<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                             ____________________


                                  FORM 10-Q
(Mark one)

[X]            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the quarterly period ended March 31, 1999

                                      OR

[ ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
             For the transition period from _________ to _________

                        Commission file number 1-14344
                          __________________________


                         PATINA OIL & GAS CORPORATION
            (Exact name of registrant as specified in its charter)

        Delaware                                       75-2629477
(State or other jurisdiction of                       (IRS Employer
incorporation or organization)                      Identification No.)

         1625 Broadway
         Denver, Colorado                                 80202
(Address of principal executive offices)                (zip code)

       Registrant's telephone number, including area code (303) 389-3600

             Title of class              Name of exchange on which listed
      _____________________________________________________________________
      Common Stock, $.01 par value            New York Stock Exchange
      7.125% Convertible Preferred Stock,     New York Stock Exchange
               $.01 par value                 New York Stock Exchange
           Common Stock Warrants             

          Securities registered pursuant to Section 12(g) of the Act:
                                     None
 

     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            .
    -----------     -----------

  There were 15,924,724 shares of common stock outstanding on April 29, 1999.
<PAGE>
 
PART I.  FINANCIAL INFORMATION

Patina Oil & Gas Corporation (the "Company") was formed in early 1996 to hold
the assets and operations of Snyder Oil Corporation ("SOCO") in the Wattenberg
Field and to facilitate the acquisition of Gerrity Oil & Gas Corporation (the
"Gerrity Acquisition") in May 1996.  The financial statements included herein
have been prepared in conformity with generally accepted accounting principles.
The statements are unaudited but reflect all adjustments which, in the opinion
of management, are necessary to fairly present the Company's financial position
and results of operations.

                                       2
<PAGE>
 
                          PATINA OIL & GAS CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                        (In thousands except share data)
<TABLE>
<CAPTION>
 
 
                                                         December 31,    March 31,
                                                             1998          1999
                                                         -------------  -----------
                                                                        (Unaudited)
<S>                                                      <C>            <C>
                                ASSETS
Current assets
 Cash and equivalents                                       $  10,086    $   3,787
 Accounts receivable                                            9,953        9,788
 Inventory and other                                            3,286        2,995
                                                            ---------    ---------
                                                               23,325       16,570
                                                            ---------    ---------
 
Oil and gas properties, successful efforts method             598,712      606,707
 Accumulated depletion, depreciation and amortization        (273,935)    (283,978)
                                                            ---------    ---------
                                                              324,777      322,729
                                                            ---------    ---------
 
Gas facilities and other                                        6,692        6,703
 Accumulated depreciation                                      (4,590)      (4,820)
                                                            ---------    ---------
                                                                2,102        1,883
                                                            ---------    ---------
 
Other assets, net                                               1,329        1,159
                                                            ---------    ---------
                                                             $351,533    $ 342,341
                                                            =========    =========
 
                   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
 Accounts payable                                           $  16,825    $  15,263
 Accrued liabilities                                            6,754        4,180
                                                            ---------    ---------
                                                               23,579       19,443
                                                            ---------    ---------
 
Senior debt                                                    68,000       67,000
Subordinated notes                                             74,021       74,021
Other noncurrent liabilities                                    9,957        8,821
 
Commitments and contingencies
 
Stockholders' equity
 Preferred stock, $.01 par, 5,000,000 shares
  authorized, 3,166,860 and 3,179,957 shares issued
  and outstanding                                                  32           32
 Common stock, $.01 par, 100,000,000 shares
  authorized, 15,752,389 and 15,823,509 shares
  issued and outstanding                                          158          158
 Capital in excess of par value                               206,792      207,463
 Deferred compensation                                         (1,038)        (816)
 Retained earnings (deficit)                                  (29,968)     (33,781)
                                                            ---------    ---------
                                                              175,976      173,056
                                                            ---------    ---------
                                                             $351,533    $ 342,341
                                                            =========    =========

           The accompanying notes are an integral part of these statements.
</TABLE>

                                       3
<PAGE>
 
                          PATINA OIL & GAS CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands except per share data)
<TABLE>
<CAPTION>
 
 
                                              Three Months Ended March 31,
                                             ------------------------------
                                                  1998            1999
                                             --------------  --------------
<S>                                          <C>             <C>
                                                       (Unaudited)
 
Revenues
 Oil and gas sales                                 $20,343         $16,460
 Other                                                 294             196
                                                   -------         -------
 
                                                    20,637          16,656
                                                   -------         -------
 
Expenses
 Direct operating                                    4,637           4,122
 Exploration                                            23              13
 General and administrative                          1,826           1,353
 Interest expense and other                          3,309           2,913
 Depletion, depreciation and amortization           10,538          10,273
                                                   -------         -------
 
Income (loss) before taxes                             304          (2,018)
                                                   -------         -------
 
Provision (benefit) for income taxes
 Current                                                 -               -
 Deferred                                                -               -
                                                   -------         -------
 
Net income (loss)                                  $   304         $(2,018)
                                                   =======         =======
 
Net income (loss) per common share                  $(0.08)         $(0.23)
                                                   =======         =======
 
Weighted average shares outstanding                 16,281          15,777
                                                   =======         =======
 
           The accompanying notes are an integral part of these statements.
</TABLE>

                                       4
<PAGE>
 
                          PATINA OIL & GAS CORPORATION
                                        
                     CONSOLIDATED STATEMENTS OF CHANGES IN
                              STOCKHOLDERS' EQUITY
                                 (In thousands)
                                        
<TABLE>
<CAPTION>

                                                                    
                                     Preferred Stock  Common Stock   Capital in             Retained
                                    ---------------- --------------  Excess of   Deferred   Earnings
                                     Shares  Amount  Shares  Amount  Par Value Compensation (Deficit)
                                     ------  ------  ------  ------  --------- ------------ ---------
<S>                                    <C>     <C>   <C>      <C>    <C>        <C>         <C>
Balance, December 31, 1997             3,094   $31   16,450   $165   $208,525   $(1,828)    $(18,452)
 
Repurchase of common and preferred       (68)   (1)  (1,338)   (13)    (8,676)        -            -
 
Issuance of common                         -     -      640      6      3,224      (688)           -
 
Preferred dividends and accretion        141     2        -      -      3,719         -       (6,335)
 
Common dividends                           -     -        -      -          -         -         (657)
 
Net loss                                   -     -        -      -          -     1,478       (4,524)
                                       -----   ---   ------   ----   --------   -------     --------
 
Balance, December 31, 1998             3,167    32   15,752    158    206,792    (1,038)     (29,968)
 
Repurchase of common and preferred       (23)    -      (68)    (1)      (586)        -            -
 
Issuance of common                         -     -      140      1        272         -            -
 
Preferred dividends and accretion         36     -        -      -        985         -       (1,634)
 
Common dividends                           -     -        -      -          -         -         (161)
 
Net loss                                   -     -        -      -          -       222       (2,018)
                                       -----   ---   ------   ----   --------   -------     --------
 
Balance, March 31, 1999 (unaudited)    3,180   $32   15,824   $158   $207,463   $  (816)    $(33,781)
                                       =====   ===   ======   ====   ========   =======     ========

                  The accompanying notes are an integral part of these statements.
</TABLE>

                                       5
<PAGE>
 
                          PATINA OIL & GAS CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
 
 
                                                                          Three Months Ended March 31,
                                                                          -----------------------------
                                                                                1998       1999
                                                                             ---------  ----------
<S>                                                                         <C>         <C>
                                                                                  (Unaudited)
Operating activities
 Net income (loss)                                                             $   304   $(2,018)
 Adjustments to reconcile net income (loss) to net
  cash provided by operations
   Exploration expense                                                              23        13
   Depletion, depreciation and amortization                                     10,538    10,273
   Deferred compensation expense                                                   293       174
   Amortization of deferred credits                                               (168)     (225)
   Changes in current and other assets and liabilities
    Decrease (increase) in
     Accounts receivable                                                         5,119       165
     Inventory and other                                                           298       133
    Decrease in
     Accounts payable                                                           (3,797)   (1,562)
     Accrued liabilities                                                        (5,050)   (2,522)
     Other assets and liabilities                                               (1,034)   (1,291)
                                                                               -------   -------
   Net cash provided by operating activities                                     6,526     3,140
                                                                               -------   -------
 
Investing activities
 Acquisition, development and exploration                                       (4,915)   (7,850)
 Other                                                                            (112)      (11)
                                                                               -------   -------
   Net cash used by investing activities                                        (5,027)   (7,861)
                                                                               -------   -------
 
Financing activities
 Decrease in indebtedness                                                       (1,927)   (1,000)
 Deferred credits                                                                  266       633
 Issuance of common stock                                                        1,006       190
 Repurchase of common stock                                                     (3,527)     (220)
 Repurchase of preferred stock                                                       -      (366)
 Preferred dividends                                                              (654)     (654)
 Common dividends                                                                 (166)     (161)
                                                                               -------   -------
   Net cash used by financing activities                                        (5,002)   (1,578)
                                                                               -------   -------
 
Decrease in cash                                                                (3,503)   (6,299)
Cash and equivalents, beginning of period                                       12,609    10,086
                                                                               -------   -------
Cash and equivalents, end of period                                            $ 9,106     3,787
                                                                               =======   =======

                The accompanying notes are an integral part of these statements.
</TABLE>

                                       6
<PAGE>
 
                         PATINA OIL & GAS CORPORATION
                                        
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  ORGANIZATION AND NATURE OF BUSINESS

   Patina Oil & Gas Corporation (the "Company" or "Patina"), a Delaware
corporation, was formed in early 1996 to hold the assets and operations of
Snyder Oil Corporation ("SOCO") in the Wattenberg Field and to facilitate the
acquisition of Gerrity Oil & Gas Corporation ("Gerrity").  In May 1996, SOCO
contributed its Wattenberg assets to the Company in exchange for 14.0 million
common shares and Gerrity merged into the Company ("Gerrity Acquisition"). The
Gerrity Acquisition was accounted for as a purchase.  The Company's operations
currently consist of the acquisition, development, exploitation and production
of oil and natural gas properties in the Wattenberg Field of Colorado's D-J
Basin.

   In October 1997, a series of transactions took place that eliminated SOCO's
ownership in the Company. The transactions included: (i) the sale by SOCO of
10.9 million shares of Patina common stock in a public offering, (ii) the
repurchase by the Company of SOCO's remaining 3.0 million common shares, (iii)
the sale by the Company of $40.0 million of 8.50% convertible preferred stock
and the issuance of 160,000 common shares to certain institutional investors and
(iv) the sale of 303,797 common shares at $9.875 per share and the grant of
496,250 restricted common shares by the Company to certain officers and
managers.  As a result of these transactions, SOCO's ownership in the Company
was eliminated.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Producing Activities

   The Company utilizes the successful efforts method of accounting for its oil
and gas properties. Consequently, leasehold costs are capitalized when incurred.
Unproved properties are assessed periodically within specific geographic areas
and impairments in value are charged to expense.  Exploratory expenses,
including geological and geophysical expenses and delay rentals, are charged to
expense as incurred.  Exploratory drilling costs are initially capitalized, but
charged to expense if and when the well is determined to be unsuccessful.  Costs
of productive wells, unsuccessful developmental wells and productive leases are
capitalized and amortized on a unit-of-production basis over the life of the
remaining proved or proved developed reserves, as applicable.  Oil is converted
to natural gas equivalents (Mcfe) at the rate of one barrel to six Mcf.
Amortization of capitalized costs has generally been provided over the entire
Wattenberg Field, as the wells are located in the same reservoirs.  No accrual
has been provided for estimated future abandonment costs as management estimates
that salvage value will approximate or exceed such costs.

   In 1995, the Company adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets."  SFAS
121 requires the Company to assess the need for an impairment of capitalized
costs of oil and gas properties on a field-by-field basis.  During 1997, the
Company recorded an impairment of $26.0 million to oil and gas properties as the
estimated future cash flows (undiscounted and without interest charges) expected
to result from these assets and their disposition, largely proven undeveloped
drilling locations, was less than their net book value.  The impairment
primarily resulted from low year-end oil and natural gas prices.  While no
impairments were necessary in 1998 or the first quarter of 1999, changes in
underlying assumptions or the amortization units could result in additional
impairments in the future.

Gas facilities and other

   Depreciation of gas gathering and transportation facilities is provided using
the straight-line method over the estimated useful life of five years.
Equipment is depreciated using the straight-line method with estimated useful
lives ranging from three to five years.

                                       7
<PAGE>
 
Other Assets

   Other Assets at December 31, 1998 and March 31, 1999 were comprised of $1.3
million and $1.2 million of notes receivable from certain officers and key
managers of the Company.  See Note (9).

Section 29 Tax Credits

   The Company has entered into arrangements to monetize its Section 29 tax
credits.  These arrangements result in revenue increases of approximately $0.40
per Mcf on production volumes from qualified Section 29 properties.  As a
result, the Company recognized additional gas revenues of $533,000 and $580,000
for the three months ended March 31, 1998 and 1999, respectively.  These
arrangements are expected to increase revenues through 2002.

Gas Imbalances

   The Company uses the sales method to account for gas imbalances.  Under this
method, revenue is recognized based on the cash received rather than the
Company's proportionate share of gas produced.  Gas imbalances at December 31,
1998 and March 31, 1999 were insignificant.

Financial Instruments

   The book value and estimated fair value of cash and equivalents was $10.1
million and $3.8 million at December 31, 1998 and March 31, 1999.  The book
value and estimated fair value of the Company's senior debt was $68.0 million
and $67.0 million at December 31, 1998 and March 31, 1999.  The book value of
these assets and liabilities approximates fair value due to the short maturity
or floating rate structure of these instruments.  The book value of the Senior
Subordinated Notes ("Subordinated Notes" or "Notes") was $69.9 million and the
estimated fair value was $74.0 million at December 31, 1998 and March 31, 1999.
The fair value of the Notes is estimated based on their price on the New York
Stock Exchange.

   From time to time, the Company enters into commodity derivatives contracts
and fixed-price physical contracts to manage its exposure to oil and gas price
volatility.  Commodity derivatives contracts, which are generally placed with
major financial institutions or with counterparties of high credit quality that
the Company believes are minimal credit risks, may take the form of futures
contracts, swaps or options.  The oil and gas reference prices of these
commodity derivatives contracts are based upon oil and natural gas futures which
have a high degree of historical correlation with actual prices received by the
Company.  The Company accounts for its commodity derivatives contracts using the
hedge (deferral) method of accounting.  Under this method, realized gains and
losses on such contracts are deferred and recognized as an adjustment to oil and
gas sales revenues in the period in which the physical product to which the
contracts relate, is actually sold.  Gains and losses on commodity derivatives
contracts that are closed before the hedged production occurs are deferred until
the production month originally hedged.

   The Company entered into various swap contracts for oil (NYMEX based) for the
first quarter of 1998 and recognized a gain of $238,000 for these swap contracts
based on settlements during this period.  No swap contracts for oil were entered
into for the first quarter of 1999.

    The Company entered into various CIG and PEPL index based swap contracts for
natural gas for the first quarter of 1998 and 1999. The Company recognized gains
of $659,000 in first quarter of 1998 and $490,000 in first quarter of 1999
related to these swap contracts based on settlements during the respective
periods.

   As of March 31, 1999, the Company had entered into swap contracts for oil
(NYMEX based) for the period April 1999 through June 1999.  The weighted average
oil prices for the NYMEX based contracts is $15.00 for total contract volumes of
136,500 Bbl's of crude oil.  The unrecognized losses on these contracts totaled
$415,000 based on current market values.

                                       8
<PAGE>
 
   As of March 31, 1999, the Company had entered into CIG index based swap
contracts for natural gas for the period April 1999 through September 1999.  The
weighted average natural gas prices for the CIG index based contracts are $1.73
for total contract volumes of 4,575,000 MMBtu's of natural gas. The unrecognized
losses on these contracts totaled $779,000 based on current market values.

   In October 1998, the Company entered into an interest rate swap contract for
a two-year period, extendable for one additional year at the option of the third
party.  The contract is for $30.0 million principal with a fixed interest rate
of 4.57% payable by the Company and the variable interest rate, the three-month
LIBOR, payable by the third party.  The difference between the Company's fixed
rate of 4.57% and the three-month LIBOR rate, which is reset every 90 days, is
received or paid by the Company in arrears every 90 days. The Company received
$59,000 in January 1999 and $36,000 in April 1999 pursuant to this contract.

   In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities."  SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value.  It
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.  SFAS 133 is
effective for fiscal years beginning after June 15, 1999.  The Company has not
yet quantified the impacts of adopting SFAS 133 on its financial statements and
has not determined the timing of, or method of, adoption of SFAS 133.  However,
SFAS 133 could increase volatility in earnings and other comprehensive income.

Stock Options and Awards

   The Company accounts for its stock-based compensation plans under the
principles prescribed by the Accounting Principles Board's Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees."  Accordingly, stock
options awarded under the Employee Plan and the Non-Employee Directors Plan are
considered to be "noncompensatory" and do not result in recognition of
compensation expense.  However, the restricted stock awarded under the
Restricted Stock Plan is considered to be "compensatory" and the Company
recognized $293,000 and $174,000 of non-cash general and administrative expenses
for the three months ended March 31, 1998 and 1999.  See Note (6).

Per Share Data

   The Company uses the weighted average number of shares outstanding in
calculating earnings per share data.  When dilutive, options and warrants are
included as share equivalents using the treasury stock method and are included
in the calculation of diluted per share data.  Common stock issuable upon
conversion of convertible preferred securities is also included in the
calculation of diluted per share data if their effect is dilutive.

Risks and Uncertainties

   Historically, the market for oil and natural gas has experienced significant
price fluctuations.  Prices for natural gas in the Rocky Mountain region have
been particularly volatile in recent years.  The price fluctuations can result
from variations in weather, levels of production in the region, availability of
transportation capacity to other regions of the country and various other
factors.  Increases or decreases in prices received could have a significant
impact on the Company's future results.

                                       9
<PAGE>
 
Supplemental Cash Flow Information

   The Company incurred the following significant non-cash items:
<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                                                             March 31,
                                                                          1998       1999
                                                                          ----       ---- 
                                                                         (In thousands)
<S>                                                            <C>                 <C>
   Stock grant awarded to certain officers and key managers..               $ 688  $   -
   Dividends and accretion - 8.50% preferred stock...........                 911    985
</TABLE>

   The stock grant award represents 100,000 common shares granted to the new
President in conjunction with his appointment in the first quarter of 1998 and
has been recorded as Deferred Compensation in the equity section of the
accompanying consolidated balance sheets.  The Company recognized $293,000 and
$174,000 of non-cash general and administrative expenses for the three months
ended March 31, 1998 and 1999 related to this stock grant and the stock grants
awarded to certain officers and managers in conjunction with the redistribution
of SOCO's ownership of the Company.  See Note (9).

Other

   All liquid investments with an original maturity of three months or less are
considered to be cash equivalents.  Certain amounts in prior period consolidated
financial statements have been reclassified to conform with the current
classifications.

   The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries.  All significant intercompany balances and
transactions have been eliminated in consolidation.  The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

   In the opinion of management, those adjustments to the financial statements
(all of which are of a normal and recurring nature) necessary to present fairly
the financial position and results of operations have been made.  These interim
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.

(3)  OIL AND GAS PROPERTIES

   The cost of oil and gas properties at December 31, 1998 and March 31, 1999
includes no significant unevaluated leasehold costs.  As of December 31, 1998
and March 31, 1999 oil and gas properties included approximately $585,000 and
$604,000, respectively, in unevaluated leasehold costs related to a prospect in
Wyoming.  Acreage generally held for exploration or resale and its value, if
any, is excluded from amortization.  The following table sets forth costs
incurred related to oil and gas properties:
<TABLE>
<CAPTION>
                                                                                         Three
                                                                         Year Ended   Months Ended
                                                                        December 31,   March 31,
                                                                            1998          1999
                                                                        ------------  ------------
                                                                               (In thousands)
<S>                                                                     <C>           <C> 
  Acquisition.........................................................       $ 2,319       $ 1,475
  Development.........................................................        21,711         6,362
  Exploration and other...............................................            59            13
                                                                             -------       -------
                                                                             $24,089       $ 7,850
                                                                             =======       =======
</TABLE> 

                                       10
<PAGE>
 
(4) INDEBTEDNESS
 
 The following indebtedness was outstanding on the respective dates:
<TABLE> 
<CAPTION> 
 
                                                                           December 31,   March 31,
                                                                              1998          1999
                                                                           ------------   ---------
                                                                                 (In thousands)
<S>                                                                       <C>           <C>  
  Bank facilities.....................................................       $68,000       $67,000
  Less current portion................................................             -             -
                                                                             -------       -------
 
  Senior debt, net....................................................       $68,000       $67,000
                                                                             =======       =======
 
  Subordinated notes..................................................       $74,021       $74,021
                                                                             =======       =======
</TABLE>

   In April 1997, the Company entered into an amended bank Credit Agreement (the
"Credit Agreement"). The Credit Agreement is a revolving credit facility in an
aggregate amount up to $140.0 million. The amount available under the facility
is adjusted semiannually, each May 1 and November 1, and equaled $100.0 million
at March 31, 1999 with $67.0 million of debt outstanding at that time.

   The Company may elect that all or a portion of the credit facility bear
interest at a rate equal to: (i) the higher of (a) the prime rate or (b) the
Federal Funds Effective Rate plus .5%, or (ii) the rate at which Eurodollar
deposits for one, two, three or nine months  (as selected by the Company) are
offered in the interbank Eurodollar market plus a margin which fluctuates from
0.625% to 1.125%, determined by a debt to EBITDA ratio.  During the first
quarter of 1999, the average interest rate under the facility approximated 6.1%.

   In October 1998, the Company entered into an interest rate swap contract for
a two-year period, extendable for one additional year at the option of the third
party.  The contract is for $30.0 million principal with a fixed interest rate
of 4.57% payable by the Company and the variable interest rate, the three-month
LIBOR, payable by the third party.  The difference between the Company's fixed
rate of 4.57% and the three-month LIBOR rate, which is reset every 90 days, is
received or paid by the Company in arrears every 90 days. The Company received
$59,000 in January 1999 and $36,000 in April 1999 pursuant to this contract.

   The Credit Agreement contains certain financial covenants, including but not
limited to, a maximum total debt to capitalization ratio, a maximum total debt
to EBITDA ratio and a minimum current ratio. The Credit Agreement also contains
certain negative covenants, including but not limited to restrictions on
indebtedness; certain liens; guaranties, speculative derivatives and other
similar obligations; asset dispositions; dividends, loans and advances; creation
of subsidiaries; investments; leases; acquisitions; mergers; changes in fiscal
year; transactions with affiliates; changes in business conducted; sale and
leaseback and operating lease transactions; sale of receivables; prepayment of
other indebtedness; amendments to principal documents; negative pledge causes;
issuance of securities; and non-speculative commodity hedging.  Borrowings under
the Credit Agreement mature in July 2000, but may be prepaid at anytime. The
Company has periodically negotiated extensions of the Credit Agreement; however,
there is no assurance the Company will be able to do so in the future.  The
Company had a restricted payment basket of $8.0 million as of March 31, 1999,
which may be used to repurchase common stock, preferred stock and warrants and
pay dividends on its common stock.

   In conjunction with the Gerrity Acquisition, the Company assumed $100.0
million of 11.75% Senior Subordinated Notes due July 15, 2004. Under purchase
accounting, the Notes have been reflected in the accompanying financial
statements at a book value of 105.875% of their principal amount, their call
price as of July 15, 1999.  Interest is payable each January 15 and July 15. The
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after July 15, 1999, initially at 105.875%, declining to 102.938% on
July 15, 2000, and declining to 100% on July 15, 2001. Upon a change of control,
as defined in the Notes, the Company is obligated to make an offer to purchase
all outstanding Notes at a price of 101% of the principal amount thereof. In
addition, the Company would be obligated, 

                                       11
<PAGE>
 
subject to certain conditions, to make offers to purchase the Notes with the net
cash proceeds of certain asset sales at a price of 101% of the principal amount
thereof. Since the Gerrity Acquisition and through March 31, 1999, the Company
has repurchased $30.1 million principal amount of the Notes, resulting in $69.9
million of principal amount of Notes outstanding. These Notes are reflected at a
book value of $74.0 million at March 31, 1999 in the accompanying financial
statements. The Notes are unsecured general obligations and are subordinated to
all senior indebtedness and to any existing and future indebtedness of the
Company's subsidiaries.

   The Notes contain covenants that, among other things, limit the ability of
the Company to incur additional indebtedness, pay dividends, engage in
transactions with shareholders and affiliates, create liens, sell assets, engage
in mergers and consolidations and make investments in unrestricted subsidiaries.
Specifically, the Notes restrict the Company from incurring additional
indebtedness (exclusive of the Notes), if after giving effect to the incurrence
of such additional indebtedness and the receipt and application of the proceeds
therefrom, the Company's interest coverage ratio is less than 2.5:1 or adjusted
consolidated net tangible assets is less than 150% of the aggregate indebtedness
of the Company.  The Company currently meets these ratios and accordingly, is
not limited in its ability to incur additional debt.

   Scheduled maturities of indebtedness for the next five years are zero for
1999 and $67.0 million in 2000, and zero in 2001, 2002 and 2003. The bank credit
facility is scheduled to expire in July 2000.  Management intends to review the
facility and extend the maturity on a regular basis; however, there can be no
assurance that the Company will be able to do so.

   Cash payments for interest totaled $6.1 million and $4.6 million during the
three months ended March 31, 1998 and 1999, respectively.

(5)  STOCKHOLDERS' EQUITY

   A total of 100.0 million common shares, $.01 par value, are authorized of
which 15.8 million were issued and outstanding at March 31, 1999.  The Company
issued 6.0 million common shares and 3.0 million five year common stock warrants
exercisable at $12.50 (which expire in May 2001), in exchange for all of the
outstanding stock of Gerrity upon consummation of the Gerrity Acquisition.
Subsequent to the acquisition date, the Company has repurchased 5,622,800 shares
of common stock (including the 3.0 million common shares repurchased from SOCO
in conjunction with the redistribution of SOCO's majority ownership in October
1997), 148,682 shares of 7.125% preferred stock, 68,743 shares of 8.50%
preferred stock, 500,000 warrants issued to Gerrity's former chief executive
officer, and 80,549 five year common stock warrants for total consideration of
$51.9 million.  The common stock is listed on the New York Stock Exchange.
Prior to December 1997, no dividends had been paid on common stock.  A quarterly
cash dividend of one cent per common share was initiated in December 1997.

   A total of 5.0 million preferred shares, $.01 par value, are authorized. At
March 31, 1999, the Company had two issues of preferred stock outstanding
consisting of 1,444,926 shares of 7.125% preferred and 1,735,031 shares of 8.50%
preferred.

   In May 1996, 1.2 million shares of 7.125% preferred stock were issued to
certain Gerrity preferred shareholders electing to exchange their preferred
shares (the "Original Exchange Offer").  There were no proceeds received related
to this issuance.  In October 1996, Gerrity's certificate of incorporation was
amended to provide that all remaining shares of Gerrity's preferred stock be
exchanged for 7.125% preferred shares on the same terms as the Original Exchange
Offer. This exchange resulted in the issuance of an additional 389,000 preferred
shares.  Each share of 7.125% preferred stock is convertible into common stock
at any time at $8.61 per share, or 2.9036 common shares.  The 7.125% preferred
stock pays quarterly cash dividends, when declared by the Board of Directors,
based on an annual rate of $1.78 per share.  The 7.125% preferred stock is
redeemable at the option of the Company at any time after May 2, 1999 at an
initial call price of $26.25 per share.  The liquidation preference of the
7.125% preferred stock is $25 per share, plus accrued and unpaid dividends.  As
of March 31, 1999, there were 1,444,926 7.125% preferred shares outstanding with
an aggregate liquidation preference of $36.1 million. The 7.125% preferred stock
is listed on the New York Stock Exchange.  Holders of the 7.125% preferred stock
are not generally entitled to vote, except with respect to certain limited
matters.  The 

                                       12
<PAGE>
 
Company paid $654,000 ($.4453 per 7.125% convertible preferred share each
quarter) in preferred dividends during the three months ended March 31, 1998 and
1999, and had accrued an additional $327,000 and $316,000 at March 31, 1998 and
1999, respectively, for dividends.

   In October 1997, 1.6 million shares of 8.50% preferred stock and 160,000
common shares were issued to a group of private investors for $40.0 million.
The investors agreed not to sell, transfer or dispose of any shares of the 8.50%
preferred prior to October 1999. Each share of the 8.50% preferred stock is
convertible into common stock at any time at $9.50 per share or 2.6316 common
shares.  The 8.50 % preferred stock pays quarterly dividends, when declared by
the Board of Directors, and are payable-in-kind ("PIK Dividend") until October
1999, and in cash thereafter.  The 8.50% preferred stock is redeemable at the
option of the Company at any time after October 2000 at 106% of its stated value
declining by 2% per annum thereafter.  The liquidation preference is $25 per
share, plus accrued and unpaid dividends. As of March 31, 1999, there were
1,735,031 8.50% preferred shares outstanding with an aggregate liquidation
preference of $43.4 million.  The 8.50% preferred stock is privately held.
Holders of the 8.50% preferred stock are entitled to vote with the common stock,
based upon the number of shares of common stock into which the shares of 8.50%
preferred stock are convertible. The Company paid $864,000 and $903,000 in PIK
Dividends (issued an additional 34,556 and 36,097 8.50% preferred shares) during
the quarters ended March 31, 1998 and 1999, respectively.

   The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings per Share" during 1997.  SFAS 128 specifies computation,
presentation and disclosure requirements for earnings per share for entities
with publicly held common stock or potential common stock.  All prior period
earnings per share amounts have been restated in accordance with SFAS 128.

   In accordance with SFAS 128, the Company computed the net income (loss) per
share by dividing the net income (loss), less dividends and accretion on
preferred stock, by the weighted average common shares outstanding during the
period.  Net income (loss) applicable to common stockholders for the three
months ended March 31, 1998 and 1999, was ($1,261,000) and ($3,652,000),
respectively.

   Diluted net income (loss) per share was computed by dividing the net income
(loss), less dividends and accretion on preferred stock, by the weighted average
common shares outstanding during the period plus all dilutive potential shares
outstanding (zero for three months ended March 31, 1998 and 1999, respectively).
The potential common stock equivalents of the 7.125% and 8.50% preferred stock,
$12.50 common stock warrants and stock options were anti-dilutive for all
periods presented.  Net income (loss) per common share and diluted net income
(loss) per common share were the same for all periods presented.


(6)  EMPLOYEE BENEFIT PLANS

401(k) Savings

   The Company has a 401(k) profit sharing and savings plan (the "401(k) Plan").
The initial 401(k) Plan was established in 1996.  In conjunction with the sale
of SOCO's ownership in the Company in October 1997, a new plan was adopted
effective January 1, 1997.  Eligible employees may make voluntary contributions
to the 401(k) Plan. The amount of employee contributions is limited as specified
in the 401(k) Plan. The Company may, at its discretion, make additional matching
or profit sharing contributions to the 401(k) Plan.  The Company has
historically made profit sharing contributions to the 401(k) Plan, which totaled
$338,000 for 1998. The 1998 profit sharing contribution was made in shares of
the Company's common stock (138,462 shares).

                                       13
<PAGE>
 
Stock Purchase Plan

   In 1998, the Company adopted and the stockholders approved, a stock purchase
plan ("Stock Purchase Plan").  Pursuant to the Stock Purchase Plan, certain
officers, directors and managers are eligible to purchase shares of common stock
at prices ranging from 50% to 85% of the closing price of the stock on the
trading day prior to the date of purchase ("Closing Price").  In addition,
employee participants may be granted the right to purchase shares pursuant to
the Stock Purchase Plan with all or a part of their salary and bonus.  A total
of 500,000 shares of common stock are reserved for possible purchase under the
Stock Purchase Plan.  In 1998, the Board of Directors approved 291,250 common
shares (exclusive of shares available for purchase with participants' salaries
and bonuses) for possible purchase by participants at 75% of the Closing Price
during the current Plan Year as defined in the Stock Purchase Plan. As of
December 31, 1998, participants have purchased 257,632 shares of common stock,
including 76,712 shares purchased with participant's 1997 bonuses, at prices
ranging from $3.69 to $7.31 per share ($2.77 to $5.48 net price per share),
resulting in cash proceeds to the Company of $1.3 million.  The Company recorded
non-cash general and administrative expenses of $173,000 associated with these
purchases in 1998.  No purchases have been made under the Stock Purchase Plan
during the three months ended, March 31, 1999.

Stock Option and Award Plans

   In 1996, the shareholders adopted a stock option plan for employees providing
for the issuance of options at prices not less than fair market value.  Options
to acquire the lesser of up to three million shares of common stock or 10% of
outstanding common shares may be outstanding at any given time.  The specific
terms of grant and exercise are determinable by a committee of independent
members of the Board of Directors.  A total of 512,000 options were issued in
May 1996, with an exercise price of $7.75 per common share, 271,000 options were
issued in February 1997, with an exercise price of $9.25 per common share,
485,000 options were issued in February 1998, 96,000 in March 1998, 25,000 in
May 1998, 8,000 in July 1998 and 313,000 in February 1999 with exercise prices
of $7.06, $6.88, $7.19, $6.56 and $2.94 per common share, respectively.  The
options vest over a three-year period (30%, 60%, 100%) and expire five years
from date of grant.  In addition, 250,000 fully vested five-year options were
granted in October 1997 at an exercise price of $9.875.  In April 1999, 300,000
five-year options were granted at $3.94, subject to shareholder approval of an
amendment to the stock option plan increasing the number of stock options at the
annual meeting.

   In 1996, the shareholders adopted a stock grant and option plan (the
"Directors' Plan") for nonemployee Directors. The Directors' Plan provides for
each eligible Director to receive common shares having a market value equal to
$2,500 quarterly in payment of one-half their retainer.  A total of 3,632 shares
were issued in 1996, 4,512 shares were issued in 1997, 11,914 shares were issued
in 1998 and 3,624 were issued in the first quarter of 1999.  It also provides
for 5,000 options to be granted annually to each eligible Director.  A total of
20,000 options were issued in May 1996, with an exercise price of $7.75 per
common share, 20,000 options were issued in May 1997, with an exercise price of
$8.625, and 25,000 options were issued in May 1998, with an exercise price of
$7.75.  In addition, 10,000 options were issued in October 1997 with an exercise
price of $10.313, 10,000 options were issued in January 1998 with an exercise
price of $7.19, and 5,000 options were issued in February 1999 with an exercise
price of $2.94.  The options vest over a three-year period (30%, 60%, 100%) and
expire five years from date of grant.

   In October 1997, the shareholders approved a special stock grant and purchase
plan for certain officers and managers ("Management Investors") in conjunction
with the redistribution of SOCO's ownership in the Company.  The plan, which was
amended effective December 31, 1997, provided for the grant of 496,250
restricted common shares, net of forfeitures, to the Management Investors.
These shares vest at 25% per year on January 1, 1998, 1999, 2000 and 2001.  The
non-vested granted common shares have been recorded as Deferred Compensation in
the equity section of the accompanying consolidated balance sheets.  The
Management Investors simultaneously purchased 303,797 common shares from the
Company at $9.875 per share.  A portion of this original purchase ($850,000) was
financed by the Company. See Note (9).

                                       14
<PAGE>
 
   In conjunction with the appointment of a new President in March 1998, the
President was included in the stock grant and purchase plans.  He was granted
100,000 restricted common shares that will vest at 33% per year in March 1999,
2000 and 2001.  The non-vested granted common shares have been recorded as
Deferred Compensation in the equity section of the accompanying consolidated
balance sheets.  The President simultaneously purchased 100,000 common shares
from the Company at $6.875 per share.  A portion of this purchase ($584,000) was
financed by the Company.  See Note (9).

   In April 1999, the Chief Executive Officer was awarded 100,000 restricted
shares of Common Stock in consideration of a voluntary reduction in his 1999
annual salary and other compensation arrangements.

   The Company recognized $293,000 and $174,000 of non-cash general and
administrative expenses for the three months ended March 31, 1998 and 1999 with
respect to the stock grants.

(7)  FEDERAL INCOME TAXES

   A reconciliation of the federal statutory rate to the Company's effective
rate as they apply to the provision (benefit) for the three months ended March
31, 1998 and 1999 follows:
<TABLE>
<CAPTION>
 
                                                               1998    1999
                                                              ------  ------
<S>                                                           <C>     <C>
 
Federal statutory rate......................................   (35%)   (35%)
Utilization of net deferred tax asset.......................     -       -
Increase in valuation allowance against deferred tax asset..    35%     35%
                                                              ----    ----
Effective income tax rate...................................     -       -
                                                              ====    ====
</TABLE>

   For tax purposes, the Company had regular net operating loss carryforwards of
approximately $83.0 million and alternative minimum tax ("AMT") loss
carryforwards of approximately $34.6 million at December 31, 1998.  Utilization
of the regular and AMT net operating loss carryfowards will be limited to
approximately $12.5 million per year as a result of the redistribution of SOCO's
majority ownership in the Company in October 1997.  In addition, utilization of
$31.9 million regular net operating loss carryforwards and $31.6 million AMT
loss carryforwards will be limited to $5.2 million per year as a result of the
Gerrity Acquisition in May 1996.  These carryforwards expire from 2006 through
2018.  At December 31, 1998, the Company had alternative minimum tax credit
carryforwards of $650,000 which are available indefinitely.  There were no cash
payments made by the Company for federal taxes during 1997.  The Company paid
$239,000 of federal taxes during 1998.

(8)  MAJOR CUSTOMERS

   During the three months ended March 31, 1998 and 1999, Duke Energy Field
Services, Inc. accounted for 39% and 36%, Amoco Production Company accounted for
13% and 15%, Enron Capital & Trade Resources accounted for 12% and 5%, and
Aurora Natural Gas, LLC accounted for zero and 17% of revenues, respectively.
Management believes that the loss of any individual purchaser would not have a
long-term material adverse impact on the financial position or results of
operations of the Company.

(9)  RELATED PARTY

   In October 1997, certain officers and managers purchased 303,797 common
shares at $9.875 per share from the Company.  A portion of this original
purchase ($850,000) was financed by the Company through the issuance of 8.50%
recourse promissory notes.  The remaining notes are secured by the common stock
purchased and additional common shares granted to the respective officers and
managers.  Interest is due annually and the notes mature in January 2001. These
notes have been reflected as Other Assets in the accompanying consolidated
balance sheets.

                                       15
<PAGE>
 
   In conjunction with the appointment of the new President in March 1998, the
President purchased 100,000 shares of common stock at $6.875 per share.  The
Company loaned him $584,000, or 85% of the purchase price, represented by a
recourse promissory note that bears interest at 8.50% per annum payable each
March 31 until the note is paid.   The note matures in March 2001 and is secured
by all of the shares purchased and granted to him (100,000 shares) in connection
with his employment with the Company.  In consideration of the depressed stock
price and overall lower year-end bonuses, the interest due as of March 31, 1999
under the Management Investor's and President's notes was forgiven by the
Company in April 1999.

(10) COMMITMENTS AND CONTINGENCIES

   The Company leases office space and certain equipment under non-cancelable
operating leases.  Future minimum lease payments under such leases approximate
$500,000 per year from 1999 through 2001.

   In March 1996, a complaint was filed in the Court of Chancery for the State
of Delaware against Gerrity and each of its directors, Brickell Partners v.
Gerrity Oil & Gas Corporation, C.A. No. 14888 (Del. Ch.).  The complaint alleges
that the "action is brought (a) to restrain defendants from consummating the
Gerrity Acquisition which will benefit the holders of Gerrity's common stock at
the expense of the holders of Gerrity's preferred stock and (b) to obtain a
declaration that the terms of the proposed Gerrity Acquisition constitute a
breach of the contractual rights of the preferred."  The complaint sought, among
other things, certification as a class action on behalf of all holders of
Gerrity's preferred stock, a declaration that the defendants have committed an
abuse of trust and have breached their fiduciary and contractual duties, an
injunction enjoining the Gerrity Acquisition and money damages.  In April 1996,
the defendants were granted an indefinite extension of time in which to answer
the complaint and no answer had been filed by February 1997.  In February 1997,
the attorney for the plaintiff filed a Status Report with the court stating
"Case has been mooted. Plaintiff is preparing an application for counsel fees."
No fee application was filed.  In November 1997, the plaintiff filed an amended
complaint.  The amended complaint realleges the substance of the original
complaint and includes an allegation that the defendants coerced the holders of
the Gerrity preferred stock into exchanging their stock for the 7.125% Preferred
Stock of the Company.  The amended complaint also alleges the defendants
participated in a scheme to eliminate the outstanding Gerrity preferred by
forcing the exchange of those shares for shares of the Company's preferred in
October 1996.  The amended complaint seeks rescission of the transactions
described in the complaint or money damages if rescission is impractical.  On
January 5, 1998, defendants filed a motion to dismiss the amended complaint. A
brief in support of the motion to dismiss was filed in August 1998 and there has
been no response from the plaintiffs. Defendants believe that the amended
complaint is without merit and intend to vigorously defend against this action.
At this time, the Company is unable to estimate the range of potential loss, if
any, from this uncertainty.  However, the Company believes the resolution of
this uncertainty should not have a material adverse effect upon the Company's
financial position, although an unfavorable outcome in any reporting period
could have a material adverse effect on results for that period.

   The Company is a party to various other lawsuits incidental to its business,
none of which are anticipated to have a material adverse impact on its financial
position or results of operations.

                                       16
<PAGE>
 
                          PATINA OIL & GAS CORPORATION
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Results of Operations

Three months ended March 31, 1999 compared to three months ended March 31, 1998.

     Revenues for the first quarter of 1999 totaled $16.7 million, a 19%
decrease from the prior year period. The decrease was due primarily to the sharp
decline in oil and gas prices, partially offset by higher production.  The net
loss in the first quarter 1999 was $2,018,000 compared to net income of $304,000
million in the first quarter 1998. The decrease was attributed to lower prices.

    Average daily oil and gas production for the first quarter totaled 4,657
barrels and 75.1 MMcf (103.0 MMcfe), an increase of 4% on an equivalent basis
from the same period in 1998.  During the quarter, ten wells and 23 refracs and
recompletions were placed on production, compared to nine wells and 21 refracs
and recompletions in the same period of 1998. The Company's current development
activity, the benefits of certain minor acquisitions and continued success with
the production enhancement program has resulted in the elimination of the
Company's long-term production decline. The decision to increase development
activity is heavily dependent on the prices being received for production.

    Average oil prices decreased from $15.35 per barrel in the first quarter of
1998 to $11.65 in 1999. Average natural gas prices decreased from $2.18 per Mcf
for the first quarter of 1998 to $1.71 in 1999. The average oil price includes
hedging hedging income of $285,000 or $0.65 per barrel in 1998.  The decrease in
natural gas prices was primarily the result of the decrease in the average CIG
and PEPL indexes for the first quarter 1999 compared to 1998 and lower natural
gas liquids prices.  The average natural gas prices for the three months ended
March 31, 1998 and 1999 includes hedging income of $836,000 or $0.13 per Mcf and
$490,000 or $0.07 per Mcf, respectively.  Subsequent to March 31, 1999, both oil
and natural gas prices have increased significantly.  Direct operating expenses
totaled $4.1 million or $0.44 per Mcfe for the first quarter of 1999 compared to
$4.6 million or $0.52 per Mcfe in the prior year period.

    General and administrative expenses, net of third party reimbursements, for
the first quarter of 1999 totaled $1.4 million, a $473,000 or 26% decrease from
the same period in 1998.  The reduction in general and administrative expense
was due to the Company's cost reduction program implemented at the beginning of
1999.  Included in general and administrative expenses is $293,000 and $174,000
for the three months ended March 31, 1998 and 1999 of non-cash expenses related
to the common stock grants awarded to certain officers and managers of the
Company in conjunction with the redistribution of SOCO's ownership of the
Company in October 1997.

    Interest and other expenses fell to $2.9 million in the first quarter of
1999, a $396,000 or 12% decline from the prior year period. Interest expense
decreased as a result of lower average interest rates on the Company's debt as
over $22.0 million face amount of 11.75% Subordinated Notes were repurchased in
late 1998.  The Company's average interest rate for the first quarter of 1999
was 9.1% compared to 10.3% in the first quarter of 1998.

    Depletion, depreciation and amortization expense for the first quarter of
1999 totaled $10.3 million, a decrease of $265,000 or 3% from the 1998 level.
Depletion expense totaled $10.0 million or $1.08 per Mcfe for the first quarter
of 1999 compared to $10.4 million or $1.17 per Mcfe for 1998.  The decrease in
depletion expense resulted from the lower depletion rate, partially offset by
higher production in the first quarter of 1999 compared to the prior year
period. Depreciation and amortization expense for the three months ended March
31, 1999 totaled $230,000, or $0.02 per Mcfe compared to $169,000, or $0.02 per
Mcfe for the same period in 1998.

                                       17
<PAGE>
 
Development, Acquisition and Exploration

   During the first quarter of 1999, the Company incurred $7.9 million in
capital expenditures, with development expenditures comprising $6.4 million.
During the period, the Company successfully drilled or deepened 11 wells,
recompleted one well and refraced 25 wells.  The Company also acquired
additional proved reserves in Wattenberg for $1.4 million. The Company
anticipates incurring approximately $18.0 million on the further development of
its properties during 1999. The decision to increase or decrease development
activity is heavily dependent on the prices being received for production.

Financial Condition and Capital Resources

   At March 31, 1999, the Company had $342.3 million of assets.  Total
capitalization was $314.1 million, of which 55% was represented by stockholders'
equity, 21% by senior debt and 24% by subordinated debt.  During the quarter,
net cash provided by operations totaled $3.1 million, as compared to $6.5
million in the first quarter of 1998 ($8.2 million and $11.0 million prior to
changes in working capital, respectively).  At March 31, 1999, there were no
significant commitments for capital expenditures.  The Company anticipates 1999
capital expenditures, exclusive of acquisitions, to approximate $24.0 million.
The level of these and other future expenditures is largely discretionary, and
the amount of funds devoted to any particular activity may increase or decrease
significantly, depending on available opportunities and market conditions.  The
Company plans to finance its ongoing development, acquisition and exploration
expenditures and additional security repurchases using internal cash flow,
proceeds from asset sales and bank borrowings.  In addition, joint ventures or
future public and private offerings of debt or equity securities may be
utilized.

   The Company entered into an amended Credit Agreement in April 1997.  The
Credit Agreement consists of a revolving credit facility in an aggregate amount
up to $140.0 million.  The amount available under the revolving credit facility
is adjusted semiannually, each May 1 and November 1, and equaled $100.0 million
at March 31, 1999, with $67.0 million of debt outstanding at that time.

   The Credit Agreement contains certain financial covenants, including but not
limited to, a maximum total debt to capitalization ratio, a maximum total debt
to EBITDA ratio, a minimum current ratio and various other negative covenants
that could limit the Company's ability to incur other debt, consummate
acquisitions, dispose of assets, pay dividends or repurchase securities.
Borrowings under the Credit Agreement mature in July 2000, but may be prepaid at
anytime. The Company has periodically negotiated extensions of the Credit
Agreement; however, there is no assurance the Company will be able to do so in
the future.  The Company had a restricted payment basket of $8.0 million as of
March 31, 1999, which may be used to repurchase common stock, preferred stock
and warrants and pay dividends on its common stock.

   The Company may elect that all or a portion of the credit facility bear
interest at a rate equal to: (i) the higher of (a) the prime rate or (b) the
Federal Funds Effective Rate plus .5%, or (ii) the rate at which Eurodollar
deposits for one, two, three or nine months  (as selected by the Company) are
offered in the interbank Eurodollar market plus a margin which fluctuates from
0.625% to 1.125%, determined by a debt to EBITDA ratio.  During the first
quarter of 1999, the average interest rate under the facility approximated 6.1%.

   In October 1998, the Company entered into an interest rate swap contract for
a two-year period, extendable for one additional year at the option of the third
party.  The contract is for $30.0 million principal with a fixed interest rate
of 4.57% payable by the Company and the variable interest rate, the three-month
LIBOR, payable by the third party.  The difference between the Company's fixed
rate of 4.57% and the three-month LIBOR rate, which is reset every 90 days, is
received or paid by the Company in arrears every 90 days. The Company received
$59,000 in January 1999 and $36,000 in April 1999 pursuant to this contract.

   The Company had $74.0 million of 11.75% Senior Subordinated Notes due July
15, 2004 outstanding on March 31, 1999.  The Notes have been reflected in the
accompanying financial statements at a book value of 105.875% of their principal
amount ($69.9 million of principal amount outstanding as of March 31, 1998).
Since May 1996 and through March 31, 1999 the Company has repurchased $30.1
million principal amount of the 11.75% Subordinated Notes through 

                                       18
<PAGE>
 
borrowings on the Company's bank facility. The Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after July 15,
1999 at 105.875% of their principal amount. The Notes are unsecured general
obligations and are subordinated to all senior indebtedness and to any existing
and future indebtedness of the Company's subsidiaries.

   In conjunction with the appointment of a new President in March 1998, the
President purchased 100,000 shares of Common Stock at $6.875 per share.  The
Company loaned him $584,000, or 85% of the purchase price, represented by a
recourse promissory note that bears interest at 8.50% per annum payable each
March 31 until the note is paid.   The note matures in March 2001 and is secured
by all of the shares purchased and granted to him (100,000 shares) in connection
with his employment with the Company.

   The Company has entered into arrangements to monetize its Section 29 tax
credits.  These arrangements result in revenue increases of approximately $0.40
per Mcf on production volumes from qualified Section 29 properties.  As a
result, the Company recognized additional natural gas revenues of $533,000 and
$580,000 during the three months ended March 31, 1998 and 1999, respectively.
These arrangements are expected to increase revenues through 2002.

   The Company's primary cash requirements will be to finance acquisitions,
development expenditures, repayment of indebtedness, and general working capital
needs.  However, future cash flows are subject to a number of variables,
including the level of production and oil and natural gas prices, and there can
be no assurance that operations and other capital resources will provide cash in
sufficient amounts to maintain planned levels of capital expenditures or that
increased capital expenditures will not be undertaken.

   The Company believes that available borrowings under its Credit Agreement,
projected operating cash flows and the cash on hand will be sufficient to cover
its working capital, capital expenditures, planned development activities and
debt service requirements for the next 12 months.  In connection with
consummating any significant acquisition, additional debt or equity financing
will be required, which may or may not be available on terms that are acceptable
to the Company.

Certain Factors That May Affect Future Results

   Statements that are not historical facts contained in this report are
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ from projected results.  Such statements address
activities, events or developments that the Company expects, believes, projects,
intends or anticipates will or may occur, including such matters as future
capital, development and exploration expenditures (including the amount and
nature thereof), drilling or deepening of wells, reserve estimates (including
estimates of future net revenues associated with such reserves and the present
value of such future net revenues), future production of oil and natural gas,
business strategies, expansion and growth of the Company's operations, cash flow
and anticipated liquidity, prospect development and property acquisition,
obtaining financial or industry partners for prospect or program development, or
marketing of oil and natural gas.  Factors that could cause actual results to
differ materially ("Cautionary Disclosures") are described, among other places,
in the Marketing, Competition, and Regulation sections in the Company's 1998
Form 10-K and under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations."  Without limiting the Cautionary
Disclosures so described, Cautionary Disclosures include, among others: general
economic conditions, the market price of oil and natural gas, the risks
associated with exploration, the Company's ability to find, acquire, market,
develop and produce new properties, operating hazards attendant to the oil and
natural gas business, uncertainties in the estimation of proved reserves and in
the projection of future rates of production and timing of development
expenditures, the strength and financial resources of the Company's competitors,
the Company's ability to find and retain skilled personnel, climatic conditions,
labor relations, availability and cost of material and equipment, environmental
risks, the results of financing efforts, and regulatory developments. All
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Disclosures.  The Company disclaims any obligation to update or
revise any forward-looking statement to reflect events or circumstances
occurring hereafter or to reflect the occurrence of anticipated or unanticipated
events.

                                       19
<PAGE>
 
Year 2000 Issues

   The Company is aware of the issues associated with the programming code in
many existing computer systems and devices with embedded technology as the
millennium approaches.  The "Year 2000" problem concerns the inability of
information and technology-based operating systems to properly recognize and
process date-sensitive information beyond December 31, 1999.  The Year 2000
problem is potentially pervasive; virtually every computer operation or business
system that utilizes embedded computer technology may be affected in some way by
the rollover of the two-digit year value to 00.  The risk is that computer
systems will not properly recognize date sensitive information when the year
changes to 2000, which could result in system failures or miscalculations,
resulting in a serious threat of business disruption.

   In response to the potential impact of the Year 2000 issue on the Company's
business and operations, the Board of Directors formed a Year 2000 Committee
consisting of members of senior management and the Information Systems Manager.
The committee reports to the Board at each quarterly meeting as to the progress
of the evaluation and the necessity for any systems modifications and
contingency planning.  This committee has assessed the readiness for Year 2000
compliance of the Company's internal computer systems and field operations and
continues to identify its critical and non-critical third party dependencies
with respect to vendors, suppliers, customers and other significant business
relationships.

   The internal assessment included a review of the Company's inventory of
computer hardware and software.  During 1998, the Company purchased and
converted to its own in-house computer system.  In conjunction with this
process, the Company determined that the new systems and hardware were
substantially Year 2000 compliant.  Certain other software is being corrected or
reprogrammed for Year 2000 compliance.  It is anticipated that all new systems,
upgrades and reprogramming efforts will be completed by June 30, 1999, allowing
adequate time for testing.  As such, management believes the Year 2000 issues
with respect to its internal systems can be mitigated without a significant
potential effect on the Company's financial position or operations.

   The Company's internal review also included an assessment of the field
operations and any related software or control equipment with embedded chip
technology utilized in the production and development of its oil and gas
properties.  Through vendor inquiries and actual field testing, the Company
anticipates minimal disruption of the field operations and equipment.

   In addition, to ensure external Year 2000 readiness, the Company has made
written inquiries concerning the Year 2000 readiness of all of its vendors,
suppliers, customers and others with whom the Company has significant business
relationships.  Responses have been received from many of those contacted,
although some of the responses have been inconclusive with respect to Year 2000
compliance.  As a result, follow up inquiries are planned for any critically
dependent third parties not responding.  A further assessment of the potential
impact of the Year 2000 issue on the Company's business and operations will be
made as this information is received and evaluated.  The Company is not
currently aware of any third party issues that would cause a significant
disruption of  its business or operations. If the follow-up assessment of any
significant third party responses indicates that they will not be Year 2000
compliant, it may be necessary to develop contingency plans to minimize the
negative impact on the Company.

   The Company also relies on non-information technology systems such as
telephones, facsimile machines, air conditioning, heating, elevators in its
leased office building and other equipment which may have embedded technology
such as micro processors, which may or may not be Year 2000 compliant.  Written
inquiries have been sent to these third parties, but as much of this technology
is outside of the Company's control and not easily tested by these entities, it
is difficult to assess or remedy any such non-compliance that could adversely
affect the Company's ability to conduct business. Management believes any such
disruption is not likely to have a significant effect on the Company's financial
position or operations.

                                       20
<PAGE>
 
   The Company's goal is to have all internal systems Year 2000 compliant, and
third party assessments completed no later than June 30, 1999.  This should
allow sufficient time prior to January 1, 2000 to validate the system
modifications and complete any additional contingency planning for third parties
that may not be Year 2000 compliant. However, given the complexity of the Year
2000 issue, there can be no assurance that the Company will be able to address
these problems without costs and uncertainties that might affect future
financial results or cause reported financial information not to be necessarily
indicative of future operating results or future financial condition.

   Although the Company currently anticipates that minimal business disruption
will occur as a result of Year 2000 issues, in the event the computer based
programs and embedded technology equipment of the Company, or that owned and
operated by third parties, should fail to function properly, possible
consequences include but are not limited to loss of communication links,
inability to produce oil and natural gas, loss of electric power, and the
inability to engage in normal automated or computerized business activities.

   To date, the Company has not finalized its contingency plans for possible
Year 2000 issues.  After the completion of the assessment and review of the
results of monitoring the compliance efforts and status of third parties, the
Company will finalize such contingency plans based on its assessment of outside
risks.  The Company anticipates that final contingency plans, as necessary, will
be in place by September 30, 1999.  The total costs incurred to date in the
assessment, evaluation and remediation of the Year 2000 compliance matters have
been nominal and management estimates that total future third party, software
and equipment costs, based upon information developed to date, will be less than
$100,000.


Market and Commodity Risk

   The Company's major market risk exposure is in the pricing applicable to its
oil and natural gas production.  Realized pricing is primarily driven by the
prevailing domestic price for oil and spot prices applicable to the Rocky
Mountain and Mid-Continent regions for its natural gas production.
Historically, prices received for oil and gas production have been volatile and
unpredictable.  Pricing volatility is expected to continue.  Natural gas price
realizations during 1998 ranged from a monthly low of $1.79 per Mcf to a monthly
high of $2.36 per Mcf and ranged from a monthly low of $1.68 per Mcf to a
monthly high of $1.75 per Mcf for the first quarter of 1999.  Oil prices ranged
from a monthly low of $9.56 per barrel to a monthly high of $17.44 per barrel
during 1998 and ranged from a monthly low of $10.70 per barrel to a monthly high
of $13.17 per barrel during the first quarter of 1999. Subsequent to March 31,
1999, both oil and natural gas prices have increased significantly.  A
significant decline in the prices of oil or natural gas could have a material
adverse effect on the Company's financial condition and results of operations.

         From time to time, the Company enters into commodity derivatives
contracts and fixed-price physical contracts to manage its exposure to oil and
gas price volatility and to support oil and natural gas prices at targeted
levels.  The Company uses futures contracts, swaps, options and fixed-price
physical contracts to hedge its commodity prices.  Realized gains or losses from
price risk management activities are recognized in oil and gas sales revenues in
the period in which the associated production occurs.  The Company entered into
various swap contracts for oil (NYMEX based) during the first quarter of 1998.
The Company recognized a gain of $238,000 in first quarter of 1998 related to
these swap contracts based on settlements during this period. As of March 31,
1999, the Company had entered into swap contracts for oil (NYMEX based) for the
period April 1999 through June 1999.  The weighted average oil prices for the
NYMEX based contracts is $15.00 for total contract volumes of 136,500 Bbl's of
crude oil.  The unrecognized losses on these contracts totaled $415,000 based on
current market values. The Company entered into various CIG and PEPL index based
swap contracts for natural gas during the first quarters of 1998 and 1999.  The
Company recognized gains of $659,000 in the first quarter of 1998 and $490,000
in the first quarter of 1999 related to these swap contracts based on
settlements during the respective periods. As of March 31, 1999, the Company had
entered into CIG index based swap contracts for natural gas for the period April
1999 through September 1999.  The weighted average natural gas prices for the
CIG index based contracts are $1.73 for total contract volumes of 4,575,000
MMBtu's of natural gas. The unrecognized losses on these contracts totaled
$779,000 based on current market values.

                                       21
<PAGE>
 
Inflation and Changes in Prices

   While certain of its costs are affected by the general level of inflation,
factors unique to the oil and natural gas industry result in independent price
fluctuations.  Over the past five years, significant fluctuations have occurred
in oil and natural gas prices.  Although it is particularly difficult to
estimate future prices of oil and natural gas, price fluctuations have had, and
will continue to have, a material effect on the Company.

   The following table indicates the average oil and natural gas prices received
over the last five years and highlights the price fluctuations by quarter for
1998 and 1999.  Average price computations exclude hedging gains and losses and
other nonrecurring items to provide comparability.   Average prices per Mcfe
indicate the composite impact of changes in oil and natural gas prices.  Oil
production is converted to natural gas equivalents at the rate of one barrel per
six Mcf.
<TABLE>
<CAPTION>
 
                                          Average Prices
                              --------------------------------------
                                                Natural   Equivalent
                                    Oil           Gas        Mcf
                                    ---           ---        ---
                                 (Per Bbl)     (Per Mcf)  (Per Mcfe)
<S>                           <C>              <C>        <C>
         Annual
         ------
         1994...............          $14.84      $1.70       $1.94
         1995...............           16.43       1.34        1.73
         1996...............           20.47       1.99        2.41
         1997...............           19.54       2.25        2.55
         1998...............           13.13       1.87        1.96
 
         Quarterly
         ---------
         1998
         ----
         First..............          $14.70      $2.04       $2.16
         Second.............           13.41       1.95        2.03
         Third..............           12.83       1.72        1.84
         Fourth.............           11.45       1.78        1.81
 
         1999
         ----
         First..............          $11.65      $1.65       $1.72

                                       22
<PAGE>
 
PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

       Information with respect to this item is incorporated by reference from
       Notes to Consolidated Financial Statements in Part 1 of this report.

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

       None.

Item 6.   Exhibits and Reports on Form 8-K

 (a)   Exhibits -

       27   Financial Data Schedule

 (b)   No reports on Form 8-K were filled by Registrant during the quarter ended
      March 31, 1999.

                                       23
<PAGE>
 
                                    SIGNATURES


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



                                    PATINA OIL & GAS CORPORATION



                              BY    /s/ David J. Kornder
                                    -------------------------------------------

                                    David J. Kornder, Vice President and Chief
                                    Financial Officer



April 29, 1999


 

                                       24

</TABLE>