<PAGE>   1


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   -----------

                                    FORM 10-Q

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED MARCH 31, 2001

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

                        COMMISSION FILE NUMBER: 333-30322

                                   -----------

                            CANAAN ENERGY CORPORATION
             (Exact name of Registrant as specified in its charter)

            OKLAHOMA                                   73-1300132
  (State or other jurisdiction of          (I.R.S. Employer Identification No.)
  incorporation or organization)


         211 NORTH ROBINSON, SUITE 1000N, OKLAHOMA CITY, OKLAHOMA 73102
          (Address of principal executive offices, including zip code)

                                 (405) 604-9200
              (Registrant's telephone number, including area code)

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

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:

         At May 14, 2001, Canaan Energy Corporation had outstanding 4,916,315
shares of Common Stock, par value $0.01


<PAGE>   2
                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                            CANAAN ENERGY CORPORATION

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

                                                                      MARCH 31,        DECEMBER 31,
                                                                        2001              2000
                                                                    ------------       ------------
                                                                    (UNAUDITED)
<S>                                                                 <C>                <C>
ASSETS

Current assets:
      Cash and cash equivalents                                     $  7,759,211       $  6,481,550
      Accounts receivable                                              9,751,648          7,569,328
      Other assets                                                       169,885            101,726
                                                                    ------------       ------------
           Total current assets                                       17,680,744         14,152,604
                                                                    ------------       ------------

Property and equipment, at cost, based on the full cost method
      of accounting for oil and natural gas properties                93,817,505         91,690,784
           Less accumulated depreciation and amortization            (21,983,712)       (20,258,478)
                                                                    ------------       ------------
                                                                      71,833,793         71,432,306
                                                                    ------------       ------------

Other assets                                                             171,644            188,255
                                                                    ------------       ------------

           Total assets                                             $ 89,686,181       $ 85,773,165
                                                                    ============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Accounts payable:
           Trade                                                    $    893,100       $  1,324,812
           Revenue and royalties due to others                         2,253,638          2,433,547
      Accrued  expenses                                                    5,453             99,536
      Income taxes payable                                             1,607,795          1,105,907
                                                                    ------------       ------------
           Total current liabilities                                   4,759,986          4,963,802
                                                                    ------------       ------------

Long-term debt                                                        33,964,683         33,964,683
Deferred income taxes                                                 10,721,000         10,514,000
Fair value of derivative instruments                                     471,000                 --

Stockholders' equity:
      Common stock, $0.01 par value                                       49,318             49,318
      Additional paid-in capital                                      57,027,781         57,027,781
      Treasury stock, at cost, 15,500 shares in 2001 and 2000           (146,281)          (146,281)
      Retained earnings (accumulated deficit)                        (16,869,306)       (20,600,138)
      Accumulated other comprehensive income (loss)                     (292,000)                --
                                                                    ------------       ------------
           Total stockholders' equity                                 39,769,512         36,330,680
                                                                    ------------       ------------

           Total liabilities and stockholders' equity               $ 89,686,181       $ 85,773,165
                                                                    ============       ============
</TABLE>





See accompanying notes to financial statements.




                                       1
<PAGE>   3

                            CANAAN ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                    THREE MONTHS ENDED MARCH 31,
                                                       2001              2000
                                                   ------------      ------------
                                                             (UNAUDITED)
<S>                                                <C>               <C>
REVENUES:
     Oil and natural gas sales                     $ 11,421,012      $  3,120,716

COSTS AND EXPENSES:
     Lease operating                                  1,097,989           429,911
     Production taxes                                   828,005           261,883
     Depreciation, depletion and amortization         1,725,234           623,565
     General and administrative expenses              1,079,411           556,642
     Interest expense                                   829,969           156,530
                                                   ------------      ------------
          Total costs and expenses                    5,560,608         2,028,531
                                                   ------------      ------------

Other income, principally interest                      126,428            29,279
                                                   ------------      ------------

Earnings before income taxes                          5,986,832         1,121,464

Income taxes                                          2,256,000             9,000
                                                   ------------      ------------

NET EARNINGS                                       $  3,730,832      $  1,112,464
                                                   ============      ============

EARNINGS PER AVERAGE COMMON SHARE
     OUTSTANDING - BASIC                           $       0.76      $       0.31
                                                   ============      ============
EARNINGS PER AVERAGE COMMON SHARE
     OUTSTANDING - DILUTED                         $       0.76      $       0.31
                                                   ============      ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
      BASIC                                           4,916,315         3,621,219
                                                   ============      ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
      DILUTED                                         4,930,655         3,621,219
                                                   ============      ============
</TABLE>



See accompanying notes to financial statements.




                                       2
<PAGE>   4


                      CANAAN ENERGY CORPORATION
              CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


<TABLE>
<CAPTION>

                                                              THREE MONTHS ENDED MARCH 31,
                                                                 2001             2000
                                                              ------------    ------------
                                                                         (UNAUDITED)

<S>                                                           <C>             <C>
Net earnings                                                  $  3,730,832    $  1,112,464

Other comprehensive income, net of tax:
     Cumulative effect of change in accounting principle        (1,578,899)             --
     Derivative losses reclassified into oil and
      natural gas sales                                            761,726              --
     Change in fair value of derivative instruments                525,173              --
                                                              ------------    ------------
Comprehensive income                                          $  3,438,832    $  1,112,464
                                                              ============    ============
</TABLE>


See accompanying notes to financial statements.




                                       3
<PAGE>   5

                            CANAAN ENERGY CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                           THREE MONTHS ENDED MARCH 31,
                                                             2001               2000
                                                          -----------       -----------
                                                                    (UNAUDITED)
<S>                                                       <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net earnings                                         $ 3,730,832       $ 1,112,464
     Adjustments to reconcile net earnings to net
     cash provided by operating activities:
         Depreciation, depletion and amortization           1,725,234           623,565
         Deferred income tax expense (benefit)                386,000            (8,000)
         Amortization of debt issuance costs                   16,611                --
         Forgiveness of subscription receivable                    --             2,738
         Increase in accounts receivable and
                   other assets                            (2,250,479)         (123,452)
         Decrease in accounts payable, accrued
                   expenses and other liabilities            (203,816)          (48,499)
                                                          -----------       -----------

                 Net cash provided by operating
                     activities                             3,404,382         1,558,816
                                                          -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                  (2,126,721)         (275,448)
     Repayments on notes receivable                                --           168,750
     Net proceeds from affiliate contract services                 --            21,016
     Costs related to business combinations                        --          (287,284)
                                                          -----------       -----------

                 Net cash used in investing
                     activities                            (2,126,721)         (372,966)
                                                          -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Borrowings on long-term debt                                  --           215,000
     Distributions to partners                                     --        (1,890,613)
                                                          -----------       -----------

                 Net cash used in financing
                     activities                                    --        (1,675,613)
                                                          -----------       -----------

Net increase (decrease) in cash and cash equivalents        1,277,661          (489,763)
Cash and cash equivalents at beginning of period            6,481,550         1,495,035
                                                          -----------       -----------
Cash and cash equivalents at end of period                $ 7,759,211       $ 1,005,272
                                                          ===========       ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
     Cash payments for income taxes                       $ 1,368,112       $     4,000
                                                          ===========       ===========
     Cash payments for interest                           $   813,358       $   203,604
                                                          ===========       ===========
</TABLE>

See accompanying notes to financial statements.




                                       4
<PAGE>   6



                            CANAAN ENERGY CORPORATION
                          Notes to Financial Statements


1. ORGANIZATION AND BASIS OF PRESENTATION

Canaan Energy Corporation ("Canaan") is engaged primarily in the acquisition,
development and production of oil and natural gas properties.

Prior to October 23, 2000, Canaan also managed eight oil and natural gas limited
partnerships (the "Coral Limited Partnerships") on behalf of Coral Reserves,
Inc. and Coral Reserves Energy Corporation, the general partners of the Coral
Limited Partnerships (the "General Partners"). Canaan and the General Partners
had the same ownership.

On October 23, 2000, Canaan acquired the Coral Limited Partnerships, the General
Partners, Canaan Securities, Inc. ("CSI"), an unaffiliated broker/dealer which
previously participated in marketing of the limited partnership interests, and
Indian Oil Company ("Indian"), an unaffiliated oil and natural gas company.
Canaan issued 4,368,815 shares of its common stock as consideration for the
acquired entities. It also paid a stock dividend of 562,368 shares to its
shareholders of record immediately prior to the combination transaction for the
purpose of increasing Canaan's outstanding shares to the amount allocated to it
under the terms of the combination transaction. The accompanying financial
statements reflect the stock dividend as if it had occurred as of the beginning
of the earliest period presented. The acquisition of the Coral Limited
Partnerships and the General Partners was accounted for as a reorganization of
interests under common control in a manner similar to a pooling of interests,
and therefore the historical results, including share and per share data, of
Canaan have been restated to reflect the combination with the Coral Limited
Partnerships and the General Partners as if the entities had been combined for
all periods. Unless the context otherwise indicates, all references to "Canaan"
include the Coral Limited Partnerships and the General Partners. The
acquisitions of CSI and Indian were accounted for as purchases. The results of
CSI and Indian have been reflected in Canaan's results only for the periods
subsequent to the transaction date.

Accounting policies employed by Canaan reflect industry practices and conform to
accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements and notes thereto have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been omitted. The accompanying consolidated
financial statements and notes thereto should be read in conjunction with the
consolidated financial statements and notes thereto included in Canaan's 2000
Annual Report on Form 10-K.

The consolidated financial statements include the financial statements of Canaan
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited financial statements as
of March 31, 2001, and for the three months ended March 31, 2000 and 2001,
reflect adjustments (which were normal and recurring) which, in the opinion of
management, are necessary for a fair statement of the financial position and
results of operations of the interim periods presented. Results for the three
months ended March 31, 2001 are not necessarily indicative of results for the
full year.



                                       5
<PAGE>   7

2. LONG-TERM DEBT

Simultaneously with the closing of the transactions described in Note 1, the
Company entered into a new secured revolving credit facility with a group of
banks which provides for a borrowing base of $43,500,000 based on the Company's
oil and gas reserves. The borrowing base began reducing monthly at the rate of
$535,000 on December 1, 2000. The credit facility has a maturity date of October
2003. The terms of the facility give the Company the option of either borrowing
at the LIBOR rate plus a margin of 1.5% to 2.25% or at a base rate approximating
the prime rate plus a margin ranging from 0.0% to 0.75% depending on the amount
of advances outstanding in relation to the borrowing base. The interest rate was
8.75% as of March 31, 2001. The credit facility contains various affirmative and
restrictive covenants limiting additional indebtedness, sales of assets, mergers
and consolidations, dividends and distributions and requires the maintenance of
various financial ratios. The credit facility is subject to a commitment fee for
the banks maintaining of funds available for Canaan. The commitment fee ranges
from 0.25% to 0.50%, based on the amount of the revolving commitment in effect
for the applicable period. Borrowings under the agreement are secured by
substantially all of the Company's oil and gas properties. In connection with
the completion of the combination transactions, the Company borrowed $33,964,683
under the credit facility to refinance approximately $31,377,000 in existing
indebtedness (including approximately $23,600,000 assumed in the Indian
acquisition) and to pay for transaction costs. The Company's borrowings under
this facility represent all of its borrowings as of March 31, 2001.


3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

On January 1, 2001, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Certain Hedging Activities." and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an Amendment of SFAS No.
133." SFAS No. 133 and SFAS No. 138 require that all derivative instruments be
recorded on the balance sheet at their respective fair values. In accordance
with the transition provisions of SFAS No. 133, the Company recorded a
net-of-tax cumulative-effect-type adjustment of a $1,578,899 loss in accumulated
other comprehensive loss to recognize at fair value all derivatives that were
designated as cash-flow hedging financial instruments.

All of the Company's derivatives that qualify for hedge accounting treatment are
"cash-flow" hedges. The Company designates its cash flow hedge derivatives on
the date the derivative contract is entered into. The Company formally documents
all relationships between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivatives that are designated
as cash-flow hedges to specific forecasted transactions. The Company also
assesses, both at the hedge's inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are effective in offsetting
changes in cash flows of hedged items.

Changes in the fair value of a derivative that is effective and that is
designated and qualifies as a cash-flow hedge are recorded in other
comprehensive income, until earnings are affected by the variability in cash
flows of the designated hedged item.

During the first quarter of 2001, there were no gains or losses reclassified
into earnings as a result of the discontinuance of hedge accounting treatment
for any of the Company's derivatives.

By using derivative financial instruments to hedge exposures to changes in
commodity prices, the Company exposes itself to credit risk and market risk.
Credit risk is the failure of the counterparty to perform under the terms of the
derivative contract. To mitigate this risk, the hedging instruments are usually
placed with counterparties that the Company believes are minimal credit risks.

Market risk is the adverse effect on the value of a financial instrument that
results from a change in interest rates, commodity prices, or currency exchange
rates. The market risk associated with commodity-price


                                       6
<PAGE>   8

contracts is managed by establishing and monitoring parameters that limit the
types and degree of market risk that may be undertaken.

The Company periodically enters into financial hedging activities with respect
to a portion of its projected oil and natural gas production through various
financial transactions to manage its exposure to oil and gas price volatility.
These transactions include financial price swaps whereby the Company will
receive a fixed price for its production and pay a variable market price to the
contract counterparty. These financial hedging activities are intended to
support oil and natural gas prices at targeted levels and to manage the
Company's exposure to oil and gas price fluctuations. The oil and gas reference
prices upon which these price hedging instruments are based reflect various
market indices that have a high degree of historical correlation with actual
prices received by the Company.

The Company does not hold or issue derivative instruments for trading purposes.
The Company's commodity-price swap in place as of January 1, 2001 and as of
March 31, 2001 has been designated as a cash flow hedge. Changes in the fair
value of the derivative is reported on the balance sheet in "Accumulated Other
Comprehensive Income" ("AOCI"). These amounts are reclassified to oil and gas
sales when the forecasted transaction takes place.

The Company assesses the effectiveness of its hedges based on, at least
quarterly, relative changes in fair value between the derivative instrument and
the hedged forecasted sale of oil and natural gas. For the quarter ended March
31, 2001, The Company recorded a net charge of $58,000 which represented the
ineffectiveness of the cash-flow hedge. The ineffectiveness is recorded in oil
and natural gas sales in the consolidated statement of operations.

As of January 1, 2001 and March 31, 2001, all of the net deferred losses on
derivative instruments, including the transition adjustment, accumulated in AOCI
are expected to be reclassified to earnings by May 31, 2001 (the expiration of
the price swap contract). The reclassifications will be made as the hedged
natural gas is produced.

4. EARNINGS PER SHARE

All 412,500 stock options that have been granted through March 31, 2001 are
included in the determination of the common shares outstanding on a diluted
basis for March 31, 2001. There are no other dilutive instruments outstanding.
The dilutive effect of the stock options for the 2001 period was an addition of
14,340 shares. No stock options or other dilutive instruments were outstanding
in the 2000 period.




                                       7
<PAGE>   9





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

The following discussion is intended to assist in an understanding of Canaan's
financial position as of March 31, 2001 and December 31, 2000, and its results
of operations for the three-month periods ended March 31, 2001 and 2000. It is
presumed that readers have read or have access to Canaan's 2000 Annual Report on
Form 10-K.

GENERAL

Canaan is an Oklahoma corporation formerly known as Coral Reserves Group, Ltd.,
organized in March of 1987 for the purpose of originating, evaluating,
engineering, negotiating, closing and managing producing oil and gas property
acquisitions on a contract basis for several limited partnerships sponsored by
others. Since 1990, our primary activities have consisted of acquiring,
developing, producing and operating oil and natural gas properties. From 1990 to
2000 we managed eight limited partnerships ("Partnerships") on behalf of two
affiliated managing general partners ("General Partners"). In October 2000, we
completed a business combination by which we acquired the Partnerships, the
General Partners, Canaan Securities, Inc. ("CSI"), an unaffiliated
broker-dealer, and Indian Oil Company ("Indian"), an independent oil and gas
company headquartered in Oklahoma City, Oklahoma. We issued 4,368,815 shares of
our common stock as consideration for the acquired entities. We also paid a
stock dividend of 562,368 shares to our shareholders of record immediately prior
to the transaction for the purpose of increasing Canaan's shares to the amount
allocated to it under the terms of the combination transaction. We have and will
continue the combined businesses of the Partnerships, the General Partners and
Indian in a manner similar to the business activities of such entities prior
their acquisition.

Historically, we have utilized cash flows from operations and debt to fund our
capital expenditure programs. We intend to fund future capital expenditures
through cash flows from operations, borrowings under our credit facility, and
other capital market activity in the public or private securities markets. We
believe that increased cash flows attributable to the acquisitions of the
Partnerships and Indian have better positioned us to pursue many of the
prospects arising as a result of our ongoing activities.

Our acquisition of the Partnerships and the General Partners was accounted for
as a reorganization of interests under common control in a manner similar to
pooling of interests, and the acquisitions of Indian and CSI were accounted for
as purchases. Accordingly, our financial statements have been prepared as if we
had owned the Partnerships and General Partners since their inception. Results
of operations for Indian and CSI have been included in our financial statements
since their acquisition in October 2000. Therefore, the three months ended March
31, 2000 do not include the operations of Indian or CSI.

THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
2000

For the three months ended March 31, 2001, we recorded net earnings of
$3,730,832 or $0.76 per share on total revenues of $11,421,012. These results
compare with net earnings for the three months ended March 31, 2000 of
$1,121,464 or $0.31 per share on total revenues of $3,120,716. This 235%
increase in net earnings was primarily due to higher oil and natural gas prices
received during the first three months of 2001, as well as increased natural gas
production attributable to the acquisition of Indian, as more fully described
below. The effects of higher average prices and production were partially offset
by an increase in income tax expense for the first three months of 2001 compared
to the comparable period of 2000. As previously discussed, results of operations
have been reported as if we owned the Partnerships and the General Partners for
the entire three months ended March 31, 2000. However, any income tax liability
associated with the operations of Partnerships and the General Partners did not
arise until the actual consummation of the transactions in October 2000.
Accordingly, income taxes for three months ended March 31, 2001 were
significantly higher than in the corresponding period of 2000.



                                       8
<PAGE>   10
Revenues. Revenues from oil and natural gas sales increased by 266%, or
$8,300,296 to $11,421,012 for the three months ended March 31, 2001, as compared
to $3,120,716 for the same period of 2000. This increase was the result of
higher natural gas production, primarily attributable to the acquisition of
Indian, and to an increase in average oil and gas prices received during the
three months ended March 31, 2001. Natural gas production increased 90% to
1,684,813 Mcf during the three months ended March 31, 2001 as compared to
886,854 Mcf for the first three months of 2000. The majority of this production
increase is attributable to the acquired Indian properties. Oil production
declined 7% from 46,732 Bbls during the three months ended March 31, 2000 to
43,247 Bbls for the three months ended March 31, 2001. The majority of this
decrease can be attributed to normal production decline. The average price
realized for natural gas increased by 150%, or $3.70 per Mcf, to $6.16 per Mcf
during the three months ended March 31, 2001, as compared to $2.46 per Mcf for
the same period of 2000. Hedging losses on first quarter produced volumes
decreased our average price for natural gas by $0.74 per Mcf during the three
months ended March 31, 2001, as opposed to increasing our average price by $0.11
for the comparable period of 2000. The average price realized for oil increased
by 25%, or $4.87 per Bbl to $24.11 during the three months ended March 31, 2001,
as compared to $19.24 per Bbl for the same period of 2000. Hedging contract
settlements decreased our average price for oil by $3.49 per Bbl during the
three months ended March 31, 2000. Oil hedging contract arrangements expired in
December 2000, while existing natural gas hedging contract arrangements,
covering approximately 18% of our daily natural gas production, expire in May
2001.

Lease operating expense. Lease operating expense increased by 155% or $668,068
to $1,097,989 for the three months ended March 31, 2001, as compared to $429,911
for the same period of 2000. The lease operating expense attributable to the
acquired Indian properties accounted for $564,657 or 85% of this increase. The
remaining increase was due primarily to repairs and workovers. On an Mcfe basis,
lease operating expense increased 51% during the three months ended March 31,
2001 to $0.56 per Mcfe from $0.37 per Mcfe during the same period in 2000. This
increase is primarily attributable to higher operating costs per Mcfe on the
acquired Indian properties.

Production taxes. Production taxes increased 216%, or $566,122 to $828,005 for
the three months ended March 31, 2001, as compared to $261,883 for the same
period of 2000. This increase was primarily the result of increased oil and
natural gas revenues in the three months ended March 31, 2001, as discussed
previously. Production taxes are generally calculated based on gross oil and
natural gas revenues prior to any hedging adjustments.

Depreciation and amortization expense. Depreciation and amortization expense
increased 177%, or $1,101,669 to $1,725,234 for the three months ended March 31,
2001, as compared to $623,565 for the same period of 2000. Depreciation and
amortization expense from oil and natural gas properties increased 173%, or
$1,072,081 to $1,691,682 during the three months ended March 31, 2001 compared
to $619,601 for the comparable period of 2000, due to the acquisition of the
Indian properties, and the associated increased production during the three
months ended March 31, 2001. Amortization expense per equivalent Mcf was $0.87
for the three months ended March 31, 2001 versus $0.53 for the same period of
2000. This increase in amortization per equivalent Mcf was due primarily to the
addition of the Indian properties in October 2000 based on the fair market value
of our common stock given as consideration. Depreciation resulting from non-oil
and natural gas properties increased $29,588 as a result of assets added during
the year, including those added through the acquisition of Indian.

General and administrative expense. General and administrative expenses
increased $522,769 or 94% to $1,079,411 during the three months ended March 31,
2001 as compared to $556,642 for the same period of 2000. The principal
components of the increase were salaries and related expenses, which increased
$365,055 due to a significant expansion of our professional staff, and
professional fees, which increased $183,684. General and administrative expenses
per equivalent Mcf were $0.56 for the three months ended March 31, 2001,
compared to $0.46 for the same period of 2000, a 17% increase.




                                       9
<PAGE>   11

Interest expense. Interest expense increased $673,439 or 430% to $829,969 during
the three months ended March 31, 2001 from $156,530 during the same period of
2000. In October 2000 we assumed $23,639,994 in additional bank debt from the
Indian acquisition. The 9.78% average interest rate associated with our bank
debt increased during the three months ended March 31, 2001 as compared to the
8.67% average interest rate for the same period of 2000, further contributing to
the increase in interest expense.

Income taxes. Income tax expense increased $2,247,000 to $2,256,000 for the
three months ended March 31, 2001 as compared to $9,000 for the same period of
2000. As discussed earlier, this increase is primarily attributable to the fact
that Partnership income and expenses were recorded for the entire three months
ended March 31, 2000, but we had no tax liability for Partnership related
operations until the consummation of the acquisition in October 2000. Our
effective tax rate was 38% and 1% for the three months ended March 31, 2001 and
2000, respectively. On a pro forma basis, assuming the income tax from the
Partnerships was fully taxed at corporate rates and the deferred income tax
assets and liabilities had been recognized prior to 2000, our effective tax
rate for the first three months of 2000 would have approximated the rate for
2001.

CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY

As of March 31, 2001 and December 31, 2000, we had cash balances of $7,759,211,
and $6,481,550, respectively. Working capital increased from $9,188,802 at
December 31, 2000 to $12,920,758 at March 31, 2001, due principally to higher
oil and natural gas prices.

For the three months ended March 31, 2001, net cash provided by operating
activities was $3,404,382 as compared to cash provided of $1,558,816 for the
three months ended March 31, 2000. This increase was primarily the result of
improved pre-tax earnings. EBITDA increased $6,640,476 or 349% from $1,901,559
for the three months ended March 31, 2000 to $8,542,035 for the three months
ended March 31, 2001.

Net cash used in investing activities for the three months ended March 31, 2001
was $2,126,721 as compared to $372,966 used in investing activities during the
three months ended March 31, 2000, resulting in a $1,753,755 increase in cash
used. This change was primarily the result of increased capital expenditures
related to our 2001 drilling program, which were funded entirely by cash flow
from operations.

Net cash used in financing activities was zero for the three months ended March
31, 2001 compared with $1,675,613 during the same period of 2000. Cash used in
financing activities for the three months ended March 31, 2000 consisted of
distributions to former limited partners of the Partnerships totaling $1,890,613
offset by draws on our bank credit facility of $215,000.

Capital expenditures. Our capital expenditures to date have focused primarily on
the development of oil and natural gas properties in the Mid Continent Area, as
well as acquisitions of proved developed producing oil and natural gas
properties located in the same area. Our projected capital expenditures for 2001
are estimated to be $9,400,000 for development drilling and $2,100,000 for other
drilling. Actual expenditures may vary depending on the results of our drilling
program. We expended $2,126,721 during the three months ended March 31, 2001.
During 2001 we will also aggressively seek out producing property acquisitions,
whose characteristics meet with our growth parameters. However, the size and
timing of these acquisitions cannot be forecasted with any degree of certainty.

Capital Resources. Our cash requirements have been met primarily in the past
through cash generated from operations, and through available credit from our
revolving bank credit facility. In October 2000 we entered into a new secured
revolving credit facility with a group of banks which provides for a borrowing
base of $43,500,000 based on our oil and gas reserves. The borrowing base began
reducing monthly at the rate of $535,000 on December 1, 2000. The credit
facility has a maturity date of October 2003. The terms





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<PAGE>   12

of the facility give us the option of either borrowing at the LIBOR rate plus a
margin of 1.5% to 2.25% or at a base rate approximating the prime rate plus a
margin ranging from 0.0% to 0.75% depending on the amount of advances
outstanding in relation to the borrowing base. Our available credit under this
facility was approximately $9 million at March 31, 2001. Our long term debt to
equity ratio improved to .85:1 as of March 31, 2001 from .93:1 as of December
31, 2000. We intend to meet our 2001 capital requirements primarily from
existing cash balances, cash flow from operations, and funding under our bank
credit facility. Cash flow from operations will be dependent upon our future
performance, which will be subject to prevailing economic conditions and to
financial and business conditions and other factors, many of which are beyond
our control. We expect the availability under our revolving bank credit facility
to grow in the future as we increase the value of our assets. However, the
amount of credit granted by the bank group is affected by same economic,
financial and business conditions which affect cash flow, as discussed above. In
the future, we also intend to seek additional capital through offerings of
additional equity securities. There can be no assurance, however, that the
lenders will extend or increase the borrowing limits under the credit facility
or that such equity offerings can be successfully completed. Should sufficient
financing not be available from these or other sources, implementation of our
business plan would be delayed and, accordingly, our growth strategy could be
adversely affected.

FORWARD LOOKING STATEMENTS

This document includes certain statements that may be deemed to be "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical facts, included in
this document that address activities, events or developments that Canaan Energy
Corporation, an Oklahoma Corporation ("Canaan" or "Companies"), expects,
believes or anticipates will or may occur in the future are forward looking
statements. They include statements regarding the Company's drilling plans and
objectives, related exploration and development costs, number and location of
planned wells, reserve estimates and values, statements regarding the quality of
the Company's properties and potential reserve and production levels. These
statements are based on certain assumptions and analyses made by the Company in
the light of its experience and perception of historical trends, current
conditions, expected future developments and other factors it believes
appropriate in the circumstances, including the assumption that there will be no
material change in the operating environment for the Company's properties and
that there will be no material acquisitions or divestitures. Such statements are
subject to a number of risks, including but not limited to commodity price
risks, drilling and production risks, risks related to weather and unforeseen
events, governmental regulatory risks and other risks, many of which are beyond
the control of the Company. See our Annual Report on Form 10-K for the year
ended December 31, 2000 for a more complete discussion of these risks. For all
of these reasons, actual results or developments may differ materially from
those projected in the forward looking statements. The Company assumes no
obligation to update the forward looking statements to reflect events or
circumstances occurring after the date of the statement.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following information provides quantitative and qualitative information
about Canaan's potential exposure to market risks. The term "market risk" refers
to the risk of loss arising from adverse changes in oil and gas prices and
interest rates. The disclosures are not meant to be precise indicators of
expected future losses, but rather indicators of reasonably possible losses.

Commodity Price Risk. Canaan's major market risk exposure will be in the pricing
applicable to its oil and gas production. Realized pricing will be primarily
driven by the prevailing worldwide price for crude oil and spot market prices
applicable to its U.S. natural gas production. Pricing for oil and gas
production has been volatile and unpredictable for several years.




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<PAGE>   13

Canaan expects to periodically enter into financial hedging activities with
respect to a portion of forecasted oil and gas production through financial
price swaps whereby the Company receives a fixed price for production and pays a
variable market price to the contract counterparty. These financial price
hedging activities are intended to reduce exposure to oil and gas price
fluctuations. Realized gains or losses from the settlement of these financial
hedging instruments are recognized in oil and gas sales when the associated
production occurs. The gains and losses realized as a result of these hedging
activities are substantially offset in the cash market when the hedged commodity
is delivered.

At March 31, 2001, Canaan had financial hedging arrangements as follows:

<TABLE>
<CAPTION>


                                                                           Weighted Average         Fair Value at
       Commodity                 Period             Monthly Volumes              Price             March 31, 2001
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S>                       <C>                    <C>                     <C>                    <C>
                            April 1, 2001 to
          Gas                 May 31, 2001           100,375 MMBtu               $2.97               $(471,000)
</TABLE>

Natural gas prices have declined since March 31, 2001, reducing the fair value
liability associated with these financial hedging arrangements. Canaan expects
to pay $421,000 in the second quarter relative to these financial hedging
arrangements.

Interest Rate Risk. Canaan had long-term debt outstanding of $34.0 million as of
March 31, 2001. All of the debt outstanding at March 31, 2001 bears interest at
floating rates which averaged 8.75% as of March 31, 2001. A 10% increase in
short-term interest rates on the floating-rate debt outstanding at March 31,
2001 would equal approximately 87.5 basis points. Such an increase in interest
rates would have increased Canaan's interest expense by approximately $297,000
assuming amounts borrowed at March 31, 2001 were outstanding for a 12 month
period.

The above sensitivity analysis for interest rate risk excludes accounts
receivable, accounts payable and accrued liabilities because of the short-term
maturity of such instruments.




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<PAGE>   14








                          PART II -- OTHER INFORMATION
ITEMS 1 -5

         Not applicable.


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         None.

(b)      Reports on Form 8-K

         None.



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<PAGE>   15




                                   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.


                                            CANAAN ENERGY CORPORATION
                                                  (Registrant)


                                                 Leo E. Woodard
                                      Chairman and Chief Executive Officer


                                               Michael S. Mewbourn
                                            Senior Vice President and
                                             Chief Financial Officer
                                          (Principal Financial Officer)



Date:   May 15, 2001



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