<PAGE>

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

                                  FORM 10-K/A

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934

                  For the fiscal year ended December 31, 2002

                                      OR

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

                         Commission File Number 0-9498

                         MISSION RESOURCES CORPORATION
            (Exact name of registrant as specified in its charter)

                     Delaware                         76-0437769
          (State or other jurisdiction of          (I.R.S. Employer
           incorporation or organization)         Identification No.)

       1331 Lamar, Suite 1455, Houston, Texas         77010-3039
      (Address of principal executive offices)        (Zip Code)

      Registrant's telephone number, including area code: (713) 495-3000

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

          Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $0.01 par value
                   Series A Preferred Stock Purchase Rights

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

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

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

   The aggregate market value of the voting stock held by non-affiliates of the
registrant at June 28, 2002 was approximately $25,313,355.

   As of March 20, 2003, the number of outstanding shares of the registrant's
common stock was 23,585,959.

   Documents Incorporated by Reference: Portions of the registrant's annual
proxy statement, to be filed within 120 days after December 31, 2002, are
incorporated by reference into Part III of this Form 10-K.

================================================================================

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

                               EXPLANATORY NOTE

   Mission Resources Corporation (the "Company") is filing this amendment to
Item 8 of its Annual Report on Form 10-K for the fiscal year ended December 31,
2002, to correct the disclosure contained in Note 16 of the Consolidated
Financial Statements regarding the Company's estimated total proved and proved
developed reserves of oil and gas for the year ended December 31, 2002. This
amendment does not affect the Company's historical results of operations,
financial conditions or cash flows for any period presented. Other than this
change to Note 16, there is no change to the Consolidated Financial Statements,
the Notes to the Consolidated Financial Statements, the report of the
independent auditors or the report of management. Nor does this amendment
change the Company's previously filed Quarterly Interim Consolidated Financial
Statements or the notes thereto.

   The prior disclosure regarding end of year proved developed reserves (in the
last line in the table presenting such disclosure) did not include in such
disclosure data regarding end of year proved developed non-producing reserves
for oil, NGL and gas, respectively. The corrected disclosure regarding end of
year proved developed reserves is shown below and in Note 16 of the
Consolidated Financial Statements (in the last line item in the tables
presenting such corrected disclosure).

<TABLE>
<CAPTION>
                                              Year Ended December 31, 2002
         -                                    ---------------------------
                                                Oil       NGL      Gas
         Description                           (MBBL)    (MBBL)   (MMCF)
         -----------                           -------   ------  -------
         <S>                                  <C>        <C>     <C>
         Proved reserves at beginning of year  39,538    2,060   154,082
         Revisions of previous estimates.....  (1,915)     251   (42,426)
         Extensions and discoveries..........     227       --       537
         Production..........................  (3,157)    (266)  (12,524)
         Sales of reserves in-place.......... (12,093)     (41)  (18,178)
         Purchase of reserves in-place.......       5       --        --
                                               -------   -----   -------
         Proved reserves at end of year......  22,605    2,004    81,491
                                               =======   =====   =======
         Proved developed reserves--
            Beginning of year................  31,902    1,924    97,984
                                               =======   =====   =======
            End of year......................  18,581    1,869    53,708
                                               =======   =====   =======
</TABLE>

                                      2

<PAGE>

Item 8.  Financial Statements and Supplementary Data

                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>
<CAPTION>
                                                                                               Page
                                                                                              Number
                                                                                              ------
<S>                                                                                           <C>
Independent Auditors' Report.................................................................    4
Financial Statements:
   Consolidated Balance Sheets as of December 31, 2002 and 2001..............................    5
   Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and
     2000....................................................................................    7
   Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Loss for the
     Years Ended December 31, 2002, 2001 and 2000............................................    8
   Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and
     2000....................................................................................    9
   Notes to Consolidated Financial Statements................................................   11
</TABLE>


                                      3

<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of
Mission Resources Corporation and Subsidiaries:

   We have audited the accompanying consolidated balance sheets of Mission
Resources Corporation (formerly Bellwether Exploration Company) and
subsidiaries as of December 31, 2002 and 2001 and the related consolidated
statements of operations, changes in stockholders' equity and comprehensive
loss, and cash flows for each of the years in the three-year period ended
December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

   In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mission
Resources Corporation and subsidiaries as of December 31, 2002 and 2001 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.

   As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and other Intangible Assets." As
discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for derivative instruments and hedging
activities in 2001.

KPMG LLP

Houston, Texas
March 14, 2003

                                      4

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                       December 31, December 31,
                                                                           2002         2001
                                ASSETS                                 ------------ ------------
                                                                        (Amounts in thousands)
<S>                                                                    <C>          <C>
CURRENT ASSETS:
Cash and cash equivalents.............................................  $  11,347    $     603
Accounts receivable and accrued revenues..............................     18,931       25,668
Current portion of interest rate swap.................................         --          180
Commodity derivative asset............................................         --        8,359
Prepaid expenses and other............................................      2,148        3,879
                                                                        ---------    ---------
   Total current assets...............................................     32,426       38,689
                                                                        ---------    ---------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties (full cost)
United States--Unproved properties of $8,369 and $15,530 excluded from
  amortization as of December 31, 2002 and 2001, respectively.........    775,344      753,905
Accumulated depreciation, depletion and amortization..................   (474,625)    (374,167)
                                                                        ---------    ---------
   Net property, plant and equipment..................................    300,719      379,738

Leasehold, furniture and equipment....................................      3,545        3,347
Accumulated depreciation..............................................     (1,449)        (916)
                                                                        ---------    ---------
   Net leasehold, furniture and equipment.............................      2,096        2,431
                                                                        ---------    ---------
LONG TERM RECEIVABLE..................................................         --          899
GOODWILL & OTHER INTANGIBLES..........................................         --       15,436
OTHER ASSETS..........................................................      7,163       10,571
                                                                        ---------    ---------
                                                                        $ 342,404    $ 447,764
                                                                        =========    =========
</TABLE>



                See Notes to Consolidated Financial Statements.


                                      5

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                              December 31, December 31,
                                                                                  2002         2001
                    LIABILITIES AND STOCKHOLDERS' EQUITY                      ------------ ------------
                                                                               (Amounts in thousands,
                                                                              except share information)
<S>                                                                           <C>          <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.....................................   $ 24,498     $ 38,584
Commodity derivative liabilities.............................................      6,973           --
Current portion of interest rate swap........................................          3           --
                                                                                --------     --------
   Total current liabilities.................................................     31,474       38,584
                                                                                --------     --------
LONG-TERM DEBT
Revolving credit facility....................................................         --       35,000
Subordinated notes due 2007..................................................    225,000      225,000
Unamortized premium on issuance of $125 million subordinated notes...........      1,431        1,695
                                                                                --------     --------
   Total long-term debt......................................................    226,431      261,695

COMMODITY DERIVATIVE LIABILITIES, excluding current portion..................        359           --

INTEREST RATE SWAP, excluding current portion................................      1,817        4,248

DEFERRED INCOME TAXES........................................................     16,946       31,177

OTHER LIABILITIES............................................................         --        1,820

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued or
  outstanding at December 31, 2002 and 2001..................................         --           --
Common stock, $0.01 par value, 60,000,000 shares authorized, 23,896,959 and
  14,259,626 shares issued at December 31, 2002 and December 31, 2001,
  respectively...............................................................        239          239
Additional paid-in capital...................................................    163,837      163,735
Retained deficit.............................................................    (92,599)     (54,115)
Treasury stock, at cost, 311,000 shares......................................     (1,905)      (1,905)
Other comprehensive income, net of taxes.....................................     (4,195)       2,286
                                                                                --------     --------
   Total stockholders' equity................................................     65,377      110,240
                                                                                --------     --------
                                                                                $342,404     $447,764
                                                                                ========     ========
</TABLE>


                See Notes to Consolidated Financial Statements.

                                      6

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  Year Ended      Year Ended     Year Ended
                                                                 December 31,    December 31,   December 31,
                                                                     2002            2001           2000
                                                                 ------------    ------------   ------------
                                                                 (Amounts in thousands, except per share data)
<S>                                                              <C>             <C>            <C>
REVENUES:
   Gas revenues.................................................   $ 39,715        $ 57,705       $ 62,652
   Oil revenues--United States..................................     73,164          73,653         45,286
   Oil revenues--Ecuador........................................         --           1,877          4,315
   Gas plant revenues...........................................         --           4,456          6,070
   Interest and other income (expense)..........................     (7,415)          4,386            957
                                                                   --------        --------       --------
                                                                    105,464         142,077        119,280
                                                                   --------        --------       --------
COSTS AND EXPENSES:
   Lease operating expenses--United States......................     43,222          41,702         21,738
   Lease operating expenses-- Ecuador...........................         --           3,071          2,815
   Taxes other than income......................................      9,246           6,656          6,273
   Transportation costs.........................................        834              73            270
   Gas plant expenses...........................................         --           2,118          2,677
   Depreciation, depletion and amortization--United States......     43,291          44,602         31,909
   Depreciation, depletion and amortization--Ecuador............         --             504            745
   Impairment expense...........................................     16,679          27,057             --
   Disposition of hedges........................................         --              --          8,671
   Uncollectible gas revenues...................................         --           2,189             --
   Mining venture...............................................         --             914             --
   Loss on sale of assets.......................................      2,645          11,600             --
   General and administrative expenses..........................     12,758          15,160          8,821
   Interest expense.............................................     26,853          23,664         15,375
                                                                   --------        --------       --------
                                                                    155,528         179,310         99,294
                                                                   --------        --------       --------
Income (loss) before income tax benefit and cumulative effect of
  a change in accounting method.................................    (50,064)        (37,233)        19,986
Income tax benefit..............................................    (11,580)         (9,055)       (12,222)
                                                                   --------        --------       --------
Income (loss) before cumulative effect of a change in accounting
  method........................................................    (38,484)        (28,178)        32,208
                                                                   --------        --------       --------
Cumulative effect of a change in accounting method, net of tax
  of $1,633.....................................................         --           2,767             --
                                                                   --------        --------       --------
Net income (loss)...............................................   $(38,484)       $(30,945)      $ 32,208
                                                                   ========        ========       ========
Income (loss) per share before cumulative effect of a change in
  accounting method.............................................   $  (1.63)       $  (1.41)      $   2.32
                                                                   ========        ========       ========
Income (loss) per share before cumulative effect of a change in
  accounting method--diluted....................................   $  (1.63)       $  (1.41)      $   2.27
                                                                   ========        ========       ========
Net income (loss) per share.....................................   $  (1.63)       $  (1.54)      $   2.32
Net income (loss) per share--diluted............................   $  (1.63)       $  (1.54)      $   2.27
                                                                   ========        ========       ========
Weighted average common shares outstanding......................     23,586          20,051         13,899
                                                                   ========        ========       ========
Weighted average common shares outstanding--diluted.............     23,586          20,241         14,175
                                                                   ========        ========       ========
</TABLE>

                See Notes to Consolidated Financial Statements.


                                      7

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CHANGES
                IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
                            (Amounts in thousands)

<TABLE>
<CAPTION>
                                                    Preferred
                                    Common Stock      Stock     Additional     Other                    Treasury Stock
                                    ------------- -------------  Paid-In   Comprehensive Retained  ------------------------
                                    Shares Amount Shares Amount  Capital      Income     Deficit   Shares  Amount    Total
                                    ------ ------ ------ ------ ---------- ------------- --------  ------ -------  --------
<S>                                 <C>    <C>    <C>    <C>    <C>        <C>           <C>       <C>    <C>      <C>
Balance December 31, 1999.......... 14,169  $142    --    $--    $ 80,455          --    $(55,378)  (311) $(1,905) $ 23,314
Stock options exercised and related
 tax effects.......................     91     1    --     --         588          --          --     --       --       589
Compensation expense--
 stock options.....................     --    --    --     --         849          --          --     --       --       849
Net income.........................     --    --    --     --          --          --      32,208     --       --    32,208
                                    ------  ----    --    ---    --------     -------    --------   ----  -------  --------
Balance December 31, 2000.......... 14,260   143    --     --      81,892          --     (23,170)  (311)  (1,905)   56,960
Stock options exercised and related
 tax effects.......................    177     2    --     --       1,138          --          --     --       --     1,140
Issuance of common stock related
 to merger.........................  9,460    94    --     --      79,906          --          --     --       --    80,000
Compensation expense--
 stock options.....................     --    --    --     --         799          --          --     --       --       799
Comprehensive loss:
Net loss...........................     --    --    --     --          --          --     (30,945)    --       --   (30,945)
Hedge activity.....................     --    --    --     --          --       2,286          --     --       --     2,286
                                    ------  ----    --    ---    --------     -------    --------   ----  -------  --------
Total comprehensive loss...........                                                                                 (28,659)
                                                                                                                   --------
Balance December 31, 2001.......... 23,897   239    --     --     163,735       2,286     (54,115)  (311)  (1,905)  110,240
Compensation expense--
 stock options.....................     --    --    --     --         102          --          --     --       --       102
Comprehensive loss:
Net loss...........................     --    --    --     --          --          --     (38,484)    --       --   (38,484)
Hedge activity.....................     --    --    --     --          --      (6,481)         --     --       --    (6,481)
                                    ------  ----    --    ---    --------     -------    --------   ----  -------  --------
Total comprehensive loss...........                                                                                 (44,965)
                                                                                                                   --------
Balance December 31, 2002.......... 23,897  $239    --    $--    $163,837     $(4,195)   $(92,599)  (311) $(1,905) $ 65,377
                                    ======  ====    ==    ===    ========     =======    ========   ====  =======  ========
</TABLE>



                See Notes to Consolidated Financial Statements.


                                      8

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    Year Ended   Year Ended   Year Ended
                                                                   December 31, December 31, December 31,
                                                                       2002         2001         2000
                                                                   ------------ ------------ ------------
                                                                           (Amounts in thousands)
<S>                                                                <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................   $(38,484)   $ (30,945)    $ 32,208
Adjustments to reconcile net income (loss) to net cash provided by
  operating activities:
   Depreciation, depletion and amortization.......................     43,291       45,106       32,654
   Gain on interest rate swap.....................................     (2,248)        (332)          --
   Loss (gain) due to hedge ineffectiveness.......................      9,050       (4,767)          --
   Mining venture.................................................         --          729           --
   Cumulative effect of a change in accounting method, net of
     deferred tax.................................................         --        2,767           --
   Amortization of stock options..................................        102          799          849
   Amortization of deferred financing costs and bond
     premium......................................................      2,794        1,877          559
   Loss on sale of assets.........................................         --       11,600           --
   Disposition of hedges..........................................         --           --        8,671
   Impairment expense.............................................     16,679       27,057           --
   Other..........................................................        553          455           --
   Deferred taxes.................................................    (10,846)      (9,650)     (12,307)
Changes in assets and liabilities, net of acquisition:
   Accounts receivable and accrued revenues.......................      4,364        5,669      (13,370)
   Prepaid expenses and other.....................................      2,473       (3,025)         373
   Accounts payable and accrued liabilities.......................    (17,913)      (5,611)      12,217
   Due to affiliates..............................................         --           --           --
   Abandonment costs..............................................     (2,593)      (1,371)      (1,531)
   Other..........................................................         --           --         (215)
                                                                     --------    ---------     --------
NET CASH FLOWS PROVIDED BY OPERATING
  ACTIVITIES......................................................      7,222       40,358       60,108
                                                                     --------    ---------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisitions of oil and gas properties.........................       (850)     (24,159)      (7,078)
   Acquisitions of Bargo oil and gas properties...................         --     (142,028)          --
   Proceeds on sale of oil and gas properties, net................     60,396       15,868       45,906
   Proceeds on sale of assets, net................................         --       15,668           --
   Additions to oil and gas properties............................    (20,589)     (48,040)     (81,294)
   Additions to gas plant facilities..............................         --       (1,047)        (677)
   Additions to leasehold, furniture and equipment................       (198)        (527)      (2,462)
   Note receivable................................................         --           --       (1,281)
   Other..........................................................         --           --         (446)
                                                                     --------    ---------     --------
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING
  ACTIVITIES......................................................     38,759     (184,265)     (47,332)
                                                                     --------    ---------     --------
</TABLE>

                See Notes to Consolidated Financial Statements.


                                      9

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

<TABLE>
<CAPTION>
                                                               Year Ended   Year Ended   Year Ended
                                                              December 31, December 31, December 31,
                                                                  2002         2001         2000
                                                              ------------ ------------ ------------
                                                                      (Amounts in thousands)
<S>                                                           <C>          <C>          <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.....................................     21,000      208,754       31,400
Net proceeds from issuance of common stock...................         --          899          496
Payments of long-term debt...................................    (56,000)    (199,204)     (35,950)
Proceeds from issuance of senior subordinated notes due 2007,
  including premium..........................................         --      126,875           --
Credit facility costs........................................       (237)      (7,278)        (359)
                                                                --------    ---------     --------
NET CASH FLOWS (USED IN) PROVIDED BY FINANCING
  ACTIVITIES.................................................    (35,237)     130,046       (4,413)
                                                                --------    ---------     --------
Net increase (decrease) in cash and cash equivalents.........     10,744      (13,861)       8,363
Cash and cash equivalents at beginning of period.............        603       14,464        6,101
                                                                --------    ---------     --------
Cash and cash equivalents at end of period...................   $ 11,347    $     603     $ 14,464
                                                                ========    =========     ========
</TABLE>




                See Notes to Consolidated Financial Statements.


                                      10

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Organization

   Mission Resources Corporation (the "Company") is an independent oil and gas
exploration and production company. We develop and produce crude oil and
natural gas. Mission's balanced portfolio comprises long-lived, low-risk
assets, like those in the Permian Basin, and multi-reservoir, high-productivity
assets found along the Gulf Coast and in the Gulf of Mexico. Our operational
focus is on property enhancement through exploitation and development drilling,
operating cost reduction, low to moderate risk exploration, asset redeployment
and acquisitions of properties in the right circumstances.

2.  Summary of Significant Accounting Policies

  Principles of Consolidation

   The consolidated financial statements include the accounts of Mission
Resources Corporation and its wholly owned subsidiaries. A 10.11% ownership in
the East Texas Salt Water Disposal Company is accounted for using the cost
method and the $861,000 investment is included in the other assets line of the
balance sheet.

   In 1999, the Company invested in a Canadian company ("Carpatsky") that had
the right to produce and sell oil and gas from two fields in the Ukraine. Due
to different business and cultural approaches, foreign regulations and
financial limitations, the Company did not have significant influence over
Carpatsky; therefore the investment in Carpatsky was reflected using the cost
method in 2000. In June 2001, the Company exchanged its interests in Carpatsky
for a production payment on Carpatsky's producing properties, reporting $6.2
million as a long-term receivable. In fourth quarter of 2001, due to increased
uncertainties in world markets and declining commodity prices and uncertainties
related to the collectibility of the receivable, it was charged to expense as
part of the impairments on the Statement of Operations.

Oil and Gas Properties

   Full Cost Pool--The Company utilizes the full cost method to account for its
investment in oil and gas properties. Under this method, all costs of
acquisition, exploration and development of oil and gas reserves (including
such costs as leasehold acquisition costs, geological expenditures, dry hole
costs and tangible and intangible development costs and direct internal costs)
are capitalized as the cost of oil and gas properties when incurred. Direct
internal costs that are capitalized are primarily the salary and benefits of
geologists and engineers directly involved in acquisition, exploration and
development activities, and amounted to $1.3 million, $3.2 million and $3.3
million in the years ended December 31, 2002, 2001 and 2000, respectively.
Until June 2001, the Company had two full cost pools: United States and
Ecuador. The Company's interests in Ecuador were sold June 2001 for gross
proceeds of $8.5 million. Because the Ecuador sale involved the entire full
cost pool, the book value of the pool was removed from the Balance Sheet and
the resulting $12.7 million excess of book value over proceeds was reported as
part of the loss on sale of assets on the Statement of Operations for the year
ended December 31, 2001.

   Depletion--The cost of oil and gas properties, the estimated future
expenditures to develop proved reserves, and estimated future abandonment, site
remediation and dismantlement costs are depleted and charged to operations
using the unit-of-production method based on the ratio of current production to
proved oil and gas reserves as estimated by independent engineering
consultants. Costs directly associated with the acquisition and evaluation of
unproved properties are excluded from the amortization computation until it is
determined whether or not proved reserves can be assigned to the properties or
whether impairment has occurred. Depletion expense per equivalent barrel of
domestic production was approximately $7.74 in 2002, $6.72 in 2001 and $5.47 in
2000.

                                      11

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Unproved Property Costs--The following table shows, by category of cost and
date incurred, the domestic unproved property costs excluded from amortization
(amounts in thousands):

<TABLE>
<CAPTION>
                                                                         Total at
                                     Leasehold Exploration Development December 31,
                                       Costs      Costs       Costs        2002
                                     --------- ----------- ----------- ------------
<S>                                  <C>       <C>         <C>         <C>
Costs Incurred During Periods Ended:
   December 31, 2002................  $1,265       $--        $302        $1,567
   December 31, 2001................   5,246        --          --         5,246
   December 31, 2000................     328        --          --           328
   December 31, 1999................     502        --          --           502
   Prior............................     726        --          --           726
                                      ------       ---        ----        ------
                                      $8,067       $--        $302        $8,369
                                      ======       ===        ====        ======
</TABLE>

   Such costs fall into four broad categories:

  .   Material projects which are in the last one to two years of seismic
      evaluation;

  .   Material projects currently being marketed to third parties;

  .   Leasehold and seismic costs for projects not yet evaluated; and

  .   Drilling and completion costs for projects in progress at year-end that
      have not resulted in the recognition of reserves at December 31, 2002.
      This category of costs will transfer into the full cost pool in 2003.


   Included in leasehold costs are land and seismic costs incurred in the
current and prior years by the Company that are still in the evaluation stage.
Approximately $2.2 million, $1.8 million and $2.8 million were evaluated and
moved to the full cost pool in 2002, 2001 and 2000, respectively.

   Sales of Properties--Dispositions of oil and gas properties held in the
domestic full cost pool are recorded as adjustments to capitalized costs, with
no gain or loss recognized unless such adjustments would significantly alter
the relationship between capitalized costs and proved reserves of oil and gas.
Net proceeds from property sales of $60.4 million, $15.9 million and $46.0
million were recorded in such manner during the years 2002, 2001, and 2000,
respectively.

   Impairment--To the extent that capitalized costs of oil and gas properties,
net of accumulated depreciation, depletion and amortization, exceed the
discounted future net revenues of proved oil and gas reserves net of deferred
taxes, such excess capitalized costs would be charged to operations as an
impairment. Oil and gas prices ended the year 2002 at $31.17 per barrel of oil
(NYMEX WTI Cushing) and $4.74 per MMBTU of gas (NYMEX Henry Hub). Such closing
prices, adjusted to the wellhead to reflect adjustments for marketing, quality
and heating content, were used to determine discounted future net revenues for
the Company. In addition, the Company elected to adjust discounted future net
revenues to reflect the potential impact of its commodity hedges that qualify
for hedge accounting under SFAS No. 133. This adjustment was calculated by
taking the difference between the closing NYMEX prices and the price floors on
the Company's hedges multiplied by the hedged volumes that were included in
proved reserves. This calculation resulted in a decrease in discounted future
net revenues of $11.8 million because prices prevailing at December 31, 2002
were higher than most of the Company's price ceilings.

   The Company's capitalized costs were not in excess of these adjusted
discounted future net revenues as of December 31, 2002; therefore no impairment
was required. The Company, however, recorded an oil and gas

                                      12

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

property impairment of $20.8 million in 2001 because capitalized costs exceeded
adjusted discounted future net reserves. No such impairment to capitalized
costs was required for the year 2000.

   Any reference to oil and gas reserve information in the Notes to
Consolidated Financial Statements is unaudited.

  Gas Plants

   On October 1, 2001 the Company sold its interest in the Snyder gas plant and
Diamond M gas plant for gross proceeds of $11.5 million and recorded a gain of
$1.1 million, which was recorded as part of sale of assets on the Statement of
Operations for the year ended December 31, 2001.

  Revenue Recognition and Gas Imbalances

   The Company uses the sales method of accounting for revenue. Under this
method, oil and gas revenues are recorded for the amount of oil and natural gas
production sold to purchasers. Revenues are recognized and accrued as
production occurs. In 2001 and 2000, the only customer accounting for greater
than 10% of oil and gas revenues was an affiliate of Torch Energy Advisors
("Torch"). The sales amounts were $43.3 million and $26.9 million,
respectively, and were part of domestic revenues. In 2002, no one customer
accounts for greater than 10% of oil and gas revenues.

   Gas imbalances are created, but not recorded, when the sales amount is not
equal to the Company's entitled share of production. The Company's entitled
share is calculated as the total or gross production of the property multiplied
by the Company's decimal interest in the property. Typically no provision is
made on the balance sheet to account for potential amounts due to or from
Mission related to gas imbalances. Exclusive of a liability recorded for
properties at or nearing depletion (see discussion below), the Company's
unrecorded imbalance, valued at current prices would be a $1.4 million
receivable.

   When the gas reserves attributable to a property have depleted to the point
that there are insufficient reserves to satisfy existing imbalance positions, a
liability or a receivable, as appropriate, should be recorded equal to the net
value of the imbalance. As of December 31, 2002, the Company recorded a net
liability of approximately $454,000 representing approximately 266,000 MCF at
an average price of $1.71 per MCF, related to imbalances on properties at or
nearing depletion. Those gas imbalances were valued using the price at which
the imbalance originated if there is a gas balancing agreement or the current
price where there is no gas balancing agreement. Reserve reductions on any
fields that have imbalances could cause this liability to increase. Settlements
are typically negotiated, so the per MCF price for which imbalances are settled
could differ among wells and even among owners in one well.

  Receivables

   The Company uses the specific write off method of accounting for receivables
other than accruals. Joint interest billing receivables represent those amounts
due to the Company as operator of an oil and gas property by the other working
interest partners. Since these partners could also be the operator of other
properties in which the Company is a working interest partner, the
interdependency of the partners tends to assure timely payment. Past due
balances over 90 days and $30,000 are reviewed for collectibility monthly, and
charged against earnings when the potential for collection is determined to be
remote. The Company has recognized bad debt expense, included in interest and
other income on the Statement of Operations, of $185,000, $430,000 and $135,000
related to such receivables for the years ended December 31, 2002, 2001 and
2000, respectively. The Company does not have any off-balance sheet credit
exposure related to its customers.

                                      13

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   A portion of the Company's November 2001 gas production was sold under
contract to a subsidiary of Enron Corporation ("Enron"). Payment for that
production totaling $2.2 million was due in December 2001 and was not received.
Due to Enron's bankruptcy filing and continued legal difficulties, the Company
chose to write off the entire amount due from Enron. A separate line for
uncollectible gas revenues was added to the Statement of Operations in order to
clearly segregate the $2.2 million charge to income recognized in 2001 due to
Enron's failure to make payment.

  Income Taxes

   Deferred taxes are accounted for under the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities. The ultimate realization of deferred tax assets is dependent
upon the generations of future taxable income in periods when the temporary
differences become deductible. The effect on deferred taxes of a change in tax
rates is recognized in income in the period the change occurs.

  Statements of Cash Flows

   For cash flow presentation purposes, the Company considers all highly liquid
instruments purchased with an original maturity of three months or less to be
cash equivalents. Interest paid in cash for the years ended December 31, 2002,
2001 and 2000, was $26.4 million, $19.0 million and $13.8 million,
respectively. Income taxes paid in cash, net of cash refunds, for the years
ended December 31, 2001 and 2000 were $2.5 million and $109,000, respectively.
A net cash refund of approximately $1.8 million was received in the year ended
December 31, 2002.

   A significant portion of the funding of the 2001 Bargo merger was non-cash:

<TABLE>
<CAPTION>
     Supplemental schedule of non-cash investing and financing activities:
                                                               Year Ended
                                                              December 31,
                                                                  2001
                                                              ------------
     <S>                                                      <C>
     Fair value of assets and liabilities acquired:
     Net current assets and other assets.....................   $  2,453
     Property, plant, and equipment..........................    260,893
     Goodwill and intangibles................................     16,601
     Deferred tax liability..................................    (56,610)
                                                                --------
     Total allocated purchase price..........................   $223,337
     Less non-cash consideration--issuance of stock..........   $ 80,000
     Less cash acquired in transaction.......................      1,309
                                                                --------
     Cash used for business acquisition, net of cash acquired   $142,028
                                                                ========
</TABLE>

  Benefit Plans

   During 1993, the Company adopted the Mission Resources Simplified Employee
Pension Plan (the "Savings Plan") whereby all employees of the Company are
eligible to participate. The Savings Plan is administered by a Plan
Administrator appointed by the Company. Eligible employees may contribute a
portion of their annual compensation up to the legal maximum established by the
Internal Revenue Service for each plan

                                      14

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

year. The Company matches contributions up to a maximum of 6% each plan year.
Employee contributions are immediately vested and employer contributions have a
four-year vesting period. Amounts contributed by the Company to the Savings
Plan for the years ended December 31, 2002, 2001 and 2000 were $96,000,
$405,000 and $312,000, respectively.

  Deferred Compensation Plan

   In late 1997, the Company adopted the Mission Deferred Compensation Plan.
This plan allows selected employees the option to defer a portion of their
compensation until their retirement or termination. Such deferred compensation
is invested in any one or more of six mutual funds managed by American Funds
Service Company ("Fund Manager") at the direction of the employees. The Company
designated Southwest Guaranty Trust Company as Trustee to supervise the Fund
Manager. The market value of these investments is included in current assets at
December 31, 2002, 2001 and 2000 and was approximately $419,000, $124,000 and
$25,000, respectively. An equivalent liability due to the plan participants is
included in current liabilities.

  Stock-Based Employee Compensation Plans

   At December 31, 2002, the Company has two stock-based employee compensation
plans, which are described more fully in Note 5. The Company accounts for those
plans under the recognition and measurement principles of APB Opinion No. 25,
Accounting or Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation cost is reflected in net income for options
granted under those plans with an exercise price equal to the market value of
the underlying common stock on the date of the grant. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.

<TABLE>
<CAPTION>
                                          Year Ended   Year Ended   Year Ended
                                         December 31, December 31, December 31,
                                             2002         2001         2000
                                         ------------ ------------ ------------
 <S>                                     <C>          <C>          <C>
 Net income (loss)
    As reported.........................   $(38,484)    $(30,945)    $32,208
    Pro forma...........................   $(39,315)    $(35,007)    $24,955
 Earnings (loss) per share
    As reported.........................   $  (1.63)    $  (1.54)    $  2.32
    Pro forma...........................   $  (1.67)    $  (1.75)    $  1.80
 Diluted earnings (loss) per share share
    As reported.........................   $  (1.63)    $  (1.54)    $  2.27
    Pro forma...........................   $  (1.67)    $  (1.75)    $  1.76
</TABLE>

  Mining Venture

   During fiscal year 1992, Mission acquired an average 24.4% interest in three
mining ventures (the "Mining Venture") from an unaffiliated individual for
$128,500. At the time of such acquisition, J. P. Bryan, a member of the Mission
Board of Directors until October 2002, his brother, Shelby Bryan and Robert L.
Gerry III (the "Affiliated Group"), owned an average 21.5% interest in the
Mining Venture. Mission's interest in the Mining Venture increased as it paid
costs of the venture while the interest of the Affiliated Group decreased.
Through December 31, 2001, Mission spent an additional $185,000 primarily for
soil evaluations. These exploratory costs, plus the $729,000 accumulated on the
Balance Sheet in Other Assets as of December 31, 2000, were charged to

                                      15

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

earnings in 2001. Under existing agreements Mission is not required to pay any
additional mining venture costs and there were no such charges in 2002.

  Goodwill

   The Financial Accounting Standards Board ("FASB") approved Statement of
Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible
Assets in June 2001. This pronouncement requires that intangible assets with
indefinite lives, including goodwill, cease being amortized and be evaluated on
an annual basis for impairment. The Company adopted SFAS No. 142 on January 1,
2002 at which time the Company had unamortized goodwill, related to the Bargo
merger, in the amount of $15.1 million and unamortized identifiable intangible
assets in the amount of $374,300, all subject to the transition provisions.
Upon adoption of SFAS No. 142, $277,000 of workforce intangible assets recorded
as unamortized identifiable assets was subsumed into goodwill and was not
amortized as it no longer qualified as a recognizable intangible asset.

   The transition and impairment test for goodwill, effective January 1, 2002,
was performed in the second quarter of 2002. As of January 1, 2002, the
Company's fair value exceeded the carrying amount; therefore goodwill was not
impaired. Mission designated December 31st as the date for its annual test.
Based upon the results of such test at December 31, 2002, goodwill was fully
impaired and a write-down of $16.7 million was recorded. The valuation was
based on the following procedures and information:

    .  compute a cash flow model of the Company's oil and gas assets using
       third party information and verification;

    .  apply risking parameters to the various categories of oil and gas
       reserves using reputable third party sources for risk profile;

    .  apply a discount rate to such valuation that approximates Mission's cost
       of capital and cost of debt;

    .  reduce this valuation by Mission's net debt to ascertain the equity fair
       value; and

    .  compare book equity to fair value equity.

   The changes in the carrying amount of goodwill for the period ended December
31, 2002, are as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                       Intangible Total Goodwill
                                             Goodwill    Assets   and Intangibles
                                             --------  ---------- ---------------
<S>                                          <C>       <C>        <C>
Balance, December 31, 2001.................. $ 15,061    $ 375       $ 15,436
Transferred to goodwill.....................      277     (277)            --
Amortization of lease.......................       --      (98)           (98)
Merger purchase price allocation adjustments    1,341       --          1,341
Goodwill impairment.........................  (16,679)      --        (16,679)
                                             --------    -----       --------
Balance, December 31, 2002.................. $     --    $  --       $     --
                                             ========    =====       ========
</TABLE>

   SFAS No. 142 requires disclosure of what reported income before
extraordinary items and net income would have been in all periods presented
exclusive of amortization expense (including any related tax effects)
recognized in those periods related to goodwill, intangible assets that are no
longer being amortized, any deferred credit related to excess over cost equity
method goodwill, and changes in amortization periods for intangible

                                      16

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

assets that will continue to be amortized (including related tax effects).
Similarly adjusted per share amounts are also required to be disclosed for all
periods presented. The following table presents the required disclosures
concerning adjusted income for the year ended December 31, 2001 (amounts in
thousands):

<TABLE>
<CAPTION>
                                                                  Year Ended
                                                               December 31, 2001
                                                               -----------------
<S>                                                            <C>
Net income (loss).............................................     $(30,945)
Exclude goodwill amortization.................................          986
                                                                   --------
Net income (loss) exclusive of amortization...................     $(29,959)
                                                                   ========
Net income (loss) exclusive of amortization per share.........     $  (1.49)
Net income (loss) exclusive of amortization per share--diluted     $  (1.49)
</TABLE>

  Comprehensive Income

   Comprehensive income includes all changes in a company's equity except those
resulting from investments by owners and distributions to owners. The Company's
total comprehensive income for the twelve months ended December 31, 2002 and
2001 was as follows (in thousands):

<TABLE>
<CAPTION>
                                                                       Twelve Months Ended
                                                                          December 31,
                                                                       ------------------
                                                                         2002      2001
                                                                       --------  --------
<S>                                                                    <C>       <C>
Net income (loss)..................................................... $(38,484) $(30,945)
Cumulative effect attributable to adoption of SFAS No. 133, net of tax       --   (19,328)
Hedge accounting for derivative instruments, net of tax...............   (6,481)   21,614
                                                                       --------  --------
Comprehensive income (loss)........................................... $(44,965) $(28,659)
                                                                       ========  ========
</TABLE>

   The accumulated balance of other comprehensive income related to cash flow
hedges, net of taxes, is as follows (in thousands):

<TABLE>
                <S>                                    <C>
                Balance at January 1, 2001............ $     --
                Cumulative effect of accounting change  (19,328)
                Net gains on cash flow hedges.........   13,919
                Reclassification adjustments..........   14,934
                Tax effect on hedge activity..........   (7,239)
                                                       --------
                Balance at December 31, 2001..........    2,286
                Net gains (losses) on cash flow hedges     (341)
                Reclassification adjustments..........   (8,323)
                Tax effect on hedge activity..........    2,183
                                                       --------
                Balance at December 31, 2002.......... $ (4,195)
                                                       ========
</TABLE>

  Derivative Instruments and Hedging Activities

   Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards requiring that derivative instruments
(including certain derivative instruments embedded in other contracts) be
recorded at fair value and included in the balance sheet as assets or
liabilities. The accounting for changes in the fair value of a derivative
instrument depends on the intended use of the derivative and the resulting
designation, which is established at the inception of a derivative. Accounting
for qualified hedges allows a derivative's gains and losses to offset related

                                      17

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

results on the hedged item in the Statement of Operations. For derivative
instruments designated as cash flow hedges, changes in fair value, to the
extent the hedge is effective, are recognized in Other Comprehensive Income
until the hedged item is recognized in earnings. Hedge effectiveness is
measured at least quarterly based upon the relative changes in fair value
between the derivative contract and the hedged item over time. Any change in
the fair value resulting from ineffectiveness, as defined by SFAS No. 133, is
recognized immediately in earnings.

  New Accounting Pronouncements

     In July 2001, the Financial Accounting Standards Board ("FASB") issued
  Statement of Financial Accounting Standards ("SFAS") No. 143, Accounting for
  Asset Retirement Obligations, which provided accounting requirements for
  retirement obligations associated with tangible long-lived assets, including:

  .   the timing of liability recognition;

  .   initial measurement of liability;

  .   allocation of asset retirement cost to expense;

  .   subsequent measure of the liability; and

  .   financial statement disclosures.

   Statement No. 143 requires that the Company record a liability for the fair
value of its asset retirement obligation, primarily comprised of its plugging
and abandonment liabilities, in the period in which it is incurred if a
reasonable estimate of fair value can be made. The liability is accreted at the
end of each period through charges to operating expense. The amount of the
asset retirement obligation is added to the carrying amount of the oil and gas
properties and this additional carrying amount is depreciated over the life of
the properties. If the obligation is settled for other than the carrying amount
of the liability, the Company will recognize a gain or loss on settlement.

   The Company is required and plans to adopt the provisions of Statement No.
143 for the quarter ending March 31, 2003. To accomplish this, the Company must
identify all legal obligations for asset retirement obligations, if any, and
determine the fair value of these obligations on the date of adoption. The
determination of fair value is complex and will require the Company to gather
market information and develop cash flow models. Additionally, the Company will
be required to develop processes to track and monitor these obligations. The
Company expects to record an asset retirement liability of between $40.0
million and $50.0 million and a loss from a change in accounting method of
between $1.0 million and $5.0 million in the quarter ended March 31, 2003.

   SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statements No. 13 and Technical Corrections, was issued in April 2002.
SFAS No. 145 amends existing guidance on reporting gains and losses on the
extinguishments of debt to prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transaction. The provision of the
Statement related to the rescission of Statement No. 4 is applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of Statement related to Statement No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The adoption of SFAS No. 145 does not currently affect Mission's
financial statements, however, its provisions could impact the treatment of
future transactions.

   SFAS No. 146, Accounting for Exit or Disposal Activities, was issued in June
2002. SFAS No. 146 addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated

                                      18

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

with exit and disposal activities, including restructuring activities that are
currently accounted for pursuant to the guidance set forth in EITF Issue No.
94-3, Liability Recognition of Certain Employee Termination Benefits and Other
Costs to Exit an Activity. SFAS No. 146 is effective for the exit and disposal
activities initiated after December 31, 2002. The Company will apply SFAS No.
146 as appropriate to future activities.

   In November 2002, FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34. This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees issued. The
interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to materially effect our financial statements.
The disclosure requirements are effective for financial statements of interim
and annual periods ending after December 15, 2002.

   In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure, an amendment of SFAS No. 123, that
provides alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation. In addition,
this statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements. Some of
the disclosure modifications are required for fiscal years ending after
December 15, 2002 and are included in the notes to consolidated financial
statements.

   FASB issued Interpretation No. 46, Consolidation of Variable Interest
Entities, an interpretation of APB No. 51, in January 2003. This interpretation
addresses the consolidation by business enterprises of variable interest
entities as defined in the interpretation. The interpretation applies
immediately to variable interest entities created after January 31, 2003, and
to variable interests in variable interest entities obtained after January 31,
2003. We do not own an interest in any variable interest entities; therefore,
this interpretation is not expected to have a material effect on our financial
statements.

  Use of Estimates

   Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities as well as reserve information which affects
the depletion calculation and the computation of the full cost ceiling
limitation to prepare these financial statements in conformity with generally
accepted accounting principles in the United States. Actual results could
differ from these estimates.

  Reclassifications

   Certain reclassifications of prior period statements have been made to
conform to current reporting practices.

3.  Acquisitions and Investments

   During the last three fiscal years, the Company has completed or made the
following significant acquisitions and investments:

   On May 16, 2001, Bellwether Exploration Company merged with Bargo Energy
Company and changed its name to Mission Resources Corporation. Under the merger
agreement, Bargo shareholders and option holders

                                      19

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

received a combination of cash and Mission common stock. The merger was
accounted for using the purchase method of accounting and was financed through
the issuance of $80.0 million, or 9.5 million shares, of Mission common stock
to Bargo option holders and shareholders, and an initial $166.0 million in
borrowings under a new credit facility ("Credit Facility"). Borrowings under
the Credit Facility were used as follows:

  .   to pay the cash portion of the purchase price to holders of Bargo common
      stock and options,

  .   to pay the amount incurred by Bargo in redeeming its preferred stock
      immediately prior to the merger,

  .   to refinance Bargo's and Bellwether's then-existing credit facilities, and

  .   to pay transaction costs.

   Initially, the $280.9 million adjusted purchase price allocated to the
acquired assets was $4.1 million to unproved properties, $255.7 million to
proved properties, $1.1 million to current drilling projects, $17.7 million to
goodwill and intangible assets and $2.3 million to current assets, current
liabilities and other non-current assets. The Company also acquired a 10.11%
ownership in the East Texas Salt Water Disposal Company.

   On May 17, 2001, the Company purchased oil and gas properties in south
Louisiana for a gross sales price of $21.5 million.

4.  Related Party Transactions

   Mr. J. P. Bryan, a member of Mission's board of directors until October
2002, was Chairman and CEO of Mission from August 1999 through May 2000. Mr.
Bryan is also Senior Managing Director of Torch Energy Advisors ("Torch") and
owns shares representing 23% of the shares of Torch on a fully diluted basis.

   As of December 31, 2002, the Company was party to a Master Service Agreement
dated October 1, 1999, the ("MSA"), and two service contracts under which Torch
administers certain activities of the Company including the operation of oil
and gas properties and oil and gas marketing. Previously, the Company was party
to six service contracts with Torch, but four were terminated in 2002 and 2001.
A $620,000 termination fee was paid on the Corporate Services Agreement and was
recognized as part of general and administrative expense in the 2001 Statement
of Operations. Effective February 1, 2003, the contract covering operation of
oil and gas properties was terminated. Effective April 1, 2003 the contract for
marketing of Mission's oil and gas commodities will terminate. Only the
termination of the contract covering operations of oil and gas properties
required a fee, which was $75,000. As a result of the termination of all
previous service contracts with Torch, the MSA will effectively terminate on
April 1, 2003.

   Fees paid to Torch for marketing services were $343,000, $417,000, and
$563,000, in periods ended December 31, 2002, 2001 and 2000, respectively.
Sales to Torch accounted for approximately 1%, 32% and 24% of fiscal year 2002,
2001 and 2000 oil and gas revenues, respectively. Fees paid to Torch for
operating our oil and gas properties were $1.4 million, $1.5 million and $1.0
million for the years ended December 31, 2002, 2001 and 2000, respectively.

   Torch was the operator of the Snyder Gas Plant. In periods ended December
31, 2001 and 2000, the fees paid by the Company to Torch were $74,000 and
$96,0000, respectively. There were no such fees in 2002 because the gas plant
was sold in 2001. Torch provided services in prior periods for the evaluation
of potential property acquisitions and due diligence conducted in conjunction
with acquisitions closed at the Company's request. The Company was charged
$685,000 and $1.3 million for these costs in periods ended December 31, 2001
and 2000, respectively.

                                      20

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Mission currently uses an Oracle platform through a hosting agreement,
effective July 1, 2002, with Novistar, previously a subsidiary of Torch.
Approximately $373,000 was paid to Novistar in 2002. On January 15, 2003 it was
announced that Novistar merged with Paradigm Technologies, a Petroleum Place
company, creating P2 Energy Solutions. As a result of this merger, Torch owns
38% of P2 Energy Solutions.

   Milam Energy, LP ("Milam") is a 51% working interest owner with the Company
in several south Louisiana properties. Torch is a majority owner of Milam, and
J.P. Bryan, a member of Mission's Board of Directors until October 2002 is also
a managing director and stockholder of Torch. As of December 31, 2002, Milam
owed the Company approximately $570,000 in joint interest billings and cash
calls related to these properties. The receivable is reflected on the accounts
receivable and accrued revenues line of the consolidated Balance Sheet. A
portion of the outstanding receivable is past due, however, pursuant to an
agreement between the parties effective March 1, 2003. Milam made a $480,000
payment on March 12, 2003. The terms also provide for Milam to timely pay
Mission its joint interest billings and cash calls through July 2003.

   In 2002, as part of an effort to improve liquidity, the Company sold
interests in various oil and gas fields through a series of competitive bids.
In July 2002, in one of those transactions, the Company sold interests in
several properties located in New Mexico to Chisos, LTD ("Chisos"). J.P. Bryan,
a member of Mission's board of directors until October 2002, is the President
and sole owner of Chisos. Over 25 companies requested information packages on
this sale and four submitted bids on these properties. The bid from Chisos was
$4.0 million, which exceeded all others by $250,000 and additionally provided
Mission a non-competition agreement in New Mexico, a one-year right to
participate in developmental drilling and a one-year right to participate in
any preferential rights events. These considerations were not offered to
Mission by any other bidder.

   A $250,000 payment under a non-compete agreement was paid in the second
quarter of 2002 to Tim J. Goff, Bargo's former Chief Executive Officer and
former member of Mission's board of directors.

   Pursuant to a separation agreement between the Company and J. Darby Sere, a
former senior executive, in August 1999, the executive entered into a
non-recourse promissory note with a principal amount of $332,872. The loan
bears interest at an annual rate of 7% and was due and payable on August 23,
2002. After the due date all accrued interest was written-off and future
accruals ceased. The loan value was reduced to $32,000 at December 31, 2002,
the market value of the 78,323 Mission Resources shares that secured the loan.
The Company has not deemed the loan to be in default and anticipates that more
of the balance can be collected over time, or will be realized with the
appreciation in the value of the stock.

   In connection with the reorganization of the Company's management team in
2002, the Company entered into separation agreements with each of Douglas G.
Manner, Jonathan M. Clarkson, and Daniel P. Foley, on July 31, 2002, September
20, 2002, and November 15, 2002, respectively. Messrs. Manner, Clarkson and
Foley were previously employed by the Company pursuant to employment agreements
that provided for the payment of severance upon separation from the Company
based on multiples of their current salary at the time of separation. The
Company negotiated severance payments for each of Messrs. Manner, Clarkson and
Foley that were considerably less than the amounts provided under their
respective employment agreements. Under the terms of the separation agreements,
the Company paid Messrs. Manner, Clarkson and Foley total payments of $1.3
million, $1.5 million and $450,000, respectively. Of the total $3.3 million,
$250,000 was deferred and will be amortized to expense over the term of the
consulting contract and the remainder was charged to general and administrative
expenses in 2002. Messrs. Manner, Clarkson and Foley have also surrendered all
of their options or rights to acquire the Company's securities. In addition,
the Company agreed to provide Messrs. Manner and Clarkson with certain
insurance benefits for up to 24 months after the separation date, and, to the
extent the coverage or benefits received are taxable to either of Messrs.
Manner or Clarkson, the Company agreed to make

                                      21

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

them "whole" on a net after-tax basis. Messrs. Manner and Clarkson also agreed
to provide certain consulting services to the Company following their
separation dates. In January 2003, Mr. Manner received a pay-out in the sum of
$314,852 from the Company's Deferred Compensation Plan made up primarily of
deferred salary and bonuses under the terms of the plan.

5.  Stockholders' Equity

  Common and Preferred Stock

   The Certificate of Incorporation of the Company initially authorized the
issuance of up to 30,000,000 shares of common stock and 1,000,000 shares of
preferred stock, the terms, preferences, rights and restrictions of which are
established by the Board of Directors of the Company.

   In May 2001, the number of authorized shares was increased to 60 million
shares of common stock and 5 million shares of preferred stock. Certain
restrictions contained in the Company's loan agreements limit the amount of
dividends that may be declared. There is no present plan to pay cash dividends
on common stock as the Company intends to reinvest its cash flows for continued
growth of the Company.

   A tax benefit related to the exercise of employee stock options of $240,000
in 2001 and $95,000 in 2000 was allocated directly to additional paid in
capital. Such benefit was not material in year 2002.

   On May 16, 2001, Bellwether merged with Bargo Energy Company ("Bargo"). The
resulting company was renamed Mission Resources Corporation. As partial
consideration in the merger, 9.5 million shares of Mission common stock were
issued to the holders of Bargo common stock and options. The $80 million
assigned value of such shares was included in the purchase price. Concurrent
with the merger, all Bellwether employees who held stock options were
immediately vested in those options upon closing of the merger. The expense was
calculated as the excess of the stock price on the merger date over the
exercise price of the option. An additional $102,000 and $799,000 of
compensation expense was recognized in the years ended December 31, 2002 and
2001, respectively, as a result of staff reductions.

  Shareholder Rights Plan

   In September 1997, the Company adopted a shareholder rights plan to protect
Mission's shareholders from coercive or unfair takeover tactics. Under the
shareholder rights plan, each outstanding share of Mission's common stock and
each share of subsequently issued Mission common stock has attached to it one
right. The rights become exercisable if a person or group acquires or announces
an intention to acquire beneficial ownership of 15% or more of the outstanding
shares of common stock without the prior consent of the Company. When the
rights become exercisable each holder of a right will have the right to
receive, upon exercise of the right, a number of shares of common stock of the
Company which, at the time the rights become exercisable, have a market price
of two times the exercise price of the right. The Company may redeem the rights
for $.01 per right at any time before they become exercisable without
shareholder approval. The rights will expire on September 26, 2007, subject to
earlier redemption by the board of directors of the Company.

                                      22

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Earnings Per Share

   The following represents the reconciliation of the numerator (income) and
denominator (shares) of the earnings per share computation to the numerator and
denominator of the diluted earnings per share computation. The Company's
reconciliation is as follows (amounts in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                   Year Ended December 31, 2002 Year Ended December 31, 2001
                                   -------------------------    -------------------------
                                    Income     Shares Per Share  Income     Shares Per Share
                                   --------    ------ --------- --------    ------ ---------
<S>                                <C>         <C>    <C>       <C>         <C>    <C>
Net loss.......................... $(38,484)                    $(30,945)
                                   --------    ------  ------   --------    ------  ------
Loss per common share............. $(38,484)   23,586  $(1.63)  $(30,945)   20,051  $(1.54)
Effect of dilutive securities:
Options & warrants................       --        --                 --        --
                                   --------    ------  ------   --------    ------  ------
Loss per common share--diluted.... $(38,484)   23,586  $(1.63)  $(30,945)   20,051  $(1.54)
                                   ========    ======  ======   ========    ======  ======
                                   Year Ended December 31, 2000
                                   -------------------------
                                    Income     Shares Per Share
                                   --------    ------ ---------
Net income........................ $ 32,208
                                   --------    ------  ------
Earnings per common share......... $ 32,208    13,899  $ 2.32
Effect of dilutive securities:
Options & warrants................       --       276
                                   --------    ------  ------
Earnings per common share--diluted $ 32,208    14,175  $ 2.27
                                   ========    ======  ======
</TABLE>

   In periods of loss, diluted earnings per share were not calculated since the
issuance or conversion of additional securities would have had an antidilutive
effect. Options and warrants equal to 1,050,500 in 2002, 2,247,000 in 2001 and
584,500 in 2000 that could potentially dilute basic earnings per share in the
future were not included in the computation of diluted earnings per share
because to do so would have been antidilutive.

  Treasury Stock

   In September 1998, the Company's Board of Directors authorized the
repurchase of up to $5.0 million of the Company's common stock. As of December
31, 2002, 311,000 shares had been acquired at an aggregate price of $1,905,000.
These treasury shares are reported at cost as a reduction to Stockholders'
Equity.

  Stock Incentive Plans

   The Company has stock option plans that provide for granting of options for
the purchase of common stock to directors, officers and employees of the
Company. In May 2001, the number of shares available for issuance under the
1996 Stock Incentive Plan was increased by 2.0 million. These stock options may
be granted subject to terms ranging from 6 to 10 years at a price equal to the
fair market value of the stock at the date of grant. At December 31, 2002,
there were 936,334 options available for grants.

                                      23

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   A summary of activity in the stock option plans is set forth below:

<TABLE>
<CAPTION>
                                                        Option Price
                                                           Range
                                             Number of  ------------
                                              Shares     Low   High
                                            ----------  ----- ------
           <S>                              <C>         <C>   <C>
           Balance at December 31, 1999....  1,528,000  $3.34 $12.38
              Granted......................    917,500  $4.25 $ 8.75
              Surrendered..................    (51,999) $3.34 $ 7.97
              Exercised....................    (90,835) $3.34 $ 7.63
                                            ----------
           Balance at December 31, 2000....  2,302,666  $3.34 $12.38
              Granted......................  1,984,000  $5.71 $ 8.80
              Surrendered..................   (124,500) $4.59 $12.38
              Exercised....................   (177,331) $3.34 $ 7.63
                                            ----------
           Balance at December 31, 2001....  3,984,835  $3.34 $12.38
              Granted......................  2,205,000  $0.31 $ 3.28
              Surrendered.................. (2,974,335) $2.24 $12.38
              Exercised....................         --     --     --
                                            ----------
           Balance at December 31, 2002....  3,215,500  $0.31 $10.31
                                            ==========
           Exercisable at December 31, 2002  1,592,169  $0.31 $10.31
                                            ==========
</TABLE>

   In 2002, many employees voluntarily surrendered out of the money options.
The company intends to issue more options in 2003.

   Detail of stock options outstanding and options exercisable at December 31,
2002 follows:
<TABLE>
<CAPTION>
                                     Outstanding             Exercisable
                             ---------------------------- ------------------
                                       Weighted
                                        Average  Weighted           Weighted
                                       Remaining Average            Average
                                         Life    Exercise           Exercise
   Range of Exercise Prices   Number    (Years)   Price    Number    Price
   ------------------------  --------- --------- -------- --------- --------
   <S>                       <C>       <C>       <C>      <C>       <C>
   1994 Plan $0.38 to $ 6.38   479,000    8.8     $0.96     162,335  $1.73
   1996 Plan $3.34 to $12.38 2,736,500    8.9     $2.66   1,429,834  $4.17
                             ---------                    ---------
      Total................. 3,215,500                    1,592,169
                             =========                    =========
</TABLE>

   The estimated weighted average fair value per share of options granted
during 2002, 2001 and 2000 was $0.58, $3.15, and $12.75, respectively. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions.

  .   For 2002, expected stock price volatility of 160%; a risk free interest
      rate of 3.9%; and an average expected option life of 10 years

  .   For 2001, expected stock price volatility of 69%; a risk free interest
      rate of 5.3%; and an average expected option life of 10 years

  .   For 2000, expected stock price volatility of 65%; a risk free interest
      rate of 5.1%; and an average expected option life of 10 years

                                      24

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


6.  Derivative Instruments and Hedging Activities

   The Company produces and sells crude oil, natural gas and natural gas
liquids. As a result, its operating results can be significantly affected by
fluctuations in commodity prices caused by changing market forces. The Company
periodically seeks to reduce its exposure to price volatility by hedging a
portion of its production through swaps, options and other commodity derivative
instruments. A combination of options, structured as a collar, is the Company's
preferred hedge instrument because there are no up-front costs and protection
is given against low prices. Such hedges assure that Mission receives NYMEX
prices no lower than the price floor and no higher than the price ceiling.
Recently, as shown on the following tables, the Company has also entered into
some commodity swaps that fix the NYMEX price to be received. Hedging
activities decreased revenues by $342,000, $13.4 million and $24.5 million for
the years 2002, 2001 and 2000, respectively.

   The Company's realized price for natural gas per MCF is generally $0.11 less
than the NYMEX MMBTU price. The Company's realized price for oil is generally
$0.95 per BBL less than NYMEX. Realized prices differ from NYMEX as a result of
factors such as the location of the property, the heating content of natural
gas and the quality of oil. The oil differential stated above excludes the
impact of Point Pedernales field production for which the Company's selling
price is capped at $9.00 per BBL. The Point Pedernales field was sold in March
2003.

   In May 2002, several existing oil collars were cancelled. New swaps and
collars, hedging forecast oil production were acquired. The Company paid
approximately $3.3 million dollars to counter parties, the fair value of the
oil price collars at that time, in order to cancel the transactions. The
cancellation of these hedges did not have an immediate impact on income. As
required by SFAS No. 133 a $418,000 amount related to the cancelled hedges had
not yet been recognized in earnings. Such amount is being amortized from Other
Comprehensive Income ("OCI") over the 19-month life of the cancelled hedges,
leaving $264,000 at December 31, 2002.

   In October, the Company elected to de-designate all existing hedges and
re-designate them by applying the interpretations from the FASB's Derivative
Implementation Group issue G-20 ("DIG G-20"). The Company's previous approach
to assessing ineffectiveness allowed for time value to be adjusted to income
quarterly. By using the DIG G-20 approach because the Company's collars and
swaps meet specific criteria, the time value component is included in OCI and
earnings variability is reduced. Both the realized and unrealized gains or
losses related to these de-designated hedges at October 15, 2002 will be
amortized over the 5 quarters remaining. The amount remaining in OCI, or the
unrealized loss, related to the de-designated hedges was approximately $4.6
million at October 15, 2002. The amount of unrealized loss is being amortized
over the remaining 15 month life of the hedges, leaving approximately $3.6
million at December 31, 2002.

                                      25

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following tables detail the cash flow commodity hedges that were in
place at December 31, 2002.

Oil Hedges

<TABLE>
<CAPTION>
                                                    NYMEX     NYMEX
                                                    Price     Price
                              BBLS    Total       Floor/Swap Ceiling
                 Period      Per Day  BBLS   Type    Avg.     Avg.
                 ------      ------- ------- ---- ---------- -------
            <S>              <C>     <C>     <C>  <C>        <C>
            First Qtr. 2003.  4,000  360,000 Swap   $24.82     n/a
            Second Qtr. 2003  4,000  364,000 Swap   $24.31     n/a
            Third Qtr. 2003.  3,500  322,000 Swap   $23.95     n/a
            Fourth Qtr. 2003  3,500  322,000 Swap   $23.59     n/a
</TABLE>

Gas Hedges

<TABLE>
<CAPTION>
                                                      NYMEX  NYMEX
                                                      Price  Price
                              MMBTU    Total          Floor Ceiling
                 Period      Per Day   MMBTU    Type  Avg.   Avg.
                 ------      ------- --------- ------ ----- -------
            <S>              <C>     <C>       <C>    <C>   <C>
            First Qtr. 2003. 15,000  1,370,000 Collar $3.24  $4.64
            Second Qtr. 2003 15,000  1,365,000 Collar $3.18  $4.02
            Third Qtr. 2003. 15,000  1,380,000 Collar $3.19  $4.10
            Fourth Qtr. 2003 15,000  1,380,000 Collar $3.24  $4.54
            First Qtr. 2004.  5,000    455,000 Collar $3.90  $5.25
            Second Qtr. 2004  5,000    455,000 Collar $3.70  $4.08
            Third Qtr. 2004.  5,000    400,000 Collar $3.70  $4.04
            Fourth Qtr. 2004  5,000    400,000 Collar $3.85  $4.23
</TABLE>

   The Company may also enter into financial instruments such as interest rate
swaps to manage the impact of interest rates. Effective September 22, 1998, the
Company entered into an eight and one-half year interest rate swap agreement
with a notional value of $80.0 million. Under the agreement, Mission received a
fixed interest rate and paid a floating interest rate. In February 2003, the
interest rate swap was cancelled by Mission's $1.3 million payment to the
counter party.

7.  Determination of Fair Values of Financial Instruments

   Fair value for cash, short-term investments, receivables and payables
approximates carrying value. The interest rate swap and the commodity
derivatives are also reflected on the Balance Sheet at fair value. The
following table details the carrying values and approximate fair values of the
Company's other investments and long-term debt at December 31, 2002 and 2001
(in thousands).

<TABLE>
<CAPTION>
                                                    December 31, 2002      December 31, 2001
                                                  ---------------------  ---------------------
                                                   Carrying  Approximate  Carrying  Approximate
                                                    Value    Fair Value    Value    Fair Value
                                                  ---------  ----------- ---------  -----------
<S>                                               <C>        <C>         <C>        <C>
Assets (Liabilities):
Long-term debt: (See Note 8)
Bank Credit Facility............................. $      --   $      --  $ (35,000)  $ (35,000)
Senior Subordinated Notes, excluding $1.4 million
  unamortized premium on $125.0 million bonds.... $(225,000)  $(135,900) $(225,000)  $(202,500)
</TABLE>


                                      26

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


8.  Long-Term Debt

   Long-term debt is comprised of the following at December 31, 2002 and 2001
(in thousands):

<TABLE>
<CAPTION>
                                                     December 31, December 31,
                                                         2002         2001
                                                     ------------ ------------
 <S>                                                 <C>          <C>
 Credit facility....................................   $     --     $ 35,000
 10 7/8% senior subordinated notes..................    225,000      225,000
                                                       --------     --------
 Subtotal...........................................    225,000      260,000
 Premium on $125.0 million senior subordinated notes      1,431        1,695
                                                       --------     --------
 Long-term debt.....................................   $226,431     $261,695
                                                       ========     ========
</TABLE>

   Debt maturities by fiscal year are as follows (amounts in thousands):

<TABLE>
                              <S>        <C>
                              2003...... $     --
                              2004......       --
                              2005......       --
                              2006......       --
                              2007......  225,000
                              Thereafter       --
                                         --------
                                         $225,000
                                         ========
</TABLE>

  Credit Facility

   Mission is party to a $150.0 million credit facility with a syndicate of
lenders. The Credit Facility is a revolving facility, expiring May 16, 2004,
which allows Mission to borrow, repay and re-borrow under the facility from
time to time. The total amount which may be borrowed under the facility is
limited by the borrowing base periodically set by the lenders based on
Mission's oil and gas reserves and other factors deemed relevant by the
lenders. At December 31, 2002, Mission's borrowing base was $40.0 million. The
Credit Facility was recently amended on October 7, 2002, reducing the maximum
amount available under the Credit Facility from $200 million to $150 million.
This modification does not limit the rights of the parties to initiate interim
borrowing base redeterminations in accordance with the Credit Facility. As a
result of the reduction in borrowing capacity, approximately $412,000 of
previously capitalized deferred financing costs related to the $200 million
Credit Facility were charged to interest expense in the fourth quarter of 2002.

   Mission paid interest on the Credit Facility borrowings during 2002 at an
average interest rate of 3.9%. Future borrowings under the Credit Facility bear
an annual interest rate, at Mission's election, equal to either:

  .   the Eurodollar rate, plus an applicable margin from 1.5% to 2.5%; or

  .   the greater of (i) the prime rate, as determined by Chase Manhattan Bank,
      or (ii) the federal funds rate plus 0.5%, plus a maximum of 1.0%.

   The applicable margin for interest payable on outstanding borrowings is
based on the utilization rate as a percentage of the total amount of funds
borrowed under the Credit Facility to the borrowing base and Mission's long
term debt rating. Commitment fees and letter of credit fees under the Credit
Facility are also based on Mission's utilization rate and long-term debt
rating. Commitment fees range from 0% to 0.5% on the unused portion of the
Credit Facility. Letter of credit fees range from 0% to 2.5% of the unused
portion of the $20.0 million letter of credit sub-facility.

                                      27

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Credit Facility contains negative covenants that limit Mission's
ability, among other things, to:

  .   incur additional debt;

  .   pay dividends on stock, redeem stock or redeem subordinated debt;

  .   make investments;

  .   create liens in favor of senior subordinated debt and subordinated debt;

  .   sell assets;

  .   sell capital stock of subsidiaries;

  .   guarantee other indebtedness;

  .   enter into agreements that restrict dividends from subsidiaries;

  .   merge or consolidate; and

  .   enter into transaction with affiliates.

   In addition, the Credit Facility requires that certain financial covenants
be maintained:

  .   a minimum interest coverage ratio of earnings before interest,
      depreciation, depletion, amortization, income tax, and extraordinary
      items, or EBITDAX, to net interest expense of at least:

<TABLE>
<CAPTION>
               Fiscal Quarter            Interest Coverage Ratio
               --------------            -----------------------
               <S>                       <C>
               09/30/02 through 03/31/03      1.75 to 1.00
               04/01/03 through 06/30/03      1.90 to 1.00
               07/01/03 through 09/30/03      2.10 to 1.00
               10/01/03 through 12/31/03      2.30 to 1.00
               01/01/04 and thereafter..      2.50 to 1.00
</TABLE>

  .   an asset coverage or current ratio (which includes availability) of at
      least 1.0 to 1.0;

  .   a maximum ratio of senior debt to EBITDAX of 2.0 to 1.0; and

  .   a maximum ratio of total debt to EBITDAX:

<TABLE>
<CAPTION>
                Fiscal Quarter            Total Debt to EBITDAX
                --------------            ---------------------
                <S>                       <C>
                09/30/02 through 12/31/02     5.50 to 1.00
                01/01/03 through 03/31/03     5.00 to 1.00
                04/01/03 through 06/30/03     4.75 to 1.00
                07/01/03 through 09/30/03     4.50 to 1.00
                10/01/03 through 12/31/03     4.00 to 1.00
                01/01/04 and thereafter..     3.50 to 1.00
</TABLE>

   On December 31, 2002, the Company had no outstanding borrowings and was in
compliance with its covenants under the Credit Facility.

  Senior Subordinated Notes

   In April 1997, the Company issued $100.0 million of 10 7/8% senior
subordinated notes due 2007. On May 29, 2001, the Company issued an additional
$125.0 million of senior subordinated notes due 2007 with identical terms to
the notes issued in April 1997 (collectively "Notes") at a premium of $1.9
million. The

                                      28

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

premium is amortized as a reduction of interest expense over the life of the
Notes so that the effective interest rate on these additional Notes is 10.5%.
The premium is shown separately on the Balance Sheet. Interest on the Notes is
payable semi-annually on April 1 and October 1. The Notes will be redeemable,
in whole or in part, at the option of the Company at any time on or after April
1, 2002 at 105.44% which decreases annually to 100.00% on April 1, 2005 and
thereafter, plus accrued and unpaid interest. In the event of a change of
control of the Company, as defined in the indenture, each holder of the Notes
will have the right to require the Company to repurchase all or part of such
holder's Notes at an offer price in cash equal to 101.0% of the aggregate
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. The Notes contain certain covenants, including limitations on
indebtedness, liens, compliance with requirements of existing indebtedness,
dividends, repurchases of capital stock and other payment restrictions
affecting restricted subsidiaries, issuance and sales of restricted subsidiary
stock, dispositions of proceeds of asset sales and restrictions on mergers and
consolidations or sales of assets. As of December 31, 2002, the Company was in
compliance with its covenants under the Notes. In the event the Company becomes
out of compliance with its Credit Facility covenants, the Notes will not be
impacted unless borrowings under the Credit Facility are in excess of $10.0
million.

9.  Income Taxes

   Income tax expense (benefit) is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                  Year Ended   Year Ended   Year Ended
                                 December 31, December 31, December 31,
                                     2002         2001         2000
                                 ------------ ------------ ------------
        <S>                      <C>          <C>          <C>
        Current
           Federal..............   $   (734)    $     --     $     67
           State................         --          595           18
        Deferred
           Federal..............    (10,846)     (10,488)     (13,506)
           Foreign..............         --         (300)         300
           State................         --        1,138          899
                                   --------     --------     --------
        Total income tax benefit   $(11,580)    $ (9,055)    $(12,222)
                                   ========     ========     ========
</TABLE>

                                      29

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 2002 and
2001 is as follows:

<TABLE>
<CAPTION>
                                                  December 31, December 31,
                                                      2002         2001
                                                  ------------ ------------
     <S>                                          <C>          <C>
     Net operating loss carryforwards............   $ 26,597     $ 12,487
     Percentage depletion carryforwards..........        279          279
     Alternative minimum tax credit carryforwards          8          742
     Tax effect of hedging activities............      2,259           --
     State income taxes..........................      3,140        2,134
     Impairment of interest in Carpatsky.........      2,186        2,186
     Other.......................................      1,869        1,689
                                                    --------     --------
     Gross deferred tax assets...................     36,338       19,517
     Less valuation allowance....................     (5,326)      (4,320)
                                                    --------     --------
     Deferred income tax assets..................     31,012       15,197
                                                    --------     --------
     Property, plant and equipment...............    (47,958)     (45,143)
     Tax effect of hedging activities............         --       (1,231)
     Total deferred income tax liability.........    (47,958)     (46,374)
                                                    --------     --------
     Net deferred income tax asset (liability)...   $(16,946)    $(31,177)
                                                    ========     ========
</TABLE>

   At December 31, 2000, the Company determined that it was more likely than
not that the deferred tax assets would be realized based on current projections
of taxable income due to higher commodity prices at year end 2000, and the
valuation allowance was decreased by $19.8 million to zero. At December 31,
2001, however, the Company determined that a portion of the deferred tax assets
would not be realized. In assessing the realizability of the deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Based upon the projections for future state taxable income,
management believes it is more likely than not that the Company will not
realize its deferred tax asset related to state income taxes. Based upon the
projections of future taxable income, management believes it is more likely
than not that the Company will not realize its deferred tax asset related to
the impairment of the interest in Carpatsky, because the reversal of the
deferred tax asset will result in a capital loss for federal income tax
purposes, and the Company does not project any transactions resulting in
capital gains to offset the capital loss. The valuation allowance is therefore
$5.3 million and $4.3 million for the years ending December 31, 2002 and 2001,
respectively.

   A tax benefit related to the cumulative effect of a change in accounting
method of $1,663,000 was recorded and shown as part of the cumulative effect on
the consolidated statements of operations in 2001.

   A tax benefit related to the exercise of employee stock options of
approximately $240,000 and $95,000 was allocated directly to additional paid-in
capital in 2001 and 2000, respectively. Such benefit was not material in 2002.

                                      30

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Total income tax differs from the amount computed by applying the Federal
income tax rate to income before income taxes, minority interest, and
cumulative adjustment. The reasons for the differences are as follows:

<TABLE>
<CAPTION>
                                                  Year Ended   Year Ended   Year Ended
                                                 December 31, December 31, December 31,
                                                     2002         2001         2000
                                                 ------------ ------------ ------------
<S>                                              <C>          <C>          <C>
Statutory federal income tax rate...............     35.0%        35.0%        34.0%
Increase (decrease) in tax rate resulting from:
   State income taxes, net of federal benefit...      2.0%        (1.3%)        3.0%
   Foreign income taxes, net of federal benefit.       --          0.5%         1.0%
Non-deductible travel and entertainment.........     (0.1%)       (0.1%)        0.1%
Non-deductible goodwill amortization/impairment.    (11.7%)       (0.9%)         --
Other...........................................     (0.1%)         --           --
Change in valuation allowance...................     (2.0%)       (8.9%)      (99.3%)
                                                    -----         ----        -----
                                                     23.1%        24.3%       (61.2%)
                                                    =====         ====        =====
</TABLE>

   The Company issued 9.5 million shares of its common stock on May 16, 2001 in
its acquisition of Bargo Energy Company. Management believes that the merger
with Bargo was not an ownership change as defined in section 382 of the
Internal Revenue Code. Therefore, the Company last had an ownership change in
1994 with the issuance of 3.4 million shares of its common stock. A change of
stock ownership in the future by a significant shareholder of the Company may
cause an ownership change, which would affect the Company's ability to utilize
its net operating loss ("NOL") carryforwards in the future. Section 382 of the
Internal Revenue Code significantly limits the amount of NOL and investment tax
credit carryforwards that are available to offset future taxable income and
related tax liability when a change in ownership occurs.

   At December 31, 2002, the Company had net operating loss carryforwards of
approximately $75.9 million, which will expire in future years beginning in
2003 and ending in 2022 as shown below.

<TABLE>
<CAPTION>
                                     ($ in thousands)
                                     ----------------
                          <S>        <C>
                          2003......     $   121
                          2004......       1,371
                          2005......       1,242
                          2006......       1,538
                          2007......         401
                          Thereafter      71,318
                                         -------
                          Total.....     $75,991
                                         =======
</TABLE>

10.  Commitments and Contingencies

  Lease Commitments

   At December 31, 2002, the minimum future payments under the terms of the
Company's office space operating leases are as follows:

<TABLE>
<CAPTION>
                    Year Ended December 31 ($ in thousands)
                    ---------------------- ----------------
                    <S>                    <C>
                             2003                597
                             2004                601
                             2005                601
                             2006                601
                             2007                601
</TABLE>

                                      31

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Rent expense was $685,000, $551,000, and $509,000 in 2002, 2001 and 2000,
respectively.

  Contingencies

   The Company is involved in litigation relating to claims arising out of its
operations in the normal course of business, including workmen's compensation
claims, tort claims and contractual disputes. Some of the existing known claims
against the Company are covered by insurance subject to limits of such policies
and the payment of deductible amounts. Management believes that the ultimate
disposition of uninsured or unindemnified matters resulting from existing
litigation will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.

   A dispute between the Minerals Management Service ("MMS") and the Company
concerning the appropriate expenses to be used in calculating royalties was
resolved in the third quarter of 2002. The Company agreed to pay the MMS
approximately $170,000, which was less than the $1.9 million reserve previously
classified as other liabilities on the Balance Sheet. The Company had reserved
an amount each month assuming that the entire expense tariff being deducted
could be disallowed by the MMS. The Company was able to resolve the dispute on
more favorable terms, resulting in a $1.7 million gain that is included in
interest and other income on the Statement of Operations.

   In early 2002, Mission settled for $98,000 Garza Energy Trust, et al. V.
Coastal Oil and Gas Corporation, et al. Mission had accrued $250,000 for the
judgment in 2001, but later arrived at this more favorable settlement.

   The Company routinely obtains bonds to cover its obligations to plug and
abandon oil and gas wells. In instances where the Company purchases or sells
oil and gas properties, the parties to the transaction routinely include an
agreement as to who will be responsible for plugging and abandoning any wells
on the property and restoring the surface. In those cases, the Company will
obtain new bonds or release old bonds regarding its plugging and abandonment
exposure based on the terms of the purchase and sale agreement. However, if a
party to the purchase and sale agreement defaults on its obligations to obtain
a bond or otherwise plug and abandon a well or restore the surface or if that
party becomes bankrupt, the landowner, and in some cases the state or federal
regulatory authority, may assert that the Company is obligated to plug the well
since it is in the "chain of title". The Company has been notified of such
claims from landowners and the State of Louisiana and is vigorously asserting
its rights under the applicable purchase and sale agreements to avoid this
liability. At this time, the Company has accrued a liability for approximately
$161,000 that it has agreed to contribute toward the proper abandonment and
cleanup of the Bayou fer Blanc field.

   In 1993 and 1996 the Company entered into agreements with surety companies
and with Torch and Nuevo Energy Company ("Nuevo") whereby the surety companies
agreed to issue such bonds to the Company, Torch and/or Nuevo. However, Torch,
Nuevo and the Company agreed to be jointly and severally liable to the surety
company for any liabilities arising under any bonds issued to the Company,
Torch and/or Nuevo. The amount of bonds presently issued to Torch and Nuevo
pursuant to these agreements is approximately $35.2 million. The Company has
notified the sureties that it will not be responsible for any new bonds issued
to Torch or Nuevo. However, the sureties are permitted under these agreements
to seek reimbursement from the Company, as well and from Torch and Nuevo, if
the surety makes any payments under the bonds issued to Torch and Nuevo.

11.  Restructuring

   During 2001 year the Company took several steps to restructure its
operations and improve its cost structure, including the reduction of staff by
almost 50% and the termination of several outsourcing contracts. The $2.1
million in costs associated with these plans was paid in 2002. In the latter
half of 2002, Mission's Chief

                                      32

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Executive Officer, Chief Financial Officer and Senior Vice President--Finance,
left the Company to pursue other activities. This resulted in a charge of
approximately $3.3 million which is reflected in general and administrative
expenses. As a condition to the separation agreement, the Company signed
agreements with the former Chief Executive Officer and the former Chief
Financial Officer to provide consulting services as needed over a 12-month
period, the cost of which is amortized to expense over the period.

12.  Selected Quarterly Financial Data (amounts in thousands, except per share
data) (Unaudited):

<TABLE>
<CAPTION>
                                                 Quarter Ended
                                 --------------------------------------------
                                 December 31, September 30, June 30, March 31,
                                     2002         2002        2002     2002
                                 ------------ ------------- -------- ---------
  <S>                            <C>          <C>           <C>      <C>
  Revenues......................   $ 27,327      $27,571    $28,266  $ 22,300
  Operating income (loss).......   $(22,704)     $(3,735)   $(9,221) $(14,404)
  Net income (loss).............   $(20,700)     $(2,428)   $(5,993) $ (9,363)
  Loss per common share.........   $  (0.88)     $ (0.10)   $ (0.25) $  (0.40)
  Loss per common share--diluted   $  (0.88)     $ (0.10)   $ (0.25) $  (0.40)
</TABLE>

<TABLE>
<CAPTION>
                                                   Quarter Ended
                                   ---------------------------------------------
                                   December 31, September 30, June 30, March 31,
                                       2001         2001        2001     2001
                                   ------------ ------------- -------- ---------
<S>                                <C>          <C>           <C>      <C>
Revenue...........................   $ 32,522      $40,497    $35,243   $33,815
Operating income..................   $(39,099)     $ 1,429    $(9,432)  $ 9,869
Net income........................   $ 29,260      $   693    $(6,007)  $ 3,629
Earnings per common share.........   $  (1.24)     $  0.03    $ (0.32)  $  0.46
Earnings per common share--diluted   $  (1.24)     $  0.03    $ (0.32)  $  0.44
</TABLE>

   The loss in the quarter ended December 31, 2002 includes the impact of a
$16.7 million goodwill impairment. The loss in the quarter ended June 30, 2001
reflects the loss on sale of Ecuador interests. The loss in the quarter ended
December 31, 2001 includes the impact of $27.0 million in pre-tax asset
impairments.

13.  Pro forma

   The merger with Bargo completed on May 16, 2001 significantly impacted the
future operating results of Mission Resources. The merger was accounted for as
a purchase, and the results of operations are included in Mission's results of
operations from May 16, 2001. The pro forma results are based on assumptions
and estimates and are not necessarily indicative of the Company's results of
operations had the transaction occurred as of January 1, 2000, or of those in
the future.

   The following table presents the unaudited pro forma results of operations
as if the merger had occurred on January 1, 2000 and 2001, respectively
(amounts in thousands, except earnings per share):

<TABLE>
<CAPTION>
                                                                   Year Ended   Year Ended
                                                                  December 31, December 31,
                                                                      2001         2000
                                                                  ------------ ------------
<S>                                                               <C>          <C>
Revenues.........................................................   $182,252     $226,260
Income before cumulative effective of change in accounting method   $(26,054)    $ 40,936
Net income (loss)................................................   $(28,821)    $ 40,936
Net income (loss) per share......................................   $  (1.22)    $   1.75
Net income (loss) per share--diluted.............................   $  (1.22)    $   1.73
</TABLE>

                                      33

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


14.  Guarantees

   The Company's subsidiaries, Mission E&P Limited Partnership, Mission
Holdings LLC, and Black Hawk Oil Company are guarantors under the indenture for
the $225.0 million 10 7/8% senior subordinated notes.

   In 1993 and 1996 the Company entered into agreements with surety companies
and with Torch and Nuevo whereby the surety companies agreed to issue such
bonds to the Company, Torch and/or Nuevo. However, Torch, Nuevo and the Company
agreed to be jointly and severally liable to the surety company for any
liabilities arising under any bonds issued to the Company, Torch and/or Nuevo.
The amount of bonds presently issued to Torch and Nuevo pursuant to these
agreements is approximately $35.2 million. The Company has notified the
sureties that it will not be responsible for any new bonds issued to Torch or
Nuevo. However, the sureties are permitted under these agreements to seek
reimbursement from the Company, as well and from Torch and Nuevo, if the surety
makes any payments under the bonds issued to Torch and Nuevo.

   Typically, in a property sale the Company will retain liability for events
or occurrences that were known prior to the effective date of the sale, but not
otherwise. All other liabilities become the responsibility of the purchaser
after the effective date of the sale.

15.  Subsequent Events (unaudited)

   In March 2003, the Company sold its interests in the Point Pedernales field
to the operator of the property. This transaction divests Mission of all
California properties; however, the option to participate in future drilling at
Tranquillion Ridge was retained. The Company paid $1.8 million to the
purchaser, who in turn assumed the Company's environmental, plugging and
abandonment liabilities, estimated to be between $3 million and $5 million.

   Mission Resources Corporation announced on March 28, 2003 that it had
acquired, in a private transaction with affiliates of Farallon Capital
Management, LLC, $97.6 million of its 10 7/8% senior subordinated notes (the
"Notes") for approximately $71.7 million plus accrued interest. Simultaneously
with the buyback, Mission has amended and restated its credit facility with new
lenders, led by Farallon Energy Lending, LLC.

   The amended and restated senior secured credit facility (the "Facility") has
a term approximately 21 months and has initial availability of $80.0 million.
The Company has drawn the full $80.0 million. Approximately $75.0 million of
the drawn funds were used to acquire $97.6 million face amount of the Notes and
pay closing costs associated therewith. The remaining amount is available for
general corporate purposes. The Facility provides that an additional $10.0
million could be made available at the sole discretion of the lenders and that
if such additional advance were to be made, it could be used only for the
purpose of acquiring additional Notes. There can be no assurances that the
lenders will consent to this additional advance. The interest rate on the
Facility is 12% initially and will increase to 13% in early 2004. The Facility
allows the Company to put in place a revolving credit facility of up to $12.5
million with a third party subject to certain limitations.

                                      34

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In February 2003, the Company cancelled its interest rate swap by paying the
counter party approximately $1.3 million, the then market value of the swap.

   On March 26, 2003, Moody's lowered the Company's senior subordinated notes
credit rating to "Caa3" from "Caa1", lowered its senior implied rating to
"Caa1" from "B2" and lowered its senior secured debt rating to "B2" from "B1".

16.  Segment Reporting

   Through mid-2001, the Company's operations are concentrated primarily in
three segments: exploration and production of oil and natural gas in the United
States, in Ecuador and gas plants. The assets in Ecuador and two gas plants
were sold in 2001.

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                      ----------------------------
                                                        2002      2001      2000
                                                      --------  --------  --------
<S>                                                   <C>       <C>       <C>
Sales to unaffiliated customers:
   Oil and gas--US................................... $112,879  $131,358  $107,938
   Oil and gas--Ecuador..............................       --     1,877     4,315
   Gas plants........................................       --     4,456     6,070
                                                      --------  --------  --------
      Total sales....................................  112,879   137,691   118,323
   Interest and other income (expense)...............   (7,415)    4,386       957
                                                      --------  --------  --------
      Total revenues.................................  105,464   142,077   119,280
                                                      ========  ========  ========
Operating profit (loss) before income taxes:
   Oil and gas--US................................... $ 16,768  $ 38,549  $ 40,983
   Oil and gas--Ecuador..............................       --    (1,698)      719
   Gas plants........................................       --     2,338     3,393
   Gain on gas plant sale............................       --     1,124        --
                                                      --------  --------  --------
                                                      $ 16,768  $ 40,313  $ 45,095
   Unallocated corporate expenses....................   20,655    10,998     9,734
   Interest expense..................................   26,853    23,664    15,375
   Mining venture costs..............................       --       914        --
   Loss on sale of Ecuador interests.................    2,645    12,724        --
   Impairment expense................................   16,679    27,057        --
   Uncollectible gas revenue.........................       --     2,189        --
                                                      --------  --------  --------
   Operating profit (loss) before income taxes....... $(50,064) $(37,233) $ 19,986
                                                      ========  ========  ========
Identifiable assets:
   Oil and gas--US................................... $300,719  $379,738  $125,586
   Oil and gas--Ecuador..............................       --        --    12,243
   Gas plants........................................       --        --    11,107
                                                      --------  --------  --------
                                                      $300,719  $379,738  $148,936
   Corporate assets and investments..................   41,685    68,026    72,609
                                                      --------  --------  --------
      Total.......................................... $342,404  $447,764  $221,545
                                                      ========  ========  ========
Capital expenditures:
   Oil and gas--US................................... $ 21,439  $ 68,048  $ 76,242
   Oil and gas--Ecuador..............................       --     4,151    12,130
   Gas plants........................................       --     1,047       677
                                                      --------  --------  --------
                                                      $ 21,439  $ 73,246  $ 89,049
                                                      ========  ========  ========
Depreciation, depletion amortization and impairments:
   Oil and gas--US................................... $ 42,656  $ 41,895  $ 30,356
   Oil and gas--Ecuador..............................       --       504       745
   Gas plants........................................       --     1,025     1,211
                                                      --------  --------  --------
                                                      $ 42,656  $ 43,424  $ 32,312
                                                      ========  ========  ========
</TABLE>

                                      35

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


16.  Supplemental Information--(Unaudited)

  Oil and Gas Producing Activities:

   Included herein is information with respect to oil and gas acquisition,
exploration, development and production activities, which is based on estimates
of year-end oil and gas reserve quantities and estimates of future development
costs and production schedules. Reserve quantities and future production are
based primarily upon reserve reports prepared by the independent petroleum
engineering firms. The reserve reports were prepared by Ryder Scott Company for
the year ended December 31, 2000. The reserve reports for the year ended
December 31, 2001 were prepared by Ryder Scott Company, Netherland Sewell &
Associates, Inc., and T. J. Smith & Company, Inc. The reserve report for the
year ended December 31, 2002 were prepared by Netherland Sewell & Associates,
Inc. These estimates are inherently imprecise and subject to substantial
revision.

   Estimates of future net cash flows from proved reserves of gas, oil,
condensate and natural gas liquids were made in accordance with SFAS No. 69,
"Disclosures about Oil and Gas Producing Activities." The estimates are based
on prices at year-end. Estimated future cash inflows are reduced by estimated
future development costs (including future abandonment and dismantlement), and
production costs based on year-end cost levels, assuming continuation of
existing economic conditions, and by estimated future income tax expense. Tax
expense is calculated by applying the existing statutory tax rates, including
any known future changes, to the pre-tax net cash flows, less depreciation of
the tax basis of the properties and depletion allowances applicable to the gas,
oil, condensate and NGL production. The impact of the net operating loss is
considered in calculation of tax expense. The results of these disclosures
should not be construed to represent the fair market value of the Company's oil
and gas properties. A market value determination would include many additional
factors including:

       1) anticipated future increases or decreases in oil and gas prices and
          production and development costs;

       2) an allowance for return on investment;

       3) the value of additional reserves not considered proved at the
          present, which may be recovered as a result of further exploration
          and development activities; and

       4) other business risks.


                                      36

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Costs Incurred (in thousands)

<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                                 ------------------------
                                                  2002     2001    2000
                                                 ------- -------- -------
       <S>                                       <C>     <C>      <C>
       United States:
          Property acquisition:
              Proved properties*................ $   850 $280,281 $ 5,065
              Unproved properties...............      --    4,100      --
              Exploration.......................   1,337   12,489  13,139
          Development:
              Proved developed properties.......  16,377   25,609  41,615
              Proved undeveloped properties.....   2,876    6,462  16,423
                                                 ------- -------- -------
                                                 $21,440 $328,941 $76,242
                                                 ------- -------- -------
       Ecuador:
          Property acquisition:
              Proved properties.................      -- $    249 $ 2,013
              Unproved properties...............      --       --      --
          Development:
              Proved developed properties.......      --    3,902  10,117
              Proved undeveloped properties.....      --       --      --
                                                 ------- -------- -------
                                                 $    -- $  4,151 $12,130
                                                 ------- -------- -------
       Worldwide:
          Property acquisition:
              Proved properties................. $   850 $280,530 $ 7,078
              Unproved properties...............      --    4,100      --
              Exploration.......................   1,337   12,489  13,139
          Development:
              Proved developed properties.......  16,377   29,511  51,732
              Proved undeveloped properties.....   2,876    6,462  16,423
                                                 ------- -------- -------
                                                 $21,440 $333,092 $88,372
                                                 ======= ======== =======
</TABLE>
--------
* 2001 total includes $56.6 million of deferred taxes related to the Bargo
merger.

  Capitalized costs (in thousands):

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                                     ----------------------
                                                                        2002        2001
                                                                     ---------   ---------
<S>                                                                  <C>         <C>
Proved properties................................................... $ 766,975   $ 738,375
Unproved properties.................................................     8,369      15,530
                                                                     ---------   ---------
   Total capitalized costs..........................................   775,344     753,905
   Accumulated depreciation, depletion, amortization and impairment.  (474,625)   (374,167)
                                                                     ---------   ---------
       Net capitalized costs........................................ $ 300,719   $ 379,738
                                                                     =========   =========
</TABLE>

                                      37

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Results of operations for producing activities (in thousands):

<TABLE>
<CAPTION>
                                                                                            Year Ended
                                                                                           December 31,
                                                                                               2002
                                                                                           ------------
<S>                                                                                        <C>
Revenues from oil and gas producing activities............................................   $112,879
Production costs..........................................................................     51,987
Transportation costs......................................................................        834
Income tax................................................................................     21,020
Depreciation, depletion and amortization..................................................     43,291
                                                                                             --------
Results of operations from producing activities (excluding corporate overhead and interest
  costs)..................................................................................   $ (4,253)
                                                                                             ========
</TABLE>

<TABLE>
<CAPTION>
                                                                              Year Ended December 31, 2001
                                                                              ---------------------------
                                                                               United
                                                                               States   Ecuador  Worldwide
                                                                              --------  -------  ---------
<S>                                                                           <C>       <C>      <C>
Revenues from oil and gas producing activities............................... $131,358  $ 1,877  $133,235
Production expenses..........................................................   48,134    3,071    51,205
Transportation costs.........................................................       73       --        73
Income tax...................................................................    6,208       --     6,208
Impairment expense...........................................................   20,811       --    20,811
Depreciation, depletion and amortization.....................................   44,602      504    45,106
                                                                              --------  -------  --------
Results of operations from producing activities (excluding corporate overhead
  and interest costs)........................................................ $ 11,530  $(1,698) $  9,832
                                                                              ========  =======  ========
</TABLE>

<TABLE>
<CAPTION>
                                                                              Year Ended December 31, 2000
                                                                              --------------------------
                                                                               United
                                                                               States    Ecuador Worldwide
                                                                              --------   ------- ---------
<S>                                                                           <C>        <C>     <C>
Revenues from oil and gas producing activities............................... $107,938   $4,315  $112,253
Production expenses..........................................................   27,694    2,815    30,509
Disposition of hedges........................................................    8,671       --     8,671
Transportation costs.........................................................      234       36       270
Income tax...................................................................   15,574       --    15,574
Depreciation, depletion and amortization.....................................   30,356      745    31,101
                                                                              --------   ------  --------
Results of operations from producing activities (excluding corporate overhead
  and interest costs)........................................................ $ 25,409   $  719  $ 26,128
                                                                              ========   ======  ========
</TABLE>

                                      38

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company's estimated total proved and proved developed reserves of oil
and gas are as follows:

<TABLE>
<CAPTION>
                                                     Year Ended
                                                 December 31, 2002
                                              -----------------------
                                                Oil     NGL     Gas
         Description                           (MBBL)  (MBBL)  (MMCF)
         -----------                          -------  ------ -------
         <S>                                  <C>      <C>    <C>
         Proved reserves at beginning of year  39,538  2,060  154,082
         Revisions of previous estimates.....  (1,915)   251  (42,426)
         Extensions and discoveries..........     227     --      537
         Production..........................  (3,157)  (266) (12,524)
         Sales of reserves in-place.......... (12,093)   (41) (18,178)
         Purchase of reserves in-place.......       5     --       --
                                              -------  -----  -------
         Proved reserves at end of year......  22,605  2,004   81,491
                                              =======  =====  =======
         Proved developed reserves--
            Beginning of year................  31,902  1,924   97,984
                                              =======  =====  =======
            End of year......................  18,581  1,869   53,708
                                              =======  =====  =======
</TABLE>

                                      39

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                                     Year Ended
                                                 December 31, 2001
                                              -----------------------
                                                Oil     NGL     Gas
         Description                           (MBBL)  (MBBL)  (MMCF)
         -----------                          -------  ------ -------
         <S>                                  <C>      <C>    <C>
         United States
         Proved reserves at beginning of year   9,669  1,655   74,729
         Revisions of previous estimates.....  (1,134)   488   (3,302)
         Extensions and discoveries..........   2,430     80   25,126
         Production..........................  (3,140)  (163) (17,597)
         Sales of reserves in-place..........  (3,883)    --  (15,927)
         Purchase of reserves in-place.......  35,596     --   91,053
                                              -------  -----  -------
         Proved reserves at end of year......  39,538  2,060  154,082
                                              =======  =====  =======
         Proved developed reserves--
            Beginning of year................   9,073  1,508   68,757
                                              =======  =====  =======
            End of year......................  31,902  1,924   97,984
                                              =======  =====  =======
         Ecuador:(1)
         Proved reserves at beginning of year   7,812     --       --
         Production..........................     (95)    --       --
         Sales of reserves in-place..........  (7,717)    --       --
                                              -------  -----  -------
         Proved reserves at end of year......      --     --       --
                                              =======  =====  =======
         Proved developed reserves--.........
            Beginning of year................   2,135     --       --
                                              =======  =====  =======
            End of year......................      --     --       --
                                              =======  =====  =======
         Worldwide:
         Proved reserves at beginning of year  17,481  1,655   74,729
         Revisions of previous estimates.....  (1,134)   488   (3,302)
         Extensions and discoveries..........   2,430     80   25,126
         Production..........................  (3,235)  (163) (17,597)
         Sales of reserves in-place.......... (11,600)    --  (15,927)
         Purchase of reserves in-place.......  35,596     --   91,053
                                              -------  -----  -------
         Proved reserves at end of year......  39,538  2,060  154,082
                                              =======  =====  =======
         Proved developed reserves--
            Beginning of year................  11,208  1,508   68,757
                                              =======  =====  =======
            End of year......................  31,902  1,924   97,984
                                              =======  =====  =======
</TABLE>
--------
(1) The Company's Ecuador reserves were pursuant to a contract with the
    Ecuadorian government under which the Company did not own the reserves but
    had a contractual right to produce the reserves and receive revenues.

                                      40

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                                     Year Ended
                                                  December 31, 2000
                                               ----------------------
                                                Oil     NGL     Gas
          Description                          (MBBL)  (MBBL)  (MMCF)
          -----------                          ------  ------ -------
          <S>                                  <C>     <C>    <C>
          United States
          Proved reserves at beginning of year 10,827  2,069  130,079
          Revisions of previous estimates.....  1,033     93  (21,291)
          Extensions and discoveries..........    613      4   18,418
          Production.......................... (1,987)  (219) (20,478)
          Sales of reserves in-place..........   (817)  (292) (31,999)
          Purchase of reserves in-place.......     --     --       --
                                               ------  -----  -------
          Proved reserves at end of year......  9,669  1,655   74,729
                                               ======  =====  =======
          Proved developed reserves--
             Beginning of year................  9,990  2,032  108,491
                                               ======  =====  =======
             End of year......................  9,073  1,508   68,757
                                               ======  =====  =======
          Ecuador:(1)
          Proved reserves at beginning of year  3,884     --       --
          Revisions of previous estimates.....   (714)    --       --
          Production..........................   (174)    --       --
          Purchase of reserves in-place.......  4,817     --       --
          Proved reserves at end of year......  7,813     --       --
                                               ======  =====  =======
          Proved developed reserves--
             Beginning of year................    245     --       --
                                               ======  =====  =======
             End of year......................  2,135     --       --
                                               ======  =====  =======
          Worldwide:
          Proved reserves at beginning of year 14,711  2,069  130,079
          Revisions of previous estimates.....    319     93  (21,291)
          Extensions and discoveries..........    613      4   18,418
          Production.......................... (2,161)  (219) (20,478)
          Sales of reserves in-place..........   (817)  (292) (31,999)
          Purchase of reserves in-place.......  4,817     --       --
                                               ------  -----  -------
          Proved reserves at end of year...... 17,482  1,655   74,729
                                               ======  =====  =======
          Proved developed reserves--
             Beginning of year................ 10,235  2,032  108,491
                                               ======  =====  =======
             End of year...................... 11,208  1,508   68,757
                                               ======  =====  =======
</TABLE>
--------
(1) The Company's Ecuador reserves were pursuant to a contract with the
    Ecuadorian government under which the Company did not own the reserves but
    had a contractual right to produce the reserves and receive revenues.

                                      41

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Discounted future net cash flows (in thousands)

   The standardized measure of discounted future net cash flows and changes
therein related to proved oil and gas reserves are shown below:

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                        ----------------------------------
                                           2002        2001        2000
                                        ----------  ----------  ----------
     <S>                                <C>         <C>         <C>
     United States:
     Future cash flow.................. $1,075,050  $1,200,145  $  950,121
     Future production costs...........   (405,251)   (502,083)   (203,464)
     Future income taxes...............   (125,094)   (112,364)   (183,139)
     Future development costs..........    (74,034)    (97,644)    (36,874)
                                        ----------  ----------  ----------
     Future net cash flows.............    470,671     488,054     526,644
     10% discount factor...............   (214,843)   (192,483)   (133,062)
                                        ----------  ----------  ----------
     Standardized future net cash flows $  255,828  $  295,571  $  393,582
                                        ==========  ==========  ==========
     Ecuador:
     Future cash flow.................. $       --  $       --  $  174,632
     Future production costs...........         --          --     (60,899)
     Future income taxes...............         --          --     (37,793)
     Future development costs..........         --          --     (27,595)
                                        ----------  ----------  ----------
     Future net cash flows.............         --          --      48,345
     10% discount factor...............         --          --     (18,835)
                                        ----------  ----------  ----------
     Standardized future net cash flows $       --  $       --  $   29,510
                                        ==========  ==========  ==========
     Worldwide:
     Future cash flow.................. $1,075,050  $1,200,145  $1,124,753
     Future production costs...........   (405,251)   (502,083)   (264,363)
     Future income taxes...............   (125,094)   (112,364)   (220,932)
     Future development costs..........    (74,034)    (97,644)    (64,469)
                                        ----------  ----------  ----------
     Future net cash flows.............    470,671     488,054     574,989
     10% discount factor...............   (214,843)   (192,483)   (151,897)
                                        ----------  ----------  ----------
     Standardized future net cash flows $  255,828  $  295,571  $  423,092
                                        ==========  ==========  ==========
</TABLE>

   The following are the principal sources of change in the standardized
measure of discounted future net cash flows (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                                               Year Ended
                                                                                              December 31,
                                                                                                  2002
                                                                                              ------------
<S>                                                                                           <C>
Standardized measure--beginning of year......................................................   $295,571
Sales, net of production costs...............................................................    (60,031)
Net change in prices and production costs....................................................    160,132
Net change in income taxes...................................................................     (2,635)
Extensions, discoveries and improved recovery, net of future production and development costs      3,803
Changes in estimated future development costs................................................      4,459
Development costs incurred during the period.................................................     15,870
Revisions of quantity estimates..............................................................    (78,419)
Accretion of discount........................................................................     29,557
Sales of reserves in-place...................................................................    (56,875)
Changes in production rates and other........................................................    (55,604)
                                                                                                --------
Standardized measure--end of year............................................................   $255,828
                                                                                                ========
</TABLE>

                                      42

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                                                             Year Ended December 31, 2001
                                                                            ------------------------------
                                                                              United               World
                                                                              States    Ecuador    Wide
                                                                            ---------  --------  ---------
<S>                                                                         <C>        <C>       <C>
Standardized measure--beginning of year.................................... $ 393,582  $ 29,510  $ 423,092
Sales, net of production costs.............................................   (83,151)    1,194    (81,957)
Purchases of reserves in-place.............................................   618,442        --    618,442
Net change in prices and production costs..................................  (727,143)       --   (727,143)
Net change in income taxes.................................................    30,994    18,577     49,571
Extensions, discoveries and improved recovery, net of future production and
  development costs........................................................    62,308        --     62,308
Changes in estimated future development costs..............................   (27,152)       --    (27,152)
Development costs incurred during the period...............................    21,584     3,736     25,320
Revisions of quantity estimates............................................    18,376        --     18,376
Accretion of discount......................................................    39,358     2,950     42,308
Sales of reserves in-place.................................................   (89,139)  (53,017)  (142,156)
Changes in production rates and other......................................    37,512    (2,950)    34,562
                                                                            ---------  --------  ---------
Standardized measure--end of year.......................................... $ 295,571  $     --  $ 295,571
                                                                            =========  ========  =========
</TABLE>

<TABLE>
<CAPTION>
                                                                             Year Ended December 31, 2000
                                                                            ------------------------------
                                                                              United               World
                                                                              States    Ecuador    Wide
                                                                            ---------  --------  ---------
<S>                                                                         <C>        <C>       <C>
Standardized measure--beginning of year.................................... $ 191,604  $ 13,284  $ 204,888
Sales, net of production costs.............................................   (80,244)   (1,500)   (81,744)
Purchases of reserves in-place.............................................        --    28,389     28,389
Net change in prices and production costs..................................   375,242   (23,174)   352,068
Net change in income taxes.................................................  (113,444)  (14,430)  (127,874)
Extensions, discoveries and improved recovery, net of future production and
  development costs........................................................    56,283        --     56,283
Changes in estimated future development costs..............................    (4,942)   (1,990)    (6,932)
Development costs incurred during the period...............................    31,095     4,329     35,424
Revisions of quantity estimates............................................   (46,271)   (6,787)   (53,058)
Accretion of discount......................................................    19,160     1,329     20,489
Sales of reserves in-place.................................................   (34,697)       --    (34,697)
Changes in production rates and other......................................      (204)   30,060     29,856
                                                                            ---------  --------  ---------
Standardized measure--end of year.......................................... $ 393,582  $ 29,510  $ 423,092
                                                                            =========  ========  =========
</TABLE>

   The discounted future cash flows above were calculated using the NYMEX WTI
Cushing price for oil and the NYMEX Henry Hub price for gas that was posted for
the last trading day of each year presented. Those prices were $31.17, $19.76,
and $26.80 per barrel and $4.74, $2.73, and $9.52 per MMBTU, for December 31,
2002, 2001, and 2000, respectively, adjusted to the wellhead to reflect
adjustments for transportation, quality and heating content. The foregoing
discounted future net cash flows do not include the effects of hedging or other
derivative contracts not specific to a property. Including the tax effected
impact of hedging on discounted future net cash flows would have increased
discounted future net cash flows by approximately $5.7 million as of December
31, 2001. Including the tax effected impact of hedging on discounted future
cash flows would have decreased discounted future net cash flows by
approximately $ 7.7 million and $35.7 million as of December 31, 2002 and 2000.

                                      43

<PAGE>

                                    PART IV

Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)

<TABLE>
<C>       <S>
1. and 2. Financial Statements.  See index to Consolidated Financial Statements and Supplemental
          Information in Item 8, which information is incorporated herein by reference.

      2.1 Agreement and Plan of Merger dated January 24, 2001 between the Company and Bargo Energy
          Company (incorporated by reference to Exhibit 2.1 to the Company's 8-K filed on January 26,
          2001).

      3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the
          Company's Registration Statement No. 33-76570 filed on March 17, 1994).

      3.2 Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.2
          to the Company's Annual Report on Form 10-K filed on September 27, 1997).

      3.3 Certificate of Designation, Preferences and Rights of the Series A Preferred Stock of the Company
          (incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K filed on
          September 27, 1997).

      3.4 Certificate of Merger of Bargo Energy Company into the Company (incorporated by reference to
          Exhibit 3.4 to the Company's Annual Report on Form 10-K filed on March 31, 2003).

      3.5 Certificate of Amendment to Certificate of Incorporation of the Company (incorporated by
          reference to Exhibit 3.5 to the Company's Annual Report on Form 10-K filed on March 31, 2003).

      3.6 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration
          Statement No. 33-76570 filed on March 17, 1994)

      3.7 Amendment to the Company's Bylaws adopted on November 21, 1997 (incorporated by reference
          to Exhibit 3.5 to the Company's Annual Report on Form 10-K filed on March 27, 1998).

      3.8 Amendment to the Company's Bylaws adopted on March 27, 1998 (incorporated by reference to
          Exhibit 3.6 to the Company's Annual Report on Form 10-K filed on March 27, 1998).

      4.1 Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Annual
          Report on Form 10-K filed on March 31, 2003).

      4.2 Rights Agreement between the Company and American Stock Transfer & Trust Company
          (incorporated herein by reference to Exhibit 1 to the Company's Registration Statement on Form
          8-A filed on September 19, 1997).

      4.3 Indenture dated as of May 29, 2001 among the Company, the Subsidiary Guarantors named
          therein and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 of the
          Company's Registration Statement on Form S-4 filed on July 27, 2001).

     10.1 1994 Stock Incentive Plan (incorporated by reference to Exhibit 10.9 to the Company's
          Registration Statement No. 33-76570 filed on [March 17, 1994])

     10.2 1996 Stock Incentive Plan (incorporated by reference to Exhibit A to the Company's Proxy
          Statement on Schedule 14A filed on October 21, 1996)

     10.3 Master Services Agreement dated October 1, 1999 between the Company and Torch Operating
          Company, Torch Energy Marketing, Inc., Torch Energy Advisors, Inc. and Novistar, Inc.
          (incorporated by reference to Exhibit 11.15 to the Company's Annual Report on Form 10-K filed
          on March 24, 2000).

     10.4 Credit Agreement dated May 16, 2001 among the Company as Borrower, The Chase Manhattan
          Bank as administrative agent, BNP Paribas as syndication agent, First Union National Bank and
          Fleet National Bank as co documentation agents (incorporated by reference to Exhibit 10.19 to the
          Company's Annual Report on Form 10-K filed on March 29, 2002).
</TABLE>

                                      44

<PAGE>

<TABLE>
<C>   <S>

 10.5 First Amendment to the Credit Agreement by and among the Company and JPMorgan Chase
      Bank, as Administrative Agent, BNP Paribas, as Syndication Agent, First Union National Bank
      and Fleet National Bank, as Co-Documentation Agent, and the Lenders Signatory thereto, dated
      May 29, 2001 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on
      Form 10-Q filed August 14, 2002).

 10.6 Second Amendment to the Credit Agreement by and among the Company and JPMorgan Chase
      Bank, as Administrative Agent, BNP Paribas, as Syndication Agent, First Union National Bank
      and Fleet National Bank, as Co-Documentation Agent, and the Lenders Signatory Hereto, dated
      March 28, 2002 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on
      Form 10-Q filed August 14, 2002).

 10.7 Third Amendment to the Credit Agreement by and among the Company and JPMorgan Chase
      Bank, as Administrative Agent, BNP Paribas, as Syndication Agent, Wachovia Bank National
      Association and Fleet National Bank, as Co-Documentation Agent, and the Lenders Signatory
      Hereto, dated October 7, 2002 (incorporated by reference to the Company's Current Report on
      Form 8-K filed on October 10, 2002).

 10.8 Employment Agreement effective as of May 15, 2000 between the Company and Douglas G.
      Manner (incorporated by reference to Exhibit 10.20 to the Company's Quarterly Report on Form
      10-Q filed August 11, 2000).

 10.9 Separation Agreement between the Company and Douglas G. Manner dated effective July 31,
      2002 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
      filed August 14, 2002).

10.10 Employment Agreement dated May 2, 2001, between the Company and Jonathan M. Clarkson
      (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K filed
      on March 31, 2003).

10.11 Separation Agreement between the Company and Jonathon M. Clarkson effective September 30,
      2002 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
      filed November 14, 2002).

10.12 Employment Agreement dated August 8, 2002, between the Company and Robert L. Cavnar
      (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed
      November 14, 2002).

10.13 Employment Agreement dated October 8, 2002, between the Company and Richard W. Piacenti
      (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed
      November 14, 2002).

10.14 Employment Agreement dated November 7, 2002, between the Company and John L. Eells
      (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K filed
      on March 31, 2003).

10.15 Employment Agreement dated November 6, 2002, between the Company and Joseph G. Nicknish
      (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K filed
      on March 31, 2003).

10.16 Employment Agreement dated May 15, 2001, between the Company and Daniel P. Foley
      (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K filed
      on March 31, 2003).

10.17 Separation Agreement dated November 15, 2002, between the Company and Daniel P. Foley
      (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K filed
      on March 31, 2003).

10.18 Form of Indemnification Agreement between the Company and each of its directors and executive
      officers (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form
      10-Q filed November 14, 2002).
</TABLE>

                                      45

<PAGE>

<TABLE>
<C>   <S>

 21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company's Annual
      Report on Form 10-K filed on March 31, 2003).

 23.1 Consent of KPMG LLP (incorporated by reference to Exhibit 23.1 to the Company's Annual
      Report on Form 10-K filed on March 31, 2003).

 23.2 Consent of Netherland Sewell & Associates, Inc. (incorporated by reference to Exhibit 23.2 to the
      Company's Annual Report on Form 10-K filed on March 31, 2003).

 23.3 Consent of Ryder Scott Company (incorporated by reference to Exhibit 23.3 to the Company's
      Annual Report on Form 10-K filed on March 31, 2003).

 23.4 Consent of T.J. Smith & Company, Inc. (incorporated by reference to Exhibit 23.4 to the
      Company's Annual Report on Form 10-K filed on March 31, 2003).

23.5* Consent of KPMG LLP related to this Annual Report in Form 10-K/A.

23.6* Consent of Netherland Sewell & Associates, Inc. related to this Annual Report on Form 10-K/A.

23.7* Consent of Ryder Scott Company related to this Annual Report on Form 10-K/A.

23.8* Consent of T.J. Smith & Company, Inc. related to this Annual Report on Form 10-K/A

 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
      Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of the Company (incorporated by
      reference to Exhibit 99.1 to the Company's Annual Report on Form 10-K filed on March 31,
      2003).

 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
      Sarbanes-Oxley Act of 2002, of the Chief Financial Officer of the Company (incorporated by
      reference to Exhibit 99.2 to the Company's Annual Report on Form 10-K filed on March 31,
      2003).

99.3* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
      Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of the Company related to this
      Annual Report on Form 10-K/A.

99.4* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002, of the Chief Financial Officer of the Company related to this Annual
      Report on Form 10-K/A.
</TABLE>
--------
* Filed herewith.

   (b) Reports on Form 8-K

(i) The Company filed a Current Report on Form 8-K on October 9, 2002, relating
    to the resignation and hiring of new officers.

(ii) The Company filed a Current Report on Form 8-K on October 10, 2002,
     relating to the amendment of its credit facility.

(iii) The Company filed a Current Report on Form 8-K on October 22, 2002,
      relating to election of a board member.

(iv) The Company filed a Current Report on Form 8-K on November 14, 2002,
     relating to third quarter 2002 results.

(v) The Company filed a Current Report on Form 8-K on November 25, 2002,
    relating to the sale of non-strategic properties and the associated
    borrowing base reduction.

(vi) The Company filed a Current Report on Form 8-K on December 19, 2002,
     relating to first quarter 2003 guidance, year-end 2002 reserves estimates
     and updates to current hedge position.

                                      46

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) 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.

                                          MISSION RESOURCES CORPORATION

                                                  /S/ ROBERT L. CAVNAR
                                          By:___________________________________
                                                      Robert L. Cavnar
                                                Chairman and Chief Executive
                                                          Officer

Date: April 4, 2003

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

         Signatures                        Title                  Date
         ----------                        -----                  ----

    /s/  Robert L. Cavnar      Chairman and Chief Executive   April 4, 2003
-----------------------------    Officer (principal
      Robert L. Cavnar           executive officer)

  /s/  RICHARD W. PIACENTI     Senior Vice President and      April 4, 2003
-----------------------------    Chief Financial Officer
     Richard W. Piacenti         (principal financial
                                 officer)

     /s/  ANN KAESERMANN       Vice President--Accounting     April 4, 2003
-----------------------------    and Investor Relations,
       Ann Kaesermann            Chief Accounting Officer
                                 (principal accounting
                                 officer)

     /s/  JUDY LEY ALLEN       Director                       April 4, 2003
-----------------------------
       Judy Ley Allen

    /s/  DAVID A.B. BROWN      Director                       April 4, 2003
-----------------------------
      David A.B. Brown

    /s/  ROBERT R. ROONEY      Director                       April 4, 2003
-----------------------------
      Robert R. Rooney

 /s/  HERBERT C. WILLIAMSON    Director                       April 4, 2003
-----------------------------
    Herbert C. Williamson


                                      47

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

I, Robert L. Cavnar, certify that:

1. I have reviewed this annual report on Form 10-K/A of Mission Resources
   Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
   statement of a material fact or omit to state a material fact necessary to
   make the statements made, in light of the circumstances under which such
   statements were made, not misleading with respect to the period covered by
   this annual report;

3. Based on my knowledge, the financial statements, and other financial
   information included in this annual report, fairly present in all material
   respects the financial condition, results of operations and cash flows of
   the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
   establishing and maintaining disclosure controls and procedures (as defined
   in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

    a) designed such disclosure controls and procedures to ensure that material
       information relating to the registrant, including its consolidated
       subsidiaries, is made known to us by others within those entities,
       particularly during the period in which this annual report is being
       prepared;

    b) evaluated the effectiveness of the registrant's disclosure controls and
       procedures as of a date within 90 days prior to the filing date of this
       annual report (the "Evaluation Date"); and

    c) presented in this annual report our conclusions about the effectiveness
       of the disclosure controls and procedures based on our evaluation as of
       the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
   our most recent evaluation, to the registrant's auditors and the audit
   committee of registrant's board of directors (or persons performing the
   equivalent functions):

    a) all significant deficiencies in the design or operation of internal
       controls which could adversely affect the registrant's ability to
       record, process, summarize and report financial data and have identified
       for the registrant's auditors any material weaknesses in internal
       controls; and

    b) any fraud, whether or not material, that involves management or other
       employees who have a significant role in the registrant's internal
       controls; and

6. The registrant's other certifying officers and I have indicated in this
   annual report whether there were significant changes in internal controls or
   in other factors that could significantly affect internal controls
   subsequent to the date of our most recent evaluation, including any
   corrective actions with regard to significant deficiencies and material
   weaknesses.

Date: April 4, 2003
                                          /s/   ROBERT L. CAVNAR
                                          --------------------------------------
                                          Robert L. Cavnar
                                          Chairman and Chief Executive Officer

                                      48

<PAGE>

                MISSION RESOURCES CORPORATION AND SUBSIDIARIES

I, Richard W. Piacenti, certify that:

1. I have reviewed this annual report on Form 10-K/A of Mission Resources
   Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
   statement of a material fact or omit to state a material fact necessary to
   make the statements made, in light of the circumstances under which such
   statements were made, not misleading with respect to the period covered by
   this annual report;

3. Based on my knowledge, the financial statements, and other financial
   information included in this annual report, fairly present in all material
   respects the financial condition, results of operations and cash flows of
   the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
   establishing and maintaining disclosure controls and procedures (as defined
   in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

    a) designed such disclosure controls and procedures to ensure that material
       information relating to the registrant, including its consolidated
       subsidiaries, is made known to us by others within those entities,
       particularly during the period in which this annual report is being
       prepared;

    b) evaluated the effectiveness of the registrant's disclosure controls and
       procedures as of a date within 90 days prior to the filing date of this
       annual report (the "Evaluation Date"); and

    c) presented in this annual report our conclusions about the effectiveness
       of the disclosure controls and procedures based on our evaluation as of
       the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
   our most recent evaluation, to the registrant's auditors and the audit
   committee of registrant's board of directors (or persons performing the
   equivalent functions):

    a) all significant deficiencies in the design or operation of internal
       controls which could adversely affect the registrant's ability to
       record, process, summarize and report financial data and have identified
       for the registrant's auditors any material weaknesses in internal
       controls; and

    b) any fraud, whether or not material, that involves management or other
       employees who have a significant role in the registrant's internal
       controls; and

6. The registrant's other certifying officers and I have indicated in this
   annual report whether there were significant changes in internal controls or
   in other factors that could significantly affect internal controls
   subsequent to the date of our most recent evaluation, including any
   corrective actions with regard to significant deficiencies and material
   weaknesses.

Date: April 4, 2003
                                          /s/  RICHARD W. PIACENTI
                                          --------------------------------------
                                          Richard W. Piacenti
                                          Senior Vice-President and Chief
                                            Financial Officer

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