<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB/A

     [X] Annual Report under Section 13 or 15(d) of the Securities  Exchange Act
of 1934 For the fiscal year ended December 31, 1996 Commission File No. 1-12508

     [ ] Transition Report under Section 13 or 15(d) of the Securities  Exchange
Act of 1934 For the transition period from to .

                          MAGNUM HUNTER RESOURCES, INC.
                 (Name of small business issuer in its charter)

           Nevada                                       87-0462881
State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization                       Identification No.)

           600 East Las Colinas Blvd., Suite 1200, Irving,Texas 75039
               (Address of principal executive offices) (zip code)

Issuer's telephone number, including area code:  (972) 401-0752


Securities registered under Section 12(b) of the Exchange Act:

     Title of each class             Name of each exchange on which registered

Common Stock ($.002 par value)                American Stock Exchange

Securities registered under Section 12(g) of the Act:  None

Check  whether  the Issuer  (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 Issuer was required to file such
reports)  and (2) has been subject to such filing  requirements  for the past 90
days. Yes X No

Check  if no  disclosure  of  delinquent  filers  in  response  to  Item  405 of
Regulation S-B is contained in this form,  and no disclosure  will be contained,
to the best of the  Issuer's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ ]

The Issuer's revenues for its most recent fiscal year: $16,412,000.

As of March  18,  1997,  the  aggregate  market  value of voting  stock  held by
non-affiliates,  computed by reference  to the closing  price as reported by the
American Stock Exchange, was $65,799,156.

The number of shares  outstanding of the Issuer's  common stock at February 28,
1997: 13,708,327.



                                        

<PAGE>


     Item  7.  Consolidated  Financial  Statements  and  Unaudited  Supplemental
               Information


                   Index to Consolidated Financial Statements
                                                                            Page
     Independent Auditors' Report - 1996....................................F-1
     Independent Auditor's Report - 1995....................................F-2
         Financial Statements:
             Consolidated Balance Sheet at December 31, 1996 and 1995.......F-3

             Consolidated Statements of Operations for the Years Ended
                     December 31, 1996 and 1995.............................F-4

             Consolidated Statements of Stockholders' Equity for the
                     Years Ended December 31, 1996 and 1995................ F-5

             Consolidated Statements of Cash Flows for the Years
                     Ended December 31, 1996 and 1995.......................F-7

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

     Supplemental Information (Unaudited)...................................F-26





                                       

<PAGE>



                          INDEPENDENT AUDITORS' REPORT




Board of Directors and Stockholders
Magnum Hunter Resources, Inc.

     We have  audited  the  accompanying  consolidated  balance  sheet of Magnum
Hunter Resources, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the year then ended.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatements. 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 audit provides a reasonable basis for our opinion.

In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the financial  position of Magnum Hunter  Resources,
Inc.  and  Subsidiaries  as of  December  31,  1996,  and the  results  of their
operations  and their cash flows for the year then  ended,  in  conformity  with
generally accepted accounting principles.



Deloitte & Touche LLP


Dallas, Texas
March 14, 1997 (April 30, 1997 as to Note 16)

                                       F-1

<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS




Board of Directors and Stockholders
 Magnum Hunter Resources, Inc.

     We have  audited  the  accompanying  consolidated  balance  sheet of Magnum
Hunter Resources,  Inc. (formerly Magnum Petroleum,  Inc.)and Subsidiaries as of
December 31, 1995, and the related consolidated  statements of operations,  cash
flows,  and  stockholders'  equity  for the year  then  ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 audit provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the financial  position of Magnum Hunter  Resources,
Inc.  and  Subsidiaries  as of  December  31,  1995,  and the  results  of their
operations  and their  cash  flows  for the  year  ended,  in  conformity  with
generally accepted accounting principles.

As  discussed in Note 2 to the  financial  statements,  the Company  changed its
method of accounting  for oil and gas producing  operations  from the successful
efforts method to the full cost method.



HEIN + ASSOCIATES LLP

Dallas, Texas
April 3, 1996


                                       F-2

<PAGE>
                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                            (in thousands of dollars)
<TABLE>
<CAPTION>
                                                                                                December 31,     December 31,
                                                                                                   1996              1995
                                                                                           -----------------------------------------
 <S>                                                                                         <C>                   <C>
                                         ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                                                             $         1,687       $      1,544
     Securities available for sale                                                                     233                101
     Accounts receivable:
     Trade, net of allowance of $132 and $134                                                        4,372              1,247
     Due from affiliates                                                                               241                116
     Notes receivable from affiliate                                                                   264                121
     Current portion of long-term note receivable                                                      198                201
     Prepaid and other                                                                                  52                 22
                                                                                           -----------------------------------------
          TOTAL CURRENT ASSETS                                                                       7,047              3,352
                                                                                           -----------------------------------------
PROPERTY, PLANT AND EQUIPMENT
     Oil and gas properties, full cost method:
          Unproved                                                                                      459                843
          Proved                                                                                     70,575             36,257
     Pipelines                                                                                        7,102              1,087
     Other property                                                                                     381                146
                                                                                            ---------------------------------------
           TOTAL PROPERTY, PLANT AND EQUIPMENT                                                      78,517             38,333
     Accumulated depreciation, depletion and impairment                                             (4,869)            (1,928)
                                                                                             ---------------------------------------
          NET PROPERTY, PLANT AND EQUIPMENT                                                         73,648             36,405
                                                                                             ---------------------------------------

OTHER ASSETS

     Deposits and other assets                                                                         645                118
     Long-term notes receivable, net of imputed interest                                             1,732                190
                                                                                             ---------------------------------------
                             TOTAL ASSETS                                                   $       83,072       $     40,065
                                                                                             =================      ==============

                          LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
    Trade accounts payable and accrued liabilities                                           $       3,698       $      1,283
    Gas imbalance payable                                                                              242
    Dividends payable                                                                                   22                177
    Suspended revenue payable                                                                          784                794
    Current maturities of long-term debt                                                                22              2,014
                                                                                            ----------------------------------------
          TOTAL CURRENT LIABILITIES                                                                  4,768              4,268
                                                                                            ----------------------------------------
LONG-TERM LIABILITIES

   Long-term debt, less current maturities                                                          38,744              7,598
   Production payment liability                                                                        937                288
   Other                                                                                               -                  290
   Deferred income taxes                                                                             3,469              3,125

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
     Preferred stock - $.001 par value; 10,000,000 shares authorized
          216,000 designated as Series A; 80,000 and 80,000 issued and outstanding, respectively,
                 liquidation amount $0                                                                 -                   -
          925,000 designated as Series B; none and 62,050 issued and outstanding, respectively         -                   -
          625,000 designated as Series C; none and 625,000 shares issued and outstanding,
                respectively                                                                           -                    1
          1,000,000 designated as 1996 Series A Convertible ; 1,000,000 and none issued and
                outstanding, respectively, liquidation amount $10,000,000                                1                 -
       Common stock - $.002 par value; 50,000,000 shares authorized;
         14,252,822 issued and 11,598,183 shares issued and outstanding, respectively                   29                 23
       Additional paid-in capital                                                                   40,216             29,660 
       Accumulated deficit                                                                          (5,142)            (5,245)
       Unrealized gain on investments                                                                   51                 57
                                                                                           ----------------------------------------
                                                                                                    35,155             24,496
      Treasury stock (544,495 shares of common stock)                                                   (1)                -
                                                                                           -----------------------------------------
         TOTAL STOCKHOLDERS' EQUITY                                                                 35,154             24,496

                   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $     83,072       $     40,065
                                                                                              =================     ==============

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

 </TABLE>
                                       F-3

 <PAGE>
                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (in thousands, except for per share amounts)
<TABLE>
<CAPTION>
                                                                                     For the Years Ended
                                                                                        December 31,
                                                                                ---------------------------
                                                                                  1996               1995
                                                                                ---------------------------
 <S>                                                                               <C>             <C>

OPERATING REVENUE
     Oil and gas sales                                                          $  10,248       $     617
     Gas gathering and marketing                                                    5,768               -
     Oil field services and commissions                                               396              32
                                                                                ---------------------------
          TOTAL OPERATING REVENUE                                                  16,412             649
                                                                                ---------------------------
OPERATING COSTS AND EXPENSES
     Oil and gas production                                                         4,390             268
     Gas gathering and marketing                                                    4,708               -
     Costs related to other services                                                  267              26
     Depreciation and depletion                                                     2,951             421
     General and administrative                                                     1,225             977
                                                                                ---------------------------
         TOTAL OPERATING COSTS AND EXPENSES                                        13,541           1,692
                                                                                ---------------------------
OPERATING PROFIT (LOSS)                                                             2,871          (1,043)

OTHER INCOME                                                                          344              77
INTEREST EXPENSE                                                                   (2,394)             (2)
                                                                                ---------------------------
NET INCOME (LOSS) BEFORE INCOME TAXES                                                 821            (968)

     Provision for deferred income taxes                                             (312)             -
                                                                                ---------------------------
NET INCOME (LOSS)                                                                     509            (968)


DIVIDENDS APPLICABLE TO PREFERRED SHARES                                             (406)           (617)
                                                                                ---------------------------
INCOME (LOSS) APPLICABLE TO COMMON SHARES                                       $     103       $  (1,585)
                                                                                =============   ===========

INCOME (LOSS) PER COMMON SHARE                                                  $     0.01      $   (0.28)
                                                                                =============   ===========

COMMON SHARES USED IN PER SHARE CALCULATION                                        12,485,893     5,606,669
                                                                                =============   ===========

         The accompanying notes are an integral part of these consolidated financial statements


</TABLE>

                                       F-4
<PAGE>
                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                                                 Additional
                                                       Preferred  Stock      Common    Stock   Treasury   Stock   Paid-In
                                                       Shares     Amount     Shares   Amount    Shares    Amount  Capital
                                                       -----------------------------------------------------------------------------
<S>                                                    <C>        <C>       <C>       <C>        <C>      <C>    <C>
Balance at December 31, 1994                            645,775  $     1    4,537,045     $9                        $12,606
                                                       -----------------------------------------------------------------------------

Conversion of preferred stock to common stock           (11,300)      -       28,900       -
Issuance and costs from exercise of warrants             20,750       -      833,324       2                          2,841
Issuance of Series C preferred stock                                                                                    249
Issuance of common stock to acquire oil and gas                                                                      
     properties                                                              386,615       1                          1,378
Issuance of common stock for services                                        602,222       1                          1,370
Issued to directors for collateral                                           125,000       -
Sale of investment shares
Payments received on receivable from stockholders       
Acquisition of Hunter Resources, Inc. for Series C
     preferred stock and common stock                   111,825      -     5,085,077      10                         11,216
Dividends declared on preferred stock
Net loss from operations
Unrealized gain on investments

                                                       -----------------------------------------------------------------------------
Balance at December 31, 1995                            767,050   $    1  11,598,183     $23      -        -        $29,660
                                                       -----------------------------------------------------------------------------
Conversion of preferred stock to common stock           (658,934)     (1)  1,821,638       4                             (3)
Redemption of 28,116 shares of Series C preferred stock  (28,116)                                                      (294)
Issuance of 1996 Series A convertible preferred stock,
     net of offering costs                             1,000,000       1                                              9,785
Shares issued as collateral, returned and held
     as treasury stock                                                       610,170        1   (610,170)    (1)         (1)
Exercise of employees' common stock options                                    -            -     12,258      -           9
Issuance of common stock to acquire oil and gas properties                   188,410        1     51,300      -         938
Sale of investment shares
Dividends declared on preferred stock                                         34,421        -      2,117      -         122
Net income from operations
Unrealized gain on investments


                                                       -----------------------------------------------------------------------------
Balance at December 31, 1996                           1,080,000   $  1   14,252,822   $  29   (544,495)    $(1)    $40,216
                                                       =========   ====== ==========   ======= =========    =====  ========



     The accompanying notes are an integral part of these consolidated financial
statements




</TABLE>

                                      F-5
<PAGE>
                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                                                   Unrealized Gain
                                                    Deferred Costs                  Receivable      (Loss) On
                                                    of Warrant         Accumulated  from            Investments
                                                    Offerings          Deficit      Stockholder
                                                  -------------------------------------------------------------
<S>                                                   <C>                 <C>           <C>             <C>
Balance at December 31, 1994                        $(240)              $(3,659)      $(63)            $ (9)
                                                  -------------------------------------------------------------

Conversion preferred stock to common stock
Issuance and costs from exercise of warrants          240
Issuance of Series C preferred stock
Issuance of common stock for services and
     to acquire oil and gas properties
Issued to directors for collateral
Sale of investment shares                                                                                9
Payments received on receivable from stockholders                                        63
Acquisition of Hunter Resources, Inc. for Series C
     preferred stock and common stock
Dividends declared on preferred stock                                      (618)
Net income from operations                                                 (968)
Unrealized gain on investments                                                                          57
                                                 --------------------------------------------------------------
Balance at December 31, 1995                      $   -                 $(5,245)       $ -            $ 57
                                                 --------------------------------------------------------------

Conversion of preferred stock to common stock
Redemption of 28,116 shares of Series C preferred stock
Issuance of 1996 Series A convertible preferred stock,
     net of offering costs
Shares issued as collateral, returned and held
     as treasury stock
Exercise of employees' common stock options
Issuance of common stock to acquire oil and gas properties
Sale of investment shares                                                                             (57)
Dividends declared on preferred stock                                     (406)
Net income from operations                                                 509
Unrealized gain on investments                                                                         51


                                                --------------------------------------------------------------
Balance at December 31, 1996                      $   -               $(5,142)          $  -         $ 51
                                                 =========             =======         =========     =====


                     The accompanying notes are an integral part of these consolidated financial statements

</TABLE>
                                      F-6
<PAGE>

                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                          For the Years Ended
                                                                                               December 31,
                                                                                   ------------------------------
                                                                                        1996            1995
                                                                                   ------------------------------
<S>                                                                                   <C>               <C>
CASH FLOW FROM OPERATING ACTIVITIES:
   Net income (loss)                                                               $   509            $ (968)
   Adjustments to reconcile net income (loss) to cash provided by (used for)
          operating activities:
      Depreciation and depletion                                                     2,951               421
      Deferred income taxes                                                            312                 -
      Common stock issued for services                                                   -               102
      (Gain) Loss on sale of assets                                                   (143)               76
      Other                                                                             32                15
      Changes in certain assets and liabilities:
        Accounts receivable                                                         (3,250)              (37)
        Costs in excess of billings on uncompleted drilling contracts                    -                55
        Deposits and other assets                                                      (30)                -
        Accounts payable and accrued liabilities                                     2,647              (513)
                                                                                   ------------------------------
Net Cash Provided By (Used By) Operating Activities                                $ 3,028            $ (849)
                                                                                   ------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sale of assets                                                        318                88
   Additions to property and equipment                                             (41,471)           (1,244)
   Increase in deposits and other assets                                              (527)                -
   Loan made for promissory note receivable                                            (58)             (121)
   Payments received on promissory notes receivable                                      -               334
   Purchase of securities available for sale                                             -               (30)
   Obligations and property acquisitions funded in Hunter acquisition                    -            (1,034)
                                                                                   ------------------------------
   Net Cash Used By Investing Activities                                           (41,738)           (2,007)
                                                                                   ------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of long-term debt and production payment                  57,262                 -
   Payments of principal on long-term debt and production payment                  (27,459)             (186)
   Payments on other liabilities                                                      (290)                -
   Proceeds from issuance of common and preferred stock,
           net offering costs                                                        9,796             3,332
   Redemption of preferred stock                                                      (295)                -
   Payments received on notes receivable                                               277                62
   Increase in segregated funds for payments of notes payable                            -               130
   Dividends paid                                                                     (438)             (583)
                                                                                  -------------------------------

   Net Cash Provided By Financing Activities                                        38,853             2,755
                                                                                  -------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   143              (101)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                     1,544             1,645
                                                                                   ------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        $  1,687         $   1,544
                                                                                  ============     ==========



</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements


                                      F-7

<PAGE>
                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Organization   and   Nature  of   Operations:

     Magnum  Hunter  Resources,Inc.(the"Company"),  formerly  Magnum  Petroleum,
Inc.,  is  incorporated  under the laws of the state of Nevada.  The  Company is
engaged in the acquisition, operation and development of oil and gas properties,
the gathering,  transmission and marketing of natural gas, providing  management
and advisory  consulting  services on oil and gas  properties for third parties,
and providing  consulting and U.S. export services to facilitate  Latin American
trade in energy products. In conjunction with the above activities,  the Company
owns and operates oil and gas  properties  in six states,  predominantly  in the
Southwest  region of the  United  States.  In  addition,  the  Company  owns and
operates four gathering systems located in Texas, Louisiana and Oklahoma.

     Merger and Consolidation

     The accompanying  consolidated financial statements include the accounts of
the  Company  and  its  existing  wholly-owned   subsidiaries,   Gruy  Petroleum
Management Company,  Hunter Butcher  International  Limited Liability Company, a
Wyoming  limited   liability   company,   Hunter  Gas  Gathering,   Inc.  Inesco
Corporation,  Magnum Hunter  Production,  Inc. Midland Hunter Petroleum  Limited
Liability Company,  a Wyoming limited liability company,  and SPL Gas Marketing,
Inc.  As more fully  discussed  in Note 3, the Company  entered  into an amended
definitive agreement on December 19, 1995 to acquire all of the assets,  subject
to the existing liabilities,  of Hunter Resources, Inc. ("Hunter"). The purchase
was accounted for by the purchase method  effective  December 31, 1995. As such,
the accompanying  consolidated financial statements for 1995 include the balance
sheet accounts of Hunter. However, the Statement of Operations for 1995 does not
include  the  operations  of  Hunter  for  that  fiscal  year.  All  significant
intercompany  accounts and transactions  have been eliminated in  consolidation.
Certain   reclassifications   have  been  made  to  the  consolidated  financial
statements of the prior year to conform with the current presentation.

Cash and Cash Equivalents
         The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.  The Company has cash
deposits in excess of federally insured limits.

Investments
         In  1994,  the  Company  adopted  Statement  of  Financial   Accounting
Standards  No.  115,  Accounting  for  Certain  Investments  in Debt and  Equity
Securities.  Under this standard, the equity securities held by the Company that
have  readily   determinable  fair  values  are  classified  as  current  assets
available-for-sale  and are measured at fair value.  Unrealized gains and losses
for these  investments  are reported as a separate  component  of  stockholders'
equity.

     At December 31, 1996,  the Company's  available for sale  securities had an
amortized cost basis of $150,000,  gross  unrealized gains reported in equity of
$51,150 and a fair market value

                                       F-8

<PAGE>


                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     of  $232,500.  During  1996,  Securities  were sold for gross  proceeds  of
$187,312 and the Company realized a gain of $142,872.

     At December 31, 1995,  the Company's  available for sale  securities had an
amortized cost basis of $44,440,  gross  unrealized  gains reported in equity of
$57,200 and a fair market value of $101,640.  During 1995,  Securities were sold
for gross proceeds of $73,083 and the Company realized a gain of $19,370.

Suspended Revenues
         Suspended  revenue  interests  represent  oil and gas sales  payable to
third  parties  largely on  properties  operated  by the  Company.  The  Company
distributes such amounts to third parties upon receipt of signed division orders
or resolution of other legal matters.

Oil and Gas Producing Operations
         The Company follows the full-cost  method of accounting for oil and gas
properties,  as prescribed by the  Securities and Exchange  Commission  ("SEC").
Accordingly, all costs associated with acquisition,  exploration and development
of oil  and  gas  reserves,  including  directly  related  overhead  costs,  are
capitalized.

     All capitalized  costs of oil and gas  properties,  including the estimated
future costs to develop proved reserves, are amortized on the unit-of-production
method using  estimates of proved  reserves.  Cost directly  associated with the
acquisition  and  evaluation  of  unproved  properties  are  excluded  from  the
amortization  base until the related  properties  are  evaluated.  Such unproved
properties  are  assessed  periodically  and any  provision  for  impairment  is
transferred to the full-cost  amortization base. Sales of oil and gas properties
are  credited to the  full-cost  pool  unless the sale would have a  significant
effect on the amortization rate. Abandonments of properties are accounted for as
adjustments to capitalized costs with no loss recognized. The Company's unproved
properties  excluded  from the  amortization  base were $459,000 and $843,000 at
December  31,  1996 and 1995,  respectively.  These  costs arose in 1995 and are
expected to be evaluated and  transferred  into the  amortization  base over the
next twelve months.

     The net capitalized  costs are subject to a "ceiling test," which generally
limits such costs to the aggregate of the estimated  present value of future net
revenues  from  proved  reserves  discounted  at ten  percent  based on  current
economic and operating conditions.

Drilling Operations
         Fees from  fixed-price  contracts with other working interest owners to
drill,  complete and place oil and gas wells into  production less related costs
are accounted for as adjustments to oil and gas properties.


                                       F-9

<PAGE>


                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pipelines
         Pipelines  are  carried at cost.  Depreciation  is  provided  using the
straight-line  method over an estimated useful life of 15 years. Gain or loss on
retirement  or sale or other  disposition  of assets is  included  in results of
operations in the period of disposition.

Other Property
         Other  property  and  equipment  are carried at cost.  Depreciation  is
provided using the straight-line method over estimated useful lives ranging from
five to ten years.  Gain or loss on retirement or sale or other  disposition  of
assets is included in results of operation in the period of disposition.

Other Oil and Gas Related Services
         Other oil and gas related  services consist largely of fees earned from
the Company's  salt water  disposal  facility.  Such fees are  recognized in the
month the disposal service is provided.

Impact of Recently Issued Pronouncements

     The  Financial  Accounting  Standards  Board has issued  Statement No. 121,
("SFAS No. 121")  "Accounting for Impairments of Long-Lived Assets and Assets to
be  Disposed   of",  and  Statement  No.  123,   "Accounting   For   Stock-Based
Compensation"  ("SFAS No. 123").  The Company adopted the provisions of SFAS No.
121 in  1996  but it did not  have  any  effect  on the  Company's  consolidated
financial  statements,  and it adopted the disclosures  only portion of SFAS No.
123 as it  continued  to  follow  the  provisions  of APB No.  25  which  is the
intrinsic value method of accounting for stock-based  compensation.  See Note 15
which follows for the effect of stock based compensation on a proforma basis.

Income Taxes
         The Company  files a  consolidated  federal  income tax return.  Income
taxes are provided for the tax effects of transactions reported in the financial
statements  and consist of taxes  currently due, if any, plus net deferred taxes
related primarily to differences between the basis of assets and liabilities for
financial  and  income  tax  reporting.  Deferred  tax  assets  and  liabilities
represent the future tax return  consequences of those  differences,  which will
either be taxable or deductible when the assets and liabilities are recovered or
settled.  Deferred tax assets include  recognition of operating  losses that are
available to offset future  taxable income and tax credits that are available to
offset  future  income  taxes.  Valuation  allowances  are  recognized  to limit
recognition  of deferred tax assets where  appropriate.  Such  allowances may be
reversed when  circumstances  provide evidence that the deferred tax assets will
more likely than not be realized.



                                       F-10

<PAGE>


                  MAGNUM HUNTER RESOURCES, INC.AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income or Loss Per Common Share
         Income or loss per common share is based on the weighted average number
of shares of common stock outstanding.  Convertible securities and warrants were
anti-dilutive  at  December  31,  1996 and 1995  and  were not  included  in the
calculation of income or loss per common share.

Deferred Cost of Warrant Exercise Offering
         The  Company  incurred  costs  to  update  its  registration  statement
relating to Series C preferred  stock that is convertible  into common stock and
relating to common  stock  purchase  warrants.  The Company made an offer to the
warrant holders  allowing them to exercise their warrants at a discount  through
February 16, 1995. As presented in Note 9, certain of the common stock  purchase
warrants were  exercised  prior to the  expiration of the discount  period.  The
Company had deferred direct costs as of December 31, 1994 of $240,281 related to
the discounted  warrant exercise  offering.  Such costs and $250,488 incurred in
1995 were offset against the proceeds  received in 1995 from the exercise of the
warrants. There were no warrants exercised during 1996.

Use of Estimates and Certain Significant Estimates
         The  preparation  of the Company's  financial  statements in conformity
with generally accepted accounting  principles requires the Company's management
to make  estimates  and  assumptions  that affect the amounts  reported in these
financial  statements and accompanying  notes.  Actual results could differ from
those estimates. Significant assumptions are required in the valuation of proved
oil and gas  reserves,  which as described  above may affect the amount at which
oil and gas properties are recorded.  It is at least  reasonably  possible those
estimates  could be  revised  in the  near  term and  those  revisions  could be
material.

NOTE 2--CHANGE IN ACCOUNTING METHOD

         The Company  accounted for its oil and gas producing  activities  using
the successful efforts method from inception through June 30, 1995. However, the
full cost method has  subsequently  been adopted.  The Company is of the opinion
that the full cost method of accounting is preferable to the successful  efforts
method of accounting for its oil and gas activities for the following reasons:

  (1)     The Company recently acquired the subsidiaries of Hunter (See note 3),
          which comprise  corporations engaged in oil and gas related activities
          and  which  utilize  the full  cost  method  of  accounting  for these
          activities. For both legal and accounting purposes, the

                                       F-11

<PAGE>


                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

          Company  is  the  acquiring  entity;  however,  the  subsidiaries  are
          increasing  their oil and gas  activities and have more proved oil and
          gas  reserves  than the  Company.  Furthermore,  management  of Hunter
          became  the   management  of  the  Company  upon   completion  of  the
          acquisition.  One  of  the  Hunter  subsidiaries  specializes  in  the
          management of oil and gas properties and all accounting  functions and
          financial   reporting  have  been  undertaken  by  the   subsidiaries'
          personnel. The individuals employed by the subsidiaries have comprised
          the vast majority of the Company's  employees and the Company believes
          that by allowing these  employees and Hunter's  management to continue
          to use the full cost method,  it would  greatly  benefit in accurately
          reporting on its oil and gas operations.

  (2)     The subsidiaries  have established relationships with lending sources
          which the Company  intends to  continue  to utilize  and expand  upon.
          These sources are accustomed to evaluating the subsidiaries' financial
          statements on the full cost method of accounting.  The Company intends
          to request  additional  borrowing  arrangements from these lenders and
          believes  that it is  desirable  for these  lending  sources to review
          financial statements prepared on a consistent basis.


                                      F-12

<PAGE>


                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The accompanying  financial statements have been restated to apply the full
cost  method   retroactively.   This  change  in  accounting  principle  has  no
significant  effect on income taxes. The effect of the accounting  change on net
loss and accumulated  deficit as previously  reported for the respective periods
is:


<TABLE>
<CAPTION>


                                                                                               1995
                                                                                      -----------------------
<S>                                                                                  <C>
Statement of Accumulated Deficit:

Balance at Beginning of Period as Previously Reported                                 $          (4,166,058)

Add Adjustment for the Cumulative Effect on Prior Years
  of Applying Retroactively the Full Cost Method                                                    506,651
                                                                                      -----------------------    
Balance at Beginning of Period, as Adjusted                                                      (3,659,407)

Net Loss                                                                                           (968,272)

Preferred Dividends                                                                                (617,220)
                                                                                       ----------------------
Balance at End of Year                                                                 $         (5,244,899)
                                                                                       ======================
</TABLE>

The effect on 1995 operations of changing the accounting  method was to increase
net loss and net loss per share by $307,000 and $.05, respectively.


NOTE 3--ACQUISITIONS AND DISPOSITIONS

          During March 1995,  the Company  acquired an additional  fifty percent
(50%)  working  interest  (for a total  of 100%  working  interest)  in a proved
undeveloped  oil and gas property on which one well is located.  The acquisition
cost of this  additional  interest was $410,000,  of which  $130,000 was paid in
cash and 80,000 shares of the Company's restricted common stock, valued at $3.50
per share,  were  issued.  During  April  1995,  the  Company  also  acquired an
additional 40 percent (40%) working interest (for a total 90% working  interest)
in a proved undeveloped  property on which one well is located.  The acquisition
cost of this additional interest was $480,000, of which $20,000 was paid in cash
and 125,000 shares of the Company's restricted common stock were issued,  valued
at $3.50 per share,  and the  transfer of  securities  held by the Company as an
investment in equity securities at December 31, 1994.

     In October 1995,  the Company  issued  85,131  shares of restricted  common
stock,  valued at $3.52  per  share,  in an  acquisition  completed  by a Hunter
subsidiary for the remaining  stock  ownership  interest in a limited  liability
company.  Also, in October 1995,  the Company issued 64,176 shares of restricted
common  stock,  valued  at $4.00 per  share,  in an  acquisition  of oil and gas
properties  completed  by a Hunter  subsidiary.  In December  1995,  the Company
issued 32,308 shares of restricted common stock,

                                      F-13

<PAGE>


                  MAGNUM HUNTER RESOURCES, INC AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     valued  at $3.25  per  share,  in an  acquisition  of a proven  undeveloped
property by a Hunter subsidiary.

          The  Company  executed  a  definitive  agreement  on July 21,  1995 to
acquire  all of the  assets,  subject  to the  existing  liabilities  of  Hunter
Resources,  Inc.  ("Hunter").  Pursuant to the  agreement,  the Company  issued,
subject to shareholder approval, 2,750,000 shares of its restricted common stock
to Hunter in exchange for the assets  acquired.  In addition,  575,000 shares of
restricted  common stock were issued to a third party as an  additional  cost of
the acquisition. The third party distributed a total of 250,000 of the shares to
a former  director and a former  officer of the Company for their  assistance in
completing the acquisition.

          On December  19, 1995 to be effective  December 22, 1995,  the Company
and Hunter entered into an amended agreement.  Under the terms of the amendment,
which was executed by Hunter shareholders  representing over fifty percent (50%)
of the common stock of Hunter,  an  additional  2,335,077  shares of  restricted
common  stock and  111,825  shares of Series C  preferred  stock were  issued to
Hunter.  The acquisition was recorded under the "purchase method" of accounting,
based  upon the  estimated  value  of the  shares  issued  of  $12,495,005.  The
operations of Hunter have been  consolidated with those of the Company beginning
on December 31, 1995.

          On June 28,  1996,  the  Company  purchased  469 natural gas wells and
approximately  427 miles of a gas gathering  pipeline  system for a net purchase
price of  $34,652,395.  The properties are located in the Panhandle of Texas and
Western Oklahoma and are referred to as the "Panoma Properties". As the purchase
was not completed until the end of the second quarter of 1996, the  consolidated
financial  statements  for 1996  include  the  operating  results  of the Panoma
Properties for only the last six months of the year.

     On November 4, 1996, the Company  entered into an agreement to sell certain
oil  and  gas  properties  for  $1,850,000,  including  $150,000  of  restricted
securities  of an  American  Stock  Exchange  listed  company  and a  $1,700,000
promissory  note  payable  out of 100% of the  net  oil  and gas  income  of the
properties.  The  agreement  calls for the  Company's  subsidiary to continue to
operate the properties for a monthly management fee.

     The following summary,  prepared on a pro forma basis, presents the results
of  operations  for the  years  ended  December  31,  1996 and  1995,  as if the
acquisitions occurred as of the beginning of the respective years. The pro forma
information  includes  the  effects of  adjustments  for  increased  general and
administrative  expense,  interest expense,  depreciation,  depletion and income
taxes:

                                      F-14

<PAGE>


                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<CAPTION>

                                                                           (Unaudited)
                                                                   1996                  1995
<S>                                                                <C>               <C>
Revenue...................................................          $ 20,653,000      $ 12,512,000
Net Income (Loss) Applicable to Common Stock..............              (304,000)       (4,403,000)
Net Income (Loss) Per Common Share........................          $       (.02)     $       (.79)
Average shares outstanding................................            12,485,893         5,606,669
</TABLE>
NOTE 4--NOTES RECEIVABLE

         During July of 1994, the Company  received an interest bearing note due
on May 1, 1995,  in exchange for $319,206  paid by the Company.  Interest in the
amount of $3,000 per month  accrued  through  February  28, 1995 and was paid in
March 1995.  For the remaining two months,  interest in the amount of $4,500 per
month was accrued which,  along with the principal  amount,  was paid during May
1995. The note was collateralized by securities,  the fair market value of which
was less than the amount of the note.

     On July  28,  1995,  the  Company  received  a  non-interest  bearing  note
receivable  in the amount of $223,500 in exchange for its interest in an oil and
gas  property.  Interest at 10 percent was  inputed on the note  resulting  in a
discount of $28,366.  The note  provides  for payments of $7,000 per month which
were received timely in 1996. As of December 31, 1996, the unpaid  balance,  net
of discount, is $112,288.

     On November 4, 1996, the Company  received an interest  bearing note due on
November  1, 1999,  in  exchange  for its  interest  in oil and gas  properties.
Interest is at the rate of 12% per annum. The note is collateralized by stock in
an American Stock Exchange  listed company and the oil and gas properties  sold.
As of December 31, 1996, the unpaid balance is $1,627,534.

NOTE 5--RELATED PARTY TRANSACTIONS

         In conjunction  with the  acquisition of Hunter,  the Company assumed a
note receivable with a balance of $178,527 and $120,758 at December 31, 1996 and
1995 respectively, from an owner in an affiliated limited liability company. The
note  provides  for  interest  at ten  percent and has a due date of January 31,
1997.

         In connection  with the  acquisition of Hunter,  the Company  assumed a
note receivable  from a company  affiliated with the President of the Company in
the amount of $54,615 at December 31, 1996 and 1995. This note bears interest at
ten percent and is due on demand.  Additionally,  trade accounts receivable from
this affiliated  company were $30,761 and $51,346 at December 31, 1996 and 1995,
respectively.


                                      F-15

<PAGE>


                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         In  connection  with the  acquisition  of Hunter,  the Company  assumed
unsecured  accounts  receivable  from the President  personally in the amount of
$10,000 as of December 31, 1995, which amount has been subsequently repaid.

     A company owned by two former directors of the Company previously  operated
several of the wells in which the Company owned an interest. Operating fees paid
this  company  were  $35,519  in  1995.  The  operations  of  these  wells  were
transferred  to a subsidiary  of Hunter  during 1995.  In addition,  the related
company  received  a  commission  of  $25,000  from  the  sale of an oil and gas
property to the Company in 1995.

     During 1996, as part of the Company's  overall  compensation  package,  the
Company's  officers  and  directors  were  granted the right to  participate  in
certain development and exploration projects of the Company on a promoted basis.
As of December 31, 1996, eleven (11) of the Company's  officers and directors as
a group spent an aggregate  of $137,340  participating  in 6 wells.  The Company
discontinued this program as of January 1, 1997.

NOTE 6--LONG-TERM DEBT

Long-term debt at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
                                                                                               1996           1995
                                                                                               ----           ----
<S>                                                                                            <C>           <C>
     Banks

         Revolving promissory note, collateralized by pipeline and oil and gas
         properties,  due June 30,  2001,  interest at LIBOR + 2.25%  (total of
         7.625% at December 31, 1996)(1)                                                   $ 38,700,000       $     -

         Promissory note,  collateralized  by pipelines and oil and gas
         properties,payable in monthly installments for 1996 of $174,000 through
         October 1,1996, then $171,000  thereafter plus interest at prime plus
         one percent(total of 9.75% at December 31, 1995), assumed in Hunter
         acquisition(2)                                                                           -            9,555,000

         Note payable, payable in monthly installments of $498 through July 1996
         plus interest at 7.25 percent, collateralized by truck,                                  -                3,000 

         Note  payable  to  bank   collateralized  by  vehicle  payable  in
         monthly installment  of $1,031  including  interest at 8.5% through
         February  1999.                                                                          24,000             -


Other
         Notes payable,  non-interest bearing and  uncollateralized,  payable in
         monthly installments of $1,000 through July 1, 2000, assumed
         in Hunter acquisition                                                                    42,000          54,000
                                                                                        --------------------------------------------
    Total Long-Term Debt                                                                      38,766,000       9,612,000
    Less Current Portion                                                                          22,000       2,014,000
                                                                                        --------------------------------------------
    Long-Term Debt                                                                         $  38,744,000      $7,598,000
                                                                                        ============================================
</TABLE>





                                      F-16

<PAGE>


                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maturities of long-term  debt based on  contractual  requirements  for the years
ending December 31, are as follows:

                                           1997                $      22,000
                                           1998                       24,000
                                           1999                       14,000
                                           2000                        6,000
                                           2001                   38,700,000
                                                               --------------
                                                               $  38,766,000
                                                               ==============

     (1) The  revolving  promissory  note to the  banks is a  borrowing  under a
$100,000,000  line  of  credit  on  which  there  existed  a  borrowing  base of
$55,000,000  at December 31, 1996.  The level of the borrowing base is dependent
on the valuation of the assets  pledged,  primarily oil and gas reserve  values.
The line of credit  includes  covenants,  the most  restrictive of which require
maintenance of a current ratio, interest coverage ratio, and tangible net worth,
as specified in the loan  agreement.  The bank group must approve all  dividends
paid on common stock.

     (2) The promissory note to bank was a borrowing under a $20,000,000 line of
credit on which there existed a borrowing base of approximately  $8.7 million at
December 31, 1995.  The balance at December 31, 1995 included  $1,125,000 due to
the seller of certain oil and gas  properties  which was refinanced in February,
1996 under the line of credit.  The final  principal  payments under the line of
credit were due June 1, 2000.  The amount that could be borrowed  under the line
of credit was based upon a designated  percentage of oil and gas reserve values.
The line of credit  included  covenants,  the most  restrictive of which require
maintenance of a current ratio and tangible net worth, as  specifically  defined
in the loan agreement.

NOTE 7--PRODUCTION PAYMENT LIABILITY

     As a result of the  merger  with  Hunter in 1995,  the  Company  assumed an
obligation under a production payment conveyance.  The conveyance provides for a
royalty payment equal to 50% of the monthly net revenue proceeds received by the
Company in certain oil and gas properties. The balance owed under the conveyance
bears interest at 15% per annum and is non-recourse to the Company.  The balance
owed under this  conveyance  was  $210,000 and $288,000 at December 31, 1996 and
1995, respectively.

     In November,  1996, the Company  entered into a second  production  payment
conveyance with the same party. The Company received a production payment amount
of $750,000 and agreed to make royalty  payments of up to 50% of the monthly net
revenue proceeds received from certain oil and gas properties.  The balance owed
under the conveyance  was $726,000 at December 31, 1996. The production  payment
bears  interest  at the rate of  13.5%  per  annum  and is  non-recourse  to the
Company.

NOTE 8--INCOME TAXES

          The Company  accounts for income taxes in accordance with Statement of
Financial  Accounting  Standards No. 109,  Accounting  for Income  Taxes,  which
requires the recognition of a liability or asset, net of a valuation  allowance,
for the deferred tax consequences of all temporary  differences  between the tax
bases and the  reported  amounts of assets and  liabilities,  and for the future
benefit of operating loss  carryforwards.  The following is a reconciliation  of
income tax expense reported in the statement of operations:


                                                     1996
Tax expense at statutory rates              $       279,000
State taxes                                          24,000
Other                                                 9,000
                                            -----------------------
     Total                                  $       312,000
                                            =======================


                                      F-17
<PAGE>


                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of significant  temporary  differences and  carryforwards are as
follows:
<TABLE>
<CAPTION>


                                                                                      December 31,
                                                                                1996           1995
<S>                                                                   <C>                 <C>
Property and equipment, including intangible drilling costs           $      (6,381,000)   $(5,890,000)
Annualized gain on investment                                                   (32,000)          -
                                                                     -------------------------------------
Total deferred tax liability
                                                                             (6,413,000)    (5,890,000)
                                                                     -------------------------------------
Allowance for doubtful accounts                                                  49,000         50,000
Depletion carryforwards                                                         361,000        365,000
Operating loss carryforwards                                                  2,534,000      2,350,000
                                                                      ------------------------------------
Total deferred tax assets                                                     2,944,000      2,765,000

Valuation allowance                                                                -               -
                                                                      ------------------------------------
 Net Deferred Tax Liability                                             $    (3,469,000)   $(3,125,000)
                                                                          ==============    ===========






</TABLE>

     The Company and its  subsidiaries  have net  operating  loss  carryforwards
(NOL) of approximately $6,900,000 that expire, if unused, in years through 2011,
none in 1997.  Approximately  $1,700,000  of the NOL  carries  a  limitation  of
approximately  $200,000  per  year.  In  addition,  the  Company  has  depletion
carryforwards of approximately $1,000,000.

NOTE 9--STOCKHOLDERS' EQUITY

     Shares  of  preferred  stock  may be  issued  in  such  series,  with  such
designations,  preferences, stated values, rights, qualifications or limitations
as determined  solely by the Board of  Directors.  Of the  10,000,000  shares of
$.001 par value  preferred  stock the Company is  authorized  to issue,  216,000
shares have been  designated as Series A Preferred  Stock,  925,000  shares have
been designated as Series B Preferred Stock, 625,000 shares have been designated
as Series C Preferred  Stock and 1,000,000  shares have been  designated as 1996
Series A Convertible Preferred Stock. Thus, 7,234,000 preferred shares have been
authorized  for  issuance  but have not been issued nor have the rights of these
preferred shares been  designated.  No dividends can be paid on the common stock
until the dividend requirements of the preferred shares have been satisfied.

     Holders of the Series A Preferred  Stock are entitled to receive  dividends
only to the extent that funds are available from the West Dilley Prospect.  Such
dividends are limited to $7.50 per share, in the aggregate. Dividend payments to
Series A preferred  shareholders will be based on fifty percent (50%) of the net
operating  revenue  received by the working  interest  owners of the West Dilley
Prospect. Due to a decline in production from the well located on this prospect,
the Company has shut this well in and is no longer  producing the property.  The
Series A dividends are not  cumulative  except for unpaid  amounts due from this
calculation.  No dividends have been paid on the Series A preferred stock. There
is no aggregate annual dividend requirement for the Series A preferred stock.

     The  Series B  Preferred  Stock was  issued as a unit,  comprised  of 1,000
shares of Series B Preferred Stock and two production certificates. The Series B
preferred  stockholders  are entitled to receive  cumulative  dividends of $0.35
annually per share, payable quarterly.  The holders of the units are entitled to
receive $10,000 per unit in dividends and in production payments. The

                                      F-18

<PAGE>


                  MAGNUM HUNTER RESOURCES, INC.AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     production payments were derived from 50% of the Company's net revenue from
production  of oil and gas.The  Board of  Directors  declared  dividends  on the
Series B  preferred  stock of $21,893  for the year  ended  December  31,  1995.
Beginning June 15, 1994, the Company offered to exchange (the "Exchange  Offer")
1,250 shares of common stock for each Series B  production  certificate.  During
1994, 141.1 production  certificates were exchanged for 176,375 shares of common
stock and the Series B preferred  shareholders  agreed to convert their Series B
preferred  shares into common stock at December 31, 1995 if all  dividends  were
paid through that date.  All of the shares were converted to common stock during
1996.

     Separate and apart from the Exchange Offer,  two of the Company's  officers
and directors (the  "Officers")  set aside 125,000 shares (the "Stock") of their
own common stock of the Company for a single  individual (the  "Individual") who
owned  approximately  55% of the  Series B  Production  certificates  that  were
exchanged.  The Stock was being held by an independent party to this transaction
until fair market value of the Exchange Shares,  when the Exchange Shares become
eligible  for sale  pursuant  to Rule  144 of the  Securities  Act of  1933,  is
determined.  The  Company  issued  125,000  shares  of its  common  stock to the
Officers in exchange for their assignment to the Company of all of the Officers'
rights, title and interest in the Stock. The Company has recorded the new shares
issued at par value.  The value of the exchange  shares were determined in 1996,
and the  Company  issued  5,000  shares of its common  stock to the  Individual.
Subsequently  to year-end,  the 125,000  shares being held were  returned to the
Company and are being held as treasury stock.

     The Series C preferred stock was convertible at the option of the holder at
any time into three shares of common stock and, after  November 12, 1994,  would
automatically  convert  into common  stock  anytime the closing bid price of the
common stock equals or exceeds  $5.00 per share for twenty  consecutive  trading
days.  The Series C preferred  stock was  redeemable  by the  Company  beginning
November 12, 1995,  at $10.50 per share plus  accrued and unpaid  dividends.  If
declared by the Board of Directors, dividends accrue at the annual rate of $1.10
per share, are cumulative from the date of first issuance and are paid quarterly
in arrears.  The Board of Directors declared dividends on the Series C preferred
stock of $595,327 and $339,827 for the year ended  December 31,  1995,and  1996,
respectively.  The aggregate annual dividend requirements for the 625,000 shares
of Series C preferred stock outstanding at December 31, 1995 and 1996 amounts to
$687,500 and none, respectively. As of December 31, 1996, all Series C preferred
stock had been redeemed or converted to common stock.

     On  December  6, 1996,  the  Company  entered  into an  agreement  to issue
1,000,000  shares of new Series A  preferred  stock,  known as the 1996 Series A
Convertible  Preferred Stock, in a private  placement.  The shares have a stated
and  liquidation  value  of $10 per  share  and pay a  fixed  annual  cumulative
dividend of eight and three quarters percent (8.75%) payble quarterly in arrears
beginning  December 31, 1996. The shares are  convertible  into shares of common
stock at a conversion price of $5.875 per share. Beginning in December 1998, the
Company  has an  option to  exchange  the stock  into  convertible  subordinated
debentures of equivalent value. The purpose of the private placement was to fund
the capital cost necessary to drill certain development projects and to fund the
capital  costs of several  West Texas  waterflood  projects.  Proceeds  from the
offering were initially used to reduce the Company's existing bank indebtedness.
Certain  capital  expenditure   requirements  for  developmental   drilling  and
waterflood  projects are  required  under the  agreement  whereby this stock was
issued.  In addition,  under the terms of the  preferred  stock,  the Company is
required to raise an aggregate of $15 million of additional  equity by March 31,
1998 or the  Company is required to redeem on June 30 of each of the years 2006,
2007,  and 2008,  333,333 shares of preferred  stock.  On December 23, 1996, the
1996 Series A Convertible Preferred Stock was issued,  resulting in net proceeds
to the Company after  offering  costs of  $9,787,000.  Dividends of $22,000 were
declared in 1996 and paid subsequent to year end.

     The preferred shareholders are not entitled to vote except on those matters
in which the consent of the holders of preferred stock is specifically  required
by Nevada  law. If the Company  were to  liquidate  prior to payment of the full
dividend  requirements on the preferred stock, the preferred stock would receive
a liquidation  preference from the liquidation proceeds.  The Series A preferred
shareholders  would  receive an amount equal to the lesser of the proceeds  from
the  liquidation of the West Dilley Prospect or the remaining  unpaid  dividend.
The 1996 Series A Convertible Preferred Stock would receive an amount of $10 per
share.  On  liquidation,  holders of all series of the preferred  stock would be
entitled to receive the par value,  $.001 per share, in preference to the common
stock shareholders.


                                      F-19

<PAGE>


                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The Series C preferred  stock was originally  issued as a unit comprised of
one share of Series C preferred  stock and warrants to purchase three (3) shares
of common stock. A total of 1,687,500  warrants were issued and are  exercisable
at $5.50 per share through November 12, 1998. The Company offered the holders of
the warrants a discount period commencing  November 15, 1994 and ending February
16, 1995 during which time the warrants could be exercised at $4.00. During this
time,  warrants were exercised for 833,324 shares of common stock.  The exercise
of these  warrants  resulted in cash proceeds of $3,333,298 to the Company.  The
warrants are  redeemable  by the Company at $0.02 per warrant upon 30 day notice
at any time after  November  12, 1995 or earlier if the closing bid price of the
common stock  equals or exceeds  $6.75 for five  consecutive  trading  days.  At
December 31, 1995, 854,176 of the warrants remained outstanding.

          The Company granted an unrelated  company the right to acquire 100,000
shares of common  stock under the terms of a  consulting  agreement.  The rights
became  exercisable at the rate of 3,325 shares in November  1994,  8,335 shares
per month from December  1994 through  October 1995 and 4,990 shares in November
1995.  The rights are  exercisable  at $4.125 per share.  The rights  expire in
June 1997.

     In  October  1995,  in  connection  with  an  acquisition  of oil  and  gas
properties,  the Company issued 25,000  warrants with an exercise price of $4.00
per share,  and 25,000  warrants with an exercise  price of $4.50 per share with
each such warrant  expiring in October 1997. In December 1995 the Company issued
37,500 warrants at an exercise price of $3.00 per share to an unaffiliated third
party for services rendered. The warrant expires December 1997.

     During 1995, 20,750 representatives'  warrants were exercised at $12.00 per
warrant resulting in $249,000 of proceeds to the Company.  Each warrant entitles
the holder to receive one share of Series C preferred stock and three (3) common
stock warrants  exercisable  at $4.00 per share through  February 1995 and $5.50
thereafter.  9,300 shares of Series C preferred stock and 2,000 shares of Series
B preferred  stock have also been  converted into 28,900 shares of common stock.
The Company  issued 5,000 shares of common  stock,  valued at $3.50 per share to
its directors,  which resulted in $17,500 of compensation expense in 1995. Also,
22,222  shares of common  stock with a value of $3.80 per share were  issued for
services rendered in 1995.

     In January,  1996,  60,000  warrants  were  issued at an exercise  price of
$3.375 per share and expiring in January 1999.  At December 31, 1996,  45,000 of
these warrants had been earned.  In connection  with the receipt of a production
payment,  in October 1996 the Company  issued  25,000  warrants with an exercise
price of $5.18 expiring October 1999,  25,000 warrants with an exercise price of
$5.65 expiring  October 2000 and 25,000 warrants with an exercise price of $6.13
expiring October 2001. No warrants were exercised in 1996. 

     At December 31, 1996,  the Company had  1,176,676  total  warrants  issued,
including the publicly traded warrants. Additionally, in 1996, 610,170 shares of
the Company's  common stock that had been held as  collateral  were returned and
held in the treasury, 12,258 shares of common stock were issued upon exercise of
employees  stock options,  239,710  shares of common stock,  valued at $939,000,
were issued to acquire oil and gas properties, and 36,538 shares of common stock
were issued as dividends on the Company's Series C Preferred Stock.

NOTE 10--SUPPLEMENTAL CASH FLOW INFORMATION

     During 1995, as more fully  described in Note 3, the Company  issued common
stock and preferred stock valued at $12,495,005 in the acquisition of the assets
from Hunter  Resources,  Inc. Oil and gas  properties  were  acquired by issuing
$1,379,204 of common stock and $22,220 of marketable securities; preferred stock
was  converted  to common  stock;  and  common  stock  was  issued,  creating  a
receivable  from a shareholder of $250. In addition  $17,500 of common stock was
issued as  compensation  to directors and $84,444 of common stock was issued for
services rendered in 1995.

         During 1996,  the Company  purchased oil and gas  properties by issuing
239,710 shares of its common stock,  valued at $938,444.  The Company  converted
658,934 shares of Series B and Series C preferred stock into 1,821,638 shares of
common  stock.  36,538  shares of common stock valued at $121,700 were issued in
lieu  of  cash  dividends  on  preferred  stock.  The  Company  received  equity
securities  with a fair value of  $150,000  as partial  payment  for the sale of
property interests.  Interest paid in 1996 was $2,344,308.





                                      F-20

<PAGE>


                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11--ENVIRONMENTAL ISSUES

Being  engaged in the oil and gas  exploration  and  development  business,  the
Company  may  become   subject  to  certain   liabilities   as  they  relate  to
environmental  clean  up  of  well  sites  or  other  environmental  restoration
procedures as they relate to the drilling of oil and gas wells and the operation
thereof.  In the Company's  acquisition  of existing or previously  drilled well
bores, the Company may not be aware of what environmental  safeguards were taken
at the time such  wells  were  drilled  or during  the time that such wells were
operated.  Should it be determined  that a liability  exists with respect to any
environmental  clean up or  restoration,  the liability to cure such a violation
would most likely fall upon the Company.  In certain  acquisitions,  the Company
has received  contractual  warranties  that no such violations  exist,  while in
other  acquisitions the Company has waived its rights to pursue a claim for such
violations  from the selling party.  No claim has been made nor has a claim been
asserted,  nor is the Company aware of the existence of any liability  which the
Company may have, as it relates to any  environmental  clean up,  restoration or
the violation of any rules or regulations relating thereto.

NOTE 12-COMMITMENTS AND CONTINGENCIES

         The Company assumed in the Hunter  acquisition lease agreements for the
use of office space and office equipment. The office space lease extends through
November  2001 with an option to renew  the  lease for a three  year  term.  The
various  office  equipment  leases  extend  until  1999.  The  leases  have been
classified as operating  leases.  The following is a schedule by years of future
minimum lease payments required under the operating lease agreements:

Year Ended December 31:
1997..................................................$183,046
1998.................................................. 173,168
1999.................................................. 169,815
2000.................................................  173,711
2001.................................................  159,235
Thereafter...........................................        0
                                                      -------- 
 Total Minimum Payments Required......................$858,975
                                                      ========

         Rental  expense  was  $129,169  and  $61,191  for  1996  and  1995,
respectively.

         At December 31, 1996, the Company is involved in litigation proceedings
arising in the normal course of business. The Company has accrued $87,750 as of
December 31, 1996 for  potential  expenses to be incurred in  settlement  of the
litigation.  In the opinion of management,  any additional liabilities resulting
from such litigation would not have a material effect on the Company's financial
condition, cash flows or results of operations.



                                      F-21

<PAGE>


                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13-FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

         Financial  instruments  that subject the Company to credit risk consist
principally of accounts and notes receivable. The receivables are primarily from
companies in the oil and gas business or from  individual oil and gas investors.
These parties are primarily  located in the  Southwestern  regions of the United
States.  No single  receivable is considered to be  sufficiently  material as to
constitute a concentration.  The Company does not ordinarily require collateral,
but in the case of receivables for joint  operations,  the Company often has the
ability to offset amounts due against the participant's share of production from
the related  property.  The Company believes the allowance for doubtful accounts
at December 31, 1996 and 1995 is adequate.

     Management  estimates  the market  values of notes  receivable  and payable
based on  expected  cash flows and  believes  those  market  values  approximate
carrying  values at  December  31,  1996 and 1995.  The market  values of equity
investments are based upon quoted prices (see Note 1).

NOTE 14--COMMODITY DERIVATIVES AND HEDGING ACTIVITIES

     Periodically,  the Company enters into futures, options, and swap contracts
to reduce the effects of  fluctuations  in crude oil and natural gas prices.  At
December  31,  1996,  the Company had open  contracts  for oil price  collars on
12,000 barrels of oil per month (with cap and floor prices of $22.20 and $18.00,
respectively)  through  February 1997 and 15,000  barrels of oil per month (with
cap and floor prices of $25.10 and $20.00, respectively) from March 1997 through
August,  1997.  At December 31,  1996,  the Company had open  contracts  for gas
prices swaps of 302,000 Mmbtu of gas per month at $2.16 per Mmbtu during January
1997,  100,000  Mmbtu of gas per month at $1.905  per Mmbtu from  February  1997
through  January  1998 and another  100,000  Mmbtu of gas per month at $1.77 per
Mmbtu from February 1997 through January 1998. These contracts  expire monthly
as indicated  above. The gains or losses on the Company's  hedging  transactions
are  determined  as the  difference  between the contract  price and a reference
price,  generally  closing prices on the NYMEX. The resulting  transaction gains
and losses are  determined  monthly  and are  included  in the period the hedged
production or inventory is sold. Net losses  relating to these  derivatives  for
the years ended December 31, 1996 and 1995 were $272,000 and none, respectively.

NOTE 15--STOCK COMPENSATION PLAN

     The Company adopted in 1996 two stock  compensation plans for its employees
and directors,  (i) the Magnum Hunter  Resources  Employee Stock Ownership Plan,
(the "ESOP"),  and (ii) the Magnum Hunter  Resources,  Inc. 1996 Incentive Stock
Option Plan.  In  addition,  the Company  authorized  the issuance of its Common
Stock to  participants  in the Magnum Hunter  Resources,  Inc. 401(k) plan in an
amount that matched employee contributions up to one hundred percent (100%). The
cost of this matching contribution was $59,000 in 1996.

                                      F-22
<PAGE>


     ESOP
     -----

     The Company  established an ESOP and a related trust as a long-term benefit
for its employees.  Under terms of the plan, eligible  participants may elect to
make  elective  deferred  contributions  of not less than 1% of more than 15% of
their annual  compensation,  limited in combination  with the 401(k) plan to the
maximum  allowable per year by the Internal  Revenue Code.  The plan also allows
for the Company to make  Discretionary  Contributions to the ESOP, but it is not
the intent of the  Company to do so. It is also the  Company's  intent to invest
all  contributions  in Employer Stock. In this regard,  on October 11, 1996, the
Plan purchased  22,556 shares of the Company's  common stock for $3.75 per share
from a third party.  To fund this  purchase,  the Plan  borrowed  $84,585 from a
bank.  Participant  contributions  will be used to  acquire  shares at the price
stated above by retiring the principal and interest of this debt. As of December
31, 1996, no Participant contributions had been made to the ESOP.

     1996 Incentive Stock Option Plan
     --------------------------------

     The Company  established this plan effective April 1, 1996, and is governed
by Section 422 of the Internal Revenue Code, and Section 16(b) of the Securities
Exchange Act of 1934. The Plan covers  1,200,000  shares of the Company's Common
Stock.  Eligibility is limited to employees and directors of the Company and its
subsidiaries.  The  actual  selection  of  grantees  is  made  by the  Board  of
Directors.  The term of the plan is 10 years,  and the term of the options is at
the  discretion  of the Board,  with a term of 5 years.  All  options  are fully
vested and exercisable when granted.  The exercise price is fair market value at
the date of grant,  except for  individuals who own 10% or more of the Company's
stock.


     Prior to 1995,  Hunter had granted  certain of its  employees and directors
options to purchase  its common  shares.  In  connection  with the  merger,  the
Company has  substituted the Hunter options with 264,558 options under the Plan,
239,022 of which have an exercise price of $.73425 per share and 25,536 of which
have an exercise price of $1.65 per share. During 1996, 12,258 of these options
were  exercised.  In addition,  during  1996,  the Board  granted the  remaining
935,442  options to employees  and  directors at an exercise  price of $4.50 per
share.  


                                      F-23
<PAGE>

     The following is a summary of stock option activity under the Plan:

<TABLE>
<CAPTION>
                                                             1996                          1995
                                                   ---------------------------   ------------------------------
<S>                                               <C>          <C>                 <C>          <C>

                                                               Weighted Average                 Weighted Average
                                                  Shares       Exercise Price     Shares        Exercise Price
                                                ----------     ----------------  ---------     -----------------
Outstanding - Beginning of Year                   264,558        $   0.82         264,558       $   0.82
Granted                                           935,442            4.50            -               -
Exercised                                         (12,258)            .73            -               -
Cancelled                                            -                -              -               -
                                                ----------        --------        -------         -------
Outstanding - End of Year                       1,187,742        $   3.72         264,558       $   0.82
                                                ==========       =========        ========      =========

</TABLE>

     The  following is a summary of plan stock options  outstanding  at December
31, 1996:
<TABLE>
<CAPTION>

               Exercise       Number of      Weighted Average         Number of
               Price          Options        Remaining Contractual    Exercisable
                              Outstanding    Life (Years)             Options
               ---------      -----------    ---------------------    -------------
<S>            <C>            <C>            <C>                      <C>            
               $   .73           226,764         1.0                     35,242
                  1.65            25,536         3.0                       -
                  4.50           935,442         4.3                    935,442
                                ---------                               ---------
                               1,187,742                                970,684
                              ===========                               =========

</TABLE>     

     The Company  adopted  the  disclosures  only  portion of SFAS No. 123 as it
continued to follow the  provisions of APB No. 25, which is the intrinsic  value
method of accounting for stock-based compensation.
                                                                                
     On a pro forma  basis,  the  effect  of stock  based  compensation  had the
Company adopted Statement No. 123 is as follows:

                                                                  1996
                                                                  ----
     Net Income (Loss):                 As reported          $    103,000
                                        Pro Forma              (1,540,000)

     Primary Earnings per Share:        As Reported                 .01
                                        Pro Forma                  (.12)

     Fully Diluted Earnings per Share:  As Reported                 .01
                                        Pro Forma                  (.12)

     The weighted average grant date fair value of options granted was $2.56 and
of warrants  granted was $1.09 during  1996.  Fair value of options and warrants
was  calculated  by using the  Black-Scholes  options  pricing  model  using the
following  weighted  average  assumptions for 1996 activity:  risk free interest
rate of 5.74%,  expected life of 4.28 years, expected volatility of 60.8% and no
divided yield.

NOTE  16--SUBSEQUENT EVENTS

     In January,  1997, the Company  purchased a fifty percent (50%) interest in
the McLean Gas Plant,  the gas  processing  facility  connected to the Company's
Panoma gas gathering system for $2.5 million.

                                      F-24

<PAGE>


                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Under the terms of the purchase agreement, the Company will receive 100% of
the net profits of the plant until it receives the $2.5 million  purchase price,
at which point its net profits  interest will revert to fifty percent (50%), the
Company's ownership  position.  The acquisition was funded through the Company's
revolving credit agreement with certain banks.

     On April 30, 1997,  the Company  acquired  from a subsidiary  of Burlington
Resources,  Inc., effective as of January 1, 1997, the Permian Basin Properties,
consisting  of 25 field areas in west Texas and 22 field areas in southeast  New
Mexico,  for a net purchase price of $133.0  million after  adjustments of $10.5
million for  production  cash flow from  January 1, 1997 to the closing date and
other minor adjustments.

     The Company financed the acquisition of the Permian Basin Properties with a
new  $130.0 million  credit  facility (the "New Credit  Facility")  and a senior
subordinated  credit  facility  of $60.0  million  (the "Term  Loan  Facility").
Borrowings of  $119.5 million  under the New Credit  Facility and  $60.0 million
under the Term Loan Facility were used to pay the $123.0 million  balance of the
$133.0 million net purchase price for the Permian Basin Properties, to repay the
$53.7 million  in  outstanding  indebtedness  as of  April 30,  1997  under  the
Company's  previous   $100.0 million   credit  facility  (the  "Previous  Credit
Facility") and to pay the costs  associated  with the Permian Basin  Acquisition
and the related financings.  The New Credit Facility currently bears interest at
9.0% per annum.  After repayment of the Term Loan Facility using the proceeds of
a $125 million  offering of Senior  Subordinated  Notes due 2007, the New Credit
Facility will initially bear interest at LIBOR plus 1.75% per annum, which would
be 7.6% based on the LIBOR rate at April 30,  1997. The unpaid  principal amount
under the New Credit Facility matures on April 30,  2002. At April 30, 1997, the
interest  rate on the Term Loan  Facility  was 11.5%  per  annum.  The Term Loan
Facility initially matures on April 30,  1998, at which time the Company has the
option to extend such facility for an additional five years.

     In the event that the borrowings under the New Credit Facility are not less
than $75.0 million on July 15, 1997, the Company is obligated to pay the lenders
an additional fee. In addition,  if borrowings under the Term Loan Facility have
not been  repaid  beginning  August 28,  1997,  the  Company,  at various  dates
thereafter  within the initial one-year term, will incur an increase in interest
rates and be obligated  to pay the lenders  additional  fees and/or  warrants to
purchase common stock of the Company. More specifically, the interest rate under
the Term Loan Facility increases by 1.0% on each of three specified dates with a
maximum  interest  rate of 15.5%.  The  Company may also be  obligated  to issue
equity  securities up to a maximum of 5.0% of the fully diluted common equity of
the Company.

     In  April  1997,  the  terms of the  Company's  1996  Series A  Convertible
Preferred  Stock were  amended to require  the Company to raise  $15 million  of
additional equity by December 31,  1997 rather than March 31,  1998 as described
in Note 9.


NOTE 17--EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS

     Mr. Gary C. Evans and Mr. Matthew C. Lutz have  employment  agreements with
Magnum Hunter Resources,  Inc. Mr. Evans' agreement terminates December 31, 1997
and continues  thereafter on a year to year basis and provides for a base salary
of $200,000 per annum.  Mr. Lutz's agreement  terminates  September 30, 1997 and
continues  thereafter  on a year to year basis and provides for a base salary of
$100,000 per annum.  Both agreements  provide that the same benefits supplied to
other  Company  employees  shall be available to the  employee.  The  employment
agreements also contain,  among other things,  covenants by the employee that in
the event of  termination,  he will not associate  with a business that competes
with the Company for a period of one year after  cessation  of  employment.  The
Company  also  has  key  man  life  insurance  on Mr.  Evans  in the  amount  of
$1,000,000.

                                      F-25

<PAGE>




                  MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARY
          SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
                                   (UNAUDITED)

         Proved oil and gas reserves  consist of those  estimated  quantities of
crude oil,  natural gas, and natural gas liquids that 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 oil and gas reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.

         Estimates of petroleum reserves have been made by independent engineers
and Company  employees.  These estimates  include  reserves in which the Company
holds an economic interest under production-sharing and other types of operating
agreements.  These estimates do not include probable or possible  reserves.  The
estimated net interests in proved reserves are based upon subjective engineering
judgments and may be affected by the  limitations  inherent in such  estimation.
The  process  of  estimating  reserves  is  subject  to  continual  revision  as
additional  information  becomes  available  as a result of  drilling,  testing,
reservoir  studies and production  history.  There can be no assurance that such
estimates will not be materially revised in subsequent periods.

         Estimated quantities of proved oil and gas reserves of the Company were
as follows:
<TABLE>
<CAPTION>

                                                                                                         Natural Gas
                                                                                        Oil               (Thousand
                                                                                     (Barrels)           Cubic Feet)
                                                                                ----------------------------------------------------
<S>                                                                             <C>                      <C>

December 31, 1996
     Proved reserves.........................................................            5,338,255           90,565,997
     Proved developed reserves...............................................            1,962,184           71,275,141
                                                                                
December 31, 1995
     Proved reserves.........................................................            3,767,739           14,071,916
     Proved developed reserves...............................................            1,681,841            8,796,748
                                                                                


         The changes in proved reserves for the year ended December 31, 1996 and
1995 were as follows:
                                                                                                         Natural Gas
                                                                                        Oil               (Thousand
                                                                                     (Barrels)           Cubic Feet)
                                                                                ----------------------------------------------------

Reserves at December 31, 1994................................................             1,260,520            4,914,207

Purchase of minerals-in-place................................................             3,122,382           10,973,298
Extensions and  discoveries..................................................                38,498              564,247
Production...................................................................               (29,972)            (102,056)
Revisions of estimates.......................................................              (623,689)          (2,277,780)
                                                                                ----------------------------------------------------
Reserves at December 31, 1995................................................             3,767,739           14,071,916
                                                                                ----------------------------------------------------
Purchase of minerals-in-place................................................             2,678,579           81,943,557
Sale of minerals-in-place....................................................              (214,381)          (1,318,164)
Extensions and discoveries...................................................                                    151,606
Production...................................................................              (191,203)          (2,674,793)
Revisions of estimates.......................................................              (702,479)          (1,608,125)
                                                                                ----------------------------------------------------
Reserves at December 31, 1996................................................             5,338,255           90,565,997
                                                                                ====================================================


</TABLE>
                                      F-26
<PAGE>


                      MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARY
          SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
                                   (UNAUDITED)


         The  aggregate  amounts of  capitalized  costs  relating to oil and gas
producing  activities and the related  accumulated  depreciation,  depletion and
impairment as of December 31, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>

                                                                                1996            1995
                                                                       ---------------------------------------
<S>                                                                     <C>                    <C>
Unproved oil and gas properties.......................................   $   459,254           $  842,889
Proved properties.....................................................    70,574,890           36,256,428
                                                                       ---------------------------------------
Gross Capitalized Costs...............................................    71,034,144           37,099,317

Accumulated depreciation, depletion and impairment....................    (4,513,541)          (1,914,602)
                                                                       ----------------------------------------
Net Capitalized Costs.................................................
                                                                        $  66,520,603       $  35,184,715
                                                                        =======================================

     Costs incurred in oil and gas producing  activities,  both  capitalized and
expensed, during the years ended December 31, 1996 and 1995 were as follows:
                                                                                1996                  1995
                                                                       ----------------------------------------
Property acquisition costs
     Proved properties................................................    $ 31,982,821       $     27,983,521
     Unproved properties..............................................              -                 142,545
     Exploration costs................................................       1,114,733                340,411
Development costs.....................................................         837,273                     -
                                                                       ----------------------------------------
Total Costs Incurred..................................................    $ 33,934,827       $     28,466,477
                                                                       ========================================

     Results of operations  from oil and gas producing  activities for the years
ended December 31, 1996 and 1995 were as follows:
                                                                                1996                 1995
                                                                        ---------------------------------------

Oil and gas production revenue........................................    $ 10,247,688       $        616,596
Disposal services revenue.............................................          20,487                 31,978
Production costs......................................................      (4,389,465)              (267,647)
Depreciation and depletion ...........................................      (2,598,939)              (421,101)
                                                                       ----------------------------------------
Results of Operations for Producing Activities........................    $  3,279,771       $        (40,174)
                                                                       ========================================
</TABLE>


                                      F-27

<PAGE>



                      MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARY
          SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
                                   (UNAUDITED)


     The  standardized  measure of  discounted  estimated  future net cash flows
related to proved oil and gas  reserves  at  December  31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>

                                                                                1996                   1995
                                                                        --------------------------------------------
<S>                                                                     <C>                    <C>
Future cash inflows ..................................................   $     492,157,062       $      95,068,694
Future development and production costs................................       (138,614,804)            (37,746,877)
                                                                         -------------------------------------------
Future net cash flows, before income tax...............................        353,542,258              57,321,817
Future income taxes....................................................       (102,341,098)            (11,381,779)
                                                                         -------------------------------------------
Future Net Cash Flows..................................................        251,201,160              45,940,038
10% annual discount....................................................       (134,116,299)            (16,120,359)
                                                                         -------------------------------------------
Standardized Measure of Discounted Future Net Cash Flows...............  $     117,084,861       $      29,819,679
                                                                          ==========================================

     The primary  changes in the  standardized  measure of discounted  estimated
future net cash flows for the years  ended  December  31,  1996 and 1995 were as
follows:
                                                                                      1996                   1995
                                                                        --------------------------------------------
Purchases of minerals-in-place......................................... $      129,544,769       $      30,507,745
Sales of minerals in place.............................................         (2,195,780)                   -
Extensions, discoveries and improved recovery, less related costs......            302,785                  582,001
Sales of oil and gas produced, net of production costs.................         (5,858,223)                (350,083)
Revision of prior estimates:
   Net change in price and costs.......................................         14,993,539                4,864,688
     Change in quantity estimates......................................        (10,107,737)              (7,637,000)
Accretion of discount..................................................          2,981,968                  623,512
Net change in income taxes.............................................        (42,396,139)              (5,006,300)
                                                                        --------------------------------------------
Net Change............................................................. $       87,265,182       $       23,584,563
                                                                        ============================================
</TABLE>

   Estimated future cash inflows are computed by applying year-end prices of oil
and gas to year-end quantities of proved reserves.  Estimated future development
and  production  costs are  determined  by  estimating  the  expenditures  to be
incurred in developing  and producing the proved oil and gas reserves at the end
of the year,  based on  year-end  costs and  assuming  continuation  of existing
economic  conditions.  Estimated  future  income tax  expense is  calculated  by
applying year-end statutory tax rates to estimated future pre-tax net cash flows
related to proved  oil and gas  reserves,  less the tax basis of the  properties
involved.

   The assumption used to compute the standardized  measure are those prescribed
by the Financial  Accounting  Standards  Board and as such,  do not  necessarily
reflect the Company's  expectations  of actual revenues to be derived from those
reserves  nor their  present  worth.  The  limitations  inherent  in the reserve
quantity  estimation process are equally applicable to the standardized  measure
computations since these estimates are the basis for the valuation process.


                                      F-28


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                                   SIGNATURES

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

MAGNUM HUNTER RESOURCES, INC.



By:    /s/ Gary C. Evans                               June 27, 1997
     -------------------------------
     Gary C.  Evans, President & CEO





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