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: June 30, 1997

                                       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: 0-10156

                             CAIRN ENERGY USA, INC.
             (Exact name of registrant as specified in its charter)

         Delaware                                            23-2169839
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                           Identification No.)

                8115 Preston Road, Suite 500, Dallas, Texas 75225
               (Address of principal executive offices) (Zip Code)

                                 (214) 369-0316
              (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.

Yes  X     No
    ----      ----
The number of shares outstanding of each of the issuer's classes of common stock
as of July 31, 1997:

                17,567,301 shares of common stock, par value $.01




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                             CAIRN ENERGY USA, INC.


                                      INDEX

                                                                        Page No.
                                                                        --------
PART I. FINANCIAL INFORMATION

  Item 1. Financial Statements

     Statements of Operations for the three and six
       months ended June 30, 1997 and 1996..................................  3

     Balance Sheets at June 30, 1997 and December 31, 1996 .................  4

     Statement of Changes in Stockholders' Equity for the
       six months ended June 30, 1997.......................................  6

     Statements of Cash Flows for the six months
       ended June 30, 1997 and 1996.........................................  7

     Notes to Financial Statements .........................................  8

  Item 2. Management's Discussion and Analysis of Financial
     Condition and Results of Operations.................................... 11

PART II. OTHER INFORMATION

  Item 1. Legal Proceedings................................................. 17

  Item 2. Changes in Securities............................................. 17

  Item 3. Defaults Upon Senior Securities................................... 17

  Item 4. Submission of Matters to a Vote of Security Holders............... 17

  Item 5. Other Information................................................. 17

  Item 6. Exhibits and Reports on Form 8-K.................................. 18



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                          PART I. FINANCIAL INFORMATION

                          Item 1. Financial Statements
<TABLE>
<CAPTION>

                             CAIRN ENERGY USA, INC.

                            STATEMENTS OF OPERATIONS
                Three and six months ended June 30, 1997 and 1996


                                      Three months ended      Six months ended
                                            June 30,             June 30,
                                      -------------------    -------------------
                                        1997        1996       1997       1996
                                      --------    -------    --------   --------
                                       (in thousands except per share amounts)


Revenues:
<S>                                   <C>         <C>        <C>        <C>     
     Oil and gas..................... $ 6,293     $ 7,488    $ 14,583   $ 14,741
     Other revenue...................      68          28         135         62
                                      -------     -------    --------   --------

      Total revenues.................   6,361       7,516      14,718     14,803


Expenses:
     Lease operating expenses........   1,000       1,004       1,765      1,632
     Depreciation, depletion &
      amortization...................   3,763       4,653       7,234      7,897
     Administrative expenses.........     344         396       1,052        778
     Interest........................     933         592       1,799      1,035
                                      -------     -------    --------   --------

      Total expenses.................   6,040       6,645      11,850     11,342
                                      -------     -------    --------   --------

Net income........................... $   321     $   871    $  2,868   $  3,461
                                      =======     =======    ========   ========

Net income per common and common
     equivalent share................ $  0.02     $  0.05    $   0.16   $   0.20
                                      =======     =======    ========   ========

Weighted average common and common
     shares outstanding..............  17,566      17,559      17,565     17,557
                                      =======     =======    ========   ========







                             See accompanying notes.

</TABLE>


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<TABLE>
<CAPTION>


                             CAIRN ENERGY USA, INC.

                                 BALANCE SHEETS


                                     ASSETS

                                            June 30,               December 31,
                                             1997                      1996
                                           ----------             --------------
                                                     (in thousands)

Current assets:
<S>                                        <C>                       <C>      
     Cash and cash equivalent............  $   3,915                 $   6,438
     Accounts receivable.................      4,962                     4,904
     Prepaid expenses....................        626                       482
                                           ---------                 ---------

              Total current assets.......      9,503                    11,824

Property and equipment at cost:
     Oil and gas properties, based on
       full cost accounting..............    223,516                   205,544
     Other equipment.....................        967                       958
                                           ---------                 ---------

                                             224,483                   206,502

     Less accumulated depreciation,
       depletion and amortization            (83,106)                  (75,877)
                                           ---------                ---------
     Net property and equipment..........    141,377                   130,625


Deferred charges, net of amortization....      1,010                       909
                                           ---------                ---------


     Total assets........................  $ 151,890                 $ 143,358
                                           =========                 =========


                             See accompanying notes.

</TABLE>

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<TABLE>
<CAPTION>


                             CAIRN ENERGY USA, INC.

                                 BALANCE SHEETS


                      LIABILITIES AND STOCKHOLDERS' EQUITY



                                               June 30,            December 31,
                                                 1997                  1996
                                              ----------           ------------
                                                        (in thousands)

Current liabilities:
<S>                                            <C>                   <C>      
     Accounts payable.....................     $   5,519             $   6,303
     Accrued lease operating expenses.....           368                   492
     Accrued well costs...................         2,408                 3,803
     Other accrued liabilities  ..........           164                   222
     Current maturities of long-term debt.        10,000                     -
                                               ---------             ---------

          Total current liabilities.......        18,459                10,820

Long-term debt ...........................        40,000                42,000


Stockholders' equity:
     Common stock, $.01 par value;
          30,000,000 shares authorized;
          Shares issued and outstanding;
          June 30, 1997 - 17,566,356 and
            December 31, 1996 - 17,564,128.          176                   176
     Additional paid-in capital............       94,859                94,834
                                               ---------             ---------
     Accumulated deficit...................       (1,604)               (4,472)
                                               ---------             ---------

          Total stockholders' equity.......       93,431                90,538
                                               ---------             ---------

          Total liabilities and
           stockholders' equity............    $ 151,890             $ 143,358
                                               =========             =========



                             See accompanying notes


</TABLE>


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<TABLE>
<CAPTION>

                             CAIRN ENERGY USA, INC.


                      STATEMENT OF CHANGES IN STOCKHOLDERS'
                        EQUITY Six months ended June 30,
                                      1997
                                 (in thousands)



                                       Additional                     Total
                        Common Stock    Paid-in      Accumulated   Stockholders'
                       --------------
                       Shares  Amount   Capital        Deficit        Equity
                       ------  ------   --------     -----------   -------------

Balance at
<S>       <C> <C>      <C>     <C>      <C>          <C>           <C>       
 December 31, 1996..   17,564  $  176   $ 94,834     $  (4,472)    $   90,538

   Net income.......        -       -          -         2,868          2,868

   Other............        2       -         25             -             25
                       ------  ------   --------     ----------    ----------


Balance at
 June 30, 1997......   17,566  $  176   $ 94,859     $  (1,604)    $   93,431
                       ======  ======   ========     ==========    ==========



                             See accompanying notes.

</TABLE>



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<TABLE>
<CAPTION>

                             CAIRN ENERGY USA, INC.

                            STATEMENTS OF CASH FLOWS
                     Six months ended June 30, 1997 and 1996


                                                       1997            1996
                                                     --------        --------
                                                          (in thousands)
Operating Activities:
<S>                                                   <C>             <C>    
 Net income......................................     $ 2,868         $ 3,461
  Adjustments to reconcile net income to net
    cash provided by operating activities:
    Depreciation, depletion and amortization.....       7,234           7,897
    Amortization of loan costs...................         193             191
    Amortization of prepaid gathering costs .....          42               -
    Change in operating assets and liabilities:
      Accounts receivable........................         (59)           (568)
      Prepaid expenses...........................        (143)           (313)
      Accounts payable...........................      (1,280)            520
      Accrued liabilities........................        (158)           (139)
      Other......................................           -              (6)
                                                      --------        --------

Net cash provided by operating activities........       8,697          11,043

Investing Activities:
    Exploration and development expenditures.....     (18,869)        (31,902)
    Proceeds from sale of natural gas and crude
      oil properties.............................           -             502
    Additions to other equipment ................          15            (150)
                                                      --------        --------

Net cash used in investing activities............     (18,884)        (31,550)

Financing Activities:
     Proceeds from long-term debt................       8,000          18,500
     Financing costs and other...................        (336)             31
                                                      --------        --------

Net cash provided by financing activities........       7,664          18,531
                                                      --------        --------
                                                                                 
Net change in cash and cash equivalents..........      (2,523)         (1,976)
Cash and cash equivalents at beginning of period.       6,438           3,553
                                                      --------        --------

Cash and cash equivalents at end of period.......     $ 3,915         $ 1,577
                                                      ========        ========

Supplemental cash flow information
Interest paid in cash............................     $ 1,606         $   838
                                                      ========        ========



                             See accompanying notes.

</TABLE>


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<PAGE>


                             CAIRN ENERGY USA, INC.

                          Notes to Financial Statements


1. Basis of Presentation

In the opinion of management,  the accompanying  unaudited financial  statements
reflect all adjustments  (consisting only of normal recurring adjustments) which
are necessary for a fair  presentation of the financial  position of the Company
at June 30,  1997,  the results of its  operations  for the three and six months
ended  June 30,  1997 and 1996 and the  results  of its cash  flows  for the six
months ended June 30, 1997 and 1996. These financial  statements  should be read
in  conjunction  with the notes to the Company's  annual  financial  statements,
which were  included in the  Company's  Annual  Report on Form 10-K for the year
ended December 31, 1996, filed with the Securities and Exchange  Commission (the
"Commission") on March 5, 1997.

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned  subsidiary.  All intercompany  accounts and transactions  have
been eliminated in consolidation.


2.  Long-term debt.

Long-term  debt at June  30,  1997  and  December  31,  1996,  consisted  of the
following:

<TABLE>
<CAPTION>

                                        June 30,                   December 31,
                                         1997                         1996
                                        --------                   ------------

<S>                                   <C>                           <C>        
  Revolving credit agreement .......  $50,000,000                   $42,000,000
  Less: Current maturities of
     long-term debt.................   10,000,000                             -
                                      ------------                 ------------

  Long-term debt less current
     maturities.....................  $40,000,000                   $42,000,000
                                      ============                 ============
</TABLE>

The Company has a credit  agreement,  as amended (the "INCC  Credit  Agreement")
with ING (U.S.) Capital Corporation,  f/k/a/  Internationale  Nederlanden (U.S.)
Capital  Corporation  ("INCC"),  Mees Pierson,  N.V. ("Mees Pierson") and Credit
Lyonnais ("Credit Lyonnais") (together, the "Bank Group"). At June 30, 1997, the
Company  had  outstanding  borrowings  of $50  million  under  the  INCC  Credit
Agreement.  The INCC Credit  Agreement  is secured by  substantially  all of the
Company's assets. It contains  financial  covenants which require the Company to
maintain a ratio of current assets to current liabilities (excluding the current
portion of related  debt) of no less than 1.0 to 1.0 and a tangible net worth of
not less than $40  million.  The Company is currently  in  compliance  with such
financial  covenants.  Prior to June 28, 1996,  outstanding  borrowings  accrued
interest  at either  INCC's  fluctuating  base rate or INCC's  reserve  adjusted
Eurodollar rate plus 1.5%, at the Company's  option.  On June 28, 1996, the INCC
Credit Agreement was amended,  (the "Third  Amendment") to decrease the addition
to the INCC  reserve  adjusted  Eurodollar  rate  from  1.5% to 1.25% as long as
outstanding  borrowings  are less than 75% of the borrowing  base. The borrowing
base was also increased from $45 million to $50 million.

On November 7, 1996 the Company  further  amended (the "Fourth  Amendment")  the
INCC Credit Agreement.  Under the Fourth Amendment,  Credit Lyonnais joined as a
lender under the INCC Credit  Agreement.  Also under the Fourth  Amendment,  the
original  facility under the INCC Credit  Agreement was designated as Facility A
and the maximum amount of the facility was increased in amount from $50 million

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<PAGE>



to $75 million;  provided,  however,  that the maximum  amount  available to the
Company cannot exceed the borrowing  base of its  properties as determined  from
time to time by the lenders. The borrowing base under Facility A was reconfirmed
as of November 7, 1996 at $50 million.  The revolving period of borrowings under
Facility A was extended from March 31, 1997 to September 30, 1997. The Company's
ability to borrow under  Facility A is dependent  upon the reserve  value of its
oil and gas  properties.  If the reserve value of the Company's  borrowing  base
declines,  the amount  available to the Company under Facility A will be reduced
and,  to the  extent  that  the  borrowing  base is less  than the  amount  then
outstanding under Facility A, the Company will be obligated to repay such excess
amount on 30-days'  notice from INCC or to provide  additional  collateral.  The
Bank Group has  substantial  discretion in determining  the reserve value of the
borrowing base.

In addition a second  facility was created under the Fourth  Amendment . The new
standby credit facility, Facility B, was for the amount of $14 million. Facility
B provided for three levels of borrowings by the Company, two of $5 million each
and one of $4 million.  There are no  restrictions  on the Company's  ability to
borrow the first $5 million under Facility B and the amount borrowed may be used
for  general  corporate  purposes.  The  Company's  ability to borrow  under the
further two levels of  borrowings  of $5 million  and $4 million,  respectively,
under  Facility B was  dependent  upon the  Company  establishing  total  proved
reserves  at  certain  levels  and  appropriate  ratios  between  the  Company's
outstanding  debt and the value of its proved  reserves.  The Company  must also
submit detailed  proposals,  acceptable to its lenders,  outlining the manner in
which the second two levels of borrowings  under Facility B would be used in the
development of the Company's oil and gas properties.  Facility B is repayable on
December 31, 1997. The interest margin over INCC's reserve  adjusted  Eurodollar
rate for  Facility B is either 3.25% or 3.75%,  depending  upon the ratio of the
amount of the outstanding loans to the value of the Company's proved reserves.

On March 17, 1997,  a Fifth  Amendment  was added to the INCC Credit  Agreement.
Under the Fifth Amendment,  the borrowing base for Facility A was increased from
$50 million to $65 million and the amount available under Facility B was reduced
from $14 million to $10  million  available  in two  levels.  The first level of
borrowing   under   Facility  B  remained   unchanged  at  $5  million  with  no
restrictions.  The  second  level of  borrowing  under  Facility B was set at $5
million with similar restrictions as in the Fourth Amendment.

On July 1, 1997, a Sixth Amendment was added to the INCC Credit  Agreement.  The
only change resulting from the Six Amendment results in Facility A converting to
a term loan on January 1, 1998,  instead of September  30, 1997, as in the Fifth
Amendment.  On January 1, 1998, the borrowings outstanding under Facility A will
be  converted to a term loan that  requires  quarterly  repayments  of principal
through  April 1, 2001.  Under the INCC  Credit  Agreement,  interest is payable
quarterly on any base rate  borrowings and payable  quarterly and on maturity of
any  Eurodollar  borrowings  if the maturity of the  Eurodollar  borrowing is in
excess of three months.



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The INCC Credit Agreement does not permit the Company to pay or declare any cash
or property dividends or otherwise make any distribution of capital. On Facility
A the Company is obligated to pay a quarterly fee equal to 0.5% per annum of the
unused  portion of the borrowing  base under the facility and a Letter of Credit
fee for each Letter of Credit in the amount of 1.5% per annum of the face amount
of such  Letter of Credit.  On  Facility B the  Company  is  obligated  to pay a
drawdown  fee for  each $5  million  borrowed  equal  to 0.5%  for the  first $5
million,  and 1.25% for the second $5  million.  Also,  the  Company  must pay a
quarterly fee equal to 0.5% per annum on the undrawn portion of Facility B.

The carrying value of the Company's long-term debt approximates fair value.

3.  Property and Equipment.

The Company  capitalized  approximately  $810,000 and $758,000 of internal costs
during  the six  months  ended  June  30,  1997  and  1996,  respectively.  Such
capitalized costs include salaries and related benefits of individuals  directly
involved in the Company's acquisition,  exploration, and development activities,
based on a percentage of their time devoted to such activities.

4.  Earnings per Share

In February 1997, the Financial  Accounting Standards Board issued Statement No.
128,  Earnings per Share,  which is required to be adopted on December 31, 1997.
At that time,  the Company will be required to change the method  currently used
to compute  earnings per share and to restate all prior  periods.  Under the new
requirements for calculating  primary earnings per share, the dilutive effect of
stock  options  will be excluded.  The impact on both primary and fully  diluted
earnings per share for the three and six month  periods  ended June 30, 1997 and
1996 is not expected to be material.

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<PAGE>







                             CAIRN ENERGY USA, INC.


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



This document includes and incorporates  "forwarding  looking" statements within
the  meaning of Section  27A of the  Securities  Act of 1933,  as  amended,  and
Section  21E  of  the  Securities  Exchange  Act  of  1934,  as  amended.   Such
forward-looking  statements relate to, among other things,  the Company's future
prospects,   developments,   level  of  capital  expenditures,  cash  flow  from
operations,  oil and gas reserves and  properties,  business  strategies for its
operations  and the  financing  of the  Company's  exploration  and  development
program.  These forward-looking  statements are identified by their use of terms
and phrases such as  "anticipate,"  "expect,"  estimate,"  "intend,"  "project,"
"believe," "will seek" and similar terms and phrases contained herein.  Although
the Company  believes that the  expectations  described in such forward- looking
statements are reasonable, these statements involve risks and uncertainties that
may cause actual  future  activities  and results of operations to be materially
different from that suggested or described in this document. These risks include
changes in market  conditions  in the oil and gas industry and demand and prices
for oil and gas, the impact of any economic  downturns  and  inflation and other
market  factors  affecting  the demand and supply of oil and gas,  the timing of
drilling  new  prospects,  variation  in  actual  production  results  from that
estimated in existing reserve data,  regulatory  changes  affecting  exploration
activities,  higher costs  associated  with drilling,  and the  availability  of
financing  for  the  Company's   activities.   Many  of  these  risks  are  more
specifically  set forth  under  the  caption  "Risk  Factors"  in the  Company's
Prospectus,  dated  September  14,  1995,  and  under the  caption  "Oil and Gas
Reserves"  in the  Company's  Annual  Report  on Form  10-K for the  year  ended
December 31, 1996,  and are disclosed in  conjunction  with the forward  looking
statements  included herein.  Should one or more of these risks or uncertainties
materialize or should underlying assumptions prove incorrect, actual results may
vary materially from those expected, estimated or projected.  Subsequent written
and oral  forward  looking  statements  attributable  to the  Company or persons
acting  on its  behalf  are  expressly  qualified  in  their  entirety  by  such
cautionary  disclosures,  including  without  limitation the President's  Letter
contained in the Second Quarter Report to Stockholders.


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Results of Operations

The following  table sets forth  certain  information  regarding the  production
volumes  of,  average  sales  prices  received  for,  average  production  costs
associated  with and average  depletion rate associated with the Company's sales
of oil and gas for the periods indicated.

<TABLE>
<CAPTION>

                                     Three months                  Six months
                                    ended June 30,               ended June 30,
                                    --------------               --------------
                                     1997    1996                 1997    1996
                                    ------  ------               ------  ------
Net Production:
<S>                                  <C>     <C>                  <C>     <C>  
  Gas (MMcf) ....................    2,332   2,820                4,559   5,188
  Oil (MBbl).....................       59      72                  129     142
  Average Sales Price:
  Gas (per Mcf) (1) .............   $ 2.22  $ 2.12               $ 2.60  $ 2.28
  Oil (per Bbl)..................   $18.35  $20.30               $20.50  $20.08
  Average Production Costs:
  (per Mcfe) (2).................   $ 0.37  $ 0.31               $ 0.33  $ 0.27
  Depletion rate: (per Mcfe) ....   $ 1.39  $ 1.42               $ 1.34  $ 1.29

(1)   Includes natural gas liquids.
(2)   Includes direct lifting costs (labor,  repairs and maintenance,  materials
      and  supplies)  and  the  administrative   costs  of  production  offices,
      insurance and property and severance taxes.

</TABLE>

Three months ended June 30, 1997 and 1996

Revenues

Total revenues decreased $1.2 million (15%) to $6.4 million for the three months
ended June 30, 1997, from $7.5 million for the three months ended June 30, 1996.
Revenues  decreased  primarily  as a result  of  natural  declining  oil and gas
production.


Expenses

Total expenses  decreased $606,000 (9%) to $6 million for the three months ended
June 30,  1997,  from $6.7  million for the three  months ended June 30, 1996. A
decrease in depreciation, depletion and depreciation ("DD&A") is the main reason
for the decrease in expenses.  DD&A decreased $891,000 (19%) to $3.8 million for
the three months  ended June 30, 1997,  from $4.7 million for the same period in
1996 due to a decrease in the  depletion  rate coupled  with reduced  production
volume. Administrative costs decreased $52,000 (13%) to $344,000 for the quarter
ended  June 30,  1997,  from  $396,000  for the same  period in 1996.  Decreased
consulting fees coupled with an increase in capitalized salaries and benefits of
individuals  directly  involved in the Company's  acquisition,  exploration  and
development  activities  partially offset by increased office rent accounted for
the majority of the  reduction.  Interest  expense  increased  $341,000 (58%) to
$933,000 for the three month period ended June 30, 1997,  compared with $592,000
for the same  period  in  1996.  Interest  expense  increased  due to  increased
borrowing  coupled  with a slight  increase  in interest  rates.  The changes in
production  costs  between the second  quarter 1997 and the second  quarter 1996
were insignificant.




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Net Income

Net Income decreased  $550,000 (63%), or $0.03 per share, to $321,000,  or $0.02
per share,  for the  quarter  ended June 30,  1997 from  $871,000,  or $0.05 per
share,  for the same period in 1996.  The primary  reason for the  decrease  was
decreased oil and gas production.


Six months ended June 30, 1997 and 1996


Revenues

Total  revenues of $14.7  million for the six months ended June 30,  1997,  were
virtually  unchanged from the same period in 1996.  Revenues were greater due to
increased  gas prices but were  offset by lower oil and gas  production  volumes
than in the comparable period in 1996.


Expenses

Total expenses increased $507,000 (4%) to $11.8 million for the six months ended
June 30,  1997,  from  $11.3  million  for the six months  ended June 30,  1996.
Interest  expense  increased  $764,000  (74%) to $1.8 million for the six months
ended  June  30,  1997,  from $1  million  for the  same  period  in 1996 due to
increased  borrowing to fund the Company's  exploration and development  program
coupled  with a  slight  increase  in  interest  rates.  Administrative  expense
increased  $274,000  (35%) to $1.1 million for the first six months of 1997 from
$778,000 for the same period in 1996 due  primarily to a severance  payment made
to the  Company's  former Chief  Financial  Officer  during the first quarter of
1997.  Depreciation,  depletion and amortization decreased $663,000 (8%) to $7.2
million for the six months  ended June 30,  1997,  from $7.9 million for the six
months ended June 30, 1996. This decrease was due to a decrease in the depletion
rate coupled with decreased production. Production costs increased $133,000 (8%)
to $1.8 million for the six months  ended June 30,  1997,  from $1.6 million for
the same period.


Net Income

Net income  decreased  $593,000 (17%),  or $0.04 per share, to $2.9 million,  or
$0.16 per share,  for the six months ended June 30, 1997, from $3.5 million,  or
$0.20  per  share,  for the same  period in 1996.  The  primary  reason  for the
decrease  was higher  interest  expense  due to  increased  borrowings  from the
Company's credit facility.


Capital Resources and Liquidity

At June 30, 1997,  the Company had existing  cash and cash  investments  of $3.9
million.  Net cash provided by operating activities was $8.7 million for the six
months  ended June 30,  1997,  compared  with $11 million for the same period in
1996.  The  primary  reason for this  decrease  in cash  provided  by  operating
activities was increased working capital requirements coupled with lower results
of operations (or earnings before depreciation, depletion and amortization). Net
cash used in investing  activities  for the six months ended June 30, 1997,  was
$18.9  million  compared  with $31.5  million for the same period in 1996.  This
decrease  was  principally  due  to  less   expenditures   for  exploration  and
development  projects  in the  first  half of 1997 when  compared  with the same
period in 1996.


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Net cash provided by financing  activities  for the first six months of 1997 was
$7.7 million  compared with $18.5 million for the same period in 1996.  The cash
provided by financing  activities for the period  consisted mainly of borrowings
under the Company's  revolving credit facility which were used to fund a portion
of the Company's capital spending program.

In the second quarter, the Company continued its development  operations on East
Cameron  Block  331/332 with the  drilling of the A-6  sidetrack #1 and the A-11
sidetrack #1. The A-11 sidetrack #1 has been completed and brought on production
at a rate of 804 BOPD and 1.2  MMCFD.  The A-6  sidetrack  #1 is  scheduled  for
completion  during the third quarter.  Re-completion  operations of the A-4 well
were finalized and production commenced in July 1997.  Completion  operations of
the  A-14  well  are now  finished  with  production  expected  to  commence  in
mid-August.

In April,  the Company  completed  the Ship Shoal Block 261  discovery  and flow
tested this well at a rate of 13 MMCFD and 215 BOPD.  A three  pile,  three well
slot  production  facility  capable  of  processing  25 MMCFD and 1,500 BOPD was
installed in May 1997.  Production  from this field commenced in late May and is
currently  producing  at a rate of 14.4  MMCFD  and 304  BOPD.  The  Company  is
operator of Ship Shoal Block 261 and owns a 50% working interest in the project.

During the second  quarter,  the Company  participated  in the drilling of three
exploratory  wells.  A well  drilled on Grand Isle  Block 77  encountered  three
non-commercial, gas bearing zones and was plugged and abandoned.
The Company owns a 33% working interest in Grand Isle Block 77.

The Company  participated in the drilling of an exploratory  well on High Island
Block A-364.  This well encountered 105 feet of indicated oil and gas pay in two
Pleistocene  sands.  After several  unsuccessful  attempts to free stuck logging
tools  and drill  pipe,  the well was  junked  and  abandoned.  The  Company  is
currently evaluating future plans to develop the potential discovery in addition
to reviewing the remaining  prospectivity  on the block.  The Company owns a 25%
working interest in High Island Block A-364.

The Company  participated in an exploratory  well drilled on Eugene Island Block
60 in June of this year. This well was plugged and abandoned after  encountering
a non-commercial  pay in the primary  objective.  The Company owns a 25% working
interest in Eugene Block 60.

The Company's  development  of East Cameron 349 area (East  Cameron  Blocks 349,
350,  355 and 356) is  underway.  In May, a three pile  jacket  with  separation
facilities was set over the existing two discovery  wells. In mid-July a jack up
drilling rig moved on location  and began  completion  operations  for these two
wells.  Additional  drilling  operations  for  this  development  are  scheduled
following the completion of the two existing  wells.  Production is scheduled to
commence from this  development late in the third quarter 1997. The Company owns
a 37.5% working interest in the East Cameron 349 project area.

Development of West Cameron Block 263 began in late July.  Development plans are
to set a minimal  caisson  supported deck and facility  capable of processing 25
MMCFD and 1,500  barrels of fluid per day.  Completion  of the well is currently
underway with first production expected in early September. The Company operates
and owns a 50% working interest in West Cameron Block 263.

The Company is  participating  in the  drilling of an  exploratory  well on Ship
Shoal  Block 11.  This well was spud in early  July and is  drilling  to a total
depth of 16,600 feet. The Company owns a 25% working interest in this well.

In  general,  because  the  Company's  oil  and gas  reserves  are  depleted  by
production, the success of its business stragegy is dependent on a continuous

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exploration  and  development   program.   Therefore,   the  Company's   capital
requirements  relate  primarily  to the  acquisition  of  undeveloped  leasehold
acreage and exploration and  development  activities.  In addition to pursuing a
number of existing exploration prospects,  the Company and its partners were the
high  bidder on 8 blocks in the Gulf of Mexico  Central  Area Lease Sale held on
March 5, 1997.  The  Company's  interest in these  blocks  ranges from 20 to 100
percent.  All eight blocks have been awarded to the Company and its partners for
a cost to the Company of $3.8 million.

The Company's  operating needs and capital spending programs have been funded by
borrowings under its bank credit  facilities,  proceeds from public offerings of
its Common Stock and cash flows from  operations.  The Company  expects  capital
expenditures   during  1997  to  total   approximately   $50  million  of  which
approximately  $20 million has been expended as of June 30, 1997.  The Company's
capital resources consist primarily of borrowing  capacity under the INCC Credit
Agreement ($15.0 million  remaining under Facility A and up to $10 million under
Facility B which are  available to the Company  assuming  that it satisfies  the
conditions to borrow under such facilities) and cash flow from operations.

If the Company is successful in a substantial number of its currently  scheduled
exploration prospects,  additional funds may be required in order to conduct the
necessary development activities.  Additionally,  if the Company is unsuccessful
in its currently scheduled exploration program, additional funds may be required
in order to continue the exploration and development program.

Projections  of  budgeted  capital  expenditures  and cash flow from  operations
through the end of 1997 indicate that Facility A under the INCC Credit Agreement
will be fully  drawn by  year-end,  and  therefore,  the  Company has decided to
postpone sufficient non-essential capital expenditures necessary to maintain $50
million of capital expenditures for 1997. Additional funds, if needed, will have
to be drawn from Facility B.  Borrowings  outstanding  under  Facility A will be
converted  to a term  loan  that  requires  quarterly  repayments  of  principal
beginning April 1, 1998 on an amortization  schedule  through April 1, 2001, and
all  borrowings  under  Facility B will be due on December 31, 1997. The Company
has entered  into an  Agreement  and Plan of Merger with The  Meridian  Resource
Corporation  ("TMRC") providing for the combination of the Company and TMRC (the
"Merger"). The Company believes that one of the benefits to be realized by it in
the  Merger is that the  combined  company  following  the  Merger  should  have
available  resources to fully  develop its  prospects and diversify its existing
reserve portfolio.  TMRC has advised the Company that it intends to enter into a
new credit  facility to refinance  its and the Company's  existing  indebtedness
upon  consummation  of the Merger.  If the proposed  Merger is not  consummated,
management  will seek to re-negotiate  its credit  facility or raise  additional
capital in the public or private  equity or debt  market.  There is no assurance
that management would be successfully in  re-negotiating  its credit facility or
raising additional capital on terms that are favorable to the Company.  The lack
of  sufficient  capital  could  require  the  Company to reduce it  interest  in
properties,  to forego developing reserves or may require the Company to curtail
its exploration and development  program. In addition,  the Company does not act
as operator with respect to a majority of its properties. The Company may not be
able to control the development  activities or the associated costs with respect
to properties operated by other parties.


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The Company's revenues and the value of its oil and gas properties have been and
will  continue to be affected  by changes in oil and gas prices.  The  Company's
ability to maintain current borrowing  capacity and to obtain additional capital
on attractive terms is also substantially  dependent on oil and gas prices (Note
2).  Oil  and  gas  prices  are  subject  to  significant   seasonal  and  other
fluctuations  that are beyond  the  Company's  ability  to  control or  predict.
Although  certain of the Company's  costs and expenses are affected by the level
of  inflation,  inflation  has not had a  significant  effect  on the  Company's
results of operations during 1996 or the first six months of 1997.

In an effort to reduce the effects of the volatility of the price of oil and gas
on the Company's operations,  management has adopted a policy of hedging oil and
gas  prices,  usually  when  such  prices  are at or in  excess  of  the  prices
anticipated  in the  Company's  operating  budget,  through the use of commodity
futures,  options,  forward contracts and swap agreements.  Hedging transactions
are limited by the Board of Directors  such that no  transaction  may fix an oil
and gas price for a term of more than 12 months,  and the  aggregate oil and gas
production  covered by all  transactions  may not  exceed  50% of the  Company's
budgeted  production for any 12-month period from the date of the transaction or
75% of the Company's  budgeted  production for any single month from the date of
the  transaction.  By hedging  its oil and gas prices,  the  Company  intends to
mitigate  the risk of  future  declines  in oil and gas  prices.  Under  certain
contracts should oil or gas prices increase above the contract rate, the Company
will not participate in the higher prices for the production.

The Company entered into a number of gas price swap transactions under which the
Company  received a fixed price per MMBtu and paid a floating price based on the
settlement  prices for the NYMEX  Natural Gas futures  contract for the delivery
month.  During the first six months of 1997 and 1996 oil and gas  revenues  were
increased  $1,000  and  decreased  $1.6  million,  respectively,  as a result of
hedging transactions.  The Company currently has no swap hedging transactions in
place.

The Company may enter into certain interest rate hedging  contracts.  By hedging
its  interest  rate under its  credit  facility,  the  Company  would  intend to
mitigate the risk of future  increases in interest rates.  Should interest rates
decrease below the contract rate, the Company will not  participate in the lower
interest rate for the portion of the credit facility under the hedging contract.
The Company currently has no interest rate hedging contracts in place.


Proposed Merger

On July 3, 1997,  the Company  entered into an Agreement and Plan of Merger (the
"Merger")  with The Meridian  Resources  Corporation  (TMRC)  providing  for the
combination of TMRC and the Company pursuant to an expected tax free exchange of
stock in which the  stockholders of the Company will be entitled to receive 1.08
shares of TMRC's  common  stock in exchange  for each  outstanding  share of the
Company's common stock. The Merger is subject to certain  conditions,  including
shareholder approval of both the Company and TMRC.









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                             CAIRN ENERGY USA, INC.

                           PART II - OTHER INFORMATION


ITEM 1 - LEGAL PROCEEDINGS

On July 7,  1997,  a lawsuit  was filed in the  Delaware  Chancery  Court in the
county of New Castle  against  the  Company,  certain of its  directors  and The
Meridian Resource  Corporation  ("TMRC").  The lawsuit, a proposed class action,
alleges that the Company's Board of Directors breached their fiduciary duties to
the Company's stockholders in connection with the proposed merger of the Company
and TMRC.  The  lawsuit  also  alleges  that TMRC aided and  abetted the alleged
breach of fiduciary duties by the directors of the Company. The lawsuit seeks to
enjoin the Merger,  and, in the alternative,  seeks recession of the Merger. The
lawsuit also seeks compensatory damages, attorneys fees and other costs from the
defendants.  The Company  believes that the lawsuit is without merit and intends
to vigorously contest it.

ITEM 2 - CHANGES IN SECURITIES

None

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5 - OTHER INFORMATION

I.  Merger

On July 3, 1997, Cairn Energy USA, Inc., a Delaware corporation (the "Company"),
entered into an Agreement and Plan of Merger (the "Merger  Agreement")  with The
Meridian Resource Corporation,  a Texas corporation ("TMRC"), and a wholly-owned
subsidiary  ("Sub")  of  TMRC,  providing  for the  combination  of TMRC and the
Company  pursuant to an expected  tax-free  merger (the  "Merger")  in which the
stockholders  of the Company  will be entitled to receive  1.08 shares of TMRC's
common stock,  $.01 par value ("TMRC Stock"),  in exchange for each  outstanding
share of the Company's common stock, $.01 par value (the "Company's Stock"). The
Merger is subject to various conditions,  including stockholder approval of both
the Company and TMRC.

The  description  of the terms and  conditions  of the Merger  Agreement in this
report are qualified in their entirety by reference to the Merger Agreement that
has been filed as an exhibit to the Company's Form 8-K, which was filed with the
Securities and Exchange  commission on July 16, 1997, and is hereby incorporated
herein by reference.

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II.  Amendment of Rights Agreement

In  connection  with the Merger,  the Board of Directors of the Company  amended
(the  "Amendment")  the Rights  Agreement (the "Rights  Agreement")  dated as of
April 1, 1997, between the Company and Stock Transfer Company of America,  Inc.,
as Rights Agent. See the Company's Form 8-K filed April 3, 1997.

The Amendment specifically permits the Merger and the acquisition by TMRC of the
Company's Common Stock pursuant to the Merger  Agreement.  The Amendment further
provides for the expiration of the Rights (as that term is defined in the Rights
Agreement) upon the closing of the Merger.


III.  Amendment of Employment Agreements

In connection with the Merger, the Board of Directors of the Company approved an
amendment to the employment  agreements (the "Agreements") of Michael R. Gilbert
and Robert P. Murphy,  extending the term of each of the  Agreements for one (1)
year. As amended, the Agreements will expire on December 31, 1998.


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Each of the following exhibits is filed herewith:

               2.1  Agreement  and Plan of Merger  dated as of July 3, 1997,  by
                    and among The Meridian Resource  Corporation,  C Acquisition
                    Corp. and Cairn Energy USA, Inc.  (Incorporated by reference
                    to Exhibit 2.1 of the  Company's  Form 8-K filed on July 16,
                    1997).

               4.1  First  Amendment  to Rights  Agreement,  dated as of July 3,
                    1997,  by and  between  Cairn  Energy  USA,  Inc.  and Stock
                    Transfer   Company  of  America,   Inc.   (Incorporated   by
                    referenced to Exhibit 4.1 of the Company's Form 8-K filed on
                    July 16, 1997).

             10.1   Filed  herewith.   Sixth  Amendment  to  First  Amended  and
                    Restated Credit Agreement, dated as of June 30, 1997, by and
                    among  Cairn   Energy   USA,   Inc.,   ING  (U.S.)   Capital
                    Corporation, f/k/a Internationale Nederlanden (U.S.) Capital
                    Corporation,  as agent, and ING (U.S.) Capital  Corporation,
                    MeesPierson  N.V. and Credit  Lyonnais  New York Branch,  as
                    lenders  (with  certain  exhibits  omitted  pursuant to Item
                    601(b)(2) of Regulation S-K).

             27.1   Filed herewith.  Financial Data Schedule

         (b) Reports on Form 8-K

             A Form 8-K was filed on July 16,  1997 to report  that the  Company
             had  entered  into an  agreement  and  plan  of  merger  with  TMRC
             providing for the  combination of TMRC and the Company  pursuant to
             an  expected  tax free  merger  in which  the  stockholders  of the
             Company  will be entitled to receive  1.08 shares of TMRC's  common
             stock in  exchange  for  each  outstanding  share of the  Company's
             common stock.




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                                   SIGNATURES



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

                                             CAIRN ENERGY USA, INC.
                                             (Registrant)




Date:  August 14, 1997                       /s/ Michael R. Gilbert
                                             ----------------------

                                             Michael R. Gilbert
                                             President




                                             /s/ A. Allen Paul
                                             ----------------------

                                             A. Allen Paul
                                             Senior Vice President and Treasurer
                                             (Principal Financial Officer)




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