# United States Securities and
Exchange Commission Washington, D. C. 20549

# Form 10-Q

(Mark
one)

[ X ] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
         For the Quarterly Period Ended June 30, 2003

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

Commission File Number .......... 1-12508

MAGNUM HUNTER
RESOURCES, INC. Exact name of registrant as specified in its charter

|Nevada                                                       |  | 87-0462881                     
|------------------------------------------------------------ |  | -------------------------------
|State or other jurisdiction of incorporation or organization |  | IRS employer identification No.

600 East Las Colinas
Blvd., Suite 1100, Irving, Texas 75039Address of principal
executive offices

(972)
401-0752

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

State the number of shares outstanding of each of the issuer's classes of common equity, as of August 1, 2003:
67,243,038.

# PART 1 
FINANCIAL INFORMATION

# Item 1. Financial Statements

# MAGNUM HUNTER RESOURCES,
INC. AND SUBSIDIARIES UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS (in thousands of
dollars)

|                                                                             | June 30,
2003 | December 31,
2002
|---------------------------------------------------------------------------- | ------------- | -----------------
|
|Current Assets                                                               |               |                  
|Cash and cash equivalents                                                    |               |                  
|Restricted cash                                                              |               |                  
|Accounts receivable - trade, net of allowance of $4,521 and $4,573,          |               |                  
|respectively                                                                 |               |                  
|Deposits                                                                     |               |                  
|Income tax refund receivable                                                 |               |                  
|Other current assets                                                         |               |                  
|                                                                             |               |                  
|Total Current Assets                                                         |               |                  
|                                                                             |               |                  
|Property, Plant, and Equipment                                               |               |                  
|Oil and gas properties, full cost method                                     |               |                  
|Unproved                                                                     |               |                  
|Proved                                                                       |               |                  
|Gas processing plants and pipelines                                          |               |                  
|Other property                                                               |               |                  
|                                                                             |               |                  
|Total Property, Plant and Equipment                                          |               |                  
|Accumulated depreciation, depletion, amortization and impairment             |               |                  
|                                                                             |               |                  
|Net Property, Plant and Equipment                                            |               |                  
|                                                                             |               |                  
|Other Assets                                                                 |               |                  
|Goodwill                                                                     |               |                  
|Other assets                                                                 |               |                  
|                                                                             |               |                  
|Total Assets                                                                 |               |                  
|                                                                             |               |                  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                         |               |                  
|Current Liabilities                                                          |               |                  
|Trade payables and accrued liabilities                                       |               |                  
|Accrued interest                                                             |               |                  
|Due to affiliates                                                            |               |                  
|Current portion of long-term debt                                            |               |                  
|                                                                             |               |                  
|Total Current Liabilities                                                    |               |                  
|                                                                             |               |                  
|Long-Term Liabilities                                                        |               |                  
|Long-term debt, less current maturities                                      |               |                  
|Asset retirement obligations                                                 |               |                  
|Derivative liabilities, noncurrent                                           |               |                  
|Deferred income taxes payable                                                |               |                  
|Stockholders' Equity                                                         |               |                  
|Preferred stock - $.001 par value; 10,000,000 shares authorized, 216,000     |               |                  
|designated as Series A; 80,000 issued and outstanding, liquidation amount $0 |               |                  
|Common Stock - $.002 par value; 100,000,000 shares authorized,               |               |                  
|71,730,830 and 71,707,897 shares issued, respectively                        |               |                  
|Additional paid-in capital                                                   |               |                  
|Accumulated other comprehensive loss                                         |               |                  
|Accumulated deficit                                                          |               |                  
|Common stock in deferred compensation plan at cost (34,416 shares)           |               |                  
|Unearned common stock in KSOP, at cost (1,242,868 and 757,246 shares,        |               |                  
|respectively)                                                                |               |                  
|                                                                             |               |                  
|                                                                             |               |                  
|Treasury stock, at cost (4,489,992 and 3,168,013 shares, respectively) .     |               |                  
|                                                                             |               |                  
|Total Stockholders' Equity                                                   |               |                  
|                                                                             |               |                  
|Total Liabilities and Stockholders' Equity                                   |               |                  
|                                                                             |               |                  

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

1

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (Unaudited)(in thousands, except
for per share amounts)

|                                                                    | Three Months Ended
June 30, | Six Months Ended
June 30,
|------------------------------------------------------------------- | --------------------------- | -------------------------
|
|Operating Revenues:                                                 |                             |                          
|Oil and gas sales                                                   |                             |                          
|Gas gathering, marketing and processing                             |                             |                          
|Oil field management services                                       |                             |                          
|                                                                    |                             |                          
|Total Operating Revenues                                            |                             |                          
|                                                                    |                             |                          
|Operating Costs and Expenses:                                       |                             |                          
|Oil and gas production lifting costs                                |                             |                          
|Production taxes and other costs                                    |                             |                          
|Gas gathering, marketing and processing                             |                             |                          
|Oil field services                                                  |                             |                          
|Depreciation, depletion, amortization and accretion                 |                             |                          
|Gain on sale of assets                                              |                             |                          
|General and administrative                                          |                             |                          
|                                                                    |                             |                          
|Total Operating Costs and Expenses                                  |                             |                          
|                                                                    |                             |                          
|Operating Profit                                                    |                             |                          
|Equity in earnings (loss) of affiliate                              |                             |                          
|Other income                                                        |                             |                          
|Provision for impairment of investments                             |                             |                          
|Costs associated with early retirement of debt                      |                             |                          
|Other non-cash hedging adjustments                                  |                             |                          
|Interest expense                                                    |                             |                          
|                                                                    |                             |                          
|Income Before Income Tax                                            |                             |                          
|Deferred income tax (expense) benefit                               |                             |                          
|                                                                    |                             |                          
|Income Before Cumulative Effect of a Change in Accounting           |                             |                          
|Principle                                                           |                             |                          
|Cumulative effect of a change in accounting principle, net          |                             |                          
|of income  tax expense of $244                                      |                             |                          
|                                                                    |                             |                          
|Net Income                                                          |                             |                          
|                                                                    |                             |                          
|Income per Common Share - Basic                                     |                             |                          
|                                                                    |                             |                          
|Income before cumulative effect of a change in accounting principle |                             |                          
|Cumulative effect of a change in accounting principle               |                             |                          
|                                                                    |                             |                          
|Income per Common Share - Basic                                     |                             |                          
|                                                                    |                             |                          
|Income per Common Share - Diluted                                   |                             |                          
|                                                                    |                             |                          
|Income before cumulative effect of a change in accounting principle |                             |                          
|Cumulative effect of a change in accounting principle               |                             |                          
|                                                                    |                             |                          
|Income per Common Share - Diluted                                   |                             |                          
|                                                                    |                             |                          
|Common Shares Used in Per Share Calculation                         |                             |                          
|Basic                                                               |                             |                          
|                                                                    |                             |                          
|Diluted                                                             |                             |                          
|                                                                    |                             |                          

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

2

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENT OF STOCKHOLDERS EQUITY AND OTHER
COMPREHENSIVE INCOME FOR THE SIX MONTHS
ENDED JUNE 30, 2003 (Unaudited) (in thousands)

|                                                                             | Preferred
Stock | Common
Stock | Treasury
Stock | Additional
Paid in
Capital | Accumulated
Deficit | Deferred
Compensation | Unearned
Shares in
KSOP | Accumulated
Other
Comprehensive
Income
(Loss) | Total
Stockholders'
Equity | Total
Comprehensive
Income (Loss)
|---------------------------------------------------------------------------- | --------------- | ------------ | -------------- | -------------------------- | ------------------- | --------------------- | ----------------------- | --------------------------------------------- | -------------------------- | ---------------------------------
|Balance at December 31, 2002                                                 |                 |              | $              | 1                          |                     | $                     | 143                     |                                               | $                          | (20,408                          
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |             
|Issuance of 23 shares of common stock pursuant to employee stock option plan |                 |              |                |                            |                     |                       | 1                       |                                               |                            |                                  
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |             
|Deferred tax benefit on exercise of employee stock options                   |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|Purchase of 1,340 shares of treasury stock                                   |                 |              |                |                            |                     |                       |                         |                                               |                            | (7,413                           
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|Loan of 486 shares to KSOP                                                   |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|Purchase 53 shares for deferred compensation plan                            |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |             
|Contribution of 18 treasury shares to deferred compensation plan             |                 |              |                |                            |                     |                       |                         |                                               |                            | 53                               
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|Release 36 shares from deferred compensation plan                            |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|Stock compensation                                                           |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|Net Income                                                                   |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |             
|Reclassification adjustment related to derivative contracts                  |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |             
|Change in fair value of outstanding hedge positions                          |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|Amortization of purchased hedge positions                                    |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  
|Balance at June 30, 2003                                                     |                 |              | $              | 1                          |                     | $                     | 144                     |                                               | $                          | (27,768                          
|                                                                             |                 |              |                |                            |                     |                       |                         |                                               |                            |                                  

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

3

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)

|                                                                              | Six Months Ended
June 30,
|----------------------------------------------------------------------------- | -------------------------
|
|CASH FLOW FROM OPERATING ACTIVITIES:                                          |                          
|Net Income                                                                    |                          
|Adjustments to reconcile net income to cash provided by operating activities: |                          
|Cumulative effect of a change in accounting principle                         |                          
|Depreciation, depletion, amortization and accretion                           |                          
|Amortization of financing fees                                                |                          
|Imputed interest on debt due to merger                                        |                          
|Costs associated with early retirement of debt                                |                          
|Deferred income taxes (benefits)                                              |                          
|Equity in (income) loss of unconsolidated affiliate                           |                          
|Gain on sale of assets                                                        |                          
|Provision for impairment of investments                                       |                          
|Non-cash hedging adjustments                                                  |                          
|Stock compensation                                                            |                          
|Other                                                                         |                          
|Changes in certain assets and liabilities, net of the effect of               |                          
|acquisitions:                                                                 |                          
|Accounts and notes receivable                                                 |                          
|Derivative assets                                                             |                          
|Refund of income taxes                                                        |                          
|Deposits and other current assets                                             |                          
|Accounts payable and accrued liabilities                                      |                          
|                                                                              |                          
|Net Cash Provided by Operating Activities                                     |                          
|                                                                              |                          
|CASH FLOWS FROM INVESTING ACTIVITIES:                                         |                          
|Proceeds from sale of assets, net of purchase price adjustments               |                          
|Additions to property and equipment                                           |                          
|Cash paid in Prize merger net of cash acquired                                |                          
|Increase in note receivable                                                   |                          
|Decrease in other assets                                                      |                          
|Distribution from unconsolidated affiliate                                    |                          
|Investment in unconsolidated affiliate                                        |                          
|                                                                              |                          
|Net Cash Used in Investing Activities                                         |                          
|                                                                              |                          
|CASH FLOWS FROM FINANCING ACTIVITIES:                                         |                          
|Proceeds from issuance of debt                                                |                          
|Redemption of notes payable                                                   |                          
|Fees paid related to financing activities                                     |                          
|Payments of principal on debt and production payment                          |                          
|Loan made to stockholder                                                      |                          
|Increase in note receivable from affiliate                                    |                          
|Repayment of note receivable from affiliate                                   |                          
|Loan made to KSOP                                                             |                          
|Proceeds from issuance of common stock, net of offering costs                 |                          
|Purchase of common stock for deferred compensation plan                       |                          
|Purchase of warrants                                                          |                          
|Purchase of treasury stock                                                    |                          
|Increase in restricted cash for payment of notes payable                      |                          
|                                                                              |                          
|Net Cash Provided (Used) By Financing Activities                              |                          
|                                                                              |                          
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                     |                          
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                              |                          
|                                                                              |                          
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                    |                          
|                                                                              |                          

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

4

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003 (Unaudited)

# NOTE 1 
MANAGEMENTS REPRESENTATION

In this quarterly report on Form
10-Q, the words Magnum Hunter, company, we,
our, and us refer to Magnum Hunter Resources, Inc. and its
consolidated subsidiaries unless otherwise stated or the context otherwise requires. The
condensed consolidated balance sheet of Magnum Hunter Resources, Inc. and subsidiaries as
of June 30, 2003, the condensed consolidated statements of income for the three and six
months ended June 30, 2003 and 2002, the condensed consolidated statement of
stockholders equity and comprehensive income for the six months ended June 30, 2003,
and the condensed consolidated statements of cash flows for the six months ended June 30,
2003 and 2002, are unaudited. In the opinion of management, all necessary adjustments
(which include only normal recurring adjustments) have been made to present fairly the
financial position at June 30, 2003, results of operations for the three and six month
periods, changes in stockholders equity and comprehensive income and cash flows for
the six month periods.

Certain information and footnote
disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have been
condensed or omitted. It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in our December 31,
2002 annual report and on our Form 10-K. The results of operations for the three and six
month periods ended June 30, 2003, are not necessarily indicative of the operating results
for the full year.

The accompanying condensed
consolidated financial statements include the accounts of the company and our
subsidiaries. All significant intercompany transactions and balances have been eliminated
in consolidation. Certain items have been reclassified to conform with the current
presentation.

During the first quarter of 2002, we
merged with Prize Energy Corp. (Prize), a publicly traded independent oil and
gas development and production company. The merger with Prize closed on March 15, 2002,
but for operating and financial reporting purposes, was effective as of March 1, 2002.

Subsequent to the Prize merger, we
have divested of approximately 83.6 billion cubic feet equivalent of non-strategic proved
producing oil and gas reserves for total proceeds of approximately $115 million. Almost
all of the properties sold were acquired in the Prize merger, and the proceeds have been
used to reduce our overall indebtedness and fund our capital program. These proceeds
include the $13.4 million package of non-strategic South Louisiana oil and gas properties
which closed June 9, 2003.

Magnum Hunter is a holding company
with no significant assets or operations other than our investments in our subsidiaries.
The wholly owned subsidiaries of the company, except for Canvasback Energy, Inc. and
Redhead Energy, Inc., collectively referred to as Canvasback, are direct guarantors of
each of our 10% Senior Notes and 9.6% Senior Notes, and have fully and unconditionally
guaranteed these Senior Notes on a joint and several basis. The guarantors comprise all of
our direct and indirect subsidiaries (other than Canvasback), and we have presented
separate condensed consolidating financial statements and other disclosures concerning
each guarantor and Canvasback (See Note 10). Except for Canvasback, there is no
restriction on the ability of consolidated or unconsolidated subsidiaries to transfer
funds to the company in the form of cash dividends, loans, or advances.

# NOTE 2  NEW
ACCOUNTING STANDARDS

SFAS No. 143  SFAS No. 143,
Accounting for Asset Retirement Obligations, became effective beginning
January 1, 2003. SFAS No. 143 requires the recognition of a fair value liability for any
retirement obligation associated with long-lived assets in the period in which it is
incurred if a reasonable estimate of fair value can be

5

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2003 (Unaudited)

made.    
          The associated asset retirement costs are capitalized as part of the carrying
          amount of the long-lived asset and depreciated over the assets useful
          life. See Note 5 for additional information on our asset retirement obligations.
          Upon adoption of SFAS No. 143, we recorded an addition to oil and gas properties
          of $25.4 million, an asset retirement obligation of $30.4 million, a reduction
          of accumulated depletion of $5.6 million, and a pre-tax gain of $643 thousand.

SFAS No. 145  SFAS No. 145
Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections, became effective beginning January 1, 2003. The Statement
rescinds, updates, clarifies and simplifies various existing accounting pronouncements.
SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of
Debt, which required all gains and losses from extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item, net of related income
tax effect. As a result, SFAS No. 145 requires us to reclassify as additional expense, any
extraordinary items for debt extinguishment costs which did not meet the criteria as
described in APB Opinion No. 30 Reporting the Results of Operations  Reporting
the Effects of Disposal of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, as additional expense.

SFAS No. 146  In July 2002, the
FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 requires companies to recognize costs associated with exit
or disposal activities when they are incurred rather than at the date of a commitment to
an exit or disposal plan. SFAS No. 146 supercedes EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). Statement 146 is to be
applied prospectively to exit or disposal activities initiated after December 31, 2002.

SFAS No. 148  The FASB issued
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, an Amendment to FASB Statement No. 123, in December 2002. SFAS No. 148
provides alternative methods of transition for a voluntary change to the fair value method
of accounting for stock-based employee compensation and amends the disclosure requirements
of SFAS No. 123. Effective June 1, 2003, we began expensing the fair market value of stock
options newly granted, modified or settled pursuant to SFAS No. 123 Accounting for
Stock-Based Compensation, and as allowed under the prospective method of SFAS No.
148, Accounting for Stock-Based Compensation  Transition and Disclosure, an
amendment to SFAS No. 123. The fair value of each option granted after December 31,
2002 is estimated on the grant date using the Black-Scholes option-pricing model. For the
six months ended June 30, 2003, we recorded stock compensation expense of $433 thousand
which is reflected in our general and administrative expenses. For options granted prior
to January 1, 2003, we continue to use the intrinsic method under APB No. 25,
Accounting for Stock Issued to Employees and Related Interpretations, whereby
no compensation expense is recognized for stock options granted with an exercise price
equal to the market value of our stock on the grant date. For additional information on
our stock compensation, please see Note 3.

FIN No. 45  FIN No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, was
issued in November 2002. This interpretation addresses the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations under
guarantees. It also clarifies the requirements related to the recognition of a liability
by a guarantor at the inception of a guarantee for the obligations the guarantor has
undertaken in issuing that guarantee. We adopted this statement in January 2003.

In the past we have provided trade
guarantees on behalf of our 30% owned affiliate, NGTS, LLC. In the event that NGTS, LLC is
unable to fulfill its obligations with certain vendors, we would be obligated for cash
payments of up to $600 thousand to these vendors. We have not recorded these as a
liability on our books at June 30, 2003 because we do not expect to have to perform under
these guarantees. The last of these guarantees expires in July 2003, and we do not intend
to issue any additional guarantees on behalf of NGTS, LLC. Further, we have elected to
sell our interest in NGTS, LLC (see Note 11). We have provided no other guarantees on
behalf of any unconsolidated entities and do not intend to issue any.

6

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2003 (Unaudited)

In June 2001, FASB issued SFAS No.
141, Business Combinations, which requires the purchase method of accounting
for business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. In July 2001, the FASB also issued SFAS No. 142,
Goodwill and Other Intangible Assets, which discontinues the practice of
amortizing goodwill and indefinite lived intangible assets and initiates an annual review
of impairment. Intangible assets with a determinable useful life will continue to be
amortized over that period. The amortization provisions apply to goodwill and intangible
assets acquired after June 30, 2001. SFAS No. 141 and 142 clarify that more assets should
be distinguished and classified between tangible and intangible. We did not change or
reclassify contractual mineral rights included in proved and unproved oil and gas
properties on our balance sheet upon adoption of SFAS No. 142. We believe the treatment of
such mineral rights as tangible assets under the full cost method of accounting for oil
and gas properties is appropriate. An issue has been raised regarding whether these
mineral rights should be classified as tangible or intangible assets. If it is determined
that reclassification is necessary, we would have reduced our proven properties by $352.7
million, decreased unproved properties by $154.5 million and reported intangible mineral
rights related to proved properties of $352.7 million and intangible mineral rights related
to unproved properties of $154.5 million
at December 31, 2002. At June 30, 2003, we would have reduced our
proven properties by $336.4 million, reduced our unproved properties by $165.6 million,
and reported intangible mineral rights related to proved properties of $336.4 million and
intangible mineral rights related to unproved properties of $165.6 million. These reclassifications represent
the cost of acquiring proved and unproved mineral use rights from the effective date of
June 30, 2001. The provisions of SFAS No. 141 and SFAS No. 142 impact only the balance
sheet and any associated footnote disclosures. Any reclassifications potentially required
would not impact our cash flows or statements of income.

# NOTE 3  STOCK
BASED COMPENSATION

Beginning June 1, 2003, we began
expensing the fair market value of stock options newly granted, modified or settled
pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, and as
allowed under the prospective method of SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment to SFAS No. 123. The
fair value of each option granted after December 31, 2002 is estimated on the grant date
using the Black-Scholes option-pricing model. For the six months ended June 30, 2003, we
recorded stock compensation expense of $433 thousand, which is reflected in our general
and administrative expenses. For options granted prior to January 1, 2003, we continue to
use the intrinsic method under APB No. 25, Accounting for Stock Issued to Employees
and Related Interpretations, whereby no compensation expense is recognized for stock
options granted with an exercise price equal to the market value of our stock on the grant
date.

If we had recorded stock option
expense under the fair value provisions of SFAS No. 123 for all grants, our net income and
EPS would have been as shown in the below pro forma tables (in thousands):

7

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2003 (Unaudited)

|                                                  | Three Months Ended
June 30, | Six Months Ended
June 30,
|------------------------------------------------- | --------------------------- | -------------------------
|
|Net income, as reported                           |                             |                          
|Total Stock-based employee compensation expense   |                             |                          
|included in reported  net income,  net of related |                             |                          
|tax effects                                       |                             |                          
|                                                  |                             |                          
|Deduct:  Total stock-based employee compensation  |                             |                          
|determined under fair value-based method for all  |                             |                          
|awards, net of related tax effects                |                             |                          
|                                                  |                             |                          
|Pro forma net income                              |                             |                          
|                                                  |                             |                          
|Earnings per share:                               |                             |                          
|Basic - as reported                               |                             |                          
|                                                  |                             |                          
|Basic - pro forma                                 |                             |                          
|                                                  |                             |                          
|Diluted - as reported                             |                             |                          
|                                                  |                             |                          
|Diluted - pro forma                               |                             |                          
|                                                  |                             |                          

# NOTE 4  GOODWILL

In June 2001, SFAS No. 141
Business Combinations and SFAS No. 142, Goodwill and other Intangible
Assets were issued to be effective for fiscal years beginning after December 15,
2001. Under the new rules in these statements, goodwill is no longer amortized, but is
subject to annual impairment tests. We completed the first of these tests at December 31,
2002 and found no impairment. Changes to the carrying value of goodwill during the six
months ended June 30, 2003 are as follows:

|Balance at December 31, 2002 |  |  | $ | 50,710 | 
|---------------------------- |  |  | - | ------ | 
|Purchase price adjustments   |  |  |   | 7,753  | 
|                             |  | 
|Balance at June 30, 2003     |  |  | $ | 58,463 | 
|                             |  | 

Our goodwill results from our merger
with Prize, and the purchase price allocation was finalized as of June 30, 2003. The
goodwill has been fully allocated to our Exploration and Production segment.

# NOTE 5  ASSET
RETIREMENT OBLIGATIONS

SFAS No. 143, Accounting for
Asset Retirement Obligations, became effective beginning January 1, 2003. SFAS No.
143 requires the recognition of a fair value liability for any retirement obligations
associated with long-lived assets in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement costs are capitalized
as part of the carrying amount of the long-lived asset and depreciated over the
assets useful life. Prior to adopting SFAS No. 143 on January 1, 2003, we accounted
for asset retirement obligations in accordance with SFAS No. 19.

Our long-lived assets captured under
SFAS No. 143 are developed oil and gas properties, production and distribution facilities,
and natural gas processing plants. Our asset retirement obligations include plugging,
abandonment, decommission and remediation costs.

8

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2003 (Unaudited)

The following is a reconciliation of the Asset Retirement Obligation Liability at June 30, 2003 (in thousands):

|                                     | 
|------------------------------------ | 
|Beginning balance at January 1, 2003 | 
|Cumulative effect adjustment         | 
|Liabilities incurred                 | 
|Liabilities settled                  | 
|Liabilities sold                     | 
|Accretion expense                    | 
|Change in retirement cost estimates  | 
|                                     | 
|Ending balance at June 30, 2003      | 
|                                     | 

The following pro forma data
summarizes our net income (loss) and net income (loss) per share as if we had adopted SFAS
No. 143 on January 1, 2002. The associated pro forma asset retirement obligation was $16.9
million on January 1, 2002 and an additional asset retirement obligation of $12.9 million
would have been recorded at March 1, 2002 in conjunction with the Prize acquisition.

|                                                      | Three Months Ended
June 30, | Six Months Ended
June 30,
|----------------------------------------------------- | --------------------------- | -------------------------
|
|Net income, as reported                               |                             |                          
|Pro forma adjustment to reflect retroactive           |                             |                          
|adoption of  SFAS No. 143, net of related tax effects |                             |                          
|                                                      |                             |                          
|Pro forma net income                                  |                             |                          
|                                                      |                             |                          
|Earnings per share:                                   |                             |                          
|Basic - as reported                                   |                             |                          
|                                                      |                             |                          
|Basic - pro forma                                     |                             |                          
|                                                      |                             |                          
|Diluted - as reported                                 |                             |                          
|                                                      |                             |                          
|Diluted - pro forma                                   |                             |                          
|                                                      |                             |                          

# NOTE 6  EARNINGS
PER SHARE INFORMATION

The following is a reconciliation of
the basic and diluted earnings per share computations (in thousands, except for per share
amounts):

9

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2003 (Unaudited)

|                                            | Three Months Ended
|------------------------------------------- | ------------------
|
|
|Basic EPS                                   |                   
|Income available to common stockholders     |                   
|                                            |                   
|Effect of Dilutive Securities               |                   
|Warrants                                    |                   
|Options                                     |                   
|                                            |                   
|Diluted EPS                                 |                   
|Income available to common stockholders and |                   
|assumed conversions                         |                   
|                                            |                   



|                                            | Six Months Ended
|------------------------------------------- | ----------------
|
|
|Basic EPS                                   |                 
|Income available to common stockholders     |                 
|                                            |                 
|Effect of Dilutive Securities               |                 
|Warrants                                    |                 
|Options                                     |                 
|                                            |                 
|Diluted EPS                                 |                 
|Income available to common stockholders and |                 
|assumed conversions                         |                 
|                                            |                 

At June 30, 2003, warrants
representing 7,873,206 shares of common stock and options representing 6,918,333 shares of
common stock were outstanding. At June 30, 2002, warrants representing 12,091,446 shares
of common stock and options representing 5,237,634 shares of common stock were
outstanding. For the three and six month periods ended June 30, 2003, 7,873,206 shares of
stock representing warrants and 3,108,300 shares and 3,119,200 shares of stock
representing options, respectively, were excluded from the diluted earnings per share
calculations because they were anti-dilutive. For the three and six month periods ended
June 30, 2002, 11,446,967 shares of stock representing warrants and 3,300,700 and
3,285,350 shares of stock representing options were excluded from the diluted earnings per
share calculations because they were anti-dilutive.

# NOTE 7  DEBT

Notes payable and long-term debt at
June 30, 2003 and December 31, 2002 consisted of the following:

10

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2003 (Unaudited)

|                                                    | 6/30/2003 | 12/31/2002
|--------------------------------------------------- | --------- | ----------
|
|Bank debt under revolving credit agreements due     |           |           
|May 2, 2006                                         |           |           
|Term note payable due May 31, 2005, non-recourse    |           |           
|Production payment liability, non-recourse          |           |           
|Capital lease obligations                           |           |           
|10% Senior unsecured notes, due June 1, 2007        |           |           
|9.6% Senior unsecured notes, due March 15, 2012     |           |           
|                                                    |           |           
|                                                    |           |           
|Less:  Current portion of capital lease obligations |           |           
|                                                    |           |           
|Total Long-Term Debt                                |           |           
|                                                    |           |           

On January 27, 2003, we redeemed $30
million in principal of our 10% Senior Notes at a redemption price of 105% of par. We paid
the holders of the redeemed Notes $31.5 million plus accrued and unpaid interest of $467
thousand. Of the $30 million redeemed, Canvasback received $2.3 million. On June 2, 2003,
we redeemed an additional $50 million in principal of our 10% Senior Notes at a redemption
price of 103.333% of par. We paid the holders of the redeemed Notes $51.7 million
including accrued and unpaid interest of $14 thousand. Of the $50 million redeemed during
the second quarter, Canvasback received $3.7 million.

We amended our Senior Bank Credit
Facility (the Facility) on May 2, 2003. The amended Facility provides for a
borrowing base increase of $50 million to $300 million, up from $250 million previously.
Additionally, the expiration date of the Facility was extended to May 2, 2006. We used the
increased borrowing capacity to fund the June 2, 2003 Note redemption.

We amended our term note payable (the
Term Loan) on July 2, 2003. The amended Term Loan allows for additional
advances of up to $5 million for the purpose of additional Note repurchases. The maturity
date was also extended to May 31, 2005.

# NOTE 8  HEDGING

SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as extended by SFAS No. 137 (June
1999) and amended by SFAS No. 138 (June 2000), was effective beginning January 2001. SFAS
No. 133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for hedging
activities. It requires the recognition of derivatives in the balance sheet and the
measurement of those instruments at fair value.

We were obligated to nine crude oil
derivatives, thirteen natural gas derivatives, and two interest rate derivatives on June
30, 2003. All outstanding derivatives qualify for cash flow hedge accounting treatment as
defined within SFAS No. 133, which requires derivative assets and liabilities to be
recorded at their fair value on the balance sheet with an offset to other comprehensive
income. Hedge ineffectiveness on cash-flow hedges is recorded in earnings.

11

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2003 (Unaudited)

At June 30, 2003, the fair value of
the companys derivatives were as follows (in thousands):

|Derivative Liabilities       | 
|---------------------------- | 
|Natural gas collars          | 
|Natural gas swaps            | 
|Crude oil collars            | 
|Crude oil swaps              | 
|Interest rate swaps          | 
|                             | 
|Total derivative liabilities | 
|                             | 

Of the $47.4 million derivative liability,
$39.6 million is included in trade payables and accrued liabilities on our condensed
consolidated balance sheet at June 30, 2003.

For the three and six month periods
ended June 30, 2003, the statement of operations includes a non-cash hedging
ineffectiveness loss of $157 thousand and $112 thousand, respectively, related to the
crude oil and natural gas derivatives. Additionally, during this similar period, our
statement of operations includes a non-cash gain of $324 thousand and $648 thousand,
respectively, related to the amortization of hedge contracts acquired in the Prize merger.
The remaining amortization amounts relating to hedge contracts acquired in the Prize
merger that will be reclassified into the operations statement in years 2003 and 2004 are
a $0.6 million gain and $0.8 million gain, respectively. It is estimated at this time that
$26.6 million of other comprehensive loss will be reclassified into the income statement
during the next 12 months.

On May 1, 2003, we closed out 20,000
Mmbtu/d of natural gas collar hedges for the period June through December 2003. In closing
these contracts, we locked in a $5.7 million loss which will be recognized in earnings
with the underlying forecasted commodity sales transactions for the months of June through
December 2003. At June 30, 2003, the remaining balance was $5.0 million.

# NOTE 9  SEGMENT
DATA

We have three reportable segments.
The Exploration and Production segment is engaged in exploratory and developmental
drilling and acquisition, production, and sale of crude oil, condensate, and natural gas.
The Gas Gathering, Marketing and Processing segment is engaged in the gathering and
compression of natural gas from the wellhead, the purchase and resale of natural gas which
it gathers, and the processing of natural gas liquids. The Oil Field Services segment is
engaged in the managing and operation of producing oil and gas properties for interest
owners.

Our reportable segments are strategic
business units that offer different products and services. They are managed separately
because each business requires different technology and marketing strategies. The
Exploration and Production segment has six geographic areas that are aggregated. The Gas
Gathering, Marketing and Processing segment includes the activities of the three gathering
systems and four natural gas liquids processing plants in four geographic areas that are
aggregated. The Oil Field Services segment has six geographic areas that are aggregated.
The reason for aggregating the segments, in each case, is due to the similarity in nature
of the products, the production processes, the type of customers, the method of
distribution, and the regulatory environments.

The accounting policies of the
segments are the same as those for the company as a whole. We evaluate performance based
on profit or loss from operations before income taxes. The accounting for intersegment
sales and transfers is done as if the sales or transfers were to third parties, that is,
at current market prices.

12

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2003 (Unaudited)

Segment data for the periods ended
June 30, 2003 and 2002 follows (in thousands):

|Three Months Ended June 30, 2003:        | Exploration &
Production | Gas Gathering,
Marketing &
Processing | Oil Field
Services | All Other | Elimination | Consolidated
|---------------------------------------- | ------------------------ | ------------------------------------- | ------------------ | --------- | ----------- | ------------
|Revenue from external customers          |                          |                                       | $                  | 68,470    |             | $           
|Intersegment revenues                    |                          |                                       |                    | 443       |             |             
|Depreciation, depletion and amortization |                          |                                       |                    | 24,101    |             |             
|                                         |                          |                                       |                    |           |             |             
|Segment profit (loss)                    |                          |                                       |                    | 22,940    |             |             
|Equity in earnings of affiliates         |                          |                                       |                    |           |             |             
|Interest expense                         |                          |                                       |                    |           |             |             
|Costs  associated with early  retirement |                          |                                      
|of debt                                  |                          |                                       |                    |           |             |             
|Other income (expense)                   |                          |                                       |                    |           |             |             
|                                         |                          |                                       |                    |           |             |             
|Income before income taxes               |                          |                                       |                    |           |             |             
|Provision for income tax (expense)       |                          |                                       |                    |           |             |             
|                                         |                          |                                       |                    |           |             |             
|Net income                               |                          |                                       |                    |           |             |             
|                                         |                          |                                       |                    |           |             |             

|Three Months Ended June 30, 2002:        | Exploration &
Production | Gas Gathering,
Marketing &
Processing | Oil
Field
Services | All Other | Elimination | Consolidated
|---------------------------------------- | ------------------------ | ------------------------------------- | ------------------ | --------- | ----------- | ------------
|Revenue from external customers          |                          |                                       | $                  | 70,543    |             | $           
|Intersegment revenues                    |                          |                                       |                    |           |             |             
|Depreciation, depletion and amortization |                          |                                       |                    | 22,518    |             |             
|                                         |                          |                                       |                    |           |             |             
|Segment profit (loss)                    |                          |                                       |                    | 24,665    |             |             
|Equity in earnings of affiliates         |                          |                                       |                    |           |             |             
|Interest expense                         |                          |                                       |                    |           |             |             
|Other income (expense)                   |                          |                                       |                    |           |             |             
|                                         |                          |                                       |                    |           |             |             
|Income before income taxes               |                          |                                       |                    |           |             |             
|Provision for income tax (expense)       |                          |                                       |                    |           |             |             
|                                         |                          |                                       |                    |           |             |             
|Net income                               |                          |                                       |                    |           |             |             
|                                         |                          |                                       |                    |           |             |             

13

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2003 (Unaudited)

|Six Months Ended June 30, 2003:          | Exploration &
Production | Gas Gathering,
Marketing &
Processing | Oil Field
Services | All Other | Elimination | Consolidated
|---------------------------------------- | ------------------------ | ------------------------------------- | ------------------ | --------- | ----------- | ------------
|Revenue from external customers          |                          |                                       | $                  | 138,060   |             | $           
|Intersegment revenues                    |                          |                                       |                    | 843       |             |             
|Depreciation, depletion and amortization |                          |                                       |                    | 44,698    |             |             
|                                         |                          |                                       |                    |           |             |             
|Segment profit (loss)                    |                          |                                       |                    | 49,809    |             |             
|Equity in earnings of affiliates         |                          |                                       |                    |           |             |             
|Interest expense                         |                          |                                       |                    |           |             |             
|Costs  associated with early  retirement |                          |                                      
|of debt                                  |                          |                                       |                    |           |             |             
|Other income (expense)                   |                          |                                       |                    |           |             |             
|                                         |                          |                                       |                    |           |             |             
|Income before income taxes               |                          |                                       |                    |           |             |             
|Provision for income tax benefit         |                          |                                       |                    |           |             |             
|Cumulative effect of a change in         |                          |                                      
|accounting principle                     |                          |                                       |                    |           |             |             
|                                         |                          |                                       |                    |           |             |             
|Net income                               |                          |                                       |                    |           |             |             
|                                         |                          |                                       |                    |           |             |             

|Six Months Ended June 30, 2002:          | Exploration &
Production | Gas Gathering,
Marketing &
Processing | Oil
Field
Services | All Other | Elimination | Consolidated
|---------------------------------------- | ------------------------ | ------------------------------------- | ------------------ | --------- | ----------- | ------------
|Revenue from external customers          |                          |                                       | $                  | 109,693   |             | $           
|Intersegment revenues                    |                          |                                       |                    |           |             |             
|Depreciation, depletion and amortization |                          |                                       |                    | 37,060    |             |             
|                                         |                          |                                       |                    |           |             |             
|Segment profit (loss)                    |                          |                                       |                    | 36,022    |             |             
|Equity in earnings of affiliates         |                          |                                       |                    |           |             |             
|Interest expense                         |                          |                                       |                    |           |             |             
|Costs associated with early retirement   |                          |                                      
|of debt                                  |                          |                                       |                    |           |             |             
|Other income (expense)                   |                          |                                       |                    |           |             |             
|                                         |                          |                                       |                    |           |             |             
|Income before income taxes               |                          |                                       |                    |           |             |             
|Provision for income tax benefit         |                          |                                       |                    |           |             |             
|                                         |                          |                                       |                    |           |             |             
|Net income                               |                          |                                       |                    |           |             |             
|                                         |                          |                                       |                    |           |             |             

# NOTE 10  CONDENSED
CONSOLIDATING FINANCIAL STATEMENTS

The company and its wholly-owned
subsidiaries, except Canvasback, are direct guarantors of our 10% Senior Notes and 9.6%
Senior Notes and have fully and unconditionally guaranteed the Notes on a joint and
several basis. In addition to not being a guarantor of the companys 10% Senior Notes
and 9.6% Senior Notes, Canvasback cannot be included in determining compliance with
certain financial covenants under the companys credit agreements. We have concluded
that separate financial statements related to the guarantors are not included because
management has determined that they are not material to investors. Condensed consolidating
financial information for Magnum Hunter Resources, Inc. and subsidiaries as of June 30,
2003 and December 31, 2002, and for the three and six month periods ended June 30, 2003
and 2002, was as follows:

14

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2003 (Unaudited)

# Magnum Hunter
Resources, Inc. and Subsidiaries Condensed Consolidating Balance Sheets

|As of June 30, 2003                       
|------------------------------------------
|
|ASSETS                                    
|Current assets                            
|Property and equipment                    
|(using full cost accounting)              
|Investment in subsidiaries                
|(equity method)                           
|Investment in Parent                      
|Other assets                              
|                                          
|Total assets                              
|                                          
|LIABILITIES AND STOCKHOLDERS'             
|EQUITY                                    
|Current liabilities                       
|Long-term liabilities                     
|Stockholders' equity                      
|                                          
|Total liabilities and stockholders' equity
|                                          



|As of December 31, 2002                   
|------------------------------------------
|
|ASSETS                                    
|Current assets                            
|Property and equipment                    
|(using full cost accounting)              
|Investment in subsidiaries                
|(equity method)                           
|Investment in Parent                      
|Other assets                              
|                                          
|Total assets                              
|                                          
|LIABILITIES AND STOCKHOLDERS'             
|EQUITY                                    
|Current liabilities                       
|Long-term liabilities                     
|Stockholders' equity                      
|                                          
|Total liabilities and stockholders' equity
|                                          

15

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2003 (Unaudited)

Magnum
Hunter Resources, Inc. and Subsidiaries Condensed Consolidating Statement of Operations

|For the Three Months Ended June 30, 2003          
|--------------------------------------------------
|
|Revenues                                          
|Expenses                                          
|                                                  
|Income before equity in net earnings of subsidiary
|Equity in net earnings of subsidiary              
|                                                  
|Income before income taxes                        
|Income tax expense                                
|                                                  
|Net income                                        
|                                                  

|For the Three Months Ended June 30, 2002          
|--------------------------------------------------
|
|Revenues                                          
|Expenses                                          
|                                                  
|Income before equity in net earnings of subsidiary
|Equity in net earnings of subsidiary              
|                                                  
|Income before income taxes                        
|Income tax  expense                               
|                                                  
|Net income                                        
|                                                  

|For the Six Months Ended June 30, 2003            
|--------------------------------------------------
|
|Revenues                                          
|Expenses                                          
|                                                  
|Income before equity in net earnings of subsidiary
|Equity in net earnings of subsidiary              
|                                                  
|Income before income taxes                        
|Income tax  expense                               
|                                                  
|Net income                                        
|Cumulative effect of a change in accounting       
|principle                                         
|                                                  
|Net income                                        
|                                                  

16

# MAGNUM HUNTER
RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2003 (Unaudited)

Magnum Hunter
Resources, Inc. and Subsidiaries Condensed Consolidating Statement of Operations

|For the Six Months Ended June 30, 2002            
|--------------------------------------------------
|
|Revenues                                          
|Expenses                                          
|                                                  
|Income before equity in net earnings of subsidiary
|Equity in net earnings of subsidiary              
|                                                  
|Income before income taxes                        
|Income tax benefit (expense)                      
|                                                  
|Net income                                        
|                                                  

Magnum
Hunter Resources, Inc. and Subsidiaries Condensed Consolidating Statements of Cash Flows

|For the Six Months Ended June 30, 2003
|--------------------------------------
|
|Cash flow from operating activities   
|Cash flow from investing activities   
|Cash flow from financing activities   
|                                      
|Net increase in cash                  
|Cash at beginning of period           
|                                      
|Cash at end of period                 
|                                      

|For the Six Months Ended June 30, 2002
|--------------------------------------
|
|Cash flow from operating activities   
|Cash flow from investing activities   
|Cash flow from financing activities   
|                                      
|Net increase (decrease) in cash       
|Cash at beginning of period           
|                                      
|Cash at end of period                 
|                                      

# NOTE 11 
SUBSEQUENT EVENT

On July 29, 2003, we exercised our
option to sell our 30% interest in NGTS, LLC. We have reduced the carrying value of our
investment and equity in earnings of affiliate by approximately $719 thousand at June 30,
2003, to state our investment at its estimated realizable value.

17

# Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operation

# Results of Operations

The following discussion and analysis
should be read in conjunction with our consolidated financial statements and the notes
associated with them contained in our Form 10-K for the year ended December 31, 2002. This
discussion should not be construed to imply that the results discussed herein will
necessarily continue into the future or that any conclusion reached herein will
necessarily be indicative of actual operating results in the future. Such discussion
represents only the best present assessment by our management.

There have been no changes to our
critical accounting policies for the six month period ended June 30, 2003 except for
accounting for asset retirement obligations, accounting for gains and losses from
extinguishment of debt, and accounting for stock-based compensation. SFAS No. 143,
Accounting for Asset Retirement Obligations, became effective for us beginning
January 1, 2003. SFAS No. 143 requires the recognition of a fair value liability for any
retirement obligations associated with long-lived assets. The offset to any liability
recorded is added to the recorded asset, and the additional amount is depreciated over the
same period as the long-lived asset for which the retirement obligation is established.
SFAS No. 145, Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections, was effective for us beginning January
1, 2003. SFAS No. 145 requires us to classify gains and losses from debt extinguishment as
additional interest expense. In June 2003, we began expensing stock-based compensation
expense pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, as
allowed under the prospective method of SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment to SFAS No. 123. Under
these statements, all stock options granted, modified or settled after December 31, 2002
will be expensed based on their fair values determined by the Black-Scholes option-pricing
model. For a discussion of our other critical accounting policies, refer to our Form 10-K
for the period ended December 31, 2002.

During the first quarter of 2002, we
merged with Prize Energy Corp. (Prize), an independent oil and gas development
and production company based in Grapevine, Texas. The merger with Prize closed on March
15, 2002, but for operating and financial reporting purposes, was effective as of March 1,
2002. As such, the results for the three and six month periods ended June 30, 2002 include
three months and four months of operating contributions from Prize, respectively.

Subsequent to the Prize merger, we
have divested of approximately 83.6 billion cubic feet equivalent of non-strategic proved
producing oil and gas reserves for total proceeds of approximately $115 million. Almost
all of the properties sold were acquired in the Prize merger, and the proceeds have been
used to reduce our overall indebtedness and fund our capital program. These proceeds
include the $13.4 million package of non-strategic South Louisiana oil and gas properties
which closed June 9, 2003. The impact of these non-strategic divestitures are described
below in our results of operations.

Throughout this document, we make
statements that are classified as forward-looking. Please refer to the
Forward-Looking Statements section of this document for an explanation of
these types of assertions.

Our results of operations have been
significantly affected by our past success in acquiring oil and gas properties at the
bottom of the commodity price cycles and our ability to maintain or increase oil and
natural gas production through our exploration and exploitation activities. Fluctuations
in oil and gas prices have also significantly affected the results of operations.

18

The following table sets forth
certain information with respect to our oil and gas operations and our gas gathering,
marketing and processing operations:

|                                                   | Three Months Ended
June 30, | Six Months Ended
June 30,
|-------------------------------------------------- | --------------------------- | -------------------------
|
|Reported Production:                               |                             |                          
|Oil (Mbbls)                                        |                             |                          
|Gas (MMcf)                                         |                             |                          
|Oil and Gas (Mmcfe)                                |                             |                          
|Equivalent Daily Rate (Mmcfe/day)                  |                             |                          
|Average Sale Prices (after hedging)                |                             |                          
|Oil (per Bbl)                                      |                             |                          
|Gas (per Mcf)                                      |                             |                          
|Oil and Gas (per Mcfe)                             |                             |                          
|Effect of hedging activities (per Mcfe)            |                             |                          
|Lease Operating Expense (per Mcfe)                 |                             |                          
|Lifting costs                                      |                             |                          
|Production tax and other costs                     |                             |                          
|Gross margin (per Mcfe)                            |                             |                          
|                                                   |                             |                          
|Gas Gathering, Marketing and Processing Operations |                             |                          
|                                                   |                             |                          
|Throughput Volumes (Mcf per day)                   |                             |                          
|Gathering                                          |                             |                          
|Processing                                         |                             |                          
|Gross margin (in thousands)                        |                             |                          
|Gathering (per Mcf throughput)                     |                             |                          
|Processing (per Mcf throughput)                    |                             |                          

# Period to Period
Comparison

# For the Three Months
Ended June 30, 2003 and 2002

We reported net income of $4.2
million for the three months ended June 30, 2003, as compared to net income of $2.3
million for the same period in 2002, an increase of 83%. Total operating revenues
increased 3% to $78.4 million in 2003 from $76.2 million in 2002. Operating profit
increased 2% to $21.4 million in 2003 from $21.1 million in 2002, and net income before
income tax increased 89% to $6.8 million in 2003 from $3.6 million in 2002. The growth in
operating revenues and operating profit was predominately generated by our gathering,
marketing, and processing segment. This was offset by small declines in operating revenues
and operating profit recorded in our exploration and production and oil field services
segments due to non-strategic divestitures. The growth in pretax income was caused by a
$167 thousand non-cash hedging adjustment gain in the 2003 period versus a $3.3 million
loss recorded in the 2002 period, a valuation adjustment loss of $621 thousand recorded in
the 2002 period versus none in the 2003 period, and a $2.2 million cost associated with
early retirement of debt in the 2003 period versus none in the 2002 period. We recorded an
86% increase in deferred income tax expense of $2.6 million for the three months in 2003
versus $1.4 million for the same period in 2002, due to the increase in pre-tax income.
Basic and diluted earnings per share were $0.06 in the 2003 period versus basic and
diluted earnings per share of $0.03 in the 2002 period, a gain of 100%. The increase in
net income was the primary factor causing the increase in basic and diluted earnings per
share. Common shares used in the basic and diluted earnings per share calculation declined
by 4% in the 2003 period compared to the 2002 period, principally due to our stock
repurchase program.

Exploration and
Production Operations:

For the three months ended June 30,
2003, we reported oil production of approximately one million barrels and gas production
of 12.5 billion cubic feet, which represents a decrease of 12% in oil produced and a
decrease of 7% in gas produced from the comparable period in 2002. Our reported equivalent
daily rate of production, on a million cubic feet per day basis (Mmcfe/day), decreased 8%
to 203.5 Mmcfe/day in the 2003 period from 222.2 Mmcfe/day

19

in the 2002 period. These
decreases were primarily the result of the sale of non-strategic oil and gas properties
which were initiated after the Prize acquisition which closed in March 2002. These
non-strategic property sales continued into June 2003. The impact of these property sales
on reported production was a decrease of 32.4 Mmcfe/day in the 2003 period compared to the
similar 2002 period.

Oil revenues decreased 5% to $26.3
million in the second quarter of 2003 compared to $27.6 million for the same period in
2002. The oil price received, after hedging effects, was $26.35 per Bbl in the 2003 period
compared to $24.40 per Bbl in the 2002 period, an increase of 8%. Gas revenues decreased
2% to $42.1 million in the second quarter of 2003 versus $42.9 million for the same period
in 2002. The gas price received, after hedging effects, was $3.37 per Mcf in 2003 compared
to $3.20 per Mcf for the same period in 2002, an increase of 5%. Total oil and gas
revenues decreased 3% to $68.5 million in 2003 from $70.5 million in 2002. The decline in
oil and gas revenues is attributable to the production loss as a result of the sale of
non-strategic oil and gas properties.

From time to time, we enter into
various commodity hedging contracts in order to reduce our exposure to the possibility of
declining oil and gas prices which provides a basic level of cash flow to fund capital
expenditures. During the 2003 period, hedging decreased the average price we received for
oil by $1.75 per Bbl and decreased the average price we received for gas by $1.20 per Mcf.
During the second quarter of 2003, we had approximately 60.0 MMcf/day of gas hedged
through fixed price swaps with a weighted average price of $3.01 per MMbtu and
approximately 40.0 MMcf/day of gas hedged through cost-less collars with a weighted
average floor price of $3.06 per MMbtu and a weighted average ceiling price of $4.30 per
MMbtu. Approximately 73% of second quarter 2003 natural gas production was hedged. On the
crude side, we had approximately 1,000 Bbls/day hedged through fixed price swaps with a
weighted average price of $21.25 per barrel and approximately 6,000 Bbls/day hedged
through cost-less collars with a weighted average floor price of $23.00 per Bbl and a
weighted average ceiling price of $27.00 per Bbl. Approximately 64% of second quarter 2003
crude oil production was hedged. For the remainder of 2003, we have approximately 10.0
MMcf/day hedged through fixed price swaps with a weighted average price of $3.65 per MMbtu
and approximately 70.0 MMcf/day hedged through cost-less collars with a weighted average
floor price of $2.82 and a weighted average ceiling price of $3.78. In addition, for the
remainder of 2003, we have hedged 1,000 Bbls/day of crude oil production through a fixed
price swap with a price of $21.25 per Bbl and 6,000 Bbls/day of crude oil production
hedged through cost-less collars with a weighted average floor price of $23.00 per Bbl and
a weighted average ceiling price of $27.00 per Bbl.

On May 1, 2003, we closed out 20,000
Mmbtu/day of natural gas collar hedges for the period June through December 2003. In
closing these contracts, we locked in a $5.7 million loss which will be recognized in
earnings with the underlying forecasted commodity sales transactions for the months of
June through December 2003. At June 30, 2003, the remaining balance was $5.0 million.

Lease operating expense consists of
lifting costs and production tax as well as other costs. For the 2003 period, lifting
costs were $13.5 million versus $15.4 million in the 2002 period, a decrease of 13%.
Production taxes and other costs were unchanged at $7.9 million in both the 2003 period
and the 2002 period. The decreases in lifting costs were primarily attributable to the
sale of non-strategic oil and gas properties and due to lower costs associated with
workover and remedial operations in the 2003 period compared to the 2002 period. For the
2003 period, lifting costs, on a unit of production basis, were $0.73 per Mcfe as compared
to $0.76 per Mcfe in the 2002 period, a decrease of 4%. Production tax and other costs
were $0.43 per Mcfe in the 2003 period compared to $0.39 per Mcfe in the 2002 period, an
increase of 10%. The increase in production taxes was caused by an increase in commodity
prices received during the 2003 period.

Our gross margin realized from
exploration and production operations (oil and gas revenues less lease operating expenses)
for the 2003 period was $47.0 million, or $2.54 per Mcfe, compared to $47.2 million, or
$2.34 per Mcfe in the 2002 period, an increase of 9% on a per unit of production basis, as
a result of a 6% increase in revenue per Mcfe, offset by a 1% increase in lease operating
expense per Mcfe.

Depreciation, depletion, amortization
and accretion of oil and gas properties was $24.1 million in 2003 versus $22.5 million in
2002. The 2003 period included accretion expense related to asset retirement obligations
(due to the adoption of SFAS No. 143) of $601 thousand. On a unit of production basis,
depreciation and depletion expense was $1.27 per Mcfe produced in the 2003 period versus
$1.11 per Mcfe produced in the 2002 period. This 14% increase in the equivalent unit cost
was due primarily to an increase in development costs and shorter reserve life properties
associated with our activities in the Gulf of Mexico.

20

Segment profit for exploration and
production operations was $22.9 million for the three months ended June 30, 2003 versus
$24.7 million for the same period in 2002, a decrease of 7%, principally due to the
increase in depreciation, depletion and accretion expense.

Gathering, Marketing and
Processing Operations:

For the three months ended June 30,
2003, our gas gathering system throughput was 16.4 MMcf/day versus 15.2 MMcf/day for the
same period in 2002, an increase of 8%, due to increased production from development
drilling activities conducted by the company behind the gathering system. Gas processing
throughput was 26.8 MMcf/day in 2003 versus 21.3 MMcf/day in 2002, an increase of 26%.
This increase is primarily due to increased production from new well hookups behind two of
our processing plants and to the shutdown of one processing plant for most of one month in
the 2002 period for scheduled maintenance.

Revenues from gas gathering,
marketing and processing increased 97% to $9.1 million in 2003 versus $4.6 million in
2002. Operating costs for the gas gathering, marketing and processing segment increased
99% to $6.9 million in 2003 from $3.5 million in 2002. Both the revenues and operating
cost increases were the result of increased gas processing throughput and higher commodity
prices.

The gross margin realized from gas
gathering, marketing and processing for the 2003 period was $2.2 million versus $1.1
million in the 2002 period, an increase of 92%. The gas gathering margin was $0.06 per Mcf
gathered in 2003 versus $0.11 per Mcf in 2002 due to lower gas marketing profits. The gas
processing margin was $0.84 per Mcf in 2003 compared to $0.48 per Mcf in 2002, due to
improved plant processing economics.

Depreciation expense for gas
gathering, marketing and processing operations for the 2003 period was $577 thousand
versus $544 thousand for the same period in 2002, an increase of 6% due to capital
additions.

Segment profit for gas gathering,
marketing and processing operations was $1.6 million in the 2003 period versus $586
thousand for the 2002 period, an increase of 172%, principally due to higher throughput
and improved processing economics at our natural gas processing plants.

Oil Field Management
Services Operations:

Revenues from oil field management
services decreased 13% to $913 thousand in the first quarter of 2003 versus $1.1 million
in the first quarter of 2002. This decrease is primarily due to a reduction in the
operating fees under our operating agreements associated with the sale of non-strategic
oil and gas properties subsequent to the Prize merger. Operating costs increased 9% to
$593 thousand in 2003 from $543 thousand in 2002, due to higher overhead costs. The gross
margin for this segment in 2003 was $320 thousand versus $508 thousand in 2002, a decrease
of 37%, due to increased overhead costs. Depreciation expense was $149 thousand in the
2003 period versus $133 thousand in the 2002 period, an increase of 12%, due to capital
additions. Segment profit was $173 thousand for the three months in 2003 versus $375
thousand for the same period in 2002.

Other Income and Expenses:

Total depreciation, depletion,
amortization and accretion expense was $25.0 million in the 2003 period versus $23.5
million in the similar 2002 period, an increase of 6%. This is primarily the result of the
increased depletion and accretion rates in our exploration and production segment.

General and administrative expense
for 2003 decreased 25% to $3.2 million from $4.2 million in 2002. The principal reason for
this decrease was the costs associated with the Prize merger that were recorded in the
2002 period. We recorded equity in losses of affiliate of $525 thousand in 2003 versus
earnings of $81 thousand in 2002. This decrease was mainly due to the reduction of the
carrying value of our investment in NGTS by $719 thousand to state it at its realizable
value. Other income was $260 thousand for 2003 versus $108 thousand in 2002, caused by an
increase in interest income. The company recognized a $167 thousand gain in other non-cash
hedging adjustments in 2003 versus a $3.3 million loss in 2002. In the 2003 period, $324
thousand of the hedging gain relates to the amortization of commodity hedge assets
acquired in the Prize merger, while a loss of $157 thousand was due to recording hedge
ineffectiveness.

21

We incurred costs associated with the
early retirement of debt of $2.2 million in the three months of 2003 versus none in the
same period of 2002. The 2003 period costs were associated with the $50 million early
redemption of our 10% Senior Notes in June 2003 at 103.333% of par.

Interest expense was $12.4 million
for 2003 versus $13.7 million for 2002, as a result of a decrease in our 10.0% Senior
Notes outstanding and lower interest rates on our senior bank credit facility. Our
weighted average interest rate paid under our senior bank credit facility was 3.4% in the
2003 period versus 3.9% in the 2002 period.

The effective tax rate was 38.2% and
37.9% for the three months ended June 30, 2003 and 2002, respectively. The variance from
the statutory rate of 35% was primarily due to state income taxes.

# For the Six Months Ended
June 30, 2003 and 2002

We reported net income of $12.2
million for the six months ended June 30, 2003, as compared to net income of $9.7 million
for the same period in 2002, an increase of 26%. Total operating revenues increased 33% to
$158.5 million in 2003 from $119.3 million in 2002. Operating profit increased 56% to
$47.4 million in 2003 from $30.4 million in 2002, and net income before income tax
increased 352% to $19.0 million in 2003 from $4.2 million in 2002, due primarily to the
Prize merger and increases in commodity prices in the 2003 period compared to the 2002
period. We recorded deferred income tax expense of $7.2 million for the first six months
of 2003 versus a deferred tax benefit of $5.5 million for the same period in 2002. The
2002 period income tax benefit resulted from the elimination of the $7.1 million valuation
allowance that had been carried against deferred tax assets derived from net operating
loss carryovers by Magnum Hunter. As a result of the Prize merger, we believe that this
tax asset can be fully realized. Additionally, the 2003 period includes the cumulative
effect on prior years of a change in accounting principle due to the adoption of SFAS No.
143 relating to asset retirement obligations. The cumulative effect was a gain of $399
thousand, net of income tax expense of $244 thousand, or $0.01 per share, both basic and
diluted. Basic and diluted earnings per share were $0.18 in the 2003 period versus basic
and diluted earnings per share of $0.18 and $0.17, respectively, in the 2002 period. Basic
and diluted shares outstanding increased 20% and 19%, respectively, in the 2003 period
primarily as a result of new shares issued in the Prize merger. The change in basic and
diluted earnings per share was a result of increased net income reduced by the effect of
an increase in total shares outstanding.

Exploration and
Production Operations:

For the six months ended June 30,
2003, we reported oil production of approximately two million barrels and gas production
of 23.8 billion cubic feet, which represents an increase of 9% in oil produced and an
increase of 6% in gas produced from the 1.8 million barrels of oil and 22.5 billion cubic
feet of gas reported in the comparable period during 2002. Our reported equivalent daily
rate of production on a million cubic feet per day basis (Mmcfe/day) increased 7% to 196.6
Mmcfe/day in the 2003 period from 184.0 Mmcfe/day in the 2002 period. These increases were
primarily the result of the merger with Prize and the success of our drilling program
offsetting both normal production declines and the sale of non-strategic oil and gas
properties subsequent to the Prize merger.

Oil revenues increased 26% to $52.5
million in the first six months of 2003 compared to $41.7 million for the same period in
2002. The oil price received, after hedging effects, was $26.85 per Bbl in the 2003 period
compared to $23.15 per Bbl for the same period in 2002, an increase of 16%. Gas revenues
increased 26% to $85.5 million in the first six months of 2003 versus $68.0 million for
the same period in 2002. The gas price received, after hedging effects, was $3.59 per Mcf
in the 2003 period compared to $3.02 per Mcf for the same period in 2002, an increase of
19%.

From time to time we enter into
various commodity hedging contracts in order to reduce our exposure to the possibility of
declining oil and gas prices which provides a base level of cash flow to fund capital
expenditures. During the 2003 period, hedging decreased the average price we received for
oil by $3.37 per Bbl and decreased the average price we received for gas by $1.68 per Mcf.
During the first half of 2003, we had approximately 60.0 MMcf/day of gas hedged through
fixed price swaps with a weighted average price of $3.01 per MMbtu and approximately 40.0
MMcf/day of gas hedged through cost-less collars with a weighted average floor price of
$3.06 per MMbtu and a weighted average ceiling price of $4.30 per MMbtu. Approximately 76%
of the first six months of 2003 natural gas production was hedged. On the crude side, we
had approximately 1,000 Bbls/day hedged through fixed price swaps with a weighted average
price of $21.25 per barrel and approximately 6,000 Bbls/day

22

hedged through cost-less
collars with a weighted average floor price of $23.00 per Bbl and a weighted average
ceiling price of $27.00 per Bbl. Approximately 65% of the first six months of 2003 crude
oil production was hedged. For the remainder of 2003, we have approximately 10.0 MMcf/day
hedged through fixed price swaps with a weighted average price of $3.65 per MMbtu and
approximately 70.0 MMcf/day hedged through cost-less collars with a weighted average floor
price of $2.82 and a weighted average ceiling price of $3.78. In addition, for the
remainder of 2003, we have hedged 1,000 Bbls/day of crude oil production through a fixed
price swap with a price of $21.25 per Bbl and 6,000 Bbls/day of crude oil production
through cost-less collars with a weighted average floor price of $23.00 per Bbl and a
weighted average ceiling price of $27.00 per Bbl.

On May 1, 2003, we closed out 20,000
Mmbtu/day of natural gas collar hedges for the period of June through December 2003. In
closing these contracts, we locked in a $5.7 million loss which will be recognized in
earnings with the underlying forecasted commodity sales transactions for the months of
June through December 2003. At June 30, 2003, the remaining balance was $5.0 million.

Lease operating expense consists of
lifting costs and production tax and other costs. For the 2003 period, lifting costs were
$26.4 million versus $24.4 million in the 2002 period, an increase of 8%. Production taxes
and other costs were $17.1 million in the 2003 period versus $12.2 million in the 2002
period, an increase of 40%. Both increases were primarily attributable to the Prize merger
and increased commodity prices. For the 2003 period, lifting costs, on a unit of
production basis, were $0.74 per Mcfe as compared to $0.73 per Mcfe in the 2002 period, an
increase of 1%. Production tax and other costs were $0.48 per Mcfe in the 2003 period
compared to $0.37 per Mcfe in the 2002 period, an increase of 30%. The increase in
production taxes was caused by an increase in commodity prices received during the 2003
period.

Our gross margin realized from
exploration and production operations (oil and gas revenues less lease operating expenses)
for the first half of 2003 was $94.5 million, or $2.66 per Mcfe, compared to $73.1
million, or $2.19 per Mcfe in the 2002 period, an increase of 21% on a per unit of
production basis. This is the result of an 18% increase in revenue per Mcfe, offset by a
11% increase in lease operating expense per Mcfe.

Depreciation, depletion, amortization
and accretion of oil and gas properties was $44.7 million in the first half of 2003 versus
$37.1 million in 2002. The 2003 period included accretion expense related to asset
retirement obligations (due to the adoption of SFAS No. 143) of $1.2 million. On a unit of
production basis, depreciation and depletion expense was $1.22 per Mcfe produced in the
2003 period versus $1.11 per Mcfe produced in the 2002 period. This 10% increase in the
equivalent unit cost was due primarily to an increase in development costs and shorter
reserve life properties associated with our activities in the Gulf of Mexico.

Segment profit for exploration and
production operations was $49.8 million for the first six months of 2003 versus $36.0
million for the same period in 2002, an increase of 38%, primarily due to properties
acquired in the Prize merger.

Gathering, Marketing and
Processing Operations:

For the six months ended June 30,
2003, our gas gathering system throughput was 15.9 MMcf/day versus 15.2 MMcf/day for the
same period in 2002, an increase of 5%. Gas processing throughput was 24.8 MMcf/day in
2003 versus 19.6 MMcf/day in 2002, an increase of 27%. This increase is primarily due to
the acquisition of a 100% owned interest in the Elmore City processing plant as a result
of the Prize merger.

Revenues from gas gathering,
marketing and processing increased 125% to $18.4 million in 2003 versus $8.2 million in
2002. Operating costs for the gas gathering, marketing and processing segment increased
118% to $13.4 million in 2003 from $6.1 million in 2002. Both the revenues and operating
cost increases were the result of increased gas processing throughput and higher commodity
prices.

The gross margin realized from gas
gathering, marketing and processing operations for the 2003 period was $5.0 million versus
$2.0 million in the 2002 period, an increase of 147%. The gas gathering margin was $0.12
per Mcf gathered in both 2003 and in 2002. The gas processing margin increased 134% to
$1.03 per Mcf in 2003 compared to $0.44 per Mcf in 2002, due to the addition of the Elmore
City plant and improved plant processing economics.

23

Depreciation expense for gas
gathering, marketing and processing operations for the 2003 period was $1.2 million versus
$914 thousand for the same period in 2002, an increase of 26% due to the addition of the
Elmore City plant which came from the Prize merger.

Segment profit for gas gathering,
marketing and processing operations was $3.9 million in the first half of 2003 versus $1.1
million for the 2002 period, an increase of 265%, principally due to assets acquired in
the Prize merger and improved natural gas processing economics.

Oil Field Management
Services Operations:

Revenues from oil field management
services increased 38% to $2.0 million in the 2003 period versus $1.4 million in the 2002
period. This increase is primarily due to an increase in the number of properties operated
as a result of the Prize merger. Operating costs increased 77% to $1.5 million in 2003
from $819 thousand in 2002, also due to costs associated with the Prize merger. The gross
margin for this segment in 2003 was $542 thousand versus $624 thousand in 2002, a decrease
of 13%, due to overhead costs charged. Depreciation expense was $295 thousand in the 2003
period versus $238 thousand in the 2002 period, an increase of 24% due to capital
additions. Segment profit was $248 thousand for the 2003 period versus $386 thousand for
the same period in 2002.

Other Income and Expenses:

Total depreciation, depletion,
amortization and accretion expense was $46.5 million in the 2003 period versus $38.6
million in the 2002 period, an increase of 20% primarily as a result of increased
production due to the Prize merger.

General and administrative expense
for 2003 decreased 6% to $6.3 million from $6.7 million in 2002. The 2002 period included
costs related to the merger with Prize. We recorded equity in losses of affiliate of $237
thousand in 2003 versus earnings of $382 thousand in 2002, mainly due to the reduction of
the carrying value of our investment in NGTS by $719 thousand to state it at its
realizable value. Other income was $378 thousand for 2003 versus $165 thousand in 2002,
caused by an increase in interest income. The company recognized a $536 thousand gain in
other non-cash hedging adjustments in 2003 versus a $3.9 million loss in 2002. In the 2003
period, $648 thousand of the hedging gain relates to the amortization of commodity hedge
assets acquired in conjunction with the Prize merger, while a loss of $112 thousand was
due to recording hedge ineffectiveness.

We incurred costs associated with the
early retirement of debt of $4.1 million during the first six months of 2003 versus $1.0
million in the same period of 2002. The 2003 period costs were associated with the $30
million and $50 million redemption of our 10% Senior Notes at 105% of par and 103.333% of
par in January and June 2003, respectively. The 2002 period costs were associated with the
amendment of our senior bank credit facility in connection with the Prize merger.

Interest expense was $25.0 million
for 2003 versus $21.2 million for 2002, an increase of 18%, principally due to the
placement of $300 million of 9.6% Senior Notes in March 2002 as a result of the Prize
merger. Our weighted average interest rate paid under our senior bank credit facility was
reduced to 3.4% in the 2003 period from 4.1% in the 2002 period.

The effective tax rate was 38.1% and
(132.0)% for the six months ended June 30, 2003 and 2002, respectively. The variance from
the statutory rate of 35% was primarily due to state income taxes in the 2003 period and
to the release of the valuation allowance on previously reserved deferred tax assets in
the 2002 period.

# Liquidity and Capital
Resources

CASH FLOW AND WORKING CAPITAL. Net
cash provided by operating activities for the six month periods in 2003 and 2002 was
$101.4 million and $537 thousand, respectively. The substantial increase in our operating
cash flows in 2003 over 2002 was primarily the result of large payments in the first
quarter of 2002 on trade payables which had accumulated at year-end as well as current
liability balances acquired in the merger with Prize. We also benefited in the 2003 period
from the return of $8.9 million in margins we had been required to post on certain
commodity hedged positions and another $7.8 million received in net state and federal tax
refunds. Our net working capital position at June 30, 2003 was a deficit of $56.7 million.
On that date, we had $84.5 million available to be drawn under our $300 million Senior
Bank credit facility. A large factor in our working capital deficit at June 30,

24

2003 is
our current derivative liability of $39.6 million, partially offset by current deferred
tax assets of $15 million, which we have recorded on our hedged positions for the next
twelve months due to continued increases in commodities prices over our hedged prices. If
actual commodities prices realized remain higher than our hedged prices on these
positions, our resulting higher cash proceeds received on our production will offset any
actual amounts paid out related to these liabilities.

INVESTING ACTIVITIES. Net cash used
in investing activities was $88 million in the 2003 six month period. We made capital
expenditures of $97.3 million under our capital budget during 2003. Our capital
expenditures are discussed in further detail below. For 2003, we also received proceeds
from the sale of assets of $9 million, net of certain purchase price adjustments related
to both 2002 and 2003 divestitures.

In the 2002 six month period, net
cash used in investing activities was $98 million. We made cash expenditures of $56.2
million under our capital budget during 2002. Additionally, during 2002, we made a loan of
$2.4 million to an affiliate, received proceeds from sale of assets of $1.7 million, and
used $41.1 million associated with the Prize merger.

FINANCING ACTIVITIES. Net cash used
by financing activities was $7.2 million in the 2003 six month period. We borrowed a total
of $248.6 million, of which we repaid $167.6 million. We paid $450 thousand in fees
related to the amended Senior Bank credit facility, loaned $2.7 million to the ESOP to
purchase shares for the plan, purchased treasury stock for $7.4 million, made a loan to an
unconsolidated affiliate of $225 thousand, had an increase in restricted cash of $262
thousand, purchased common stock for our deferred compensation plan of $295 thousand, paid
$76.9 million (net of Canvasback redemption) to redeem $80 million in principal of our 10%
Notes, and received net proceeds from the issuance of common stock of $75 thousand. Our
financing activities are discussed in further detail below.

Net cash provided by financing
activities was $102.6 million in the 2002 six month period. We borrowed a total of $592.2
million, including $300 million in new 9.6% Senior Notes during the period. We also repaid
borrowings of $461.4 million, including $155.7 million to pay off the previous bank credit
facility, $245.8 million to pay off the Prize bank credit facility in connection with the
merger, and the remainder to pay off other indebtedness. We paid $11.8 million in fees
related to the newly issued 9.6% Senior Notes and the new Senior Bank credit facility (the
Facility), loaned $2.7 million to the ESOP, purchased treasury stock for $13.8
million, purchased warrants for $98 thousand, and made a loan to a stockholder and
executive officer for $175 thousand.

CAPITAL RESOURCES. The following
discussion of Magnum Hunters capital resources refers to the company and our
affiliates. Internally generated cash flow and the borrowing capacity under our Facility
are our major sources of liquidity. From time to time, we may also sell non-strategic
properties in order to increase liquidity. In addition, we may use other sources of
capital, including the issuance of additional debt securities or equity securities, as
sources to fund acquisitions or other specific needs. In the past, we have accessed both
the public and private capital markets to provide liquidity for specific activities and
general corporate purposes.

We amended our Facility in May 2003.
The amended Facility provides for total borrowings of $300 million, up $50 million from
the prior $250 million borrowing base. Additionally, the expiration date of the Facility
was extended to May 2, 2006. The increase in borrowing capacity was used to retire an
additional $50 million of our 10% Senior Notes at 103.333% of par plus accrued interest,
or approximately $51.7 million on June 2, 2003. At June 30, 2003, we had $84.5 million
available under this Facility.

On June 9, 2003, we sold certain oil
and gas properties considered to be non-strategic assets for $13.4 million, subject to
certain purchase price adjustments.

On March 7, 2002, Canvasback entered
into a $10.0 million revolving credit agreement with a financial institution. This loan is
collateralized by the 10% Senior Notes Canvasback owns. During 2002, this revolving loan
was converted into a $7 million term loan. The proceeds of $6.1 million received by
Canvasback as a result of the bond redemptions were used to reduce the outstanding balance
to $932 thousand. In July 2003, Canvasback amended its term loan to allow for additional
advances of up to $5 million for the purpose of additional repurchases of our 10% Senior
Notes. The maturity date was also extended to May 31, 2005.

On May 1, 2002, our Board of
Directors announced an expansion of our existing stock repurchase program originally
established in June 2001. The company or our affiliates were authorized to repurchase up
to two million

25

shares of our common stock. On October 17, 2002, our Board of Directors
approved a new three million share repurchase program. Approximately 4.2 million shares
have been purchased through June 30, 2003 under these programs, and approximately 818
thousand shares remain available for repurchase.

On a semi-annual basis, our borrowing
base under our Facility is redetermined by the financial institutions who have committed
to the company based on their review of our proved oil and gas reserves and other assets.
If the outstanding senior bank debt exceeds the redetermined borrowing base, the company
must repay the excess. The next redetermination date will have an effective date of June
30, 2003 and will be completed no later than November 10, 2003. We do not anticipate a
downward redetermination.

Our internally generated cash flow,
results of operations, and financing for our operations are substantially dependent on oil
and gas prices. To the extent that oil and gas prices decline, our earnings and cash flows
may be adversely affected in spite of our commodity hedging activities. We believe that
our cash flow from operations, existing working capital and availability under our
Facility will be sufficient to meet interest payments and to fund the capital expenditure
budget for the year 2003.

CAPITAL EXPENDITURES. During the 2003
six month period, our total capital expenditures were $97.3 million. Our management
intentionally front end loaded the 2003 budget in an effort to capture low
service costs and high commodity prices. Exploration activities accounted for $14.3
million, development activities accounted for $70.2 million, unproved property
acquisitions accounted for $11.1 million, proved property acquisitions accounted for $1.4
million, and additions to other assets accounted for $402 thousand of the capital
expenditures. We participated in the drilling of 60 wells during the 2003 period, of which
55 were deemed commercial, for a 92% overall success rate. Of the 60 wells drilled, 12
were exploratory wells, of which 7 were successful, and 48 were development wells, all of
which were successful. As of June 30, 2003, we had total unproved oil and gas property
costs of $180 million.

For calendar year 2003, we have
budgeted approximately $115 million for exploration and development activities. We are not
contractually obligated to proceed with any of our material budgeted capital expenditures.
The amount and allocation of future capital expenditures will depend on a number of
factors that are not entirely within our control or ability to forecast, including
drilling results, oilfield service costs, and changes in oil and gas prices. As a result,
actual capital expenditures may vary significantly from current expectations. In the
normal course of business, we review opportunities for the possible acquisition of oil and
gas reserves and activities related thereto. When potential acquisition opportunities are
deemed consistent with our growth strategy, bids or offers in amounts and with terms
acceptable to us may be submitted. It is uncertain whether any such bids or offers which
may be submitted by us from time to time, will be acceptable to the sellers. In the event
of a future significant acquisition, utilizing cash, we may require additional financing
in connection therewith.

FORWARD-LOOKING STATEMENTS. This Form
10-Q and the information incorporated by reference contain statements that constitute
forward-looking statements within the meaning Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act. The words expect,
project, estimate, believe, anticipate,
intend, budget, plan, forecast,
predict and other similar expressions are intended to identify forward-looking
statements. These statements appear in a number of places and include statements regarding
our plans, beliefs, or current expectations, including the plans, beliefs, and
expectations of our officers and directors.

When considering any forward-looking
statement, one should keep in mind the risk factors that could cause our actual results to
differ materially from those contained in any forward-looking statement. Important factors
that could cause actual results to differ materially from those in the forward-looking
statements herein include the timing and extent of changes in commodity prices for oil and
gas, operating risks and other risk factors as described in our Annual Report on Form 10-K
as filed with the Securities and Exchange Commission. Furthermore, the assumptions that
support our forward-looking statements are based upon information that is currently
available and is subject to change. We specifically disclaim all responsibility to
publicly update any information contained in a forward-looking statement or any
forward-looking statement in its entirety and therefore disclaim any resulting liability
for potentially related damages.

All forward-looking statements
attributable to Magnum Hunter Resources, Inc. are expressly qualified in their entirety by
this cautionary statement.

26

# Inflation and Changes in
Prices

During the 2003 period, we
experienced substantial increases in the price for both oil and gas compared to the same
period in the previous year. The results of operations and cash flow of the company have
been, and will continue to be, affected by the volatility in oil and gas prices. Should
the company experience a significant increase in oil and gas prices that is sustained over
a prolonged period, we would expect that there would also be a corresponding increase in
oil and gas finding costs, lease acquisition costs, and operating expenses. Periodically,
the company enters into futures, options, and swap contracts to reduce the effects of
fluctuations in crude oil and gas prices. At inception, commodity hedge positions may not
exceed 75% of the natural gas and 90% of the crude oil forecasted current (18 months)
commodity production. For non-current (greater than 18 months) commodity production, at
inception, commodity hedge positions for natural gas and crude oil may not exceed 75%. A
portion of our oil and natural gas production will be subject to price fluctuations unless
we enter into additional hedging transactions. For the remainder of 2003, we have
approximately 60% of our combined crude oil and natural gas production hedged.

We market oil and gas for our own
account, which exposes us to the attendant commodities risk. A significant portion of our
gas production is currently sold to a 30% owned affiliate, NGTS, LLC, or end-users either
on the spot market on a month-to-month basis at prevailing spot market prices, or under
long-term contracts based on current spot market prices. We have elected to sell our
interest in NGTS, LLC. Our ability to market our natural gas will not be impacted. We
normally sell our oil under month-to-month contracts to a variety of purchasers.

# Hedging

SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as extended by SFAS No. 137 (June
1999) and amended by SFAS No. 138 (June 2000), was effective for the company beginning
January 2001. SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires the recognition of derivatives in the balance sheet and
the measurement of those instruments at fair value.

We were obligated to nine crude oil
derivatives, thirteen natural gas derivatives, and two interest rate derivatives on June
30, 2003. All outstanding derivatives qualify for cash flow hedge accounting treatment as
defined within SFAS No. 133, which requires derivative assets and liabilities to be
recorded at their fair value on the balance sheet with an offset to other comprehensive
income. Hedge ineffectiveness on cash-flow hedges is recorded in earnings.

At June 30, 2003, the fair value of
the companys derivatives was as follows (in thousands):

|Derivative Liabilities       | 
|---------------------------- | 
|Natural gas collars          | 
|Natural gas swaps            | 
|Crude oil collars            | 
|Crude oil swaps              | 
|Interest rate swaps          | 
|                             | 
|Total derivative liabilities | 
|                             | 

Of the $47.4 million derivative liability,
$39.6 million is included in trade payables and accrued liabilities on our condensed
consolidated balance sheet at June 30, 2003.

For the three and six month periods
ended June 30, 2003, the statement of operations includes a non-cash hedging
ineffectiveness loss of $157 thousand and $112 thousand, respectively, related to the
crude oil and natural gas derivatives and a non-cash gain of $324 thousand and $648
thousand, respectively, related to the amortization of hedge contracts acquired in the
Prize merger. The remaining amortization amounts relating to hedge contracts acquired in
the Prize merger that will be reclassified into the operations statement in years 2003 and
2004 are a $0.6 million gain and $0.8 million gain, respectively. It is estimated at this
time that $26.6 million of other comprehensive loss will be reclassified into the income
statement during the next 12 months.

27

# New Accounting Standards

SFAS No. 143  SFAS No. 143,
Accounting for Asset Retirement Obligations, became effective beginning
January 1, 2003. SFAS No. 143 requires the recognition of a fair value liability for any
retirement obligation associated with long-lived assets in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the long-lived asset
and depreciated over the assets useful life. Upon adoption of SFAS No. 143, we
recorded an addition to oil and gas properties of $25.4 million, an asset retirement
obligation of $30.4 million, a reduction of accumulated depletion of $5.6 million, and a
pre-tax gain of $643 thousand.

SFAS No. 145  SFAS No. 145,
Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections, became effective beginning January 1, 2003. The Statement
rescinds, updates, clarifies and simplifies various existing accounting pronouncements.
SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of
Debt, which required all gains and losses from extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item, net of related income
tax effect. As a result, SFAS No. 145 requires us to reclassify as additional expense
extraordinary items for debt extinguishment costs which did not meet the criteria as
described in APB Opinion No. 30 Reporting the Results of Operations  Reporting
the Effects of Disposal of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions.

SFAS No. 146  In July 2002, the
FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 requires companies to recognize costs associated with exit
or disposal activities when they are incurred rather than at the date of a commitment to
an exit or disposal plan. SFAS No. 146 supercedes EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). Statement 146 is to be
applied prospectively to exit or disposal activities initiated after December 31, 2002.

SFAS No. 148  The FASB issued
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, an Amendment to FASB Statement No. 123, in December 2002. SFAS No. 148
provides alternative methods of transition for a voluntary change to the fair value method
of accounting for stock-based employee compensation and amends the disclosure requirements
of SFAS No. 123. Beginning June 1, 2003, we began expensing the fair market value of stock
options newly granted, modified or settled pursuant to SFAS No. 123, Accounting for
Stock-Based Compensation, and as allowed under the prospective method of SFAS No.
148, Accounting for Stock-Based Compensation  Transition and Disclosure, an
amendment to SFAS No. 123. The fair value of each option granted after December 31,
2002 is estimated on the grant date using the Black-Scholes option-pricing model. For the
six months ended June 30, 2003, we recorded stock compensation expense of $433 thousand
which is reflected in our general and administrative expenses. For options granted prior
to January 1, 2003, we continue to use the intrinsic method under APB No. 25,
Accounting for Stock Issued to Employees and Related Interpretations, whereby
no compensation expense is recognized for stock options granted with an exercise price
equal to the market value of our stock on the grant date.

If we had recorded stock option
expense under the fair value provisions of SFAS No. 123 for all grants, our net income and
EPS would have been as shown in the below pro forma tables (in thousands):

28

|                                                  | Three Months Ended
June 30, | Six Months Ended
June 30,
|------------------------------------------------- | --------------------------- | -------------------------
|
|Net income, as reported                           |                             |                          
|Total Stock-based employee compensation expense   |                             |                          
|included in reported  net income,  net of related |                             |                          
|tax effects                                       |                             |                          
|                                                  |                             |                          
|Deduct:  Total stock-based employee compensation  |                             |                          
|determined under fair value-based method for all  |                             |                          
|awards, net of related tax  effects               |                             |                          
|                                                  |                             |                          
|Pro forma net income                              |                             |                          
|                                                  |                             |                          
|Earnings per share:                               |                             |                          
|Basic - as reported                               |                             |                          
|                                                  |                             |                          
|Basic - pro forma                                 |                             |                          
|                                                  |                             |                          
|Diluted - as reported                             |                             |                          
|                                                  |                             |                          
|Diluted - pro forma                               |                             |                          
|                                                  |                             |                          

FIN No. 45  FIN No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, was
issued in November 2002. This interpretation addresses the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations under
guarantees. It also clarifies the requirements related to the recognition of a liability
by a guarantor at the inception of a guarantee for the obligations the guarantor has
undertaken in issuing that guarantee. We adopted this statement in January 2003.

In the past we have provided trade
guarantees on behalf of our 30% owned affiliate, NGTS, LLC. In the event that NGTS, LLC is
unable to fulfill its obligations with certain vendors, we would be obligated for cash
payments of up to $600 thousand to these vendors. We have not recorded these as a
liability on our books at June 30, 2003 because we do not expect to have to perform under
these guarantees. The last of these guarantees expires in July 2003, and we do not intend
to issue any additional guarantees on behalf of NGTS, LLC. On July 29, 2003, we exercised
our option to sell our 30% interest in NGTS, LLC. We have provided no other guarantees on
behalf of any unconsolidated entities and do not intend to issue any.

In June 2001, FASB issued SFAS No.
141, Business Combinations, which requires the purchase method of accounting
for business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. In July 2001, the FASB also issued SFAS No. 142,
Goodwill and Other Intangible Assets, which discontinues the practice of
amortizing goodwill and indefinite lived intangible assets and initiates an annual review
of impairment. Intangible assets with a determinable useful life will continue to be
amortized over that period. The amortization provisions apply to goodwill and intangible
assets acquired after June 30, 2001. SFAS No. 141 and 142 clarify that more assets should
be distinguished and classified between tangible and intangible. We did not change or
reclassify contractual mineral rights included in proved and unproved oil and gas
properties on our balance sheet upon adoption of SFAS No. 142. We believe the treatment of
such mineral rights as tangible assets under the full cost method of accounting for oil
and gas properties is appropriate. An issue has been raised regarding whether these
mineral rights should be classified as tangible or intangible assets. If it is determined
that reclassification is necessary, we would have reduced our proven properties by $352.7
million, decreased unproved properties by $154.5 million and reported intangible mineral
rights related to proved properties of $352.7 million and intangible mineral rights
related to unproved properties of $154.5 million at December 31, 2002. At June 30, 2003, we would have reduced our
proven properties by $336.4 million, reduced our unproved properties by $165.6 million,
and reported intangible mineral rights related to proved properties of $336.4 million
and intangible mineral rights related to unproved properties of $165.6 million. These reclassifications represent
the cost of acquiring proved and unproved mineral use rights from the effective date of
June 30, 2001. The provisions of SFAS No. 141 and SFAS No. 142 impact only the balance
sheet and any associated footnote disclosures. Any reclassifications potentially required
would not impact our cash flows or statements of income.

29

# Item 3. Qualitative and
Quantitative Disclosure About Market Risk

Our operations are exposed to market
risks primarily as a result of changes in commodity prices and interest rates. We do not
use derivative financial instruments for speculative or trading purposes.

Commodity Price Swaps and
Options

We produce, purchase, and sell crude
oil, natural gas, condensate, and natural gas liquids. As a result, our financial results
can be significantly impacted as these commodity prices fluctuate widely in response to
changing market forces and conditions. We have previously engaged in oil and gas hedging
activities and intend to continue to consider various hedging arrangements to realize
commodity prices which we consider favorable. The company engages in hedging contracts for
a portion of its oil and gas production through various contracts (Swap
Agreements). The primary objective of these activities is to protect against
significant decreases in price during the term of the hedge.

The Swap Agreements provide for
separate contracts tied to the New York Mercantile Exchange (NYMEX) light
sweet crude oil and Henry Hub natural gas, and the Inside FERC natural gas index price
posting (Index). We have contracts which contain specific contracted prices
(Swaps) that are settled monthly based on the differences between the contract
prices and the specified Index prices for each month applied to the related contract
volumes. To the extent the Index exceeds the contract price, we pay the spread, and to the
extent the contract price exceeds the Index price, we receive the spread. In addition, we
have combined option contracts which have agreed upon price floors and ceilings
(Costless collars). To the extent the Index price exceeds the contract
ceiling, we pay the spread between the ceiling and the Index price applied to the related
contract volumes. To the extent the contract floor exceeds the Index, we receive the
spread between the contract floor and the Index price applied to the related contract
volumes.

To the extent we receive the spread
between the contract price and the Index price applied to related contract volumes, we
have a credit risk in the event of nonperformance of the counterparty to the agreement. We
do not anticipate any material impact to our results of operations as a result of
nonperformance by such parties.

We are contractually obligated to a
counter-party to provide a margin deposit in the form of cash or bank letter of credit
should the aggregate fair value of hedge contracts held with the counter-party exceed a
predetermined value. Margins posted at June 30, 2003 totaled $400 thousand.

The following is a summary of the
companys open commodity hedge contracts as of June 30, 2003:

|Commodity   | Type | Volume/Day | Duration | Weighted Average
Price
|----------- | ---- | ---------- | -------- | ----------------------
|Natural Gas |      |            | Swap     |                       
|Natural Gas |      |            | Collar   |                       
|Natural Gas |      |            | Collar   |                       
|Crude Oil   |      |            | Swap     |                       
|Crude Oil   |      |            | Collar   |                       
|Crude Oil   |      |            | Collar   |                       

Based on future market prices at June
30, 2003, the fair value of open commodity hedging contracts was a liability of $47.0
million. If future market prices were to increase 10% from those in effect at June 30,
2003, the fair value of open contracts would be a liability of $85.5 million. If future
market prices were to decline 10% from those in effect at June 30, 2003, the fair value of
the open contracts would be a liability of $24.4 million.

At inception, commodity hedge
positions may not exceed 75% of natural gas and 90% of crude oil forecasted current (18
months) commodity production. For non-current (greater than 18 months) commodity
production, at inception, commodity hedge positions for natural gas and crude oil may not
exceed 75%. Unhedged portions of our natural gas and crude oil production will be subject
to market price fluctuations.

30

Interest Rate Swaps

On August 9, 2001, the company
entered into two interest rate swaps in order to shift a portion of its variable rate bank
debt to fixed rate debt. The following table reflects the terms of these swaps:

|Type                       | Notional Amount | Termination Date | Pay Rate    | Receive Rate                  
|-------------------------- | --------------- | ---------------- | ----------- | ------------------------------
|Pay Fixed/Receive Variable | $50,000,000     | 8/23/03          | 4.25% Fixed | 3 month LIBOR(currently 1.27%)

Based on the set rates at June 30,
2003, the fair value of outstanding contracts to the company was a liability of $392
thousand.

Fixed and Variable Rate Debt.The company uses fixed and variable rate debt to partially finance budgeted
expenditures. These agreements expose the company to market risk related to changes in
interest rates.

The following table presents the
carrying and fair value of the companys debt along with average interest rates. Fair
values are calculated as the net present value of the expected cash flows of the financial
instruments, except for the fixed rate Senior Notes, which are valued at their last traded
value before June 30, 2003.

|Expected Maturity Dates        | 2003 | 2004-6 | 2007 | 2012 | Total | Fair Value
|------------------------------ | ---- | ------ | ---- | ---- | ----- | ----------
|
|Variable Rate Debt:            |      |        |      |      |       |           
|Bank Debt with Recourse (a)    |      |        | $    | --   |       | $         
|Bank Debt without Recourse (b) |      |        | $    | --   |       | $         
|Capital Leases (c)             |      |        | $    | 990  |       | $         
|Fixed Rate Debt:               |      |       
|Senior Notes (d)               |      |        | $    | --   |       | $         
|                               |      |        |      |      |       |           
|Senior Notes (e)               |      |        | $    | --   |       | $         
|                               |      |        |      |      |       |           
|Other                          |      |        | $    | 51   |       | $         

---

| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 

# Item 4. Controls and
Procedures

Our chief executive officer and chief financial
officer have reviewed and evaluated the effectiveness of the companys disclosure
controls and procedures [as defined in Rules 240.13a-14 (c) and 15d-14 (c) promulgated
under the Securities Exchange Act of 1934] as of a date within ninety days before the
filing date of this quarterly report. Based on that review and evaluation, which included
inquiries made to certain other employees of the company, the chief executive officer and
chief financial officer have concluded that our current disclosure controls and
procedures, as designed and implemented, are reasonably adequate to ensure that they are
provided with material information relating to the company required to be disclosed in the
reports the company files or submits under the Securities Exchange Act of 1934. There have
not been any significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation. There were
no significant deficiencies or material weaknesses and, therefore, no corrective actions
were taken.

31

# PART III  OTHER
INFORMATION

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

(a) Exhibits

|Number  | Description of Exhibit
|------- | ----------------------
|3.1&4.1 |                       
|        |                       
|3.2&4.2 |                       
|        |                       
|3.3&4.3 |                       
|        |                       
|3.4&4.4 |                       
|        |                       
|3.5&4.5 |                       
|        |                       
|3.6&4.6 |                       
|        |                       
|3.7&4.7 |                       
|        |                       
|3.8&4.8 |                       
|        |                       
|3.9&4.9 |                       
|        |                       
|4.10    |                       
|        |                       
|        |                       
|4.11    |                       
|        |                       
|        |                       
|4.12    |                       
|        |                       
|        |                       
|4.13    |                       
|        |                       
|        |                       
|4.14    |                       
|4.15    |                       
|        |                       
|4.16    |                       
|        |                       
|        |                       
|4.17    |                       
|        |                       
|        |                       
|10.1    |                       
|        |                       
|        |                       
|10.2    |                       
|        |                       
|10.3    |                       
|        |                       

32

|10.4  |  |  | Employment Agreement for Gary C. Evans (Incorporated by reference to Form 10-K for the fiscal      |  | 
|----- |  |  | -------------------------------------------------------------------------------------------------- |  | 
|      |  |  | year-end December 31, 1999 filed March 30, 2000)                                                   |  | 
|10.5  |  |  | Employment Agreement for Richard R. Frazier (Incorporated by reference to Form 10-K for the        |  | 
|      |  |  | fiscal year-end December 31, 1999 filed March 30, 2000)                                            |  | 
|10.6  |  |  | Employment Agreement for Chris Tong (Incorporated by reference to Form 10-K for the year ended     |  | 
|      |  |  | December 31, 2002)                                                                                 |  | 
|10.7  |  |  | Employment Agreement for R. Douglas Cronk (Incorporated by reference to Form 10-K for the year     |  | 
|      |  |  | ended December 31, 2002)                                                                           |  | 
|10.8  |  |  | Employment Agreement for Charles Erwin (Incorporated by reference to Form 10-K for the year ended  |  | 
|      |  |  | December 31, 2002)                                                                                 |  | 
|10.9  |  |  | Purchase and Sale Agreement, dated February 27, 1997 among Burlington Resources Oil and Gas        |  | 
|      |  |  | Company, Glacier Park Company and Magnum Hunter Production, Inc. (Incorporated by reference to     |  | 
|      |  |  | Form 8-K, dated April 30, 1997, filed May 12, 1997)                                                |  | 
|10.10 |  |  | Purchase and Sale Agreement between Magnum Hunter Resources, Inc., NGTS, et al, dated December     |  | 
|      |  |  | 17, 1997 (Incorporated by reference to Form 8-K, dated December 17, 1997, filed December 29, 1997) |  | 
|10.11 |  |  | Purchase and Sale Agreement dated November 25, 1998 between Magnum Hunter Production, Inc. and     |  | 
|      |  |  | Unocal Oil Company of California (Incorporated by reference to Form 10-K for the fiscal year-end   |  | 
|      |  |  | December 31, 1998, filed April 14, 1999)                                                           |  | 
|10.12 |  |  | Agreement of Limited Partnership of Mallard Hunter, L.P., dated May 23, 2000 (Incorporated by      |  | 
|      |  |  | reference to Form 10-Q/A for the period ended June 30, 2000, filed November 30, 2000)              |  | 
|99.1* |  |  | Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002, signed by Gary C. Evans       |  | 
|99.2* |  |  | Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002, signed by Chris Tong          |  | 
|99.3* |  |  | Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002, signed by Gary C. Evans       |  | 
|99.4* |  |  | Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002, signed by Chris Tong          |  | 

*Filed herewith

(b)    
          Reports on Form 8-K

1)       
          Form 8-K, filed April 28, 2003 under Item 9.

33

# SIGNATURE

In accordance with the requirements
of the Exchange Act, the Registrant has caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.

# MAGNUM HUNTER RESOURCES,
INC.

|By    /s/ Gary C. Evans                                                         |  | August 5, 2003
|------------------------------------------------------------------------------- |  | --------------
|Gary C. Evans         Chairman, President and Chief Executive Officer           |  |               
|                                                                                |  |               
|By    /s/ Chris Tong                                                            |  | August 5, 2003
|Chris Tong         Senior Vice President and Chief Financial Officer            |  |               
|                                                                                |  |               
|By    /s/ Morgan F. Johnston                                                    |  | August 5, 2003
|Morgan F. Johnston         Senior Vice President, General Counsel and Secretary |  |               
|                                                                                |  |               
|By    /s/ David S. Krueger                                                      |  | August 5, 2003
|David S. Krueger         Senior Vice President and Chief Accounting Officer     |  |               

34