<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-K

[X]             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED APRIL 30, 1999
                                      OR
[ ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                 FOR THE TRANSITION PERIOD FROM _____TO______

                        COMMISSION FILE NUMBER 333-19013

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


            ENGLAND AND WALES                                73-1405081
     (State or other jurisdiction of                      (I.R.S. Employer
      incorporation or organization)                     Identification No.)


         4200 EAST SKELLY DRIVE
               SUITE 1000
            TULSA, OKLAHOMA                                    74135
(Address of principal executive offices)                     (Zip code)

      Registrant's telephone number, including area code: (918) 491-1100


          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

    Title of Each Class             Name of Each Exchange on Which Registered
    -------------------             -----------------------------------------
          (NONE)                                     (NONE)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                            Ordinary Shares 1p each
                               (Title of Class)

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

     The aggregate market value of the Registrant's voting stock held by non-
affiliates as of August 9, 1999 was approximately $3,858,330.

     On August 9, 1999, there were 47,487,142 shares of the Registrant's
ordinary shares outstanding and 10,000,000 shares outstanding of the
Registrant's convertible restricted voting stock.

                    Documents Incorporated by the Reference
                                     NONE
<PAGE>

                            ALLIANCE RESOURCES PLC

                                   FORM 10-K
                       FISCAL YEAR ENDED APRIL 30, 1999
                       --------------------------------
                               TABLE OF CONTENTS

                                    PART I
<TABLE>
<S>      <C>                                                                                                     <C>
Item 1.    Business...........................................................................................     1
Item 2.    Properties.........................................................................................     3
Item 3.    Legal Proceedings..................................................................................     9
Item 4.    Submission of Matters to a Vote of Security Holders................................................    10

PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters..............................    11
Item 6.    Selected Financial Data............................................................................    12
Item 7.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations..............................................................................    14
Item 8.    Financial Statements and Supplementary Data........................................................    23
Item 9.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure...............................................................................    23

PART III

Item 10.   Directors and Executive Officers of the Registrant.................................................    23
Item 11.   Executive Compensation.............................................................................    24
Item 12.   Security Ownership of Certain Beneficial Owners and Management.....................................    27
Item 13.   Certain Relationship and Related Transactions......................................................    29

PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................................    29

Signatures....................................................................................................    31
</TABLE>

Cautionary Statement Regarding Forward Looking Statements

In the interest of providing the Company's stockholders and potential investors
with certain information regarding the Company's future plans and operations,
certain statements set forth in this Form 10-K relate to management's future
plans and objectives.  Such statements are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.  Although any
forward-looking statements contained in this Form 10-K or otherwise expressed by
or on behalf of the Company are, to the knowledge and in the judgement of the
officers and directors of the Company, expected to prove true and to come to
pass, management is not able to predict the future with absolute certainty.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual performance and financial results in future
periods to differ materially from any projection, estimate or forecasted result.
These risks and uncertainties include, among other things, volatility of oil and
gas prices, competition, risks inherent in the Company's oil and gas operations,
the inexact nature of interpretation of seismic and other geological and
geophysical data, imprecision of reserve estimates, the Company's ability to
replace and expand oil and gas reserves, and such other risks and uncertainties
described from time to time in the Company's periodic reports and filing with
the Securities and Exchange Commission.  Accordingly, stockholders and potential
investors are cautioned that certain events or circumstances could cause actual
results to differ materially from those projected, estimated, or predicted.

                                                                               i
<PAGE>

                                    PART I

ITEM 1.  BUSINESS

     Alliance Resources PLC (the "Company" or "Alliance") is organized as a
public limited company under the laws of England and Wales.  Alliance is a
London-based holding company of a group ("the Group") whose principal activities
are the acquisition, exploration, development and production of oil and gas
properties.

     All financial data (and, consequently, all oil and gas reserve
information, descriptions of properties and business and all information
associated with financial or reserve information ) prior to the Company's merger
with LaTex Resources, Inc. ("LaTex") on May 1, 1997, described below, has been
restated to reflect LaTex as the predecessor company to the Company.  For
financial, reserve and associated information concerning Alliance prior to its
May 1, 1997 merger with LaTex, reference should be made to the Company's
Registration Statement on Form F-4 (which was filed in its final form with the
Securities Exchange Commission on April 9, 1997 and which contains information
regarding Alliance through January 31, 1997) and to the Company's filing on Form
20-F (which was filed in its final form with the Securities and Exchange
Commission on June 18, 1998).

     Because for corporate law purposes (but not financial accounting
purposes) Alliance is the surviving corporation of the May 1, 1997 merger, all
references to the "Company" both prior and subsequent to May 1, 1997 refer to
Alliance Resources PLC and its subsidiaries unless otherwise indicated.  Unless
the context requires otherwise, all references to "LaTex" include LaTex
Resources, Inc., and its consolidated subsidiaries.

     Alliance was incorporated and registered under the laws of England and
Wales on August 20, 1990.  Alliance's corporate headquarters are at 4200 East
Skelly Drive, Suite 1000, Tulsa, Oklahoma  74135.

RECENT DEVELOPMENTS

     On October 30, 1998, Alliance completed its acquisition (the
"Acquisition") of Difco Limited ("Difco").  Alliance acquired all of the capital
stock of Difco and, indirectly a contract to acquire 10% of Burlington Resources
(Irish Sea) Limited's ("Burlington") interest in the East Irish Sea Properties
("U.K. Interests").  The Difco shareholders received approximately 8.7% of the
outstanding shares of the Company and could receive up to 29.6% of the
outstanding shares of the Company based upon the production from, or reserves
attributable to, the U.K. Interests.

     The Company acquired, through Difco, 10% of Burlington's interest in
the East Irish Sea Properties for cash consideration of approximately
$17,800,000.  In addition, the Company issued to one of its lenders 15,000,000
ordinary shares and loan notes with a face value of $9,750,000 for a total
consideration of $10,000,000 and 545,454 ordinary shares in payment of a fee of
$292,000.  The Company paid another lender a cash fee of $700,000 and granted
the lender warrants to purchase 3,275,000 ordinary shares at a price of 1p per
share and an overriding royalty interest in the U.K. Interests of 0.3% beginning
January 1, 2001.  The overriding royalty interest will entitle the lender to
receive a payment equal to the specified percentage of the net revenues
generated by the U.K. Interests. The overriding royalty interest would have the
effect of reducing the Company's revenues from the U.K. Interests. The Company
also issued to its financial advisors 615,385 ordinary shares in payment of a
fee of $330,000.

     On April 23, 1999, the Company announced the successful drilling and
testing of the 110/2b - R1 well.  The well was the first to be drilled on the
Company's recently acquired East Irish Sea assets and is located in the Dalton
Field. The well was spudded on February 26, 1999, drilled to 4,222 feet, and
suspended on April 12, 1999.  Log analysis estimates 605 feet of gross gas
column to be present in the well.  Production testing from gross perforations
between 3,395 - 3,700 feet achieved flow rates up to 78 MMCFG/D at 730 psig
flowing tubing pressure.

     Also, on April 23, 1999 the Company announced that it had recommended its
recompletion program on its U.S. properties, yielding early success.  Notably,
the Ernest Roberts No. 1 Gas Unit in Hinds County, Mississippi was recompleted
in March 1999.  The well is currently producing at a rate of 1,626 MCFG/D with
35 BOPD.  In addition, the Millie 2-20 well located in Dewey County, Oklahoma,
was recompleted in February, 1999 and is currently producing 560 MCFG/D and 2
BOPD.

                                                                               1
<PAGE>

     On July 23, 1999 the Company announced that the Dalton R2 well has been
successfully reentered and recompleted.  The R2 well tested at a maximum flow
rate of approximately 54 MMSCF/D on a 120/64 inch choke at 772 psig flowing
tubing pressure.  In the East Millom Field, the Millom Q1 well has been
successfully reentered and recompleted.  The Q1 well tested at a maximum flow
rate of 18 MMSCF/D on a 68/64 inch choke at 725 psig flowing tubing pressure.
The Dalton R1, R2 and Millom Q1 wells are in the process of being tied back to
the North Morecambe Bay Platform.  First production is anticipated in August,
1999.

     Effective July 30, 1999, the Company and its principal lender agreed to
amend the terms of its credit agreement to allow for additional immediate
borrowings of $5,000,000, to defer the date of the borrowing base
redetermination from July 31, 1999 to December 31, 1999, and to defer the
repayment date of a portion of the indebtedness from January 31, 2001 to July
31, 2001.

     American Rivers Oil Company ("AROC") and Alliance announced that on July
22, 1999, they entered into a preliminary agreement, under which subject to the
satisfaction of certain of various pre-conditions a new subsidiary of AROC would
make a share for share offer for Alliance.  The principal conditions to the
making of the offer are the filing of a registration statement with the
Securities and Exchange Commission and due diligence conducted by both parties.
If the share offer is completed, it is expected that the shares of the new
company will be quoted on the U.S. OTC Bulletin Board and will not be listed on
the London Stock Exchange.  If the transaction is completed and all the Alliance
shareholders accept the offer, the shareholders of Alliance would hold 98% and
the shareholders of AROC would hold 2% of the enlarged group.

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.

GOVERNMENTAL AND ENVIRONMENTAL REGULATION

     Oil and gas production is subject to regulation under many international
and U.S. Federal and State statutes, rules, orders and regulation. Permits for
drilling, reworking and recompletion operations, drilling bonds and reports
concerning operations are required. Most jurisdictions have regulations
governing conservation matters, establishing maximum rates of production and the
regulation of the spacing, plugging and abandonment of wells.

     Environmental laws and regulations may affect the Company's operations
and costs.  In particular, production and saltwater disposal operations and use
of facilities from treating, processing or otherwise handling hydrocarbons and
wastes therefrom are subject to stringent environmental regulations.
Environmental regulations are subject to frequent change and the Company cannot
predict ongoing costs of compliance or the future impact of such regulations on
operations.

OPERATIONS HAZARDS AND INSURANCE

     The operations of the Company 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, formation, 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 the
Company which could have a material adverse effect upon the financial condition
of the Company to the extent it is not fully insured against such risks but, in
accordance with standard industry practice, the Company is not fully insured for
all risks, either because such insurance is unavailable or because the Company
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.

                                                                               2
<PAGE>

EMPLOYEES

     At April 30, 1999, Alliance had 15 management and administrative
employees and 9 technical and operating employees, none of whom belonged to a
union. The employees include 15 people located in its Tulsa, Oklahoma office, 8
people in the Tensaw, Alabama office who conduct lease operations in the
Company's South Carlton Field, and 1 field person in Louisiana.  The Company's
other field activities are accomplished through independent contractors.  The
Company believes its relations with its employees and contractors are excellent.

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 its product
as it becomes available or in transporting its product to those 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.

Gas Marketing

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

ITEM 2.  PROPERTIES

PRODUCTION

     Alliance owns producing properties located in 10 states in the U.S.,
with proved reserves located primarily in the states of Alabama, Louisiana,
Mississippi, Oklahoma, and Texas.  Alliance continuously evaluates the
profitability of its oil, gas and related activities and has a policy of
divesting itself of unprofitable oil and gas properties or areas of operation
that are not consistent with its operating philosophy.

     Alliance operates 144 producing wells (119.6 net) in these areas and
also owns non-operated interests in a further 122 active producing wells and
units (21.9 net).  These properties produced at a gross average rate of 4,300.9
Bbls of oil per day and 59,749.8 Mcf of gas per day (802.6 BBls of oil per day
and 4,353.2 Mcf of gas per day net to the Company's interest) for the year ended
April 30, 1999.  Oil and gas sales from Alliance's producing oil and gas
properties accounted for substantially all of Alliance's revenues for the year
ended April 30, 1999.

     The following summarizes Alliance's principal areas of oil and gas
production activity as of April 30, 1999.

     South Carlton Field, Alabama.  The South Carlton Field is located in
Clarke and Baldwin Counties in southwest Alabama, approximately 50 miles north
of Mobile, Alabama.  The field is situated on the Alabama River, and all crude
oil produced is exported from the field by barge.  Alliance operates 56 active
producing oil wells and three saltwater disposal wells.  Production is from the
Massive and Pilot Sands of the Tuscaloosa Formation at a depth of approximately
6,000 ft.  The field produced at a gross average daily rate of 301.8 Bbls of oil
per day (249.6 Bbls of oil per day net to the Company's interest) for the
duration of the year ended April 30, 1999.  Production from the field was
allowed to fall during the course of 1998 in order to minimize the impact of low
oil prices on the overall profitability of operations and reached a gross
average daily low of 206 Bbls of oil per day in the month of December 1998.
Workover activities which were kept to a minimum in 1998 were stepped up in
early 1999, and many

                                                                               3
<PAGE>

temporarily shut-in wells were returned to production. The field is now
producing consistently at gross daily rates in excess of 400 Bbls of oil per day
and in July 1999 again reached gross production levels of over 500 Bbls of oil
per day.

     Additional infill drilling has been identified in the field, and the
Company believes that the application of horizontal drilling techniques has the
potential to significantly improve recovery per well in view of the heavy
gravity of the oil (12-14/0/ API).  Alliance's working interest in this field is
100%. Net proved reserves to Alliance as of April 30, 1999 were 5,864.6 MBbls of
oil.

     Bolton Field, Mississippi.  The Bolton Field is located in Hinds
County, Mississippi and approximately 18 miles west of Jackson, Mississippi.
Alliance operates 1 active producing well in this field, the Ernest Roberts #1
Gas Unit.  Production is from the Cotton Valley Sands at a depth of over 15,500
ft.  This property produced at a gross average daily rate of 527 Mcf of gas per
day and 14.2 Bbls of oil per day (372.1 Mcf of gas per day and 10.1 Bbls of oil
per day net to the Company's interest) for the duration of the year ended April
30, 1999.

     The well was recompleted in March 1999 in several Cotton Valley Sands
at depths of between 15,590 and 15,916 ft.  The well is currently producing at a
stabilized gross rate of approximately 1,620 Mcf of gas per day and 40 Bbls of
oil per day.  Alliance's working interest in this field is currently 91%.
Additional proved behind pipe potential has been identified in the well and net
proved reserves to Alliance as of April 30, 1999 were 3,619 MMcf of gas and
132.3 MBbls of oil.

     Black Warrior Basin, Mississippi and Alabama.  Alliance owns operated
and non-operated working interests in 51 wells (38 operated and 13 non-operated)
in Lamar, Fayette and Pickens Counties, Alabama and Lee and Chickasaw Counties,
Mississippi.  Production from these wells and units is from multiple sandstones
of Mississippian (Carter, Lewis and Millerella) and Pennsylvanian (Benton and
Coats) age at depths of 1,900 to 4,600 ft.  These properties produced at a gross
average daily rate of 4,046.8 Mcf of gas per day and 318.4 Bbls of oil per day
(1,450.5 Mcf of gas per day and 11.8 Bbls of oil per day net to the Company's
interest) for the duration of the year ended April 30, 1999.  Alliance's working
interest in these properties varies from between 1.8% to 100%.  Significant
proved behind pipe reserves have been identified in the properties and the
majority are scheduled for recompletion over the next few years with the
potential to add significantly to net cash flow.  Net proved reserves to
Alliance as of April 30, 1999 were 14.2 MBbls of oil and 9,698.4 MMcf of gas.

     War-Wink South/East Quito Fields, Texas.  Alliance owns non-operated
working interests in 41 active wells operated by Texaco and Chevron in the War-
Wink South and East Quito Fields in Ward County, Texas.  These fields currently
produce from multiple reservoirs in the Fusselman dolomite (Middle Silurian),
Atoka limestone (Middle Pennsylvanian), and the Wolfcamp and Cherry Canyon
(Lower and Middle Permian) Sands at depths of 6,200 feet to 17,500 feet.  These
properties produced at a gross average daily rate of 9,253.7 Mcf of gas per day
and 548.6 Bbls of oil per day (753.8 Mcf of gas per day and 46.1 Bbls of oil per
day net to the Company's interest) for the duration of the year ended April 30,
1999.  The University 10-18-1U well which was completed in the Fusselman
dolomite produced at a gross average daily rate of 6,175 Mcf of gas per day
throughout the year.  This amounts to approximately 67% of the gross gas
produced from the properties in which Alliance has an interest in these fields.
A number of proved undeveloped drilling locations have been identified on these
properties.  Net proved reserves to Alliance as of April 30, 1999 were 94.7
MBbls of oil and 1,697.2 MMcf of gas.

     Jefferson Island Field, Louisiana.  The Jefferson Island field is
located approximately 12 miles southwest of the town of New Iberia in Iberia
Parish, Louisiana.  Alliance has a working interest in a 525-acre lease on the
south side of Lake Peigner, which is currently being maintained by production
from the Will Drill Resources (Texaco) JISMC #4 well.  This well is now owned by
Continental Resources Limited ("Continental").  Production intervals are known
to exist in the Siphoni Davisi and Discorbis B sandstone reservoirs at depths of
approximately 8,000 to 9,000 ft.  The reservoir traps are combination
structural-stratigraphic traps in a piercement salt dome setting.  However,
Alliance has not yet established production from the property.  A number of
proved undeveloped drilling locations have been identified on the property and
the Company's working interest in this property is currently 100%. Net proved
reserves to Alliance as of April 30, 1999 were 431.7 MBbls of oil and 1,230.2
Mcf of gas.

                                                                               4
<PAGE>

     The Company entered into a farm-out agreement with Continental on this
property, whereby Continental, at its sole risk and expense, has conducted a 3D
seismic survey and is to drill and complete two wells on the lease to earn a
two-thirds working interest. Continental completed the 3-D seismic survey in
late 1998 and spudded the first well under the farm-out agreement in June 1999.
This well was drilled to a total depth of approximately 10,000 ft. and several
potentially productive pay zones were identified on electric logs in Siphoni
Davisi Sands at depths of 8,500 to 9,000 ft.  Continental is currently
attempting to complete the well in the lowermost potentially productive sand at
a depth of approximately 9,000 ft.

     Tinsley Field, Mississippi.  The Tinsley Field is located in Yazoo
County, Mississippi, and approximately 34 miles northwest of the town of
Jackson, Mississippi.  Alliance operates 5 active producing wells and 2
saltwater disposal wells.  Production is from upper Cretaceous age Eutaw Sands
at depths of around 4,500 ft.  This property produced at a gross average daily
rate of 55.4 Bbls of oil per day (45.4 Bbls of oil per day net to the Company's
interest) for the duration of the year ended April 30, 1999.  The Company has a
working interest in the property of 100%.  One proved undeveloped drilling
location has been identified on the property.  Net proved reserves to Alliance
as of April 30, 1999 were 360.3 MBbls of oil.

     South Elton Field, Louisiana.  The South Elton Field is located
approximately 19 miles north of the town of Jennings in Jefferson Davis Parish,
Louisiana.  Alliance operates 4 active producing oil and gas wells and 2
saltwater disposal wells.  Production is primarily from the Oligocene age sands
of the Homeseekers D Formation at a depth of approximately 9,000 ft.  This
property produced at a gross average daily rate of 140 Bbls of oil per day and
76.7 Mcf of gas per day (99.0 Bbls of oil per day and 45.6 Mcf of gas per day
net to the Company's interest) for the duration of the year ended April 30,
1999.  The Company has a working interest in the property of between 65.3% and
99.6%.  Another operator is currently acquiring a 3-D seismic survey over the
area and Alliance will receive copies of the data acquired over its property
within two months of completion of processing of the data.  One proved
undeveloped drilling location has been identified on the property.  Net proved
reserves to Alliance as of April 30, 1999 were 259.8 MBbls of oil and 86.4 Mcf
of gas.

     Perkins Field, Louisiana.  The Perkins Field is located approximately
4 miles south of the town of De Quincy in Calcasieu Parish, Louisiana.  Alliance
operates 7 active producing wells and 1 saltwater disposal well.  Production is
from various Miocene age sands at depths of 5,000 to 7,500 ft.  The property
produced at a gross average daily rate of 75.1 Bbls of oil per day (58.6 Bbls of
oil per day net to the Company's interest) for the duration of the year ended
April 30, 1999.  The Company has a working interest in the property of 100%.
Net proved reserves to Alliance as of April 30, 1999 were 221.7 MBbls of oil.

     In addition to these properties, the Company has other producing oil
and gas properties located in Alabama, Arkansas, Colorado, Kansas, Louisiana,
Michigan, Mississippi, Montana, Oklahoma and Texas.  These properties produced
at a gross daily rate of 2,847.4 Bbls of oil per day and 45,845.7 Mcf of gas per
day (281.9 Bbls of oil per day and 1,731.1 Mcf of gas per day net to the
Company's interest) for the duration of the year ended April 30, 1999. Net
proved reserves to Alliance, as of April 30, 1999, from these other properties
were 1,328.0 MBbls of oil and 6,520.2 Mcf of gas.

RESERVES

     Lee Keeling and Associates, Inc. ("LKA"), Alliance's independent
petroleum engineering consulting firm, has made estimates of Alliance's oil and
gas reserves at April 30, 1999.  LKA's report covers the estimated present value
of future net cash flows before income taxes (discounted at 10%) attributable to
Alliance's estimated future net cash flows therefrom.

     The quantities of Alliance's proved reserves of oil and natural gas
presented below include only those amounts which 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 which 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 which Alliance reasonably expects to recover from the drilling
of new wells

                                                                               5
<PAGE>

based on geological evidence from offsetting wells. The risks of recovering
these reserves are higher from both geological and mechanical perspective than
the risks of recovering proved developed reserves.

     As required by the Securities and Exchange Commission, the estimates
of net proved reserves and proved developed reserves and the estimated future
net revenues from such reserves set forth below, have been made 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 for indirect
costs, such as general corporate overhead.  The discounted value was computed by
discounting future net revenues at 10% per annum, without deduction for income
taxes.

     The following table sets forth estimates of the proved oil and natural
gas reserves of Alliance at April 30, 1999, as evaluated by LKA.

<TABLE>
<CAPTION>
                                           Oil (MBbls)                                         Gas (Mmcf)
                           -------------------------------------------       ----------------------------------------------
                            Developed      Undeveloped        Total            Developed       Undeveloped         Total
                           ------------  ----------------  -----------       -------------  ------------------  -----------
<S>                        <C>           <C>               <C>               <C>            <C>                 <C>
     U.S. Reserves
     -------------
     Alabama                    3,855             2,030        5,885               6,429                   -        6,429
     Louisiana                    753               520        1,273                 766               2,458        3,224
     Mississippi                  487               144          631               7,228                   -        7,228
     Oklahoma                      61                 -           61               2,373                 548        2,921
     Texas                        406                13          419               2,463                  83        2,546
     Other                        439                 -          439                 260                 243          503
                                -----             -----        -----              ------               -----       ------
     Total                      6,001             2,707        8,708              19,519               3,332       22,851
                                =====             =====        =====              ======               =====       ======


</TABLE>

<TABLE>
<CAPTION>
                                           Oil (MBbls)                                         Gas (Mmcf)
                         ---------------------------------------------     ------------------------------------------------
                            Developed      Undeveloped        Total            Developed       Undeveloped         Total
                           ------------  ----------------  -----------       -------------  ------------------  -----------
<S>                        <C>           <C>               <C>               <C>            <C>                 <C>
     U.K. Reserves
     -------------
     Dalton Sweet
        Field                       -                -            -                    -             9,733         9,733
                           ============  ================  ===========       =============    ===============   ==========
</TABLE>

The following table sets forth amounts as of April 30, 1999 determined in
accordance with the requirements of the applicable accounting standards
pertaining 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 U.S. net cash flow estimates at April 30, 1999 were
$18.66 per barrel for oil and $2.35 per MMBtu for gas.  A delivery price of 9.05
pence per therm, equivalent to $1.54 per MMBtu for gas was used in determining
the future U.K. net cash flow estimates at April 30, 1999.

<TABLE>
<CAPTION>
                                                                   Proved            Proved            Total
                                                                  Developed        Undeveloped         Proved
                                                                   Reserves          Reserves         Reserves
                                                                -------------     -------------     -------------
                                                                                  (in thousands)
   <S>                                                      <C>                 <C>               <C>
     U.S. Reserves
     -------------
     Estimated future net cash flows from proved
        reserves before income taxes                             $   68,142         $   25,042        $   93,184
                                                                 ==========         ==========        ==========
     Present value of estimated future net cash flows
        from proved reserves before income taxes
        (discounted at 10%)                                      $   32,224         $   11,615        $   43,838
                                                                 ==========         ==========        ==========
     Standardized Measure                                        $   25,781         $    9,088        $   34,869
                                                                 ==========         ==========        ==========

</TABLE>

                                                                               6
<PAGE>

<TABLE>
   <S>                                                      <C>                 <C>               <C>
     U.K. Reserves
     -------------
     Estimated future net cash flows from proved
        reserves before income taxes                             $        -         $    3,926        $    3,926
                                                                 ==========         ==========        ==========
     Present value of estimated future net cash flows
        from proved reserves before income taxes
        (discounted at 10%)                                      $        -         $    2,794        $    2,794
                                                                 ==========         ==========        ==========
     Standardized Measure                                        $        -         $    2,794        $    2,794
                                                                 ==========         ==========        ==========
</TABLE>

     The estimation of oil and gas reserves is a complex and subjective
process which is subject to continued revisions as additional information
becomes available.  Reserve estimates prepared by different engineers from the
same data can vary widely.  Assumptions have to be made 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 period will continue.  Other, but equally valid, assumptions might
lead to a significantly different final result.  Therefore, the reserve data
presented herein should not be construed as being exact.  Any reserve estimate
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.  The information provided, therefore, does not represent management's
estimate of Alliance's expected future cash flows or value of proved reserves.

     Alliance has filed estimates of proved reserves with the London Stock
Exchange.  These estimates do not differ materially from those contained in this
document.

     For further information on reserves, costs relating to oil and gas
activities, and results of operations from producing activities, see Note 17 to
the Consolidated Financial Statements--Supplementary Financial Information for
Oil and Gas Producing Activities incorporated by reference herein.

     The following table sets forth Alliance's producing wells at April 30,
1999.

<TABLE>
<CAPTION>
                                                             Productive Wells
                                 Oil                              Gas                              Total
                        ---------------------            ----------------------           -----------------------
                        Gross            Net             Gross             Net            Gross              Net
                        -----           -----            -----            -----           -----             -----

  <S>                 <C>            <C>                <C>            <C>              <C>              <C>
     U.S.                 148           100.1              118             41.3             266             141.4
                          ---           -----              ---             ----             ---             -----
     U.K.                   -               -                2              0.2               2               0.2
                          ---           -----              ---             ----             ---             -----
     Total                148           100.1              120             41.5             268             141.6
                          ===           =====              ===             ====             ===             =====
</TABLE>


     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, 12 had multiple completions.

Developed and Undeveloped Acreage

     The following table sets forth the developed and undeveloped leasehold
acreage held by Alliance at April 30, 1999.  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.

     States in which Alliance held developed and undeveloped acreage at
April 30, 1999 include Alabama, Arkansas, Colorado, Kansas, Louisiana,
Mississippi, Montana, New Mexico, North Dakota, Oklahoma, Texas and Wyoming.

                                                                               7
<PAGE>

<TABLE>
<CAPTION>
                                                                            Gross          Net
                                                                          ---------      --------
     U.S.
     ----
<S>                                                                      <C>        <C>
     Developed acreage.........................................            27,011.9      20,102.7
     Undeveloped acreage.......................................            10,956.6       8,428.5
                                                                          ---------      --------
     Total.....................................................            37,968.5      28,531.2
                                                                          =========      ========

                                                                             Gross          Net
                                                                          ---------      --------
     U.K.
     ----
     Developed acreage.........................................             1,462.0         146.2
     Undeveloped acreage.......................................           206,658.0      20,665.8
                                                                          ---------      --------
     Total.....................................................           208,120.0      20,812.0
                                                                          =========      ========

</TABLE>

PRODUCTION, UNIT PRICES AND COSTS

     The following table sets forth information with respect to sales of
production and average unit prices and costs for the periods indicated.

<TABLE>
<CAPTION>
                                                                                           Nine months
                                                            Year ended April 30          ended  April 30,
                                                         -------------------------       ---------------
                                                           1999 (2)        1998               1997
                                                         ----------     ----------       ---------------

   <S>                                                 <C>            <C>                <C>
     Production:
         Gas (Mmcf)                                           1,402          1,689                 1,640
         Oil (MBbls)                                            278            396                   190

     Average sales prices (1)
         Gas (per Mcf)                                     $   1.79       $   2.36              $   1.70
         Oil (per Bbl)                                     $  13.20       $  15.75              $  15.34

     Average production costs per BOE (3)                  $   6.05       $   8.13              $   6.77

</TABLE>

(1)  After giving effect to the impact of Alliance's price hedging arrangements
     with Alliance's principal bank. Without such hedging arrangements, the
     average sales prices for the years ended April 30, 1999 and 1998 would have
     been $10.11 and $15.14 for oil and $1.92 and $2.34 for gas, respectively,
     and $19.15 for oil and $2.40 for gas for the nine months ended April 30,
     1997.

(2)  No figures are included for U.K. production activities since first
     production is not anticipated until mid-August 1999.

(3)  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.

                                                                               8
<PAGE>

(4)  DRILLING ACTIVITY

     During the periods indicated, Alliance drilled or participated in the
drilling of the following exploratory and development wells.  The information
excludes wells in which Alliance has only an overriding interest.

<TABLE>
<CAPTION>
                                         Year ended April 30                  Nine months ended April 30
                          -------------------------------------------------  ----------------------------
                                     1999                     1998                      1997
                          --------------------------  ---------------------  ----------------------------
                             Gross          Net         Gross       Net          Gross          Net
                          -----------  -------------  ---------  ----------  -------------   ------------
<S>     <C>               <C>          <C>            <C>        <C>         <C>            <C>
U.S.
------
   Exploratory:
        Productive                  -              -          -           -              -            -
        Non-Productive              -              -          1        0.10              -            -
                          -----------  -------------  ---------  ----------  -------------  -----------
           Total                    -              -          1        0.10              -            -
                          ===========  =============  =========  ==========  =============  ===========

   Development:
        Productive                  -              -          7        0.53              2          .20
        Non-Productive              -              -          -           -              -            -
                          -----------  -------------  ---------  ----------  -------------  -----------
           Total                    -              -          7        0.53              2          .20
                          ===========  =============  =========  ==========  =============  ===========

   Total:
        Productive                  -              -          8        0.53              2          .20
        Non-Productive              -              -          1        0.10              -            -
                          -----------  -------------  ---------  ----------  -------------  -----------
           Total                    -              -          9        0.63              2          .20
                          ===========  =============  =========  ==========  =============  ===========
U.K.
------
    Development:
        Productive                  1            0.1          -           -              -            -
        Non-Productive              -            0.0          -           -              -            -
                          -----------  -------------  ---------  ----------  -------------  -----------
           Total                    1            0.1          -           -              -            -
                          ===========  =============  =========  ==========  =============  ===========
</TABLE>

At April 30, 1999, Alliance was not participating in the drilling of any oil and
gas wells.

All of Alliance's drilling activities are conducted with independent
contractors. Alliance owns no drilling equipment.

TITLE TO PROPERTIES

     As is customary in the oil and gas industry, Alliance conducts only a
perfunctory title examination at the time properties believed to be suitable for
drilling operations are first acquired.  Prior to commencement of drilling
operations, a thorough drill site title examination is normally conducted and
curative work is performed with respect to significant defects.  During
acquisitions, title reviews are performed on all material properties being
acquired.


ITEM 3.  LEGAL PROCEEDINGS

     The Group is a named defendant in lawsuits, 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 the Group
cannot be predicted with certainty, management does not expect these additional
matters to have material adverse effect on the financial position or results of
operations or liquidity of the Group.

                                                                               9
<PAGE>

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

     On October 30, 1998, Alliance held an Extraordinary General Meeting in
which it adopted resolutions approving the following items:

     (a)   the acquisition by Alliance of all of the issued share capital of
           Difco Limited ("Difco") in exchange for 10 million newly created
           convertible restricted voting shares of 1p each (the "Convertible
           Restricted Voting Shares") and a contingent right to receive
           additional shares, subject to the sales of production actually
           achieved from the U.K. Interests (as defined below);

     (b)   the acquisition through Difco of an undivided ten percent (10%) of
           the interest of Burlington Resources (Irish Sea) Limited in and to 13
           blocks in the East Irish Sea and Liverpool Bay areas off the West
           Coast of the United Kingdom (the "U.K. Interests") for a cash
           consideration of approximately $17.8 million;

     (c)   the creation of the Convertible Restricted Voting Shares and the
           allotment of the Convertible Restricted Voting Shares and the
           additional shares issuable under the terms of the acquisition
           agreement between Alliance and the Difco shareholders;

     (d)   the allotment of certain ordinary shares and warrants to the lenders
           of Alliance and the allotment of equity securities in other specified
           instances;

     (e)   the increase of the borrowing powers of the Directors;

     (f)   a reduction in the par value of the ordinary shares of the Company;

     (g)   the adoption of certain amendments to the Articles of Association of
           the Company; and

     (h)   other matters relating to the foregoing.

                                                                              10
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
        MARKET INFORMATION AND DIVIDENDS

     The Company's Ordinary Shares are traded on the London Stock Exchange
under the symbol "ARS."

     The following table sets forth in pounds, for the calendar quarter
indicated, the high and low sales prices for the Alliance Shares on the London
Stock Exchange (in pence) for the periods indicated derived from the official
list of the London Stock Exchange.  Bid quotations represent quotations between
dealers without adjustment for retail mark-ups, mark-downs or commissions and
may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                                                    Prices
                                                            Alliance Ordinary Shares
                                                          ----------------------------
                                                               High          Low

     <S>                                                    <C>           <C>
        Fiscal year ended April 30, 1998
           First Quarter                                         60          23.5
           Second Quarter                                      35.5            25
           Third Quarter                                       29.5            23
           Fourth Quarter                                      32.5            21

        Fiscal year ended April 30, 1999
           First Quarter                                       32.5          32.5
           Second Quarter                                      32.5          32.5
           Third Quarter                                         19             8
           Fourth Quarter                                         8           4.5
</TABLE>


     As of April 30, 1999, the approximate number of record holders of the
Alliance Ordinary Shares was 2,300.

     Quotations for shares listed on the London Stock Exchange are not
generally readily available in newspapers or other publication in the United
States, but are available in the daily U.S. edition of the Financial Times.
However, investors may place orders for the purchase or sale of shares traded on
the London Stock Exchange through most licensed broker dealers in the United
States.  Under current U.K. law, the transfer of Alliance Shares will generally
give rise to a liability to U.K. stamp duty, normally at the rate of 50p for
every (Pounds)100 (or part thereof) of the actual consideration paid.

     Alliance has not paid any cash dividends on the Alliance Shares for at
lease the last two complete fiscal years.  In addition, Alliance is now
restricted from paying dividends under the Company's credit agreement with the
Bank of America.

EXCHANGE RATES

     The table below sets forth, for the periods and dates indicated,
certain information regarding the US dollar/pound sterling exchange rate, based
on the Noon Buying Rate, expressed in US dollars per (Pounds)1.00.

<TABLE>
<CAPTION>
        Calendar Year              Period End             Average Rate              High                Low
        -------------             ------------            ------------           ----------          ---------
      <S>                        <C>                     <C>                     <C>                <C>
           1996                              1.71                      1.56               1.72               1.49
           1997                              1.64                      1.64               1.70               1.58
           1998                              1.66                      1.66               1.71               1.61
           1999 (1)                          1.61                      1.63               1.66               1.59
</TABLE>

     (1) 1999 exchange rates are for the period from January 1, 1999 to April
         30, 1999 only.

                                                                              11
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     On May 1, 1997, Alliance completed its acquisition of 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 and financial reporting purposes, LaTex is treated
as having acquired Alliance ("Reverse Acquisition").  The historical financial
information for all financial periods to April 30, 1997 reflect the results of
operations and assets and liabilities of LaTex.  LaTex's fiscal year end was
July 31, whereas that of Alliance is April 30.

     On October 30, 1998, Alliance completed its acquisition of Difco and
indirectly a contract to acquire an interest in the U.K. Interests.  The results
of operations and assets and liabilities of Difco have been included since the
date of acquisition.

                                                                              12
<PAGE>

The selected financial information presented below should be read in conjunction
with the Company's audited financial statements and the notes thereto included
under Item 8 and Management's Discussion and Analysis of financial Condition and
Results of Operations at item 7.

              SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
        (in thousands, except per share amounts and average sales data)

<TABLE>
<CAPTION>
                                                                                  Nine months ended
                                                           Year ended April 30        April 30        Years ended July 31
Income Statement Data:                                      1999         1998            1997           1996       1995
                                                          --------     --------        --------       --------    --------
<S>                                                       <C>          <C>        <C>                 <C>         <C>
      Revenues:
         Oil and gas sales                                $  6,234     $ 10,210        $  5,699       $ 11,980    $  8,586
         Crude oil and gas marketing                            --           --             146            540       1,223
                                                          --------     --------        --------       --------    --------
            Total revenues                                   6,234       10,210           5,845         12,520       9,809
                                                          --------     --------        --------       --------    --------

      Operating expenses:
         Lease operating expense                             3,096        5,506           3,117          5,472       4,643
         Cost of crude oil and gas marketing                    --           --              16            133         744
         Cessation of overseas exploration (1)                  --           --              --          3,447          --
         General and administrative                          3,486        3,364           3,481          2,893       2,736
         Depreciation, depletion and amortization            1,671        2,598           1,542          3,511       3,364
         Impairment of oil and gas properties               28,260           --              --             --          --
         Loss on termination of derivative contract (2)         --        1,128              --             --          --
                                                          --------     --------        --------       --------    --------
            Total operating expenses                        36,513       12,596           8,156         15,456      11,487
                                                          --------     --------        --------       --------    --------
           Loss from operations                            (30,279)      (2,386)         (2,311)        (2,936)     (1,678)
                                                          --------     --------        --------       --------    --------

      Other income(expense):
         Equity in losses and write-offs of investments
            in affiliates                                       --           --             (20)        (4,034)       (235)
         Write-off deferred loan costs                        (870)          --              --             --          --
         Gain(loss) on sale of assets                           (9)          35              --             --          --
         Interest income                                        26           62              52            280          58
         Interest expense                                   (3,355)      (2,573)         (2,102)        (2,830)     (1,416)
         Miscellaneous income(expense) (3)                      23          133              (8)        (1,810)         --
                                                          --------     --------        --------       --------    --------
          Net loss before income taxes                     (34,464)      (4,729)         (4,389)       (11,330)     (3,271)
      Income tax expense                                        --           --              --             --         (35)
                                                          --------     --------        --------       --------    --------
          Net loss                                         (34,464)      (4,729)         (4,389)       (11,330)     (3,306)
      Preferred stock dividends                                 --           --             518            571         133
                                                          --------     --------        --------       --------    --------
            Net loss for ordinary shareholders            $(34,464)    $ (4,729)       $ (4,907)      $(11,901)   $ (3,439)
                                                          ========     ========        ========       ========    ========

      Income(loss) per share                              $  (0.82)    $  (0.15)       $  (0.30)      $  (0.77)   $  (0.22)
                                                          ========     ========        ========       ========    ========

      Weighted average shares outstanding (4)               41,936       31,126          16,585         15,508      15,317
                                                          ========     ========        ========       ========    ========

Balance Sheet Data (end of period):
      Total assets                                        $ 36,162     $ 34,760        $ 30,858       $ 36,493    $ 46,549
      Net property, plant and equipment                     30,355       29,808          26,708         29,473      36,336
      Working capital(deficit)                              (5,621)      (9,480)         (9,620)       (27,970)     (7,264)
      Long term debt                                        43,177       18,792          18,095             --      20,635
      Stockholders' equity (deficit)                       (16,637)       2,183              85          3,846      14,628

Reserve and Production Data:
      Production:
         Oil (MBbls)                                           278          396             190            405         359
         Gas (MMcf)                                          1,402        1,689           1,640          3,481       2,612
      Average sales prices:
         Oil (per Bbl)                                    $  13.20     $  15.75        $  15.34       $  15.24    $  12.86
         Gas (per Mcf)                                        1.79         2.36            1.70           1.67        1.48
      Proved reserves (end of period):
         Oil (MBbls)                                         8,708        6,494           6,581          6,353       5,432
         Gas (MMcf)                                         32,584       26,321          25,955         28,172      28,113
Present value of estimated future oil and gas net
      revenues before income taxes (discounted 10%)       $ 46,642     $ 48,600        $ 39,631       $ 53,499    $ 32,912
Standardized Measure                                      $ 37,663     $ 45,106        $ 35,368       $ 43,889    $ 28,802
</TABLE>

<PAGE>

1)   During the year ended July 31, 1996, the Company ceased its overseas
     exploration activities in both Tunisia and Kazakhstan and wrote off its
     costs relating to these activities of $3,447.

2)   On May 15, 1997, the existing commodity price hedging agreements were
     terminated through a buyout. On October 23, 1997, new commodity price
     hedging agreements were initiated. The loss relating to the buy-out, $1,128
     has been recognized in its entirety in the year ended April 30, 1998.

3)   The miscellaneous expenses in the year ended July 31, 1996 arose from
     litigation in connection with the sale in July 1993 of a subsidiary of the
     Company.

4)   For periods ending on or before April 30, 1997, the weighted average number
     of shares outstanding has been based on the number of Alliance shares
     issued on May 1, 1997, which represent the number of LaTex shares
     outstanding in each of the relevant periods based on the exchange ratio in
     the acquisition of LaTex. The loss for each period is stated after
     deducting dividends on the LaTex preferred stock.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

     The Company's acquisition of LaTex on May 1, 1997 has been accounted for as
a "reverse acquisition" of the Company by LaTex. As such, the historical
financial statements and financial information as of and for each of the years
in the two-year period ended July 31, 1996 and for the nine-month period ended
April 30, 1997 are for the business of LaTex alone and include no information
for the Company.

     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 Form 10-K which are presented in
accordance with U.S. GAAP.

     Unless otherwise indicated, the financial information in this Form 10-K has
been prepared in accordance with U.S. generally accepted accounting principles
("U.S. GAAP").  U.S. GAAP differs in certain respects from generally accepted
accounting principles in the U.K. ("U.K. GAAP").  As a result of the Company's
listing on the London Stock Exchange, the Company is required to file reports
with the London Stock Exchange prepared in accordance with U.K. GAAP.

RESULTS OF OPERATIONS

     The factors which most significantly affect results of operations are (i)
the sale prices of crude oil and gas, (ii) the level of total sales volumes,
(iii) the level of lease operating expenses and (iv) the level of and interest
rates on borrowings. Total sales volumes and the level of borrowings are
significantly impacted by the degree of success in efforts to acquire oil and
gas properties and in the ability to maintain or increase production from
existing oil and gas properties through development activities.

     The following table reflects certain historical operating data for the
periods presented.

                                                                              14
<PAGE>

<TABLE>
<CAPTION>
                                                                                        Nine Months
                                                             Year ended April 30       ended April 30
                                                            ----------------------    ----------------
                                                               1999        1998             1997
                                                            ----------------------    ----------------
   <S>         <C>                                          <C>           <C>           <C>
     Net sales volumes
           Oil (Mbbls)                                           278           396              190
           Natural gas (Mmcf)                                  1,402         1,689            1,640
           Oil equivalent (MBOE)                                 512           678              463

     Average sales prices
           Oil (per Bbl)                                      $13.20        $15.75           $15.34
           Natural gas (per Mcf)                              $ 1.79        $ 2.36           $ 1.70

     Operating expenses per BOE of net sales
           Lease operating                                    $ 5.41        $ 7.16           $ 5.55
           Severance tax                                      $ 0.64        $ 0.97           $ 1.22
           Depreciation, depletion and amortization           $ 3.27        $ 3.84           $ 3.33
           General and administrative                         $ 6.81        $ 4.97           $ 7.52
           Loss on termination of commodity
             derivative contract                              $    -        $ 1.67           $    -
</TABLE>

YEAR ENDED APRIL 30, 1999 COMPARED TO THE YEAR ENDED APRIL 30, 1998

     Total revenues for the year ended April 30, 1999 were $6,234,477 compared
to $10,209,881 for the year ended April 30, 1998. This 39% decrease in total
revenue can be attributed to a 30% decrease in oil sales volumes (primarily at
the South Carlton Alabama field), and a 17% decrease in natural gas sales
volumes. A portion of the decreased sales volumes is due to the sale of non-
operated, non-strategic properties. Additionally there was a 16% decrease in the
average sales price received for oil, and a 24% decrease in the average sales
price received for natural gas. Crude oil contributed 56% and natural gas
contributed 44% of oil and gas production revenues during the year ended April
30, 1999. For the year ended April 30, 1998, crude oil contributed 61% and
natural gas contributed 39% of oil and gas production revenues, respectively.

     Lease operating expenses decreased 44% to $3,096,468 for the year ended
April 30, 1999, compared to $5,505,826 for the year ended April 30, 1998. The
reduction in operating expenses is a result of a reduced property base, lower
expenses in the Alabama operations, and the shutting-in of marginal operated
wells. On an equivalent barrel basis, lease operating expenses decreased by
$1.75 to $5.41 for the year ended April 30, 1999, compared to $7.16 for the year
ended April 30, 1998.

     Depreciation, depletion and amortization expense decreased 36% from
$2,598,066 for the year ended April 30, 1998 to $1,670,711 for the year ended
April 30, 1999. This was due primarily to lower production volumes and reserve
revisions resulting from price declines. On an equivalent barrel basis
depreciation, depletion, and amortization decreased $0.57 to $3.27 for the year
ended April 30, 1999, compared to $3.84 for the year ended April 30, 1998.

     Alliance limits, on a country-by-country basis, the net capitalized cost of
proved oil and gas properties, to estimated future net cash flows from proved
oil and gas reserves discounted at 10 percent, net of related tax effects, plus
the lower of cost or fair value of unproved properties included in the costs
being amortized.  Since the acquisition of the U.K. Interests on October 30,
1998, developments plans have become firmer, drilling and well re-entry and
recompletion result on 3 wells have been reviewed and significant progress has
been made on the development of the Dalton and Millom Fields.  This additional
information indicates that, while the aggregate reserves estimates at the time
of acquisition are confirmed, the reserves are likely to be produced at a slower
rate than originally anticipated and that development costs are likely to be in
excess of those originally anticipated.  These factors have led to an impairment
in value of the U.K. Interests.  The Company intends to sell a significant
portion of its production from the U.K. Interests

                                                                              15
<PAGE>

under a term contract which will achieve prices significantly greater than the
spot price of gas at April 30, 1999 (9.05 pence per therm). The Directors are
confident of achieving a price of between 13 and 15 pence per therm. (This is a
forward-looking statement; refer to the Cautionary Statement Regarding Forward
Looking Statements). However, as no contract is yet in place, the Group has
utilized the spot price at April 30, 1999 in calculating the carrying cost limit
resulting in an impairment charge of some $28 million. The charge has no impact
on cash flows from operating activities.

     Interest costs for 1999 increased $780,981, or 25%, from 1998 primarily due
to the revised credit facility put in place to fund the East Irish Sea
acquisition and development. In 1999, Alliance wrote off $869,906 in deferred
loan costs related to the Company's previous credit facility.

     General and administrative expenses for the year ended April 30, 1999 were
$3,486,007 which represents an increase of 3.6% over the $3,363,885 incurred in
the prior fiscal year. On an equivalent barrel basis general and administrative
expenses rose by $1.84 to $6.81 for the year ended April 30, 1999 compared to
$4.97 for the year ended April 30, 1998.

     The net loss for the year ended April 30, 1999 was $34,463,502 ($0.82 per
ordinary share) compared to a net loss of $4,728,923 ($0.15 per ordinary share)
for the year ended April 30, 1998.

YEAR ENDED APRIL 30, 1998 COMPARED TO NINE MONTHS ENDED APRIL 30, 1997

     Total revenues from the Company's operations for the year ended April 30,
1998 were $10,209,881 compared to $5,844,871 for the nine months ended April 30,
1997.  Revenues increased proportionately over the comparable period a year
earlier due principally to the beneficial effect of higher realized gas and
higher oil volumes, offset partially by the absence of marketing margins in the
revenue category.  The higher oil volumes were partially attributable to the
inclusion of Alliance's sales volumes and additional volumes attributable to the
acquisition of the BoA ORRI in the 1998 period following the LaTex Merger.
Although sales volumes for the year ended April 30, 1998, were adversely
affected by a continuing decline in volumes from the LaTex properties during the
initial three months of the period, the remedial work program had a beneficial
impact on volumes from the LaTex properties (discussed below).  In addition, the
inclusion of Alliance's sales volumes from the start of the current reporting
period more than compensated for the initial decline in the LaTex properties.

     The Company concentrated its efforts immediately after the LaTex Merger on
increasing production from eleven existing producing fields operated by LaTex in
the states of Alabama, Mississippi, Oklahoma, Texas and Louisiana.  Workover
operations on these fields commenced in early May 1997 and comprised mainly
returning shut-in wells to production.  Gross production from these eleven
fields was increased from an average of 244 BOE per day in April 1997 to an
average of 980 BOE per day by October 1997.  Most of the production increase
came from remedial workover operations in the South Carlton field in Alabama.
Gross production from this field alone increased from an average of 89 BOE per
day in April 1997 to an average of 575 BOE per day in September 1997.

     Total operating expenses increased proportionately to $12,595,777 for the
year ended April 30, 1998 compared to $8,155,557 for the nine months ended April
30, 1997.  On May 15, 1997, the existing commodity price hedging arrangements
were bought out with a loss of $1,128,000 recognized in its entirety in the year
ended April 30, 1998 as a result of new agreements being initiated on October
23, 1997.  Lease operating expenses increased to $5,505,826 for the year ended
April 30, 1998 compared to $3,117,341 for the nine months ended April 30, 1997.
The year ended April 30, 1998 was impacted by the remedial work program
mentioned above and the inclusion of the Alliance properties partially offset by
lower operating costs due to the sale of non-operated, non-strategic wells.
Depreciation, depletion and amortization increased to $2,598,066 for the 1998
period compared to $1,541,415 due to higher volumes resulting from the inclusion
of Alliance.  General and administrative expenses decreased marginally from
$3,481,003 during the nine months ended April 30, 1997 to $3,363,885 for the
year ended April 30, 1998 primarily due to an employee stock award of $528,125
in the 1997 period.

                                                                              16
<PAGE>

     In addition to the marginal increase in the net operating loss to
$2,385,896 for the year ended April 30, 1998 from $2,310,686 for the nine months
ended April 30, 1997, there was also a proportionate decrease in other
income/expense.  This was the result of higher interest expense taking into
account the additional quarterly payment.

     In summary, due to the above factors, the net loss for the ordinary
shareholders for the year ended April 30, 1998 decreased to $4,728,923 ($0.15
per ordinary share) compared to a net loss of $4,906,946 ($0.30 per ordinary
share) for the nine months ended April 30, 1997.

CAPITAL RESOURCES AND LIQUIDITY

     The Company's capital requirements relate primarily to the acquisition of
developed oil and gas properties and undeveloped leasehold acreage and
exploration and development activities, and the servicing of the Company's debt.
In general, because the Company's oil and gas reserves are depleted by
production, the success of its business strategy is dependent upon a continuous
acquisition and exploration and development program and the acquisition of
additional reserves.

CASH FLOWS AND LIQUIDITY

     At April 30, 1999, Alliance reported current assets of $2,451,077 and
current liabilities of $8,072,252, which resulted in a net current deficit of
$5,621,175.

     For the year ended April 30, 1999 and April 30, 1998, Alliance's operating
activities resulted in negative cash flow of $3,991,251 and $5,184,000,
respectively. The Company had a positive cash flow of $2,098,566 for the nine
months ended April 30, 1997.

     Investing activities of Alliance used $24,174,756 as compared to providing
$3,084,970 in net cash flow for the years ended April 30, 1999 and April 30,
1998, respectively.  The 1999 increase was a result of the acquisition of Difco
and the U.K. Interests as well as the capital expenditures for oil and gas
development activities.

     Financing activities provided $28,043,726 for the year ended April 30,
1999, compared to $2,434,660 for the year ended April 30, 1998.  The increase
was due primarily to the issuance of long-term debt of $45,464,123, the issuance
of common stock for $6,360,000, the refinancing of long-term debt of $22,566,762
and the payment of loan acquisition costs of $1,213,635, all in connection with
the Difco and U.K. Interests acquisitions.

     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.

     The Company continues to experience net losses and working capital
deficits. These factors may indicate the Company will be unable to continue as a
going concern for a reasonable period of time. Despite its negative cash flow,
the Company has been able to secure financing to support its operations to date.
The Company was not in compliance with certain covenants of its loan agreements
at April 30, 1999, however, a waiver has been obtained for such violations.
Agreement has been reached with the Company's principal lender to amend the
terms of its credit agreement to allow for additional immediate borrowings of
$5,000,000, to defer the date of the repayment of a portion of its indebtedness
from January 31, 2001 to July 31, 2001 and to defer the date of the borrowing
base redetermination from July 31, 1999 to December 31, 1999. The amendment does
not change the scheduled repayment dates of other portions of its debt, the
first payment of which is due July 31, 2000.

                                                                              17
<PAGE>

  The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
continue to comply with the terms of its borrowing agreements, to obtain
additional financing or refinancing as will be required and ultimately to attain
profitability.  Management believes it has a business plan that, if successfully
executed, will achieve these objectives.

CAPITAL EXPENDITURES

  The timing of most of the Company's U.S. capital expenditures is
discretionary.  Currently, there are no material long-term commitments
associated with the Company's U.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 funds
available under its credit facility 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 U.S. capital expenditures or
increase the sale of non-strategic oil and gas properties in order to meet such
obligations.

  The timing of the Company's U.K. capital expenditures is determined annually
by a budget prepared by Burlington and approved by Alliance.  Currently, there
are material commitments for the 2000 fiscal year.  These commitments will be
met by funds available under the Company's credit facility and internally
generated cash flow.

  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 funds available under its credit facility and internally
generated cash flow.  (This is a forward-looking statement; refer to the
Cautionary Statement Regarding Forward Looking Statements).

FINANCING ARRANGEMENTS

  Alliance entered into a Credit Agreement (the "Alliance Credit Agreement")
with the Bank of America effective May 1, 1997, amending and restating the
Group's previous credit agreement.  A portion of the borrowings under the
Alliance Credit Agreement bore interest, payable monthly, at a rate equal to the
higher of the Bank of America Reference Rate plus 1% and the Federal Funds Rate
plus 1-1/4%.  Another portion of the borrowings bore interest, payable monthly,
at a rate equal to the London Interbank Offered Rate plus 2%.  The rate at April
30, 1998 was 7.875%.  Principal payments were scheduled to commence on October
31, 1998.  The note was scheduled to mature on March 31, 2000.  Amounts
outstanding were secured by mortgages which cover the majority of the Group's
oil and gas properties.

  In connection with the Difco Acquisition, the Company entered into agreements
with Bank of America National Trust & Savings Association ("BoA"), Alliance's
principal lender and EnCap Equity 1996 Limited Partnership and EnCap Capital
Investment Company PLC (collectively "EnCap") providing up to $64,750,000 in
debt, as follows:

                   BoA:
                      Tranche A                    $30,000,000
                      Tranche B                     20,000,000
                      Tranche C                      5,000,000
                                                   -----------
                                                    55,000,000
                   EnCap                             9,750,000
                                                   -----------
                                                   $64,750,000
                                                   ===========

  Tranche A consists of a revolving credit facility secured by a first priority
lien and security interest in all of the oil and gas properties of the Company.
The Company's initial borrowing base is $18,500,000 and is redetermined
semiannually on January 31 and July 31.  Interest is at a rate determined by the
Company from time to time, of either

                                                                              18
<PAGE>

(i) the greater of BoA's refernce rate and the federal funds effective rate plus
0.5%, or (ii) 2.0% above the current Interbank rate (7.5% at April 30, 1999).
While any Tranche B loan is outstanding, the preceding margins will be increased
by an additional 0.5% semi-annually on April 26 and on October 26 of each year.
Interest is payable quarterly and principal is due in equal quarterly payments
beginning October 30, 2000 and ending on October 30, 2003.

  Tranche B consists of a credit facility secured by a first priority lien and
security interest in all of the oil and gas properties of the Company.  Interest
is at a rate determined by the Company from time to time, of either (i) BoA's
Tranche B reference rate plus 2.0%, or (ii) 4.0% above the current Interbank
rate (9.0% at April 30, 1999).  The margins for all Tranche B loans will be
increased by an additional 0.5% semi-annually on April 26 and on October 26 of
each year.  Interest is payable quarterly and principal is due in full on
January 31, 2001.

  Tranche C consists of a credit facility secured by a first priority lien and
security interest in all of the oil and gas properties of the Company.  Interest
is at a rate determined by the Company from time to time, of either (i) BoA's
reference rate plus 5.0%, or (ii) 7.0% above the current Interbank rate (12.0%
at April 30, 1999).  Interest is payable quarterly and principal is due in equal
quarterly payments beginning January 31, 2001 and ending on October 30, 2004.
The BoA debt facility contains various covenants, including, but not limited to,
maintenance of minimum current and interest coverage ratios, as defined in the
agreement.

  EnCap debt is unsecured and bears interest at 10%.  Interest is payable
quarterly and principal is due in full on October 30, 2005.  Until October 30,
2001, the Company has the option, in lieu of paying cash, of increasing the
principal amount of the debt by the interest due.

  The Company paid BoA a cash fee of $700,000 and granted BoA warrants to
purchase 3,275,000 ordinary shares at a price of 1p per share.  The fair value
of the warrants $1,335,000 attaching to the debt was treated as a discount.  In
addition, the Company will grant BoA an overriding royalty interest, valued at
the value of the underlying oil and gas reserves, in the U.K. Interests of 0.3%
beginning January 1, 2001.  The overriding royalty interest will entitle BoA to
receive payment equal to the specified percentage of the net revenues generated
by the  U.K. Interests and has the effect of reducing the Company's revenues
from the U.K. Interests.  In connection with obtaining the debt financing from
BoA, the Company was required to enter into commodity price risk management
contract on terms that are mutually agreeable to BoA and the Company for a
period not less than two years with respect to at least 50% of the Company's
estimated producing reserves as of October 31, 1998.  BoA also required the
Company to enter into interest rate risk management contracts providing for a
maximum interest rate of 9.0% on the notional amount projected to be outstanding
on the revolving credit facility.

  The Company was not in compliance with certain covenants of the loan
agreements, which included but were not limited to the maintenance of minimum
levels of working capital and interest coverage. Prior to these violations
causing an event of default, which would have resulted in an acceleration of the
repayment of the loans, the Company obtained waivers from the lenders for all
covenant violations. Effective July 30, 1999 the loan agreement was amended to
revise the borrowing limit of Tranche B to $25,000,000 and reduce the limit of
Tranche A to a similar amount. This enabled the Company to borrow an additional
$5,000,000 as of July 30, 1999. The due date of Tranche B was extended from
January 31, 2001 to July 31, 2001. In addition, the date of the borrowing base
and collateral value redetermination scheduled to occur on July 31, 1999 was
deferred until December 31, 1999.

SEASONALITY

  The results of operations of the Company are somewhat seasonal due to
fluctuations in the price for crude oil and natural gas.  Recently, crude oil
prices have been generally higher in the third calendar quarter, and natural gas
prices have been generally higher in the first calendar quarter.  Due to these
seasonal fluctuations, results of operations for individual quarterly periods
may not be indicative of results, which may be realized on an annual basis.

                                                                              19
<PAGE>

INFLATION AND PRICES

     In recent years, inflation has not had a significant impact on the
operations or financial condition of the Company. The generally downward
pressure on oil and gas prices during most of such periods has been accompanied
by a corresponding downward pressure on costs incurred to acquire, develop, and
operate oil and gas properties as well as the costs of drilling and completing
wells on properties.

     Prices obtained for oil and gas production depend upon numerous factors
that are beyond the control of the Company including the extent of domestic and
foreign production, imports of foreign oil, market demand, domestic and world-
wide economic and political conditions, and government regulations and tax laws.
Prices for oil and gas have fluctuated significantly in recent years.

     The following table sets forth the average price received by the Company.

                                                     Oil          Gas
                                                  ---------    ----------
     Year ended April 30, 1999                      $13.20        $1.79
     Year ended April 30, 1998                      $15.75        $2.36
     Nine months ended April 30, 1997               $15.34        $1.70

     On October 31, 1998, the Company's commodity price hedge agreements
expired.  During February 1999 the Company completed a transaction to hedge
approximately 65% of its existing monthly gas production by installing a floor
of $1.60/MMBTU and a cap of $2.07/MMBTU.  This will protect the Company from any
severe declines in natural gas prices over the next six months and conversely
limit the benefit of prices in excess of the cap.  During April 1999 the Company
completed a transaction to hedge approximately 40% of its existing monthly oil
production by installing a floor of $12.00/barrel.  This will protect the
Company from any severe declines in oil prices over the next six months.

ISSUES RELATED TO THE YEAR 2000

GENERAL

     The following Year 2000 statements constitute a Year 2000 Readiness
Disclosure within the meaning of the Year 2000 Information and Readiness
Disclosure Act of 1998. The Year 2000 problem has arisen because many existing
computer programs use only the last two digits to refer to a year. Therefore,
these computer programs do not properly recognize and process date-sensitive
information beyond 1999. In general, there are two areas where Year 2000
problems may exist for the Company: information technology such as computers,
programs and related systems ("IT") and non-information technology systems such
as embedded technology on a silicon chip ("Non IT").

THE PLAN

     Alliance's Year 2000 Plan (the "Plan") has four phases: (i) assessment,
(ii) inventory, (iii) remediation, testing and implementation and (iv)
contingency plans. Approximately twelve months ago, the Company began its phase
one assessment of its particular exposure to problems that might arise as a
result of the new millennium. The assessment and inventory phases have been
substantially completed and have identified Alliance's IT systems that must be
updated or replaced in order to be Year 2000 compliant. Remediation, testing and
implementation are scheduled to be completed by September 30, 1999, and the
contingency plan phase of the Plan is scheduled to be completed by October 31,
1999.  Alliance's assessment of the readiness of third parties whose IT systems
might have an impact on Alliance's business has thus far not indicated any
material problems.

                                                                              20
<PAGE>

     With regard to Alliance's Non IT systems, the Company believes that most of
these systems can be brought into compliance on schedule. Alliance's assessment
of third party readiness is not yet completed. Because the potential problem
with Non IT systems involves embedded chips, it is difficult to determine with
complete accuracy where all such systems are located. As part of its Plan, the
Company is making formal and informal inquiries of its vendors, customers and
transporters in an effort to determine the third party systems that might have
embedded technology requiring remediation.

ESTIMATED COSTS

     Although it is difficult to estimate the total costs of implementing the
Plan through January 1, 2000 and beyond, Alliance's preliminary estimate is that
such costs will not be material. To date, the Company has determined that its IT
systems are either compliant or can be made compliant for less than $50,000.
However, although management believes that its estimates are reasonable, there
can be no assurance, for the reasons stated in the next paragraph, that the
actual cost of implementing the Plan would not differ materially from the
estimated costs.

POTENTIAL RISKS

     The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. This risk exists both as to Alliance's IT and Non IT systems, as
well as to the systems of third parties. Such failures could materially and
adversely affect Alliance's results of operations, cash flow and financial
condition. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third party
suppliers, vendors and transporters, the Company is unable to determine at this
time whether the consequences of Year 2000 failures will have a material impact
on Alliance's results of operations, cash flow or financial condition. Although
the Company is not currently able to determine the consequences of Year 2000
failures, its current assessment is that its area of greatest potential risk in
its third party relationships is in connection with the transporting and
marketing of the oil and gas produced by the Company. The Company is contacting
the various purchasers and pipelines with which it regularly does business to
determine their state of readiness for the Year 2000. Although the purchasers
and pipelines will not guaranty their state of readiness, the responses received
to date have indicated no material problems. The Company believes that in a
worst case scenario, the failure of its purchasers and transporters to conduct
business in a normal fashion could have a material adverse effect on cash flow
for a period of six to nine months. Alliance's Year 2000 Plan is expected to
significantly reduce Alliance's level of uncertainty about the compliance and
readiness of these material third parties. The evaluation of third party
readiness will be followed by Alliance's development of contingency plans.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     In addition, the dates for completion of the phases of the Year 2000 Plan
are based on Alliance's best estimates, which were derived using numerous
assumptions of future events. Due to the general uncertainty inherent in the
Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-parties and the interconnection of computer systems, the
Company cannot ensure its ability to timely and cost-effectively resolve
problems associated with the Year 2000 issue that may affect its operations and
business. Accordingly, shareholders and potential investors are cautioned that
certain events or circumstances could cause actual results to differ materially
from those projected, estimated or predicted.

QUANTITATIVE AND QUALITATIVE ANALYSIS ON MARKET RISK

     The Company's primary market risks relate to changes in interest rates and
in the prices received from sales of oil and natural gas. The Company's primary
risk management strategy is to partially mitigate the risk of adverse changes in
its cash flows caused by increases in interest rates on its variable rate debt,
and decreases in oil and natural

                                                                              21
<PAGE>

gas prices, by entering into derivative financial and commodity instruments,
including swaps, collars and participating commodity hedges. By hedging only a
portion of its market risk exposures, the Company is able to participate in the
increased earnings and cash flows associated with decreases in interest rates
and increases in oil and natural gas prices; however, it is exposed to risk on
the unhedged portion of its variable rate debt and oil and natural gas
production.

  Historically, the Company has attempted to hedge the exposure related to its
variable rate debt and its forecasted oil and natural gas production in amounts
which it believes are prudent based on the prices of available derivatives and,
in the case of production hedges, the Company's deliverable volumes.  The
Company attempts to manage the exposure to adverse changes in the fair value of
its fixed rate debt agreements by issuing fixed rate debt only when business
conditions and market conditions are favorable.

  The Company does not use or hold derivative instruments for trading purposes
nor does it use derivative instruments with leveraged features.  The Company's
derivative instruments are designated and effective as hedges against its
identified risks, and do not of themselves expose the Company to market risk
because any adverse change in the cash flows associated with the derivative
instrument is accompanied by an offsetting change in the cash flows of the
hedged transaction.

  Personnel who have appropriate skills, experience and supervision carry out
all derivative activity.  The personnel involved in derivative activity must
follow prescribed trading limits and parameters that are regularly reviewed by
senior management.  The Company uses only well-known, conventional derivative
instruments and attempts to manage its credit risk by entering into financial
contracts with reputable financial institutions.

  Following are disclosures regarding the Company's market risk sensitive
instruments by major category.  Investors and other users are cautioned to avoid
simplistic use of these disclosures.  Users should realize that the actual
impact of future interest rate and commodity price movements will likely differ
from the amounts disclosed below due to ongoing changes in risk exposure levels
and concurrent adjustments to hedging positions.  It is not possible to
accurately predict future movements in interest rates and oil and natural gas
prices.

  Interest Rate Risks (non-trading) - the Company uses both fixed and variable
rate debts to partially finance operations and capital expenditures.  As of
April 30, 1999, the Company's debt consists of $39,830,348 in borrowings under
its Credit Agreement which bear interest at a variable rate, and $10,243,775 in
borrowings under its 10% Senior Subordinated Notes which bear interest at a
fixed rate.  The Company hedges a portion of the risk associated with its
variable rate debt through derivative instruments which consist of interest rate
swaps and collars.  Under the swap contracts, the Company makes interest
payments on its Credit Agreement as scheduled and receives or makes payments
based on the differential between the fixed rate of the swap and a floating rate
plus a defined differential. These instruments reduce the Company's exposure to
increases in interest rates on the hedged portion of its debt by enabling it to
effectively pay a fixed rate of interest or a rate, which only fluctuates within
a predetermined ceiling and floor.  A hypothetical increase in interest rates of
two percentage points would cause a loss in income and cash flows of $800,000
during 1999, assuming that outstanding borrowings under the Credit Agreement
remain at current levels.  This loss in income and cash flows would be offset by
a $0 increase in income and cash flows associated with the interest rate swap
and collar agreements that are in effect for 1999.  A hypothetical decrease in
interest rates of two percentage points would cause an increase in the fair
value of $0 in the Company's Senior Subordinated Notes from their fair value at
April 30, 1999.

  Commodity Price Risk (non trading) - The Company hedges a portion of the price
risk associated with the sale of its oil and natural gas production through the
use of derivative commodity instruments, which consist of collars and
participating hedges.  These instruments reduce the Company's exposure to
decreases in oil and natural gas prices on the hedged portion of its production
by enabling it to effectively receive a fixed price on its oil and natural gas
sales or a price that only fluctuates between a predetermined floor and ceiling.
As of July 1, 1999, the Company had entered into derivative commodity hedges
covering an aggregate of 40,000 barrels of oil and 320,000 MMbtu's of

                                                                              22
<PAGE>

gas that extend through October 1999. Under these contracts, the Company sells
its oil and natural gas production at spot market prices and receives or makes
payments based on the differential between the contract price and a floating
price which is based on spot market indices. The amount received or paid upon
settlement of these contracts is recognized as oil or natural gas revenues at
the time the hedged volumes are sold. A hypothetical decrease in oil and natural
gas prices of 10% from the price in effect as of April 30, 1999, would cause a
loss in income and cash flows of $383,250 during 1999, assuming that oil and gas
production remain at current levels. This loss in income and cash flows would be
offset by a $0 increase in income and cash flows associated with the oil and
natural gas derivative contracts that are in effect.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                            Page
                                                                            ----

Independent Auditors' Report..............................................   F-2

Consolidated Balance Sheets...............................................   F-3

Consolidated Statements of Operations.....................................   F-5

Consolidated Statements of Changes in Stockholders' Equity................   F-6

Consolidated Statements of Cash Flows.....................................   F-7

Notes to the Consolidated Financial Statements............................   F-8

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

                                Not Applicable

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         John A. "Jak" Keenan, aged 45, is the Chairman and Managing Director
of Alliance.  He has worked in the oil industry since 1976 and was successively
first vice president of corporate development, chief operating officer and
director and president of the oil and gas division of Great Western Resources,
Inc.  He resigned his position at Great Western Resources, Inc. in August 1995
and accepted a position at the law firm of Jenkens & Gilchrist in Houston,
Texas, where he specialized in oil and gas transactions.  He joined the Board of
Alliance in April 1996.

         Michael E. Humphries, aged 42, is the Interim Finance Director of
Alliance.  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, where he has
responsibility for Rothschild's oil and gas activities in North America.  He
joined the Board of Alliance in December 1997.

         Paul R. Fenemore, aged 43, is the Operations and Business Development
Director of Alliance.  He has a B.Sc. degree in combined science obtained in
1975 and a M.Sc. degree in marine geotechnics.  He has extensive experience in
detailed technical and economic evaluations of exploration and oil field
appraisal and development projects and project management and has held several
technical and senior management positions with Gulf Oil Corporation, Amoco
Europe and West Africa Limited, Amerada-Hess UK Limited, Hamilton Brothers (UK)
Limited, CSX Oil and Gas Corporation, Cairn Energy PLC and Hunting Surveys
Limited.  From 1991 until 1995, he was managing director of Petroleum Ventures
International and Spectron Petroleum Limited and became a fellow of the
Geological Society in 1992.  He joined the Board of Alliance in May 1996.

                                                                              23
<PAGE>

     Phillip Douglas, aged 60, is a non-executive Director of Alliance.  He was
a director and head of international investment at Morgan Grenfell for 16 years
and was a director of G T Management.  He also has a number of other non-
executive directorships in public and private companies.  He joined the Board of
Alliance in November 1993.

     William J. A. Kennedy, aged 60, is a non-executive Director of Alliance.
After 25 years experience in the investment industry, he became vice president
of a major conglomerate, Crownx, Inc.  For the past nine years, he has operated
a management consulting service and sits on the board of two public Canadian
companies.  He joined the Board of Alliance in January 1994.

     John R. Martinson, aged 63, is a non-executive Director of Alliance. He has
a B.Sc. degree in engineering and a masters degree in business administration.
He became a director of LaTex in 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. He joined the
Board of Alliance in May 1997.

Other Key Employees and their Business Histories

     In addition to the Executive Directors, the Company employs two senior
executives.  The names, current ages and positions of these other key employees
are as follows:


        Name                    Age                Position
        ----                    ---                --------

Francis M. Munchinski            45                General Counsel

Robert E. Schulte                41                Controller


     Francis M. Munchinski is the General Counsel of Alliance.  He is a U.S.
citizen and a doctor of law.  Prior to joining the Company in June 1998, he was
a shareholder at the law firm of Jenkens & Gilchrist in Dallas, Texas where he
specialized in oil and gas law for over 13 years.  Mr. Munchinski has been
involved in the oil and gas business for over 18 years.

     Robert E. Schulte is the Controller of Alliance.  He is a U.S. citizen and
has a B.S. degree in accounting.  He has worked in the oil and gas industry
since 1981 in both domestic and international arenas.  He has held management
positions with Bow Valley Petroleum, Kelt Energy, Great Western Resources and
Apache Corporation before joining Alliance in September 1997.

ITEM 11.  EXECUTIVE COMPENSATION

     The following table sets forth certain information regarding compensation
paid or accrued during each of the Company's last three fiscal years to the
Company's Managing Director, John A. Keenan and each of the other most highly
compensated executive officers who earned at least $100,000 in salary and bonus
in fiscal 1999 (the "Named Executives"):

                                                                              24
<PAGE>

                          Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                        Long Term
                                                        Annual Compensation            Compensation
                                                   -----------------------------  ----------------------
                                                                                        Securities
                                                                                        Underlying              All Other
Name and Principal Position         Fiscal Year      Salary ($)      Bonus ($)       Options/SARs (#)        Compensation ($)
--------------------------------  ---------------  --------------  -------------  ----------------------  ----------------------
<S>                               <C>              <C>             <C>            <C>                     <C>
John A. Keenan..................        1999              162,000         75,000                 890,000                  22,500
    Managing Director(1)                1998              174,500         30,000                 400,000                 107,103
                                        1997              150,333             --                 150,000                   5,061
Paul R. Fenemore................        1999              172,000         45,000                 670,000                  10,000
    Operations and Business             1998              164,990         20,000                 200,000                   8,361
    Development Director(2)             1997              142,789             --                  25,000                      --
Francis M. Munchinski...........        1999               75,833         42,000                 520,000                   8,526
    General Counsel(3)                  1998                   --             --                      --                      --
                                        1997                   --             --                      --                      --
Robert E. Schulte...............        1999               82,083         42,000                 285,000                  10,321
    Controller(4)                       1998               45,569          4,000                  25,000                   4,208
                                        1997                   --             --                      --                      --
</TABLE>

(1)  Mr. Keenan assumed his position with Alliance on May 22, 1996.  Amounts
     shown under All Other Compensation in 1999 represent pension and benefits.
     Amounts shown under All Other Compensation in 1998 represent relocation
     expenses.

(2)  Mr. Fenemore assumed his position with Alliance on May 21, 1996.  Amounts
     shown under All Other Compensation in 1999 represent pension.

(3)  Mr. Munchinski assumed his position with Alliance on June 16, 1998.
     Amounts shown under All Other Compensation in 1999 represent relocation
     expenses and benefits.

(4)  Mr. Schulte assumed his position with Alliance on September 17, 1997.
     Amounts shown under All Other Compensation in 1999 represent relocation
     expenses and benefits.

                                                                              25
<PAGE>

                      Options Grants in Last Fiscal Year

     The following table sets forth all individual grants of options to the
Named Executives of the Company during the fiscal year ended April 30, 1999.

<TABLE>
<CAPTION>

Individual Grants                                                                              Potential Realizable
-----------------                                                                                Value at Assumed
                                                                                               Annual Rates of Stock
                                                                                                Price Appreciation
                                                                                                  For Option Term
                                                                                              -----------------------
                                                  % Of Total
                                  Securities       Options
                                  Underlying      Granted to     Exercise or
                                  Options        Employees in       Base       Expiration
                  Name            Granted(#)      Fiscal Year    Price(1)($)      Date           5% ($)      10% ($)
                  ----            ----------   ----------------  -----------   ----------     ----------   ----------
<S>                               <C>          <C>               <C>           <C>            <C>          <C>
John A. Keenan..................     890,000               37.6     13.5p        11/29/08     195,844.50   311,188.50
    Managing Director
Paul R. Fenemore................     670,000               28.3     13.5p        11/29/08     147,433.50   234,265.50
    Operations and Business
    Development Director
Francis M. Munchinski...........     520,000               22.0     13.5p        11/29/08     114,426.00   181,818.00
    General Counsel
Robert E. Schulte...............     285,000               12.1     13.5p        11/29/08      62,714.25    99,650.25
    Controller
</TABLE>

(1) Represents the closing mid-market price of the ordinary shares on the London
    Stock Exchange on November 27, 1998.

                         Fiscal Year End Option Values

    Shown below is information with respect to the Named Executives of the
Company regarding option exercises during the fiscal year ended April 30, 1999,
and the value of unexercised options held as of April 30, 1999.
<TABLE>
<CAPTION>

                                               Number of Securities Underlying             Value of Unexercised
                                                     Unexercised Options                       In-the-Money
                                                      at April 30, 1999                  Options at April 30, 1999
                                          --------------------------------------  -------------------------------------
                 Name                       Unexercisable        Exercisable        Unexercisable       Exercisable
                 ----                     ------------------  ------------------  -----------------  ------------------
<S>                                       <C>                 <C>                 <C>                <C>
John A. Keenan..........................           1,290,000          --                  --                 --
     Managing Director
Paul R. Fenemore........................             870,000          --                  --                 --
     Operations and Business
     Development Director
Francis M. Munchinski...................             520,000          --                  --                 --
     General Counsel
Robert E. Schulte.......................             310,000          --                  --                 --
     Controller
</TABLE>

                                                                              26
<PAGE>

Employment Agreements

  Each of Messrs. Keenan, Fenemore, Munchinski, and Schulte have entered into
Executive Service Agreements with Alliance providing for his employment in his
current capacity for an initial fixed term of two years beginning October 15,
1996, September 20, 1996, January 1, 1999 and January 1, 1999, respectively, and
having automatic extensions of the initial term for additional two-year periods
unless written notice of either party's intention not to extend has been given
to the other party at least three months prior to the expiration of the then
effective two-year period of employment, provided that the executive may at any
time terminate his employment by giving a minimum of three months notice. If the
executive's employment terminates for any reason other than the executive's
breach of the agreement, disability or malfeasance, Alliance must pay the
executive an amount equal to twice the annual salary, bonuses and benefits paid
to the executive. Upon the involuntary termination of the executive's employment
without cause or voluntary termination by the executive after a change in his
office location, his responsibilities or reduction in compensation following a
change in control of Alliance, the executive is entitled to the payment of one
lump sum of cash in an amount equal to two and a half times the annual salary,
bonus and benefits paid to the executive.

  The annual salary under each agreement is $180,000 for Mr. Keenan,
(pounds)100,000 for Mr. Fenemore, $140,000 for Mr. Munchinski and $100,000 for
Mr. Schulte, plus any bonuses or other compensation determined by Alliance's
Board of Directors in its discretion.

Compensation of Directors

  The compensation of the non-executive directors is reviewed by the Board of
Directors from time to time to ensure that this compensation is in line with
current market practice.  Under Alliance's Articles of Association, shareholders
determine the maximum aggregate amount payable by way of fees to directors and
this maximum amount is currently fixed at (Pounds)100,000 per year.  During the
twelve months ended April 30, 1999, the following directors were paid the
indicated fees for their services as directors: Mr. Douglas $16,000, Mr. Kennedy
$16,000, Mr. Samuelson $12,000, Mr. Martinson $12,000 and Mr. Humphries $12,525.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The following table sets forth certain information, as of April 30, 1999, with
respect to the beneficial ownership of Shares (i) by any person or "group," as
that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934,
known to the Company to own beneficially more than 5% of the outstanding Shares,
(ii) by each director, including executive directors, and each other key
employee of the Company named in the Summary Compensation Table, and (iii) by
all directors, including executive directors, and all key employees of the
Company as a group.  Except as otherwise indicated, each of the persons named
below is believed by the Company to possess sole voting and investment power
with respect to the Shares beneficially owned by such person.

<TABLE>
<CAPTION>

Name and Address of                                             Shares Owned          Percent Owned
Beneficial Owner(1)                                             Beneficially          Beneficially
-------------------                                             ------------          -----------
<S>                                                             <C>                   <C>
John A. Keenan...........................................       1,390,000(2)                 2.6%

Paul R. Fenemore.........................................         870,000(3)                 1.7%

Francis M. Munchinski....................................         520,000(4)                 1.0%

Robert E. Schulte........................................         310,000(5)                   *

Michael E. Humphries.....................................               -                      -
</TABLE>

                                                                              27
<PAGE>

<TABLE>

<S>                                                             <C>                   <C>
William J.A. Kennedy.....................................           4,125                      *

Philip Douglas...........................................          99,583                      *

John R. Martinson........................................         778,987(6)                 1.5%

Enron Reserve Acquisition Corp. (7)......................       3,239,708                    6.2%

LaSalle Street Natural Resources Corporation(8)..........       7,179,519                   12.3%

EnCap Equity 1996 Limited Partnership(9).................      11,250,000                   21.4%

Energy Capital Investment Company PLC(10)................       3,750,000                    7.1%

EnCap Investments L.C.(11)...............................      15,545,454                   29.6%

All Directors, including executive directors, and all
 key employees of Alliance as a group
   (8 persons) (2), (3), (4), (5), (6)...................       3,972,695                    5.7%
</TABLE>
--------------------------------
*    Less than 1%

(1)  All of the Company's directors may be contacted at 12 St. James's Square,
     London SW1Y 4RB.

(2)  Includes options to purchase 1,290,000 Shares granted pursuant to the
     Company's executive share option plans.

(3)  Consists of options to purchase 870,000 Shares granted pursuant to the
     Company's executive share option plans.

(4)  Consists of options to purchase 520,000 Shares granted pursuant to the
     Company's executive share option plans.

(5)  Consists of options to purchase 310,000 Shares granted pursuant to the
     Company's executive share option plans.

(6)  Includes presently exercisable warrants to purchase 374,877 Shares held by
     Wood Roberts, Inc., a corporation under the control of Mr. Martinson and
     presently exercisable warrants to purchase 218,334 Shares held by Wood
     Roberts, LLC, a Texas limited liability company 50% owned by Mr. Martinson.

(7)  The address of Enron Reserve Acquisition Corp. is 1400 Smith Street,
     Houston, Texas 77002.  After April 30, 1999, Enron Reserve Acquisition
     Corp. advised the Company that it sold all of its shares.

(8)  Consists of 1,500,000 Shares, convertible loan notes and immediately
     exercisable warrants convertible into or exercisable for 2,404,519 Shares
     issued to an affiliate of Bank of America and warrants to purchase
     3,275,000 Shares at a price of 1p per share.  The address of LaSalle Street
     Natural Resources  is 231 S. LaSalle Street, Chicago, Illinois  60697.

(9)  The address of EnCap Equity 1996 Limited Partnership is 1100 Louisiana,
     Suite 3150, Houston, Texas 77002.  EnCap Equity 1996 Limited Partnership
     shares voting and dispositive power with EnCap Investments L.C., its
     general partner.

                                                                              28
<PAGE>

(10) The address of Energy Capital Investment Company PLC is c/o Aberdeen Asset
     Management, 1 Bow Churchyard, Cheapside, London EC4M 9HH, England.  Energy
     Capital Investment Company PLC shares dispositive and voting power over
     these shares with EnCap Investments L.C.

(11) The address of EnCap Investments L.C. is 1100 Louisiana, Suite 3150,
     Houston, Texas 77002. EnCap Investments L.C. shares dispositive and voting
     power over 15,000,000 of these shares with EnCap Equity 1996 Limited
     Partnership and Energy Capital Investment Company PLC.

(12) In addition to the interests set out above, John A. Keenan is interested in
     45,000 Shares held in the name of Diamond Securities Limited and 102,500
     Shares held in the name of Havensworth Limited by virtue of having proxy
     over the voting rights attached to these Shares pending their sale, as
     required by a settlement of legal proceedings with the former Managing
     Director of the Company in August 1996.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  Financial Statements (included at Item 8.  Financial Statements and
     Supplementary Data)

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed by the Company with the Securities and
     Exchange Commission during the fourth quarter of the Company's fiscal year
     ended April 30, 1999.

(c)  Exhibits.


Exhibit     Description
-------     -----------

3.1(3)      Memorandum of Association of Alliance Resources Plc (3.1)
3.2(3)      Articles of Association of Alliance Resources Plc (3.7)
3.3(2)      Form of Warrant Agreement relating to Warrants issued to Society
            National Bank as Warrant Agent for holders of certain LaTex Warrants
            (3.3)
3.4(2)      Warrant Agreement and form of Warrant issued to all other holders of
            LaTex Warrants (3.4)
3.5(2)      Form of Convertible Loan Note Instrument entered into between
            Alliance Resources Plc and Bank of America NT & SA (3.5)
3.6(2)      Registration Rights Agreement between Alliance Resources Plc and
            affiliate of Bank of America NT & SA (3.6)
10.1(1)(2)  Executive Service Agreement between Alliance Resources Plc and John
            A. Keenan dated October 15, 1996 as amended by Supplemental
            Agreement dated April 7, 1998 and Second Supplemental Agreement
            dated as of December 1, 1998 (10.1)
10.2(1)(2)  Executive Service Agreement between Alliance Resources Plc and Paul
            R. Fenemore dated September 20, 1996 as amended by Supplemental
            Agreement dated April 16, 1998 and Second Supplemental Agreement
            dated as of December 1, 1998 (10.2)
10.3(1)     Executive Service Agreement between Alliance Resources Plc and
            Francis M. Munchinski dated as of December 1, 1998.

                                                                              29
<PAGE>

10.4(1)     Executive Service Agreement between Alliance Resources Plc and
            Robert E. Schulte dated as of December 1, 1998.
10.5(3)     Purchase Agreement dated October 27, 1998, by and between Alliance
            Resources PLC and EnCap Equity 1996 Limited Partnership and Energy
            Capital Investment Company Plc.
10.6        First Amendment to the Purchase Agreement, dated effective as of
            July 30, 1999.
10.7(3)     Registration Rights Agreement dated as of October 30, 1998 by and
            between Alliance Resources PLC, EnCap Equity 1996 Limited
            Partnership, Energy Capital Investment Company Plc and EnCap
            Investments, L.C.
10.8(3)     Third Amended and Restated Credit Agreement dated as of October 27,
            1998, among Alliance Resources PLC and certain of its subsidiaries
            and Bank of America National Trust and Savings Association.
10.9        First Amendment to the Third Amended and Restated Credit Agreement,
            dated effective as of July 30, 1999.
10.10(3)    Registration Rights Agreement dated as of October 30, 1998 between
            the Company and LaSalle Street Natural Resources Corporation.
10.11(3)    Registration Rights Agreement dated as of October 30, 1998, among
            Alliance Resources PLC and F. Fox Benton and certain members of his
            family.
10.12       Exchange and Merger Agreement by and among American Rivers Oil
            Company, a Wyoming corporation, American Rivers Oil Company, a
            Delaware corporation, and Alliance Resources Plc, dated July 22,
            1999.
22.1        Subsidiaries

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

(1)  Constitutes compensation plan or arrangement
(2)  Incorporated by reference from the indicated exhibit filed with Alliance's
     Registration Statement on Form F-4 (No. 333-19013).
(3)  Incorporated by reference from the indicated exhibit filed with Alliance's
     Form 8-K filed November 16, 1998.


                              SIGNATURES


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

                                             Alliance Resources PLC

Date:  August 12, 1999                       /s/ John A. Keenan
                                             ---------------------
                                             John A. Keenan, Chairman
                                             and Managing Director

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

       Signature                          Title                      Date
       ---------                          -----                      ----

/s/ John A. Keenan         Chairman and Managing Director       August 12, 1999
-------------------------
John A. Keenan


/s/ Paul R Fenemore        Operations and Business Development  August 12, 1999
-------------------------  Director
Paul R Fenemore


                                                                              30
<PAGE>

/s/ Phillip Douglas        Director                             August 12, 1999
-------------------------
Phillip Douglas


/s/ William J A Kennedy    Director                             August 12, 1999
-------------------------
William J A Kennedy


/s/ Michael E Humphries    Director                             August 12, 1999
-------------------------
Michael E Humphries


/s/ John R Martinson       Director                             August 12, 1999
-------------------------
John R Martinson

                                                                              31
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS


                                                                            Page
                                                                            ----

Independent Auditors' Report..............................................   F-2

Consolidated Balance Sheets...............................................   F-3

Consolidated Statements of Operations.....................................   F-5

Consolidated Statements of Changes in Stockholders' Equity................   F-6

Consolidated Statements of Cash Flows.....................................   F-7

Notes to the Consolidated Financial Statements............................   F-8






















                                                                             F-1
<PAGE>

                         Independent Auditors' Report



Board of Directors
Alliance Resources PLC and Subsidiaries


We have audited the consolidated balance sheets of Alliance Resources PLC and
subsidiaries as of April 30, 1998 and 1999 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the nine
months ended April 30, 1997 and the years ended April 30, 1998 and 1999.  These
consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
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 management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Alliance Resources PLC and subsidiaries as of April 30, 1998 and 1999, and the
results of their operations and their cash flows for the nine months ended April
30, 1997 and the years ended April 30, 1998 and 1999, in conformity with
generally accepted accounting principles in the United States.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern.  As discussed in Note 1 to the consolidated
financial statements, the Company has suffered recurring losses from operations,
has a net capital deficiency and is obliged to commence repayments on its
borrowings on October 30, 2000. These matters raise substantial doubt about the
Company's ability to continue as a going concern.  Management's plans in regard
to these matters are also described in Note 1.  The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

                                                        KPMG Audit Plc
London, United Kingdom
August 12, 1999

                                                                             F-2
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES
                          Consolidated Balance Sheets
                            April 30, 1998 and 1999


<TABLE>
<CAPTION>
                         Assets                                           1998                    1999
                         ------                                       ------------            ------------
<S>                                                                   <C>                    <C>
Current assets:
  Cash                                                                $    408,439            $    286,158
  Accounts receivable                                                    2,132,654               2,105,082
  Other current assets                                                      73,977                  59,837
                                                                      ------------            ------------

     Total current assets                                                2,615,070               2,451,077
                                                                      ------------            ------------

Property and equipment, at cost
  Oil and gas properties, full cost method:
           United States                                                43,200,388              42,901,608
           United Kingdom                                                        -              31,054,083
  Other depreciable assets                                               1,029,118               1,095,147
                                                                      ------------            ------------
                                                                        44,229,506              75,050,838
  Less accumulated depreciation, depletion, and                        (14,421,400)            (44,695,726)
   impairments                                                        ------------            ------------

     Net property, plant and equipment                                  29,808,106              30,355,112
                                                                      ------------            ------------

Other assets:
  Deposits and other assets                                                144,989                 141,422
  Deferred acquisition costs                                               970,305                       -
  Deferred loan costs, less accumulated amortization                     1,221,650               3,215,384
                                                                      ------------            ------------
                                                                      $ 34,760,120            $ 36,162,995
                                                                      ============            ============
</TABLE>


         See accompanying notes to consolidated financial statements.

                                                                             F-3
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES
                          Consolidated Balance Sheets
                            April 30, 1998 and 1999
                                  (continued)

<TABLE>
<CAPTION>
                    Liabilities and Stockholders' Equity                                         1998                    1999
                    ------------------------------------                                     ------------            ------------
<S>                                                                                         <C>                     <C>
Current liabilities:
    Accounts payable - trade                                                                 $  8,972,704            $  7,238,502
    Accrued expenses payable                                                                      847,190                 833,750
    Current portion of long-term debt                                                           2,275,000                       -
                                                                                             ------------            ------------

          Total current liabilities                                                            12,094,894               8,072,252

Long-term liabilities:
        Long-term debt, less current portion                                                   18,791,762              43,176,621
        Other liabilities                                                                         139,626                       -
        Convertible subordinated unsecured loan notes                                           1,550,700               1,550,700
                                                                                             ------------            ------------

            Total liabilities                                                                  32,576,982              52,799,573
                                                                                             ------------            ------------
Stockholders' equity:
        Ordinary Shares-par value 40 pence;
            46,000,000 shares authorized; 31,209,408 issued and outstanding
            at April 30, 1998                                                                  20,114,634                       -
        Ordinary Shares - par value 1 pence;
            415,001,376 authorized; 47,487,142 issued and outstanding
            at April 30, 1999                                                                           -                 768,823
        Deferred Shares - par value 1 pence;
            1,414,998,624 authorized; 1,217,155,912 issued and
            outstanding at April 30, 1999                                                               -              19,611,767
        Convertible Shares - par value 1 pence;
             10,000,000 authorized; 10,000,000 issued and outstanding
             at April 30, 1999                                                                          -                 278,000

        Additional paid-in capital                                                              5,911,050              21,042,094
        Accumulated other comprehensive income(loss)                                               13,823                 (17,391)
        Accumulated deficit                                                                   (23,856,369)            (58,319,871)
                                                                                             ------------            ------------

             Total stockholders' equity(deficit)                                                2,183,138             (16,636,578)
                                                                                             ------------            ------------

Commitments (Note 13)

                                                                                             $ 34,760,120            $ 36,162,995
                                                                                             ============            ============
</TABLE>
         See accompanying notes to consolidated financial statements.

                                                                             F-4
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES
                     Consolidated Statements of Operations
                       Nine Months Ended April 30, 1997
                    and Years Ended April 30, 1998 and 1999

<TABLE>
<CAPTION>

                                                          Nine months
                                                             ended               Year ended                 Year ended
                                                         April 30, 1997         April 30, 1998             April 30, 1999
                                                         --------------         --------------             --------------
<S>                                                      <C>                    <C>                        <C>
Revenues
  Oil and gas revenue                                       $ 5,698,490            $10,209,881               $  6,234,477
  Crude oil and gas marketing                                   146,381                      -                          -
                                                            -----------            -----------               ------------

     Total revenues                                           5,844,871             10,209,881                  6,234,477
                                                            -----------            -----------               ------------

Operating expenses
  Lease operating expenses                                    3,117,341              5,505,826                  3,096,468
  Cost of crude oil and gas marketing                            15,798                      -                          -
  General and administrative expenses                         3,481,003              3,363,885                  3,486,007
  Depreciation, depletion, and amortization                   1,541,415              2,598,066                  1,670,711
  Impairment of oil and gas properties                                -                      -                 28,260,037
  Loss on termination of derivative contracts                         -              1,128,000                          -
                                                            -----------            -----------               ------------

     Total operating expenses                                 8,155,557             12,595,777                 36,513,223
                                                            -----------            -----------               ------------

                        Loss from operations                 (2,310,686)            (2,385,896)               (30,278,746)
                                                            -----------            -----------               ------------

Other income (expense):
  Write-off of deferred loan costs                                    -                      -                   (869,906)
  Interest expense                                           (2,102,933)            (2,573,646)                (3,354,627)
  Interest income                                                52,038                 62,226                     26,299
  Miscellaneous income (expense)                               ( 27,752)               132,951                     22,662
  Gain (loss) on sale of assets                                       -                 35,442                     (9,184)
                                                            -----------            -----------               ------------

     Total other income (expense)                            (2,078,647)            (2,343,027)                (4,184,756)
                                                            -----------            -----------               ------------

                        Net loss                             (4,389,333)            (4,728,923)               (34,463,502)

Preferred stock dividends                                      (517,613)                     -                          -
                                                            -----------            -----------               ------------

                        Net loss for ordinary
                         shareholders                       $(4,906,946)           $(4,728,923)              $(34,463,502)
                                                            ===========            ===========               ============

Basic loss per ordinary share                               $     (0.30)           $     (0.15)              $      (0.82)
                                                            ===========            ===========               ============

Weighted average number of shares outstanding                16,585,113             31,125,689                 41,935,718
                                                            ===========            ===========               ============
</TABLE>


         See accompanying notes to consolidated financial statements.

                                                                             F-5
<PAGE>

                     Alliance Resources PLC and Subsidiaries
                    Consolidated Statements of Stockholders'
                   Equity (Deficit) and Comprehensive Income
                        Nine Months Ended April 30, 1997
                    and Years Ended April 30, 1998 and 1999
<TABLE>
<CAPTION>
                                                                                                                       Additional
                                                          Preferred       Ordinary         Deferred     Convertible      Paid-in
                                                            Stock          Shares           Shares        Shares         Capital
                                                        ------------    ------------    ------------   ------------   -------------
<S>                                                     <C>             <C>             <C>            <C>            <C>
Balance at July 31, 1996                                $  2,680,411    $ 10,681,373    $         --   $         --   $  5,193,888
      Issuance of 85,986 shares for services                      --          55,857              --             --         44,143
      Issuance of 1,453,079 shares for
          employee bonuses                                        --         943,920              --             --       (415,795)
      Issuance of 51,735 shares for dividends                190,703              --              --             --        326,910
      Net loss                                                    --              --              --             --             --
                                                        ------------    ------------    ------------   ------------   ------------

Balance at April 30, 1997                                  2,871,114      11,681,150              --             --      5,149,146
      Issuance of 4,419,818 shares for
          preferred shares                                (2,871,114)      2,871,114              --             --             --
      Issuance of 8,103,816 shares to Alliance
          shareholders                                            --       5,105,550              --             --     (1,066,211)
      Issuance of 1,343,750 shares for acquisition
          of overriding royalty interest                          --         872,900              --             --      1,498,400
      Issuance of 256,250 shares for settlement
          of various advisory and banking fees                    --         165,904              --             --        187,096
      Issuance of 56,805 shares for warrants                      --          37,148              --             --         12,852
      Cancellation of 953,099 treasury shares                     --        (619,132)             --             --        129,767
      Comprehensive income:
          Foreign exchange adjustment                             --              --              --             --             --
          Net loss                                                --              --              --             --             --

             Total comprehensive loss
                                                        ------------    ------------    ------------   ------------   ------------

Balance at April 30, 1998                                         --      20,114,634              --             --      5,911,050
      Capital reorganization                                      --     (19,611,767)     19,611,767             --             --
      Issuance of 10,000,000 shares for Difco Limited             --              --              --        278,000      6,930,000
      Issuance of 15,545,454 shares to lender                     --         254,000              --             --      6,398,000
      Warrants issued to principal lender                         --              --              --             --      1,335,000
      Issuance of 732,280 shares for services                     --          11,956              --             --        468,044
      Comprehensive income:
          Foreign exchange adjustment                             --              --              --             --             --
          Net loss                                                --              --              --             --             --
             Total comprehensive loss
                                                        ------------    ------------    ------------   ------------   ------------

Balance at April 30, 1999                               $         --    $    768,823    $ 19,611,767   $    278,000   $ 21,042,094
                                                        ------------    ------------    ------------   ------------   ------------

<CAPTION>
                                                         Accumulated
                                                           Other
                                                        Comprehensive    Accumulated      Treasury
                                                        Income (Loss)      Deficit          Stock           Total
                                                        -------------   -------------   ------------    ------------
<S>                                                     <C>             <C>             <C>             <C>
Balance at July 31, 1996                                $         --    $(14,220,500)   $   (489,365)   $  3,845,807
      Issuance of 85,986 shares for services                      --              --              --         100,000
      Issuance of 1,453,079 shares for
          employee bonuses                                        --              --              --         528,125
      Issuance of 51,735 shares for dividends                     --        (517,613)             --              --
      Net loss                                                    --      (4,389,333)             --      (4,389,333)
                                                        ------------    ------------    ------------    ------------

Balance at April 30, 1997                                         --     (19,127,446)       (489,365)         84,599
      Issuance of 4,419,818 shares for
          preferred shares                                        --              --              --              --
      Issuance of 8,103,816 shares to Alliance
          shareholders                                            --              --              --       4,039,339
      Issuance of 1,343,750 shares for acquisition
          of overriding royalty interest                          --              --              --       2,371,300
      Issuance of 256,250 shares for settlement
          of various advisory and banking fees                    --              --              --         353,000
      Issuance of 56,805 shares for warrants                      --              --              --          50,000
      Cancellation of 953,099 treasury shares                     --              --         489,365              --
      Comprehensive income:
          Foreign exchange adjustment                         13,823              --              --          13,823
          Net loss                                                --      (4,728,923)             --      (4,728,923)
                                                                                                        ------------
             Total comprehensive loss                                                                     (4,715,100)
                                                        ------------    ------------    ------------    ------------

Balance at April 30, 1998                                     13,823     (23,856,369)             --       2,183,138
      Capital reorganization                                      --              --              --              --
      Issuance of 10,000,000 shares for Difco Limited             --              --              --       7,208,000
      Issuance of 15,545,454 shares to lender                     --              --              --       6,652,000
      Warrants issued to principal lender                         --              --              --       1,335,000
      Issuance of 732,280 shares for services                     --              --              --         480,000
      Comprehensive income:
          Foreign exchange adjustment                        (31,214)             --              --         (31,214)
          Net loss                                                --     (34,463,502)             --     (34,463,502)
                                                                                                        ------------
             Total comprehensive loss                                                                    (34,494,716)
                                                        ------------    ------------    ------------    ------------

Balance at April 30, 1999                               $    (17,391)   $(58,319,871)   $         --    $(16,636,578)
                                                        ------------    ------------    ------------    ------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES
                     Consolidated Statements of Cash Flows
                       Nine Months Ended April 30, 1997
                    and Years Ended April 30, 1998 and 1999

<TABLE>
<CAPTION>
                                                                         Nine months
                                                                            ended               Year ended           Year ended
                                                                          April 30,              April 30,            April 30,
                                                                            1997                   1998                 1999
                                                                         -----------           -----------          ------------
<S>                                                                     <C>                    <C>                  <C>
Cash flows from operating activities:
 Net loss                                                                $(4,389,333)          $(4,728,923)         $(34,463,502)
 Adjustments to reconcile net loss to net
   cash provided by (used in) operating activities:
     Depreciation, depletion and amortization                              1,541,415             2,598,066             1,670,711
     Write-off of deferred loan costs                                              -                     -               869,906
     Impairment of oil and gas properties                                          -                     -            28,260,037
     Other amortization                                                      394,000               813,096             1,289,493
     Employee bonus                                                          528,125                     -                     -
     (Gain)loss on sale of assets                                                  -               (35,442)                9,184
     Changes in assets and liabilities, net of
       effects from acquisition:
       Accounts receivable                                                 1,204,903               487,427                27,572
       Due from related parties                                              392,297                     -                     -
       Other assets                                                          161,530                97,500                17,707
       Accounts payable                                                    2,239,165            (4,032,763)           (1,519,293)
       Accrued expenses payable                                             (169,319)              409,454               (13,440)
       Other liabilities                                                     195,783              (792,554)             (139,626)
                                                                         -----------           -----------          ------------
          Net cash provided by (used in) operating                         2,098,566            (5,184,139)           (3,991,251)
           activities                                                    -----------           -----------          ------------

Cash flows from investing activities:
 Proceeds from sale of property and equipment                              1,573,625             5,729,300             1,742,336
 Purchases of property and equipment, including                             (350,322)           (2,407,162)           (3,829,425)
  interest capitalized
 Acquisition of Difco                                                              -              (221,987)          (22,087,667)
 Decrease in accounts and notes receivable-other                           1,273,320                     -                     -
 Effect of LaTex acquisition                                                       -               (15,181)                    -
                                                                         -----------           -----------          ------------
   Net cash provided by (used in) investing activities                   $ 2,496,623           $ 3,084,970          $(24,174,756)
                                                                         -----------           -----------          ------------
Cash flows from financing activities:
 Deferred loan and reorganization costs                                  $  (401,208)          $  (385,680)         $ (1,213,635)
 Proceeds from issuance of long-term debt                                          -             2,770,340            45,464,123
 Exercise of warrants                                                              -                50,000                     -
 Payments of long-term debt                                               (4,140,370)                    -           (22,566,762)
 Proceeds from issuance of stock                                                   -                     -             6,360,000
                                                                         -----------           -----------          ------------
       Net cash provided by (used in) financing activities                (4,541,578)            2,434,660            28,043,726
                                                                         -----------           -----------          ------------
          Net increase (decrease) in cash                                     53,611               335,491              (122,281)
Cash at beginning of period                                                   19,337                72,948               408,439
                                                                         -----------           -----------          ------------
Cash at end of period                                                    $    72,948           $   408,439          $    286,158
                                                                         ===========           ===========          ============

Supplemental disclosures of cash flow information-
 Cash paid during the period for interest                                $ 1,623,985           $ 1,634,360          $  2,910,000
                                                                         ===========           ===========          ============
Supplemental disclosure of noncash investing and
 financing activities:
     Common stock issued for services and bonus                          $   100,000           $   353,000          $    772,000
     Shares issued for employee bonus                                        462,500                     -                     -
     Issuance of convertible loan notes                                            -               150,000                     -
     Common stock issued on acquisition of LaTex                                   -             4,039,339                     -
     Common stock issued for overriding royalty                                    -             2,371,300                     -
     Convertible loan notes issued for overriding royalty                          -             1,400,700                     -
     Convertible shares issued to Difco shareholders                               -                     -             7,208,000
     Overriding royalty interest conveyed to bank                                  -                     -            (2,100,000)
</TABLE>

         See accompanying notes to consolidated financial statements.


                                                                             F-7
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued


(1)  Organization and Summary of Significant Accounting Policies

     Organization and basis of presentation

     Alliance Resources PLC ("Alliance" or "the Company") and its subsidiaries
     are engaged in the exploration, development and production of oil and gas
     and, until April 30, 1997, oil and gas marketing.  Oil and gas production
     operations are currently conducted principally in Oklahoma, Texas,
     Louisiana, Mississippi and Alabama.  The Company acquired proved
     undeveloped oil and gas interests in the East Irish Sea effective October
     30, 1998 (See Note 2).  Included in oil and gas revenue are sales from 10
     significant producing properties which aggregated approximately $2,700,000,
     $2,210,000, and $2,155,000 for the nine months ended April 30, 1997, and
     years ended April 30, 1998 and 1999, respectively.

     Alliance is a London-based public limited company organized under the laws
     of England and Wales and its shares are listed on the London Stock
     Exchange.  The Company prepares its statutory financial statements in
     accordance with U.K. law and U.K. generally accepted accounting principles.
     These financial statements are prepared in accordance with generally
     accepted accounting principles in the United States.

     On May 1, 1997, Alliance completed its acquisition of LaTex Resources, Inc.
     ("LaTex"), a US independent oil and gas exploration and production company.
     As the LaTex shareholders had a controlling interest in the combined group,
     LaTex was treated as having acquired Alliance ("Reverse Acquisition").
     Accordingly, in the consolidated financial statements for the period
     beginning May 1, 1997, the assets and liabilities of Alliance are recorded
     at fair values while the assets and liabilities of LaTex and its
     subsidiaries are recorded at their historical costs.  The consolidated
     financial statements of the Company for the nine months ended April 30,
     1997, reflect the results of operations and assets and liabilities of LaTex
     and its subsidiaries.   Adjustments have been made to reflect, in that
     period, the changes in the capital structure resulting from the
     acquisition.  Earnings per share have been restated on the basis of the
     number of Alliance shares which, based on the exchange ratio used in the
     acquisition, represents the weighted average number of LaTex common shares
     outstanding in the relevant period.

     In these financial statements the "Group" refers to Alliance and its
     subsidiaries for periods ending on or after May 1, 1997 and to LaTex
     Resources, Inc. and its subsidiaries for periods ending on or before April
     30, 1997.

     Financial Condition

     The accompanying financial statements have been prepared on a going concern
     basis, which contemplates the realization of assets and satisfaction of
     liabilities in the normal course of business.  As shown in the financial
     statements during the nine months ended April 30, 1997 and the years ended
     April 30, 1998 and 1999, the Company incurred losses of $4,389,333;
     $4,728,923; and $34,463,502, respectively, continues to experience working
     capital deficits and is obliged to commence repayments on the borrowings on
     October 30, 2000.  These factors among others may indicate the Company will
     be unable to continue as a going concern for a reasonable period of time.

     The financial statements do not include any adjustments relating to the
     recoverability and classification of liabilities that might be necessary
     should the Company be unable to continue as a going concern.  Despite its
     negative cash flow, the Company has been able to secure financing to
     support its operations to date.  As described in note 7, the Company was
     not in compliance with certain covenants of its loan agreements at April
     30, 1999, but a waiver was obtained for such violations.  The Company has
     also reached agreement with its principal bank to amend certain provisions
     of the loan agreement to allow for additional borrowing capacity under
     Tranche B, to defer the borrowing base redetermination date from July 31,
     1999 to December 31, 1999 and extend the repayment due date to July 31,
     2001.  The amendment does not, however, change the scheduled repayment
     dates of Tranche A which commence on October 30, 2000.

                                                                             F-8
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued


     The Company's continuation as a going concern is dependent upon its ability
     to generate sufficient cash flow to meet is obligations on a timely basis,
     to continue to comply with the terms of its borrowing agreements, to obtain
     additional financing or refinancing as will be required and ultimately to
     attain profitability.  Management believes it has a business plan that, if
     successfully executed, will achieve these objectives.

     Reporting Currency

     The current operations are in the oil and gas industry in the United States
     and the United Kingdom and are conducted through subsidiaries, LaTex
     Petroleum Corporation, Alliance Resources (USA) Inc., Germany Oil Company,
     Difco Limited, and Source Petroleum Inc.  Transactions are conducted
     primarily in U.K. Sterling and US dollars. The directors consider that the
     US dollar is the functional currency of the Group and the Group's
     consolidated financial statements have been prepared in US dollars.

     Consolidation

     The consolidated financial statements comprise the financial statements of
     the Company and all other companies in which the Group's holding exceeds 50
     percent.  Transactions and balances between group companies are eliminated
     on consolidation.

     Earnings Per Share

     Basic loss per share has been computed by dividing the net loss
     attributable to ordinary shareholders by the weighted average number of
     ordinary shares outstanding during the period.

     The effect of potential common shares (warrants, options and convertible
     subordinated unsecured loan notes) is anti-dilutive.  Accordingly, diluted
     loss per share is not presented.

     Foreign Currency Translation

     The financial statements 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 net assets are reported as a component of
     stockholders' equity(deficit) in accumulated other comprehensive loss.  In
     the underlying financial statements, transactions with third parties are
     translated into the functional currency at the exchange rate prevailing at
     the date of each transaction.  Monetary assets and liabilities denominated
     in currencies other than the functional currency 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 consolidated statement of
     operations.

     The Group's share capital is denominated in sterling and for the purposes
     of the consolidated financial statements, is translated into US dollars at
     the rate of exchange at the time of its issue.

     Revenues

     Revenues represents income from production and delivery of oil and gas,
     recorded net of royalties in kind. The Group follows the sales method of
     accounting for gas imbalances.  A liability is recorded only if the Group's
     excess takes of gas volumes exceed its estimated recoverable reserves from
     the relevant well and no receivable is recorded where the Group has taken
     less than its entitlement to gas production.

                                                                             F-9
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued


     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 capitalized as tangible fixed assets.  Such costs include
     lease acquisition costs, geological costs, the costs of drilling both
     productive and non-productive wells, capitalized interest, production
     equipment and related overhead costs.  Capitalized 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
     net proved reserve volumes.  Reserve volumes are combined into equivalent
     units using approximate 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 except for sales involving significant reserves where a
     gain or loss is recognized.

     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 after income taxes, discounting and using prices and cost
     levels at the balance sheet date.

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

     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
                   Buildings                -  30 years

     Deferred Taxation

     Deferred tax assets and liabilities are recognized for the estimated future
     tax consequences attributable to differences between the financial
     statement carrying amounts of existing assets and liabilities and their
     respective tax bases.  Deferred tax assets and liabilities are measured
     using enacted tax rates in effect for the year in which those temporary
     differences are expected to be recovered or settled.  The effect on
     deferred tax assets and liabilities of a change in tax rates is recognized
     in the consolidated statement of operations in the period that includes the
     enactment date.

     Joint Ventures

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

                                                                            F-10
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued


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

     Leases

     Rentals under operating leases are charged to the consolidated statement of
     operations on a straight line basis over the lease term.

     Debt Issuance Costs

     Debt issuance costs are initially capitalized as intangible assets and are
     amortized over the term of the debt to which they relate.

     Derivatives

     Changes in value of financial instruments, utilized to hedge commodity
     price and interest rate risk are recognized in the consolidated statement
     of operations when the underlying transactions are recognized.  Changes in
     value of financial instruments which do not meet the criteria to be treated
     as a hedge of an underlying risk are recognized in the consolidated
     statement of operations as they occur.

     The Group's criteria for a derivative instrument to qualify for hedge
     accounting treatment are as follows:
       --the timing or duration, quantum and characteristics of the underlying
         exposure must have been identified with reasonable certainty;
       --changes in the value of the derivative must correlate to a high degree
         with changes in the present value of the exposure under a wide range of
         possible circumstances;
       --the derivative has been designated as a hedge or is a synthetic
         alteration of a specific asset, liability or anticipated transaction;
         and
       --the derivative instrument either: (a) reduces exposure of net income or
         cash flow to fluctuations caused by movements in commodity prices,
         currency exchange rates or interest rates, including fixing the cost of
         anticipated debt issuance; or (b) alters the profile of the group's
         interest rate or currency exposures, or changes the maturity profile of
         the investment portfolio, to achieve a resulting overall exposure in
         line with policy guidelines.

     For any termination of derivatives receiving hedge accounting treatment,
     gains and losses are deferred when the relating underlying exposures remain
     outstanding and are included in the measurement of the related transaction
     or balance.  In addition, upon any termination of the underlying exposures,
     the derivative is marked-to-market and the resulting gain or loss is
     included with the gain or loss on the terminated transaction.  The Group
     may re-designate the remaining derivative instruments to other underlying
     exposures provided the normal criteria are all met.

     Cash Flow Statement

     For the purposes of the consolidated statement of cash flows, the Group
     treats all investments with an original maturity of three months or less to
     be cash equivalents.

     Stock Option Plan

     The Company has adopted Statement of Financial Accounting Standards (SFAS)
     No. 123, Accounting for Stock-Based Compensation, which permits entities to
     recognize as expense over the vesting period the fair value of all stock-
     based awards on the date of grant.  Alternatively, SFAS No. 123 also allows
     entities to continue to apply the provisions of Accounting Principles Board
     (APB) Opinion No. 25, Accounting for Stock-Based

                                                                            F-11
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued


     Compensation, and provide pro forma net income and pro forma earnings per
     share disclosures for employee stock option grants made in future years if
     the fair-value-based method defined in SFAS No. 123 had been applied. The
     Company has elected to apply the provisions of APB Opinion No. 25 and
     provide the pro forma disclosure provisions of SFAS No. 123.

     Accounting Estimates

     In the course of preparing financial statements, management makes various
     assumptions and estimates to determine the reported amounts of assets,
     liabilities, revenue and expenses and in relation to the disclosure of
     commitments and contingencies.  Changes in these assumptions and estimates
     will occur as a result of the passage of time and the occurrence of future
     events and, accordingly, the actual results could differ from the amounts
     estimated.

     Business Segments

     The Group adopted Financial Accounting Standard (FAS) 131 "Segment
     Disclosures and Related Information" during the year ended April 30, 1998.
     Prior to April 30, 1997, the Group sold a portion of its oil and gas
     production volumes through its oil and gas marketing subsidiary although
     the operations and net assets of that subsidiary were not separately
     managed.  The Group considers itself to be involved in one business
     activity and does not meet the criteria established by FAS 131.
     Accordingly, information regarding marketing activities has not been
     included for any periods presented.

     Comprehensive Income (Loss)

     The Company has adopted Financial Accounting Standards Board issued
     Statement of Financial Standards No. 130, "Reporting Comprehensive Income"
     (Statement No. 130).  Statement No. 130 establishes standards for reporting
     and display of comprehensive income and its components in a full set of
     general-purpose financial statements.  The Company has reported accumulated
     other comprehensive loss as a separate line item in consolidated balance
     sheets.  The components of total comprehensive income (loss) for the
     periods consist of net losses and foreign currency translation.

     Significant Differences between U.S. and U.K. Accounting Principles

     The accounting policies used in the preparation of these financial
     statements conform with U.S. generally accepted accounting principles
     ("U.S. GAAP") which differ in certain respects from U.K. generally accepted
     accounting principles ("U.K. GAAP").  Differences which may have a
     significant effect on net loss and shareholders' deficit are set out below.


<TABLE>
<CAPTION>
                                           Nine months ended      Year ended         Year ended
                                             April 30, 1997     April 30, 1998     April 30, 1999
                                             (in thousands)     (in thousands)     (in thousands)
                                           -----------------  -----------------  -----------------
<S>                                        <C>                <C>                <C>
       Effect on net loss--
          Net loss under U.S. GAAP              $(4,389)           $(4,729)           $(34,464)
          Ceiling test adjustment (a)                 -                  -              23,481
                                                -------            -------            --------
          Approximate net loss under U.K.
            GAAP                                $(4,389)           $(4,729)           $(10,983)
                                                =======            =======            ========
</TABLE>


                                                                            F-12
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued


<TABLE>
<CAPTION>
                                                                      April 30
                                                           ------------------------------
                                                                1998            1999
                                                           (in thousands)  (in thousands)
                                                           --------------  --------------
<S>                                                        <C>             <C>
     Effect on shareholders deficit--
      Stockholders' equity under U.S. GAAP                     $2,183         $(16,637)
      Adjustments:
       Ceiling test (a)                                             -           23,481
       Convertible subordinated unsecured loan notes (b)        1,551            1,551
       Acquisition of Difco (c)                                     -            1,272
                                                               ------         --------
                                                               $3,734         $  9,667
                                                               ======         ========
</TABLE>

     (a)  Under U.S. GAAP, ceiling tests are calculated using prices prevailing
          at the year end. Under U.K. GAAP, a reasonable assessment of future
          prices is used. At April 30, 1999, the spot price for gas in the U.K.
          was significantly below management's reasonable expectation of future
          prices resulting in a significantly greater charge under U.S. GAAP
          than under U.K. GAAP.

     (b)  Under U.S. GAAP, the convertible subordinated unsecured loan notes are
          treated as a liability. Under U.K. GAAP, the convertible subordinated
          unsecured loan notes are included as part of shareholders' equity as
          in substance their terms are economically equivalent to warrants with
          a zero strike price and Alliance has no obligation to transfer future
          economic benefit to the holder of the loan notes.

     (c)  Under U.S. GAAP, the shares issued to the vendors of Difco are
          recorded at the more readily determinable value. Under U.K. GAAP, the
          shares are recorded at the value of the underlying interest in the
          East Irish Sea Interests.

     In addition there are a number of other classification and disclosure
     differences which do not impact net loss or shareholders' deficit.

(2)  Acquisition of Difco Limited and U.K. Interests

     On October 30, 1998, Alliance completed its acquisition of Difco Limited
     ("Difco").  Alliance acquired all of the capital stock of Difco and,
     indirectly, a contract to acquire 10% of Burlington Resources (Irish Sea)
     Limited's ("Burlington") interest in the East Irish Sea Properties ("U.K.
     Interests").  The Difco shareholders received 10,000,000 convertible shares
     valued at $7,208,000. Such value was derived based on the value of the
     underlying market value of the shares issued. The shares issued represented
     approximately 8.7% of the outstanding shares of the Company. The former
     Difco shareholders could receive up to 29.6% of the outstanding shares of
     the Company based upon the production from, or reserves attributable to,
     the U.K. Interests. The Company acquired, through Difco, 10% of
     Burlington's interest in the East Irish Sea Properties for cash
     consideration of approximately $17,800,000. The Company issued to its
     financial advisor 615,385 ordinary shares in payment of a fee of $330,000
     incurred in connection with the transactions. The total acquisition cost,
     including transaction costs, was allocated to oil and gas properties.

                                                                            F-13
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued


     The following unaudited pro forma financial information presents the
     combined results of operations of the Company and Difco as if the
     acquisition had occurred as of the beginning of fiscal years 1998 and 1999,
     after giving effect to certain adjustments, including increased interest
     expense on debt related to the acquisition and amortization of deferred
     loan costs and debt discount.  The pro forma financial information does not
     necessarily reflect the results of operations that would have occurred had
     the Company and Difco constituted a single entity during such periods.

                                                 (Unaudited)
                                        --------------------------------
                                             Year ended April 30
                                        --------------------------------
                                           1998                1999
                                        -----------         ------------
            Revenues                    $10,209,881         $  6,234,477
                                        ===========         ============
            Net loss                    $(7,760,657)        $(36,497,108)
                                        ===========         ============
            Loss per share              $     (0.15)        $      (0.77)
                                        ===========         ============

(3)  Acquisition of LaTex

     On May 1, 1997, Alliance, completed its acquisition of LaTex, whereby a
     newly formed wholly-owned subsidiary of Alliance merged with and into LaTex
     with LaTex being the surviving corporation for accounting purposes.  In
     consideration the shareholders and warrant holders of LaTex received an
     aggregate of 21,448,787 shares of Alliance (the "New Alliance Shares") and
     warrants to purchase an additional 1,927,908 New Alliance Shares.

     As a result, after giving effect to a 40-to-1 reverse stock split of the
     Alliance ordinary shares, each shareholder of LaTex on May 1, 1997,
     received 0.85981 ordinary shares for each share of LaTex common stock,
     2.58201 ordinary shares for each share of the LaTex Series A preferred
     stock then held, 6.17632 ordinary shares for each share of LaTex Series B
     preferred stock then held, and a warrant to purchase 0.85981 share for each
     share of LaTex Common Stock subject to warrants.

     The purchase price was arrived at as follows:

       Value of 8,103,816 Alliance shares outstanding                $4,039,339
       Acquisition costs                                                871,000
                                                                     ----------
                                                                     $4,910,339
                                                                     ==========

     The value of the Alliance shares outstanding was arrived at by using the
     share price of LaTex at the time of announcement of the acquisition
     adjusted by the exchange ratio.

     Transaction costs incurred by Alliance reduced the fair value of Alliance's
     monetary assets and liabilities at the date of the acquisition.

     The fair value of the assets and liabilities of the acquired business at
     the effective date of acquisition is as follows:

       Cash                                                         $ 1,460,555
       Other current assets                                             480,045
       Other assets                                                     202,253
       Oil and gas assets                                             5,268,929
       Other fixed assets                                               253,386
       Debt                                                             (85,420)
       Other liabilities and provisions                              (2,669,409)
                                                                    -----------
                                                                    $ 4,910,339
                                                                    ===========

                                                                            F-14
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued


     In connection with the acquisition, Alliance issued to Bank of America, the
     Company's principal lender, 156,250 ordinary shares and convertible
     subordinated unsecured loan notes convertible into 115,456 ordinary shares
     to settle fees of $200,000 and $150,000 payable upon restructuring of
     LaTex's bank debt. In addition the Company agreed to issue 116,895 ordinary
     shares to Rothschild Natural Resources, LLC in settlement of outstanding
     fees of $150,000.

     Alliance has also issued 1,343,750 ordinary shares, convertible
     subordinated unsecured loan notes convertible into 1,078,125 ordinary
     shares and 1,210,938 warrants to Bank of America in exchange for an
     overriding royalty interest in most of LaTex's properties held by Bank of
     America.

     The purchase price was allocated to oil and gas properties and has been
     arrived at as follows:


      Value of 1,343,750 ordinary shares and warrants issued      $2,371,300
      Value of convertible subordinated unsecured loan
      note issued                                                  1,400,700
                                                                  ----------
                                                                  $3,772,000
                                                                  ==========

(4)  Impairment of U.K. Interests

     As discussed in Note 1, the Company utilizes the full cost method of
     accounting for its oil and gas operations and performs a "ceiling test."
     The ceiling test limits the costs accumulated in respect of each cost pool
     to net amounts that can be recovered from the estimated production of
     proved reserves.  The net amounts recovered are determined utilizing a 10%
     discount factor and pricing and cost levels at the balance sheet date.

     The U.K. Interests consist of proven reserves and the current development
     program is being conducted to produce these reserves.  Although the Company
     intends to enter into term gas delivery contracts which would be expected
     to be at prices above the spot price at April 30, 1999, the Group does not
     have contracts in place at April 30, 1999 with purchasers and, accordingly,
     has utilized the spot market price to value such interests. The utilization
     of these factors has resulted in a ceiling test write-down of approximately
     $28,000,000 for U.S. GAAP purposes.

(5)  Financial Instruments

     The carrying value of cash and cash equivalents, accounts receivables and
     accounts payable approximate the estimated fair value of those financial
     instruments due to their short maturities.  The estimated fair value of the
     interest rate swap agreement, based on current market rates, approximated a
     net payable of $445,767 and $248,884 at April 30, 1998 and 1999,
     respectively.  The estimated fair value of the commodity derivative
     instruments approximates a net receivable of $409,395 at April 30, 1998 and
     a net payable of $128,479 at April 30, 1999.  The carrying value of long-
     term debt approximates to the fair value, as advised by the Group's
     bankers.  See note 15.

     Fair value is defined as the amount at which the instrument could be
     exchanged in a current transaction between willing parties.

                                                                            F-15
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



(6)  Income Taxes

     Income taxes different from the amounts computed by applying the U.S.
     federal tax rate of 34% as a result of the following (in thousands):

<TABLE>
<CAPTION>
                                                             Nine months
                                                                ended          Year ended         Year ended
                                                              April 30,         April 30,          April 30,
                                                                1997              1998               1999
                                                           ---------------  -----------------  -----------------

<S>                                                        <C>              <C>                <C>
     Computed expected tax benefit                          $     (1,492)    $       (1,608)    $      (11,718)
     Increase in valuation allowance for                           1,301              6,792             11,296
       deferred tax, assets
     Net operating losses acquired                                     -             (5,513)                 -
     Other                                                           191                329                422
                                                                  -------            -------           --------
     Actual income tax benefit                              $           -    $             -    $             -
                                                                  =======            =======           ========
</TABLE>

     The tax effects of temporary differences that give rise to significant
     portions of the deferred tax assets and liabilities are presented below in
     thousands:

<TABLE>
<CAPTION>
                                                                               1998                1999
                                                                         -----------------  ------------------
<S>                                                                      <C>                <C>
     Total deferred tax liabilities -
        Property and equipment                                                   $  1,754            $      -
                                                                                 --------            --------
     Deferred tax assets:
        Net operating and other loss carryovers                                    15,473              15,238
        Property and equipment                                                          -              10,034
        Investment write-downs                                                        917                 917
        Percentage depletion carryforward                                             390                 267
        Accrued expenses not deductible until paid                                    219                  85
                                                                                 --------            --------
     Total deferred tax assets                                                     16,999              26,541
        Valuation allowance                                                       (15,245)            (26,541)
                                                                                 --------            --------
     Net deferred tax assets                                                        1,754                   -
                                                                                 --------            --------
     Net deferred tax asset (liability)                                          $      -            $      -
                                                                                 ========            ========
</TABLE>


     A valuation allowance is required when it is more likely than not that all
     or a portion of the deferred tax assets will not be realized.  The ultimate
     realization of the deferred tax assets is dependent upon future
     profitability. Accordingly, a valuation allowance has been established to
     reduce the deferred tax assets to a level which, more likely than not, will
     be realized.

     The Group has net operating loss carryovers to offset future taxable
     earnings of approximately $44,000,000, including approximately $36,000,000
     of losses limited under Section 382 of the Internal Revenue Code.  If not
     previously utilized or limited, the net operating losses will expire in
     varying amounts from 2004 to 2019.

                                                                            F-16
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



(7)    Long-Term Debt

       Long-term debt at April 30, 1998 and 1999 consists of the following:

<TABLE>
<CAPTION>
                                                           1998               1999
                                                       ------------        -----------

<S>                                                     <C>          <C>
           BoA:
               Tranche A                                $         -        $18,500,000
               Tranche B                                          -         16,330,348
               Tranche C                                          -          5,000,000

           EnCap                                                  -         10,243,775

           Alliance Credit Agreement                     21,066,762                  -
                                                        -----------        -----------
                                                         21,066,762         50,074,123
               Less unamortized discount                          -          6,897,502
                                                        -----------        -----------
           Long-term debt                                21,066,762         43,176,621
               Less current portion                       2,275,000                  -
                                                        -----------        -----------
           Long-term debt less current portion          $18,791,762        $43,176,621
                                                        ===========        ===========
</TABLE>

     Alliance entered into a Credit Agreement (the "Alliance Credit Agreement")
     with the Bank of America effective May 1, 1997, amending and restating the
     Group's previous credit agreement.  A portion of the borrowings under the
     Alliance Credit Agreement bore interest, payable monthly, at a rate equal
     to the higher of the Bank of America Reference Rate plus 1% and the Federal
     Funds Rate plus 1-1/4%.  Another portion of the borrowings bore interest,
     payable monthly, at a rate equal to the London Interbank Offered Rate plus
     2%.  The rate at April 30, 1998 was 7.875%.  Principal payments were
     scheduled to commence on October 31, 1998.  The note was scheduled to
     mature on March 31, 2000.  Amounts outstanding were secured by mortgages
     which cover the majority of the Group's oil and gas properties.

     In connection with the Difco Acquisition (See Note 2), the Company entered
     into agreements with Bank of America National Trust & Savings Association
     ("BoA"), Alliance's principal lender and EnCap Equity 1996 Limited
     Partnership and EnCap Capital Investment Company PLC (collectively "EnCap")
     providing up to $64,750,000 in debt, as follows:

                BoA:
                  Tranche A                      $30,000,000
                  Tranche B                       20,000,000
                  Tranche C                        5,000,000
                                                 -----------
                                                  55,000,000
                EnCap                              9,750,000
                                                 -----------
                                                 $64,750,000
                                                 ===========


     Tranche A consists of a revolving credit facility secured by a first
     priority lien and security interest in all of the oil and gas properties of
     the Company.  The Company's initial borrowing base is $18,500,000 and is
     redetermined semiannually on January 31 and July 31.  Interest is at a rate
     determined by the Company from time to time, of either (i) the greater of
     BoA's reference rate and the federal funds effective rate plus 0.5%, or
     (ii) 2.0% above the current Interbank rate (7.5% at April 30, 1999).
     While any Tranche B loan is outstanding, the preceding margins will be
     increased by an additional 0.5% semi-annually on April 26 and on October 26
     of each year. Interest is payable quarterly and principal is due in equal
     quarterly payments beginning October 30, 2000 and ending on October 30,
     2003.

                                                                            F-17
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



     Tranche B consists of a credit facility secured by a first priority lien
     and security interest in all of the oil and gas properties of the Company.
     Interest is at a rate determined by the Company from time to time, of
     either (i) BoA's Tranche B reference rate plus 2.0%, or (ii) 4.0% above the
     current Interbank rate (9.0% at April 30, 1999).  The margins for all
     Tranche B loans will be increased by an additional 0.5% semi-annually on
     April 26 and on October 26 of each year.  Interest is payable quarterly and
     principal is due in full on January 31, 2001.

     Tranche C consists of a credit facility secured by a first priority lien
     and security interest in all of the oil and gas properties of the Company.
     Interest is at a rate determined by the Company from time to time, of
     either (i) BoA's reference rate plus 5.0%, or (ii) 7.0% above the current
     Interbank rate (12.0% at April 30, 1999).  Interest is payable quarterly
     and principal is due in equal quarterly payments beginning January 31, 2001
     and ending on October 30, 2004.  The BoA debt facility contains various
     covenants, including, but not limited to, maintenance of minimum current
     and interest coverage ratios, as defined in the agreement.

     EnCap debt is unsecured and bears interest at 10%.  Interest is payable
     quarterly and principal is due in full on October 30, 2005.  Until October
     30, 2001, the Company has the option, in lieu of paying cash, of increasing
     the principal amount of the debt by the interest due.

     The Company paid BoA a cash fee of $700,000 and granted BoA warrants to
     purchase 3,275,000 ordinary shares at a price of 1p per share.  The fair
     value of the warrants, $1,335,000, attaching to the debt was treated as a
     discount.  In addition, the Company granted BoA an overriding royalty
     interest, valued at the value of the underlying oil and gas reserves, in
     the U.K. Interests of 0.3% beginning January 1, 2001.  The overriding
     royalty interest will entitle BoA to receive payment equal to the specified
     percentage of the net revenues generated by the  U.K. Interests.  In
     connection with obtaining the debt financing from BoA, the Company was
     required to enter into commodity price risk management contract on terms
     that are mutually agreeable to BoA and the Company for a period not less
     than two years with respect to at least 50% of the Company's estimated
     producing reserves as of October 31, 1998.  BoA also required the Company
     to enter into interest rate risk management contracts providing for a
     maximum interest rate of 9.0% on the notional amount projected to be
     outstanding on the revolving credit facility (See Note 2).

     In connection with the issuance of the EnCap debt, the Company sold EnCap
     15,000,000 ordinary shares with a fair value of $6,360,000 for cash
     consideration.  The difference was treated as a discount on the debt.  The
     Company also issued EnCap Investments L.C. 545,454 shares in consideration
     of a fee of $292,000.

     The Company was not in compliance with certain covenants of the loan
     agreements, which included but were not limited to the maintenance of
     minimum levels of working capital and interest coverage. Prior to these
     violations causing an event of default, which would have resulted in an
     acceleration of the repayment of the loans, the Company obtained waivers
     from the lenders for all covenant violations. Effective July 30, 1999, the
     loan agreement was amended to revise the borrowing limit of Tranche B to
     $25,000,000 and reduce the limit of Tranche A to a similar amount. The due
     date of Tranche B was extended from January 31, 2001 to July 31, 2001. In
     addition, the date of the borrowing base and collateral value
     redetermination, scheduled to occur on July 31, 1999, was deferred until
     December 31, 1999.

     The revised schedule of contractual maturities of long-term debt at April
     30, 1999 are as follows and do not include $5,000,000 borrowed under
     Tranche B subsequent to year end which is repayable during the year ending
     April 30, 2002:

                Year ending April 30, 2000     $            -
                                      2001          5,245,775
                                      2002         23,740,348
                                      2003          7,410,000
                                      2004          2,810,000
                                Thereafter         10,868,000

                                                                            F-18
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



     The Group capitalizes interest cost as a component of the North Sea U.K.
     Interests development program. The following is a summary of interest cost
     incurred:

<TABLE>
<CAPTION>
                                                Nine Months ended                Year ended April 30
                                                    April 30
                                               -------------------    ---------------------------------------
                                                      1997                     1998                 1999
                                               -------------------      ------------------      -------------

              <S>                               <C>                      <C>                     <C>
              Interest cost capitalized                 $        -              $        -         $1,170,235
              Interest cost charged to income            2,102,933               2,573,646          3,354,627
                                                        ----------              ----------         ----------

                 Total interest cost incurred           $2,102,933              $2,573,646         $4,524,862
                                                        ==========              ==========         ==========
</TABLE>

(8)  Savings and Profit Sharing Plan

     The Group maintains an employee savings and profit sharing plan (the Plan)
     which covers substantially all of its employees.  The Plan is comprised of
     a 401(k) saving portion and a noncontributory defined contribution portion.
     Employees are qualified to participate after approximately one year of
     service.  Participating in the 401(k) plan is voluntary, and the Group
     matches contributions up to six percent of the employees' salary at a rate
     of 50 percent of the employee's contribution.  The Group contributed
     $8,481, $9,243, and $17,523 to the plan during the nine months ended April
     30, 1997, and the years ended April 30, 1998 and 1999, respectively.

     The noncontributory portion of the Plan allows the Group to share annual
     profits with employees.  Annual payments to the Plan are elective.
     Management elected to make no contributions to the Plan for the nine months
     ended April 30, 1997 and the years ended April 30, 1998 and 1999.  The
     Group is under no obligation to make contributions to the Plan in the
     future.

(9)  Capital Stock

     On May 1, 1997, the Company's share capital was consolidated such that
     every 40 ordinary shares of 1 pence each were consolidated into 1 ordinary
     share of 40 pence.  All prior capital stock amounts have been restated to
     reflect this reverse stock split.  At the same date, the Company issued
     21,448,747 ordinary shares of 40 pence each to the holders of the issued
     ordinary shares and preference shares of LaTex outstanding at that date.

     On October 30, 1998, the Company entered into a capital reorganization plan
     that subdivided each ordinary share into one new ordinary share with a par
     value of 1 pence and 39 deferred shares with a par value of 1 pence each.
     The resulting ordinary shares have the same rights as the ordinary shares
     at 40 pence each.  The deferred shares have no substantive rights, are not
     represented by certificates issued to shareholders, and may be redeemed by
     the Company by the payment of a total of 1 pence for all of the deferred
     shares.

(10) Stock Option Plans

     Effective October 21, 1996, each holder of options granted under the
     Group's 1993 Incentive Stock Plan agreed to terminate all options held and
     receive grants of 1,690,000 Restricted shares of LaTex Common Stock which,
     on May 1, 1997, was exchanged for Alliance shares.  The Group recognized an
     employee bonus of $528,125 related to this transaction based on the market
     value of LaTex's stock on the date of grant.  No tax gross up rights were
     granted in connection with the issue of the Restricted Stock.

                                                                            F-19
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued


     Since May 1, 1997, the Group operates two employee share option schemes.
     Both schemes have similar terms, the principal terms being:
     --  any director or employee may be granted options over Shares;
     --  the subscription price will be no less than market price at the date
         of grant;
     --  options granted to an individual are limited such that the aggregate
         market value of shares subject to option taken together with the
         aggregate market value of shares which have been acquired under rights
         granted under the schemes in the previous ten years does not exceed
         four times cash salary;
     --  the exercise of options may be subject to performance tests. Long term
         options (exercisable after 5 years) may be subject to growth in
         earnings per share over the immediately preceding five years matching,
         exceeding growth in earnings per share of the companies ranked in the
         top 25 of the FTSE-100 share index, or growth in the Company's share
         price during the five year exercise period.

     A summary of the status of the share option schemes is as follows:

                                        Shares       Weighted average
                                                      service price
                                       ---------  ----------------------
          As at May 1, 1997                    -                 -
             Granted                     675,000        24.5 pence
             On acquisition of LaTex     237,500          80 pence
                                       ---------
          As at April 30, 1998           912,500        38.9 pence
             Granted                   2,365,000        13.5 pence
             Cancelled                  (175,000)         80 pence
                                       ---------
          As at April 30, 1999         3,102,500        17.2 pence
                                       =========

     Included in the options granted during the year ended April 30, 1999 were
     1,700,000 long-term options which were subject to the Company's share price
     increasing three-fold during the five year exercise period of the options.

     The Group's accounting policy for compensation cost is in line with
     Accounting Principles Board Opinion 25. Accordingly, compensation cost has
     not been recognized for share option plans except to deal with any
     discounts on option exercise prices, compared with market prices at the
     measurement date.  For the year ended April 30, 1998, had compensation
     costs been charged against income based on the fair value at the grant-
     dates for awards under the share option plans, consistent with Statement of
     Financial Accounting Standards No. 123, the net loss and net loss per share
     would not have been materially different.  This was determined using the
     Black Scholes option pricing model utilizing the following assumptions:

             Risk free interest rate           5.3%
             Expected life                     10 years
             Volatility                        5.93%

     At April 30, 1999, the Company also had outstanding 50,000 options to
     purchase shares at 300 pence per share which have been issued other than
     pursuant to the employee share options schemes.

                                                                            F-20
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



(11) Warrants

     On May 1, 1997 the Company issued warrants to subscribe for 1,927,908
     ordinary shares of 40 pence each in exchange for the then outstanding
     warrants to subscribe for ordinary shares in LaTex.  For periods ended on
     or before April 30, 1997, the warrants outstanding reflect the Alliance
     warrants issued on May 1, 1997, as though issued at the date of issue of
     the LaTex warrants for which the Alliance warrants were exchanged.

     Warrants to subscribe for 1,210,938 ordinary shares were issued to Bank of
     America as part consideration for the acquisition of the overriding royalty
     interest (see note 3).  At April 30, 1998, the Company had outstanding
     2,916,527 warrants.

     Warrants to subscribe to 3,275,000 common shares at a price of 1 pence per
     share were issued to Bank of America in connection with the Difco
     acquisition (see Note 7).

     In November, 1998, warrants to purchase 1,112,378 Ordinary Shares at a
     price equal to the sterling equivalent of $4.94 expired.

<TABLE>
<CAPTION>
         Warrant series           Strike price           Last date for exercise        No. of shares

<S>                               <C>                     <C>                           <C>
     Series "D"                      $0.87                  March 31, 2001                 287,119
     Series "E"                      $0.87                 October 31, 2001                 30,953
     Series "F"                      $1.40                 December 16, 2002               275,139
     Series "G" (BOA)        (Pounds) 1.00                  April 30, 2007               1,210,938
     Series "H"                       1 p.                 October 31, 2009              3,275,000
                                                                                         ---------
                                                                                         5,079,149
                                                                                         ---------
</TABLE>

(12) Convertible Subordinated Unsecured Loan Notes

     At April 30, 1998 and 1999 the Group had outstanding loan notes convertible
     into 1,193,581 ordinary shares of which loan notes convertible into
     1,078,125 ordinary shares were issued in part consideration for the
     acquisition of the overriding royalty interest amounting to $1,400,700 (see
     note 3) and loan notes convertible into 115,456 ordinary shares were issued
     to settle restructuring and arrangement fees of $150,000 in connection with
     the LaTex acquisition.  The loan notes, which are non-interest bearing, are
     convertible by the holders (on the payment of a nominal cash consideration)
     any time up to ten years following their date of issue. They are
     convertible in the following six months on like terms at the option of the
     Company. Any loan notes not converted prior to the date ten years and six
     months from issue will be repaid on that date at an amount equal to twice
     the amount paid up on the notes.

(13) Contingencies and Commitments

     The Group is a named defendant in lawsuits, 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 the
     Group cannot be predicted with certainty, management does not expect these
     additional matters to have material adverse effect on the financial
     position or results of operations or liquidity of the Group.

                                                                            F-21
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



     The Group leases office space and certain property and equipment under
     various lease agreements.  As of April 30, 1999, future minimum lease
     commitments were approximately as follows:

                 Year Ending April 30
                 --------------------
                       2000                  $  193,701
                       2001                     196,905
                       2002                     200,098
                       2003                     203,301
                       2004                      16,964

     Rent expense under all operating leases was $160,780, $252,627, and
     $251,447 during the nine months ended April 30, 1997, and the years ended
     April 30, 1998 and 1999, respectively.

(14) Related Party Transactions

     The Group, prior to May 1, 1997, has made loans to certain officers,
     directors and stockholders.  During the nine months ended April 30, 1997,
     the board of directors forgave $391,218, of notes and accrued interest, due
     from directors and former officers of the Group.  This amount is included
     in general and administrative expenses.

     During the year ended April 30, 1998, the Company received $123,000 of
     proceeds from the sale of 10,351,966 shares in the Company which had
     previously been owned by the former Chief Executive of the Company.  The
     right to receive the proceeds from the sale of the shares arose from a
     settlement agreed between the Company and Mr. O'Brien following the
     discovery that the Company had suffered a financial loss as a result of a
     number of transactions involving Mr. O'Brien or parties connected with him.

(15) Derivatives

     Oil and Gas

     Effective May 15, 1997, the Group terminated a previously existing oil and
     gas pricing derivative at a cost of $1,128,000 settled by an increase in
     the Bank of America loan. The loss relating to the buy-out was recognized
     in its entirety during the year ended April 30, 1998, consequent upon the
     Group entering into a new price protection agreement.

     On October 23, 1997, the Group entered into commodity price hedge
     agreements to protect against price declines which may be associated with
     the volatility in oil and gas spot prices.  The commodity price hedges were
     achieved through the purchase of put options (floors) by the Group, and the
     associated premium cost was funded by additional drawdowns under the
     current credit agreement.  The commodity price hedges covered 32,000 bbls
     and 100,000 MMBTUs per month for the year to October 31, 1998, and covered
     in excess of 90% of the Group's current monthly sales volumes.  The floors
     equated to approximately $18.50/bbl Nymex WTI contract and $2.20/MMBTU
     Nymex Natural Gas contract.  On October 31, 1998, the Group's commodity
     price hedge agreements expired.

     During February 1999, the Company completed a transaction to hedge
     approximately 65% of its existing monthly gas production by installing a
     floor of $1.60/MMBTU and a cap of $2.07/MMBTU (NYMEX Natural Gas).  During
     April 1999, the Company completed a transaction to hedge approximately 40%
     of its existing monthly oil production by installing a floor of
     $12.00/barrel (NYMEX WTI).  This commodity price hedge agreement will
     protect the Company from any severe declines in oil and gas prices until
     expiration on October 31, 1999.

                                                                            F-22
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



     Interest

     The Group is required, by agreement with its primary lender (see Note 7) to
     participate in an interest rate protection program, for interest on the
     debt payable to the primary lender until March 31, 2000.  Interest is
     hedged to achieve a fixed rate of 7.49%  calculated on a monthly basis
     based on a fixed amortization schedule determined on loan origination.  The
     notional principal is reduced each month by $365,000.  The notional
     principal outstanding at April 30, 1999 was $13,784,000 and this will have
     reduced at termination to $9,769,000.  The hedging gains/losses are
     included in interest expense.

(16) Disposition of Oil and Gas Properties

     During the nine months ended April 30, 1997 and the years ended April 30,
     1998 and 1999, the Group sold oil and gas properties for approximately
     $1,500,000, $5,600,000 and $1,742,000, respectively.  Proceeds of such
     sales were credited to the full cost pool.

(17) Supplemental Financial Information for Oil and Gas Producing Activities
     (Unaudited)

     Results of Operations from Oil and Gas Producing Activities

     The following sets forth certain information with respect to the Group's
     results of operations from oil and gas producing activities for the nine
     months ended April 30, 1997 and the years ended April 30, 1998 and 1999.
     All of the Group's oil and gas producing activities are located within the
     United States.

<TABLE>
<CAPTION>

                                                                   1997             1998                1999
                                                              (in thousands)    (in thousands)      (in thousands)
                                                              --------------    --------------      --------------
<S>                                                           <C>               <C>                  <C>
Revenues                                                       $    5,698        $   10,210           $   6,234

Production costs                                                   (2,550)           (4,849)             (2,770)
Gross production taxes                                               (567)             (657)               (326)
Depreciation, depletion and impairments                            (1,457)           (2,571)            (29,931)
Loss on termination of derivative contract                              -            (1,128)                  -
                                                              -----------       -----------          ----------
   Income (loss) from operations before income taxes                1,124             1,005             (26,793)
Income tax expense                                                      -                 -                   -
                                                              -----------       -----------          ----------
   Results of operations (excluding corporate                  $    1,124        $    1,005           $ (26,793)
     overhead and interest costs)                             ===========       ===========          ==========

</TABLE>

                                                                            F-23
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



     Capitalized Costs and Cost Incurred Relating to Oil and Gas Activities

<TABLE>
<CAPTION>
                                                   1997                1998                1999
                                              (in thousands)      (in thousands)      (in thousands)
                                          -------------------  ------------------  -------------------
<S>                                       <C>                  <C>                 <C>
     United States                            $      36,107         $    43,200         $    42,902
     United Kingdom                                       -                   -              31,054
                                                  ---------           ---------           ---------
      Total capitalized costs                        36,107              43,200              73,956
     Less accumulated depreciation,                   9,432              13,571              43,842
       depletion and impairments                  ---------           ---------           ---------
     Net capitalized costs                    $      26,675         $    29,629         $    30,114
                                                  =========           =========           =========

     Costs incurred during the year:
      Exploration costs:
         United States                        $           -         $         -         $         -
         United Kingdom                                   -                   -                   -
                                                  ---------           ---------           ---------
                                              $           -         $         -         $         -
                                                  =========           =========           =========

     Development costs:
       United States                          $         348         $     1,821         $       974
                                                          -                 276               3,535
                                                  ---------           ---------           ---------
       United Kingdom                         $         348         $     2,097         $     4,509
                                                  =========           =========           =========

     Purchase of minerals in place:
       United States                          $           -         $     9,041         $       125
       United Kingdom                                     -                   -              29,625
                                                  ---------           ---------           ---------
                                              $           -         $     9,041         $    29,750
                                                  =========           =========           =========
</TABLE>


                                                                            F-24
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



     Estimated Quantities of Proved Oil and Gas Reserves

     The estimates of proved oil and gas reserves were prepared by independent
     petroleum engineers.  The Group emphasizes that reserve estimates are
     inherently imprecise.  Accordingly, the estimates are expected to change as
     more current information becomes available.  In addition, a portion of the
     Group's proved reserves are undeveloped, which increases the imprecision
     inherent in estimating reserves which may ultimately be produced.

     Proved reserves are 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
     developed reserves are those which are expected to be recovered through
     existing wells with existing equipment and operating methods.

     The following is an analysis of the Group's proved oil and gas reserves.

<TABLE>
<CAPTION>
                                                              United States                  United Kingdom
                                                 ---------------------------------------  --------------------
                                                     Oil (Mbbls)          Gas (MMcf)           Gas (MMcf)
                                                 -------------------  ------------------  --------------------

     <S>                                              <C>                  <C>                 <C>
     Proved reserves at July 31, 1996                    6,353.0              28,172                     -
     Revisions of previous estimates                       417.7                (577)                    -
     Production                                           (190.0)             (1,640)                    -
                                                       ---------            --------            ----------
     Proved reserves at April 30, 1997                   6,580.7              25,955                     -

     Revisions of previous estimates                      (735.5)              2,149                     -
     Production                                           (396.2)             (1,689)                    -
     Purchases of reserves-in-place                      1,335.7               4,173                     -
     Sales of reserves-in-place                           (290.4)             (4,266)                    -
                                                       ---------            --------            ----------
     Proved reserves at April 30, 1998                   6,494.3              26,322                     -

     Purchase of reserves-in-place                             -                   -                73,870
     Revisions of previous estimates                     2,624.7              (1,125)              (64,137)
     Production                                           (278.1)             (1,402)                    -
     Sales of reserves-in-place                           (133.6)               (943)                    -
                                                       ---------            --------            ----------
     Proved reserves at April 30, 1999                   8,707.3              22,852                 9,733
                                                       =========            ========            ==========

     Proved developed reserves at:
      April 30, 1997                                     5,166.9              25,461                     -
                                                       =========            ========            ==========
      April 30, 1998                                     3,773.7              22,632                     -
                                                       =========            ========            ==========
      April 30, 1999                                     6,000.7              19,519                     -
                                                       =========            ========            ==========
</TABLE>

     During the nine months ended April 30, 1997, the Group sold oil and gas
     properties for approximately $1,500,000.  The Group chose not to include
     those properties in its reserve appraisal at July 31, 1996.

                                                                            F-25
<PAGE>

                    ALLIANCE RESOURCES PLC AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued




     Discounted Future Net Cash Flows

     In accordance with Statement of Financial Accounting Standards No. 69,
     estimates of the standardized measure of discounted future cash flows were
     determined by applying period-end prices, adjusted for fixed and
     determinable escalations, to the estimated future production of year-end
     proved reserves.  Future cash inflows were reduced by the estimated future
     production and development costs based on period-end costs to determine
     pre-tax cash inflows over the Group's tax basis in the associated proved
     oil and gas properties.  Net operating losses, credits and permanent
     differences were also considered in the future income tax calculation.
     Future net cash inflows after income taxes were discounted using a 10%
     annual discount rate to arrive at the Standardized Measure.

     Future income tax expenses are estimated using the statutory tax rate of
     34% and 30% in the United States and United Kingdom, respectively.
     Estimates for future general and administrative and interest expense have
     not been considered.

     The estimated standardized measure of discounted future cash flows (in
     thousands) follows:

<TABLE>
<CAPTION>
                                                                    U.S.                               U.K.
                                                 --------------------------------------------     -------------
                                                     1997            1998             1999             1999
                                                 ------------    ------------    ------------     -------------
         <S>                                     <C>             <C>             <C>              <C>
         Future cash inflows                      $   139,587     $   131,858     $   167,154      $     13,981
         Future production and                        (64,086)        (48,683)        (73,970)          (10,055)
          development costs                      ------------    ------------    ------------     -------------

         Future net cash inflows before                75,501          83,175          93,184             3,926
          income tax expense
         Future income tax expense                    (11,477)        (10,444)        (18,416)                -
                                                 ------------    ------------     ------------    -------------
         Future net cash flows                         64,024          72,731          74,768             3,926
         10% annual discount for estimated            (28,656)        (27,625)        (39,899)           (1,132)
          timing of cash flows                   ------------    ------------     ------------    -------------

         Standardized measure of discounted       $    35,368     $    45,106      $    34,869     $      2,794
          future net cash flows                  ============    ============    ============     =============

</TABLE>

The changes in standardized measure of discounted future net cash flows
(in thousands) follows:

<TABLE>


                                                                           U.S.                                 U.K.
                                                      ------------------------------------------------     --------------
                                                       Nine months
                                                          ended          Year ended       Year ended        Year ended
                                                      April 30, 1997   April 30, 1998   April 30, 1999     April 30, 1999
                                                      --------------   --------------   --------------     --------------
         <S>                                          <C>              <C>              <C>                <C>
         Beginning of period                           $      43,889    $      35,368    $      45,106      $           -
         Increases (decreases)
           Sales, net of production costs                     (4,074)          (4,338)          (2,765)                 -
           Net change in sales prices, net of
                 production costs                            (12,690)           7,671           (1,903)           (10,205)
           Changes in estimated future
                 development costs                              (280)          (1,161)            (924)              (134)
           Revisions of previous quantity estimates            1,282           (1,778)          12,115             (4,254)
           Accretion of discount                               5,350            3,963            4,856                827
           Net change income taxes                             5,345              813           (2,700)                 -
           Purchases of reserves-in-place                          -           12,720                -             16,560
           Sales of reserves-in-place                              -           (4,975)          (1,875)                 -
           Changes of production rates
               (timing) and other                             (3,454)          (3,177)         (17,041)                 -
                                                      --------------   --------------   --------------    ---------------

         End of period                                 $      35,368    $      45,106    $      34,869      $       2,794
                                                      ==============   ==============   ==============    ===============
</TABLE>


                                                                            F-26