans well
beyond the year 2000, the Company's computer systems and software were already
configured to accommodate dates beyond the year 2000. The Company believes that
the year 2000 will not pose significant operational problems for the Company's
computer systems. The Company has not however, completed its assessment of third
parties with which it deals, and it is not possible at this time to assess the
effect of a third party's inability to adequately address year 2000 issues.

                                      17
<PAGE>
 
ITEM 10   DIRECTORS AND OFFICERS

The following table sets forth the name, age, position with Alliance and
principal occupations of each of the directors and executive officers of
Alliance.
<TABLE>
<CAPTION>
 
 
NAME                           AGE   POSITION WITH ALLIANCE AND                 INITIALLY
                                     PRINCIPAL OCCUPATION                        ELECTED
-----------------------------------------------------------------------------------------
<S>                            <C>   <C>                                        <C>
John A. ("Jak") Keenan          43   Chairman and Managing Director,                1996
                                     Chief Executive Officer
H. Brian K. Williams            43   Director,                                      1996
                                     Chief Financial Officer
Paul R. Fenemore                42   Director,                                      1996
                                     Operations and Business Development
M. Philip Douglas               58   Director                                       1993
                                     (Chairman of the Remuneration Committee)
William J. A. Kennedy           58   Director                                       1993
                                     (Chairman of the Audit Committee)
 
Christopher R. L. Samuelson     51   Director                                       1996
 
John R Martinson                61   Director                                       1997
 
Michael E  Humphries            41   Director                                       1997
 
</TABLE>

JOHN A. ("JAK")  KEENAN is an experienced executive in the U.S. and
international oil industry.  From 1986 until 1992, Mr. Keenan was First Vice
President of Corporate Development for Great Western Resources Inc., an
independent oil and gas exploration and production company listed on the London
Stock Exchange.  In that role he oversaw corporate acquisitions and divestitures
and also was the senior legal officer for the company.  In 1990, Mr. Keenan
assumed the additional role of Chief Operating Officer for Great Western and in
that role was responsible for day to day administration of the company's
affairs.  In 1992, Mr. Keenan was elected a director of Great Western and
appointed President of its Oil & Gas Division.  In that capacity he oversaw the
day to day operations of the division that included both domestic operations as
well as international operations in Peru.  He resigned his position at Great
Western in August, 1995 and accepted a position with the law firm of Jenkens &
Gilchrist in Houston, Texas, where he specialized in oil and gas transactions.
He left Jenkens & Gilchrist in February, 1996 to assume a role overseeing
Alliance's U.S. operations.  He was elected a director of Alliance in April,
1996 and appointed Managing Director in May, 1996.  Mr. Keenan is a U.S.
citizen.

H. BRIAN K. WILLIAMS joined the Board as Finance Director in June 1996.  He is a
chartered accountant and formerly the Finance Director of Pict Petroleum PLC and
previously with Hamilton Brothers and British National Oil Corporation.  Mr.
Williams is a citizen of the United  Kingdom.

PAUL R. FENEMORE was appointed to the Board of Alliance in May 1996 as
Operations and Business Development Director.  He has previously served in a
variety of technical and management positions in Amoco, Gulf Oil, Hamilton
Brothers, Cairn Energy and Amerada Hess.  Mr. Fenemore is a citizen of the
United Kingdom.

M. PHILIP DOUGLAS is Chairman of the Remuneration Committee and is a former
director of and head of international investment at Morgan Grenfell, where he
spent 16 years.  He is also a director of GT Management.  Mr. Douglas is a
citizen of the United Kingdom.

WILLIAM J. A. KENNEDY is Chairman of the Audit Committee.  After 25 years in the
investment industry, he served as a vice president of a major conglomerate,
Crownx Inc.  For the past five years he has operated a management consulting
service and sits on the boards of three public Canadian companies. Mr. Kennedy
is a citizen of Canada.

CHRISTOPHER R. L. SAMUELSON joined the Board as a non-executive director in
April 1996.  He has an extensive background in investment management and banking
and currently holds the position of Group Chief Executive of Valmet, a large
international trust company with whom he has been associated for the last twelve
years.  He also holds a wide number of directorships around the world.  Mr.
Samuelson is a citizen of the United Kingdom.

JOHN R. MARTINSON joined the  Board as a non-executive director in  April 1997.
He has a B.Sc. degree in engineering and a masters degree in business
administration. He became a director of LaTex Resources, Inc. in 

                                      18
<PAGE>
 
May 1995, having served as a consultant to that company since 1994. He is
managing director of Wood Roberts, LLC, where he has been engaged in financial
consulting since January 1989. From 1973 to 1988 Mr Martinson was an independent
oil and gas entrepreneur. Previously, he was with Kidder Peabody & Co.,
Oppenheimer & Co. and Mobil Corporation. Mr Martinson is a US citizen

MICHAEL E. HUMPHRIES joined the Board as a non-executive director in December
1997. Having  begun his career at Britoil Plc., he has spent 16 years working in
the international oil and gas arena and is currently Senior Vice President of
Rothschild Natural Resources, LLC, based in Washington DC, USA, where he has
responsibility for Rothschild's oil and gas activities in North America. Mr
Humphries is a citizen of the United Kingdom.


ITEM 11   COMPENSATION OF DIRECTORS AND OFFICERS

The aggregate compensation paid by Alliance to its directors and executive
officers as a group for services in all capacities for the year ended April 30,
1997 was $677,355. In addition during the year ended April 30, 1997 Alliance
contributed $7,757 to the personal pension plan of one of the directors.

The total compensation (excluding pension contributions) paid to the persons who
served as directors in the fiscal year  ended April 30, 1997  is set forth below
in the following summary compensation table:-


<TABLE>
<CAPTION>
                       SALARY        FEES      CONSULTANCY    TERMINATION     BENEFITS         TOTAL            TOTAL
                                                  FEES          PAYMENTS                        1997            1996
                          $           $             $              $              $              $                $
                   ------------------------------------------------------------------------------------------------------
EXECUTIVE
DIRECTORS
<S>                   <C>          <C>         <C>             <C>             <C>             <C>              <C>
J A Keenan            150,333                                                   5,061           155,394              -
P Fenemore            142,789                                                                   142,789              -
H B K Williams        144,751                                                                   144,751              -
 
NON-EXECUTIVE
DIRECTORS
D P Maley             13,386      12,169         48,678          48,678                        122,911         57,436
MP Douglas                        16,226                                                        16,226         30,012
WJA Kennedy                       16,226                                                        16,226         63,268
CRL Samuelson                     12,169         54,720                                         66,889              -
S J Robinson                      12,169                                                        12,169              -
 
PAST DIRECTORS                                                                                                422,507
                   ------------------------------------------------------------------------------------------------------
Total                451,259      68,959        103,398          48,678        5,061           677,355        573,223
                   ------------------------------------------------------------------------------------------------------
</TABLE>

SERVICE CONTRACTS

The service contracts of all executive Directors are for an initial term of 2
years, thereafter continuing for additional periods of 1 year (save for that of
John A Keenan which continues for additional periods of 2 years) and which
expire at age 65, the company's normal retirement date.  Save for the initial
fixed two year term (and John A Keenan's continuing periods of 2 years),  there
is no pre-determined compensation on termination which exceeds one year's salary
and benefits in kind.

The Remuneration Committee considers the notice periods to be appropriate given
Company requirements and the need to retain and motivate Executives of the
quality required.


The non-executive Directors appointments are for a fixed period of 3 years,
subject to their initial appointment and retirement by rotation being approved
by shareholders in Annual General Meeting under the provisions of the Company's
Articles of Association.  No compensation  is payable on early termination of
the appointment.

                                      19
<PAGE>
 
ITEM 12   OPTIONS

The Company has in place two Share Option Schemes, one of which is an Inland
Revenue approved scheme and which is open to UK resident executive Directors and
senior executives.  The second Share Option Scheme is open to overseas executive
Directors and senior executives.  Awards are subject to the recommendation of
the Remuneration Committee.

During the year ended April 30, 1997,  the following share options were granted
pursuant to the Alliance Share Option Schemes to Directors of the Company,
exercisable at 80p per share.

           John A Keenan                      150,000 options
           H Brian K Williams                  62,500 options
           Paul R Fenemore                     25,000 options

The number of shares comprised in the options and the exercise price have been
adjusted to reflect the 40 for 1 share consolidation which became effective
after the options were granted.


ITEM 13        INTEREST OF MANAGEMENT IN TRANSACTIONS

None

                                    PART II


ITEM 14        DESCRIPTION OF SECURITIES TO BE REGISTERED

None

                                    PART III
                                        

ITEM 15        DEFAULTS UPON SENIOR SECURITIES

None


ITEM 16        CHANGES IN SECURITIES

None

                                    PART IV
                                        

ITEM 17        FINANCIAL STATEMENTS

Reference is made to Item 19 for a list of all financial statements filed as
part of this Annual Report.

                                      20
 

<PAGE>
 
ITEM 19    FINANCIAL STATEMENTS AND EXHIBITS
 
                                                                    Page
(a)  Financial Statements
     --------------------

     Independent  Auditors' Report                                   F-2
     Consolidated Statements of Income for the years ended April 30,
     1997, 1996 and 1995                                             F-3
     Consolidated Balance Sheets as at April 30,1997 and 1996        F-4
     Consolidated Statement of Stockholders' Equity for the years
     ended April 30, 1997, 1996 and 1995                             F-5
     Consolidated Statement of  Total Recognised Gains and Losses
     for the years ended April 30, 1997, 1996 and 1995               F-6
     Consolidated Statements of Cash Flows for the years ended
     April 30,1997,1996 and 1995                                     F-7
     Notes to the Consolidated Financial statements                  F-8 to F-21
     Supplemental Oil and Gas data (unaudited)                       F-22
 
(b)  Exhibits
     --------

     Articles of Association

                                      21
<PAGE>
 
REPORT OF  INDEPENDENT  AUDITORS

                                        
To the Board of Directors
ALLIANCE RESOURCES PLC


We have audited the consolidated financial statements of Alliance Resources PLC
and subsidiaries listed in the accompanying index on page F-1 These consolidated
financial statements are the responsibility of the company's directors.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly in all material respects the financial position of Alliance Resources Plc
and subsidiaries as of April 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three year period
ended April 30, 1997 in conformity with generally accepted accounting principles
in the United Kingdom.

Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the United
States.  Application of generally accepted accounting principles in the United
States would have affected the results of operations for each of the years in
the three year period April 30, 1997 and shareholders' equity as at  April 30,
1997 and 1996, to the extent summarized in Note 25 to the consolidated financial
statements.



KPMG Audit Plc
Chartered Accountants
Registered Auditor
London, England
 
October 24, 1997

                                      F-2
<PAGE>
 
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
 
 
                                                                         YEAR ENDED APRIL 30,
                                                                  ------------------------------------
                                                                        1997        1996        1995
                                                            NOTES     $   000     $   000     $    000
<S>                                                        <C>        <C>         <C>         <C>  
Revenues:                                                                                  
Oil and natural gas sales and other operating revenues       (2)        3,681       3,686        1,483
                                                                      -------     -------     --------
                                                                                             
Costs and expenses:                                          (5)                             
Exceptional amounts written off oil and gas interests        (3)            -           -      (14,881)
Exceptional costs arising from irregularities                (4)         (292)       (589)      (1,787)
Direct operating expenses                                              (1,627)     (2,262)        (933)
Selling, general and administrative expenses                           (2,575)     (2,629)      (1,637)
Depreciation, depletion and amortization                               (1,117)     (1,668)         (63)
                                                                      -------     -------     --------
                                                                                             
Operating (loss)                                             (6)       (1,930)     (3,462)     (17,818)
Other income and deductions:                                                                 
Interest (net)                                               (8)          103         229         (114)
Profit on sales of fixed asset investment                                   -           -          183
Exceptional amounts written off investments                  (7)            -        (201)        (464)
Foreign exchange gains/(losses)                                             -        (159)           -
                                                                      -------     -------     --------
                                                                                           
Net (loss)                                                             (1,827)     (3,593)     (18,213)
                                                                      =======     =======     ========
                                                                
Loss per share (cents)                                      (10)        (0.48)      (1.10)       (13.0)
                                                                      =======     =======     ========
</TABLE>


                                      F-3
<PAGE>
 
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
                                                                                    AS AT APRIL, 30
                                                                                  -------------------
ASSETS                                                                              1997        1996
<S>                                                                               <C>        <C>
                                                                           Notes  $    000   $    000
                                                                           -----  --------   --------
Current assets:
Cash and cash equivalents                                                            1,461      1,177
Receivables:                                                                (13)
  Trade                                                                                326        736
  Other                                                                                260        557
Prepaid expenses                                                                     2,264         64
                                                                                  --------   --------
Total current assets                                                                 4,311      2,534
                                                                                  --------   --------
Net property, plant and equipment (full cost method for oil and
 gas properties)                                                            (11)     4,276      7,311
                                                                                  --------   --------
 
Total assets                                                                         8,587      9,845
                                                                                  ========   ========
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:                                                        (14)
  Bank loans and overdrafts                                                              -         37
  Development loans                                                                      6          5
  Trade accounts payable                                                               925      1,279
  Accrued expenses                                                                     155          -   
  Merger cost accrual                                                                1,082          -
  Other                                                                                377        677
                                                                                  --------   --------
Total current liabilities                                                            2,505      1,998
Long term debt, excluding current installments                              (15)        85         92
Provisions for liabilities and charges                                      (16)        36          -
                                                                                  --------   --------
Total liabilities
                                                                                     2,626      2,090
                                                                                  --------   --------
 
Stockholders' equity:
Ordinary shares, (Pounds)0.01 par value. Authorized 465,000,000 shares;     (17)     5,105   5,105
issued 324,152,633 in 1997 and 1996
Share premium                                                                       20,157     20,157
Merger reserve                                                                         401        401
Retained earnings                                                                  (19,702)   (17,908)
                                                                                  --------   --------
Total stockholders' equity                                                           5,961      7,755
                                                                                  --------   --------
 
Total liabilities and stockholders' equity                                           8,587      9,845
                                                                                  ========   ========
</TABLE>


                                      F-4
<PAGE>
 
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
 
                                            ADDITIONAL   TOTAL                                    STOCK
                                ORDINARY    SHARES TO   PAID IN   MERGER   SPECIAL   RETAINED    HOLDERS
                                 SHARES     BE ISSUED   CAPITAL   RESERVE  RESERVE   EARNINGS    EQUITY
<S>                             <C>        <C>          <C>       <C>      <C>       <C>        <C>
                                 $   000      $   000   $   000      $000  $   000   $    000   $    000
                                 -------   ----------   -------   -------  -------   --------   --------
 
 
As at April 30, 1994               5,385            -    12,116         -        -     (5,212)    12,289
Issues of shares                     449            -     1,931       401        -          -      2,781
Shares to be issued                    -        2,030         -         -        -          -      2,030
Share issue costs                      -            -      (317)        -        -          -       (317)
Capital reduction                 (3,310)           -    (5,808)        -    4,300      4,818          -
Retained loss for the year             -            -         -         -        -    (18,213)   (18,213)
Foreign exchange translation           -            -         -         -        -         (8)        (8)
                                 -------   ----------   -------   -------  -------   --------   --------
 
 
As at April 30, 1995               2,524        2,030     7,922       401    4,300    (18,615)    (1,438)
Issues of shares                   2,581       (2,030)   12,678         -        -          -     13,229
Share issue costs                      -            -      (443)        -        -          -       (443)
Special reserve transfer               -            -         -         -   (4,300)     4,300          -
Retained loss for the year             -            -         -         -        -     (3,593)    (3,593)
                                 -------   ----------   -------   -------  -------   --------   --------
 
 
As at April 30, 1996               5,105            -    20,157       401        -    (17,908)     7,755
Retained loss for the year             -            -         -         -        -     (1,827)    (1,827)
Foreign exchange translation           -            -         -         -        -         33         33
                                 -------   ----------   -------   -------  -------   --------   --------
 
As at April 30, 1997               5,105            -    20,157       401        -    (19,702)     5,961
                                 -------   ----------   -------   -------  -------   --------   --------
</TABLE>

                                      F-5
<PAGE>
 
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES

<TABLE>
<CAPTION>
 
 
                                                        YEAR ENDED APRIL 30
                                                    ----------------------------
 
                                                       1997      1996       1995
                                                    $   000   $   000   $    000
<S>                                                 <C>       <C>       <C>
 
Loss for the year                                    (1,827)   (3,593)   (18,213)
Foreign exchange translation                             33         -         (8)
                                                    -------   -------   --------
Total recognized gains and losses for the period     (1,794)   (3,593)   (18,221)
                                                    =======   =======   ========
 
</TABLE>

                                      F-6
<PAGE>
 
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CASH FLOWS



<TABLE>
<CAPTION>
 
 
                                                                       YEAR ENDED APRIL 30
                                                                    --------------------------
                                                                     1997      1996      1995
                                                                    $  000   $   000   $   000
                                                                    ------   -------   -------
<S>                                                          <C>    <C>      <C>       <C>
                                                             Notes
 
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES             18    (524)   (5,399)    1,987
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE                 19      54       208      (114)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT                    19   1,432    (2,512)   (4,045)
                                                                    ------   -------   -------
Cash inflow / (outflow) before use of liquid resources
and financing                                                          962    (7,703)   (2,172)
 
FINANCING                                                       19    (674)    9,765     2,654
                                                                    ------   -------   -------
INCREASE IN CASH IN THE PERIOD                                         288     2,062       482
                                                                    ======   =======   =======
 
RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET FUNDS /
(DEBT)                                                          20
 
INCREASE IN CASH IN THE PERIOD                                         288     2,062       482
Decrease/(increase) in loans                                             7       528      (620)
Translation difference                                                  33         -        (8)
                                                                    ------   -------   -------
MOVEMENT IN NET FUNDS IN THE PERIOD                                    328     2,590      (146)
NET FUNDS / (DEBT) AT BEGINNING OF PERIOD                            1,048    (1,542)   (1,396)
                                                                    ------   -------   -------
NET FUNDS/ (DEBT) AT END OF PERIOD                                   1,376     1,048    (1,542)
                                                                    ======   =======   ========
</TABLE>

                                      F-7
<PAGE>
 
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ACCOUNTING POLICIES

         (a)     Basis of preparation

         The accounting policies set out in (b) to (n) below have been used by
         the Company in the preparation of the financial statements.

         The Cashflow Statement has been prepared in accordance with Financial
         Reporting Standard 1 (Revised 1996) - "Cash Flow Statements" and the
         comparative figures have been restated.

         (b)     Accounting conventions

         The financial statements have been prepared under the historical cost
         convention and in accordance with applicable accounting standards in
         the United Kingdom.

         (c)     Basis of consolidation

         The consolidated financial statements comprise the financial statements
         of the Company and its subsidiary undertakings.

         (d)     Goodwill
 
         Goodwill relating to businesses purchased by the Group, where arising,
         is set off immediately against reserves.

         (e)     Reporting currency

         The Group's current operations are in the oil and gas industry in the
         United States and are conducted through its subsidiaries, Alliance
         Resources (USA) Inc. and Source Petroleum Inc.. Transactions are
         conducted primarily in US dollars. As a result, the directors consider
         that the US dollar is the functional currency of the Group and the
         Group's financial statements have been prepared in US dollars. The
         Company's share capital is denominated in sterling and for the purposes
         of the financial statements, is translated into US dollars at the rate
         of exchange at the time of its issue.

 
        (f)      Foreign currency translation

        The accounts of companies of the Group whose functional currency is not
        US dollars are translated for consolidation purposes at the rate of
        exchange ruling at the balance sheet date. Exchange differences arising
        on the retranslation of opening net assets are taken directly to
        reserves.

        For those companies whose functional currency is US dollars,
        transactions with third parties are translated into US dollars at the
        exchange rate prevailing at the date of each transaction. Monetary
        assets and liabilities denominated in foreign currencies are translated
        into US dollars at the exchange rate prevailing at the balance sheet
        date. Any exchange gain or loss is dealt with through the profit and
        loss account.

        (g)      Abandonment

        Provision is made for abandonment costs net of estimated salvage values,
        on a unit-of-production basis, where appropriate.

                                      F-8
<PAGE>
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 


       (h)     Turnover

       Turnover represents income from production and delivery of oil and gas,
       recorded net of royalties and fees for the provision of technical
       services. All turnover arises from activities within the United States.

       (i)     Oil and gas interests

       The Group follows the full cost method of accounting for oil and gas
       operations whereby all costs of exploring for and developing oil and gas
       reserves are capitalised as tangible fixed assets. Such costs include
       lease acquisition costs, geological and geophysical costs, the costs of
       drilling both productive and non-productive wells, production equipment
       and related overhead costs. Capitalised costs, plus estimated future
       development costs are accumulated in pools on a country-by-country basis
       and depleted using the unit-of-production method based upon estimated
       proved net reserve volumes. Reserve volumes are combined into equivalent
       units using relative energy content.

       Costs of acquiring and evaluating unproved properties and major
       development projects are excluded from the depletion calculation until it
       is determined whether or not proved reserves are attributable to the
       properties, the major development projects are completed, or impairment
       occurs, at which point such costs are transferred into the pool.

       Proceeds from the sale or disposal of properties are deducted from the
       relevant cost pool with any overall deficit or surplus being recognised
       in the profit and loss account.

       The Group performs a `ceiling test' calculation in line with industry
       practice. Costs permitted to be accumulated in respect of each cost pool
       are limited to the future estimated net recoverable amount from estimated
       production of proved reserves. Future estimated net recoverable amounts
       are determined using prices and cost levels at the balance sheet date.

       (j)     Depreciation of other fixed assets

       Other tangible fixed assets are stated at cost less accumulated
       depreciation. Depreciation is provided on a straight line basis to write
       off the cost of assets, net of estimated residual values, over their
       estimated useful lives as follows:

       Fixtures and equipment  -    3 to 7 years
       Freehold buildings      -    30 years

       No depreciation is provided on freehold land.

       (k)     Deferred taxation

       Deferred taxation, calculated using the liability method, is provided
       where it is probable that a liability will crystallise.

       (l)     Joint ventures

       The Group's exploration, development and production activities are
       generally conducted in joint ventures with other companies. The financial
       statements reflect the relevant proportions of turnover, production,
       capital expenditure and operating costs applicable to the Group's
       interests.

       The effects of redeterminations of equity interests in joint ventures are
       accounted for when the outcome of the redetermination is known.

                                      F-9
<PAGE>

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

       (m)     Fixed asset investments

       Fixed asset investments are stated at cost less any provisions required
       for permanent diminutions in value.

       (n)     Leases

       Rentals under operating leases are charged to the profit and loss account
       on a straight line basis over the lease term.

NOTE 2 - SEGMENTAL REPORTING

       The Group's current operating activities are principally conducted in the
       United States of America and relate to the oil and gas exploration and
       production business and the provision of oil and gas services to this
       business. All turnover arises from activities within the United States of
       America, with turnover by destination not materially different from
       turnover by origin.

NOTE 3 - EXCEPTIONAL AMOUNTS WRITTEN OFF OIL AND GAS INTERESTS

       The proved oil and gas reserves of the Group and the net recoverable
       amount arising therefrom were estimated as at April 30, 1995 by Ryder
       Scott Company, a firm of independent petroleum engineers following the
       discovery that Valentine #14 well was not capable of commercial
       production and that the Group had relinquished title to its undeveloped
       acreage in the Valentine field.

       The amount of $14,881,000 written off in the year to April 30, 1995
       represents the write down relating to the carrying value of the Group's
       oil and gas interests as restated after the reclassification of
       $1,787,000 as a separate exceptional item.

NOTE 4 -  EXCEPTIONAL COSTS ARISING FROM IRREGULARITIES

       The exceptional charge comprises:
<TABLE>
<CAPTION>
 
                                                              1997    1996    1995
                                                              ----    ----    ---- 
<S>                                                           <C>    <C>     <C>
                                                              $ 000  $ 000   $  000
       Loss arising from transactions with certain companies
       related to Mr. O'Brien                                     -     73    1,787
       Professional fees                                        121    788        -
       Settlement with Mr. O'Brien                              171   (272)       -
                                                              -----  -----   ------
                                                                292    589    1,787
                                                              =====  =====   ======
</TABLE>
       PROFESSIONAL FEES

       The exceptional cost of $121,000 in the year to April 30, 1997 (1996:
       $788,000 ; 1995: $ nil) relates to the cost of professional assistance
       obtained by the directors in relation to actions taken arising from the
       alleged fraudulent activities in the period in which Mr. O'Brien was
       Chief Executive.
 
       PROCEEDS RESULTING FROM THE SETTLEMENT WITH MR. O'BRIEN

       The financial statements for the year ended April 30, 1995 were restated
       following the conclusion of an investigation into the losses suffered by
       the Company as a result of alleged fraudulent activities concerning Mr
       O'Brien, a former Chief Executive of the Group.

       As part of the settlement reached with Mr. O'Brien, the 10,351,966 shares
       in the Company held in the name of Progas Holdings Ltd. have now been
       sold and the Company has received the proceeds of such sale amounting to
       $123,023.

                                     F-10
<PAGE>
 
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 - OPERATING COSTS
<TABLE>
<CAPTION>

 
                                                              1997    1996     1995
                                                            ------  ------  -------
                                                            $  000  $  000  $   000
<S>                                                         <C>     <C>     <C> 
 Total operating costs were:                                 5,611   7,148   19,301
                                                            ======  ======  =======

 Made up as follows:
 Cost of sales
  Exceptional amounts written off oil and gas
  interests                                                      -       -   14,881
  Exceptional costs arising from irregularities                  -       -    1,787
  Operating costs and production taxes                       1,701   2,318      996
  Depletion of oil and gas interests                         1,043   1,612        -
                                                            ------  ------  -------
                                                             2,744   3,930   17,664
                                                            ======  ======  =======

 
 Administrative expenses
  Exceptional professional fees
  net of settlement proceeds  (note 4)                         292     589        -
  Administrative expenses                                    2,575   2,629    1,637
                                                            ------  ------  -------
                                                             2,867   3,218    1,637
                                                            ======  ======  =======

 The gross profit / (loss) was:-                               937    (244) (16,181)
                                                            ======  ======  =======
</TABLE>


 
NOTE 6 -    OPERATING LOSS
<TABLE>
<CAPTION>

     The operating loss has been arrived at after charging the following:

 
                                                              1997    1996    1995
                                                             ------  ------  -------
<S>                                                          <C>     <C>     <C>
                                                             $  000  $  000  $   000
 
     Auditors' remuneration - audit                              55     188       48
     Auditors' remuneration - other fees paid to
     the auditors and its associates                             29      41       68
     Depreciation, depletion and amortisation of
     tangible fixed assets (excluding oil and gas assets)        74      56       63
     Depreciation, depletion and amortisation of
     oil and gas fixed assets                                 1,043   1,612   14,881
     Abandonment provision                                       16       -        -
     Rentals payable in respect of operating leases
      Lease costs on buildings                                   41      35       62
      Hire of plant and equipment                                55      78        4
                                                              =====   =====   ======
</TABLE>

                                     F-11
<PAGE>
 
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -  EXCEPTIONAL AMOUNTS WRITTEN OFF INVESTMENTS

     Following the removal of Mr. O'Brien in September 1995, the Group reviewed
     its portfolio of investments, unlisted investments and joint venture
     interests.  It was considered unlikely that significant amounts would be
     recovered from the Tatarstan investment or from the Geos joint venture.
     Accordingly, additional charges were made to the profit and loss account in
     the year ended 30 April 1996 in respect of costs incurred in relation to
     these investments .

 
 
NOTE 8 - INTEREST (NET)
 
                                                          1997    1996    1995
                                                         -----   -----   -----
                                                         $ 000   $ 000   $ 000

          Interest receivable                              113     257      49
          On bank loans and overdrafts wholly
            repayable within 5 years                       (10)    (28)   (163)
                                                         -----   -----   -----
                                                           103     229    (114)
                                                         =====   =====   =====


NOTE 9 - TAXATION

     No material charge to UK corporation tax or US Federal income tax arises on
     the results for the year to April 30, 1997 (1996: $ nil 1995: $ nil) due to
     the availability of substantial losses for taxation purposes.

     Deferred taxation has not been provided as at April 30, 1997 as sufficient
     losses exist to extinguish potential deferred liabilities (1996: $ nil ;
     1995: $nil).

NOTE 10 - LOSS PER SHARE

     The calculation of loss per share is based upon the following:
                                           1997           1996         1995
                                           ----           ----         ----

     Loss for the period ($000)               1,827          3,593       18,213
                                        ===========    ===========  ============

     Weighted average number of shares  324,152,633    317,175,674  140,416,616
                                        ===========    ===========  ============

 
                                     F-12
<PAGE>
 
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11 - NET PROPERTY, PLANT & EQUIPMENT
<TABLE>
<CAPTION>
 
                                                 FREEHOLD
                                                 LAND AND  OIL AND GAS    FIXTURES &
                                                 BUILDING   INTERESTS     EQUIPMENT    TOTAL
                                                 --------  ------------  -----------  --------
<S>                                              <C>       <C>           <C>          <C>
                                                     $000      $   000         $000   $   000
 
     Cost
     - At May 1, 1996                                 104       25,304          113    25,521
     - Additions                                        -          270           41       311
     - Disposals                                        -       (3,005)          (4)   (3,009)
                                                  -------      -------      -------   -------
     At April 30, 1997                                104       22,569          150    22,823
                                                  -------      -------      -------   -------
 
     Depreciation, depletion and amortization
     - At May 1, 1996                                   4       18,197            9    18,210
     - Charge for the year                              3        1,043           71     1,117
     - Disposals                                        -         (778)          (2)     (780)
                                                  -------      -------      -------   -------
     At April 30, 1997                                  7       18,462           78    18,547
                                                  =======      =======      =======   =======
     Net book value
 
     At April 30, 1997                                 97        4,107           72     4,276
                                                  =======      =======      =======   =======

     At April 30, 1996                                100        7,107          104     7,311
                                                  =======      =======      =======   =======
</TABLE>

     A substantial portion of the Group's oil and gas exploration, development
     and production activities are conducted jointly with others.

     All of the Group's producing oil and gas interests are located in one
     onshore US oil and gas pool.

     Pre-development expenditure amounting to $71,000 incurred on international
     prospects was capitalised during the year.  Of the $71,000 capitalised,
     $35,000 was written-off under the impairment test carried out at April 30,
     1997.

     Freehold land of $25,000 is not depreciated.

                                     F-13
<PAGE>
 
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12 - PRINCIPAL SUBSIDIARY UNDERTAKINGS
 
     The principal subsidiaries of the Company at April 30, 1997, all of which
     were wholly owned, were as follows:-
<TABLE>
<CAPTION>
                                                              ISSUED AND
                                   PLACE OF                   FULLY PAID                  %                      NATURE OF
                                   REGISTRATION               SHARE CAPITAL               OWNED                  BUSINESS
                                   ------------               -------------               -----                  --------
<S>                                <C>                        <C>                         <C>                    <C>
 
 Alliance Resources (USA), Inc.    USA                         2,000                        100                   Oil and gas
                                                               common shares                                      exploration
                                                               US$1 each                                          and
                                                                                                                  production
 
 Manx Petroleum Plc*               England                     2,585,705                    100                   Oil services
                                                               ordinary shares
                                                               of 5p each and
                                                               1,300,000
                                                               deferred shares
                                                               of 95p each
 Celtic Basin Oil
 Exploration Ltd.                 England                      621,110                      100                   Oil and gas
                                                               ordinary shares                                    exploration
                                                               of (Pounds)1 each                                  and
                                                                                                                  production
 
 Source Petroleum, Inc.           USA                          1,000 common                 100                   Oil and gas
                                                               shares of US$1                                     exploration
                                                               each                                               and
                                                                                                                  production
 
 Alliance Resources Group Inc.*   USA                          100 common                   100                   Investment
                                                               shares of US$1                                     holding
                                                               each
 
 ARNO, Inc.                       USA                          100 common                   100                   Oil and gas
                                                               shares of no                                       exploration
                                                               par value                                          and
                                                                                                                  production
 *  owned directly by the Company
</TABLE> 

 The place of registration of each subsidiary undertaking is also its principal
 country of operation.
 
NOTE 13 - ACCOUNTS RECEIVABLE
 
                                                        1997        1996
                                                        ----        ----
                                                        $000        $000
 Due within one year
 - Trade debtors                                         326         736
 - Other debtors                                         260         557
 - Prepayments and accrued income:
       Acquisition and share and debt issue expenses   2,223           -
       Other                                              41          64
                                                       -----       -----
                                                       2,850       1,357
                                                       =====       =====
 
                                     F-14

<PAGE>
 
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 14 - CURRENT LIABILITIES
                                                                1997     1996
                                                                ----     ----
                                                                $000     $000
 
 Bank loans (secured)                                              -       37
 Trade creditors                                                 925    1,279
 Other creditors including taxation and social security        1,419      677
 Other loans                                                       6        5
 Accruals                                                        155        -
                                                              ------   ------
                                                               2,505    1,998
                                                              ======   ======
 
NOTE 15 - LONG-TERM DEBT AND OTHER LIABILITIES
                                                                1997     1996
                                                                ----     ----
                                                                $000     $000
 
 Other loans (secured)                                            85       92
                                                              ======   ======
 Other loans were repayable as follows:
                                                                1997     1996
                                                                ----     ----
                                                                $000     $000
 
 Less than one year (see note 16)                                  6        5
 Between one and two years                                         6        6
 Between two and five years                                       24       21
 After five years                                                 55       65
                                                              ------   ------
                                                                  91       97
 Less: amounts included in creditors falling
 due within one year                                              (6)      (5)
                                                              ------   ------
 Amounts due after more than one year                             85       92
                                                              ======   ======

     Other loans as at April 30, 1997 comprised a $91,000 (1996: $97,000) loan
     repayable in instalments, bearing interest at 9% per annum, which was
     secured on the Group's freehold land and buildings.


NOTE 16 - PROVISION FOR LIABILITIES AND CHARGES

     Represents a provision for abandonment costs on the Group's producing
     wells.
 
                                      1997
                                      ----
                                     $ 000
     At  May 1, 1996                   Nil
     Current year charge to P & L       16
     Reallocation from creditors        20
                                     -----
     At April 30, 1997                  36
                                     =====

                                     F-15
<PAGE>
 
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 17 -  SHARE CAPITAL

 
     NUMBER                                        1997          1996
                                           ------------  ------------
 
     Authorised
     - ordinary shares of 1p each           465,000,000   465,000,000
                                           ============  ============
     Allotted, called up and fully paid
     - ordinary shares of 1p each           324,152,633   324,152,633
                                           ============  ============
 
                                                   1997     30 APR 96
                                           ------------  ------------
     AMOUNT IN STERLING                     (Pounds)000   (Pounds)000
 
     Authorised
     - ordinary shares of 1p each                 4,650         4,650
                                           ============  ============
     Allotted, called up and fully paid
     - ordinary shares of 1p each                 3,242         3,242
                                           ============  ============
 
                                                   1997          1996
                                           ------------  ------------
     AMOUNT IN US DOLLARS                  $        000  $        000
 
     Allotted, called up and fully paid
     - ordinary shares of 1p each                 5,105         5,105
                                           ============  ============

     ISSUE OF SHARES

     No shares were issued in the year to April 30, 1997. Details of the shares
     issued since April 30, 1997 are set out in Note  22.

     SHARE CONSOLIDATION

     On May 1, 1997 a share consolidation was effected whereby every existing 40
     ordinary shares of 1p. each were consolidated into 1 ordinary share of 40p.
     each.

     SHARE OPTIONS

     By an agreement dated March 31, 1994, the Company granted to John Duncan
     and Co. Limited an option to subscribe for 50,000 ordinary shares of 40p.
     each at (Pounds)3.00 per share (adjusted to reflect the 40 for 1 share
     consolidation mentioned above) in consideration for professional services.
     The option is exercisable in whole or in part at any time from January 1,
     1998 up to and including December  31, 2001.

     The Company has in place two Share Option Schemes, one of which is an
     Inland Revenue approved scheme and which is open to UK resident executive
     Directors and senior executives.  The second Share Option Scheme is open to
     overseas executive Directors and senior executives.  Awards are subject to
     the recommendation of the Remuneration Committee.

     During the year ended April 30, 1997, the following share options were
     granted pursuant to the Alliance Share Option Schemes to Directors of the
     Company, exercisable at 80p per share.

              John A Keenan                         150,000 options
              H Brian K Williams                     62,500 options
              Paul R Fenemore                        25,000 options

                                     F-16
<PAGE>
 
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


     The number of shares comprised in the options and the exercise price have
     been adjusted to reflect the 40 for 1 share consolidation which became
     effective after the options were granted.

NOTE 18 - RECONCILIATION OF OPERATING PROFIT TO OPERATING CASHFLOWS
<TABLE>
<CAPTION>
 
                                                         YEAR ENDED APRIL 30
                                                    -----------------------------
                                                      1997      1996      1995
                                                    --------  --------  ---------
<S>                                                 <C>       <C>       <C>
                                                    $   000   $   000   $    000
 
     Operating loss                                  (1,930)   (3,462)   (17,818)
     Exceptional amounts written off                      -         -     14,881
     Profit on sale of investments                        -       (51)         -
     Depreciation, depletion and amortization of
     oil and gas interests                            1,043     1,612          -
     Depreciation of non-oil and gas interests           74        56         63
     Abandonment                                         16         -          -
     Decrease / (increase) in debtors                   743      (138)       114
     Decrease in creditors                             (470)   (3,416)     4,747
                                                    -------   -------   ---------
     Net cash outflow from operating activities        (524)   (5,399)     1,987
                                                    =======   =======   =========
</TABLE>
NOTE 19 - ANALYSIS OF CASHFLOWS FOR HEADINGS NETTED IN THE CASHFLOW STATEMENT

<TABLE>
<CAPTION>
                                                                             YEAR ENDED APRIL 30
                                                                             -------------------
                                                                      1997               1996               1995
                                                                     $  000            $   000            $   000
<S>                                                                  <C>               <C>                <C>
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received                                                        64                236                 49
Interest paid                                                           (10)               (28)              (163)
                                                                     ------            -------            -------
NET CASH INFLOW  FOR RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE                                                 54                208               (114)
                                                                     ======            =======            =======
 
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets                                      (321)            (3,270)            (3,413)
Purchase of investments                                                   -                (59)              (165)
Acquisition expenses                                                   (474)                 -               (941)
Sales of investments                                                      -                 77                474
Sale of tangible fixed assets                                         2,227                740                  -
                                                                     ------            -------            -------
 
NET CASH INFLOW/(OUTFLOW)  FOR CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT                                                  1,432             (2,512)             (4045)
                                                                     ======            =======            =======
 
FINANCING
Issue of new shares                                                       -             12,087                  -
Share issue costs                                                      (536)              (443)              (317)
Repayment of development loans                                            -             (1,351)             2,351
Repayment of other loans                                                 (7)              (528)               620
Debt issue costs                                                       (131)                 -                  -
                                                                     ------            -------            -------
 
NET CASH (OUTFLOW)/ INFLOW FROM FINANCING                              (674)             9,765              2,654
                                                                     ======            =======            =======
</TABLE>

                                     F-17
<PAGE>
 
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 20 - ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>

 
                                             MAY 1, 1996   CASHFLOW   EXCHANGE  APRIL 30, 1997
                                                                      MOVEMENT
                                                    $000     $000         $000          $ 0000
<S>                                          <C>           <C>        <C>       <C>   
  Cash in hand, at bank                            1,177        251         33           1,461
  Cash overdraft                                     (37)        37          -               -
  Debt due > 1 year                                  (92)         7          -             (85)
                                                  ------     ------     ------          ------
                                                   1,048        295         33           1,376
                                                  ======     ======     ======          ======
</TABLE> 
NOTE 21 - EMPLOYEES
<TABLE>
<CAPTION>
                                                              1997       1996            1995
                                                              $000       $000            $000
                                                             ------     ------          ------
<S>                                                          <C>        <C>             <C> 

 Staff costs (including Executive Directors)
   Salaries and wages                                           730        661             443
   Social security costs                                         47         82              16  
   Termination costs                                             49        178               -
   Other pension costs                                            8          7               -
                                                             ------     ------          ------
                                                                834        928             459
                                                             ======     ======          ======

                                                               1997       1996            1995
                                                               $000       $000            $000
                                                             ------     ------          ------
 Aggregate directors' emoluments (including
 pension contributions) were:
 as directors                                                    69         46               9
 for management services:
 salaries                                                       451        341             216
 benefits-in-kind                                                 5          4               -
 pension contributions                                            8          7               -
 fees to third parties                                          103         26               -
 Payments to former directors in respect of
 termination of contracts                                        49        156               -
                                                             ------     ------          ------
                                                                685        580             225
                                                             ======     ======          ======
</TABLE>
  The average number of persons employed by the Group, including Executive
Directors, was as follows:
<TABLE>
<CAPTION>
 
                                                               1997       1996            1995
                                                             ------     ------          ------
<S>                                                          <C>        <C>             <C>
 
 Management and administration                                    6          8               9
 Technical and operational                                        6          7              11
                                                             ------     ------          ------
                                                                 12         15              20
                                                             ======     ======          ======
</TABLE>

                                     F-18
<PAGE>
 
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 22 - SUBSEQUENT EVENTS

     On May 1, 1997, the Company completed the following transactions:-

     .    The acquisition of LaTex Resources, Inc., a US independent oil and gas
          exploration and production company, for a consideration of the issue,
          credited as fully paid, of up to 21,448,787 ordinary shares of 40p.
          each and the issue of 1,927,908 warrants exercisable at various times
          between November 16, 1997 and December 16, 2002 conferring the right
          to subscribe for up to 1,927,908 ordinary shares of 40p. each

     .    The acquisition from the Bank of America of an overriding royalty
          interest providing an entitlement to 6.3 % of LaTex's share of
          hydrocarbons produced from almost all of LaTex's oil and gas
          properties for a consideration of the issue to the Bank of America of
          1,343,750 ordinary shares of 40p. each, warrants to subscribe for
          1,210,938 ordinary shares of 40p. each and loan notes convertible into
          1,078,125 ordinary shares of 40p. each. The total consideration
          amounted to $3.8 million.

     .    A share consolidation pursuant to which every 40 ordinary shares of
          1p. each were consolidated into 1 ordinary shares of 40p.

     .    A refinancing of LaTex in consideration for restructuring and
          arrangement fees charged by Bank of America of $350,000, satisfied as
          to $200,000 by the issue to Bank of America of 156,250 ordinary shares
          of 40p. each credited as fully paid and as to $150,000 by the issue to
          the bank of loan notes convertible into 115,456 ordinary shares of
          40p. each.

     The above transactions were approved by the Company's shareholders at an
     Extraordinary General Meeting held on April 30, 1997  and completed on May
     1, 1997. The acquisition of LaTex will be treated as a reverse acquisition
     under which  the Company's historical results will be replaced by those of
     LaTex and the Company will be incorporated at fair value on May 1, 1997

     On  June, 12 1997 the Group sold a number of non-operated properties in 21
     fields comprising 33 separate properties located in the states of
     Colorado, Louisiana, New Mexico, North Dakota, South Dakota, Texas and
     Wyoming for a cash consideration of  $1.9 million. The properties had net
     reserves of 194,000 barrels of oil and 1.5 billion cubic feet of natural
     gas as of March 1, 1997, the effective date of the transaction, which
     represented approximately 3% of the Group's total oil and gas reserves.


NOTE 23 - LITIGATION

     Alliance is party to the following litigation:

     Best Royalties Plc are claiming a sum of $186,368 and a declaration that
     they are entitled to a sum equal to 40% of Alliance Resources (USA), Inc.'s
     net cash proceeds received from the Arrowhead well (and payment of the said
     sum), alternatively damages, plus interest thereon. Alliance denies the
     claim and is vigorously defending it;


NOTE 24 - CAPITAL COMMITMENTS

     There were no capital commitments contracted at April 30, 1997 (1996: $
     nil).

                                     F-19
<PAGE>
 
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 25 - SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
          ACCEPTED IN THE UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
          ACCOUNTING PRINCIPLES

     The Company's accounting policies conform with United Kingdom generally
     accepted accounting principles ("UK GAAP") which differ in certain respects
     from United States generally accepted accounting principles ("US GAAP").
     Differences which have a significant effect on the consolidated profit
     after tax (net income) and shareholders' equity of the Group are set out
     below.

     (a)  Ceiling tests

     A ceiling test has been carried out, in accordance with UK GAAP on an
     annual basis, to determine the maximum net book amount of expenditure
     within the cost pool of oil and gas assets which may be recognized.  The
     ceiling test is based on the Company's best estimate of the future
     undiscounted cash flows from the underlying properties.  Under US GAAP, SEC
     regulations require ceiling tests to be computed at current prices
     discounted to present value at 10% on a quarterly basis. Under UK GAAP a
     ceiling test deficit should be written off to expense only if it indicated
     a permanent diminution in value.  Under US GAAP any deficit calculated on
     the standard basis should be charged immediately to the profit and loss
     account.

     (b)  Goodwill

     Under UK GAAP goodwill arising on acquisitions has been set off directly
     against reserves.  Under US GAAP, goodwill arising from acquisitions is
     capitalized and amortized over its estimated useful life.  However,
     following irregularities mentioned above, US GAAP requires the balance to
     be written of in 1995.

     (c)  Estimated proceeds of Alliance shares

     As set out in note 4, the Company in the year ended April 30, 1996
     recognized an exceptional credit of $272,000 relating to the right to
     receive the proceeds of the sale of Alliance shares resulting from the
     settlement with Mr. O'Brien under UK GAAP. Subsequent to the year ended
     April 30, 1997 the  shares were sold and the Company received the proceeds
     of sale amounting to $123,000. A provision to recognize this recoverable
     amount was made during the year ended April 30, 1997.  Under US GAAP, such
     proceeds are recognized only on receipt.

     (d)  Statements of cash flows

     The Company has adopted United Kingdom Financial Reporting Standard No. 1
     "Cash Flow Statements" ("FRS 1"). Its objectives and principles are similar
     to those set out in the US Statement of Financial Standards No. 95
     "Statement of Cash Flows" ("SFAS 95"). The principal difference between the
     standards relates to classification. Under FRS 1, the Company presents its
     cash flows from (a) operating activities; (b) returns on investments and
     servicing of finance; (c) taxation; (d) capital expenditure and financial
     investment; and (e) financing activities. SFAS 95 requires only three
     categories of cash flow activity: (a) operating; (b) investing; and (c)
     financing. Cash flows and taxation and returns on investments and servicing
     of finance shown under

     FRS 1 would, with the exception of dividends paid, be included as operating
     activities under SFAS 95. The payment of dividends would be included as a
     financing activity under SFAS 95.

     For purposes of reporting cash flows, all cash at bank and in hand and bank
     overdrafts repayable on demand are considered to be cash .

                                     F-20
<PAGE>
 
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     EFFECT ON PROFIT AFTER TAX OF  SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND
                                   US GAAP:
<TABLE>
<CAPTION>
 
                                          REFERENCE
                                           TO NOTE
                                            ABOVE            YEAR ENDED APRIL 30
                                          ----------  -------------------------------
                                                        1997        1996      1995
                                                      --------   ---------  ---------
<S>                                       <C>         <C>        <C>        <C>
                                                         $000        $000        $000
                                                                
     (Loss) after tax under UK GAAP                    (1,827)     (3,593)    (18,213)
     Adjustments:                                               
     Ceiling test                            a)             -           -      (2,428)
     Resulting adjustment to depletion                          
     of oil and gas interests                             265         437           -
     Goodwill                                b)             -           -      (1,000)
     Estimated proceeds of Alliance                             
     shares                                  c)           149        (272)          -
                                                      -------    --------    --------
     Approximate (loss) after tax,                              
     adjusted for US GAAP                              (1,413)     (3,428)    (21,641)
     Approximate (loss) per Ordinary                            
     Share (primary), adjusted for US                           
     GAAP (cents)                                        (0.4)       (1.1)      (15.4)
                                                      =======    ========    ========
                                                                
     (Loss) per Ordinary Share, UK                              
      GAAP (cents)                                       (0.6)       (1.1)      (13.0)
                                                      =======    ========    ========
</TABLE>

EFFECT ON STOCKHOLDERS' EQUITY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US
GAAP:
<TABLE>
<CAPTION>
 
                                          REFERENCE
                                           TO NOTE
                                            ABOVE             YEAR ENDED APRIL 30
                                          ----------         ---------------------
                                                               1997         1996
                                                             --------     --------
<S>                                       <C>                <C>          <C>
                                                                $000         $000
 
     Stockholders' equity under UK GAAP                        5,961        7,755
     Adjustments:
     Ceiling test                                a)           (1,726)      (1,991)
     Estimated proceeds of Alliance shares       c)             (123)        (272)
                                                             -------     --------
 
     Approximate stockholders' equity in
      accordance with US GAAP                                  4,118        5,492
                                                             =======     ========
</TABLE>

                                     F-21
<PAGE>
 
                   SUPPLEMENTAL OIL AND GAS DATA (UNAUDITED)


The following supplemental information on oil and gas exploration and production
activities of the group is presented in accordance with Statement of Financial
Accounting Standards No. 69 "Disclosures about Oil and Gas Producing Activities"
("FAS 69").

ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES

The Group's estimated proved developed and undeveloped reserves of oil and gas
and changes thereto for the years 1997, 1996 and 1995 and proved developed
reserves of oil and gas at each year end are set forth in the following  table.

Lee Keeling and Associates , an independent consulting company engaged in
petroleum reservoir evaluation, carried out an evaluation of  the Group's proved
reserves as at April 30, 1997. Ryder Scott Company, an independent firm of
petroleum engineers, carried out an evaluation of approximately 71% of the
Group's proved reserves for the year ended April 30, 1996 and 100% of the
Group's reserves as of April 30, 1995.

Proved reserves are reserves of crude oil, condensate, natural gas and natural
gas liquids and are estimated quantities as of a specific date, which geological
and engineering data demonstrate with reasonable certainty to be recoverable in
the future from known reservoirs under existing economic and operating
conditions.

Due to the inherent uncertainties and the limited nature of reservoir data,
estimates of reserve quantities are subject to change over time as additional
information becomes available.
<TABLE>
<CAPTION>
 
                                         1997           1996             1995
                                    --------------  -------------  -----------------
                                     OIL     GAS     OIL    GAS      OIL      GAS
                                    -----  -------  -----  ------  -------  --------
<S>                                 <C>    <C>      <C>    <C>     <C>      <C>
Proved developed and undeveloped
 reserves:
Beginning of year                    628    2,384    468   3,058    1,475    47,673
Revisions of previous estimates      302    1,943    274     (72)  (1,441)  (47,607)
Improved recovery                      -        -    114       -        -
Purchases of minerals in place         -        -      -       -      481     3,230
Sales of minerals in place           (65)  (2,165)  (103)      -        -         -
Production                          (147)    (114)  (125)   (602)     (47)     (238)
                                    ----   ------   ----   -----   ------   -------
End of year                          718    2,048    628   2,384      468     3,058
                                    ====   ======   ====   =====   ======   =======
 
Proved developed reserves:
Beginning of year                    628    2,384    303   2,083      232       314
                                    ====   ======   ====   =====   ======   =======
End of year                          424      144    628   2,384      303     2,083
                                    ====   ======   ====   =====   ======   =======
</TABLE>

Oil reserves, which include condensate and natural gas liquids, are stated in
thousands of barrels and gas reserves are stated in millions of cubic feet.

                                     F-22
<PAGE>
 
                   SUPPLEMENTAL OIL AND GAS DATA (UNAUDITED)


CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES

The following table summarizes capitalized costs for oil and gas exploration and
production activities and the related accumulated depreciation, depletion and
amortization under UK GAAP.
<TABLE>
<CAPTION>
 
                                                           1997       1996       1995
                                                         ---------  ---------  ---------
<S>                                                      <C>        <C>        <C>
                                                         $    000   $    000   $    000
At April 30
Unproved properties                                           189        118        398
Proved properties                                          22,380     25,186     23,984
                                                         --------   --------   --------
Total before depreciation, depletion and amortization      22,569     25,304     24,382
Accumulated depreciation, depletion and amortization      (18,462)   (18,197)   (16,585)
                                                         --------   --------   --------
Net capitalized costs                                       4,107      7,107      7,797
                                                         ========   ========   ========
</TABLE>

COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES

The following table sets forth costs incurred in oil and gas property
acquisition, exploration and development activities under UK GAAP.
<TABLE>
<CAPTION>
                                                           1997       1996       1995
                                                         ---------  ---------  ---------
<S>                                                      <C>        <C>        <C>
                                                              $000       $000       $000
Property acquisitions
  unproved                                                       -        118          -
  proved                                                         -        794      5,092
Exploration and appraisal                                       71          -         20
Development                                                    199        745      3,120
                                                         ---------  ---------  ---------
Total costs incurred                                           270      1,657      8,232
                                                         =========  =========  =========
</TABLE>
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES

The following sets forth certain information with respect to the Company's
results of operations from oil and gas producing activities for the years ended
April 30, 1995, 1996 and 1997 under UK GAAP.  All of the Company's oil and gas
producing activities are located within the United States.
<TABLE>
<CAPTION>
                                                             1997      1996       1995
                                                          ---------  ---------  ---------
<S>                                                       <C>        <C>        <C>
                                                               $000       $000       $000
Revenues                                                      3,526      3,330      1,169
Production Costs                                             (1,293)    (1,770)      (756)
Gross production taxes                                         (297)      (311)       (94)
Depreciation depletion amortization and 
 valuation provisions                                        (1,043)    (1,612)         -
Write-down of oil and gas properties                              -          -    (14,881)
                                                          ---------  ---------  ---------
Results of operations before income taxes                       893       (363)   (14,562)
Income tax expense                                                -          -          -
                                                          ---------  ---------  ---------
Results of operations (excluding corporate
overhead and interest costs)                                    893       (363)   (14,562)
                                                          =========  =========  =========
</TABLE>

                                     F-23
<PAGE>
 
                   SUPPLEMENTAL OIL AND GAS DATA (UNAUDITED)

STANDARD MEASURE OF DISCONTINUED FUTURE NET CASH FLOWS RELATING TO PROVED CRUDE
OIL & GAS RESERVES QUANTITIES

The standardized measure of discounted future net cash flows related to proved
crude oil and natural gas reserves is calculated in accordance with the
requirements of SFAS 69 and uses reserve definitions as prescribed by the
Financial Accounting Standards Board. Estimated future cash flows from
production are computed by applying year end prices for crude oil and natural
gas and year-end exchange rates to year end quantities of estimated net proved
reserves. Future price changes are limited to those provided by contractual
arrangements in existence at the end of the reporting year. Future development
and production costs are those estimated future expenditures necessary to
develop and produce year end estimated proved reserves based on year-end price
levels and assuming the continuance of year end economic conditions. Future
production costs include estimated abandonment liabilities. Discounted future
net cash flows are calculated using 10% mid-period discount factors.

                                     F-24
<PAGE>
 
                   SUPPLEMENTAL OIL AND GAS DATA (UNAUDITED)
 

The information provided below does not represent management's estimate of the
Company's expected future cash flows or value of proved reserves.  Estimates of
proved reserve quantities are imprecise and change over time as new information
becomes available and in particular, probable and possible reserves, which may
become proved reserves in 1998 or later, are excluded from the calculations.
Also, assumptions have been required regarding the timing of future production
and the timing and amount of future development and production costs.  The
calculations assume that economic conditions existing at the end of the
reporting year will continue.  Other different but equally valid assumptions
might lead to significantly different final results.  Although calculated in
accordance with SFAS 69, the Company therefore cautions against the placing of
unwarranted reliance on this information in view of the highly arbitrary nature
of the assumptions on which it is based.
<TABLE>
<CAPTION>
 
                                                        1997      1996      1995
                                                      --------  --------  --------
<S>                                                   <C>       <C>       <C>
                                                      $   000   $   000   $   000
 
Future cash inflows                                    18,292    18,402    14,475
 
Future development and production costs                (7,472)   (6,622)   (6,909)
                                                      -------   -------   -------
 
Undiscounted future cash flows before income taxes     10,820    11,780     7,566
 
10% discount                                           (2,415)   (2,883)   (2,500)
                                                      -------   -------   -------
 
Standardized measure of discounted future net cash
 flows before income taxes                              8,405     8,897     5,066
                                                      =======   =======   =======
 
</TABLE>

Alliance is a UK listed company which was not required to present standardized
measure information. The information available as of April 30, 1997 and 1996 is
only available on a before tax basis.  The table above has been produced on the
basis of all available information.

                                     F-25
<PAGE>
 
                   SUPPLEMENTAL OIL AND GAS DATA (UNAUDITED)


CHANGES IN STANDARDIZED MEASURE DISCOUNTED FUTURE NET CASH FLOWS
 
                                                       1997      1996
                                                     --------  --------
                                                        $000      $000
 
Present value at May 1, 1996                           8,897     5,066
                                                     -------   -------
Sales of crude oil & natural gas produced, net of
  production costs                                    (1,936)   (1,249)
Net changes in prices and production costs               282     1,382
Development costs incurred                                11       734
Changes in future development costs                    (2129)        3
Revisions of previous quantity estimates               7,211     3,346
Sales of minerals in place                            (4,328)     (917)
Accretion of discount                                    889       532
Net change for the year                                 (492)    3,831
                                                     -------   -------
Present value at April 30, 1997                        8,405     8,897
                                                     =======   =======
 

                                     F-26
<PAGE>
 
DEFINITIONS

The terms defined in this Appendix are used throughout this Filing.

Alliance or Company.  Alliance Resources PLC, a corporation organized and
registered under the laws of England and Wales.

Alliance Group or Group. Alliance and its subsidiary companies

bbl.  One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.

boe.  One barrel of oil equivalent using the ratio of one barrel of crude oil,
condensate or natural gas liquids to 6 Mcf of natural gas.

boepd. One barrel of oil equivalent per day

bopd.  Barrels of oil per day.

Btu.  British thermal unit, which is the heat required to raise the temperature
of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.

Dry Hole; Dry Well; Non-Productive Well.  A well found to be incapable of
producing either oil or natural gas in sufficient quantities to justify
completion as an oil or natural gas well.

Alliance Share or Shares. The ordinary shares of Alliance of (Pounds)0.01 each

Exploratory Well.  An exploratory well is a well drilled either in search of a
new, as-yet undiscovered oil or natural gas reservoir or to greatly extend the
known limits of a previously discovered reservoir.

GAAP.  Generally accepted accounting principles.

Gross Acres or Gross Wells.  The total acres or wells, as the case may be, in
which a working interest is owned.

LaTex. LaTex Resources, Inc.

mbbls.  One thousand barrels of crude oil or other liquid hydrocarbons.

mboe.  One thousand BOEs.

mbtu.  One thousand BTUs.

mcf.  One thousand cubic feet of natural gas.

mcfgpd.  Mcf of gas per day.

mmbtu.  One million BTUs.

mmcf.  One million cubic feet of natural gas.

Net Revenue Interest. Production or revenue that is owned by the respective
company and produced for its interest after deducting royalties and other
similar interests.

Net Acres or Net Wells.  The sum of the fractional working interests owned in
gross acres or gross wells.

                                      A-1
<PAGE>
 
PV10 Value.  When used with respect to oil and natural gas reserves, PV10 Value
means the estimated future gross revenue to be generated from the production of
proved reserves, net of estimated production and future development costs, using
prices and costs in effect at the determination date, without giving effect to
non-property related expenses such as general and administrative expenses, debt
service and future income tax expense or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10% in accordance with
the guidelines of the SEC.

Productive Well.  A well that is producing oil or natural gas or that is capable
of production.

Proved Developed Reserves.  Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.

Proved Reserves.  The estimated quantities of crude oil, natural gas and natural
gas liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions.

Proved Undeveloped Reserves.  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.

Undeveloped Acreage.  Lease acreage on which wells have not been participated in
or completed to a point that would permit the production of commercial
quantities of oil and natural gas regardless of whether such acreage contains
proved reserves.

Working Interest.   The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property as well as to a
share of production.

                                      A-2
<PAGE>
 
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES


SIGNATURES

Pursuant to  the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant, Alliance Resources PLC, certifies that it meets the
requirements for filing on Form 20-F and has duly caused this Annual Report to
be signed on its behalf by the undersigned, thereunto duly authorized.


                                                          Alliance Resources PLC
                                                                      Registrant



                                           By:__________________________________

 
                                         Name:

                                        Title:


Date:                    1998



                                      A-3