<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                                   (Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

For the quarterly period ended September 30, 2003
                                       or

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

Commission File Number: 0-20100

                           BELDEN & BLAKE CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                  Ohio                                     34-1686642
--------------------------------------------------------------------------------
      (State or other jurisdiction of                   (I.R.S. Employer
      incorporation or organization)                   Identification No.)

           5200 Stoneham Road
           North Canton, Ohio                                 44720
--------------------------------------------------------------------------------
(Address of principal executive offices)                   (Zip Code)

                                 (330) 499-1660
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

--------------------------------------------------------------------------------
   (Former name, former address and former fiscal year, if changed since last
                                    report.)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No

         Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). [ ] Yes [X] No

         As of October 31, 2003, Belden & Blake Corporation had outstanding
10,393,000 shares of common stock, without par value, which is its only class of
stock.

<PAGE>

                           BELDEN & BLAKE CORPORATION

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                       PAGE
                                                                                                       ----
<S>                                                                                                    <C>
PART I Financial Information:

        Item 1.  Financial Statements

                 Consolidated Balance Sheets as of September 30, 2003 and
                    December 31, 2002................................................................    1

                 Consolidated Statements of Operations for the three and nine
                    months ended September 30, 2003 and 2002 ........................................    2

                 Consolidated Statements of Shareholders' Equity (Deficit)
                    for the nine months ended September 30, 2003 and the
                    years ended December 31, 2002 and 2001...........................................    3

                 Consolidated Statements of Cash Flows for the nine
                    months ended September 30, 2003 and 2002 ........................................    4

                 Notes to Consolidated Financial Statements..........................................    5

        Item 2.  Management's Discussion and Analysis of Financial
                    Condition and Results of Operations..............................................   10

        Item 3.  Quantitative and Qualitative Disclosures About Market Risk..........................   23

        Item 4.  Controls and Procedures.............................................................   25

PART II Other Information

        Item 6.  Exhibits and Reports on Form 8-K....................................................   25
</TABLE>

<PAGE>

                           BELDEN & BLAKE CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                               SEPTEMBER 30,   DECEMBER 31,
                                                                                   2003            2002
                                                                               -------------   ------------
                                                                                (UNAUDITED)
<S>                                                                            <C>             <C>
ASSETS
CURRENT ASSETS
    Cash and cash equivalents                                                    $     991       $   1,722
    Accounts receivable, net                                                        17,970          14,652
    Inventories                                                                        717             848
    Deferred income taxes                                                            6,162           4,200
    Other current assets                                                             2,039           1,341
    Fair value of derivatives                                                           13              --
    Assets of discontinued operations                                                   --           1,066
                                                                                 ---------       ---------
              TOTAL CURRENT ASSETS                                                  27,892          23,829

PROPERTY AND EQUIPMENT, AT COST
    Oil and gas properties (successful efforts method)                             466,848         438,240
    Gas gathering systems                                                           14,750          14,482
    Land, buildings, machinery and equipment                                        23,829          22,748
                                                                                 ---------       ---------
                                                                                   505,427         475,470
    Less accumulated depreciation, depletion and amortization                      250,814         243,596
                                                                                 ---------       ---------
              PROPERTY AND EQUIPMENT, NET                                          254,613         231,874
FAIR VALUE OF DERIVATIVES                                                              807               3
OTHER ASSETS                                                                         7,463           8,139
                                                                                 ---------       ---------
                                                                                 $ 290,775       $ 263,845
                                                                                 =========       =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
    Accounts payable                                                             $   5,742       $   5,661
    Accrued expenses                                                                22,273          17,767
    Current portion of long-term liabilities                                           729             315
    Fair value of derivatives                                                        8,524           5,486
    Liabilities of discontinued operations                                              --             335
                                                                                 ---------       ---------
              TOTAL CURRENT LIABILITIES                                             37,268          29,564

LONG-TERM LIABILITIES
    Bank and other long-term debt                                                   39,832          26,868
    Senior subordinated notes                                                      225,000         225,000
    Other                                                                            4,344              91
                                                                                 ---------       ---------
                                                                                   269,176         251,959
FAIR VALUE OF DERIVATIVES                                                            9,552           4,371
DEFERRED INCOME TAXES                                                               22,663          22,596

SHAREHOLDERS' DEFICIT
    Common stock without par value; $.10 stated value per share; authorized
      58,000,000 shares; issued 10,590,157 and 10,490,440 shares
      (which includes 212,277 and 206,534 treasury shares, respectively)             1,038           1,030
    Paid in capital                                                                107,237         107,118
    Deficit                                                                       (145,593)       (148,332)
    Accumulated other comprehensive loss                                           (10,566)         (4,461)
                                                                                 ---------       ---------
              TOTAL SHAREHOLDERS' DEFICIT                                          (47,884)        (44,645)
                                                                                 ---------       ---------
                                                                                 $ 290,775       $ 263,845
                                                                                 =========       =========
</TABLE>

See accompanying notes.

                                       1
<PAGE>

                           BELDEN & BLAKE CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            (UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED SEPTEMBER 30,   NINE MONTHS ENDED SEPTEMBER 30,
                                                                  --------------------------------   -------------------------------
                                                                       2003              2002            2003               2002
                                                                  -------------      -------------   ------------       ------------
<S>                                                               <C>                <C>             <C>                <C>
REVENUES
    Oil and gas sales                                                $ 21,547           $ 22,571       $ 62,422           $ 68,143
    Gas gathering, marketing, and oilfield service                      4,862              3,990         18,780             17,123
    Other                                                                   6                548            483              1,556
                                                                     --------           --------       --------           --------
                                                                       26,415             27,109         81,685             86,822
EXPENSES
    Production expense                                                  4,983              4,841         14,238             14,800
    Production taxes                                                      615                385          1,945              1,316
    Gas gathering, marketing, and oilfield service                      4,445              3,235         17,240             13,843
    Exploration expense                                                 6,106              4,236         10,849             10,087
    General and administrative expense                                  1,108              1,065          3,369              3,441
    Franchise, property and other taxes                                    72                119            230                264
    Depreciation, depletion and amortization                            4,728              5,573         13,495             17,425
    Accretion expense                                                      91                 --            263                 --
    Derivative fair value loss (gain)                                     340                (64)           166                134
    Severance and other nonrecurring expense                               --                127             --                292
                                                                     --------           --------       --------           --------
                                                                       22,488             19,517         61,795             61,602
                                                                     --------           --------       --------           --------
OPERATING INCOME                                                        3,927              7,592         19,890             25,220

OTHER EXPENSE
    Interest expense                                                    6,463              5,871         19,101             17,604
                                                                     --------           --------       --------           --------
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE            (2,536)             1,721            789              7,616
    (Benefit) provision for income taxes                                 (895)               653            336              2,921
                                                                     --------           --------       --------           --------
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
    EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                           (1,641)             1,068            453              4,695
Income (loss) from discontinued operations, net of tax                     --                 75           (111)               472
                                                                     --------           --------       --------           --------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
    ACCOUNTING PRINCIPLE                                               (1,641)             1,143            342              5,167
Cumulative effect of change in accounting principle, net of tax            --                 --          2,397                 --
                                                                     --------           --------       --------           --------
NET (LOSS) INCOME                                                    $ (1,641)          $  1,143       $  2,739           $  5,167
                                                                     ========           ========       ========           ========
</TABLE>

See accompanying notes.

                                       2

<PAGE>

                           BELDEN & BLAKE CORPORATION
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                            ACCUMULATED
                                                                                                               OTHER         TOTAL
                                                             COMMON     COMMON     PAID IN                 COMPREHENSIVE    EQUITY
                                                             SHARES      STOCK     CAPITAL      DEFICIT      INCOME        (DEFICIT)
                                                           ----------  ---------  ----------  -----------  -------------  ----------
<S>                                                        <C>         <C>        <C>         <C>          <C>            <C>
JANUARY 1, 2001                                               10,303   $  1,030   $ 107,921   $ (157,264)  $         --   $ (48,313)
Comprehensive income:
Net income                                                                                         6,467                      6,467
Other comprehensive income, net of tax:
   Cumulative effect of accounting change                                                                        (6,691)     (6,691)
   Change in derivative fair value                                                                               24,667      24,667
   Reclassification adjustment for derivative (gain) loss
    reclassified into oil and gas sales                                                                          (2,889)     (2,889)
                                                                                                                          ---------
Total comprehensive income                                                                                                   21,554
                                                                                                                          ---------
Stock options exercised                                           68          7          (1)                                      6
Stock-based compensation                                                                275                                     275
Repurchase of stock options                                                            (772)                                   (772)
Tax benefit of repurchase of stock options
    and stock options exercised                                                         260                                     260
Treasury stock                                                   (81)        (8)       (281)                                   (289)
                                                           ---------   --------   ---------   ----------   ------------   ---------
DECEMBER 31, 2001                                             10,290      1,029     107,402     (150,797)        15,087     (27,279)
Comprehensive income:
Net income                                                                                         2,465                      2,465
Other comprehensive income, net of tax:
   Change in derivative fair value                                                                               (5,518)     (5,518)
   Reclassification adjustment for derivative (gain) loss
    reclassified into oil and gas sales                                                                         (14,030)    (14,030)
                                                                                                                          ---------
Total comprehensive income                                                                                                  (17,083)
                                                                                                                          ---------
Stock options exercised                                           65          7          (2)                                      5
Stock-based compensation                                                                 82                                      82
Repurchase of stock options                                                             (29)                                    (29)
Tax benefit of repurchase of stock options
    and stock options exercised                                                          57                                      57
Treasury stock                                                   (59)        (6)       (392)                                   (398)
                                                           ---------   --------   ---------   ----------   ------------   ---------
DECEMBER 31, 2002                                             10,296      1,030     107,118     (148,332)        (4,461)    (44,645)
Comprehensive income:
Net income                                                                                         2,739                      2,739
Other comprehensive income, net of tax:
   Change in derivative fair value                                                                              (12,256)    (12,256)
   Reclassification adjustment for derivative (gain) loss
    reclassified into oil and gas sales                                                                           6,151       6,151
                                                                                                                          ---------
Total comprehensive income                                                                                                   (3,366)
                                                                                                                          ---------
Stock options exercised                                           99         10         107                                     117
Stock-based compensation                                                                 54                                      54
Repurchase of stock options                                                             (47)                                    (47)
Tax benefit of repurchase of stock options
    and stock options exercised                                                          40                                      40
Treasury stock                                                   (17)        (2)        (35)                                    (37)
                                                           ---------   --------   ---------   ----------   ------------   ---------
SEPTEMBER 30, 2003 (UNAUDITED)                                10,378   $  1,038   $ 107,237   $ (145,593)  $    (10,566)  $ (47,884)
                                                           =========   ========   =========   ==========   ============   =========
</TABLE>

See accompanying notes.

                                       3

<PAGE>
                           BELDEN & BLAKE CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                              NINE MONTHS ENDED SEPTEMBER 30,
                                                                              -------------------------------
                                                                                 2003                 2002
                                                                              ----------           ----------
<S>                                                                           <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Income from continuing operations                                         $     453            $   4,695
    Adjustments to reconcile income from continuing operations
      to net cash provided by operating activities:
        Depreciation, depletion and amortization                                 13,495               17,425
        Accretion of discount on asset retirement obligations                       263                   --
        Loss on disposal of property and equipment                                  849                  613
        Net monetization of derivatives                                              --               22,091
        Amortization of derivatives and other noncash hedging activities         (2,194)             (14,524)
        Exploration expense                                                      10,849               10,087
        Deferred income taxes                                                       188                2,921
        Stock-based compensation                                                     54                   62
        Change in operating assets and liabilities, net of
          effects of acquisition and disposition of businesses:
            Accounts receivable and other operating assets                       (4,018)                 (31)
            Inventories                                                             131                  294
            Accounts payable and accrued expenses                                 4,587               10,077
                                                                              ---------            ---------
               NET CASH PROVIDED BY CONTINUING OPERATIONS                        24,657               53,710

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of businesses, net of cash acquired                              (4,728)              (2,835)
    Disposition of businesses, net of cash                                          100                8,161
    Proceeds from property and equipment disposals                                2,953                1,497
    Exploration expense                                                         (10,849)             (10,087)
    Additions to property and equipment                                         (25,510)             (26,782)
    Other                                                                          (497)                 749
                                                                              ---------            ---------
               NET CASH USED IN INVESTING ACTIVITIES                            (38,531)             (29,297)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from revolving line of credit                                      147,222              107,960
    Repayment of long-term debt and other obligations                          (134,532)            (134,451)
    Debt issue costs                                                               (240)                 (81)
    Proceeds from stock options exercised                                           117                    5
    Repurchase of stock options                                                     (47)                 (13)
    Tax benefit of repurchase of stock options and stock options exercised           40                   --
    Purchase of treasury stock                                                      (37)                 (41)
                                                                              ---------            ---------
               NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES               12,523              (26,621)
                                                                              ---------            ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS
    FROM CONTINUING OPERATIONS                                                   (1,351)              (2,208)
NET INCREASE IN CASH AND CASH EQUIVALENTS
    FROM DISCONTINUED OPERATIONS                                                    620                2,011
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                  1,722                1,935
                                                                              ---------            ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                    $     991            $   1,738
                                                                              =========            =========
</TABLE>

See accompanying notes.

                                       4

<PAGE>

                           BELDEN & BLAKE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

SEPTEMBER 30, 2003

(1)      BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements of Belden
& Blake Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September 30, 2003
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2003. For further information, refer to the consolidated
financial statements and footnotes included in the Company's annual report on
Form 10-K for the year ended December 31, 2002. Certain reclassifications have
been made to conform to the current presentation.

(2)      NEW ACCOUNTING PRONOUNCEMENTS

         On January 1, 2003, the Company adopted Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards No. (SFAS) 143,
"Accounting for Asset Retirement Obligations." SFAS 143 amends SFAS 19,
"Financial Accounting and Reporting by Oil and Gas Producing Companies" to
require the Company to recognize a liability for the fair value of its asset
retirement obligations associated with its tangible, long-lived assets. The
majority of the asset retirement obligations recorded by the Company relate to
the plugging and abandonment (excluding salvage value) of its oil and gas
properties. At January 1, 2003, there were no assets legally restricted for
purposes of settling asset retirement obligations. The adoption of SFAS 143
resulted in a January 1, 2003 cumulative effect adjustment to record a $4.0
million increase in long-term asset retirement obligation liabilities, a
$621,000 increase in current asset retirement obligation liabilities, a $3.2
million increase in the carrying value of oil and gas assets, a $5.2 million
decrease in accumulated depreciation, depletion and amortization and a $1.4
million increase in deferred income tax liabilities. The net effect of adoption
was to record a gain of $2.4 million, net of tax, as a cumulative effect of a
change in accounting principle in the Company's consolidated statement of
operations in the first quarter of 2003.

         Subsequent to the adoption of SFAS 143, there has been no significant
current period activity with respect to additional retirement obligations,
settled obligations, accretion expense and revisions of estimated cash flows.
The unaudited pro forma net income for the nine months and quarter ended
September 30, 2002 was $5.9 million and $1.4 million, respectively, and has been
prepared to give effect to the adoption of SFAS 143 as if it had been adopted on
January 1, 2002. Assuming retroactive application of the change in accounting
principle as of January 1, 2002, liabilities would have increased approximately
$6 million.

                                       5

<PAGE>

         A reconciliation of the Company's liability for plugging and
abandonment costs for the nine months ended September 30, 2003 is as follows (in
thousands):

<TABLE>
<S>                                                  <C>
Asset retirement obligation, December 31, 2002       $    --
      Cumulative effect adjustment                     4,614
      Liabilities incurred                               204
      Liabilities settled                               (138)
      Accretion expense                                  263
                                                     -------
Asset retirement obligation, September 30, 2003      $ 4,943
                                                     =======
</TABLE>

         On January 1, 2003, the Company adopted SFAS 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS 145 rescinds SFAS 4, "Reporting Gains and Losses from
Extinguishment of Debt," SFAS 44, "Accounting for Intangible Assets of Motor
Carriers" and SFAS 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and amends SFAS No. 13, "Accounting for Leases." Statement 145
also makes technical corrections to other existing pronouncements. SFAS 4
required gains and losses from extinguishment of debt to be classified as an
extraordinary item, net of the related income tax effect. As a result of the
rescission of SFAS 4, the criteria for extraordinary items in Accounting
Principles Board Opinion No. (APB) 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," now will be used to
classify those gains and losses. The adoption of SFAS 145 did not have any
effect on the Company's financial position, results of operations or cash flows.

         In June 2002, the FASB issued SFAS 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS 146 was effective for the
Company for disposal activities initiated after December 31, 2002. The adoption
of this standard did not have any effect on the Company's financial position,
results of operations or cash flows.

         In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45's disclosure requirements
are effective for the Company's interim and annual financial statements for
periods ending after December 15, 2002. The initial recognition and measurement
provisions are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. FIN 45 requires certain guarantees to be
recorded at fair value, which is different from current practice, which is
generally to record a liability only when a loss is probable and reasonably
estimable. FIN 45 also requires a guarantor to make significant new disclosures,
even when the likelihood of making any payments under the guarantee is remote.
The adoption of FIN 45 did not have any effect on the Company's financial
statement disclosures, financial position, results of operations or cash flows.

         In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS 148 amends FASB 123, "Accounting
for Stock-Based Compensation," to provide alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on the reported results. The
Company measures expense associated with stock-based compensation using the
intrinsic value method prescribed by APB 25, "Accounting for Stock Issued to
Employees" and its related interpretations. Under APB 25, no compensation
expense is required to be

                                       6

<PAGE>

recognized by the Company upon the issuance of stock options to key employees as
the exercise price of the option is equal to the market price of the underlying
common stock at the date of grant. The provisions of SFAS 148 were effective for
financial statements for fiscal years ending after December 15, 2002. The
adoption of SFAS 148 did not have a material effect on the Company's financial
position, results of operations or cash flows.

         The fair value of the Company's stock options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for the first nine months of 2003 and 2002,
respectively: risk-free interest rates of 3.7% and 4.4%, volatility factor of
the expected market price of the Company's common stock of near zero, dividend
yield of zero, and a weighted-average expected life of the option of seven
years.

         The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.

         For purposes of the pro forma disclosures required by SFAS 123, the
estimated fair value of the options is amortized to expense over the options'
vesting period. The changes in net income or loss as if the Company had applied
the fair value provisions of SFAS 123 for the quarters ended September 30, 2003
and 2002 were not material.

         In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities - An Interpretation of Accounting Research Bulletin (ARB) 51."
FIN 46 is an interpretation of ARB 51, "Consolidated Financial Statements," and
addresses consolidation by business enterprises of variable interest entities
(VIEs). The primary objective of FIN 46 is to provide guidance on the
identification of, and financial reporting for, entities over which control is
achieved through means other than voting rights; such entities are known as
VIEs. FIN 46 requires an enterprise to consolidate a VIE if that enterprise has
a variable interest that will absorb a majority of the entity's expected losses
if they occur, receive a majority of the entity's expected residual returns if
they occur, or both. An enterprise shall consider the rights and obligations
conveyed by its variable interests in making this determination. This guidance
applies immediately to VIEs created after January 31, 2003, and to VIEs in which
an enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after December 15, 2003, to VIEs in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The adoption of FIN 46 is not expected to have any effect on the
Company's financial statement disclosures, financial position, results of
operations or cash flows.

         In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement is intended to
result in more consistent reporting of contracts as either freestanding
derivative instruments subject to Statement 133 in its entirety, or as hybrid
instruments with debt host contracts and embedded derivative features. SFAS 149
is effective for the Company's financial statements for the interim period
beginning July 1, 2003. The adoption of SFAS 149 did not have a material effect
on the Company's financial position, results of operations or cash flows.

         In May 2003, the FASB issued SFAS 150, "Accounting for Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have

                                       7

<PAGE>

characteristics of both liabilities and equity. Instruments that are indexed to
and potentially settled in an issuer's own shares that are not within the scope
of Statement 150 remain subject to existing guidance. SFAS 150 is effective for
the Company's financial statements for the interim period beginning July 1,
2003. The adoption of SFAS 150 did not have a material effect on the Company's
financial position, results of operations or cash flows.

         The Company has been made aware of an issue regarding the application
of provisions of SFAS 141, "Business Combinations" and SFAS 142, "Goodwill and
Other Intangible Assets," to oil and gas companies. The issue is whether SFAS
142 requires registrants to reclassify costs associated with mineral rights,
including both proved and unproved leasehold acquisition costs, as intangible
assets in the balance sheet, apart from other capitalized oil and gas property
costs. Historically, the Company and other oil and gas companies have included
the cost of oil and gas leasehold interests as part of oil and gas properties
and provided the disclosures required by SFAS 69, "Disclosures about Oil and Gas
Producing Activities."

         If it is ultimately determined that SFAS 142 requires the Company to
reclassify costs associated with mineral rights from property and equipment to
intangible assets, the Company currently believes that its financial condition,
results of operations or cash flows would not be affected, since such intangible
assets would continue to be depleted and assessed for impairment in accordance
with existing successful efforts accounting rules and impairment standards. The
Company had undeveloped leasehold costs of $12.8 million at September 30, 2003.
The amount of potential balance sheet reclassifications for developed leasehold
costs has not been determined.

(3)      ACQUISITION

         In February 2003, the Company purchased reserves in certain wells the
Company operates in Michigan for $3.75 million in cash. These properties were
subject to a prior monetization transaction of the Section 29 tax credits which
the Company entered into in 1996. The Company had the option to purchase these
properties beginning in 2003. The Company previously held a production payment
on these properties including a 75% reversionary interest in certain future
production. The Company purchased those reserve volumes beyond its previously
held production payment along with the 25% reversionary interest not owned. The
estimated volumes acquired were 4.4 Bcf (billion cubic feet) of proved developed
producing gas reserves. The pro forma effect of the acquisition was not
material.

(4)      DISPOSITION

         As a result of the Company's decision to shift focus away from
exploration and development activities in the Knox formation in Ohio, the
Company sold substantially all of its undeveloped Knox acreage in Ohio for
approximately $2.8 million in September 2003. The sale resulted in a loss of
approximately $90,000.

(5)      DERIVATIVES AND HEDGING

         The Company recognizes all derivative financial instruments as either
assets or liabilities at fair value. The changes in fair value of derivative
instruments not qualifying for designation as cash flow hedges that occur prior
to maturity are initially reported in expense in the consolidated statements of
operations as derivative fair value (gain) loss. All amounts recorded in this
line item are ultimately reversed within the same line item and included in oil
and gas sales revenues over the respective contract terms. Changes in the fair
value of derivative instruments that are fair value hedges are offset against
changes in the fair value of the hedged assets, liabilities, or firm
commitments, through net income (loss). Changes in the fair value of derivative
instruments that are cash flow hedges are recognized in other comprehensive
income (loss) until such time as the hedged items are recognized in net income
(loss).

         The hedging relationship between the hedging instruments and hedged
item must be highly effective in achieving the offset of changes in fair values
or cash flows attributable to the hedged risk both

                                       8

<PAGE>

at the inception of the contract and on an ongoing basis. The Company measures
effectiveness at least on a quarterly basis. Ineffective portions of a
derivative instrument's change in fair value are immediately recognized in net
income (loss). If there is a discontinuance of a cash flow hedge because it is
probable that the original forecasted transaction will not occur, deferred gains
or losses are recognized in earnings immediately.

         From time to time the Company may enter into a combination of futures
contracts, commodity derivatives and fixed-price physical contracts to manage
its exposure to natural gas or oil price volatility and support the Company's
capital expenditure plans. The Company employs a policy of hedging gas
production sold under New York Mercantile Exchange ("NYMEX") based contracts by
selling NYMEX based commodity derivative contracts which are placed with major
financial institutions that the Company believes are minimal credit risks. The
contracts may take the form of futures contracts, swaps, collars or options. At
September 30, 2003, the Company's derivative contracts were comprised of natural
gas swaps, collars and options. Qualifying NYMEX based derivative contracts are
designated as cash flow hedges.

         During the first nine months of 2003 and 2002, a net loss of $9.7
million ($6.2 million after tax) and a net gain of $17.5 million ($11.1 million
after tax), respectively, were reclassified from accumulated other comprehensive
income to earnings. The fair value of open hedges decreased $19.3 million ($12.3
million after tax) in the first nine months of 2003 and decreased $682,000
($434,000 after tax) in the first nine months of 2002. At September 30, 2003,
the estimated net loss in accumulated other comprehensive income that is
expected to be reclassified into earnings within the next 12 months is
approximately $7.9 million. The Company has partially hedged its exposure to the
variability in future cash flows through December 2005.

         In March 2003, the Company entered into a collar for 4,320 Bbtu
(billion British thermal units) of its natural gas production in 2004 with a
ceiling price of $5.80 per Mmbtu (million British thermal units) and a floor
price of $4.00 per Mmbtu. The Company also sold a floor at $3.00 per Mmbtu on
this volume of gas. This aggregate structure has the effect of: 1) setting a
maximum price of $5.80 per Mmbtu; 2) floating at prices from $4.00 to $5.80 per
Mmbtu; 3) locking in a price of $4.00 per Mmbtu if prices are between $3.00 and
$4.00 per Mmbtu; and 4) receiving a price of $1.00 per Mmbtu above the price if
the price is $3.00 or less. All prices are based on monthly NYMEX settle.

         In April 2003, the Company entered into a collar for 6,000 Bbtu of its
natural gas production in 2005 with a ceiling price of $5.37 per Mmbtu and a
floor price of $4.00 per Mmbtu. The Company also sold a floor at $3.10 per Mmbtu
on this volume of gas. This aggregate structure has the effect of: 1) setting a
maximum price of $5.37 per Mmbtu; 2) floating at prices from $4.00 to $5.37 per
Mmbtu; 3) locking in a price of $4.00 per Mmbtu if prices are between $3.10 and
$4.00 per Mmbtu; and 4) receiving a price of $0.90 per Mmbtu above the price if
the price is $3.10 or less. All prices are based on monthly NYMEX settle.

(6)      LONG-TERM DEBT

         The Company has a $100 million revolving credit facility (the
"Revolver") from Ableco Finance LLC and Wells Fargo Foothill, Inc. (formerly
known as Foothill Capital Corporation) which matures on June 30, 2006. The
Revolver bears interest at the prime rate plus two percentage points, payable
monthly. At September 30, 2003, the interest rate was 6.00%. At September 30,
2003, the Company had $29.7 million of outstanding letters of credit. At
September 30, 2003, the outstanding balance under the credit agreement was $39.7
million with $55.6 million of borrowing capacity available for general corporate
purposes.

                                       9

<PAGE>

         The Revolver was amended on March 31, 2003 to increase the letter of
credit sublimit to $55 million. On May 30, 2003, the Company amended its $100
million revolving credit facility. The amendment increased the total commitment
amount from $100 million to $125 million solely to provide for a special letter
of credit facility in the amount of $25 million which combined with the existing
letter of credit sub-limit of $55 million would allow a total of $80 million in
letters of credit. The amendment also extended the Revolver's final maturity
date to June 30, 2006, from December 31, 2005.

         The Revolver, as amended, is subject to certain financial covenants.
These include a quarterly senior debt interest coverage ratio of 3.2 to 1
extended through March 31, 2006; and a senior debt leverage ratio of 2.7 to 1
extended through March 31, 2006. The amendment extended the early termination
fee, equal to .125% of the Revolver, to June 30, 2005, from December 31, 2004.
There is no termination fee after June 30, 2005. The Company had satisfied all
financial covenants as of September 30, 2003.

(7)      INDUSTRY SEGMENT FINANCIAL INFORMATION

         The Company operates in one reportable segment, as an independent
energy company engaged in producing oil and natural gas; exploring for and
developing oil and gas reserves; acquiring and enhancing the economic
performance of producing oil and gas properties; and marketing and gathering
natural gas for delivery to intrastate and interstate gas transmission
pipelines. The Company's operations are conducted entirely in the United States.

(8)      SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                   NINE MONTHS ENDED SEPTEMBER 30,
                                                                   -------------------------------
(IN THOUSANDS)                                                         2003              2002
                                                                   -------------     -------------
<S>                                                                <C>               <C>
CASH PAID DURING THE PERIOD FOR:
  Interest                                                           $ 13,472          $ 13,331
  Income taxes, net of refunds                                             --                 8
NON-CASH INVESTING AND FINANCING ACTIVITIES:
  Acquisition of assets in exchange for long-term liabilities              --               263

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX         2,397                --
</TABLE>

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

FORWARD-LOOKING INFORMATION

         The information in this document includes forward-looking statements
that are made pursuant to Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995. Statements preceded by, followed by or that
otherwise include the statements "should," "believe," "expect," "anticipate,"
"intend," "will," "continue," "estimate," "plan," "outlook," "may," "future,"
"projection," and variations of these statements and similar expressions are
forward-looking statements. These forward-looking statements are based on
current expectations and projections about future events. Forward-looking
statements, and the business prospects of the Company are subject to a number of
risks and uncertainties which may cause the Company's actual results in future
periods to differ materially from the forward-looking statements contained
herein. These risks and uncertainties include, but are not limited to, the
Company's access to capital, the market demand for and prices of oil and natural
gas, the Company's oil and gas production and costs of operation, results of the
Company's future drilling activities, the uncertainties of reserve estimates,
general economic conditions, new legislation or regulatory changes, changes in
accounting principles, policies or guidelines and environmental risks. These and
other risks are described in the

                                       10

<PAGE>

Company's 10-K and 10-Q reports and other filings with the Securities and
Exchange Commission ("SEC").

CRITICAL ACCOUNTING POLICIES

         The Company prepares its consolidated financial statements in
accordance with accounting principles generally accepted in the United States
("GAAP") and SEC guidance. See the "Notes to Consolidated Financial Statements"
included in "Item 8. Financial Statements and Supplementary Data" in the
Company's 2002 Form 10-K annual report filed with the SEC for a comprehensive
discussion of the Company's significant accounting policies. GAAP requires
information in financial statements about the accounting principles and methods
used and the risks and uncertainties inherent in significant estimates including
choices between acceptable methods. Following is a discussion of the Company's
critical accounting policies:

SUCCESSFUL EFFORTS METHOD OF ACCOUNTING

         The accounting for and disclosure of oil and gas producing activities
requires the Company's management to choose between GAAP alternatives and to
make judgments about estimates of future uncertainties.

         The Company utilizes the "successful efforts" method of accounting for
oil and gas producing activities as opposed to the alternate acceptable "full
cost" method. Under the successful efforts method, property acquisition and
development costs and certain productive exploration costs are capitalized while
non-productive exploration costs, which include certain geological and
geophysical costs, exploratory dry hole costs and costs of carrying and
retaining unproved properties, are expensed as incurred.

         The major difference between the successful efforts method of
accounting and the full cost method is under the full cost method of accounting,
such exploration costs and expenses are capitalized as assets, pooled with the
costs of successful wells and charged against the net income (loss) of future
periods as a component of depletion expense.

OIL AND GAS RESERVES

         The Company's proved developed and proved undeveloped reserves are all
located within the Appalachian and Michigan Basins in the United States. The
Company cautions that there are many uncertainties inherent in estimating proved
reserve quantities and in projecting future production rates and the timing of
development expenditures. In addition, estimates of new discoveries are more
imprecise than those of properties with a production history. Accordingly, these
estimates are expected to change as future information becomes available.
Material revisions of reserve estimates may occur in the future, development and
production of the oil and gas reserves may not occur in the periods assumed and
actual prices realized and actual costs incurred may vary significantly from
assumptions used. Proved reserves represent estimated quantities of natural gas
and oil that geological and engineering data demonstrate, with reasonable
certainty, to be recoverable in future years from known reservoirs under
economic and operating conditions existing at the time the estimates were made.
Proved developed reserves are proved reserves expected to be recovered through
wells and equipment in place and under operating methods being utilized at the
time the estimates were made. The accuracy of a reserve estimate is a function
of:

     -   the quality and quantity of available data;

     -   the interpretation of that data;

     -   the accuracy of various mandated economic assumptions; and

     -   the judgment of the persons preparing the estimate.

         The Company's proved reserve information is based on estimates it
prepared. Estimates prepared by others may be higher or lower than the Company's
estimates. The Company's estimates of proved

                                       11

<PAGE>

reserves have been reviewed by independent petroleum engineers.

CAPITALIZATION, DEPRECIATION, DEPLETION AND IMPAIRMENT OF LONG-LIVED ASSETS

         See the "Successful Efforts Method of Accounting" discussion above.
Capitalized costs related to proved properties are depleted using the
unit-of-production method. Depreciation, depletion and amortization of proved
oil and gas properties is calculated on the basis of estimated recoverable
reserve quantities. These estimates can change based on economic or other
factors. No gains or losses are recognized upon the disposition of oil and gas
properties except in extraordinary transactions. Sales proceeds are credited to
the carrying value of the properties. Maintenance and repairs are expensed, and
expenditures which enhance the value of properties are capitalized.

         Unproved oil and gas properties are stated at cost and consist of
undeveloped leases. These costs are assessed periodically to determine whether
their value has been impaired, and if impairment is indicated, the costs are
charged to expense.

         Gas gathering systems are stated at cost. Depreciation expense is
computed using the straight-line method over 15 years.

         Property and equipment are stated at cost. Depreciation of non-oil and
gas properties is computed using the straight-line method over the useful lives
of the assets ranging from 3 to 15 years for machinery and equipment and 30 to
40 years for buildings. When assets other than oil and gas properties are
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is reflected in
income for the period. The cost of maintenance and repairs is expensed as
incurred, and significant renewals and betterments are capitalized.

         Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash flows is less
than the carrying amount of the asset, a loss is recognized for the difference
between the fair value and the carrying amount of the asset. Fair value was
based on management's outlook of future oil and natural gas prices and estimated
future cash flows to be generated by the assets, discounted at a market rate of
interest.

DERIVATIVES AND HEDGING

         The Company recognizes all derivative financial instruments as either
assets or liabilities at fair value. Derivative instruments that are not hedges
must be adjusted to fair value through net income (loss). Changes in the fair
value of derivative instruments that are fair value hedges are offset against
changes in the fair value of the hedged assets, liabilities, or firm
commitments, through net income (loss). Changes in the fair value of derivative
instruments that are cash flow hedges are recognized in other comprehensive
income (loss) until such time as the hedged items are recognized in net income
(loss). Ineffective portions of a derivative instrument's change in fair value
are immediately recognized in net income (loss). Deferred gains and losses on
terminated commodity hedges will be recognized as increases or decreases to oil
and gas revenues during the same periods in which the underlying forecasted
transactions are recognized in net income (loss).

         The relationship between the hedging instruments and the hedged items
must be highly effective in achieving the offset of changes in fair values or
cash flows attributable to the hedged risk both at the inception of the contract
and on an ongoing basis. The Company measures effectiveness on changes in the
hedge's intrinsic value. The Company considers these hedges to be highly
effective and expects there will be no ineffectiveness to be recognized in net
income (loss) since the critical terms of the hedging instruments and the hedged
forecasted transactions are the same. Ongoing assessments of hedge

                                       12

<PAGE>

effectiveness will include verifying and documenting that the critical terms of
the hedge and forecasted transaction do not change. The Company measures
effectiveness on at least a quarterly basis.

         The Company's financial results and cash flows can be significantly
impacted as commodity prices fluctuate widely in response to changing market
conditions. To manage its exposure to natural gas or oil price volatility, the
Company has entered into NYMEX based commodity derivative contracts, currently
natural gas swaps, options and collars, and has designated the contracts for the
special hedge accounting treatment. Had the Company not designated the
derivative contracts as hedges, the change in fair value of the contracts would
have been reflected directly in the statement of operations.

REVENUE RECOGNITION

         Oil and gas production revenue is recognized as production and delivery
take place. Oil and gas marketing revenues are recognized when title passes.
Oilfield service revenues are recognized when the goods or services have been
provided.

NEW ACCOUNTING PRONOUNCEMENTS

         On January 1, 2003, the Company adopted SFAS 143, "Accounting for Asset
Retirement Obligations." SFAS 143 amends SFAS 19, "Financial Accounting and
Reporting by Oil and Gas Producing Companies" to require the Company to
recognize a liability for the fair value of its asset retirement obligations
associated with its tangible, long-lived assets. The majority of the asset
retirement obligations recorded by the Company relate to the plugging and
abandonment (excluding salvage value) of its oil and gas properties. At January
1, 2003, there were no assets legally restricted for purposes of settling asset
retirement obligations. The adoption of SFAS 143 resulted in a January 1, 2003
cumulative effect adjustment to record a $4.0 million increase in long-term
asset retirement obligation liabilities, a $621,000 increase in current asset
retirement obligation liabilities, a $3.2 million increase in the carrying value
of oil and gas assets, a $5.2 million decrease in accumulated depreciation,
depletion and amortization and a $1.4 million increase in deferred income tax
liabilities. The net effect of adoption was to record a gain of $2.4 million,
net of tax, as a cumulative effect of a change in accounting principle in the
Company's consolidated statement of operations in the first quarter of 2003.

         Subsequent to the adoption of SFAS 143, there has been no significant
current period activity with respect to additional retirement obligations,
settled obligations, accretion expense and revisions of estimated cash flows.
The unaudited pro forma net income for the nine months and quarter ended
September 30, 2002 was $5.9 million and $1.4 million, respectively, and has been
prepared to give effect to the adoption of SFAS 143 as if it had been adopted on
January 1, 2002. Assuming retroactive application of the change in accounting
principle as of January 1, 2002, liabilities would have increased approximately
$6 million.

         A reconciliation of the Company's liability for plugging and
abandonment costs for the nine months ended September 30, 2003 is as follows (in
thousands):

<TABLE>
<S>                                                  <C>
Asset retirement obligation, December 31, 2002       $    --
      Cumulative effect adjustment                     4,614
      Liabilities incurred                               204
      Liabilities settled                               (138)
      Accretion expense                                  263
                                                     -------
Asset retirement obligation, September 30, 2003      $ 4,943
                                                     =======
</TABLE>

                                       13

<PAGE>

         On January 1, 2003, the Company adopted SFAS 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS 145 rescinds SFAS 4, "Reporting Gains and Losses from
Extinguishment of Debt," SFAS 44, "Accounting for Intangible Assets of Motor
Carriers" and SFAS 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and amends SFAS No. 13, "Accounting for Leases." Statement 145
also makes technical corrections to other existing pronouncements. SFAS 4
required gains and losses from extinguishment of debt to be classified as an
extraordinary item, net of the related income tax effect. As a result of the
rescission of SFAS 4, the criteria for extraordinary items in APB 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," now will be used to classify those gains and losses. The adoption
of SFAS 145 did not have any effect on the Company's financial position, results
of operations or cash flows.

         In June 2002, the FASB issued SFAS 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS 146 was effective for the
Company for disposal activities initiated after December 31, 2002. The adoption
of this standard did not have any effect on the Company's financial position,
results of operations or cash flows.

         In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45's disclosure requirements are effective for the
Company's interim and annual financial statements for periods ending after
December 15, 2002. The initial recognition and measurement provisions are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. FIN 45 requires certain guarantees to be recorded at fair
value, which is different from current practice, which is generally to record a
liability only when a loss is probable and reasonably estimable. FIN 45 also
requires a guarantor to make significant new disclosures, even when the
likelihood of making any payments under the guarantee is remote. The adoption of
FIN 45 did not have any effect on the Company's financial statement disclosures,
financial position, results of operations or cash flows.

         In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS 148 amends FASB 123, "Accounting
for Stock-Based Compensation," to provide alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on the reported results. The
Company measures expense associated with stock-based compensation using the
intrinsic value method prescribed by APB 25, "Accounting for Stock Issued to
Employees" and its related interpretations. Under APB 25, no compensation
expense is required to be recognized by the Company upon the issuance of stock
options to key employees as the exercise price of the option is equal to the
market price of the underlying common stock at the date of grant. The provisions
of SFAS 148 were effective for financial statements for fiscal years ending
after December 15, 2002. The adoption of SFAS 148 did not have a material effect
on the Company's financial position, results of operations or cash flows.

         The fair value of the Company's stock options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for the first nine months of 2003 and 2002,
respectively: risk-free interest rates of 3.7% and 4.4%, volatility factor of
the expected market price of the Company's common stock of near zero, dividend
yield of zero, and a weighted-average expected life of the option of seven
years.

                                       14

<PAGE>

         The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.

         For purposes of the pro forma disclosures required by SFAS 123, the
estimated fair value of the options is amortized to expense over the options'
vesting period. The changes in net income or loss as if the Company had applied
the fair value provisions of SFAS 123 for the quarters ended September 30, 2003
and 2002 were not material.

         In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities - An Interpretation of Accounting Research Bulletin (ARB) 51."
FIN 46 is an interpretation of ARB 51, "Consolidated Financial Statements," and
addresses consolidation by business enterprises of VIEs. The primary objective
of FIN 46 is to provide guidance on the identification of, and financial
reporting for, entities over which control is achieved through means other than
voting rights; such entities are known as VIEs. FIN 46 requires an enterprise to
consolidate a VIE if that enterprise has a variable interest that will absorb a
majority of the entity's expected losses if they occur, receive a majority of
the entity's expected residual returns if they occur, or both. An enterprise
shall consider the rights and obligations conveyed by its variable interests in
making this determination. This guidance applies immediately to VIEs created
after January 31, 2003, and to VIEs in which an enterprise obtains an interest
after that date. It applies in the first fiscal year or interim period beginning
after December 15, 2003, to VIEs in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The adoption of FIN 46 is not
expected to have any effect on the Company's financial statement disclosures,
financial position, results of operations or cash flows.

         In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement is intended to
result in more consistent reporting of contracts as either freestanding
derivative instruments subject to Statement 133 in its entirety, or as hybrid
instruments with debt host contracts and embedded derivative features. SFAS 149
is effective for the Company's financial statements for the interim period
beginning July 1, 2003. The adoption of SFAS 149 did not have a material effect
on the Company's financial position, results of operations or cash flows.

         In May 2003, the FASB issued SFAS 150, "Accounting for Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. Instruments that are indexed to
and potentially settled in an issuer's own shares that are not within the scope
of Statement 150 remain subject to existing guidance. SFAS 150 is effective for
the Company's financial statements for the interim period beginning July 1,
2003. The adoption of SFAS 150 did not have a material effect on the Company's
financial position, results of operations or cash flows.

         The Company has been made aware of an issue regarding the application
of provisions of SFAS 141, "Business Combinations" and SFAS 142, "Goodwill and
Other Intangible Assets," to oil and gas companies. The issue is whether SFAS
142 requires registrants to reclassify costs associated with mineral rights,
including both proved and unproved leasehold acquisition costs, as intangible
assets in the balance sheet, apart from other capitalized oil and gas property
costs. Historically, the Company and other oil and

                                       15

<PAGE>

gas companies have included the cost of oil and gas leasehold interests as part
of oil and gas properties and provided the disclosures required by SFAS 69,
"Disclosures about Oil and Gas Producing Activities."

         If it is ultimately determined that SFAS 142 requires the Company to
reclassify costs associated with mineral rights from property and equipment to
intangible assets, the Company currently believes that its financial condition,
results of operations or cash flows would not be affected, since such intangible
assets would continue to be depleted and assessed for impairment in accordance
with existing successful efforts accounting rules and impairment standards. The
Company had undeveloped leasehold costs of $12.8 million at September 30, 2003.
The amount of potential balance sheet reclassifications for developed leasehold
costs has not been determined.

RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
COMPARED

         The following Management's Discussion and Analysis is based on the
results of operations from continuing operations, unless otherwise noted.
Accordingly, the discontinued operations have been excluded.

         The following table sets forth certain information regarding the
Company's net oil and natural gas production, revenues and expenses for the
quarters indicated:

<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED        NINE MONTHS ENDED
                                          SEPTEMBER 30,            SEPTEMBER 30,
                                      --------------------      -------------------
                                       2003          2002        2003         2002
                                      ------       -------      -------     -------
<S>                                   <C>          <C>          <C>         <C>
PRODUCTION
  Gas (Mmcf)                           3,836        3,978        10,896      12,260
  Oil (Mbbls)                            103          139           306         429
  Total production (Mmcfe)             4,456        4,811        12,732      14,836

AVERAGE PRICE
  Gas (per Mcf)                       $ 4.87       $ 4.80       $  4.94     $  4.78
  Oil (per Bbl)                        27.57        24.90         28.07       22.20
  Mcfe                                  4.84         4.69          4.90        4.59
AVERAGE COSTS (PER MCFE)
  Production expense                    1.12         1.01          1.12        1.00
  Production taxes                      0.14         0.08          0.15        0.09
  Depletion                             0.80         0.88          0.78        0.88
OPERATING MARGIN (PER MCFE)             3.58         3.60          3.63        3.50
</TABLE>

<TABLE>
<S>                      <C>                     <C>
MMCF-MILLION CUBIC FEET  MBBLS-THOUSAND BARRELS  MMCFE-MILLION CUBIC FEET OF NATURAL GAS EQUIVALENT
MCF-THOUSAND CUBIC FEET  BBL-BARREL              MCFE-THOUSAND CUBIC FEET OF NATURAL GAS EQUIVALENT
OPERATING MARGIN (PER MCFE)-AVERAGE PRICE LESS PRODUCTION EXPENSE AND PRODUCTION TAXES
</TABLE>

RESULTS OF OPERATIONS - THIRD QUARTERS OF 2003 AND 2002 COMPARED

         Operating income decreased $3.7 million (48%) from $7.6 million in the
third quarter of 2002 to $3.9 million in the third quarter of 2003. This
decrease was primarily a result of a $1.7 million (10%) decrease in operating
margins, a $1.9 million (44%) increase in exploration expense, a $542,000
decrease in other revenue and a $404,000 increase in derivative fair value loss
partially offset by a $845,000 decrease in depreciation, depletion and
amortization.

         The $1.7 million decrease in operating margins was primarily due to a
$1.4 million decrease in the operating margin from oil and gas sales resulting
primarily from a decrease in oil and gas volumes sold partially offset by an
increase in the average prices realized for the Company's oil and natural gas in

                                       16

<PAGE>

the third quarter of 2003. A $338,000 decrease in the operating margin from gas
gathering, marketing and oilfield service also contributed to the decrease in
operating margins.

         Income or loss from continuing operations before income taxes and
cumulative effect of change in accounting principle decreased $4.2 million from
income of $1.7 million in the third quarter of 2002 to a loss of $2.5 million in
the third quarter of 2003. This decrease is due primarily to the decrease in
operating income discussed above and a $592,000 increase in interest expense.

         Net income decreased $2.7 million from net income of $1.1 million in
the third quarter of 2002 to a net loss of $1.6 million in the third quarter of
2003. This decrease was a result of the $4.2 million increase in loss from
continuing operations before income taxes and cumulative effect of change in
accounting principle discussed above. This increase was partially offset by a
$1.5 million decrease in the provision for income taxes.

         Total revenues decreased $694,000 (3%) in the third quarter of 2003
compared to the third quarter of 2002 due to a $1.0 million decrease in oil and
gas sales revenues and a $542,000 decrease in other revenues partially offset by
a $872,000 increase in gas gathering, marketing and oilfield service revenues.
The decrease in other revenues is due to the loss of revenue from Section 29 tax
credit monetization transactions which ended upon expiration of the
non-conventional fuel source tax credit as of December 31, 2002. The increase in
gas gathering, marketing and oilfield service revenues was due to a $919,000
increase in gas marketing revenues primarily resulting from higher natural gas
prices.

         Gas volumes sold in the third quarter of 2003 were 3.8 Bcf, a decrease
of 142 Mmcf (4%) compared to the third quarter of 2002 due primarily to the sale
of wells in Ohio and Pennsylvania during 2002 and the natural decline of the
wells partially offset by production from wells drilled in 2003 and 2002. The
decrease in gas volumes sold resulted in a decrease in gas sales revenues of
approximately $680,000. Oil volumes sold decreased 35,000 Bbls (25%) from
139,000 Bbls in the third quarter of 2002 to 103,000 Bbls in the third quarter
of 2003 primarily due to the sale of wells in Ohio during 2002 and the natural
decline of the wells. This resulted in a decrease in oil sales revenues of
approximately $880,000.

         The average price realized for the Company's natural gas increased
$0.07 per Mcf to $4.87 per Mcf in the third quarter of 2003 compared to the
third quarter of 2002, which increased gas sales revenues in the third quarter
of 2003 by approximately $270,000. As a result of the Company's hedging
activities, gas sales revenues for the third quarter of 2003 decreased by
approximately $1.1 million or $0.30 per Mcf compared to an increase of
approximately $5.2 million or $1.33 per Mcf for the third quarter of 2002. The
average price realized for the Company's oil increased from $24.90 per Bbl in
the third quarter of 2002 to $27.57 per Bbl in the third quarter of 2003 which
increased oil sales revenues by approximately $280,000.

         Production expense increased $142,000 (3%) from $4.8 million in the
third quarter of 2002 to $5.0 million in the third quarter of 2003 primarily due
to increased costs to stimulate production on declining wells in the higher oil
and natural gas price environment of 2003. The average production cost increased
from $1.01 per Mcfe in the third quarter of 2002 to $1.12 per Mcfe in the third
quarter of 2003 due to the cost increases and lower volumes discussed above.
Production taxes increased $230,000 from $385,000 in the third quarter of 2002
to $615,000 in the third quarter of 2003. Average per unit production taxes
increased from $0.08 per Mcfe in the third quarter of 2002 to $0.14 per Mcfe in
the third quarter of 2003 primarily due to higher oil and gas prices in
Michigan, where production taxes are based on a percentage of revenues,
excluding the effect of hedging.

                                       17

<PAGE>

         Exploration expense increased $1.9 million (44%) from $4.2 million in
the third quarter of 2002 to $6.1 million in the third quarter of 2003 primarily
due to a $2.8 million increase in dry hole expense partially offset by lower
land leasing expenses and decreased expiring lease costs.

         General and administrative expense of $1.1 million in the third quarter
of 2003 was consistent when compared to the third quarter of 2002.

         Depreciation, depletion and amortization decreased by $845,000 (15%)
from $5.6 million in the third quarter of 2002 to $4.7 million in the third
quarter of 2003. Depletion expense decreased $660,000 (16%) from $4.2 million in
the third quarter of 2002 to $3.6 million in the third quarter of 2003 due to
lower oil and gas volumes sold and a lower depletion rate per Mcfe. Depletion
per Mcfe decreased from $0.88 per Mcfe in the third quarter of 2002 to $0.80 per
Mcfe in the third quarter of 2003. This decrease in the depletion rate per Mcfe
was primarily due to higher reserves resulting from higher oil and gas prices at
year-end 2002, excluding the effect of hedging, and the effect of the adoption
of SFAS 143. The depreciable basis of oil and gas properties was increased by
the fair value of the estimated future plugging liability and decreased by the
gross amount of the estimated salvage value of the well equipment.

         Interest expense increased $592,000 (10%) from $5.9 million in the
third quarter of 2002 to $6.5 million in the third quarter of 2003 due to higher
average outstanding borrowings and higher blended interest rates in the third
quarter of 2003.

         Income tax expense decreased $1.5 million from $653,000 in the third
quarter of 2002 to a benefit of $895,000 in the third quarter of 2003 due
primarily to the decrease in income from continuing operations before income
taxes.

         In accordance with SFAS 144, the Company was required to reclassify the
assets, liabilities and results of discontinued operations for all accounting
periods presented. Although both revenues and expenses for prior periods were
reclassified, there was no impact upon previously reported net earnings.

RESULTS OF OPERATIONS - NINE MONTHS OF 2003 AND 2002 COMPARED

         Operating income decreased $5.3 million (21%) from $25.2 million in the
first nine months of 2002 to $19.9 million in the first nine months of 2003.
This decrease was primarily a result of a $7.5 million (14%) decrease in
operating margins, a $1.1 million decrease in other revenue and a $762,000 (8%)
increase in exploration expense partially offset by a $3.9 million decrease in
depreciation, depletion and amortization.

         The $7.5 million decrease in operating margins was primarily due to a
$5.8 million decrease in the operating margin from oil and gas sales resulting
primarily from a decrease in oil and gas volumes sold partially offset by an
increase in the average prices realized for the Company's oil and natural gas in
the first nine months of 2003. A $1.7 million decrease in the operating margin
from gas gathering, marketing and oilfield service, resulting primarily from a
lower margin on a gathering system in Pennsylvania, also contributed to the
decrease in operating margins.

         Income from continuing operations before income taxes and cumulative
effect of change in accounting principle decreased $6.8 million from $7.6
million in the first nine months of 2002 to $789,000 in the first nine months of
2003. This decrease is due primarily to the decrease in operating income
discussed above and a $1.5 million increase in interest expense.

         Net income decreased $2.5 million from $5.2 million in the first nine
months of 2002 to $2.7 million in the first nine months of 2003. This decrease
was a result of the decrease in income from continuing operations before income
taxes and cumulative effect of change in accounting principle

                                       18

<PAGE>

discussed above and a $583,000 decrease in income from discontinued operations.
This decrease in net income was partially offset by a $2.4 million gain on the
cumulative effect of change in accounting principle, net of tax, recorded in the
first nine months of 2003 related to asset retirement obligations and a decrease
in the provision for income taxes of $2.6 million.

         Total revenues decreased $5.1 million (6%) in the first nine months of
2003 compared to the first nine months of 2002 due to a $5.7 million decrease in
oil and gas sales revenues and a $1.1 million decrease in other revenues
partially offset by a $1.7 million increase in gas gathering, marketing and
oilfield service revenues. The decrease in other revenues is due to the loss of
revenue from Section 29 tax credit monetization transactions which ended upon
expiration of the non-conventional fuel source tax credit as of December 31,
2002. The increase in gas gathering, marketing and oilfield service revenues was
due primarily to a $4.9 million increase in oilfield service revenues primarily
from drilling operations as a result of the acquisition of a drilling consulting
business in the second quarter of 2002. This increase was partially offset by a
$3.3 million decrease in gas gathering and marketing revenues resulting from a
decrease in gas marketing activity, the termination of a gas marketing contract
and lower revenues from a gas gathering system in Pennsylvania.

         Gas volumes sold in the first nine months of 2003 decreased 1.4 Bcf
(11%) from 12.3 Bcf in the first nine months of 2002 to 10.9 Bcf in the first
nine months of 2003 due primarily to the sale of wells in Ohio and Pennsylvania
during 2002, extreme weather conditions experienced in the first quarter of 2003
and the natural decline of the wells partially offset by production from wells
drilled in 2003 and 2002. The decrease in gas volumes sold resulted in a
decrease in gas sales revenues of approximately $6.5 million. Oil volumes sold
decreased 123,000 Bbls (29%) from 429,000 Bbls in the first nine months of 2002
to 306,000 Bbls in the first nine months of 2003 primarily due to the sale of
wells in Ohio during 2002, extreme weather conditions experienced in the first
quarter of 2003 and the natural decline of the wells. This resulted in a
decrease in oil sales revenues of approximately $2.7 million. The extreme
weather conditions, including colder temperatures and greater snowfall,
negatively impacted production during the first quarter of 2003 due to
mechanical breakdowns and freezing of pipelines and wellheads which reduced
production and created difficulty accessing wells for production and well
maintenance.

         The average price realized for the Company's natural gas increased
$0.16 per Mcf to $4.94 per Mcf in the first nine months of 2003 compared to the
first nine months of 2002 which increased gas sales revenues in the first nine
months of 2003 by approximately $1.7 million. As a result of the Company's
hedging activities, gas sales revenues for the first nine months of 2003
decreased by approximately $9.7 million or $0.89 per Mcf compared to an increase
of approximately $17.2 million or $1.40 per Mcf for the first nine months of
2002. The average price realized for the Company's oil increased from $22.20 per
Bbl in the first nine months of 2002 to $28.07 per Bbl in the first nine months
of 2003 which increased oil sales revenues by approximately $1.8 million.

         Production expense decreased $562,000 (4%) from $14.8 million in the
first nine months of 2002 to $14.2 million in the first nine months of 2003
primarily due to the sale of wells in Ohio and Pennsylvania during 2002
partially offset by additional costs incurred as a result of colder temperatures
and greater amounts of snow during the first quarter of 2003 and increased costs
to stimulate production on declining wells in the higher oil and natural gas
price environment of 2003. The average production cost increased from $1.00 per
Mcfe in the first nine months of 2002 to $1.12 per Mcfe in the first nine months
of 2003 due to the cost increases and lower volumes discussed above. Production
taxes increased $629,000 from $1.3 million in the first nine months of 2002 to
$1.9 million in the first nine months of 2003. Average per unit production taxes
increased from $0.09 per Mcfe in the first nine months of 2002 to $0.15 per Mcfe
in the first nine months of 2003 primarily due to higher oil and gas prices in
Michigan, where production taxes are based on a percentage of revenues,
excluding the effect of hedging.

                                       19

<PAGE>

         Exploration expense increased $762,000 (8%) from $10.1 million in the
first nine months of 2002 to $10.8 million in the first nine months of 2003
primarily due to a $2.0 million increase in dry hole expense and higher delay
rental expenses partially offset by lower geophysical and land leasing expenses.

         General and administrative expense of $3.4 million in the first nine
months of 2003 was consistent when compared to the first nine months of 2002.

         Depreciation, depletion and amortization decreased by $3.9 million
(23%) from $17.4 million in the first nine months of 2002 to $13.5 million in
the first nine months of 2003. Depletion expense decreased $3.1 million (24%)
from $13.1 million in the first nine months of 2002 to $10.0 million in the
first nine months of 2003 due to lower oil and gas volumes sold and a lower
depletion rate per Mcfe. Depletion per Mcfe decreased from $0.88 per Mcfe in the
first nine months of 2002 to $0.78 per Mcfe in the first nine months of 2003.
This decrease in the depletion rate per Mcfe was primarily due to higher
reserves resulting from higher oil and gas prices at year-end 2002, excluding
the effect of hedging, and the effect of the adoption of SFAS 143. The
depreciable basis of oil and gas properties was increased by the fair value of
the estimated future plugging liability and decreased by the gross amount of the
estimated salvage value of the well equipment.

         Interest expense increased $1.5 million (9%) from $17.6 million in the
first nine months of 2002 to approximately $19.1 million in the first nine
months of 2003 due to higher blended interest rates in the first nine months of
2003. This increase was partially offset by a decrease in average outstanding
borrowings in the first nine months of 2003.

         Income tax expense decreased $2.6 million from $2.9 million in the
first nine months of 2002 to $336,000 in the first nine months of 2003 due
primarily to the decrease in income from continuing operations before income
taxes.

         In accordance with SFAS 144, the Company was required to reclassify the
assets, liabilities and results of discontinued operations for all accounting
periods presented. Although both revenues and expenses for prior periods were
reclassified, there was no impact upon previously reported net earnings.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's liquidity and capital resources are closely related to
and dependent on the current prices paid for its oil and natural gas.

         The Company's current ratio at September 30, 2003 was .75 to 1. During
the first nine months of 2003, the working capital from continuing operations
decreased $2.9 million from a deficit of $6.5 million at December 31, 2002 to a
deficit of $9.4 million at September 30, 2003. The decrease was primarily due to
a $4.5 million increase in accrued expenses and a $3.0 million decrease in the
fair value of derivatives in the first nine months of 2003 partially offset by a
$3.3 million increase in accounts receivable and a $2.0 million increase in the
deferred income taxes asset. The $3.3 million increase in accounts receivable
was primarily due to higher natural gas prices. The Company's operating
activities provided cash flows of $24.7 million during the first nine months of
2003.

         The Company has a $100 million revolving credit facility from Ableco
Finance LLC and Wells Fargo Foothill, Inc. (formerly known as Foothill Capital
Corporation) which matures on June 30, 2006. The Revolver bears interest at the
prime rate plus two percentage points, payable monthly. At September 30, 2003,
the interest rate was 6.00%. At September 30, 2003, the Company had $29.7
million of outstanding letters of credit. At September 30, 2003, the outstanding
balance under the credit agreement was $39.7 million with $55.6 million of
borrowing capacity available for general corporate purposes.

                                       20

<PAGE>

         The Revolver was amended on March 31, 2003 to increase the letter of
credit sublimit to $55 million. On May 30, 2003, the Company amended its $100
million revolving credit facility. The amendment increased the total commitment
amount from $100 million to $125 million solely to provide for a special letter
of credit facility in the amount of $25 million which combined with the existing
letter of credit sub-limit of $55 million would allow a total of $80 million in
letters of credit. The amendment also extended the Revolver's final maturity
date to June 30, 2006, from December 31, 2005.

         The Revolver, as amended, is subject to certain financial covenants.
These include a quarterly senior debt interest coverage ratio of 3.2 to 1
extended through March 31, 2006; and a senior debt leverage ratio of 2.7 to 1
extended through March 31, 2006. The amendment extended the early termination
fee, equal to .125% of the Revolver, to June 30, 2005, from December 31, 2004.
There is no termination fee after June 30, 2005.

         The Company's agreement with its hedging counterparty requires letters
of credit based on an initial collateral requirement plus any negative market
value thereafter. The initial collateral requirement currently is approximately
$10 million. At October 31, 2003, the Company's hedge position had a negative
market value of approximately $16.8 million and the aggregate minimum letter of
credit requirement was approximately $27.0 million. At October 31, 2003, the
Company had a total of $31.7 million of outstanding letters of credit.

         The Company is required to hedge, through financial instruments or
fixed price contracts, at least 20% but not more than 80% of its estimated
hydrocarbon production, on a Mcfe basis, for the succeeding 12 months on a
rolling 12-month basis. Based on the Company's hedges currently in place and its
expected production levels, the Company is in compliance with this hedging
requirement through August 2005.

         The Revolver is secured by security interests and mortgages against
substantially all of the Company's assets and is subject to periodic borrowing
base determinations. The borrowing base is the lesser of $100 million or the sum
of (i) 65% of the present value of the Company's proved developed producing
reserves subject to a mortgage; (ii) 45% of the present value of the Company's
proved developed non-producing reserves subject to a mortgage; and (iii) 40% of
the present value of the Company's proved undeveloped reserves subject to a
mortgage. The price forecast used for calculation of the future net income from
proved reserves is the three-year NYMEX strip for oil and natural gas as of the
date of the reserve report. Prices beyond three years are held constant provided
that the NYMEX strip price for natural gas shall not exceed $5.00 per Mmbtu.
Prices are adjusted for basis differential, fixed price contracts and financial
hedges in place. The weighted average price at September 30, 2003, was $4.71 per
Mcfe. The present value (using a 10% discount rate) of the Company's future net
income at September 30, 2003, using the borrowing base price forecast, was $419
million. The present value under the borrowing base formula above was
approximately $246 million for all proved reserves of the Company and $170
million for properties secured by a mortgage.

         The Revolver is subject to certain financial covenants. These include a
senior debt interest coverage ratio of 3.2 to 1 and a senior debt leverage ratio
of 2.7 to 1. EBITDA, as defined in the Revolver, and consolidated interest
expense on senior debt in these ratios are calculated quarterly based on the
financial results of the previous four quarters. In addition, the Company is
required to maintain a current ratio (including available borrowing capacity in
current assets, excluding current debt and accrued interest from current
liabilities and excluding any effects from the application of SFAS 133 to other
current assets or current liabilities) of at least 1.0 to 1 and maintain
liquidity of at least $5 million (cash and cash equivalents including available
borrowing capacity). As of September 30, 2003, the Company's current ratio
including the above adjustments was 3.93 to 1. The Company had satisfied all
financial covenants as of September 30, 2003.

                                       21

<PAGE>

         From time to time the Company may enter into interest rate swaps to
hedge the interest rate exposure associated with the credit facility, whereby a
portion of the Company's floating rate exposure is exchanged for a fixed
interest rate. There were no interest rate swaps in the first nine months of
2003 or 2002.

         During the first nine months of 2003, the Company invested
approximately $26 million, including exploratory dry hole expense, to drill 78
development wells and 11 exploratory wells. All 78 of the development wells and
three of the exploratory wells were successfully completed as producers in the
target formation. This cost excludes approximately $3.1 million related to 2
gross (1.5 net) Trenton Black River ("TBR") wells in progress as of September
30, 2003. If these wells are determined to be dry holes, their cost will be
charged to exploratory dry hole expense in subsequent periods.

         The Company had four exploratory wells in progress at December 31,
2002. Two of the wells were completed as productive TBR wells during the current
year while the other two wells were determined to be unproductive and
approximately $500,000 was recorded as exploratory dry hole expense in 2003.
Five additional exploratory wells were drilled to the TBR and one exploratory
and three development wells were drilled to the Oriskany formation in the first
nine months of 2003. One of the TBR wells and all three of the additional
development Oriskany wells were completed as producers while four TBR wells and
the exploratory Oriskany well were unproductive and the related drilling cost of
approximately $3.9 million was recorded as exploratory dry hole expense in the
third quarter of 2003.

         The Company currently expects to spend approximately $35 million during
2003 on its drilling activities, including exploratory dry hole expense, and
other capital expenditures. The Company intends to finance its planned capital
expenditures through its available cash flow, available revolving credit line
and the sale of non-strategic assets. At September 30, 2003, the Company had
approximately $55.6 million available under the Revolver. The level of the
Company's future cash flow will depend on a number of factors including the
demand for and price levels of oil and gas, the scope and success of its
drilling activities and its ability to acquire additional producing properties.

                                       22

<PAGE>

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Among other risks, the Company is exposed to interest rate and
commodity price risks.

         The interest rate risk relates to existing debt under the Company's
revolving credit facility as well as any new debt financing needed to fund
capital requirements. The Company may manage its interest rate risk through the
use of interest rate swaps to hedge the interest rate exposure associated with
the credit agreement, whereby a portion of the Company's floating rate exposure
is exchanged for a fixed interest rate. A portion of the Company's long-term
debt consists of senior subordinated notes where the interest component is
fixed. The Company had no derivative financial instruments for managing interest
rate risks in place as of September 30, 2003 or 2002. If market interest rates
for short-term borrowings increased 1%, the increase in the Company's interest
expense in the third quarter would be approximately $101,000. This sensitivity
analysis is based on the Company's financial structure at September 30, 2003.

         The commodity price risk relates to natural gas and crude oil produced,
held in storage and marketed by the Company. The Company's financial results can
be significantly impacted as commodity prices fluctuate widely in response to
changing market forces. From time to time the Company may enter into a
combination of futures contracts, commodity derivatives and fixed-price physical
contracts to manage its exposure to commodity price volatility. The fixed-price
physical contracts generally have terms of a year or more. The Company employs a
policy of hedging gas production sold under NYMEX based contracts by selling
NYMEX based commodity derivative contracts which are placed with major financial
institutions that the Company believes are minimal credit risks. The contracts
may take the form of futures contracts, swaps or options. If NYMEX gas prices
decreased $0.50 per Mcf, the Company's gas sales revenues for the quarter would
decrease by $1.0 million, after considering the effects of the hedging contracts
in place. The Company had no hedges or fixed price contracts on its oil
production during 2003 or 2002. If the price of crude oil decreased $3.00 per
Bbl, the Company's oil sales revenues for the quarter would decrease by
$310,000.

         To manage its exposure to natural gas or oil price volatility, the
Company may partially hedge its physical gas or oil sales prices by selling
futures contracts on the NYMEX or by selling NYMEX based commodity derivative
contracts which are placed with major financial institutions that the Company
believes are minimal credit risks. The contracts may take the form of futures
contracts, swaps, collars or options. The Company had a net pretax loss on its
hedging activities of $9.7 million in the first nine months of 2003 and a net
pretax gain of $17.5 million in the first nine months of 2002.

         In March 2003, the Company entered into a collar for 4,320 Bbtu of its
natural gas production in 2004 with a ceiling price of $5.80 per Mmbtu and a
floor price of $4.00 per Mmbtu. The Company also sold a floor at $3.00 per Mmbtu
on this volume of gas. This aggregate structure has the effect of: 1) setting a
maximum price of $5.80 per Mmbtu; 2) floating at prices from $4.00 to $5.80 per
Mmbtu; 3) locking in a price of $4.00 per Mmbtu if prices are between $3.00 and
$4.00 per Mmbtu; and 4) receiving a price of $1.00 per Mmbtu above the price if
the price is $3.00 or less. All prices are based on monthly NYMEX settle.

         In April 2003, the Company entered into a collar for 6,000 Bbtu of its
natural gas production in 2005 with a ceiling price of $5.37 per Mmbtu and a
floor price of $4.00 per Mmbtu. The Company also sold a floor at $3.10 per Mmbtu
on this volume of gas. This aggregate structure has the effect of: 1) setting a
maximum price of $5.37 per Mmbtu; 2) floating at prices from $4.00 to $5.37 per
Mmbtu; 3) locking in a price of $4.00 per Mmbtu if prices are between $3.10 and
$4.00 per Mmbtu; and 4) receiving a price of $0.90 per Mmbtu above the price if
the price is $3.10 or less. All prices are based on monthly NYMEX settle.

                                       23

<PAGE>

         The Company's financial results and cash flows can be significantly
impacted as commodity prices fluctuate widely in response to changing market
conditions. Accordingly, the Company may modify its fixed price contract and
financial hedging positions by entering into new transactions or terminating
existing contracts.

         The following table reflects the natural gas volumes and the weighted
average prices under financial hedges (including settled hedges) and fixed price
contracts at October 31, 2003:

<TABLE>
<CAPTION>
                                  NATURAL GAS SWAPS                     NATURAL GAS COLLARS              FIXED PRICE CONTRACTS
                        ------------------------------------  --------------------------------------  ---------------------------
                                                 ESTIMATED              NYMEX PRICE      ESTIMATED                    ESTIMATED
                                NYMEX PRICE   WELLHEAD PRICE             PER MMBTU    WELLHEAD PRICE  ESTIMATED    WELLHEAD PRICE
QUARTER ENDING           BBTU    PER MMBTU      PER MCF        BBTU    FLOOR/CAP (1)    PER MCF (1)      MMCF          PER MCF
--------------          -----  ------------   --------------  -----    -------------  --------------  ---------    --------------
<S>                     <C>    <C>            <C>             <C>      <C>            <C>             <C>          <C>
December 31, 2003       1,800  $       3.92   $         4.14  1,290    $ 3.40 - 5.23  $  3.62 - 5.45      55       $         4.00
                        -----  ------------   --------------  -----    -------------  --------------     ---       --------------
                        1,800  $       3.92   $         4.14  1,290    $ 3.40 - 5.23  $  3.62 - 5.45      55       $         4.00
                        =====  ============   ==============  =====    =============  ==============     ===       ==============
March 31, 2004          2,040  $       3.84   $         4.09  1,080    $ 4.00 - 5.80  $  4.25 - 6.05      54       $         4.10
June 30, 2004           2,040          3.84             3.99  1,080      4.00 - 5.80     4.15 - 5.95      37                 4.06
September 30, 2004      2,040          3.84             3.99  1,080      4.00 - 5.80     4.15 - 5.95       5                 3.20
December 31, 2004       2,040          3.84             4.06  1,080      4.00 - 5.80     4.22 - 6.02       5                 3.20
                        -----  ------------   --------------  -----    -------------  --------------     ---       --------------
                        8,160  $       3.84   $         4.03  4,320    $ 4.00 - 5.80  $  4.19 - 5.99     101       $         4.00
                        =====  ============   ==============  =====    =============  ==============     ===       ==============

March 31, 2005          1,500  $       3.84   $         4.09  1,500    $ 4.00 - 5.37  $  4.25 - 5.62       5       $         4.00
June 30, 2005           1,500          3.73             3.88  1,500      4.00 - 5.37     4.15 - 5.52       5                 4.00
September 30, 2005      1,500          3.73             3.88  1,500      4.00 - 5.37     4.15 - 5.52       5                 4.00
December 31, 2005       1,500          3.73             3.95  1,500      4.00 - 5.37     4.22 - 5.59       5                 4.00
                        -----  ------------   --------------  -----    -------------  --------------     ---       --------------
                        6,000  $       3.76   $         3.95  6,000    $ 4.00 - 5.37  $  4.19 - 5.56      20       $         4.00
                        =====  ============   ==============  =====    =============  ==============     ===       ==============
</TABLE>

<TABLE>
<S>                                  <C>
BBTU-BILLION BRITISH THERMAL UNITS   MMCF-MILLION CUBIC FEET
MMBTU-MILLION BRITISH THERMAL UNITS  MCF-THOUSAND CUBIC FEET
</TABLE>

(1) The NYMEX price per Mmbtu floor/cap and the estimated wellhead price per Mcf
for the natural gas collars in 2004 assume the monthly NYMEX settles at $3.00
per Mmbtu or higher. If the monthly NYMEX settles at less than $3.00 per Mmbtu
then the NYMEX price per Mmbtu will be the NYMEX settle plus $1.00 and the
estimated wellhead price per Mcf will be the NYMEX settle plus $1.15 to $1.25.
The NYMEX price per Mmbtu floor/cap and the estimated wellhead price per Mcf for
the natural gas collars in 2005 assume the monthly NYMEX settles at $3.10 per
Mmbtu or higher. If the monthly NYMEX settles at less than $3.10 per Mmbtu then
the NYMEX price per Mmbtu will be the NYMEX settle plus $0.90 and the estimated
wellhead price per Mcf will be the NYMEX settle plus $1.05 to $1.15.

                                       24

<PAGE>

ITEM 4. CONTROLS AND PROCEDURES

         As of the end of the period covered by this quarterly report, the
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15. Based upon the evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective as of the end of the period
covered by this quarterly report. During the quarter ended September 30, 2003,
there have been no changes in the Company's internal controls over financial
reporting, identified in connection with our evaluation thereof that have
materially affected, or are reasonably likely to materially affect our internal
control over financial reporting.

PART II          OTHER INFORMATION

         Item 6. Exhibits and Reports on Form 8-K

         (a)     Exhibits

31.1     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
         to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
         to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002.

         (b)     Reports on Form 8-K

         On August 27, 2003, the Company filed a Current Report on Form 8-K
dated August 22, 2003, reporting under Item 9 related to its operational outlook
for 2003.

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<PAGE>

SIGNATURES

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

                                     BELDEN & BLAKE CORPORATION



Date: November 10, 2003              By: /s/ John L. Schwager
                                         -------------------------------------
                                         John L. Schwager, Director, President
                                         and Chief Executive Officer

Date: November 10, 2003              By: /s/ Robert W. Peshek
                                         -------------------------------------
                                         Robert W. Peshek, Vice President
                                         and Chief Financial Officer

                                       26