<PAGE>
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                    U.S. SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                  FORM 10-KSB
 
<TABLE>
<C>          <S>
(MARK ONE)
    /X/      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
 
                                               OR
 
    / /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
                   TO       .
</TABLE>
 
                        COMMISSION FILE NUMBER   0-18205
 
                          OEC COMPRESSION CORPORATION
 
                 (Name of Small Business Issuer in its charter)
 
<TABLE>
<S>                       <C>
        OKLAHOMA               73-1345732
(State of Incorporation)    (I.R.S. Employer
                           Identification No.)
 
2501 CEDAR SPRINGS ROAD,
 SUITE 600, DALLAS, TX
 (Address of principal            75201
   executive offices)          (Zip Code)
</TABLE>
 
          Issuer's telephone number, including area code 214-953-9560
 
                            ------------------------
 
        Securities registered pursuant to Section 12(b) of the Act: None
 
      Securities registered pursuant to Section 12(g) of the Exchange Act:
 
                                 TITLE OF CLASS
 
                     Common Stock, par value $.01 per share
 
                            ------------------------
 
    Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
 
Yes /X/ No / /
 
    Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. / /
 
    Issuer's revenue for the year ended December 31, 1998--$26,242,000
 
    Aggregate Market Value of Voting Stock held by Non-affiliates on March 29,
1999--$13,409,989
 
    Number of Shares of Common Stock Outstanding on March 29, 1999--29,162,044
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
1.  Portions of the Issuer's Proxy Statement with respect to Annual Meeting of
    Stockholders to be held May 20, 1999 is incorporated by reference in Part
    III of the Form 10-KSB.
 
    Transitional Small Business Issuer Disclosure Format (Check one): Yes / / No
    /X/
 
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--------------------------------------------------------------------------------
<PAGE>
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                                                 PAGE
                                                                                                                 -----
<S>              <C>                                                                                          <C>
                                                         PART I
 
Items 1. & 2.    Description of Business and Properties.....................................................           3
Item 3.          Legal Proceedings..........................................................................          13
Item 4.          Submission of Matters to a Vote of Security Holders........................................          13
Item 4A.         Executive Officers of the Registrant.......................................................          14
 
                                                         PART II
Item 5.          Market for Registrant's Common Equity and Related
                  Stockholder Matters and Selected Financial Data...........................................          15
Item 6.          Management's Discussion and Analysis of Financial
                  Condition and Results of Operations.......................................................          15
Item 7.          Financial Statements.......................................................................          19
Item 8.          Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosure..................................................................          20
 
                                                        PART III
Item 9.          Directors, Executive Officers, Promoters and Control Persons of the Registrant; Compliance
                  with Section 16(a) of the Exchange Act....................................................          21
Item 10.         Executive Compensation.....................................................................          21
Item 11.         Security Ownership of Certain Beneficial Owners and Management.............................          21
Item 12.         Certain Relationships and Related Transactions.............................................          21
Item 13.         Exhibits and Reports on Form 8-K...........................................................          21
Signatures..................................................................................................          24
Index to Consolidated Financial Statements..................................................................         F-1
</TABLE>
 
                                       2
<PAGE>
                          OEC COMPRESSION CORPORATION
                                 ANNUAL REPORT
                      FOR THE YEAR ENDED DECEMBER 31, 1998
 
                                     PART I
 
ITEMS 1. AND 2.  DESCRIPTION OF BUSINESS AND PROPERTIES
 
GENERAL
 
    OEC Compression Corporation, formerly Equity Compression Services
Corporation, formerly Hawkins Energy Corporation (the "Company") is engaged in
the leasing, contract management, outsourcing, remanufacturing and direct sale
of gas compression equipment to operators of producing natural gas wells and gas
gathering systems and in the production of natural gas and oil. Its principal
geographical operating areas lie within the states of Alabama, Mississippi,
Louisiana, Oklahoma, Arkansas, Kansas and Texas.
 
    The Company was incorporated as Hawkins Energy Corporation in the state of
Oklahoma in June 1989 for the purpose of consolidating the businesses and assets
of Equity Compressors, Inc. ("Equity Compressors") and ten Hawkins Exploration
oil and gas limited partnerships (the "Hawkins Limited Partnerships"). To effect
the consolidation, the Company extended an exchange offer to the stockholders of
Equity Compressors and the partners of the Hawkins Limited Partnerships.
Following approval by a majority in interest of the limited partners in each of
the Hawkins Limited Partnerships, the Company acquired the assets and assumed
the liabilities of the Hawkins Limited Partnerships and acquired the stock of
Equity Compressors, all in exchange for common stock of the Company, and
commenced operations on December 29, 1989.
 
    The Company acquired Equity Compressors when its sole business was the
leasing of gas compression equipment to operators. Equity Compressors broadened
its scope of operations through its acquisition in April 1990 of a compressor
remanufacturing and service business. The business of the acquired company
centered around the acquisition, remanufacture and sale of existing gas
compressor units. By May 1990, this business was fully integrated into Equity
Compressors.
 
    In June 1993, the Company acquired Mid-South Compressors, Inc., a privately
held gas compression company ("Mid-South"). Mid-South leased compression
equipment throughout the gas producing regions of Mississippi, Alabama and
Northern Louisiana. The transaction involved the issuance of approximately 5.4
million shares of Company common stock and the payment of $1.4 million in cash
to Mid-South. The Company financed the cash portion of the acquisition through
additional borrowings.
 
    In July 1993, the Company acquired all the outstanding shares of common
stock of Owens Compression Service, Inc. ("Owens"), a privately held company
that provided gas compression services primarily in East Texas and North
Louisiana in exchange for cash consideration of $42,000 and approximately 3.2
million shares of Company common stock.
 
    During March 1995, the Board of Directors of Equity Compressors, Mid-South
and Owens each approved the formal merger of Mid-South and Owens with and into
Equity Compressors. The companies merged their operations under the Equity
Compressors name as of January 1, 1995. The businesses of Equity Compressors
included leasing, direct sales and remanufacturing services of various types of
gas compression equipment.
 
    During December 1996, the shareholders of the Company approved an increase
in the number of authorized shares of common stock enabling the Company to sell
8 million shares of common stock and 8 million contingent warrants for a total
cash consideration of $4.4 million to HACL, Ltd., a Dallas-based investment
group. Additionally, shareholders voted to change the name of the Company to
Equity Compression Services Corporation.
 
                                       3
<PAGE>
    On August 6, 1997 the Company announced the acquisition of 100% of the
common stock of Ouachita Energy Corporation ("Ouachita") and the majority of the
assets of both Ouachita Compression Group, LLC and Ouachita Energy Partners,
LTD. Under the terms of the acquisition agreements that were closed effective
July 31, 1997, the Ouachita companies' shareholders received 7.6 million shares
of the Company's common stock and approximately $24 million in cash and
assumption of debt.
 
    On October 30, 1997, the Company, through its wholly owned subsidiary,
Sunterra Energy Corporation, entered into a venture with Prize Petroleum, L.L.C.
("Prize") of Tulsa, Oklahoma, to form Sunterra Petroleum Company, L.L.C.
("Sunterra L.L.C."). Sunterra L.L.C. was initially capitalized with oil and gas
properties and cash commitments with a value in excess of $9 million. Sunterra
L.L.C. will focus on oil and gas acquisitions with development opportunities. A
$10 million bank credit facility has been established to allow Sunterra L.L.C.
to pursue property acquisitions and their development.
 
    On December 8, 1997 the Company announced that effective December 31, 1997
it would close its shop facilities in Oklahoma City, Oklahoma, Kilgore, Texas,
and Columbia, Mississippi. The acquisition of Ouachita enabled the Company to
consolidate the facilities operations into one state of the art facility located
in West Monroe, Louisiana. Although significant costs were incurred as a result
of the closing of these facilities in the fourth quarter of 1997, the
consolidation of the shop facilities allowed the Company greater control over
product engineering and design, better quality equipment, more reliable service
and increased control over expenses at the facilities level.
 
    On March 6, 1998, the Company merged Equity Compressors into Ouachita. At
December 31, 1998, the combined compressor fleet had 843 gas compression units
with a total of approximately 218,000 horsepower.
 
    During March 1998, the Company received written consents from a majority of
shareholders to increase the number of authorized shares of common stock and to
change the name of the Company to OEC Compression Corporation.
 
    At December 31, 1998, Sunterra L.L.C.'s oil and gas properties were
estimated to have proved reserves of 12,720,000 thousand cubic feet ("Mcf") of
natural gas and 163,000 barrels of oil. Natural gas reserves constituted
approximately 93% of the Company's reserve base on a "gas equivalent" basis
(converting each barrel of oil to six Mcf of natural gas).
 
    The primary business plan of the Company is growth within the compression
service sector of the natural gas industry. The Company plans to extend its
activities in the compression service sector by expanding its customer base and
its business with existing customers by providing the highest quality
compression services. Additionally, the Company will pursue the purchase of
customer owned compressors as well as the purchase of competitors. Oil and gas
property acquisitions will be pursued through Sunterra L.L.C.
 
    The Company had 156 employees at year-end 1998. Its principal executive
offices are maintained at 2501 Cedar Springs Road, Suite 600, Dallas, Texas
75201. Telephone (214) 953-9560.
 
GAS COMPRESSION OPERATIONS
 
    GENERAL.  The Company conducts its compressor operations through Ouachita
Energy Corporation, its wholly owned subsidiary located in West Monroe,
Louisiana.
 
    The age of a gas well usually affects its need for compression. A gas well
has a natural flowing pressure which may or may not be adequate to overcome the
pipeline pressure at the point where the gas is introduced into a gathering
system or transmission pipeline. If the flowing pressure of the gas is not
adequate to overcome the pipeline pressure, it is not physically possible to
produce or transport the gas without the aid of compression. Gas compression is
used to overcome this problem by boosting the flowing pressure of the gas.
Theoretically, all gas wells will eventually need compression to boost natural
well
 
                                       4
<PAGE>
flowing pressure to exceed pipeline pressure. Historically, gas compressors have
generally been purchased and operated by gas producers and gas transporters.
However, over the last several years, these same groups have also used equipment
leasing and contract compression services as an accepted means of providing for
their gas compression needs.
 
    EQUIPMENT LEASING AND CONTRACT COMPRESSION SERVICES.  At year-end 1998, the
Company's service fleet included 843 compressors located in Alabama, Arkansas,
Kansas, Louisiana, Mississippi, Oklahoma, New Mexico and Texas. These
compressors generally average 258 horsepower in size and their cost as a new
unit of that size averages about $225,000. The Company's rental fleet is
comprised mostly of used, remanufactured equipment which was acquired at a
substantial discount to the cost of comparable new compressor units. The fleet
includes engines and compressors of various manufacturers.
 
    Prior to the Ouachita acquisition in the third quarter of fiscal year 1997,
the Company's core business was compression rental-with-maintenance to natural
gas producers, processors and pipelines. With the Ouachita acquisition, the
Company commenced providing full contract compression services, which is the
complete "outsourcing" of a client's compression operations to the Company.
 
    The size and configuration of each compressor varies depending on the
particular application for which it is utilized. Consideration is given to the
differential between the wellhead and pipeline flowing pressures and the volumes
of gas delivered from the wellhead.
 
    The following table sets forth certain data concerning the Company's
activity in the acquisition and leasing of compressors:
 
<TABLE>
<CAPTION>
                                                                                               DECEMBER
                                                                                    -------------------------------
                                                                                      1998       1997       1996
                                                                                    ---------  ---------  ---------
<S>                                                                                 <C>        <C>        <C>
Number of units...................................................................        843        669        411
Horsepower utilization rate at end of period......................................        79%        80%        81%
Equipment horsepower at end of period.............................................    217,663    169,229     46,531
</TABLE>
 
    LEASE/CONTRACT COMPRESSION TERMS.  Generally, the Company's compressors are
leased or contract compression services are provided to well operators under
written agreements for periods ranging from month-to-month to five years. These
contracts are sometimes renewed at the end of the specified term at which time
the rentals and other terms may be renegotiated. The competitive marketplace
determines the rental/contract rates used in new contracts and in renewals of
existing contracts. Once the minimum term has expired, the equipment continues
on a month-to-month basis, with either party having the right to terminate the
contract by giving a thirty-day written notice. The majority of the deployed
compressors at December 31, 1998 were leased on a month-to-month basis.
 
    Under the typical rental-with-maintenance lease, the lessee pays the costs
of transporting the compressor to the well site, installation, all fuel and
other operating costs. The compressors are operated on a daily basis by the
employees of the lessee. The Company maintains service departments which employ
skilled compressor mechanics who service and maintain compression equipment.
Under the most common type of lease, the lessee pays a flat fee for monthly
compression inclusive of service, equipment rental, lubricants and all parts and
maintenance. Under the typical contract compression service contract, the
Company provides the customer with both the compression equipment and operates
that equipment for the customer. The Company's personnel are responsible for
both day-to-day operation and maintenance of the provided compression equipment
for a monthly service fee. Revenues, associated with contracts for
rental-with-maintenance and contract compression services are recognized on the
first day of the month in which the service is provided.
 
    REMANUFACTURING SERVICES.  Remanufacturing services involve the overhaul and
rework of equipment owned by third parties. These services are performed under
contract with numerous customers, including gas gathering and transmission
companies, major oil companies, large independents and small producers
 
                                       5
<PAGE>
to overhaul and rework their gas compression equipment. Generally, the Company
prepares a description of the work to be conducted and the parts to be provided.
This description is accompanied by an estimate or a fixed bid of the costs to be
charged the customer for the overhaul work. In the event additional labor or
parts are required once the work is in process, the owner of the unit is
contacted regarding the work and additional charges are then agreed on. Overhaul
work is normally guaranteed for a period of ninety days.
 
    COMPRESSOR SALES.  The Company is also involved in the direct sales of
remanufactured gas compression equipment. The Company acquires, rebuilds and
sells previously owned gas compressor units to gas producers and transporters.
The Company maintains an inventory of compression parts and equipment at its
facility in West Monroe, Louisiana. The Company is able to sell its
remanufactured equipment at a discount to the cost of comparable new equipment,
and in most cases is able to customize and complete a compressor unit for a
customer in substantially less time than the same customer could acquire the
equipment new from the original manufacturer. The Company via its field
mechanics, is responsible for the service and maintenance of its direct sales
units during their ninety-day warranty period.
 
    The Company faces competition from a number of different companies, some of
which have larger staffs, more equipment and assets and greater financial
resources. The principal competition in the compressor leasing business comes
from other compression service companies.
 
COMPLIANCE WITH ENVIRONMENTAL LAWS
 
    The design and operation of gas compressors is subject to certain federal
and state environmental laws and regulations which, directly or indirectly,
relate to the discharge of materials into the environment. Complete compliance
with all of such laws and regulations may affect the Company's operations and
costs as a result of their effect on the design, condition and operation of its
gas compressors or its costs of repairing or remanufacturing them. Under most of
the leases for the gas compressors, responsibility for compliance with the
majority of these laws and regulations is placed on the lessee. However, there
can be no assurance that the Company would not be liable for any penalties or
fines that may be imposed as a result of any material noncompliance. It is not
anticipated that the Company will be required in the near future to expend
amounts that are material in the aggregate to the Company's overall operations
by reason of such laws and regulations.
 
NATURAL GAS AND OIL OPERATIONS
 
    GENERAL.  The Company acquired interests in natural gas and oil properties
by acquiring the assets and assuming the liabilities of ten oil and gas limited
partnerships on December 29, 1989, as a result of the exchange offer. The
Company continually reviews opportunities to acquire additional producing
properties, sell portions of its producing properties and conducts additional
development drilling on its properties. The Company is engaged in the production
and sale of natural gas, condensate and crude oil from these properties.
 
    The Company operates 53 of the wells in which it owns an interest. The
Company has previously engaged an affiliated company and a third-party to handle
the operations of the wells it controlled. During the second quarter of 1997,
the Company directly assumed operations of all of its properties.
 
    SIGNIFICANT PROPERTIES.  At December 31, 1998, the Company owned oil and gas
interests in 152 producing wells, undrilled leasehold interests and related
assets located in Arkansas, Kansas, Oklahoma and Texas. Exploration and
development efforts have been concentrated in the Anadarko and Arkoma Basins
located in the states listed above. It is expected that the Company will
continue to focus on these areas in its future operations.
 
                                       6
<PAGE>
                                 ANADARKO BASIN
 
    In the Anadarko Basin, the interests owned by the Company consist of 129
gross (51.68 net) wells, of which 41 are operated by the Company. The properties
in this basin contain proved reserves totaling 9,489,918 Mcf of gas and 163,276
barrels of oil and represent approximately 71% of the present value of the
proved reserves of the Company at December 31, 1998.
 
                                  ARKOMA BASIN
 
    In the Arkoma Basin, the interests owned by the Company consist of 23 gross
(7.25 net) wells, twelve of which are operated by the Company. The properties in
this basin contain proved reserves totaling 3,229,952 Mcf of gas and represent
approximately 29% of the present value of the proved reserves of the Company as
of December 31, 1998.
 
    DRILLING ACTIVITIES.  During the periods indicated, the Company participated
in the drilling of the following development wells:
<TABLE>
<CAPTION>
                                                                                         YEAR ENDED DECEMBER 31,
                                                                       -----------------------------------------------------------
                                                                                1998                    1997              1996
                                                                       ----------------------  ----------------------  -----------
                                                                          GROSS        NET        GROSS        NET        GROSS
                                                                       -----------  ---------  -----------  ---------  -----------
<S>                                                                    <C>          <C>        <C>          <C>        <C>
Development
Productive...........................................................         3.0        1.53         3.0        1.40         4.0
Non-Productive.......................................................         2.0        1.03         1.0         .11          --
                                                                               --                      --                      --
                                                                                          ---                     ---
Total................................................................         5.0        2.56         4.0        1.51         4.0
                                                                               --                      --                      --
                                                                               --                      --                      --
                                                                                          ---                     ---
                                                                                          ---                     ---
 
<CAPTION>
                                                                          NET
                                                                          ---
<S>                                                                    <C>
Development
Productive...........................................................        3.0
Non-Productive.......................................................         --
                                                                              --
Total................................................................        3.0
                                                                              --
                                                                              --
</TABLE>
 
    PRODUCTIVE WELLS.  The following table sets forth certain information
relating to oil and gas wells which are producing or which are shut-in but
capable of producing oil and/or gas at December 31, 1998. A "gross" well is any
well in which the Company owned an interest while "net" wells equal the sum of
the Company's fractional interests in the gross wells.
 
                                PRODUCTIVE WELLS
                            AS OF DECEMBER 31, 1998
 
<TABLE>
<CAPTION>
                                                                         GROSS        NET
                                                                      -----------  ---------
<S>                                                                   <C>          <C>
Oil.................................................................          36       19.47
Gas.................................................................         116       39.47
</TABLE>
 
    ACREAGE.  The following table sets forth the gross and net oil and gas
leasehold acreage of the Company as of December 31, 1998. "Gross" acreage refers
to any acreage in which the Company owns an interest while "net" acreage refers
to the Company's actual proportionate interest in the acreage.
 
                                    ACREAGE
                            AS OF DECEMBER 31, 1998
                                   DEVELOPED
 
<TABLE>
<S>                                                           <C>
Gross Acres.................................................     52,357
Net Acres...................................................     18,420
</TABLE>
 
                                       7
<PAGE>
    PROVED RESERVES.  The following table reflects the proved reserves of the
Company as estimated, at the dates indicated. The increase in MCF in 1998 from
1997 is primarily due to the successful drilling of two new gas wells and
properties contributed by Prize. The increase in Mcf from 1996 to 1997 is partly
due to the drilling of three new gas wells which added proved reserves totaling
836,000 Mcf and properties contributed by Prize. All reserve information is
attributable to the Company's ownership in Sunterra L.L.C., for which there is
an approximate 27% minority interest.
 
      ESTIMATED FUTURE NET REVENUES AND PRESENT VALUE FROM PROVED RESERVES
                               AS OF DECEMBER 31,
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
         1998                     1997                      1996
----------------------  ------------------------  ------------------------
   OIL         GAS          OIL          GAS          OIL          GAS
  BBLS         MCF         BBLS          MCF         BBLS          MCF
---------  -----------  -----------  -----------  -----------  -----------
<S>        <C>          <C>          <C>          <C>          <C>
   163         12,720          603        9,425          930        4,989
</TABLE>
 
    The following table sets forth the estimated future net revenues from proved
reserves of the Company, before deducting the impact of federal and state income
taxes. The present value of estimated future net revenues discounted at 10% per
annum was prepared using constant prices of approximately $9.51 per barrel of
oil and $1.99 per Mcf of gas, which were the average oil and gas prices in
effect at December 31, 1998. As of March 16, 1999, the Company's average prices
were approximately $12.66 per Bbl of oil and $1.55 per Mcf of gas.
 
               ESTIMATED FUTURE NET REVENUES FROM PROVED RESERVES
                                 (IN THOUSANDS)
 
<TABLE>
<S>                                                          <C>
Estimated Future Net Revenues Attributable to Production
  During:
1999.......................................................  $   1,806
2000.......................................................      1,818
2001.......................................................      1,588
2002.......................................................      1,387
2003.......................................................      1,212
Remainder..................................................      7,156
                                                             ---------
Total......................................................  $  14,967
                                                             ---------
                                                             ---------
Net Present Value (discounted at 10% per annum)............  $   9,126
                                                             ---------
                                                             ---------
</TABLE>
 
    The reserve data set forth herein represents estimates only. Reserve
engineering is a subjective process of estimating underground accumulations of
crude oil and natural gas that cannot be measured in an exact manner. The
accuracy of any reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment. As a result,
estimates of different engineers may vary. In addition, results of drilling,
testing and production subsequent to the date of an estimate may justify
revision of such estimate. Accordingly, reserve estimates often differ from the
quantities of crude oil and natural gas that are ultimately recovered. The
meaningfulness of such estimates is highly dependent upon the accuracy of the
assumptions upon which they were based.
 
    MARKET FOR OIL AND GAS.  The market for oil and gas production depends upon
a number of factors, including the availability of other domestic production,
crude oil imports, the proximity and size of oil and gas pipelines, the
marketing of competitive fuels and general fluctuations in the supply and demand
for oil and gas. For the past several years, there has existed a surplus of
imported oil and domestic natural gas. Since the fourth quarter of 1997, such
excess has resulted in reduced oil and gas prices and curtailment of
 
                                       8
<PAGE>
gas production. In addition, such oversupplies may cause delays in marketing the
natural gas from producing wells.
 
    While certain of the Company's natural gas production is sold at the
wellhead to intrastate and interstate pipelines under contracts with terms
ranging from one to twenty years, most of its gas production is sold on the
"spot market" under commitments which generally extend for only thirty days. All
of the Company's long-term contracts contain provisions for readjustment of
price, termination and other terms customary in the industry. Certain of these
contracts contain "market out" and price adjustment provisions which could allow
the purchaser to cancel the contract or purchase the gas produced at a
substantially lower price. Likewise, if prices increase, the Company can cancel
the contract or require the gas produced to be purchased at the higher prices.
 
    Approximately 93% of the Company's proved reserves consist of natural gas,
while the remaining are crude oil on an equivalent unit basis. Consequently, the
financial results of the Company's gas and oil production activities will be
affected by positive or negative developments in the pricing of and markets for
both natural gas and crude oil.
 
    The Company does not believe that the loss of any of its oil purchasers, if
not replaced, would have a material adverse effect on its operations. The loss
of a gas purchaser could result in contracts being executed for sales with
prices less than those previously in effect or in prolonged production delays.
The loss or termination of several gas purchase agreements or purchasers could,
if not replaced, adversely affect the Company's financial condition. The
marketing of oil and gas by the Company can be affected by a number of factors
which are beyond its control, the exact effects of which cannot be accurately
predicted.
 
    OIL AND GAS SALES PRICES AND PRODUCTION COSTS.  The following table sets
forth the average sales prices per barrel of oil (including condensates and
other liquid hydrocarbons) and per Mcf of gas produced and the production
expense (including taxes and transportation charges) per equivalent Mcf of gas
production and Bbl of oil of the Company for each of the periods indicated.
 
                   AVERAGE SALES PRICES AND PRODUCTION COSTS
 
<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31,
                                                                                       -------------------------------
                                                                                         1998       1997       1996
                                                                                       ---------  ---------  ---------
<S>                                                                                    <C>        <C>        <C>
Average Sales Price per Mcf of gas produced..........................................  $    2.11  $    2.65  $    2.36
Average Sales Price per barrel of oil produced.......................................  $   13.51  $   19.35  $   19.32
Production Cost per MCFE(1)..........................................................  $     .63  $     .85  $     .73
Production Cost per BOE(2)...........................................................  $    3.77  $    5.11  $    4.35
</TABLE>
 
------------------------
 
(1) "MCFE" means equivalent Mcf of natural gas and is determined by converting
    each barrel of oil to six Mcf of natural gas.
 
(2) "BOE" means equivalent barrels of oil and is determined by converting six
    Mcf of natural gas to one barrel of oil.
 
REGULATIONS
 
    The oil and gas industry is extensively regulated by federal, state and
local authorities. Legislation affecting the oil and gas industry is under
constant review for amendment or expansion. Numerous departments and agencies,
both federal and state, have issued rules and regulations binding on the oil and
gas industry and its individual members, some of which carry substantial
penalties for the failure to comply. The regulatory burden on the oil and gas
industry increases its cost of doing business and, consequently, affects its
profitability. Inasmuch as such laws and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such regulations.
 
                                       9
<PAGE>
    EXPLORATION AND PRODUCTION.  Exploration and production operations of the
Company are subject to various types of regulation at the federal, state and
local levels. Such regulation includes requiring permits for the drilling of
wells, maintaining bonding requirements in order to drill or operate wells, and
regulating the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are drilled and the
plugging and abandoning of wells. The Company's operations are also subject to
various conservation matters. These include the regulation of the size of
drilling and spacing units or proration units and the density of wells which may
be drilled and the unitization or pooling of oil and gas properties. In this
regard, some states allow the forced pooling or integration of tracts to
facilitate exploration while other states rely on voluntary pooling of lands and
leases. In addition, state conservation laws establish maximum rates of
production from oil and gas wells, generally prohibit the venting or flaring of
gas and impose certain requirements regarding the ratability of production. The
effect of these regulations is to limit the amounts of oil and gas the Company
can produce from its wells, and to limit the number of wells or the locations at
which the Company can drill.
 
    Oklahoma and Texas have adopted limits on gas production that attempt to
match production with market demand. In March 1992, Oklahoma enacted a law which
places statewide limits on gas production. The Oklahoma Corporation Commission
sets production levels quarterly. The production of natural gas from a single
well is limited to the greater of a specified Mcf per day or a percentage of the
total daily production capacity of the well. In April 1992, the Texas Railroad
Commission ("TRC") unanimously approved a new proration system that eliminated
monthly purchaser nominations as the starting point for determining reservoir
market demand. Instead, the TRC makes an initial determination of reservoir
market demand for prorated fields each month using production in the same month
from the previous year and the operator's forecast for demand for that month.
This initial determination is subject to certain adjustments. Individual well
allowable determinations are determined by an enhanced capability determination
routine. A well capacity is determined as the lesser of the latest TRC well
deliverability test on file or the highest monthly production during the last
six months. Alternatively, an operator may submit a substitute capability
determination that has been determined by a registered professional engineer.
 
    The Company cannot predict whether other states will adopt similar
legislation or rules governing gas production. The effect of the Oklahoma and
Texas provisions and any other restrictions, if adopted, could be to decrease
allowable production on certain properties and the revenues from gas properties.
It is also possible that such legislation and regulations may result in a
decrease in natural gas production, which might also have the effect of exerting
upward pressure on prices of natural gas, although there can be no assurance
that any such increase will occur. However, if such restrictions do result in
increased prices of natural gas, they could face challenges in the courts and
there can be no assurance as to the outcome of any such challenge, or federal
legislation may be enacted to override the effects of state provisions.
 
    Various federal, state and local laws and regulations covering the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, may affect the Company's operations and costs as a result of
their effect on exploration, development and production operations. Violation of
environmental legislation and regulations may result in the imposition of fines
or civil or criminal penalties and, in certain circumstances, the entry of an
order for the removal, remediation and abatement of the conditions, and the
suspension of the activities, giving rise to the violation. The Company is also
subject to laws and regulations concerning occupational safety and health. It is
not anticipated that the Company will be required in the near future to expend
amounts that are material in the aggregate to the Company's overall operations
by reason of environmental or occupational safety and health laws and
regulations, but inasmuch as such laws and regulations are frequently changed,
the Company is unable to predict the ultimate cost of compliance.
 
    Certain of the Company's oil and gas leases are granted by the federal
government and administered by various federal agencies. Such leases require
compliance with detailed federal regulations and orders which regulate, among
other matters, drilling and operations on these leases and calculation of
royalty payments to the federal government. The Mineral Lands Leasing Act of
1920 places limitations on the
 
                                       10
<PAGE>
number of acres under federal leases that may be owned in any one state. While
subject to this law, the Company does not have a substantial federal lease
acreage position in any state or in the aggregate. The Mineral Lands Leasing Act
of 1920 and related regulations also may restrict a corporation from the holding
of a federal onshore oil and gas lease if stock of such corporation is owned by
citizens of foreign countries which are not deemed reciprocal under such Act.
Reciprocity depends, in large part, on whether the laws of the foreign
jurisdiction discriminate against a United States person's ownership of rights
to minerals in such jurisdiction. The purchase of shares in the Company by
citizens of foreign countries who are not deemed to be reciprocal under such Act
could have an impact on the Company's ownership of federal leases.
 
    MARKETING, GATHERING AND TRANSPORTATION.  Federal legislation and regulatory
controls have historically affected the price of the gas produced by the Company
and the manner in which such production is marketed. Historically, the
transportation of gas for resale in interstate commerce has been regulated
pursuant to the Natural Gas Act of 1938 (the "NGA"), and the Natural Gas Policy
Act of 1978 (the "NGPA") and Federal Energy Regulatory Commission ("FERC")
regulations promulgated thereunder. Since 1978, maximum selling prices of
certain categories of gas, whether sold in interstate or intrastate commerce,
have been regulated pursuant to the NGPA. The NGPA established various
categories of gas and provided for graduated deregulation of price controls of
several categories of gas and the deregulation of sales of certain categories of
gas. All price deregulation contemplated under the NGPA has already taken place.
 
    On July 26, 1989, the Natural Gas Wellhead Decontrol Act of 1989 (the
"Decontrol Act") was enacted. The Decontrol Act amended the NGPA to remove, as
of July 27, 1989, both price and non-price controls from gas not subject to a
contract in effect on July 26, 1989. Gas under contract on July 26, 1989, was
decontrolled on the earlier of the termination of the contract or January 1,
1993. Gas from wells spudded after July 26, 1989, was decontrolled on May 15,
1991, even if those wells were still covered by an existing contract.
 
    In December 1992, the FERC issued Order No. 547, which is a blanket
certificate of public convenience and necessity pursuant to Section 7 of the NGA
and which authorizes any company which is not an interstate natural gas pipeline
or an affiliate thereof to make sales for resale at negotiated rates in
interstate commerce of any category of gas that is subject to the FERC's NGA
jurisdiction. The blanket certificates were effective January 7, 1993, and do
not require any further application. There are certain requirements which must
be met before an affiliated marketer of an interstate pipeline can avail itself
of this certificate.
 
    The cumulative impact on the Company of the deregulation provisions of the
NGPA, the Decontrol Act and Order No. 547 is that the Company's gas production
is no longer subject to price regulation. Rather, it is subject only to that
price contractually agreed upon between the producer and purchaser. Under
current market conditions, deregulated gas prices under new contracts tend to be
lower than most regulated price ceilings previously prescribed by the NGPA.
 
    In February 1988, the FERC issued Order No. 490, which promulgated new
abandonment regulations for expired, canceled or modified contracts involving
the sale of certain gas committed or dedicated to interstate commerce prior to
the enactment of the NGPA. The new rules largely eliminate delays and regulatory
burdens associated with securing approval to abandon gas service upon
termination or expiration of a contract for the sale of such gas. The new rules
also significantly facilitate certain pipelines' ability to discontinue
purchasing such gas under terms unfavorable to the pipeline in situations in
which the contract has expired or terminated, but abandonment authorization is
required to terminate the service. The Company has gas purchase agreements with
purchasers that have been abandoned pursuant to Order No. 490. Order No. 490 is
currently being challenged in the courts. The Company is unable to predict the
outcome of these proceedings, and is also unable to predict the consequences to
it of any possible future vacation of Order No. 490.
 
                                       11
<PAGE>
    Commencing in late 1985, the FERC issued a series of orders (Order No. 436,
Order No. 500 and related orders), which promulgated regulations designed to
create a more competitive, less regulated market for natural gas. These and
subsequent regulations have significantly altered the marketing and pricing of
gas. Among other things, these regulations (a) require interstate pipelines that
elect to transport gas for others under self-implementing authority to provide
transportation services to all shippers on a non-discriminatory basis and (b)
permit each existing firm sales customer of any such pipeline to modify over at
least a five-year period, its existing purchase obligations. Although the new
regulations do not directly regulate gas producers such as the Company, the
availability of non-discriminatory transportation services and the ability of
pipeline customers to modify their existing purchase obligations under these
regulations has greatly enhanced the ability of producers to market their gas
directly to end users and local distribution companies. In this regard, access
to markets through interstate pipelines is critical to the Company's marketing
initiatives.
 
    In April 1992 (and clarified in August 1992 and finalized in November 1992),
the FERC issued Order 636, a complex regulation which has had a major impact on
natural gas pipeline operations, services and rates. Among other things, Order
636 requires each interstate pipeline company to "unbundle" its traditional
wholesale services and create and make available on an open and
nondiscriminatory basis numerous constituent services (such as gathering
services, storage services, firm and interruptible transportation services and
stand-by sales services) and to adopt a new rate-making methodology to determine
appropriate rates for those services. To the extent the pipeline company or its
sales affiliate makes gas sales as a merchant in the future, it will do so in
direct competition with all other sellers pursuant to private contracts;
however, pipeline companies are not required to remain "merchants" of gas, and
many of the interstate pipeline companies have or will become transporters only.
Each pipeline company had to develop the specific terms of service in individual
proceedings. The new rules are subject to pending court challenges by numerous
parties. In addition, many of the individual pipeline restructurings are the
subject of pending appeals, either before the FERC or in the courts.
 
    As noted, Order 636 is still in the judicial review stage. On October 29,
1996, the United States Court of Appeals for the District of Columbia Circuit
denied petitions for rehearing of its earlier decision, UNITED DISTRIBUTION
COMPANIES V. FERC, 88 F.3d 1105, 1191 (D.C. Cir. 1996), in which the D.C.
Circuit upheld most of Order 636. However, the Court remanded to the FERC for
further explanation the provisions pertaining to (1) restriction of entitlement
to receive no-service to those customers who received bundled firm-sales service
on May 18, 1992; (2) the twenty year term-matching cap for the right-of-first
refusal mechanism; (3) two aspects of the straight fixed variable rate design
mitigation measures; and (4) why, in light of Order 500 and the general cost
spreading principles of Order 636, pipelines can pass through all their gas
supply realignment ("GSR") transition costs to customers and why interruptible
transportation customers should bear 10% of GSR costs.
 
    The issuance of Order 636, and its future interpretation, as well as the
future interpretation and application by FERC of all of the above rules and its
broad authority, or of the state and local regulations by the relevant agencies,
could affect the terms and availability of transportation services for
transportation of natural gas to customers and the prices at which gas can be
sold. For instance, as a result of Order 636 a number of interstate pipeline
companies have (i) "spun-down" their gathering systems from regulated pipeline
transportation companies to unregulated affiliates, (ii) spun-off gathering
systems to non-related entities, and/or (iii) "refunctionalized" portions of
their pipeline facilities from transmission to gathering. In a May 27, 1994
order and a December 2, 1994 rehearing order, FERC ruled that it generally does
not have jurisdiction over gathering facilities absent abuse involving the
pipeline-affiliate relationship. However, FERC directed pipelines spinning down
or off their gathering systems to include certain Order No. 497 standards of
conduct in their tariffs and to enter into continuity of service agreements with
existing users or to execute a "default contract" with users with whom they
cannot reach agreement, with the default contract to contain a minimum two-year
term, use the pipeline gatherer's then current rate (with an appropriate
escalator clause) for existing customers for similar service, and contain terms
and conditions
 
                                       12
<PAGE>
consistent with those applicable to the pipeline's gathering service. However,
in 1996 the United States Court of Appeals for the District of Columbia upheld
the FERC's allowing the spinning down of gathering facilities to a non-regulated
affiliate, but remanded the FERC's default contract mechanism.
 
    On October 31, 1996, four producers, Amoco Energy Trading Corp. (together
with its parent, Amoco Production Co.), Anadarko Production Corp., Conoco Inc.
and Marathon Oil Co., petitioned the Supreme Court of the United States to
review the D.C. Circuit's upholding the FERC's determination not to regulate the
gathering systems spun down to affiliates except in circumstances of affiliate
abuse. Consequently, the Company cannot reliably predict at this time how
regulation will ultimately impact the Company's natural gas operations.
 
    With respect to oil pipeline rates subject to the FERC's jurisdiction, in
October 1993 the FERC issued Order No. 561 in order to fulfill the requirements
of Title XVIII of the Energy Policy Act of 1992. Order No. 561 establishes an
indexing system, effective January 1, 1995, under which oil pipelines will be
able to readily change their rates to track changes in the Producer Price Index
for Finished Goods (PPI-FG), minus one percent. This index established ceiling
levels for rates. Order No. 561 also permits cost-of-service proceedings to
establish just and reasonable rates for initial rates for new service.
Cost-of-service review may be invoked when an oil pipeline company claims it is
significantly under-recovering its costs, or when customers claim the pipeline's
rates are excessive in relation to actual costs. The order does not alter the
right of a pipeline to seek FERC authorization to charge market-bases rates.
However, until the FERC makes the finding that the pipeline does not exercise
significant market power, the pipeline's rates cannot exceed the applicable
index ceiling level or a level justified by the pipeline's cost of service.
 
EMPLOYEES
 
    At December 31, 1998, the Company had 152 full-time employees and 4
part-time employees. The Company has 137 employees in its gas compression
operations, 4 employees in its oil and gas operations and 15 employees in its
general corporate area. None of these employees are represented by a union or
labor organization. The Company considers its relations with these employees to
be satisfactory.
 
ITEM 3.  LEGAL PROCEEDINGS
 
    None.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    On March 2, 1998, the Company's stockholders were issued a special proxy to
consider and vote on proposals to (i) amend the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
Common Stock from 40,000,000 shares to 60,000,000 shares, and (ii) amend the
Company's Certificate of Incorporation to change the name of the Company to "OEC
Compression Corporation". On or around March 9, 1998 the Company received
written consents from four shareholders representing approximately 16,176,000
shares constituting 56% of the outstanding shares of company common stock. As a
consequence, both resolutions were adopted as of such date.
 
                                       13
<PAGE>
ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT
 
    Set forth below is certain information with respect to each executive
officer of the Company. Executive officers are elected by the Board of Directors
of the Company and serve at its discretion.
 
<TABLE>
<CAPTION>
NAME                                                   AGE                    POSITION
-------------------------------------------------      ---      -------------------------------------
<S>                                                <C>          <C>
Richard D. Brannon...............................          40   Chairman of the Board
 
Matthew S. Ramsey................................          44   President/Chief Executive Officer
 
James W. Bryant..................................          65   Chief Operating Officer
 
Jack D. Brannon..................................          42   Senior Vice President/Chief Financial
                                                                Officer
</TABLE>
 
    The following is a brief description of the business background of each of
the executive officers of the Company.
 
    Mr. Richard Brannon has served as Chairman of the Board since December 19,
1996. Mr. Brannon is President of Brannon Oil & Gas, Inc., an independent energy
investment company. Mr. Brannon is an investor in oil and gas production,
natural gas pipelines, real estate and equity investments. Mr. Brannon served as
a director of Cornerstone Natural Gas, Inc., a natural gas pipeline and
processing company, until its sale to El Paso Natural Gas Company in 1996. Mr.
Brannon also previously served as an Advisory Board member to First Interstate
Bank, Fort Worth. Mr. Brannon has a B.S. degree in Petroleum Engineering from
the University of Texas at Austin and is a Certified Professional Engineer. Mr.
Brannon's brother serves as the Company's Senior Vice President and Chief
Financial Officer.
 
    Mr. Ramsey has served as Chief Executive Officer since December 19, 1996.
Mr. Ramsey served as Vice President of Nuevo Energy Company, an independent
energy company, from 1990 to 1996. From 1990 to 1996, he was employed by Torch
Energy Advisors Incorporated, a company providing management and operations
services to energy companies including Nuevo Energy Company, last serving as a
director and Executive Vice President. Mr. Ramsey joined Torch Energy as Vice
President of Land and was named Senior Vice President of Land in 1992. Prior to
joining Torch Energy, Mr. Ramsey was self-employed for eleven years. Mr. Ramsey
holds a B.B.A. in Marketing from the University of Texas at Austin and a J.D.
from South Texas College of Law. Mr. Ramsey is a graduate of Harvard Business
School's Advanced Management Program. He is licensed to practice law in the
State of Texas.
 
    Mr. James W. Bryant has served as Chief Operating Officer since December 18,
1998. Mr. Bryant brings 40 years of management and engineering experience in the
natural gas industry to the Company. Mr. Bryant is presently President of
Cardinal Resources, Inc., an engineering and management consulting company.
Prior to Cardinal Resources, Inc., Mr. Bryant was founder and Chief Executive
Officer of Endevco, Inc., predecessor to Cornerstone Natural Gas, Inc. Mr.
Bryant has a B.S. in Chemical Engineering from Louisiana Tech University and is
a Registered Professional Engineer in Texas and Louisiana.
 
    Mr. Jack Brannon has served as Senior Vice President and Chief Financial
Officer since January 1, 1997. Previously, he was employed by BOK Capital
Services Corporation as Senior Vice President (1994 - 1996) and its affiliate,
Bank of Oklahoma, N.A., as Vice President, Energy Group (1984 - 1996). He holds
three degrees from the University of Texas at Austin: a B.S. with honors, an
M.A. and an M.B.A. Mr. Brannon's brother serves as the Chairman of the Board of
the Company.
 
                                       14
<PAGE>
                                    PART II
 
ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
       STOCKHOLDER MATTERS AND SELECTED FINANCIAL DATA
 
    As of March 24, 1999, the Company had approximately 1,213 holders of record
of its common stock. Effective September 3, 1998, the Company's common stock was
approved for listing on the American Stock Exchange (AMEX) under the symbol
"OOC". The table below reflects the high and low bid prices per share of the
Company`s common stock for each calendar quarter during 1998 and 1997 as quoted
by AMEX since September 3, 1998 and NASDAQ for prior periods. The bid quotations
reflect inter-dealer prices without adjustment for retail markups, markdowns or
commissions and may not reflect actual transactions.
 
<TABLE>
<CAPTION>
                                                                                          1998                  1997
                                                                                  --------------------  --------------------
QUARTER                                                                             HIGH        LOW       HIGH        LOW
--------------------------------------------------------------------------------  ---------  ---------  ---------  ---------
<S>                                                                               <C>        <C>        <C>        <C>
First...........................................................................      2.750      2.063      1.688      1.188
Second..........................................................................      2.563      2.063      2.500      1.531
Third...........................................................................      2.313      1.688      2.625      2.063
Fourth..........................................................................      1.938      1.063      2.750      2.188
</TABLE>
 
    The Company has not paid any cash dividends on shares of its common stock
since its organization and currently intends to continue its policy of retaining
earnings, if any, for the Company's operations. The Company is prohibited by
certain loan agreement provisions from paying dividends.
 
SELECTED FINANCIAL DATA
 
    Certain selected financial data is presented for each of the five years
ended December 31:
 
<TABLE>
<CAPTION>
                                                         1998         1997         1996        1995          1994
                                                       --------    ----------     -------    ---------     ---------
<S>                                                    <C>         <C>            <C>        <C>           <C>
                                                            (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
Total revenues......................................   $ 26,242    $   16,027     $ 9,443    $   9,943     $  13,676(4)
Net Income (loss)...................................         12(1)     (1,687)(2)    (160)      (1,438)(3)     1,049(4)
Basic and dilutive net income (loss) per common
  share.............................................        .00          (.07)       (.01)        (.11)          .08
Total Assets........................................    106,921        84,365      25,810       26,041        27,914
Long-term debt:
  Current portion...................................         --             5         177          682         2,263
  Long-term portion.................................     58,829        39,076       5,362        9,000         6,967
Obligation under capital lease......................      1,673           464          --           --            --
</TABLE>
 
------------------------
 
(1) Includes a provision to reduce the carrying value of other equipment of
    $162,000 and a charge-off of the Company's unamortized original
    organizational costs of $112,000.
 
(2) Includes recognition of contingent warrant expense of $1,440,000.
 
(3) Includes a provision to reduce the carrying value of certain compression
    equipment of $1,790,000.
 
(4) Includes gain on sale of oil and gas properties of $1,880,000.
 
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
    On March 6, 1998, the Company merged its two compression operations,
Ouachita and Equity Compressors, under the Ouachita name. The merger allows the
Company to promote Ouachita as a full
 
                                       15
<PAGE>
contract compression service provider as well as rental-with-maintenance
services to operators of producing natural gas wells and gas gathering systems.
 
    On May 20, 1998, the Company announced the acquisition of approximately
15,600 horsepower through two separate transactions. The acquisitions, one under
a Purchase/Leaseback arrangement and the other a 100% asset purchase of a
competitor, are in keeping with the Company's strategic plan for growth. The
latter allowed the Company to establish a presence in the Fort Worth Basin of
Texas.
 
    The Company reported net income of $12,000 in 1998 due principally to
increased levels of compression equipment deployed on rental-with-maintenance
and contract compression jobs. The sources of this growth are deployment of the
existing fleet, acquisitions of equipment in the open market and the acquisition
of working compression equipment. Total compression horsepower deployed on
contracts ("earning compression horsepower") as of December 31, 1998 had
increased 22% from December 31, 1997 levels.
 
    In 1999, the Company will continue to focus on the expansion of its
compressor services operation (rental and contract compression) through
increased utilization of its existing compressor fleet as well as from fleet
additions through 1) individual unit acquisitions 2) Purchase/Leaseback
transactions with gas producers and 3) acquisitions of competing compression
companies.
 
CAPITAL RESOURCES AND LIQUIDITY
 
    On March 30, 1998, the Company replaced its previously existing $20 million
senior bank credit facility with a new senior bank credit facility. The initial
maximum commitment was $40 million, which can be expanded to $60 million with
the future addition of other participating financial institutions. The facility
is a borrowing base revolver effective through March 2000, converting to a
three-year term loan with a seven-year principal amortization. The December 31,
1998 borrowing base is $49 million but currently limited to the $40 million
commitment. The credit facility is collateralized by substantially all of the
assets of the Company with the exception of the Company's oil and gas properties
which have been pledged on Sunterra L.L.C.'s bank credit facility. At December
31, 1998, the available portion of the commitment was approximately $2 million.
 
    In December 1997, Sunterra L.L.C., entered into a new $10 million bank
revolving credit facility with borrowings limited to a borrowing base determined
on the value of the underlying oil and gas reserves. In December 1999, the
revolver converts to a four-year term loan. The credit facility is
collateralized by the Sunterra L.L.C.'s oil and gas properties. The December 31,
1998 borrowing base is $2 million. At December 31, 1998, the available portion
of the borrowing base was approximately $383,000.
 
    In July 1997, the Company entered into senior subordinated term note
agreements with The Prudential Insurance Company of North America ("Prudential")
for $15 million and $5 million. The $15 million term note agreement contained a
warrant purchase agreement authorizing Prudential to purchase up to 1 million
shares of the Company's common stock at an initial exercise price of $2.80 per
share until the termination date of the related term note. The fair value of the
warrants, $870,000, was determined using the Black-Scholes model and was treated
as an addition to paid-in capital. The resulting term note amount of $14,130,000
will be accreted over the 10-year term using its effective interest rate of
11.14%. The Company's cash pay-out over the term of the note is at the stated
rate of 10.15%.
 
    The Company relies primarily on the collection of revenues associated with
rental-with-maintenance and contract compression contracts to fund the Company's
working capital and capital expenditure needs. Borrowings from the Company's
senior credit facility are used primarily to finance the growth of the Company.
The coordination of the cash flow from operations and borrowings from the senior
credit facility allows the Company to optimize its cash flow. This cash
management strategy creates a cash deficit for financial reporting purposes
resulting from outstanding checks. At December 31, 1998, the Company had
outstanding checks in excess of its cash balance of approximately $1.3 million.
 
                                       16
<PAGE>
    Net cash provided by operating activities increased to $3.7 million in 1998
from $2.2 million in 1997 primarily due to increases in compressor rentals and
service fees revenues. Net cash used in investing activities decreased to $23.7
million in 1998 from $36.7 million in 1997, the latter due to a $23.8 million
investment for the acquisition of Ouachita in 1997. This was offset by increased
levels of additions to compressor and other equipment and additions to oil and
gas properties. Net cash provided by financing activities decreased to $20
million in 1998 from $34.5 million in 1997, the latter due to the debt financing
of the Ouachita acquisition in 1997. At December 31, 1998, the Company had
current assets of approximately $9.9 million and current liabilities of $5.6
million. The Company anticipates that 1999 cash flow from operations, as well as
the Company's senior bank credit facility will be sufficient to fund the
Company's working capital and capital expenditure needs. At December 31, 1998
the Company was out of compliance with certain financial covenants in two of its
credit facilities. The non-compliance was waived by the lending institutions.
 
RESULTS OF OPERATIONS
 
1998 VERSUS 1997
 
    In 1998, compressor rental revenues increased $10.8 million or 87% from 1997
due to growth associated with the acquisition of working compression equipment
and internal growth. Revenues from compressor sales and remanufacturing services
decreased $271,000 or 28% in 1998 from 1997. This decrease reflects the
concentration of shop labor on maintaining and enhancing the rental/contract
compressor fleet. Gross profit from compressor sales and remanufacturing
services decreased to $36,000 in 1998 from $38,000 in 1997 due to the
recognition of approximately $72,000 of expenses related to third-party service
work classified as inventory at December 31, 1997, which were determined to be
unrecoverable in 1998.
 
    Compressor operating costs of $9.7 million incurred on rental and contract
units increased 92% as a result of the increased horsepower on lease. Compressor
operating cost growth exceeds revenue growth principally due to incremental
costs associated with installing additional equipment as well as start-up costs
in new operating regions.
 
    Revenues from oil and gas sales decreased $276,000 or 10% in 1998 from 1997
primarily due to a 54% decrease in the volume of oil sold and a decrease in the
average prices received by the Company. This decrease in oil volume is the
result of the sale of a secondary oil recovery project located in Texas. The
average price per Bbl decreased from $19.35 in 1997 to $13.51 in 1998. The
volume of natural gas sold by the Company increased 60% during 1998 when
compared to 1997 due to the successful drilling of two development wells and the
properties contributed by Prize. The average price of natural gas received by
the Company decreased 20% from $2.65 per Mcf in 1997 to $2.11 per Mcf in 1998.
 
    Oil and gas operating costs for 1998 are 9% lower than the same period in
1997 resulting from the sale of the secondary oil recovery project.
 
    Depletion, depreciation and amortization of the composite cost of evaluated
oil and gas properties is computed on the units-of-production method based on
estimated proved reserves. The 1998 expense related to oil and gas properties is
47% higher when compared to 1997 due to the higher volumes of gas produced.
Depreciation of the Compressor fleet increased 50% from 1997 due to the growth
of the compressor fleet through acquisition and additions to the existing fleet.
Associated with its acquisition of Ouachita, the Company changed its estimate of
useful lives for certain of its compressor equipment to 20 years with
capitalized overhauls on compressor rental equipment depreciated over 5 years.
The effect of these changes decreased the 1997 loss from operations, net loss
and loss per share (dilutive) by $265,000, $165,000, and $.01, respectively.
 
    General and administrative costs increased 5% to $4,299,000 when compared to
1997. The increase relates to expenses associated with the Company's increased
level of operations. However, general and
 
                                       17
<PAGE>
administrative expenses as a percentage of total revenues was 16% as compared to
26% for the same period ended December 31, 1997.
 
    Interest expense increased to $4,536,000 in 1998 from $1,884,000 in 1997 due
to increased debt balances to finance the acquisition of Ouachita, and
additional borrowings to finance the growth of the compressor fleet. During
1998, the Company has purchased a number of idle compressor units as well as
compressor parts due to a favorable market price for the equipment with
expectation of deploying that equipment for future compression service
contracts. The natural lag between purchase and contract revenue generation has
contributed to the increase in interest expense.
 
    Unamortized debt issue cost of approximately $70,000 associated with the
prior credit facility were expensed in the first quarter of 1998 as an
extraordinary item.
 
1997 VERSUS 1996
 
    In 1997, compressor rental revenues increased $6.0 million or 92% from 1996
due to the acquisition of Ouachita, other additions to the Company's rental
fleet, and increased rental income on the existing fleet. The overall compressor
horsepower utilization rate of 80% remained relatively constant when compared to
81% in 1996. Revenues from compressor sales and remanufacturing services
decreased $198,000 or 17% in 1997 from 1996. This decrease reflects the
Company's concentration of shop facilities on maintenance of the existing rental
fleet. Gross profit from compressor sales and remanufacturing services decreased
to $38,000 in 1997 from $283,000 in 1996 due to decreased margins on compressor
sales, remanufacturing and other sales when compared to 1996.
 
    Compressor operating costs of $5,063,000 increased 92% when compared to 1996
as a result of increased horsepower on leases from the existing fleet and the
fleet size increase due to the Ouachita acquisition.
 
    Revenues from oil and gas sales increased $864,000 or 47% in 1997 from 1996
primarily due to a 68% increase in the volume of oil sold by the Company. This
increase in oil volume resulted in approximately $409,000 of the total increase
in oil and gas revenues during 1997 and is the result of the successful
completion of two producing oil wells and response of a secondary oil recovery
project located in Texas.
 
    The volume of natural gas sold by the Company increased by 20% during 1997
when compared to 1996 due to the successful drilling of two development wells
and the properties contributed by Prize. The average price of natural gas
received by the Company increased 12% from $2.36 per Mcf in 1996 to $2.65 per
Mcf in 1997. The average price per Bbl remained relatively constant at $19.35 in
1997 compared to $19.32 in 1996.
 
    Oil and gas operating costs for 1997 are 56% higher than for the same period
in 1996 due to an increase of production taxes and expenses related to the
increase in the number of producing wells. However, as a percentage of revenues,
operating costs increased 2% in 1997 compared to 1996.
 
    Depletion, depreciation and amortization of the composite cost of evaluated
oil and gas properties is computed on the units-of-production method based on
estimated proved reserves. The 1997 expense related to oil and gas properties is
32% higher when compared to 1996 due to the higher volumes of oil and gas
produced. Depreciation of the Compressor fleet increased 65% from 1996 due to
the acquisition of the Ouachita fleet. Associated with its acquisition of
Ouachita, the Company changed its estimate of useful lives for certain of its
compressor equipment to 20 years with capitalized overhauls on compressor rental
equipment depreciated over 5 years.
 
    The company incurred $404,000 of inventory write-downs associated with the
closing of the shop facilities at December 31, 1997.
 
    General and administrative costs increased 98% to $4,110,000 when compared
to 1996. The increase relates to the relocation of the Company's corporate
office, severance packages paid to former employees
 
                                       18
<PAGE>
and expenses associated with the Company's increased level of operations
subsequent to the acquisition of Ouachita.
 
    Shop closing costs of $307,000 consisted of severance packages of $143,000,
transfer bonuses of $23,000, freight and miscellaneous costs of $130,000 and
loss on sale of facilities of approximately $11,000.
 
    Interest expense increased to $1,884,000 in 1997 from $927,000 in 1996 due
to increased debt balances primarily to finance the acquisition of Ouachita.
 
ACCOUNTING PRONOUNCEMENTS
 
    In December 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share," effective January 1, 1997,
resulting in the replacement of primary earnings per share ("EPS") with a newly
defined basic EPS and modification to the computation of dilutive EPS. As a
result, all prior period EPS data has been restated to conform to the provisions
of this statement. (See Note 1 to the consolidated financial statements). In
addition, in December 1997, the Company adopted SFAS No. 129, "Disclosure of
Information about Capital Structure," resulting in no material impact. In June
1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" effective for fiscal years beginning
after December 15, 1997. These statements have not had a material effect on the
Company's financial position or results of operations.
 
YEAR 2000
 
    The Company has prepared a Year 2000 Plan and has formed a committee to
implement this plan. The committee has reviewed all Company hardware, software
and embedded systems for Year 2000 compliance. As part of the review, the
Company tested all critical compressor equipment and systems to the extent
possible. The Company incurred no material costs in testing its internal
compressor equipment and systems. The Company will send letters to significant
vendors, customers and other third-party providers to ascertain compliance on
the part of those outside parties for which non-compliance would significantly
affect the Company's operations. In the event the Company determines a
third-party to be non-compliant and believes such non-compliance to be a
significant risk, the Company will develop a contingency plan for each such
third-party. At December 31, 1998 the committee was approximately 25% complete
with regard to implementing the Company's Year 2000 plan with regard to
third-parties. The Company anticipates that the plan will be completed by
September 30, 1999. The Company expects that implementation of its Year 2000
Plan as described herein will ensure that the Year 2000 issue will have no
material impact on the Company's operating efficiency.
 
EFFECTS OF INFLATION
 
    In recent years inflation has not had a significant impact on the Company's
operations or financial condition. The impact of inflation on the Company in the
future will depend on the relative increases, if any, the Company may realize
from its compressor sales and rental rates and the selling price of its oil and
gas.
 
ITEM 7.  FINANCIAL STATEMENTS
 
    The Company's Consolidated Financial Statements required by this Item begin
at page F-1 following page 24 hereof.
 
                                       19
<PAGE>
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
    On July 16, 1998, the Executive Committee of the Board of Directors and the
Audit Committee of the registrant determined to engage Arthur Andersen LLP as
its independent auditors for the fiscal year ending December 31, 1998. On July
24, 1998, the registrant orally notified PricewaterhouseCoopers LLP ("PWC"); its
independent auditor for the fiscal years ending December 31, 1997 and 1996 of
this determination and that PWC would not continue to be engaged for the fiscal
year ending December 31, 1998. The determination to replace PWC was made by the
Audit Committee and the Executive Committee of the Board of Directors of the
registrant.
 
    The reports of PWC for the fiscal years ended December 31, 1997 and 1996
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
fiscal years ended December 31, 1997 and 1996 and during the period from
December 31, 1997 to July 24, 1998, there were no disagreements between the
registrant and PWC concerning accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
 
                                       20
<PAGE>
                                    PART III
 
ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
         REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
 
    Information required by this item with respect to the Company's Directors
and compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated by reference to the Section entitled "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance", respectively, of the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's 1999 annual meeting. The information
required by this item with respect to the Company's executive officers appears
at Item 4A of Part I of this Form 10-KSB.
 
ITEM 10.  EXECUTIVE COMPENSATION
 
    Information required by this item is incorporated by reference to the
Section entitled "Compensation of Directors and Executive Officers" of the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's 1999 annual meeting.
 
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    Information required by this item is incorporated by reference to the
Section entitled "Voting Securities and Principal Holders Thereof" of the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's 1999 annual meeting.
 
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    Information required by this item is incorporated by reference to the
Section entitled "Certain Relationships and Related Transactions" of the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's 1999 annual meeting.
 
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
 
    (a) Exhibits:
 
<TABLE>
<C>        <S>
      2.1  Agreement and Plan of Merger dated as of May 15, 1997 by and among the
           Company, OEC Acquisition Corporation, Ouachita Energy Corporation, and Dennis
           W. Estis.
 
      2.2  First Amendment to Agreement and Plan of Merger dated as of July 30, 1997 by
           and among the Company, OEC Acquisition Corporation, Ouachita Energy
           Corporation, and Dennis W. Estis.
 
      2.3  Asset Purchase and Sales Agreement dated as of May 15, 1997 by and among the
           Company, OEC Acquisition Corporation, Ouachita Energy Partners, Ltd.,
           Ouachita Compression Partners, L.L.C. and Dennis W. Estis.
 
      2.4  First Amendment to Asset Purchase and Sales Agreement dated as of July 30,
           1997 by and among the Company, OEC Acquisition Corporation, Ouachita Energy
           Partners, Ltd., Ouachita Compression Partners, L.L.C. and Dennis W. Estis.
 
      3.1  Certificate of Incorporation. Previously filed as Exhibit 3.1 to the
           Company's Registration Statement on Form S-8 (File No. 333-23925), which
           Exhibit is incorporated herein by reference thereto.
 
      3.2  Amendment to Certificate of Incorporation. Previously filed as Exhibit 3.2 to
           the Company's Registration Statement on Form S-8 (File No. 333-23925), which
           Exhibit is incorporated herein by reference thereto.
</TABLE>
 
                                       21
<PAGE>
<TABLE>
<C>        <S>
      3.3  Amended and Restated By-Laws. Incorporated herein by reference thereto.(1)
 
      4.1  Note Agreement dated July 31, 1997 by and between the Company and Prudential
           Life Insurance Company of America.
 
      4.2  Subordinated Note and Warrant Purchase Agreement dated July 31, 1997 by and
           between the Company and Prudential Life Insurance Company of America.
 
      4.3  Registration Rights Agreement dated as of July 31, 1997 by and between the
           Company and Prudential Life Insurance Company of North America.
 
      4.4  Participation Agreement dated July 31, 1997 by and among the Company,
           Prudential Life Insurance Company of North America and certain stockholders
           of the Company.
 
      4.5  Registration Rights Agreement dated as August 6, 1997 by and between the
           Company and certain stockholders named therein.
 
      4.6  Common Stock Purchase Warrant dated July 31, 1997 issued by the Company to
           Prudential Life Insurance Company of America.
 
     10.1  Equity Compressors Leasing 1990 Limited Partnership dated July 31, 1990
           between Equity Compressors, Inc. and Limited Partners. Previously filed as
           Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended
           December 31, 1991, which Exhibit is incorporated herein by reference thereto.
 
     10.2  Employment Agreement dated as of June 11, 1993, between Don E. Smith and
           Mid-South Compressors, Inc. Previously filed as Exhibit 10.5 to the Company's
           Annual Report on Form 10-KSB for the year ended December 31, 1993, which
           Exhibit is incorporated herein by reference thereto.(2)
 
     10.3  Amended and Restated Employee Stock Option Plan. Previously filed as Exhibit
           4.8 to the Company's Registration Statement on Form S-8 (File No. 333-23925),
           which Exhibit is incorporated herein by reference thereto.(2)
 
     10.4  Hawkins Energy Corporation 1994 Directors Stock Option Plan. Previously filed
           as Exhibit 10.8 to the Company's Annual Report on Form 10-KSB for the year
           ended December 31, 1994, which Exhibit is incorporated herein by reference
           thereto.(2)
 
     10.5  Hawkins Energy Corporation 401(k) Plans. Previously filed as Exhibit 4(c) to
           the Company's Registration Statement on Form S-8 (File No. 33-74640), which
           Exhibit is incorporated herein by reference thereto.(2)
 
     10.6  Hawkins Energy Corporation Revolving Credit and Term Loan Agreement dated
           September 1, 1995. Previously filed as Exhibit 10.10 to the Company's Annual
           Report on Form 10-KSB for the year ended December 31, 1995, which Exhibit is
           incorporated herein by reference thereto.
 
     10.7  Hawkins Energy Corporation Director Stock Plan. Previously filed as Exhibit
           4.6 to the Company's Registration Statement on Form S-8 (File No. 333-23925),
           which Exhibit is incorporated herein by reference thereto.(2)
 
     10.8  Fifth Amended Revolving Credit Facility dated as of July 31, 1997 between the
           Company, certain of its subsidiaries and the Bank of Oklahoma, N.A.
           Previously filed as Exhibit 10.2 to the Company's Quarterly report on Form
           10-QSB for the period ended June 30, 1997, which exhibit is incorporated
           herein by reference thereto.
 
     10.9  Employment Agreement dated as of August 6, 1997 among Ouachita Energy
           Corporation, the Company and Dennis W. Estis. Previously filed as Exhibit
           10.3 to the Company's Quarterly report on Form 10-QSB for the period ended
           June 30, 1997, which exhibit is incorporated herein by reference thereto.(2)
</TABLE>
 
                                       22
<PAGE>
<TABLE>
<C>        <S>
    10.10  Employment Agreement dated as of August 6, 1997 among Ouachita Energy
           Corporation, the Company and Andy Payne. Previously filed as Exhibit 10.4 to
           the Company's Quarterly report on Form 10-QSB for the period ended June 30,
           1997, which exhibit is incorporated herein by reference thereto.(2)
 
    10.11  Employment Agreement dated as of August 6, 1997 among Ouachita Energy
           Corporation, the Company and Dan McCormick. Previously filed as Exhibit 10.5
           to the Company's Quarterly report on Form 10-QSB for the period ended June
           30, 1997, which exhibit is incorporated herein by reference thereto.(2)
 
    10.12  Revolving Credit Facility dated March 30, 1998 by and among Ouachita Energy
           Corporation, the Company and Bank of Scotland. Previously filed as Exhibit
           10.12 to the Company's Quarterly report on Form 10-QSB for the period ended
           June 30, 1998, which exhibit is incorporated herein by reference thereto.(2)
 
     21.1  Subsidiaries of the Registrant.(1)
 
     23.1  Consent of Independent Public Accountants.(1)
 
     23.2  Consent of Independent Public Accountants.(1)
 
   27      Financial Data Schedule.(1)
</TABLE>
 
------------------------
 
(1) Filed herewith.
 
(2) Management contract or agreement.
 
    (b) REPORTS ON FORM 8-K
 
    No reports on Form 8-K were filed for the three months ended December 31,
1998.
 
                                       23
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
<TABLE>
<S>                             <C>  <C>
                                OEC COMPRESSION CORPORATION
 
                                By:
                                     -----------------------------------------
                                                 Matthew S. Ramsey
                                         PRESIDENT, CHIEF EXECUTIVE OFFICER
DATE: March 29, 1999
 
                                By:
                                     -----------------------------------------
                                                  Jack D. Brannon
                                       SENIOR VICE PRESIDENT, CHIEF FINANCIAL
                                                      OFFICER
</TABLE>
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
 
    DATE: March 29, 1999
 
<TABLE>
<C>                             <S>                         <C>
    /s/ RICHARD D. BRANNON
------------------------------  Chairman of the Board and
      Richard D. Brannon          Director
 
    /s/ MATTHEW S. RAMSEY
------------------------------  President, Chief Executive
      Matthew S. Ramsey           Officer and Director
 
     /s/ JAMES W. BRYANT
------------------------------  Chief Operating Officer,
       James W. Bryant            Director
 
  /s/ CHARLES M. BUTLER, III
------------------------------  Director
    Charles M. Butler, III
 
       /s/ RAY C. DAVIS
------------------------------  Director
         Ray C. Davis
 
     /s/ DENNIS W. ESTIS
------------------------------  Director
       Dennis W. Estis
 
     /s/ JAMES D. FINLEY
------------------------------  Director
       James D. Finley
 
    /s/ NEAL A. HAWTHORNE
------------------------------  Director
      Neal A. Hawthorne
 
    /s/ CLIFFORD S. LEWIS
------------------------------  Director
      Clifford S. Lewis
 
       /s/ DON E. SMITH
------------------------------  Director
         Don E. Smith
 
    /s/ JON P. STEPHENSON
------------------------------  Director
      Jon P. Stephenson
 
     /s/ KELCY L. WARREN
------------------------------  Director
       Kelcy L. Warren
</TABLE>
 
                                       24
<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                -----
<S>                                                                                                          <C>
Report of independent public accountants...................................................................         F-2
 
Consolidated balance sheets................................................................................         F-4
 
Consolidated statements of operations......................................................................         F-5
 
Consolidated statements of changes in stockholders' equity.................................................         F-6
 
Consolidated statements of cash flows......................................................................         F-7
 
Notes to consolidated financial statements.................................................................         F-9
</TABLE>
 
                                      F-1
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Board of Directors and Stockholders of
OEC Compression Corporation
 
    We have audited the accompanying consolidated balance sheet of OEC
Compression Corporation (an Oklahoma Corporation) as of December 31, 1998, and
the related consolidated statements of operations, changes in 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 OEC Compression Corporation
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
 
                                          ARTHUR ANDERSEN LLP
 
Dallas, Texas
March 5, 1999
 
                                      F-2
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Board of Directors and Stockholders
OEC Compression Corporation
 
    We have audited the consolidated balance sheets of OEC Compression
Corporation, formerly Equity Compression Services Corporation ("the Company") as
of December 31, 1997 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1997. 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 audits.
 
    We conducted our audits 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1997 and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
 
                                          PricewaterhouseCoopers LLP
 
Tulsa, Oklahoma
March 30, 1998
 
                                      F-3
<PAGE>
                          OEC COMPRESSION CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                             ---------------------
                                                                                                1998       1997
                                                                                             ----------  ---------
                                                                                                (IN THOUSANDS)
<S>                                                                                          <C>         <C>
Current Assets:
  Cash and cash equivalents................................................................  $        7  $       1
  Accounts receivable, less allowance for doubtful accounts of $109 and $75 in 1998 and
    1997, respectively.....................................................................       3,309      2,782
  Interest receivable-related party........................................................          30          9
  Income tax receivable....................................................................          --        212
  Compressors and compressor parts inventory...............................................       6,293      2,674
  Other....................................................................................         300        273
                                                                                             ----------  ---------
    Total current assets...................................................................       9,939      5,951
 
Property and equipment, net (Note 5).......................................................      94,592     76,888
 
Notes receivable--related party............................................................         332        332
Goodwill and other intangibles, net of amortization of $409 in 1998 and
  $1,819 in 1997...........................................................................       2,057      1,175
Other assets, net..........................................................................           1         19
                                                                                             ----------  ---------
Total Assets...............................................................................  $  106,921  $  84,365
                                                                                             ----------  ---------
                                                                                             ----------  ---------
Current Liabilities:
  Current portion of long-term debt........................................................  $       --  $       5
  Current portion of capital lease obligations.............................................         319        251
  Accounts payable and accrued liabilities.................................................       5,290      4,435
                                                                                             ----------  ---------
    Total current liabilities..............................................................       5,609      4,691
 
Long-term debt.............................................................................      58,829     39,076
Capital lease obligations..................................................................       1,354        213
Deferred income taxes......................................................................      10,216     10,142
Other......................................................................................          89         90
                                                                                             ----------  ---------
Total Liabilities..........................................................................      76,097     54,212
                                                                                             ----------  ---------
Minority interest..........................................................................       2,032      1,418
Commitments (Note 11)
 
Stockholders' Equity:
  Preferred stock, $1.00 par value, 1,000,000
    shares authorized, none issued.........................................................          --         --
  Common stock, $.01 par value, 60,000,000 shares authorized, 29,171,211 and 29,080,710
    shares issued and 29,162,044 and 29,071,643 outstanding in 1998 and 1997,
    respectively...........................................................................         291        290
  Additional paid-in capital...............................................................      31,841     31,797
  Accumulated deficit......................................................................      (3,331)    (3,343)
  Treasury stock, at cost (9,167 and 9,067 shares in 1998 and 1997, respectively)..........          (9)        (9)
                                                                                             ----------  ---------
Total stockholders' equity.................................................................      28,792     28,735
                                                                                             ----------  ---------
Total Liabilities and Stockholders' Equity.................................................  $  106,921  $  84,365
                                                                                             ----------  ---------
                                                                                             ----------  ---------
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                      F-4
<PAGE>
                          OEC COMPRESSION CORPORATION
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                   -------------------------------
                                                                                     1998       1997       1996
                                                                                   ---------  ---------  ---------
                                                                                      (IN THOUSANDS, EXCEPT FOR
                                                                                         PER SHARE AMOUNTS)
<S>                                                                                <C>        <C>        <C>
Revenues:
  Compressor rentals and service fees............................................  $  23,125  $  12,363  $   6,445
  Compressor sales and remanufacturing...........................................        708        979      1,177
  Oil and gas sales..............................................................      2,409      2,685      1,821
                                                                                   ---------  ---------  ---------
  Total revenues.................................................................     26,242     16,027      9,443
                                                                                   ---------  ---------  ---------
Operating Expenses:
  Operating costs-compressors....................................................      9,700      5,063      2,643
  Cost of compressor sales and remanufacturing...................................        672        941        894
  Operating costs-oil and gas....................................................        728        804        516
  Depreciation, depletion and amortization.......................................      5,647      3,605      2,096
  Inventory write-down...........................................................         --        404         --
  Shop closing costs.............................................................         --        307         --
  General and administrative.....................................................      4,299      4,110      2,080
  Amortization of intangibles....................................................        323         82        105
  Provision to reduce the carrying value of other equipment......................        162         --         --
                                                                                   ---------  ---------  ---------
    Total expenses...............................................................     21,531     15,316      8,334
                                                                                   ---------  ---------  ---------
Income from operations...........................................................      4,711        711      1,109
                                                                                   ---------  ---------  ---------
Other income (expense):
  Gain (loss) on sale of assets..................................................        (22)        10       (437)
  Interest and other income......................................................        122         52         26
  Interest expense...............................................................     (4,536)    (1,884)      (927)
  Contingent warrant expense.....................................................         --     (1,440)        --
  Minority interest in results of oil and gas operations.........................       (146)       (60)        --
                                                                                   ---------  ---------  ---------
                                                                                      (4,582)    (3,322)    (1,338)
                                                                                   ---------  ---------  ---------
Net income (loss) before income taxes and extraordinary item.....................        129     (2,611)      (229)
Income tax (expense) benefit.....................................................        (75)       924         69
                                                                                   ---------  ---------  ---------
Net income (loss) before extraordinary item......................................         54     (1,687)      (160)
 
Extraordinary item:
  Write off of unamortized debt issue costs on debt retirement (net of $28
    tax).........................................................................        (42)        --         --
                                                                                   ---------  ---------  ---------
Net income (loss)................................................................  $      12  $  (1,687) $    (160)
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Basic and dilutive net income (loss) before extraordinary item
  per common share...............................................................  $     .00  $    (.07) $    (.01)
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Extraordinary item...............................................................  $     .00  $     .00  $     .00
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Basic and dilutive net income (loss) per common share............................  $     .00  $    (.07) $    (.01)
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                      F-5
<PAGE>
                          OEC COMPRESSION CORPORATION
 
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                                       DEFERRED
                                                               ADDITIONAL    RETAINED                  EXPENSE--
                                                    COMMON       PAID-IN     EARNINGS     TREASURY    CONTINGENT
                                                     STOCK       CAPITAL     (DEFICIT)      STOCK      WARRANTS      TOTAL
                                                  -----------  -----------  -----------  -----------  -----------  ---------
<S>                                               <C>          <C>          <C>          <C>          <C>          <C>
Balances, December 31, 1995.....................   $     130    $  12,114    $  (1,448)   $     (98)   $      --   $  10,698
  Sale of stock
    (8,000,000 shares)..........................          80        4,138           --           --           --       4,218
  Issuance of contingent warrants...............          --        1,440           --           --       (1,440)         --
  Sale of treasury stock........................
    (78,200 shares).............................          --           --          (48)          89           --          41
  Net loss......................................          --           --         (160)          --           --        (160)
                                                       -----   -----------  -----------         ---   -----------  ---------
Balances, December 31, 1996.....................         210       17,692       (1,656)          (9)      (1,440)     14,797
                                                       -----   -----------  -----------         ---   -----------  ---------
  Exercise of stock options.....................           1           73           --           --           --          74
  Issuance of shares in connection with Ouachita
    acquisition
    (7.6 million shares)........................          76       12,464           --           --           --      12,540
  Issuance of shares in connection with
    settlement of liability (Note 2)............           3          698           --           --           --         701
  Vesting of contingent warrants................          --           --           --           --        1,440       1,440
  Warrants issued in connection with secured
    senior subordinated
    term note...................................          --          870           --           --           --         870
  Net loss......................................          --           --       (1,687)          --           --      (1,687)
                                                       -----   -----------  -----------         ---   -----------  ---------
Balances, December 31, 1997.....................         290       31,797       (3,343)          (9)          --      28,735
                                                       -----   -----------  -----------         ---   -----------  ---------
  Exercise of stock options.....................           1           44           --           --           --          45
  Net Income....................................          --           --           12           --           --          12
                                                       -----   -----------  -----------         ---   -----------  ---------
Balances, December 31, 1998.....................   $     291    $  31,841    $  (3,331)   $      (9)   $      --   $  28,792
                                                       -----   -----------  -----------         ---   -----------  ---------
                                                       -----   -----------  -----------         ---   -----------  ---------
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                      F-6
<PAGE>
                          OEC COMPRESSION CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                  ---------------------------------
                                                                                     1998        1997       1996
                                                                                  ----------  ----------  ---------
                                                                                           (IN THOUSANDS)
<S>                                                                               <C>         <C>         <C>
Cash flows from operating activities:
  Net income (loss).............................................................  $       12  $   (1,687) $    (160)
  Adjustments to reconcile net income (loss) to net cash provided by operating
    activities:
  Depletion, depreciation, and amortization.....................................       5,970       3,687      2,201
  Deferred taxes................................................................         102        (709)      (131)
  Contingent warrant expense....................................................          --       1,440         --
  Minority interest in results of oil and gas operations........................         146          60         --
  Other.........................................................................         276         424        437
Changes in operating assets and liabilities:
  Accounts and notes receivable.................................................        (535)     (1,131)       728
  Compressors and parts inventory...............................................      (2,706)       (209)       (18)
  Accounts payable and accrued liabilities......................................         272         720        (47)
  Other.........................................................................         189        (397)       124
                                                                                  ----------  ----------  ---------
      Net cash provided by operating activities.................................       3,726       2,198      3,134
                                                                                  ----------  ----------  ---------
Cash flows from investing activities:
  Acquisitions of compressor and other
        equipment...............................................................     (21,056)    (11,788)    (3,580)
  Acquisition of Subsidiary.....................................................          --     (23,831)        --
  Proceeds from sale of compressor,
    other equipment and gas properties..........................................         846         353        898
  Additions to oil and gas properties...........................................      (2,241)       (877)      (732)
  Increase in goodwill and other assets.........................................      (1,275)       (525)        (3)
                                                                                  ----------  ----------  ---------
      Net cash used in investing activities.....................................     (23,726)    (36,668)    (3,417)
                                                                                  ----------  ----------  ---------
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                      F-7
<PAGE>
                          OEC COMPRESSION CORPORATION
 
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                                 ---------------------------------
                                                                                    1998       1997        1996
                                                                                 ----------  ---------  ----------
                                                                                          (IN THOUSANDS)
<S>                                                                              <C>         <C>        <C>
Cash flows from financing activities:
  Sale of treasury stock.......................................................          --         --          41
  Payments of capital lease obligations........................................        (420)      (144)         --
  Proceeds of long-term debt...................................................      45,321     40,336       6,752
  Payments on long-term debt...................................................     (25,040)    (5,805)    (10,895)
  Proceeds of stock issuance...................................................          45         74       4,218
  Minority interest capital contributions......................................         100         --          --
                                                                                 ----------  ---------  ----------
    Net cash provided by financing activities..................................      20,006     34,461         116
                                                                                 ----------  ---------  ----------
  Net increase (decrease) in cash and cash equivalents.........................           6         (9)       (167)
  Cash and cash equivalents
    beginning of year..........................................................           1         10         177
                                                                                 ----------  ---------  ----------
  Cash and cash equivalents
    end of year................................................................  $        7  $       1  $       10
                                                                                 ----------  ---------  ----------
                                                                                 ----------  ---------  ----------
  Supplemental disclosure of cash flow information:
    Interest paid..............................................................  $    4,062  $   1,646  $      947
                                                                                 ----------  ---------  ----------
                                                                                 ----------  ---------  ----------
    Income taxes paid..........................................................  $       --  $      35  $       48
                                                                                 ----------  ---------  ----------
                                                                                 ----------  ---------  ----------
  Non-cash investing and financing activities:
    Issuance of common stock in connection with acquisition of subsidiary......          --  $  12,540          --
    Capital leases assumed in connection with acquisition of
      subsidiary...............................................................          --  $     608          --
    Issuance of warrants in
      Connection with secured senior
      subordinated term note...................................................          --  $     870          --
    Issuance of common stock in connection with settlement of liability (Note
      2).......................................................................          --  $     701          --
    Contribution of oil and gas properties by minority interest owner..........  $      368  $   1,358          --
    Capital leases of compressor equipment.....................................  $    1,629         --          --
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                      F-8
<PAGE>
                          OEC COMPRESSION CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
NATURE OF BUSINESS
 
    OEC Compression Corporation, formerly Equity Compression Services
Corporation, formerly Hawkins Energy Corporation (the "Company") is engaged in
the leasing, remanufacturing and direct sale of gas compression equipment to
operators of producing natural gas wells and gas gathering systems and in the
production of natural gas and oil. Its principal geographical operating areas
lie within the states of Alabama, Mississippi, Louisiana, Oklahoma, Arkansas,
Kansas and Texas.
 
PRINCIPLES OF CONSOLIDATION
 
    The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries, Ouachita Energy Corporation ("Ouachita"), Equity
Leasing Corporation, Sunterra Energy Corporation ("Sunterra") and its 73% owned
oil and gas venture Sunterra Petroleum Company, L.L.C. ("Sunterra L.L.C."). All
intercompany transactions have been eliminated.
 
CASH EQUIVALENTS
 
    The Company includes in cash equivalents all investments with original
maturities of three months or less at the date of purchase, which are readily
convertible into known amounts of cash.
 
COMPRESSORS AND COMPRESSOR PARTS INVENTORY
 
    Compressors and compressor parts are carried at the lower of cost or market,
using specific identification of costs and weighted average costs, respectively.
At December 31, compressor and compressor parts inventory consisted of:
 
<TABLE>
<CAPTION>
                                                                     1998       1997
                                                                   ---------  ---------
                                                                      (IN THOUSANDS)
<S>                                                                <C>        <C>
Compressor Work in Progress......................................  $   2,844  $     612
Cylinders........................................................      1,475        743
Engines..........................................................        763        269
Parts and Supplies...............................................      1,211      1,050
                                                                   ---------  ---------
                                                                   $   6,293  $   2,674
                                                                   ---------  ---------
                                                                   ---------  ---------
</TABLE>
 
OIL AND GAS OPERATIONS
 
    The Company through its wholly owned subsidiary, Sunterra, entered into a
venture with Prize Petroleum, L.L.C. ("Prize") of Tulsa, Oklahoma, to form
Sunterra L.L.C. Sunterra L.L.C. was capitalized with all of the Company's oil
and gas properties and oil and gas properties contributed by Prize valued at
$1,826,000 through December 31, 1998. Sunterra L.L.C. will focus on oil and gas
acquisitions with development opportunities. At December 31, 1998, the Company
has an approximate 73% ownership in Sunterra L.L.C. which interest will decline
in the future to a minimum interest of 51% as Prize makes additional
contributions of oil and gas properties. The Company has effective control over
the operations of Sunterra L.L.C. and has consolidated its results since its
formation, October 1, 1997.
 
    The Company accounts for its oil and gas exploration and development
activities on the full cost method of accounting prescribed by the Securities
and Exchange Commission ("SEC"). Accordingly, all
 
                                      F-9
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
productive and non-productive costs incurred in connection with the acquisition,
exploration and development of oil and gas reserves are capitalized and
amortized using the units-of-production method based on proved oil and gas
reserves. Prior to 1997, the Company's oil and gas reserves were estimated
annually by independent petroleum engineers. Beginning in 1997, the Company's
oil and gas reserves are estimated by a petroleum engineer who is an employee of
the Company.
 
    The depreciation, depletion and amortization rates were $.51, $.43 and $.37
per equivalent Mcf produced in 1998, 1997 and 1996, respectively. As of December
31, 1998 and 1997, no unevaluated properties or major development projects were
excluded from the amortization base. In the event the unamortized cost of oil
and gas properties being amortized exceeds the full-cost ceiling as defined by
the SEC, the excess is charged to expense in the period during which such excess
occurs. Changes in reserve estimates or a decline in oil and natural gas prices
could cause the Company in the near-term to reduce the carrying value of its oil
and natural gas properties (see Note 13).
 
    Sales and abandonment's of properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized unless a significant amount of
reserves is involved. Since all of the Company's oil and gas properties are
located in the United States, a single cost center is used.
 
PROPERTY AND EQUIPMENT
 
    Compressor equipment held by the Company for rental purposes is stated at
cost and depreciated over the serviceable life of the equipment. Leased
compressor equipment is depreciated on a straight-line basis over an estimated
useful life of 12 to 20 years. Due to the nature of compressor equipment no
depreciation is recorded for idle equipment not under contract. Depreciation is
resumed when the compressor equipment is contracted. Associated with its
acquisition of Ouachita, the Company changed its estimate of useful lives for
certain of its compressor equipment to 20 years with capitalized overhauls on
compressor rental equipment depreciated over 5 years. The effect of these
changes decreased the 1997 loss from operations, net loss and loss per share
(dilutive) by approximately $265,000, $165,000 and $.01, respectively. Buildings
and other equipment are stated at cost and depreciated over their estimated
useful lives of 30 years and 5 years, respectively.
 
    Repairs and maintenance are charged to expense as incurred and major
overhauls and betterments are capitalized. Upon sale or retirement of equipment,
the cost of the equipment disposed of and the related accumulated depreciation
are removed from the accounts and the resulting gain or loss is reflected in
operations.
 
    Long-lived assets are evaluated for impairment whenever events or changes
and circumstances indicate that the carrying value of an asset may not be
recoverable. Assets determined to be impaired based on estimated undiscounted
future net cash flows are reduced to estimated fair value. Changes in such
estimates could cause the Company to reduce the carrying value of its property
and equipment and goodwill.
 
GOODWILL AND OTHER INTANGIBLES
 
    Goodwill is amortized using the straight-line method over the estimated
benefit periods of twenty-four to thirty years. Non-compete agreements are
amortized using the straight-line method over the life of the agreements of one
to three years. Debt issue costs are amortized using the straight-line method
over the life of the agreements ranging from 7 to 10 years.
 
                                      F-10
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH DEFICIT
 
    On March 10, 1998, the Company replaced its existing senior bank credit
facility with a new senior bank credit facility. The prior facility
automatically funded or withdrew the balance in the Company's bank account
daily. The new facility requires the Company to formally request advances to
fund operations. This change has caused the Company to incur a cash deficit for
financial reporting purposes due to outstanding checks which will be funded
through cash flow from operations or borrowings from the new facility. This cash
deficit is necessary to maximize the Company's cash flow efficiently and in no
way impairs the Company's ability to fund its daily operations. The cash deficit
is included in the Company's Balance Sheet in the Current Liabilities section
under the caption accounts payable and accrued liabilities. At December 31, 1998
the Company had outstanding checks in excess of its cash balance of
approximately $1.3 million.
 
GAS BALANCING
 
    The Company accounts for oil and gas revenue on the sales method--recording
revenues earned when gas is delivered. During such times as the Company's sales
of gas exceeds its percentage ownership in a well, such sales are recorded as
revenue unless total sales from the well have exceeded the Company's share of
total estimated reserves underlying the property, at which time such excess is
recorded as a liability. At December 31, 1998, based on the year-end price of
$1.99 per mcf, the Company estimates its balancing position to be approximately
$483,000 on under-produced properties and $432,000 on overproduced properties.
The Company's policy is to record lease operating costs from all wells to
correspond with the related recognition of revenue.
 
INCOME TAXES
 
    The Company uses Statement of Financial Accounting Standards ("SFAS") No.
109 "Accounting for Income Taxes." This standard requires the measurement of
deferred tax assets for deductible temporary differences and deferred tax
liabilities for taxable temporary differences. Measurement of current and
deferred tax liabilities and assets is based on provisions of enacted tax law;
the effects of future changes in tax laws or rates are not included in the
measurement. Deferred tax liabilities primarily result from the recognition of
depreciation, depletion and amortization in different periods for financial
reporting and tax purposes. Income tax benefit or expense is the tax payable for
the current year and the change during that year in deferred tax assets and
liabilities.
 
STOCK BASED COMPENSATION
 
    The Company applies Accounting Principals Board ("APB") Opinion No. 25 in
accounting for its stock option plans. Under this standard, no compensation
expense is recognized for grants of options which include an exercise price
equal to or greater than the market price of the stock on the date of grant.
Accordingly, based on the Company's grants in 1998, 1997 and 1996, no
compensation expense has been recognized. As provided by SFAS No. 123
"Accounting for Stock-Based Compensation," the Company has disclosed the pro
forma effects of recording compensation for such option grants based on their
fair value in Note 9 to the financial statements.
 
                                      F-11
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
 
    Financial instruments which subject the Company to concentrations of credit
risk consist primarily of trade receivables with a variety of oil and gas
companies. The Company generally does not require collateral related to
receivables. Such credit risk is considered by management to be limited due to
the large number of customers comprising the Company's customer base.
 
    The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits.
 
SHOP CLOSING COSTS
 
    In the fourth quarter of 1997, the Company recognized a $307,000 charge in
connection with the closure of its Oklahoma City, Oklahoma, Kilgore, Texas and
Columbia, Mississippi shop facilities. The charge was comprised of provisions
for approximately $143,000 related to severance costs, approximately $130,000
for moving and relocation costs, approximately $23,000 for transfer bonuses and
approximately $11,000 related to the loss on sale of the Columbia, Mississippi
facility. Approximately $34,000 of the costs were paid in 1997. The remaining
$273,000 of costs were paid during 1998.
 
HEDGING ACTIVITY
 
    As a part of its risk management program, Sunterra L.L.C. entered into
non-traded natural gas swap contracts. Gains and losses related to the contracts
are deferred and recognized in income when the hedge transaction occurs. The
open positions at December 31, 1998 are as follows:
 
<TABLE>
<CAPTION>
                                                            AVERAGE
                                                            MONTHLY
                                                            VOLUME     SETTLEMENT       PRICE
TIME PERIOD                                                 (MMBTU)     LOCATION     (PER MMBTU)
--------------------------------------------------------  -----------  -----------  -------------
<S>                                                       <C>          <C>          <C>
September 1998 - August 1999............................      30,000       Noram E    $   2.365
 
September 1998 - August 1999............................      30,000       Noram E    $   2.151
 
January 1999 - December 1999............................      30,000       Noram E    $   1.870
</TABLE>
 
ACCOUNTING ESTIMATES
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
 
EARNINGS PER SHARE
 
    Approximately 10,897,000 and 637,500 of common stock options and warrants
outstanding at December 31, 1997 and 1996, respectively, were excluded from the
computation of dilutive earnings per share ("EPS") because their effect on EPS
would have been anti-dilutive for those periods. Basic EPS is computed based on
weighted average number of shares of common stock outstanding during the period.
 
                                      F-12
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Dilutive EPS is computed based on weighted average number of shares of common
stock outstanding during the period adjusted for the effect of dilutive
securities.
 
    The following is a reconciliation of basic and dilutive EPS computations:
 
<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                   -------------------------------
                                                                                     1998       1997       1996
                                                                                   ---------  ---------  ---------
                                                                                           (IN THOUSANDS)
<S>                                                                                <C>        <C>        <C>
Basic:
Net Income (loss)................................................................  $      12  $  (1,687) $    (160)
  Weighted average shares of common stock outstanding............................     29,154     24,196     13,687
                                                                                   ---------  ---------  ---------
  Basic EPS......................................................................  $     .00  $    (.07) $    (.01)
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Effect of dilutive securities:
  Warrants.......................................................................      4,431         --         --
  Common stock options...........................................................        240         --         --
                                                                                   ---------  ---------  ---------
                                                                                       4,671         --         --
Dilutive:
  Net income (loss)..............................................................  $      12  $  (1,687) $    (160)
  Weighted average share of common stock outstanding and dilutive securities.....     33,825     24,196     13,687
                                                                                   ---------  ---------  ---------
Dilutive EPS.....................................................................  $     .00  $    (.07) $    (.01)
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
RECLASSIFICATIONS
 
    Certain prior year amounts have been reclassified to conform with the
current year presentation.
 
ISSUED ACCOUNTING PRONOUNCEMENTS
 
    In December 1997, the Company adopted SFAS No. 129, "Disclosure of
Information about Capital Structure," resulting in no material impact. In
addition, in June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," effective for fiscal
years beginning after December 15, 1997. These statements, were adopted in 1998
and did not have a material effect on the Company's financial position or
results of operations.
 
    In December 1998, the Company adopted Statement of Position ("SOP") 98-5
"Reporting on the Costs of Start-Up Activities." SOP 98-5 requires cost of
start-up activities and organization costs to be expensed as incurred. The
Company incurred a charge-off of unamortized original organizational costs upon
adoption of SOP 98-5. The effect of adopting SOP 98-5 decreased the 1998 income
from operations, net income and income per share (dilutive) by approximately
$112,000, $69,000 and $.00, respectively.
 
    In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was released. The statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that derivatives be recognized as assets or liabilities and measured at
their fair value. SFAS No. 133 will be adopted in 2000 and is not expected to
have a material effect on the Company's financial condition or operations.
 
                                      F-13
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2  ACQUISITION OF SUBSIDIARY
 
    On August 6, 1997, the Company completed the acquisition of 100% of the
common stock of Ouachita Energy Corporation and the majority of the assets of
both Ouachita Compression Group, LLC and Ouachita Energy Partners, LTD. Under
the terms of the acquisition the Ouachita companies' shareholders received 7.6
million shares of the Company's common stock valued at $12,540,000, and
approximately $24 million in cash and assumption of debt. The acquisition was
accounted for using the purchase method of accounting and accordingly, the
results of operations of Ouachita are included in the Company's results of
operations since the date of acquisition. The aggregate purchase price of
$36,560,000 has been allocated as follows (in thousands):
 
<TABLE>
<S>                                                                  <C>
Current assets.....................................................  $   3,305
Compressor equipment...............................................     41,730
Buildings and equipment............................................      2,210
Current liabilities................................................     (2,507)
Deferred income tax liability......................................     (8,178)
                                                                     ---------
                                                                     $  36,560
                                                                     ---------
                                                                     ---------
</TABLE>
 
    The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1997 and 1996, assuming the acquisition occurred as of
January 1, 1997 and 1996 respectively, are as follows:
 
<TABLE>
<CAPTION>
                                                                            1997       1996
                                                                          ---------  ---------
                                                                             (IN THOUSANDS,
                                                                            EXCEPT PER SHARE
                                                                                AMOUNTS)
<S>                                                                       <C>        <C>
Revenue.................................................................  $  23,600  $  18,783
Net loss................................................................  $  (3,700) $  (1,963)
Loss per share..........................................................  $    (.13) $    (.09)
</TABLE>
 
    A liability to the former owner of Ouachita totaling approximately $701,000
which was assumed in the acquisition was subsequently settled by the issuance of
an additional 286,976 shares of the Company's common stock.
 
NOTE 3  SALE OF COMMON STOCK AND ISSUANCE OF CONTINGENT WARRANTS
 
    Effective December 19, 1996, the Company sold to HACL, Ltd., a private
investment group, 8,000,000 shares of its common stock and warrants which, upon
satisfying certain vesting requirements, entitle the purchase of an additional
8,000,000 shares of its common stock at a price of $.91 per share, for aggregate
consideration of $4,400,000. The Company reported the cash consideration
received, net of related costs, of $4,400,000 as an addition to common stock and
paid-in capital. The "fair value" of the warrants was estimated by an
independent valuation firm to be $1,440,000, which the Company reported as an
addition to paid-in capital offset by a deferred expense contra-equity account.
A committee of the Board of Directors determined that the warrants fully vested
during the third quarter of 1997. Accordingly, the $1,440,000 was expensed in
the third quarter of 1997. The warrants for the corresponding 8,000,000 shares
of common stock have not been exercised.
 
                                      F-14
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 4  PROVISION TO REDUCE THE CARRYING VALUE OF OTHER EQUIPMENT
 
    In December of 1998 the Company as part of a Settlement Agreement (see note
10) agreed to exchange an airplane, owned by the Company, for shares of the
Company's common stock and value related to a truck. It was determined during
negotiations that the airplane be reduced to its estimated fair value of
approximately $290,000, resulting in a provision to reduce the carrying value of
the airplane of $162,000.
 
NOTE 5  PROPERTY AND EQUIPMENT
 
<TABLE>
<CAPTION>
                                                                                              YEAR ENDED DECEMBER
                                                                                                      31,
                                                                                              --------------------
                                                                                                1998       1997
                                                                                              ---------  ---------
                                                                                                 (IN THOUSANDS)
<S>                                                                                           <C>        <C>
Land and building...........................................................................  $   1,846  $   1,693
Oil and gas properties, full cost method....................................................     39,401     37,374
Compressor equipment........................................................................     95,763     76,056
Other equipment.............................................................................      3,871      2,317
                                                                                              ---------  ---------
                                                                                                140,881    117,440
Less accumulated depreciated, depletion and amortization....................................     46,289     40,552
                                                                                              ---------  ---------
Net property and equipment..................................................................  $  94,592  $  76,888
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</TABLE>
 
    On August 1, 1997, the Company acquired $41,730,000 of compressor equipment,
$1,649,000 of land and buildings and $561,000 of other equipment as a result of
the acquisition of Ouachita Energy Corporation.
 
NOTE 6  LONG-TERM DEBT
 
<TABLE>
<CAPTION>
                                                                                              YEAR ENDED DECEMBER
                                                                                                      31,
                                                                                              --------------------
                                                                                                1998       1997
                                                                                              ---------  ---------
                                                                                                 (IN THOUSANDS)
<S>                                                                                           <C>        <C>
LONG-TERM DEBT CONSISTS OF THE FOLLOWING:
Revolving line of credit due March, 2000 (interest on loans at LIBOR and Prime)(a)(d).......  $  38,013  $      --
8.25% Revolving line of credit(a)...........................................................         --     17,926
8.25% Revolving line of credit due December, 1999(b)(d).....................................      1,617      2,000
Secured Senior Subordinated Term Note due July, 2007(c)(d)..................................     14,199     14,149
Senior Floating Rate Secured Term Note due July, 2004 (interest at LIBOR),(c)(d)............      5,000      5,000
Notes payable other.........................................................................         --          6
                                                                                              ---------  ---------
Total debt..................................................................................     58,829     39,081
Less current portion........................................................................         --          5
                                                                                              ---------  ---------
Total long-term debt........................................................................  $  58,829  $  39,076
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</TABLE>
 
------------------------
 
(a) On March 10, 1998, the Company replaced its previously existing $20 million
    senior bank credit facility with a new senior bank credit facility. The
    initial maximum commitment was $40 million, which can be expanded to $60
    million with the future addition of other participating financial
    institutions.
 
                                      F-15
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 6  LONG-TERM DEBT (CONTINUED)
    The facility is a borrowing base revolver effective through March, 2000,
    converting to a three-year term loan with a seven-year principal
    amortization. The December 31, 1998 borrowing base exceeds the $40 million
    commitment. Interest on the new facility is comprised of conforming and
    non-conforming borrowing bases which accrue interest at LIBOR plus 1.75% and
    LIBOR plus 2.25%, respectively. Initial borrowings are at Prime until
    converted to LIBOR loans. At December 31, 1998 the average interest rate on
    outstanding loans was 7.03%. The credit facility is collateralized by
    substantially all of the assets of the Company with the exception of the
    Company's oil and gas properties which have been pledged on Sunterra
    L.L.C.'s bank credit facility. At December 31, 1998 the available portion
    was approximately $2 million.
 
(b) In December 1997, Sunterra L.L.C., entered into a new $10 million bank
    revolving credit facility with borrowings limited to a borrowing base
    determined on the value of the underlying oil and gas reserves. In December,
    1999, the revolver converts to a four-year term loan. The credit facility is
    collateralized by Sunterra L.L.C.'s oil and gas properties. The December 31,
    1998 borrowing base was $2 million. At December 31, 1998, the available
    portion was $383,000.
 
(c) In July 1997, the Company entered into senior subordinated term note
    agreements with The Prudential Insurance Company of North America
    ("Prudential") for $15 million and $5 million. The $15 million term note
    agreement contained a warrant purchase agreement authorizing Prudential to
    purchase up to 1 million shares of the Company's common stock at an initial
    exercise price of $2.80 per share until the termination date of the related
    term note. The fair value of the warrants, $870,000, was determined using
    the Black-Scholes model and was reported as an addition to paid-in capital
    and as a discount on the notes. The resulting term note amount of
    $14,130,000 will be accreted over the ten-year term using its effective
    interest rate of 11.14%. The Company's cash pay-out over the term of the
    notes is at the stated rate of 10.15%. The $5 million note accrues interest
    at LIBOR plus 2.25%. At December 31, 1998 the rate was 7.84%.
 
(d) Covenants related to the debt agreements include the maintenance of
    specified levels of working capital, tangible net worth and debt service
    ratio, as defined by the agreements. Additionally, the agreements prohibit
    the payment of dividends and place limitations on the repurchase of shares
    of the Company's stock and the incurrence of new borrowings. During 1998,
    the Company was not in compliance with certain covenants of its debt
    agreements, which were waived or modified by the lender.
 
    Long-term debt maturities as of December 31, 1998 are $0, $4,573,000,
$5,930,000, $5,930,000 and $5,547,000 in 1999, 2000, 2001, 2002 and 2003,
respectively, with a remainder of $36,849,000 due in subsequent years. Based on
the interest rates currently available to the Company for borrowings with
similar terms and maturities, the long-term debt at December 31, 1998,
approximates fair value.
 
NOTE 7  CAPITAL LEASES
 
    The Company has compression equipment and vehicles under capital lease
agreements with a cost of $2,094,000 and accumulated amortization of $421,000
 
                                      F-16
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 7  CAPITAL LEASES (CONTINUED)
    Future minimum lease payments for the above assets under capital leases at
December 31, 1998 are as follows (in thousands):
 
<TABLE>
<S>                                                           <C>
1999........................................................  $     488
2000........................................................        324
2001........................................................      1,272
2002........................................................          2
                                                              ---------
Total minimum obligations...................................      2,086
Interest....................................................       (413)
                                                              ---------
Present value of net minimum obligations....................      1,673
Current portion.............................................       (319)
                                                              ---------
Long term portion...........................................  $   1,354
                                                              ---------
                                                              ---------
</TABLE>
 
NOTE 8  INCOME TAXES
 
    Consolidated income tax benefit for each of the three years in the period
ended December 31, 1998, consists of the following components:
 
<TABLE>
<CAPTION>
                                                                                                  YEAR ENDED DECEMBER 31,
                                                                                             ---------------------------------
                                                                                                1998        1997       1996
                                                                                                -----     ---------  ---------
                                                                                                      (IN THOUSANDS)
<S>                                                                                          <C>          <C>        <C>
Current provision expense (benefit)........................................................   $      --   $    (182) $      28
Deferred expense (benefit).................................................................          75        (742)       (97)
                                                                                                    ---   ---------        ---
Total income tax expense (benefit).........................................................   $      75   $    (924) $     (69)
                                                                                                    ---   ---------        ---
                                                                                                    ---   ---------        ---
</TABLE>
 
    The Company's effective tax rate on pre-tax income differs from the U.S.
federal statutory regular tax rate as follows:
 
<TABLE>
<CAPTION>
                                                                                               YEAR ENDED DECEMBER 31,
                                                                                           -------------------------------
                                                                                             1998       1997       1996
                                                                                           ---------  ---------  ---------
<S>                                                                                        <C>        <C>        <C>
U.S. statutory regular tax rate..........................................................        34%       (34%)      (34%)
State taxes..............................................................................         4%        (4%)       (4%)
Goodwill and other.......................................................................        20%         2%         8%
                                                                                                 ---  ---------  ---------
Total....................................................................................        58%       (36%)      (30%)
                                                                                                 ---  ---------  ---------
                                                                                                 ---  ---------  ---------
</TABLE>
 
                                      F-17
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 8  INCOME TAXES (CONTINUED)
    Deferred tax assets and liabilities are comprised of the following at
December 31:
 
<TABLE>
<CAPTION>
                                                                                                1998       1997
                                                                                              ---------  ---------
                                                                                                 (IN THOUSANDS)
<S>                                                                                           <C>        <C>
Deferred tax assets:
  Allowances for losses.....................................................................  $      41  $      29
  Net operating loss carryforward...........................................................      6,175      3,132
  Alternative minimum tax credit carryforward...............................................        602        602
  Warrant expense deferred for income tax purposes..........................................        547        547
  Accounting method change for tax due to acquisition.......................................        274        411
                                                                                              ---------  ---------
    Gross deferred tax assets...............................................................      7,639      4,721
 
Deferred tax liabilities:
  Property and equipment--depreciation
    depletion and amortization..............................................................     17,855     14,863
                                                                                              ---------  ---------
Gross deferred tax liabilities..............................................................     17,855     14,863
                                                                                              ---------  ---------
Net deferred tax liability..................................................................  $  10,216  $  10,142
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</TABLE>
 
    At December 31, 1998, the Company had net operating loss carryforwards for
regular tax purposes of $16,249,000, which expire in 2009 through 2018.
 
NOTE 9  COMPENSATION PLANS
 
    EMPLOYEE STOCK OPTION PLAN.  On August 8, 1989, the Board of Directors of
the Company adopted and its stockholders approved an Employee Stock Option Plan
(the "Stock Option Plan") which became effective on that date. An aggregate of
130,000 shares of common stock were initially available for sale upon exercise
of options granted under the Stock Option Plan, provided that the number of
shares available for options which may be granted under the Stock Option Plan
will automatically be increased without action of the directors or stockholders
of the Company to an amount equal to (when added to the number of shares of
common stock subject to all other options granted by the Company) 8% of the
issued and outstanding shares of common stock upon each issuance of shares of
common stock occurring after February 28, 1990 (other than issuance's of shares
upon the exercise of options granted under the Stock Option Plan). The Board of
Directors may make authorized but unissued common stock available for the
exercise of options or it may utilize shares held in treasury. On May 1, 1998,
the Board of Directors approved the issuance of 3,670 stock options under the
Stock Option Plan. The Stock Option Plan is not subject to the provisions of the
Employee Retirement Income Security Act of 1974 and the options are not
"incentive stock options," as such term is defined in Internal Revenue Code
Section 422A. As of December 31, 1998, options to acquire 1,233,115 shares of
common stock at prices ranging from $.50 to $2.25 were outstanding.
 
    DIRECTOR STOCK OPTION PLANS.  On August 8, 1989, the Board of Directors
adopted and the stockholders approved a Director Stock Option Plan (the "1989
Director Plan") which became effective on that date. An aggregate of 170,000
shares of common stock are available for sale upon exercise of options granted
under the 1989 Director Plan. At December 31, 1998, options for 30,000 shares at
a price of $2.50 were exercisable. As of December 31, 1998, no options had been
exercised. The 1989 Director Plan is not
 
                                      F-18
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 9  COMPENSATION PLANS (CONTINUED)
subject to the provisions of the Employee Retirement Income Security Act of 1974
and the options will not be "incentive stock options," as such term is defined
in Internal Revenue Code Section 422A.
 
    On May 25, 1994, the Board of Directors adopted and the stockholders
approved the 1994 Director Stock Option Plan which became effective on that
date. Options to acquire an aggregate of 355,000 shares of common stock were
initially granted; however, options to acquire 280,000 shares of common stock
were surrendered for cancellation in 1996. At December 31, 1998, options for
75,000 shares at a price of $1.40 were exercisable. As of December 31, 1998, no
options had been exercised. These options expire on May 24, 2004.
 
    On March 27, 1996, the Board of Directors adopted and on May 29, 1996, the
stockholders approved the Director Stock Plan, which became effective on the
date of its approval by the Company's stockholders. Under the Director Stock
Plan, non-qualified stock options may be issued to non-employee directors of the
Company. An aggregate of 250,000 shares of common stock are reserved for
issuance upon the exercise of options granted under the Director Stock Plan. The
Director Stock Plan provided for, effective upon its approval by the Company's
stockholders, the automatic grant to eligible directors of an option to purchase
either (i) 50,000 shares of common stock, if such eligible director had been an
employee of the Company at any time, or (ii) 17,500 shares of common stock, if
such eligible director had never been an employee of the Company. On each
anniversary of each eligible director's election to the Board for the term as a
director which he or she is currently serving, each such director will be
granted an option to purchase 6,666 shares of common stock. In addition, upon an
eligible director's initial election or appointment to the Board, such director
will receive the grant of an option to purchase 10,000 shares of common stock.
At December 31, 1998, options to acquire 242,494 shares of common stock at
prices ranging from $.56 to $2.31 were outstanding. As of December 31, 1998, no
options issued under the Director Stock Plan had been exercised. The Director
Stock Plan is not subject to any of the provisions of the Employee Retirement
Income Security Act of 1974 and the options will not be "incentive stock
options", as such term is defined in Internal Revenue Code Section 422A.
 
    Activity pertaining to the Company's employee and director stock option
plans is as follows:
 
<TABLE>
<CAPTION>
                                                                                     NUMBER OF   WEIGHTED AVERAGE
                                                                                       SHARES     EXERCISE PRICE
                                                                                     ----------  -----------------
<S>                                                                                  <C>         <C>
Outstanding at December 31, 1995...................................................     540,000      $    1.78
Granted............................................................................     517,500            .58
Exercised..........................................................................          --             --
Canceled...........................................................................    (420,000)         (1.40)
                                                                                     ----------
Outstanding at December 31, 1996...................................................     637,500            .81
Granted............................................................................   1,404,240           1.86
Exercised..........................................................................    (145,000)          (.51)
Canceled...........................................................................          --             --
                                                                                     ----------
Outstanding at December 31, 1997...................................................   1,896,740           1.61
 
Granted............................................................................      63,664           2.19
Exercised..........................................................................     (90,000)          (.50)
Canceled...........................................................................    (274,795)         (1.98)
                                                                                     ----------
Outstanding at December 31, 1998...................................................   1,595,609      $    1.64
                                                                                     ----------
                                                                                     ----------
</TABLE>
 
                                      F-19
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 9  COMPENSATION PLANS (CONTINUED)
                              OUTSTANDING OPTIONS
 
<TABLE>
<CAPTION>
                                                                                       WEIGHTED AVERAGE   WEIGHTED
                                                                                          REMAINING        AVERAGE
EXERCISE                                                                    NUMBER OF    CONTRACTUAL      EXERCISE
PRICES                                                                       SHARES         LIFE*           PRICE
--------------------------------------------------------------------------  ---------  ----------------  -----------
<S>                                                                         <C>        <C>               <C>
$.50 - 1.00...............................................................    242,500      19.4 Years     $     .52
$1.00 - 2.00..............................................................    606,000      29.8 Years     $    1.35
$2.00 - 2.50..............................................................    747,109      34.2 Years     $    2.23
</TABLE>
 
    As of December 31, 1998, options on 721,187 shares were exercisable.
 
------------------------
 
*   Upon termination of employment or board service the option term becomes four
    years from date of termination.
 
    The Company applies APB Opinion No. 25 in accounting for its employee and
director stock option plans. Accordingly, based on the nature of the Company's
grants of options, no compensation cost has been recognized in 1998, 1997 or
1996. Had compensation been determined on the basis of fair value pursuant to
SFAS No. 123, "Accounting for Stock-Based Compensation" net loss per share would
have been as follows at December 31:
 
<TABLE>
<CAPTION>
                                                                                          1998       1997       1996
                                                                                        ---------  ---------  ---------
<S>                                                                                     <C>        <C>        <C>
Net income (loss) (in thousands)
  As reported.........................................................................  $      12  $  (1,687) $    (160)
  Pro forma...........................................................................  $    (294) $  (1,805) $    (334)
 
Loss per share (dilutive)
  As reported.........................................................................  $     .00  $    (.07) $    (.01)
  Pro forma...........................................................................  $    (.01) $    (.07) $    (.02)
</TABLE>
 
    The fair value of each option granted is estimated using the Black-Scholes
model. The Company's estimated stock volatility was 75%, 86% and 96% for 1998,
1997 and 1996, respectively, based on previous stock performance. Dividend yield
was estimated to remain at zero with a risk free interest rate of 6% for 1998
through 1996. Expected life was estimated at four to eight years based on prior
experience depending on the vesting periods involved and the make up of
participating employees within each grant. The weighted average fair value of
options granted during 1998, 1997 and 1996 as estimated using the Black-Scholes
option pricing model, was $1.31, $1.06 and $.38 respectively.
 
    EMPLOYEE BENEFIT PLAN.  Substantially all of the Company's employees are
covered by a defined contribution 401(k) plan adopted in 1991. The Company
matches 50% of the employee contributions up to a limit of 4% of employee annual
earnings. All matching contributions are made in Company stock. Total expense
related to the plan amounted to $87,000 in 1998, $50,000 in 1997 and $41,000 in
1996 respectively.
 
    OTHER.  Non-qualified options for 15,000 shares at a price of $2.50 per
share were granted to a former employee of the Company in 1990, all of which are
currently exercisable with an expiration date of January 2030.
 
                                      F-20
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 10  TRANSACTIONS WITH RELATED PARTIES
 
    The Company transacts business with certain companies, which are directly
controlled by members of the Company's Board of Directors and employees. The
terms of these transactions are equivalent to the terms of transactions
conducted with non-related parties.
 
    On December 16, 1998, the Company, Dennis Estis, the two other shareholders
who granted a proxy to Mr. Estis and certain other parties entered into a
Settlement Agreement. Among other things, the Settlement Agreement (i) prohibits
Mr. Estis from participating in any proxy solicitation relating to certain
actions, (ii) requires termination of the proxies granted to him by the two
other shareholders, (iii) dismissed a lawsuit filed by Mr. Estis, (iv) released
certain claims between the parties, (v) provided for a "standstill" agreement
until June 30, 1999, (subject to possible extension and reinstatement as
described below) prohibiting Mr. Estis from participating in enumerated actions
relating to control of the Company and (vi) requires the Company to reimburse
Mr. Estis for certain of his out-of-pocket expenses. The Company has agreed to
use its best effort to sell or assist Mr. Estis to sell at least one-half of his
shares of common Stock at $2.00 or more per share. If such a sale is not
completed prior to June 30, 2000, then Mr. Estis' non-competition agreement
shall be terminated except as to Mr. Estis' agreement not to solicit or hire
employees of the Company. If the sale by Mr. Estis occurs prior to December 31,
2001, then the standstill agreement described above will be extended or
reinstated, as the case may be, through December 31, 2001. As part of this
settlement, Mr. Estis, in exchange for shares of the Company's common stock and
the value of a truck, purchased an airplane from the Company. In closing this
transaction the Company incurred an impairment of $162,000 on the airplane.
 
    Through its acquisition of Ouachita, the Company acquired note receivables
of approximately $332,000 from the former owner of Ouachita, who is now a
director of the Company and another party. Interest receivable related to these
notes at December 31, 1998 and 1997 was approximately $30,000 and $9,000,
respectively.
 
    On December 31, 1997, the Company sold its facility located in Columbia,
Mississippi to a current member of the Company's Board of Directors. The Company
received $316,000 in cash resulting in a loss of $11,000. During 1998, the
Company remitted payments to this related-party totaling approximately $654,000
for service work on compression component parts at this facility. The Company
was owed approximately $35,000 from the director related to the facility at
December 31, 1998.
 
    The Company maintains a rent and expense sharing agreement with an
affiliate. At December 31, 1998 and 1997, the Company was owed approximately
$40,000 and $11,000, respectively, from the affiliate.
 
    The Company earned compressor rental revenues from affiliates totaling
$279,000 in 1998, $341,000 in 1997 and $32,000 in 1996. At December 31, 1998,
the Company was owed approximately $60,000 on rental revenues earned in 1998 and
$135,000 on rental revenues earned in 1997.
 
    The Company leases the use of an airplane from an employee. As of December
31, 1998, the Company had paid approximately $23,000 under this arrangement.
 
    The Company pays its Chairman of the Board a $5,000 monthly consulting fee.
 
NOTE 11  COMMITMENTS
 
    The Company leases compressor equipment under contracts with terms ranging
from month-to-month to five years. The future revenues to be received under
contracts at December 31, 1998
 
                                      F-21
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 11  COMMITMENTS (CONTINUED)
are $7,779,000, $3,089,000, $1,205,000, $297,000 and $175,000 in 1999, 2000,
2001, 2002 and 2003, respectively.
 
    The Company leases facilities for its corporate and field offices with lease
terms ranging from month-to-month to three years. The Company has certain other
operating leases for other facilities, office equipment and automobiles. Future
minimum rental payments under these leases total $121,000 and $78,000 for 1999
and 2000, respectively. The Company's rental expenses were $382,000, $467,000
and $431,000 in 1998, 1997 and 1996, respectively.
 
NOTE 12  INDUSTRY SEGMENT INFORMATION
 
                         OPERATIONS BY INDUSTRY SEGMENT
 
<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                   -------------------------------
                                                                                     1998       1997       1996
                                                                                   ---------  ---------  ---------
                                                                                           (IN THOUSANDS)
<S>                                                                                <C>        <C>        <C>
Compressor operations:
  Net revenues...................................................................  $  23,833  $  13,342  $   7,622
  Operating income (loss)........................................................      3,938(1)      (501)       668
  Identifiable assets............................................................     99,635     77,985     21,267
  Capital expenditures...........................................................     21,056     11,788      3,580
  Depreciation and amortization..................................................  $   5,370  $   3,278  $   1,891
Oil and gas:
  Net revenues...................................................................  $   2,409  $   2,685  $   1,821
  Operating income (loss)........................................................        773      1,212        441
  Identifiable assets............................................................      7,286      6,380      4,543
  Capital expenditures...........................................................      2,241        877        732
  Depreciation, depletion and amortization.......................................  $     600  $     409  $     310
</TABLE>
 
------------------------
 
(1) Includes a provision to reduce the carrying value of other equipment of
    $162,000 and a charge-off of the Company's unamortized original
    organizational costs of $112,000.
 
                                      F-22
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 13  OIL AND GAS INFORMATION (UNAUDITED AS TO RESERVE INFORMATION)
 
    Capitalized costs at year-end and costs incurred during the year were as
follows:
 
<TABLE>
<CAPTION>
                                                                                            DECEMBER 31,
                                                                                   -------------------------------
                                                                                     1998       1997       1996
                                                                                   ---------  ---------  ---------
                                                                                           (IN THOUSANDS)
<S>                                                                                <C>        <C>        <C>
Capitalized costs:
  Proved properties..............................................................  $  39,401  $  37,374  $  35,102
  Unproved properties............................................................         --         --         --
                                                                                   ---------  ---------  ---------
Total............................................................................     39,401     37,374     35,102
Less:
  Accumulated depreciation, depletion and amortization and provision to reduce
    carrying value...............................................................     32,568     31,824     31,376
                                                                                   ---------  ---------  ---------
    Net capitalized costs........................................................  $   6,833  $   5,550  $   3,726
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Costs incurred:
  Proved properties..............................................................  $   2,026  $      --  $      --
  Development....................................................................        582        877        732
                                                                                   ---------  ---------  ---------
Total costs incurred.............................................................  $   2,608  $     877  $     732
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
    Results of operations for producing activities were as follows:
 
<TABLE>
<CAPTION>
                                                                                            DECEMBER 31,
                                                                                   -------------------------------
                                                                                     1998       1997       1996
                                                                                   ---------  ---------  ---------
                                                                                           (IN THOUSANDS)
<S>                                                                                <C>        <C>        <C>
Revenues.........................................................................  $   2,409  $   2,685  $   1,821
Production costs.................................................................       (728)      (804)      (516)
Depreciation, depletion and amortization.........................................       (600)      (409)      (261)
Income taxes.....................................................................       (411)      (538)      (397)
                                                                                   ---------  ---------  ---------
Results of operations for producing activities (excluding overhead and financing
  costs).........................................................................  $     670  $     934  $     647
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
                                      F-23
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 13  OIL AND GAS INFORMATION (UNAUDITED AS TO RESERVE INFORMATION)
(CONTINUED)
    Estimated quantities of proved developed oil and natural gas reserves and
changes in net quantities of proved oil and natural gas reserves were as
follows:
<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                   -------------------------------------------------------
                                                                           1998                  1997             1996
                                                                   --------------------  --------------------  -----------
                                                                      OIL        GAS        OIL        GAS         OIL
                                                                     BBLS        MCF       BBLS        MCF        BBLS
                                                                   ---------  ---------  ---------  ---------      ---
                                                                                       (IN THOUSANDS)
<S>                                                                <C>        <C>        <C>        <C>        <C>
Proved Reserves:
  Beginning of year..............................................        603      9,425        930      4,989         913
  Revision of estimates..........................................       (164)     1,106       (321)     1,337          39
  Extension and discoveries......................................         --        268         --      1,015          --
  Purchase of reserves...........................................         38      2,971         46      2,716           9
  Sales of reserves..............................................       (290)       (36)        --         --          --
  Production.....................................................        (24)    (1,014)       (52)      (632)        (31)
                                                                         ---  ---------        ---  ---------         ---
  End of Year....................................................        163     12,720        603      9,425         930
                                                                         ---  ---------        ---  ---------         ---
                                                                         ---  ---------        ---  ---------         ---
Proved Developed Reserves........................................        163     12,720        603      9,245         930
                                                                         ---  ---------        ---  ---------         ---
                                                                         ---  ---------        ---  ---------         ---
 
<CAPTION>
 
                                                                      GAS
                                                                      MCF
                                                                   ---------
 
<S>                                                                <C>
Proved Reserves:
  Beginning of year..............................................      3,801
  Revision of estimates..........................................        604
  Extension and discoveries......................................        965
  Purchase of reserves...........................................        144
  Sales of reserves..............................................         --
  Production.....................................................       (525)
                                                                   ---------
  End of Year....................................................      4,989
                                                                   ---------
                                                                   ---------
Proved Developed Reserves........................................      4,717
                                                                   ---------
                                                                   ---------
</TABLE>
 
    All of the Company's reserves are attributable to Sunterra L.L.C. for which
there is an approximate 27% minority interest.
 
    Proved reserves are those quantities which, upon analysis of geological and
engineering data, appear with reasonable certainty to be recoverable in the
future from known oil and gas reservoirs under existing economic and operating
conditions. Proved developed reserves are those reserves which can be expected
to be recovered through existing wells with existing equipment and operating
methods.
 
    Oil and gas reserves cannot be measured exactly. Estimates of oil and gas
reserves require extensive judgments of reservoir engineering data and are
generally less precise than other estimates made in connection with financial
disclosures.
 
    Assigning monetary values to such estimates does not reduce the subjectivity
and changing nature of such reserve estimates. Indeed the uncertainties inherent
in the disclosure are compounded by applying additional estimates of the rates
and timing of production and the costs that will be incurred in developing and
producing the reserves. The information set forth herein is therefore subjective
and, since judgments are involved, may not be comparable to estimates submitted
by other oil and gas producers. In addition, since prices and costs do not
remain static and no price or cost escalation's or de-escalation's have been
considered, the results are not necessarily indicative of the estimated fair
market value of estimated proved reserves nor of estimated future cash flows.
 
                                      F-24
<PAGE>
                          OEC COMPRESSION CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 13  OIL AND GAS INFORMATION (UNAUDITED AS TO RESERVE INFORMATION)
(CONTINUED)
            STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
 
    The standardized measure of discounted future net cash flows ("SMOG") was
calculated using year-end prices and costs, and year-end statutory tax rates,
adjusted for permanent differences, that relate to existing proved oil and gas
reserves. Future net cash flows are as follows:
 
<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                                ----------------------------------
                                                                                   1998        1997        1996
                                                                                ----------  ----------  ----------
                                                                                          (IN THOUSANDS)
<S>                                                                             <C>         <C>         <C>
Future cash flows.............................................................  $   26,895  $   29,730  $   38,897
Production costs..............................................................     (11,780)    (11,849)    (12,124)
Development costs.............................................................        (147)         --        (148)
Income tax expense............................................................      (4,434)     (6,790)     (9,900)
                                                                                ----------  ----------  ----------
Future net cash flows.........................................................      10,534      11,091      16,725
10% discount factor...........................................................      (4,111)     (4,232)     (6,487)
                                                                                ----------  ----------  ----------
Standardized measure of discounted future net cash flows......................  $    6,423  $    6,859  $   10,238
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------
</TABLE>
 
    The following table summarizes the principal factors comprising the changes
in the standardized measure of discounted future net cash flows.
 
<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                                ----------------------------------
                                                                                   1998        1997        1996
                                                                                ----------  ----------  ----------
                                                                                          (IN THOUSANDS)
<S>                                                                             <C>         <C>         <C>
Standardized measure, beginning of year.......................................  $    6,859  $   10,238  $    5,416
Sales of oil and gas net of production costs..................................      (1,620)     (1,822)     (1,305)
Net changes in prices and production costs....................................      (2,362)     (4,311)      6,184
Extensions and discoveries less related costs.................................         180         687       1,454
Purchase of reserves..........................................................       2,081       1,290         157
Sale of reserves..............................................................      (1,035)         --          --
Revisions of previous estimates...............................................         218        (707)        674
Accretion of discount.........................................................         602         885         524
Change in income tax expense..................................................       1,500         599      (2,866)
                                                                                ----------  ----------  ----------
Standardized measure, end of year.............................................  $    6,423  $    6,859  $   10,238
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------
</TABLE>
 
    All of the Company's reserves and standardized measure of discounted future
net cash flows are attributable to Sunterra L.L.C., for which there is an
approximate 27% minority interest.
 
    The Company's reserves were determined at December 31, 1998 using constant
prices of approximately $9.51 per Bbl of oil and $1.99 per Mcf of gas. As of
March 16, 1999 the Company would be able to contract its oil and gas for sale at
$12.66 per Bbl and $1.55 per Mcf, respectively. This decrease in prices would
have an effect on the SMOG value of the Company's reserves at December 31, 1998.
 
                                      F-25
<PAGE>
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.     DESCRIPTION
---------  -------------------------------------------------------------------------------------------------
<C>        <S>                                                                                                <C>
      3.3  Amended and Restated Bylaws......................................................................
 
     21.1  Subsidiaries of the Registrant...................................................................
 
     23.1  Consent of Independent Public Accountants........................................................
 
     23.2  Consent of Independent Public Accountants........................................................
 
       27  Financial Data Schedule..........................................................................
</TABLE>