U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                 Form 10-KSB/A2

(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, 1998

[  ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
          ACT OF 1934 For the transition period from ___________ to ____________

                          Commission File No.: 0-20760

                            GREKA Energy Corporation
                 (Name of small business issuer in its charter)

           Colorado                                  84-1091986
  (State or other jurisdiction                   (I.R.S. Employer
 incorporation or organization)                Identification Number)

630 Fifth Avenue, Suite 1501 New York, NY               10111
 (Address of principal executive offices)            (Zip Code)

                    Issuer's telephone number: (212) 218-4680

         Securities registered under Section 12(b) of the Exchange Act:
                                      None

         Securities registered under Section 12(g) of the Exchange Act:
                           No Par Value Common Stock.

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  registrant's  knowledge,  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

The issuer's revenues for 1998 were $145,813.

The  aggregate  market  value  of  2,419,342  shares  of  common  stock  held by
non-affiliates of the issuer, based on the closing bid price of the common stock
on September 17, 1999 of $10.25 as reported on the Nasdaq SmallCap Market System
and based on a total of  4,311,603  shares  being  outstanding  on that date was
$24,798,871.

    (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)


<PAGE>


Check  whether the issuer has filed all  documents  and  reports  required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court. Yes [X] No [ ]

               (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

As of  September  17,  1999,  the issuer had  4,311,603  shares of common  stock
outstanding,  which amount does not include 140,886 shares the issuer will issue
to  International   Publishing   Holding  s.a.  upon  the   effectiveness  of  a
registration statement covering the resale of those shares.


                       DOCUMENTS INCORPORATED BY REFERENCE

                                     None.

           Transitional Small Business Disclosure Format (check one).

                               Yes [ ]   No [X]


<PAGE>




                              TABLE OF CONTENTS
                                                                   Page
PART I
   Item 1.  Description of the Business . . . . . . . . . .  . .    5
   Item 2.  Description of Property . . . . . . . . . . . . .  .    24
   Item 3.  Legal Proceedings .. . . . . . . . . . . . . . . . .    56
   Item 4.  Submission of Matters to a Vote of Security Holders .   59

PART II
   Item 5.  Market for Common Equity and Related Stockholder
                 Matters . . . . . . . . . . . . . . . . . . . ..   59
   Item 6.  Management's Discussion and Analysis . . . . . . . ..   60
   Item 7.  Financial Statements . . . . . . . . . . . . . . . ..   65
   Item 8.  Changes In and Disagreements With Accountants on
                  Accounting and Financial Disclosure . . . . . .   65

PART III
   Item 9.  Directors, Executive Officers, Promoters and Control
                  Persons; Compliance With Section 16(a) of the
                  Exchange Act . . . . . .. . . . . . . . . . .     66
   Item 10. Executive Compensation . . . . . . . . . . . . . . . .  68
   Item 11. Security Ownership of Certain Beneficial Owners and
                  Management . . . . . . . . . . . . . . . . . . .  72
   Item 12. Certain Relationships and Related Transactions . . . .  73
   Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . .  74

Index to Consolidated Financial Statements and Schedules. . . .  .  F-1

                                       1

<PAGE>


SEC Definitions

         The  terms  below  are  used in this  document  and have  specific  SEC
definitions as follows:

         Proved  oil and gas  reserves.  Proved  oil  and gas  reserves  are the
estimated  quantities  of crude oil,  natural gas liquids which  geological  and
engineering  data  demonstrate  with  reasonable  certainty to be recoverable in
future  years  from known  reservoirs  under  existing  economic  and  operating
conditions,  i.e.,  prices and costs as of the date the estimate is made. Prices
include consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future conditions.

         Proved  developed  oil and gas reserves.  Proved  developed oil and gas
reserves are  reserves  that can be expected to be  recovered  through  existing
wells with  existing  equipment and operating  methods.  Additional  oil and gas
expected to be obtained  through the  application  of fluid  injection  or other
improved recovery  techniques for implementing the natural forces and mechanisms
of primary recovery should be included as "proved developed reserves" only after
testing by a pilot  project or after the  operation of an installed  program has
confirmed through production response that increased recovery will be achieved.

         Proved  undeveloped  reserves.  Proved undeveloped oil and gas reserves
are  reserves  that are  expected to be  recovered  from new wells on  undrilled
acreage, or from existing wells where a relatively major expenditure is required
for  recompletion.  Reserves  on  undrilled  acreage  shall be  limited to those
drilling  units  offsetting  productive  units  that are  reasonably  certain of
production  when  drilled.  Proved  reserves  for other  undrilled  units can be
claimed  only  where  it  can be  demonstrated  with  certainty  that  there  is
continuity  of  production  from the  existing  productive  formation.  Under no
circumstances  should estimates for proved undeveloped  reserves be attributable
to any acreage for which an  application  of fluid  injection or other  improved
recovery  technique is  contemplated,  unless such  techniques  have been proved
effective by actual tests in the area and in the same reservoir.


                                 PART I

Cautionary Information About Forward-Looking Statements

     This document  contains  forward-looking  statements  within the meaning of
Section  27A of the  Securities  Act and Section  21E of the  Exchange  Act that
include, among others, statements concerning:

*    the benefits  expected to result from GREKA Energy's recent  acquisition of
     Saba Petroleum Company ("Saba") discussed below, including

*    synergies in the form of increased revenues,

*    decreased  expenses and avoided expenses and expenditures that are expected
     to be realized by GREKA Energy and Saba as a result of the transaction, and

                                       2

<PAGE>


*    the complementary  nature of GREKA Energy's  horizontal drilling technology
     and certain Saba oil reserves, and

*    other statements of: * expectations,

*    anticipations,

*    beliefs,

*    estimations,

*    projections, and

*    other similar matters that are not historical facts, including such matters
     as:

*    future capital,

*    development and exploration  expenditures  (including the amount and nature
     thereof),

*    drilling  of wells,  reserve  estimates(including  estimates  of future net
     revenues associated with such reserves and the present value of such future
     net revenues),

*    future production of oil and gas,

*    repayment of debt,

*    business strategies, and

*    expansion and growth of business operations.

     These statements are based on certain  assumptions and analyses made by the
management of GREKA Energy in light of:

*    past experience and perception of:

*    historical trends,

*    current conditions,

*    expected future developments, and

*    other factors that the management of GREKA Energy  believes are appropriate
     under the circumstances.

     GREKA Energy cautions the reader that these forward-looking  statements are
subject to risks and uncertainties, including those associated with:

*    the financial environment,

*    the regulatory environment, and

*    trend projections,

that  could  cause  actual  events or results  to differ  materially  from those
expressed or implied by the  statements.  Such risks and  uncertainties  include
those risks and uncertainties  identified in the Description of the Business and
Management's Discussion and Analysis sections of this document.

         Significant  factors that could prevent GREKA Energy from achieving its
stated goals include:

*    the failure by GREKA Energy to integrate the respective operations of GREKA
     Energy and Saba or to achieve the synergies  expected from the  acquisition
     of Saba,

*    the failure by GREKA Energy to obtain refinancing agreements or arrange for
     the payment of Saba obligations,

                                       3
<PAGE>

*    declines in the market prices for oil and gas, and

*    adverse changes in the regulatory environment affecting GREKA Energy.

         GREKA's  independent  accountants issued a modified report on April 15,
1999 expressing  substantial doubt about GREKA Energy's ability to continue as a
going  concern.  That  matter  is  also  discussed  in  Note 1 of the  Notes  to
Consolidated  Financial Statements of GREKA Energy. On September 9, 1999 GREKA's
independent  accountants  issued a report  which  reflects  the removal of their
previously  modified  opinion  concerning  doubt about GREKA Energy's ability to
continue as a going concern. That matter is discussed in Note 14 of the Notes to
Consolidated Financial Statements of GREKA Energy.

         The  cautionary  statements  contained or referred to in this  document
should  be  considered  in  connection  with  any  subsequent  written  or  oral
forward-looking  statements that may be issued by GREKA Energy or persons acting
on its or their  behalf.  GREKA  Energy  undertakes  no  obligation  to  release
publicly any revisions to any  forward-looking  statements to reflect  events or
circumstances   after  the  date  hereof  or  to  reflect  the   occurrence   of
unanticipated events.


Item 1.  Description of Business.

Overview of GREKA Energy Corporation

         GREKA Energy  Corporation,  a Colorado  corporation  formerly  known as
Petro Union, Inc. and then Horizontal  Ventures,  Inc., is an independent energy
company  engaged  primarily  in the  business of  exploiting  proved oil and gas
reservoirs by utilizing a low cost proprietary short radius horizontal  drilling
technology to increase  production rates. The horizontal drilling technology was
patented by Amoco and is licensed by Amoco to GREKA Energy.

     During 1997 and 1998, GREKA Energy was operationally  dormant.  During this
period management focused substantially all of its efforts on:

*    the  reorganization  and emergence by Petro Union,  Inc.  from  bankruptcy,
     which  was  concluded  on  March  26  1998,  and  which  involved  the 1997
     acquisition of Horizontal Ventures,  Inc., an Oklahoma corporation and also
     a licensee of the Amoco horizontal drilling technology,

*    raising  funds to position  GREKA Energy to  capitalize  on its  horizontal
     drilling   technology,   which   resulted  in  new  equity   financing   of
     approximately $6 million during 1997, and

*    the  acquisition  of an  operating  oil and gas  company  with  substantial
     reserves  suited to  exploitation  by GREKA  Energy's  horizontal  drilling
     technology, which culminated with the acquisition of Saba Petroleum Company
     effective March 24, 1999.

Business Strategy

         GREKA Energy is an independent,  integrated energy company committed to
creating  shareholder  value by capitalizing on consistent cash flow hedged from
oil price fluctuation within integrated operations, exploiting E&P opportunities
and penetrating new niche markets utilizing proprietary technology with emphasis
on low cost short radius horizontal drilling technology patented by BP Amoco and
licensed to GREKA Energy.  GREKA Energy has oil and gas production,  exploration
and development activities in North America and the Far East, with primary areas
of activity in Alberta,California,  Louisiana,  Texas, New Mexico, Indonesia and
China.  In  addition,  Greka  Energy owns and  operates  an asphalt  refinery in
California.

                                       4
<PAGE>

         Upon the closing of the acquisition of Saba, GREKA Energy established a
three-prong  strategy that capitalizes on its asset base to enhance  shareholder
value as follows:

Integrated Hedged Operations

         Hedged  operations  of  GREKA  Energy  are  planned  to  focus  on  the
integration  of its  Santa  Maria  (California)  assets,  including  an  asphalt
refinery and interest in heavy oil fields.  Up to the  acquisition of Saba, Saba
had only  been  able to  supply  to the  asphalt  refinery  20% of its heavy oil
requirements.  The hedged  operations  are targeted to  capitalize on the stable
asphalt  market in California  by providing  the feedstock  (heavy oil) into the
refinery at cost. The planned  integration of the refinery (100% owned) with the
interests in the heavy oil  producing  fields  (100%  working  interest)  should
provide a stable hedge to GREKA  Energy on each equity  barrel.  GREKA  Energy's
strategy in these integrated assets is two-fold:

1.   GREKA  Energy  intends  to  proceed  with  acquisitions  that  enhance  the
     long-term feedstock supply to the refinery.

2.   GREKA Energy intends to implement the proprietary Amoco Horizontal Drilling
     Technology  to  cost-efficiently   boost  production  rates  from  the  150
     potential drilling  locations  identified in the Santa Maria Valley area of
     central California.

The two actions are targeted to increase  throughput  into the refinery from the
rate at June 30, 1999 of  approximately  3,500 barrels per day to 10,000 barrels
per day by yearend 2001. It is  anticipated  that the  profitability  from these
integrated  operations  will not be affected by volatile oil prices.  It is also
anticipated  that, by using the equity  barrels to supply the refinery,  working
capital  requirements  should  be lower and cash flow  should be  enhanced.  The
continued  stability of the price of asphalt,  coupled  with  reduced  costs for
processing  and lifting,  should create a substantial  value for GREKA  Energy's
shareholders.

Exploration & Production

         GREKA Energy is currently focusing on return to production ("RTP") work
that had been ignored by Saba for over eighteen months.  Such RTP is expected to
enhance  the current  production  levels and  capitalize  on current oil prices.
GREKA  Energy  plans to  capitalize  on its  existing  portfolio of domestic and
international  exploration  projects that are  synergistic  with GREKA  Energy's
Amoco Horizontal Drilling  Technology.  GREKA Energy plans to specifically focus
on its  existing  concessions  in  locations  such as China where  GREKA  Energy
believes there is a significant demand for energy.

Amoco Horizontal Drilling Technology

         GREKA Energy plans to continuously  pursue new, emerging  opportunities
in  the  energy  business  to  identify  and  evaluate  niche  markets  for  its
proprietary knowledge.  Two specific niche targets are coal bed methane projects
and gas storage.  These opportunities should provide significant upside from the
use of short horizontal laterals.

Recent History

         During  the first  part of 1998,  management  of GREKA  Energy  focused
substantially  all of its efforts on corporate  restructuring,  recapitalization
and acquisition efforts and an investment in a horizontal drilling pilot program

                                       5

<PAGE>

in the Cat Canyon  field in  California  that all were part of its  strategy  to
capitalize on its experience with  horizontal  drilling  technology.  During the
latter  part of 1998 and early 1999,  management  was  primarily  focused on the
acquisition of Saba,  which had  substantial  reserves suited to exploitation by
GREKA Energy's horizontal drilling  technology,  and considerable  expenses were
incurred in connection with the Saba  transactions in the first quarter of 1999.
Due to the  significance  to GREKA  Energy  of the Saba  acquisition,  which was
completed  effective March 24, 1999, GREKA Energy's management and staff devoted
a  substantial  amount of time and effort to the  acquisition.  Greka Energy has
already  executed,  and continues to execute,  an aggressive  rework  program to
return to production  existing  wells on all  properties  that had wells shut-in
over eighteen months. Subsequent to the reworks, Greka Energy intends during the
third quarter of 1999 to implement  its  horizontal  drilling  program using its
proprietary technology on the Santa Maria Valley area assets.

Acquisition of Saba Petroleum Company

         During the fourth quarter of 1998 and the first quarter of 1999,  GREKA
Energy entered into the following transactions culminating in the acquisition of
Saba Petroleum Company effective March 24, 1999:

         On  October  6, 1998,  GREKA  Energy  entered  into a  Preferred  Stock
Transfer Agreement with RGC International Investors, LDC ("RGC"), by which GREKA
Energy  acquired on October 6, 1998 690 shares of the 8,000 shares of issued and
outstanding Series A Convertible Preferred Stock of Saba held by RGC in exchange
for  cash in the  amount  of  $750,000,  of which  $500,000  was  borrowed  from
International Publishing Holding s.a. ("IPH"), then a significant shareholder of
GREKA Energy.  GREKA Energy  executed a Promissory Note to repay the $500,000 to
IPH  without  interest on or before  December  31,  1998,  which  maturity  date
subsequently  was extended to September  30, 1999, in the form of cash or shares
of Saba Series A Preferred  Stock held by GREKA Energy.  The Promissory  Note is
secured by a pledge of two-thirds  of the Saba Series A Preferred  Stock held by
GREKA Energy.  Under the Preferred  Stock Transfer  Agreement,  GREKA Energy was
granted the exclusive  right until November 6, 1998 to acquire from RGC up to an
additional 6,310 shares of Saba Series A Preferred Stock held by RGC in exchange
for cash in the amount of  approximately  $6,859,000,  with such exclusive right
subject to an extension for an additional  thirty days by GREKA Energy's payment
of $500,000.  On November 6, 1998,  GREKA Energy paid  $500,000 to RGC to extend
the term of the  exclusive  right until  December 6, 1998.  GREKA Energy did not
exercise its right.

         On October 8, 1998 GREKA  Energy and Saba  entered  into a Common Stock
Purchase Agreement by which Saba agreed to issue to GREKA Energy an aggregate of
2,500,000 shares of Saba common stock as follows:

*    333,333  shares of Saba common stock in exchange for  $1,000,000 in cash by
     November 6, 1998, and

*    2,166,667 shares of Saba common stock in exchange for $6,500,000 in cash by
     December 4, 1998.

         IPH in  conjunction  with GREKA  Energy made open market  purchases  of
approximately  5% of the issued and outstanding  shares of Saba common stock. By
an Option  Agreement  dated July 22, 1998 between  GREKA  Energy and IPH,  GREKA
Energy acquired a call option to purchase the approximate 568,000 shares of Saba
common stock  purchased by IPH at an exercise  price equal to the cost to IPH of
acquiring such shares plus twenty percent,  which was approximately  $1,020,000.
IPH had a put agreement that became  effective  April 1, 1999, and was exercised
on such date.  GREKA Energy has authorized the issuance of 140,886 shares to IPH
in exchange for the shares of Saba owned directly by IPH.

                                       6

<PAGE>

         Subsequently,  GREKA  Energy  during  October and early  November  1998
directly acquired 80,000 shares of Saba common stock in open market purchases at
an aggregate cost of approximately $70,130.

         On November 6, 1998,  GREKA  Energy  paid Saba  $1,000,000  for 333,333
shares of Saba  common  stock  under the Common  Stock  Purchase  Agreement  and
$500,000  to RGC to extend the term  until  December  6, 1998 of GREKA  Energy's
exclusive  right to acquire the Saba Series A Preferred  Stock from RGC pursuant
to the Preferred Stock Transfer Agreement. These payments were financed by GREKA
Energy's issuance to IPH on November 4, 1998 of a Promissory Note payable in the
amount of $1,500,000,  with 6% interest, by December 31, 1998. This note has now
been extended to September  30, 1999.  The  Promissory  Note is secured by GREKA
Energy's pledge of all of the issued and outstanding  shares of capital stock of
Greka SMV, Inc. formerly know as HVI Cat Canyon, Inc., a wholly owned subsidiary
of GREKA Energy.

         On November 23, 1998,  as amended at closing on December 18, 1998 GREKA
Energy entered into a Stock Exchange  Agreement with Saba Acquisub,  Inc., which
owned  2,971,766  shares of Saba common stock.  Saba Acquisub was  controlled by
Capco Resources Ltd. which is controlled by Ilyas  Chaudhary,  a former director
and executive officer of Saba. Under the Stock Exchange Agreement,  GREKA Energy
was to acquire the Saba common stock owned by Saba  Acquisub in exchange for the
issuance by GREKA  Energy to the  shareholder  of Saba  Acquisub an aggregate of
1,340,000  shares of GREKA Energy  common stock.  At closing,  Saba Acquisub was
merged with and into GREKA Energy.

         On December 18,  1998,  GREKA Energy and Saba entered into an Agreement
and Plan of Merger,  which was amended  February 16, 1999,  whereby GREKA Energy
would  acquire  all of the  remaining  shares  of  Saba  common  stock  and  the
shareholders  of Saba other  than GREKA  Energy  would  receive  shares of GREKA
Energy common stock based on a contemplated exchange ratio of one share of GREKA
Energy common stock for each six shares of Saba common stock. On March 19, 1999,
the shareholders of GREKA Energy and Saba approved the acquisition  transactions
and on March 24, 1999 Saba became a wholly owned subsidiary of GREKA Energy.

         GREKA Energy  believes that the acquisition of Saba represents a unique
opportunity to capitalize on Saba's substantial oil and gas properties which are
particularly  suited  to  exploitation  by GREKA  Energy's  horizontal  drilling
technology.

         GREKA Energy  believes  that its Cat Canyon Field in  California  is an
ideal field to apply horizontal drilling technology for the following reasons:

*    Mature  Fields/Extensive Data. Cat Canyon is a mature field,  discovered in
     1908, that provides numerous abandoned or semi-abandoned wells to re-enter,
     and extensive geological  information from which to develop an exploitation
     plan without much additional cost;

*    Hedge Against Oil Prices. GREKA Energy's Asphalt Refinery is fed by its Cat
     Canyon  properties thus greatly reducing oil price risk from GREKA Energy's
     Cat Canyon development strategy.  Since 1996, asphalt sales prices from the
     Asphalt Refinery have varied between $16.09 and $18.41 per barrel, -- while
     oil prices have varied between $7.17 and $17.38 during the same period. The
     primary  objective  will  be  to  apply  the  proprietary,  cost  effective
     horizontal  drilling  technology  to create  additional  feedstock  for the
     refinery and capitalize on the operational hedge per barrel.

                                       7

<PAGE>


*    Heavy Oil.  Heavy oil, which is common to California  fields,  is typically
     more difficult to recover  because much higher pressure  differentials  are
     necessary to force the oil up the well.  Horizontal drilling allows more of
     the  reservoir  to be exposed  and more oil to be  recovered.  Furthermore,
     short radius  horizontals allow the pump mechanism to be placed much closer
     to the reservoir resulting in substantial productivity;

*    Abundance of Remaining  Reserves.  Because of the  difficulty in recovering
     heavy oil from  reservoirs,  only  about 10% of the  original  oil has been
     recovered.  However, just a 1% increase in the oil recovered from the field
     would yield large returns for GREKA Energy; and

*    California Land Use Laws.  Amoco's technology does not require the use of a
     full-size  drilling rig and the building of a drilling  site,  which can be
     made   prohibitively   expensive  by  California  land  use  laws.  Amoco's
     technology  can be  applied on a workover  rig with no new  drilling  site,
     eliminating  the  requirement  for a drilling  permit.  The drilling permit
     process in  California  can take over six months to  complete  while  GREKA
     Energy's rework permits typically take four days.

         GREKA  Energy  owns  an  asphalt  refinery  in  Santa  Barbara  County,
California  that  is fed by  production  from  the  central  California  region.
Generally,  the crude  oil  produced  in these  areas is of low  gravity  and is
ideally  suited as  feedstock  for  asphalt.  Furthermore,  asphalt  prices have
historically  been less volatile than feedstock  prices,  providing GREKA Energy
with a hedge against oil price movements. This refinery was acquired from Conoco
Inc. in 1994 and Conoco performs all environmental obligations that arose during
and as a result of its operations of the refinery prior to the acquisition.

         Throughput  at the asphalt  refinery has ranged  between 2,000 to 4,500
barrels of oil per day while production  capacity is approximately  10,000 Bopd.
Only  approximately  1,750 Bopd of the  throughput  has come from GREKA Energy's
production.  GREKA  Energy  believes  that the asphalt  refinery's  margins will
improve  significantly  as it increases  production  from the Cat Canyon  field,
providing additional feedstock and spreading the fixed cost of the refinery over
more  units  produced.   Furthermore,  GREKA  Energy  intends  to  increase  the
throughput  to 10,000 Bopd by year end 2001.  GREKA Energy  estimates  that each
1,000 Bopd increase in equity throughput could yield approximately $2 million in
additional    earnings    before    interest,     taxes,     depreciation    and
amortization("EBITDA") annually.

         In May 1999,  GREKA  Energy's  subsidiary  assumed  all  marketing  and
distribution  operations  at its refinery in Santa Maria,  California  that were
previously  performed  by Crown  Asphalt  Distribution  LLC  under a  processing
agreement  terminated  by GREKA  Energy's  subsidiary.  Under  the terms of this
agreement,  each party had been receiving approximately fifty percent of the net
income from the refinery.  During 1998, the refinery  processed on average 3,850
barrels  per day of  throughput  and  generated  revenues of  approximately  $22
million with a net income of approximately $4.7 million.  During the term of the
processing agreement with Crown, Saba had only recognized and reported its fifty
percent share of the profits from the refinery operations.  GREKA Energy expects
to  recognize  and  report  refinery  revenues  at a similar  level,  as well as
increased operating cash flows, as a result of assuming such operations.

Business of Saba Petroleum Company as of December 31, 1998

         Saba Petroleum Company is an independent  energy company engaged in the
acquisition, development and exploration of oil and gas properties in the United
States and internationally. Saba has grown primarily through the acquisition and
exploitation of producing properties in California, Louisiana and Colombia. Saba
has assembled a portfolio of over 200 potential development drilling locations.

                                       8

<PAGE>

         At April 15, 1999,  Saba depended on three  material  customers.  Those
customers  were  Ecopetrol,  Crown  Energy and Omimex  Resources,  Inc.  See the
discussion elsewhere in this document of the sale of Sabacol's assets.

         At December 31, 1998, Saba had estimated proved reserves of 17.7 MMBOE,
consisting of 13.9 MMBbls of oil and 22.99 Bcf of gas (3.8 MMBOE),  with a PV-10
value of $23.2 million.

         Saba also owns an asphalt refinery in Santa Maria, California, where it
currently processes approximately 4,000 Bopd.

Recent Saba Developments

Substantial Doubt About Saba's Ability to Continue as a Going Concern

         Saba's independent  public  accountants  included in their audit report
for Saba's 1998 financial  statements an explanatory  paragraph  which indicates
that there was  substantial  doubt as to Saba's  ability to  continue as a going
concern.  That was due to the fact that Saba's  current assets may not have been
sufficient  to satisfy  its  current  liabilities  at December  31,  1998.  Saba
violated certain of its debt covenants and had negative  stockholders' equity at
December 31, 1998.  Management's plans in this regard are discussed in Note 1 of
the Notes to Consolidated  Financial  Statements of Saba appearing  elsewhere in
this document.

         GREKA Energy  acquired  Saba  effective  March 24, 1999.  Operations of
GREKA  Energy  and Saba have been  conducted  on a  combined  basis  after  that
effective date.

Bankruptcy of Sabacol, Inc. and Contract for Sale of Sabacol's Assets

         On December 15, 1998, Saba announced that Sabacol, Inc., a wholly-owned
subsidiary of Saba,  filed a voluntary  petition  under Chapter 11 of the United
States  Bankruptcy  Code in the Central  District of  California on December 11,
1998. Sabacol's assets, located solely in Colombia,  consisted of a 50% interest
in a 118-mile pipeline and varying interests in heavy oil producing  properties.
At the time of  filing,  Sabacol  had a net book  value  of  approximately  $5.3
million with liabilities of $4.6 million.  For the year ended December 31, 1998,
the average daily production of Sabacol's  interest in the Colombian  properties
was 2,256 Bopd and gross revenues were approximately $7.4 million. Sabacol filed
the bankruptcy  petition to protect its asset base and to provide  adequate time
to develop a  reorganization  plan.  A new  management  team was  appointed  for
Sabacol to protect  its assets and  develop an  effective  reorganization  plan.
Neither  GREKA  Energy nor Saba were  involved  in the  bankruptcy  proceedings,
guaranteed  any of the Sabacol  debt,  and  Sabacol's  creditors do not have any
right to proceed  against  GREKA Energy or Saba.  Therefore,  the  bankruptcy of
Sabacol is not expected to have any material adverse effect on GREKA Energy.

         On March 17, 1999,  Sabacol  entered into an agreement  with Omimex,  a
privately  held oil and gas  company  which  operates a  substantial  portion of
Saba's producing properties, whereby Sabacol was to sell to Omimex substantially
all of its assets in exchange for:

*    the  cancellation  by Omimex  of Saba's  $4.2  million  promissory  note to
     Omimex, along with approximately  $206,000 in accrued interest,  related to
     the loan under the  terminated  business  combination  agreement  discussed
     below,

                                       9

<PAGE>

*    the  cancellation  by Omimex of  Sabacol's  net  indebtedness  to Omimex of
     approximately $2 million,

*    the assumption or payment by Omimex of Sabacol's Colombian tax liability of
     approximately $2.3 million, and

*    certain  Omimex  oil and gas  properties  and  related  assets  located  in
     California which are valued at approximately $1 million.

         The agreement  provides for the payment of additional  consideration to
Sabacol if the  difference  between the January 1, 2000 reserve value (using the
average wellhead prices received for production  during fourth quarter 1999) for
Sabacol's  oil and gas  properties  and the  California  properties  acquired by
Sabacol is greater than the difference between the January 1, 1999 reserve value
for the same properties. If the differential is $5 million or less, by March 31,
2000  Omimex  will pay such  amount to  Sabacol  in cash or,  upon  non-payment,
reassign to Sabacol the 50% interest in the Velasquez-Galan pipeline in Colombia
sold by Sabacol to  Omimex.  If the  differential  is greater  than $5  million,
Sabacol  will  have  the  option  through  May  31,  2000  of  repurchasing  for
approximately  $12 million the assets sold to Omimex and  reassigning  to Omimex
the California  assets  purchased from Omimex.  If this option is not exercised,
Omimex will be obligated to pay Sabacol $5 million in cash or, upon  non-payment
reassign to Sabacol the Velasquez-Galan pipeline.

         On June 30,  1999,  GREKA  Energy  completed  the sale of the assets of
Sabacol  pursuant to the terms of the March 17, 1999  agreement  concerning  the
sale of those assets. The sale was approved by the bankruptcy court on April 26,
1999. An order dismissing the bankruptcy case was entered by the court on August
4, 1999 following Sabacol's request filed with the court in July 1999.

Loan from Omimex Under Terminated Business Combination Agreement

         As part of a  terminated  merger  agreement  between  Omimex  and Saba,
Omimex lent to Saba approximately  $4.2 million.  The proceeds of this loan were
used to redeem $2 million of stated  value of Saba's  Series A  Preferred  Stock
(for  approximately  $2.15 million) and to pay $2 million on Saba's  outstanding
bank indebtedness.  The loan by Omimex accrued interest at prime to December 14,
1998, and at prime plus 3% thereafter, and was due 90 days after the termination
of the merger agreement in August 1998.

         In  compliance  with  procedures  for  securing  the loan from  Omimex,
Sabacol's legal  representative  in Colombia  executed,  but did not present for
notarial  inscription by a Colombian  notary  public,  a public deed or deeds to
transfer to Omimex all of the right, title and interest of Sabacol in and to the
Velasquez-Galan  pipeline and  delivered the deed(s) to Bank One,  Texas,  N.A.,
which is acting as the escrow agent.  Sabacol also delivered to the escrow agent
an irrevocable  letter of authority  authorizing the completion of the execution
of the  deed(s)  before a Colombian  notary  public.  The escrow  agent had been
instructed, by terms of an escrow agreement entered into between Sabacol, Omimex
and Bank One,  Texas,  N.A.,  that in the  event  full  payment  of the Loan was
delivered  by December 14,  1998,  then the escrow agent shall have  immediately
delivered  to Omimex the payment  and to Sabacol  the deeds and the  irrevocable
letter of authority  relating thereto for cancellation.  In the event payment of
the Loan in full was not  delivered by December 14, 1998,  then the escrow agent
shall have immediately  delivered to Omimex the deeds and the irrevocable letter
of authority relating thereto. Thereafter, Omimex shall have delivered the deeds
and the irrevocable letter of authority to Omimex de Colombia,  Ltd., a Delaware
corporation  and a wholly owned  subsidiary  of Omimex,  for  completion  of the
execution  of the deeds  before a Colombian  notary  public by  Sabacol's  legal
representative.  Full payment of the Loan was not delivered by December 14, 1998
to the escrow agent.  On December 11, 1998,  Sabacol filed for protection of its
assets under Chapter 11 of the United States  Bankruptcy Code. The deeds and the

                                       10

<PAGE>

irrevocable letter of authority relating thereto were not delivered to Omimex on
December 14, 1998 under the escrow  agreement and the  requirement  to do so was
stayed pursuant to the Sabacol's petition for bankruptcy. All matters associated
with the termination of the merger  agreement  between Omimex and Saba have been
resolved by sale  agreement  between Omimex and Sabacol which closed on June 30,
1999 as described above.

Bank Indebtedness

         As indicated  above,  as part of the terminated  merger  agreement with
Omimex,  Omimex  lent to Saba $4.2  million,  of which $2 million was applied to
Saba's existing bank  indebtedness with Bank One, Texas, N.A. The Bank consented
to the  borrowing  from  Omimex  described  in the  preceding  section  and  the
application of the proceeds of the loan,  including the redemption of $2 million
stated value of Saba's Series A Preferred Stock. As a result of that payment and
a payment of  $300,000  which was made in May 1998 and  continued  to be payable
each  month  thereafter  by  Saba,  the Bank and  Saba  entered  into a  written
amendment to the existing loan  agreement  extending the maturities of all three
short term  facilities to July 31, 1998. At April 15, 1999,  approximately  $4.5
million in  principal  amount of bank debt that  matured for payment on July 31,
1998,  had not been paid nor extended,  and the  borrowing  base deficit of $3.1
million on the  revolving  loan at December  31, 1998,  had not been  satisfied,
either by providing additional  collateral to the Bank or reducing the principal
balance  that was  outstanding  at December 31, 1998.  Saba's  entire  principal
indebtedness  to the Bank of $20.1  million was  classified by Saba as currently
payable at December 31, 1998. Additionally,  Saba was not in compliance with the
loan agreement's financial covenants at December 31, 1998.

         In May 1999,  GREKA Energy's  wholly-owned  subsidiaries  borrowed $6.0
million under the terms of a new credit facility with BNY Financial  Corporation
and applied  such  proceeds to the Bank One,  Texas  indebtedness,  reducing the
outstanding balance to $14.1 million.

         In July 1999,  GREKA Energy,  Saba and Bank One entered into an Amended
and Restated  Forbearance  Agreement,  under which Bank One agreed that it would
forbear  from  exercising  its  remedies  under the  credit  facilities  through
September  15,  1999,  provided  that  Saba  maintain  compliance  with  certain
conditions  regarding  Events of Default,  making timely  interest  payments and
securing alternative financing to retire the Bank One indebtedness.

     In  July  1999,  GREKA  Energy  entered  into a  commitment  letter  with a
financial  institution to lend GREKA Energy a minimum of $14.0 million,  secured
by GREKA  Energy's  interest  in  certain  oil and gas  properties  and  certain
California real estate. Proceeds from this or alternative financing will be used
to pay Saba's indebtedness to Bank One in the amount of $14.1 million.

         In connection with various borrowings from Bank One, Ilyas Chaudhary, a
former  director  and  executive  officer  of Saba,  has  guaranteed  payment of
approximately $3.7 million of Saba's debt to Bank One.

Sale of Certain Assets

         Saba had  negotiated  the sale of certain  producing oil and gas assets
and real estate  assets,  the proceeds of which have been applied to reduce bank
indebtedness  and provide  working  capital.  Saba sold its interest in over 150
producing  wells in Michigan in July 1998 for a contract  price of $3.7  million
and two  producing  wells in Alabama in September  1998 for a contract  price of
$800,000.

                                       11

<PAGE>

         In  December  1998,  Saba  entered  into a letter of intent  with Capco
Development,  Inc.  ("Capco")  to  sell  all of  the  outstanding  stock  of its
wholly-owned  subsidiary,  Saba Energy of Texas, Inc. ("SETI") but excluding all
of SETI's oil and gas property  interests  located in Louisiana,  for a contract
price of $5  million to close in  December  1998.  The  parties  entered  into a
purchase agreement,  which was later amended to provide for a closing in January
1999, to sell all of the outstanding  stock of SETI but excluding SETI's oil and
gas property  interests in the Potash Field  located in Louisiana for a contract
price of $6.25 million.  In January 1999, the purchase  agreement was terminated
concurrently  with the execution by SETI and an affiliate of Capco of a purchase
and  sale  agreement  to sell  all of  SETI's  oil and  gas  property  interests
principally  located in  Louisiana,  New Mexico,  Texas and  Wyoming,  excepting
Potash Field located in Louisiana,  for a contract price of $6.15  million.  The
agreement,  which was scheduled to close in March 1999,  provided for an interim
closing  in  February  1999,  at which  time the  buyer  was to pay to SETI $1.5
million,   In  February   1999,   the  agreement  was   terminated  for  buyer's
non-performance.

         In April 1999, SETI entered into an agreement to sell all of SETI's oil
and gas property interests at a contract price of $12.5 million to close in June
1999. The agreement terminated in June 1999 for buyer's non-performance.

Saba's Series A Convertible Preferred Stock

         On March 15,  1999,  GREKA  Energy  entered  into a term sheet with RGC
International Investors LDC, the holder of Saba's Series A Convertible Preferred
Stock,  for RGC to  exchange  the balance of the  preferred  stock for a secured
convertible note to be negotiated and thereafter issued by GREKA Energy to RGC.

Saba Debentures

     In July and August  1999,  GREKA  Energy  entered  into a term sheet with a
majority of the  holders of the  outstanding  Saba  debentures  to exchange  the
debentures of Saba for new  debentures of GREKA Energy with interest at the rate
of 9%,  maturing on December  31, 2005 with a right of GREKA Energy to redeem at
any time for an amount  equal to 102% of the  principal  amount plus any accrued
but unpaid  interest,  subject to the right of  holders  of first  convert.  The
conversion price offered by GREKA Energy is 95% of the average closing bid price
of GREKA  Energy's  common  stock for the 30  consecutive  trading days of GREKA
Energy's  common stock ending one day prior to the date notice of  conversion is
received  by GREKA  Energy,  but in no event  less than $8.50 nor  greater  than
$12.50 per share.  The terms further offer that,  commencing April 1, 2000, each
holder of GREKA Energy's  debentures shall have the right upon written notice to
GREKA Energy to require that it redeem its  debentures at an amount equal to the
principal amount plus any accrued but unpaid interest.  The Saba debentures were
delisted from the American Stock Exchange in August 1999.

GREKA Energy's Horizontal Drilling Technology

         Horizontal drilling has become widely accepted as a standard option for
exploiting oil & gas resources.  The principle  advantage of horizontal drilling
is that it results in a  substantially  greater  surface area for drainage,  and
thus  extraction  of the oil from  the  reservoir.  In  industry  terms  this is
referred  to as  communicating  zones of  permeability.  The  unique  method  of
reentering  a well and  horizontal  drilling  patented by Amoco and  licensed to
GREKA Energy allows for turning while drilling,  which can cause a vertical well
to be  horizontal  in as  little  as 25  feet.  Thus  this  technology  provides
considerable flexibility to the geologists and engineers in designing their well
plans around geological  formation and reservoir  constraints to achieve maximum
performance.  Furthermore,  this  technique  facilitates  multi-laterals  off an
existing  well  bore,  which  avoids  costly  drilling  of new  wells,  and  has
considerable  advantages in shallow reservoirs where the traditional  horizontal
tools  cannot be utilized due to their larger  radius  requirements  and related
economics.

                                       12

<PAGE>

         Drilling horizontal laterals has the potential to:

*    tap fresh oil by intersecting  fractures,  penetrating pay  discontinuities
     and drain up-dip traps,

*    correct production problems such as:

*    water coning,

*    gas coning, and

*    excessive  water  cuts from  hydraulic  fractures  which  extend  below the
     oil-water contact, and

*    supplement enhanced secondary and tertiary oil recovery techniques.

         The most  common  method  of  drilling  a curved  borehole  utilizes  a
mud-motor to rotate the drill bit.  This is often too expensive to be economical
for  re-entries  in mature fields with well bore casings less than 5 1/2 inches.
The lack of a cost-effective  method to increase  production in mature wells led
Amoco to devote significant  resources in research and development in this area.
The result was the development of its patented short radius horizontal  drilling
system. The primary advantages of the Amoco drilling system are:

*    its short radius of curvature,

*    it costs approximately one-fifth of traditional mud motors, and

*    it takes  only ten days to drill and yet  provides  all the  benefits  of a
     horizontal well.

         The Amoco short radius rotary steerable  horizontal  drilling system is
capable of drilling a 3.875" inch hole from inside 4.5" inch  casing,  or a 4.5"
hole from inside 5.5" casing and larger.  The radius of curvature ranges from 30
feet and up, with lateral departures up to 1,000 feet.  Multiple laterals can be
drilled in opposing  directions or in the same  direction,  with kick-off points
spaced a minimum of eight feet apart.  Compatibility with any circulating medium
including mud, foam or air mist allows for a variety of applications.

         The system consistently drills a predictable radius of curvature in the
desired  direction,  resulting in a smoother planar well bore, which facilitates
drilling the lateral and completing the well.  Vertical  target accuracy is plus
or minus two feet, and azimuth is plus or minus 20 degrees.

         The system is rotary steerable,  and there are no mud motors,  steering
tools or MWD tools. The system is purely mechanical and very simple in design.

         The  Amoco  bit is an  anti-whirl,  bi-center,  low-friction  PDC  bit.
Consistent and reliable angle build and improved directional control is a result
of stabilizing the PDC bit to continually  point along a curved path. The design
of the bit enables it to cut only in the  direction  it is pointed.  The cutters
are  positioned  so that they direct a lateral  force toward a smooth pad on the
gauge of the  bit,  which  contracts  the bore  hole  and acts as a  bearing  by
transmitting  a restoring  force to the bit.  This force  rotates  with the bit,
continually  pushing  a side of the bit that  does not have  gauge  cuter  chips
against the bore hole wall.  This design  minimizes the side cutting action that
is  typically  observed  with PDC bits  and  results  in  consistent  well  bore
diameter.

                                       13

<PAGE>


         The system drills a curved path by continually pointing the bit along a
tangent to the curved path. A contact  point on the bit and smooth  contact ring
at the flexible  knuckle joint  establishes  two contact points and controls the
bit tilt.  Tool design tilt allows the curve  assembly to run smoothly,  drill a
hole uniform in diameter,  and negates the effects of varying lithology changes.
Various radii of curvatures are easily  obtained by increasing or decreasing the
distance between the two contact points.

         Azimuth or target  direction is established by gyro  orientation of the
eccentric deflection sleeve. Once oriented in the desired direction, the gyro is
released and  orientation is monitored by pump  pressures at the surface.  These
signals are monitored throughout the curve drilling process, as repositioning of
the sleeve is required to maintain target direction.

         Lateral  drilling is strictly a rotary  process.  The lateral  drilling
assemblies are not steerable, and there are no deflection sleeves or orientation
signals. At present, there are two lateral drilling assemblies, and both use the
anti-whirl  PDC bit to achieve a smooth well bore and obtain  fairly  consistent
responses. Of the two lateral assemblies,  one is engineered for gentle rise wit
angle build rates of 7 to 11 degrees per 100 feet. The second is for maintaining
inclination,  and produces  near-neutral  responses of - -2 to 2 degrees per 100
feet. The  assemblies  work on the same  principle as any  directional  drilling
assembly.  Both have been found to drill with minimal walk,  right or left,  but
inclination is somewhat sensitive to formation and weight on the bit.

         The predominate  application of short-radius horizontal drilling is for
re-entries,  a procedure that requires the sectional milling of at least 20 feet
of casing.  Following sectioning,  a cement kick-off plug is set in the vertical
well bore just below the  kick-off  depth.  Cement is  brought  up  through  the
sectioned  interval,  and 60 to 100 feet inside the casing.  This  multi-purpose
plug must provide zone  isolation  from the original  completion  and mechanical
strength for the curve  assembly to side track.  Open-hole  completions,  either
from existing wells or new wells,  can be kicked off from formation or a squeeze
cement  plug.  Torque,  weight of the bit,  drill-off  rate,  and  cuttings  are
monitored  during the kick-off  procedure as the bit makes the  transition  from
drilling 100 percent cement to 100 percent  formation.  This transition  usually
occurs after drilling a minimum of six feet, and can be greater depending on the
radius of curvature.

         With regard to equipment requirements, many types of workover rigs have
been used in conjunction with the system,  ranging from small pole units to five
and six axle carriers.  Drilling rigs have been used in several  instances,  but
are not necessary.  A top-drive power swivel,  the most  predominate of which is
the Bowen 2.5,  is used to rotate the drill  string and bit. A single  conductor
wireline  unit is used  for  gyro  orientation  and to run  all  electronic  and
magnetic  surveys.  Circulating  and solids control  equipment vary depending on
formation conditions.

         Management  of GREKA Energy  considers  this  proprietary  technology a
leading  edge  and a  ground  floor  opportunity  as a  producer.  GREKA  Energy
management believes that through the utilization of this system GREKA Energy has
the ability to  cost-effectively  drill lateral  completions  and  re-entries in
shallow oil and gas  producing  zones  where  existing  technology  has not been
available  or  affordable.  As  drilling  new wells  from the  surface  is not a
necessity and current production  infrastructures can be utilized,  GREKA Energy
anticipates  that the  economics of this system will be improved.  Management of
GREKA Energy believes that potential zones such as shale gas and coalbed methane
that contain  trillions of cubic feet of untapped  reserves in the United States
are candidates for short radius horizontal drilling technology.

                                       14

<PAGE>

Organizational History of GREKA Energy

         GREKA Energy  Corporation was formed in 1988 as a Colorado  corporation
under the name of Kiwi III, Ltd. On May 13, 1996,  GREKA  Energy,  then known as
Petro Union,  Inc., filed a voluntary petition for relief pursuant to Chapter 11
of the United States  Bankruptcy  Code. On August 28, 1997, the Bankruptcy Court
for the Southern  District of Indiana issued an order  confirming  Petro Union's
First Amended Plan of Reorganization.  Under the Plan the unsecured creditors of
Petro Union  received an aggregate of 100,000 shares of Petro Union common stock
(for clarity, the no par value common stock as is currently authorized for GREKA
Energy is sometimes  referred to herein as the "New Common Stock").  The holders
of Petro Union's $.125 par value common stock ("Old Common Stock")  received one
share of New Common Stock for each 220 shares of Old Common Stock held,  and the
Old Common Stock was canceled. Accordingly, the 17,537,945 outstanding shares of
Old Common stock were converted into  approximately  80,000 shares of New Common
stock.

         Petro  Union  satisfied  the  claims  of its  two  debtor-in-possession
financiers,  Pembrooke Holding Corporation and International  Publishing Holding
s.a. as follows:  Pembrooke  received  $100,000 in cash and 49,999 shares of New
Common Stock.  IPH received  40,000 shares of New Common Stock and a call option
exercisable for a period of 36 months to acquire ninety percent of Petro Union's
wholly-owned subsidiary, Calox Corporation,  which then held as its only asset a
limestone reserve in Monroe County,  Indiana. The exercise price to acquire such
ninety percent interest is $3.5 million.

         The Plan also provided for a share  exchange  transaction  by which the
shareholders  of Horizontal  Ventures,  Inc., an Oklahoma  corporation  of which
Randeep S. Grewal was President,  acquired 590,000 shares of New Common Stock in
exchange  for all of the  issued and  outstanding  capital  stock of  Horizontal
Ventures.  In  addition,  under the Plan 70,000  shares of New Common Stock were
issued to Mr.  Grewal and  70,000  shares of New  Common  Stock  were  issued to
Richard D. Wedel,  who was an  executive  officer of Petro  Union,  for services
performed  by  each of them  during  the  bankruptcy  proceedings.  Petro  Union
subsequently changed its name to Horizontal Ventures, Inc.

         The  bankruptcy  court  approved  the final  accounting  and closed the
bankruptcy proceedings on March 26, 1998.

         Effective March 22, 1999, Horizontal Ventures, Inc. changed its name to
GREKA Energy  Corporation.  Effective March 24, 1999, GREKA Energy acquired Saba
Petroleum Company as a wholly owned subsidiary.

Marketing

Marketing of Asphalt Refinery Production

         GREKA Energy's  asphalt  refinery in Santa Maria,  California  produces
light naphtha,  kerosene distillate,  gas oils and numerous cut-back, paving and
emulsion asphalt products. Historically,  marketing efforts have been focused on
the asphalt  products which are sold to various users,  primarily in the Central
and Northern  California  areas.  Distillates are readily  marketed to wholesale
purchasers.

         GREKA  Energy  regards  the  refinery  as a  valuable  adjunct  to  its
production  of crude  oil in the  Santa  Maria  Valley  and  surrounding  areas.
Generally,  the crude oil produced in these areas is of low gravity and makes an
excellent asphalt.  Recent prices for asphalt exceed market prices for crude and
costs of operating the refinery. GREKA Energy believes that as road building and
repair  increase in California and surrounding  western  states,  the market for
asphalt will expand significantly.

                                       15

<PAGE>

Marketing of GREKA Energy's Oil and Gas Production

         The prices  obtained for oil and gas are dependent on numerous  factors
beyond the control of GREKA Energy,  including  domestic and foreign  production
rates of oil and gas, market demand and the effect of  governmental  regulations
and incentives. Substantially all of GREKA's North American crude oil production
is sold at the  wellhead  at posted  prices  under short term  contracts,  as is
customary in the industry.  No one customer  accounted for more than ten percent
of the sales of North American production of Saba during 1998 except Crown which
accounted  for  47% of such  sales.  The  Colombian  oil  Production  previously
produced by Sabacol, which was, and as a practical matter could only be, sold to
Ecopetrol, accounted for 37% of total oil and gas revenues in 1998.

         The market for heavy crude oil produced by GREKA from its Central Coast
Fields in California  differs  substantially  from the remainder of the domestic
crude  oil  market,   due  principally  to  the   transportation   and  refining
requirements associated with California heavy crude oil. The prices realized for
heavy crude oil are generally  lower than those  realized from the sale of light
crude oil.  GREKA  Energy's  Santa Maria  refinery uses  essentially  all of its
Central  Coast  Fields'  crude oil,  in  addition  to third  party crude oil, to
produce  asphalt,  among other  products.  Ownership of the refinery gives GREKA
Energy a steady market for its local crude oil which is not enjoyed by producers
generally.

Marketing of GREKA Energy's Non-Saba Exploitation & Production

         Significant  and  lucrative  markets exist for the  application  of the
niche technology for GREKA Energy's short radius horizontal  drilling  know-how.
Mature  fields are in abundance  throughout  the world where the  operators  are
faced with  declining  production,  uncertain  oil prices and upcoming  costs to
abandon  and  plug the  uneconomic  wells at  their  production  rates.  Such an
environment  creates a unique  market for GREKA  Energy in being able to acquire
through a conservative  selection process.  Primary acquisition  candidates will
have existing  production,  existing  operating  infrastructure  and facilities,
geological  formations  conducive  to the  technology,  well bores and pay zones
under ten thousand feet with sufficient recoverable oil in place. As an example,
GREKA  Energy  has found  that  California  is a unique  opportunity  due to its
stringent new drilling  regulations.  GREKA Energy's  activities are essentially
"re-work"  negating any lengthy  approvals  through the regulatory  authorities.
Such an environment  has created  "pockets" of opportunity  whereby  significant
recoverable  oil has been left in place by the majors and  thereafter  operators
rather than attempt a costly  endeavor to drill new wells in urban areas.  GREKA
Energy intends to pursue such opportunities.

Competition

         Competition in the oil and gas business is intense,  particularly  with
respect to the acquisition of producing  properties,  proved undeveloped acreage
and  leases.  Major  and  independent  oil and gas  companies  actively  bid for
desirable oil and gas  properties  and for the equipment and labor  required for
their operation and development. GREKA Energy believes that the locations of its
leasehold acreage, its exploration, drilling and production capabilities and the
experience of its management and that of its industry partners  generally enable
GREKA  Energy  to  compete  effectively.  Many of  GREKA  Energy's  competitors,
however,  have financial resources and exploration,  development and acquisition
budgets that are substantially greater than those of GREKA Energy, and these may
adversely  affect GREKA  Energy's  ability to compete,  particularly  in regions
outside  of  GREKA  Energy's   principal   producing  areas.   Because  of  this
competition,  GREKA Energy  cannot  assure that it will be successful in finding
and acquiring producing properties and development and exploration prospects.

                                       16

<PAGE>

         Management  of  GREKA  Energy  believes  it has an  advantage  over its
competition  due to its level of field  expertise in applying the patented Amoco
Short Radius  Horizontal  Drilling  technology  and its ability to provide these
drilling  techniques  at a fraction  of the cost of the  competition.  Although,
Amoco has provided  licenses to others,  GREKA Energy feels that its  experience
and two prong global  approach is sheltered from any of the other  licensees who
are  concentrating  on services within their respective  geographical  area. The
acquisition criteria is also unique to the application of the niche short radius
horizontal technology and as to the best of management's knowledge,  none of the
other  licensees  are drilling for their own account.  GREKA Energy has not felt
any competitive pressure relative to its acquisition strategy to date.

Governmental Regulation

         The  following  discussion of regulation of the oil and gas industry is
necessarily brief and is not intended to constitute a complete discussion of the
various statutes,  rules, regulations or governmental orders to which operations
of GREKA Energy may be subject.

Price Controls on Liquid Hydrocarbons

         Oil sold by GREKA Energy is no longer subject to the Crude Oil Windfall
Profits Tax Act of 1980,  as amended,  which was repealed in 1988.  As a result,
GREKA  Energy sells oil  produced  from its  properties  at  unregulated  market
prices.

Federal Regulation of First Sales and Transportation of Natural Gas

         The sale and  transportation  of natural gas production from properties
owned by GREKA Energy may be subject to  regulation  under  various  federal and
state laws  including,  but not  limited to, the Natural Gas Act and the Natural
Gas Policy Act, both of which are administered by the Federal Energy  Regulatory
Commission.  The  provisions of these acts and  regulations  are complex.  Under
these acts,  producers and marketers  have been required to obtain  certificates
from FERC to make sales, as well as obtaining  abandonment approval from FERC to
discontinue sales. Additionally, first sales have been subject to maximum lawful
price regulation.  However, the NGPA provided for phased-in deregulation of most
new gas  production  and, as a result of the  enactment  on July 26, 1989 of the
Natural Gas Wellhead Decontrol Act of 1989, the remaining regulations imposed by
the NGA and the NGPA with respect to "first sales" were  terminated by not later
than January 1, 1993. FERC jurisdiction over transportation and sales other than
"first sales" has not been affected.

         Because of current market conditions,  many producers,  including GREKA
Energy, are receiving contract prices substantially below most remaining maximum
lawful  prices under the NGPA.  Management  believes  that most of the gas to be
produced from GREKA Energy's properties is already price-deregulated.  The price
at which  such gas may be sold  will  continue  to be  affected  by a number  of
factors,  including  the price of alternate  fuels such as oil. At present,  two
factors affecting prices are gas-to-gas  competition among various gas marketers
and storage of natural gas.  Moreover,  the actual prices  realized  under GREKA
Energy's  current gas sales  contracts also may be affected by the nature of the
decontrolled price provisions  included therein and whether any indefinite price
escalation clauses in such contracts have been triggered by federal decontrol.

         The  economic  impact on GREKA  Energy and gas  producers  generally of
price decontrol is uncertain,  but it currently appears to be resulting in lower
gas prices.  Currently,  there is a surplus of deliverable  gas in most areas of
the United  States and,  accordingly,  it remains  possible that gas prices will
continue to remain at relatively depressed levels or decrease further. Moreover,
many gas sales contracts provide for price redetermination upon decontrol,  and,
as a result, it is possible that the newly redetermined  prices applicable under
such  contracts  are likely to reflect  the lower  prices  prevalent  in today's
market.  Producers  such as GREKA Energy or resellers  may be required to reduce
prices  in  order  to  assure  continued  sales.  It is also  possible  that gas
production  from certain  properties  may be shut-in  altogether  for lack of an
available market.

                                       17

<PAGE>

         Commencing in the mid-1980's,  FERC promulgated several orders designed
to correct  market  distortions  and to make gas  markets  more  competitive  by
removing the transportation  barriers to market access.  These orders have had a
profound influence upon natural gas markets in the United States and have, among
other  things,  fostered  the  development  of a large spot market for gas.  The
following is a brief  description of the most significant of those orders and is
not  intended to  constitute  a complete  description  of those  orders or their
impact.

         On  April 8,  1992,  FERC  issued  Order  636,  which  is  intended  to
restructure both the sales and  transportation  services  provided by interstate
natural gas  pipelines.  The purpose of Order 636 is to improve the  competitive
structure of the  pipeline  industry and  maximize  consumer  benefits  from the
competitive  wellhead gas market.  The major  function of Order 636 is to assure
that the services non-pipeline companies can obtain from pipelines is comparable
to the services  pipeline  companies offer to their gas sales customers.  One of
the key features of the Order is the  "unbundling"  of services  that  pipelines
offer their customers.  This means that pipelines must offer  transportation and
other services separately from the sale of gas. The Order is complex,  and faces
potential  challenges  in court.  GREKA Energy is not able to predict the effect
the Order might have on its business.

         FERC regulates the rates and services of "natural-gas companies", which
the NGA defines as persons  engaged in the  transportation  of gas in interstate
commerce for resale. As previously discussed,  the regulation of producers under
the NGA is being gradually phased out. Interstate pipelines,  however,  continue
to be regulated by FERC under the NGA.  Various state  commissions also regulate
the rates and services of pipelines  whose  operations are purely  intrastate in
nature,  although  generally  sales to and  transportation  on  behalf  of other
pipelines or industrial end-users are not subject to material state regulation.

         There are many  legislative  proposals  pending in Congress  and in the
legislatures of various states that, if enacted,  might significantly affect the
petroleum  industry.  It is impossible to predict what proposals will be enacted
and what effect, if any, such proposals would have on GREKA Energy.

State and Local Regulation of Drilling and Production

         State regulatory  authorities  have  established  rules and regulations
requiring   permits  for  drilling,   drilling  bonds  and  reports   concerning
operations.  The states in which GREKA Energy  operates  also have  statutes and
regulations  governing  a number  of  environmental  and  conservation  matters,
including  the   unitization   and  pooling  of  oil  and  gas   properties  and
establishment  of maximum  rates of  production  from oil and gas  wells.  A few
states also pro-rate production to the market demand for oil and gas.

Environmental Regulations

         Operations of GREKA Energy are subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise  relating
to  environmental  protection.  These  laws  and  regulations  may  require  the
acquisition of a permit before drilling commences,  prohibit drilling activities
on certain lands lying within  wilderness and other  protected  areas and impose
substantial  liabilities for pollution resulting from drilling operations.  Such
laws and  regulations  may also restrict air or other  pollution  resulting from
GREKA Energy's  operations.  Moreover,  many commentators believe that the state
and federal environmental laws and regulations will become more stringent in the
future.  For  instance,  proposed  legislation  amending  the  federal  Resource
Conservation and Recovery Act would reclassify oil and gas production  wastes as

                                       18

<PAGE>

"hazardous waste". If such legislation were to pass, it could have a significant
impact  on the  operating  costs  of  GREKA  Energy,  as well as the oil and gas
industry in general.  State  initiatives to further regulate the disposal of oil
and gas wastes are also  pending in certain  states,  including  states in which
GREKA Energy has operations,  and these various  initiative could have a similar
impact on GREKA Energy.

         GREKA Energy has not filed any reports  with  estimates of its reserves
with any federal  authority or agency,  other than the  Securities  and Exchange
Commission and the Department of Energy.

Operational Hazards and Insurance

         GREKA Energy's  operations are subject to the usual hazards incident to
the  drilling  and  production  of oil and  gas,  such as  blowouts,  cratering,
explosions,  uncontrollable  flows of oil, gas or well fluids,fires,  pollution,
releases of toxic gas and other  environmental  hazards and risks. These hazards
can cause personal injury and loss of life,  severe damage to and destruction of
property and  equipment,  pollution or  environmental  damage and  suspension of
operations.

         GREKA  Energy has up to  $15,000,000  of general  liability  insurance.
GREKA Energy's insurance does not cover every potential risk associated with the
drilling  and  production  of  oil  and  gas.  In  particular,  coverage  is not
obtainable  for certain  types of  environmental  hazards.  The  occurrence of a
significant  adverse  event,  the  risks  of  which  are not  fully  covered  by
insurance,  could have a material  adverse  effect on GREKA  Energy's  financial
condition and results of  operations.  Moreover,  no assurance can be given that
GREKA Energy will be able to maintain adequate  insurance in the future at rates
it considers reasonable.

Employees

         As of August  27,  1999,  GREKA  Energy  and its  subsidiaries  had 105
full-time employees. None of GREKA Energy's employees is subject to a collective
bargaining agreement. GREKA Energy considers its relations with its employees to
be satisfactory.

Item 2.  Description of Property.

GREKA Energy's Properties as of December 31, 1998

California Cat Canyon Field

         In October  1997,  GREKA  Energy  acquired a 200 acre lease  within the
Santa Maria  Valley in  California.  The  purchase  price was $1.65  million and
included all the formations along with all the infrastructures that includes two
separate gathering systems and 20 well bores of which ten are producing.

         Following in-depth evaluations,  GREKA Energy believes that significant
enhancements  focused primarily on its niche  short-radius  horizontal  drilling
know-how  can result in  sustained  increase of oil  production.  Based on these
evaluations, a drilling program funded by GREKA Energy's financial resources has
been activated.

         In view of the  acquisition of Saba's Cat Canyon  properties  where all
the  gathering  systems are  already in place,  management  of GREKA  Energy has
decided to focus its  activities in  California,  and thus placed GREKA Energy's
program in Illinois on hold until preferable summer weather  conditions exist to
facilitate the commencement of drilling and completion programs.

                                       19

<PAGE>


Limestone Properties

         Indiana - Monroe  Field.  At December  31,  1998,  GREKA  Energy  owned
through its wholly owned  subsidiary,  Calox Inc, a 355 acre limestone  property
located in Monroe County,  Indiana.  GREKA Energy owned the land, timber and all
the mineral rights associated with the property. The limestone deposits are made
up of Salem  limestone,  which produces a high industrial grade calcium oxide or
calcium carbonate used in scrubbing  machinery that cleans the gaseous emissions
from coal burning generators.

         At  December  31,  1998,   International  Publishing  Holding  s.a.,  a
significant  shareholder of GREKA Energy,  held a three year option  expiring on
September 9, 2000 to acquire 90% of the shares of Calox for $3.5 million.

         In April 1999,  GREKA Energy and IPH closed an agreement with Pembrooke
Calox,  Inc. for the sale of GREKA  Energy's  and IPH's  interests in a 355-acre
limestone property located in Indiana in exchange for a non-recourse  promissory
note, secured by the limestone property.  The buyer had the option to pay either
$3.85 million by July 31, 1999 followed by four annual payments of $200,000 each
beginning in 2001,  or $5.7 million by November 1, 1999.  The buyer had not paid
any funds to GREKA  Energy or IPH on or before  July 31,  1999.  As part of this
transaction,  GREKA Energy paid  Pembrooke  $50,000 and issued  16,736 shares of
common stock  following the filing of a  registration  statement on May 17,1999.
GREKA Energy has not recorded the sales transaction due to the terms of the sale
and pending realization of the note receivable on November 1, 1999.

Oil and Gas Reserves

         GREKA Energy's oil and gas properties are primarily based in California
and Illinois though the area of focus since the  acquisitions had been primarily
California.  GREKA  Energy  engaged  Netherland,  Sewell &  Associates,  Inc. to
evaluate the California  properties while the Illinois properties were evaluated
by two individual independent engineers and geologists. Estimates are based on a
review of production  histories and geologic reports provided to the independent
engineers by GREKA Energy.

         As a part of the decision to acquire Saba,  management recently decided
not to continue to pursue the Illinois properties.  This effectively  eliminates
94,080 bbls of Proved Developed  Non-Producing  oil and 1,732,305 bbls of Proven
Undeveloped oil from the 1997 reserves set forth below.  This has the additional
effect of reducing future net revenues in all categories except Proved Developed
Producing by approximately two-thirds.

         The present values of estimated  future net revenues as of December 31,
1998 (discounted at 10% per annum) set forth in the table below are not intended
to  represent  the current  market value of the  estimated  oil and gas reserves
owned by GREKA Energy. For further  information  concerning the present value of
future net revenue from these proved reserves, see the Notes to the Consolidated
Financial Statements of GREKA Energy located elsewhere herein.

                                       20

<PAGE>

                          Future Net
                          Reserves                            Revenue $
                       --------------                   -------------------
                             Oil
                           (bbls)                       Total        PV-10

Proved Developed
Producing                   -                          $   -       $   -

Proved Developed
Non-Producing            127,261                       $105,700    $ 42,500

Proved
Undeveloped              122,960                       $386,100    $218,200

Total Proved             250,221                       $491,800    $260,700


         There are numerous  uncertainties  inherent in estimating quantities of
proved  reserves  and in  projecting  future rates of  production  and timing of
development  expenditures,  including  many  factors  beyond the  control of the
producer.  The reserve data set forth above  represents only estimates.  Reserve
engineering is a subjective process of estimating  underground  accumulations of
oil and gas that  cannot be measured  in an exact way,  and the  accuracy of any
reserve  estimate  is a  function  of  the  quality  of  available  data  and of
engineering  and  geological  interpretation  and judgment and the  existence of
development plans. As a result, estimates of different engineers often vary. For
example,  GREKA  Energy  has  substantially  increased  its  proved  undeveloped
reserves  from  initial   reserve   estimates   made  at  the  time  of  certain
acquisitions.   In  addition,   results  of  drilling,  testing  and  production
subsequent  to the date of an estimate may justify  revision of such  estimates.
Accordingly,  reserve  estimates are often  different from the quantities of oil
and gas that  are  ultimately  recovered.  Further,  the  estimated  future  net
revenues  from  proved  reserves  and the present  value  thereof are based upon
certain  assumptions,  including  geologic  success,  prices,  future production
levels and costs, that may not prove correct over time. Predictions about prices
and  future  production  levels  are  subject  to  great  uncertainty,  and  the
meaningfulness  of such  estimates is highly  dependent upon the accuracy of the
assumptions upon which they are based. Oil and gas prices have fluctuated widely
in recent years.

Production

         The  following  table sets forth the average  sales price,  the average
production  cost (lifting  costs) and net production to GREKA Energy for each of
the last three fiscal years of oil production in the Illinois  Basin  (Illinois,
Indiana, and Kentucky)and California per unit of production (oil barrels, Bbl):

                                                    Illinois
                                    ----------------------------------------
                                    1996              1997              1998
                                    ----              ----              ----
Average Sales Price
    Per Unit:
         Oil                       $20.42            $19.21            $  -

Lifting Costs Per Unit:
         Oil                       $10.94            $6.80             $  -

Net Production to
    GREKA Energy:
         Oil (Bbls)                 1,252              450               -

                                       21

<PAGE>

                                                   California
                                   -----------------------------------------
                                   1996*             1997*              1998
                                   ----              ----               ----
Average Sales Price
    Per Unit:
         Oil                          -              $10.55             $6.33

Lifting Costs Per Unit:
         Oil                          -               $5.31             $7.68

Net Production to
    GREKA Energy:
         Oil (Bbls)                   -               1,832            12,935

*There was no activity in California prior to 1997.

Acreage

         The following table sets forth the gross and net acres of developed and
undeveloped oil and gas leases held by GREKA Energy as of December 31, 1998, and
includes the 150 net acres owned as of year end.  Undeveloped  acreage  includes
leasehold  interests which may already have been classified as containing proved
undeveloped reserves.

                         Developed Acreage(1)      Undeveloped Acreage
                         --------------------      -------------------

                           Gross       Net         Gross         Net

California                  185        150           -            -


<PAGE>


Illinois                     -          -            -            -

    Total                   185        150           -            -


Drilling Activity

         The  following  table sets forth the wells  drilled or  re-entered  and
horizontally  re-drilled  and  completed by GREKA  Energy  during the last three
fiscal years:

                                1996               1997              1998
                                ----               ----              ----
                             Gross   Net        Gross   Net       Gross   Net
Development:
      Oil                      3   .375           2    1.67         1   .795
      Gas                      -     -            -      -          -     -
      Non-Productive           -     -            -      -          1   .795

   Total                       3   .375           2    1.67         2   1.59



(1)  Developed  acreage is acreage  assigned to producing  wells for the spacing
     unit of the  producing  formation.  Developed  acreage  in certain of GREKA
     Energy's  properties that include  multiple  formations with different well
     spacing requirements may be considered  undeveloped for certain formations,
     but have only been included as developed acreage in the presentation above.

                                       22

<PAGE>

The following table sets forth  information  relating to the number of oil wells
in which GREKA Energy owned a working interest at December 31, 1998:


                                                          Gross     Net
                                                          -----     ---
Proven Developed Producing                                  -        -
Proven Developed Non-Producing                              3       2.39
Proven Undeveloped - Re-Entries
 of Existing Wells                                          -        -
Proven Undeveloped - New Wells                              1        .795


At December  31, 1998,  GREKA  Energy had a 100% working  interest in all of the
above wells.

Development, Exploration, and Acquisition Expenditures

         The following table sets forth certain information  regarding the costs
incurred  by  GREKA  Energy  in its  development,  exploration  and  acquisition
activities.

                                 1996               1997               1998
                                 -----              ----               ----
Development Costs               $90,000           $132,564           $667,919

Exploration Costs                   -                  -                  -

Acquisition Costs:
   a) Unproved Properties           -                  -                  -
   b) Proved Properties             -             1,650,000               -
                              ----------         ----------        ----------
Total  Expenditures             $90,000          $1,782,564          $667,919


Title to Properties

         Substantially  all of GREKA  Energy's  property  interests  are held by
leases from third  parties.  A title opinion is typically  obtained prior to the
commencement  of drilling  operations on  properties.  GREKA Energy has obtained
title  opinions on  substantially  all of its producing  properties and believes
that it has  satisfactory  title to such properties in accordance with standards
generally  accepted in the oil and gas industry.  GREKA Energy's  properties are
subject  to  customary  royalty  interests,  liens for  current  taxes and other
burdens which GREKA Energy believes do not materially  interfere with the use of
or affect the value of such  properties.  GREKA Energy  performs  only a minimal
title investigation before acquiring undeveloped properties.

Offices

         GREKA Energy leases  approximately 1,000 square feet of office space at
630 Fifth Avenue, Suite 1501, New York, New York, for its executive offices on a
one year lease.  GREKA  Energy's  operational  and field  offices are located in
Santa Maria, California, Beijing, China, Tulsa and Edmond, Oklahoma, and
Calgary, Alberta.

Saba Petroleum Company's Properties as of December 31, 1998

         Saba owned interests in approximately 1,229 wells at December 31, 1998.
The  majority  of  these  wells  are  concentrated  along  the  central  cost of
California and in the Middle Magdalena Basin of Colombia.  These regions,  which
primarily produce a low gravity/high viscosity or "heavy" oil, will be the focus
of near-term  development drilling  activities.  At December 31, 1998, Saba also
operated wells and had exploration and development  activities in several states
outside of  California  and,  through a  majority-owned  subsidiary,  in western
Canada. Saba's evaluation of international  projects resulted in the acquisition
of exploration projects in Indonesia, Great Britain and China.

                                       23


<PAGE>


United States

         California

         Approximately 15.8% of Saba's proved reserves at December 31, 1998 (2.8
MMBOE) were located in four onshore fields in California's central coast region.
Daily  production  from the Central Coast Fields averaged 1,465 BOE for the year
ended December 31, 1998,  representing  24.0% of Saba's total  production.  Saba
operates all of its wells in the Central Coast Fields. Saba also holds interests
in other California  areas,  which represented 6.3% (1.1 MMBOE) of Saba's proved
reserves at December  31,  1998.  Daily  production  from these other  interests
averaged 654 BOE for the year ended  December 31,  1998,  representing  10.7% of
Saba's total production.

         Louisiana

         Approximately 20.1% of Saba's proved reserves at December 31, 1998 (3.6
MMBOE)  were  located in two fields in  Louisiana.  An  interest in one of these
fields  was first  acquired  during  1996,  the other in 1997,  with  additional
interests  in both  fields  acquired  in  April  1998.  Saba's  share  of  daily
production  from  the  Louisiana  fields  averaged  572 BOE for the  year  ended
December 31, 1998, representing 9.4% of the Company's total production.

         Other States

         In addition  to its  California  and  Louisiana  properties,  Saba owns
producing  properties  in a number of other  states,  primarily  New  Mexico and
Texas, which collectively represented 5.1% of Saba's proved reserves at December
31, 1998 (0.9 MMBOE).  Daily production from these  properties  averaged 695 BOE
for the year  ended  December  31,  1998,  representing  11.4% of  Saba's  total
production. International

         Colombia

         Approximately 45.4% of Saba's proved reserves at December 31, 1998 (8.1
MMBOE) were located in several  fields in  Colombia's  Middle  Magdalena  Basin.
Daily  production  from  these  fields  averaged  2,256  Bopd for the year ended
December 31, 1998,  representing  36.9% of Saba's total production.  At December
31,  1998,  Saba  also  held  a 50%  interest  in the  118-mile  Velasquez-Galan
Pipeline, which connects the fields to a 250,000 Bopd government-owned  refinery
at  Barrancabermeja.  Saba has sold all of those  assets,  which  were  owned by
Saba's subsidiary  Sabacol, to Omimex as described under "Item 1. Description of
Business Recent Saba Developments - Bankruptcy of Sabacol, Inc. and Contract for
Sale of Sabacol's Assets."

         During  1997,  Saba and the  operator  participated  in the drilling or
recompletion  of thirteen  wells in the Teca and South Nare  Fields.  All of the
wells drilled were productive and the operator is installing steaming equipment.
Saba and the operator also  reentered a suspended  well acquired from Texaco and
drilled  to an area  under  the  Magdalena  River  and  recompleted  the well as
productive of approximately 30 Bopd without artificial  stimulation.  During the
year ended December 31, 1998, Saba and the operator participated in the drilling
and  completion  of  seven  wells  in the  Teca and  South  Nare  Fields.  Three
additional wells were recompleted during the year ended December 31, 1998, and a
second well under the Magdalena River was drilled and completed.

                                       24



<PAGE>

         Canada

         Approximately  7.3% of Saba's proved reserves at December 31, 1998 (1.3
MMBOE) were located in Canada. Daily production from these properties, which are
owned through an approximately  74%-owned  subsidiary of Saba,  averaged 464 BOE
for the  year  ended  December  31,  1998,  representing  7.6% of  Saba's  total
production.

         Other International Properties

         In September 1997, Saba and Pertamina,  the Indonesian  state-owned oil
company,  signed a production  sharing contract covering 1.7 million  unexplored
acres on the Island of Java near a number of producing oil and gas fields.  This
agreement will require Saba to spend approximately $17.0 million in a multi year
project in addition to the approximate  $1.8 million expended as of December 31,
1998. GREKA Energy is seeking a joint venture partner to share the costs of this
project;  however,  the recent  political  turmoil in  Indonesia  may affect the
timing and terms of such agreement.

         In July 1997, Saba entered into an agreement to become the operator and
a 75% working interest holder of two exploration  licenses which cover a 123,000
acre  exploration  area in  southern  Great  Britain.  On March 31,  1998,  Saba
assigned a 3.75%  carried  working  interest  in the first well to be drilled on
this concession as payment of a finder's fee. By agreement dated April 14, 1998,
Saba sold one half of its net  interest in this  concession  to Omimex at Saba's
cost. A formal  assignment has not been conveyed to Omimex and Saba continues to
hold Omimex's interest in the prospect in trust. Saba had incurred costs, net to
its retained 37.5% interest, of approximately  $946,000 as of December 31, 1998,
in connection  with the  concession  acquisition  and drilling of an exploratory
well on the  concession.  The well did not encounter  hydrocarbons  and has been
abandoned. Results from the initial well did not condemn the entire prospect and
data obtained from the test well is being evaluated for further  interpretation.
Saba has not yet executed the joint operating agreement for the prospect.  While
holding Omimex's  interest in trust,  Saba may be liable to Omimex if it were to
execute the joint  operating  agreement  that  provides for  foreclosure  upon a
working interest owner due to non-payment.

     In August  1999,  GREKA  Energy  announced  its  execution  of a production
sharing  contract  with the China United  Coalbed  Methane  Corporation  Ltd. to
jointly  exploit coalbed  methane  resources in Fengcheng,  East China's Jiangxi
Province.  The contract  block in which GREKA Energy has a 49% working  interest
covers a total area of 380,534 acres. The 30-year  contract  provides that GREKA
Energy as operator  will drill at least ten coalbed  methane  wells over a three
year term.  Implementation  of the project is scheduled to begin  following  the
contract's  final  approval  from the  Chinese  Ministry  of  Foreign  Trade and
Economic Cooperation.

         From January 1, 1992  through  December  31,  1998,  Saba  completed 28
property  acquisitions with an aggregate  purchase price of approximately  $46.4
million.  These properties,  as improved through Saba's development  efforts and
including associated drilling activities,  represented  approximately 17.7 MMBOE
of proved  reserves as of December 31,  1998.  Saba's  all-in-finding  costs for
these acquisitions and related activities have averaged $3.61 per BOE.

    Exploration and Development Drilling Activities

         Saba has  identified a number of drilling  locations on its  properties
located in the United States, primarily in California, Louisiana and New Mexico.
Saba also pursues the  acquisition  of high potential  exploration  prospects to
enhance  its  inventory  of  drilling  opportunities.  Beginning  in 1997,  Saba
initiated exploration activities in Indonesia,  Great Britain and California. It
completed  the analysis of a 3-D seismic  survey  covering  some 10,500 acres of
land in which it has  interests  in the area of the  Coalinga  oil field in Kern
County,  California,  resulting in defining a number of drillable prospects; has

                                       25

<PAGE>

entered into an agreement  with a subsidiary of Chevron Corp. by which Saba will
analyze Chevron 3-D seismic data covering lands in Kern County,  California, and
if warranted, will drill exploratory wells on Chevron fee lands. See "Property -
California  Exploration  Ventures" and  "Exploration  and  Development  Drilling
Activities - Other International Properties."

    GREKA Energy's 1999 capital  expenditure  budget for properties  acquired in
the  acquisition  of Saba is dependent  upon the price for which its oil is sold
and upon the ability of GREKA Energy to obtain  external  financing.  Subject to
these  variables,  GREKA  Energy will incur only  absolutely  essential  capital
expenditures  during 1999 on the Saba  properties.  GREKA  Energy  currently  is
budgeting one year at a time and has deferred any long term capital  expenditure
program. GREKA Energy has deferred certain capital expenditures in the following
areas:

*    Coalinga exploration project in California,

*    other  California  projects,  where  farmouts are actively being sought for
     some properties and where development work has been delayed,

*    Indonesia, where spending has been significantly reduced, and

*    Louisiana,  where a seismic  study and  other  developmental  work has been
     delayed.

         GREKA   Energy  may  elect  to  make   further   deferrals  of  capital
expenditures if oil prices remain at current levels. Capital expenditures beyond
1999  will  depend  upon  1999  drilling  results,  oil  price  levels  and  the
availability of external financing.

         Beginning  in  June  1997,  Saba  initiated  use  of  another  enhanced
production  technique  known as  SAGD.  This  technique  involves  drilling  two
horizontal  wells in a parallel  configuration,  one  above,  and within a short
distance of, the other.  After drilling is complete,  steam is injected into the
upper  wellbore,  which creates a steam chamber and heats the oil so that it may
flow by gravity to the lower producing wellbore for extraction. The SAGD process
has been successfully  employed by other companies in Canada in thick reservoirs
containing  viscous  oils,  similar to those found in areas of the Central Coast
Fields. Although this technique is initially more costly than employing a single
horizontal  well,  Saba  anticipates  that it will result in increased  rates of
production and recovery and lower per-unit  production  costs.  Saba has drilled
one pair of SAGD wells on its Gato Ridge  Field and is  awaiting  local  permits
before initiating steaming operations,  but does not anticipate  commencing such
operations until oil prices improve.

         California

         Saba's  drilling  operations in  California  are focused on the Central
Coast Fields,  which consist of four onshore fields that  collectively  comprise
approximately  4,525 gross  (4,487 net)  developed  acres and 1,139 gross (1,138
net)  undeveloped  acres.  Saba intends to  capitalize on the potential of these
properties  through a five year multiwell  drilling  program.  The Central Coast
Fields  consist of the Cat Canyon,  Gato Ridge,  Santa Maria Valley and Casmalia
fields. Saba also has producing  properties in Ventura,  Solano, Kern and Orange
Counties,  California. Of these properties, Saba regards the Cat Canyon and Gato
Ridge fields, both heavy oil properties,  as the most significant and upon which
it  has  focused  its  development  drilling  efforts.   Aggressive  development
activities during 1997, in contemplation of significantly  increased production,
included the installation of surface  facilities for handling much more oil than
Saba presently  produces from the  properties.  The recent decline in oil prices
coupled with the drilling  results of the 1997 program  render it doubtful  that
GREKA Energy will realize its initially  projected rates of return.  In addition
to  the  producing   properties,   Saba  has  several  exploratory  projects  in
California. See "Property-California Exploration Ventures."

                                       26

<PAGE>

         Overall,  Saba  during  1998  experienced  a 14.5%  decrease  in annual
production from its California  properties (from 904 MBOE in 1997 to 773 MBOE in
1998).  Development  costs incurred by Saba in California  during 1998 were $1.5
million. The economic benefits derived from the program were substantially below
Saba's  expectations.  Notwithstanding  the 1998 results,  GREKA Energy believes
that the focus on the Central Coast Fields will  ultimately  be justified.  This
belief is based in part on the established  synergy between  production from the
Central Coast Fields and the asphalt  refinery  located in Santa Maria,  in that
Saba is able to sell its  production  to the  refinery at a price  reflecting  a
premium to market. Generally, the crude oil produced in the Santa Maria Basin is
of low gravity and makes an excellent asphalt.  Recent prices for asphalt exceed
market prices for crude oil and costs of operating  the refinery.  Saba believes
that as road building and repair increase in California and surrounding  western
states, the market for asphalt will expand significantly.

         At April 15, 1999,  Saba had drilled and completed 13 horizontal  wells
in the Sisquoc sands of the Cat Canyon Field. At April 15, 1999, twelve of these
wells were  producing  at rates  from 40 to 140 Bopd;  the  thirteenth  well had
encountered a sand intrusion  problem which Saba is attempting to rectify.  Saba
also drilled one pair of SAGD wells in the Gato Ridge  Field,  which is awaiting
local permits and oil price increases before  production will be attempted.  Two
horizontal wells drilled to test a different zone in this field have encountered
severe  sand  production  and are  presently  planned  to  undergo  recompletion
operations during 1999.

         Louisiana

         Saba acquired an 80% working  interest in the Potash Field in September
1997 and the remaining 20% working  interest in April 1998.  Proved  reserves of
Saba's interest in the field were  approximately  13.7 Bcf and approximately 1.1
MMBbl at December 31, 1998.  Saba's  share of daily  production  from the Potash
Field, including the 1998 acquired interest,  averaged 82 Bopd and 1.7 MMcfd for
the year ended  December  31,  1998.  Increases  in  productivity  and  possibly
reserves are expected to be achieved through completion of a number of potential
zones presently behind pipe in existing wells.  These potential  producing zones
range in depth from 1,500 to 15,000 feet. Further technical programs,  including
a possible 3-D seismic shoot, are planned to evaluate the exploration  potential
of Saba lands associated with this field. Saba owned a 40.5% working interest in
the Manila  Village Field and acquired an additional  10.2% working  interest in
April  1998.  Saba may be  subject  to certain  environmental  liabilities  with
respect to its interest in the Manila Village Field.  Saba's net proved reserves
at December 31, 1998,  including the 1998 acquired interest,  were approximately
187 MBbl and 73 MMcf.  Saba's  share  of daily  production,  including  the 1998
acquired  interest,  averaged 201 BOEPD for the year ended  December 31, 1998. A
3-D seismic  program is  scheduled  for 1999 or beyond to  determine  additional
opportunities to further develop this field.

         Colombia

         At December 31, 1998,  Saba owned  interests in two  Association  Areas
(Cocorna and Nare) and one fee property  (Velasquez) all of which are located in
the Middle Magdalena Basin,  some 130 miles northwest of Bogota,  Colombia.  The
Association  Areas  encompass  several  fields,  some  of  which  are  partially
developed and some of which await development. At April 15, 1999, the Teca, Nare
and Velasquez fields were under  development.  The Association  Areas,  Nare and
Cocorna,  were held under  Articles of  Association  between  Empresa  Petroleos
Colombiana and Saba's predecessor in interest, a subsidiary of Texaco, Inc. Each
Association  Area is large enough to encompass more than one commercial  area or
field. Saba has sold all of those assets,  which were owned by Saba's subsidiary
Sabacol,  to Omimex as described under "Item 1. Description of Business - Recent
Saba  Developments  -  Bankruptcy  of Sabacol,  Inc.  and  Contract  for Sale of
Sabacol's Assets."

                                       27

<PAGE>

         During 1997, Saba and its operator  successfully  completed or reworked
fourteen  wells of the  development  program,  which  wells have met or exceeded
initial  production  expectations.  The 200 well program is a  refinement  of an
approximate 600 well program  originally  designed by Texaco. The Texaco program
was not  implemented  due to what Saba  believed  was  Ecopetrol's  concern with
refinery  capacity  and oil  prices.  In 1997,  approval  was  obtained  for the
drilling of 21 development  wells in the Teca and Nare Fields,  13 of which were
completed  during  the  year.  Also,  a  well  under  the  Magdalena  River  was
recompleted during that year. In the Velasquez Field, the operator recompleted a
behind  pipe zone in three  gross  (0.75  net) wells in 1997.  Initial  per well
production  rates ranged from 142 Bopd to 223 Bopd.  Studies  through  April 15,
1999 indicated up to 23 wells with behind pipe zones suitable for  recompletion.
During the year ended December 31, 1998,  seven wells were drilled and completed
in the Teca and South Nare Fields, three wells were recompleted in the Velasquez
Field and one well was drilled and completed under the Magdalena River.

         Canada

         Saba's  Canadian  properties,  which  are  owned  through  Beaver  Lake
(Alberta  Stock  Exchange),  represented  approximately  7.3% of  Saba's  proved
reserves (BOE) at December 31, 1998. The Canadian properties produced an average
of 464 BOEPD for the year  ended  December  31,  1998,  from 120 wells  covering
47,688 gross  (11,363.0 net) developed  acres,  most of which are located in the
province  of  Alberta.  These  properties  had proved  reserves  of 1.3 MMBOE at
December 31,  1998.  The  information  presented  has not been  adjusted for the
approximate 26% minority  interest in Beaver Lake held by others at December 31,
1998.  See "Business -- Exploration  and  Development  Drilling  Activities - --
Other United States and Canadian Properties."

         In July 1999,  GREKA  Energy  acquired  the  remaining  common stock of
Beaver Lake Resources  Corporation  ("BLRC") that it did not hold effective July
31, 1999 whereby GREKA Energy will issue a total of approximately  68,000 shares
resulting in each BLRC  shareholder  receiving 1 share of GREKA Energy's  common
stock in exchange for 74.4 shares of BLRC's common stock.  Beaver Lake Resources
Corporation is now a wholly-owned subsidiary of GREKA Energy.

    Other International Properties

         In September 1997, Saba and Pertamina,  the Indonesian  state-owned oil
company,  signed a production  sharing contract covering 1.7 million  unexplored
acres on the Island of Java near a number of producing oil and gas fields.  Saba
is required to spend  approximately  $17.0  million  over a multi year period on
this  project,  in  addition  to the  approximate  $1.8  million  expended as of
December  31,  1998  on  bonus  payments,   data   acquisition  and  geophysical
investigation.  Saba  expected  and GREKA  Energy  expects to identify  drilling
locations  based on geologic  trends  identified  through its review of existing
seismic  data,  satellite  images and the  results of a  potential  3-D  seismic
program to be performed in 1998 and 1999. GREKA Energy has held discussions with
several   potential   joint  venture   partners  with  a  view  to  negotiate  a
participation  agreement.  In view of this,  GREKA Energy has slowed its pace of
activity;  however,  the recent  political  turmoil in Indonesia  may affect the
timing and terms of such agreement.

                                       28

<PAGE>

         In July 1997,  Saba entered into an  agreement  to  participate  in two
exploration  licenses  which cover a 123,000 acre  exploration  area in southern
Great Britain in which Saba had a right to acquire a 75% working interest earned
upon  drilling  and  payment  of its share of costs.  On March  31,  1998,  Saba
assigned a 3.75%  carried  working  interest  in the first well to be drilled on
this concession as payment of a finder's fee. By agreement dated April 14, 1998,
Saba sold one half of its net  interest in this  concession  to Omimex at Saba's
cost.  A formal  assignment  has not been  conveyed  to Omimex  and the  Company
continues to hold Omimex's  interest in the prospect in trust. Saba had incurred
costs, net to its retained 37.5% interest, of approximately $946,000 at December
31,  1998 in  connection  with the  concession  acquisition  and  drilling of an
exploratory well on the concession.  The well did not encounter hydrocarbons and
has been  abandoned.  Results  from the initial  well did not condemn the entire
prospect and data  obtained  from the test well is being  evaluated  for further
interpretation.  Saba has not yet executed the joint operating agreement for the
prospect. While holding Omimex's interest in trust, Saba may be liable to Omimex
if  it  were  to  execute  the  joint  operating  agreement  that  provides  for
foreclosure upon a working interest owner due to non-payment.

         In August 1999,  GREKA Energy  announced  its execution of a production
sharing  contract  with the China United  Coalbed  Methane  Corporation  Ltd. to
jointly  exploit coalbed  methane  resources in Fengcheng,  East China's Jiangxi
Province.  The contract  block in which GREKA Energy has a 49% working  interest
covers a total area of 380,534 acres. The 30-year  contract  provides that GREKA
Energy as operator will drill at least ten coalbed  methane  wells over a three
year term.  Implementation  of the project is scheduled to begin  following  the
contract's  final  approval  from the  Chinese  Ministry  of  Foreign  Trade and
Economic Cooperation.

    Other United States Properties

         Other than its California and Louisiana properties,  Saba had interests
in approximately 200 oil and gas wells at December 31, 1998, located principally
in Texas,  Michigan,  New Mexico and Oklahoma,  with other interests  located in
Utah and Wyoming.  Saba seeks to acquire  domestic and  international  producing
properties where it can significantly  increase reserves through  development or
exploitation  activities and control costs by serving as operator. Saba believes
that its substantial experience and established relationships in the oil and gas
industry enable it to identify,  evaluate and acquire high potential  properties
on favorable  terms. As the market for  acquisitions has become more competitive
in  recent  years,  Saba  has  taken  the  initiative  in  creating  acquisition
opportunities,  particularly  with respect to adjacent  properties,  by directly
soliciting fee owners, as well as working and royalty interest holders, who have
not  placed  their  properties  on the  market.  Saba also  plans to expand  its
existing   reserve  base  by  acquiring  or   participating  in  high  potential
exploration   prospects  in  known  productive  regions.   Saba  believes  these
activities complement its traditional  development and exploitation  activities.
In pursuing these exploration opportunities, Saba may use advanced technologies,
including 3-D seismic and satellite imaging. In addition, Saba may seek to limit
its direct financial exposure in exploration projects by entering into strategic
partnerships.

     Oil and Gas Properties

         At December 31, 1998, approximately 22% of Saba's proved reserves (BOE)
were in California,  primarily in the Central Coast Fields and approximately 45%
were attributable to Saba's Colombian properties.

                                       29

<PAGE>


         The following  table  summarizes  Saba's  estimated  proved oil and gas
reserves by  geographic  area as of  December  31,  1998.  The  following  table
includes  both  proved  developed   (producing  and  non-producing)  and  proved
undeveloped  reserves.  Approximately 42% of the total reserves reflected in the
following  table are  proved  undeveloped.  There can be no  assurance  that the
timing of drilling,  reworking and other operations,  volumes,  prices and costs
employed by the  independent  petroleum  engineers  will prove  accurate.  Since
December 31, 1998,  oil and gas prices have generally  increased.  At such date,
the price of WTI crude oil as  quoted on the New York  Mercantile  Exchange  was
$12.80 per Bbl and the comparable price at March 30, 1999 was $16.80. Quotations
for the comparable periods for natural gas were $1.95 per Mcf and $1.98 per Mcf,
respectively.  The proved  developed and proved  undeveloped oil and gas reserve
figures are estimates  based on reserve reports  prepared by Saba's  independent
petroleum engineers. The estimation of reserves requires substantial judgment on
the part of the  petroleum  engineers,  resulting in  imprecise  determinations,
particularly  with  respect to new  discoveries.  Estimates  of reserves  and of
future  net  revenues  prepared  by  different   petroleum  engineers  may  vary
substantially,  depending,  in part, on the assumptions made, and may be subject
to material  adjustment.  Estimates of proved  undeveloped  reserves  comprise a
substantial  portion  of  Saba's  reserves  and,  by  definition,  had not  been
developed at the time of the engineering  estimate.  The accuracy of any reserve
estimate  depends on the quality of available  data as well as  engineering  and
geological  interpretation  and  judgment.  Results  of  drilling,  testing  and
production or price changes subsequent to the date of the estimate may result in
changes to such  estimates.  The estimates of future net revenues in this report
reflect oil and gas prices and  production  costs as of the date of  estimation,
without  escalation,  except where  changes in prices were fixed under  existing
contracts.  There can be no assurance  that such prices will be realized or that
the estimated  production  volumes will be produced during the periods specified
in such reports.  The estimated  reserves and future net revenues may be subject
to material downward or upward revision based upon production  history,  results
of future  development,  prevailing  oil and gas  prices  and other  factors.  A
material  decrease in  estimated  reserves or future net  revenues  could have a
material adverse effect on Saba and its operations.

                                       30
<PAGE>



                                   December 31, 1998

                       Proved Reserves, net                     PV-10 Value
                  Gross        Oil        Gas
 Property        Wells (1)   (MBbls)     (MMcf)   MBOE  Dollar Value   %
 --------       ---------   -------      ------   ----  ------------   -------
                                                       (In thousands)
California:
Cat Canyon        1           2,339        356    2,398    3,712         16.0
REDU             64             158        -        158       67          0.3
Santa Maria      31             252        351      310      315          1.4
Belridge         37             349        186      380      872          3.8
Other           123             629        250      671      705          3.0

  Total
   California   326           3,727     1,144    3,918    5,671          24.5


Louisiana
Potash Field     42           1,082    13,678    3,362     6,148         26.6
Manila Village   15             187        73      199       562          2.4

  Total
   Louisiana     57           1,269    13,751    3,561    6,710         29.0

Other United States
Texas            58             212        597     311      805          3.5
New Mexico       27             327        946     485    1,769          7.6
Other           115              29        480     109      255          1.1

  Total Other
   United States 200            568     2,023      905    2,829         12.2

  Total United
   States        583          5,564    16,918    8,384   15,211         65.7

Colombia         526          8,060         -    8,060    3,673         16.0
Canada           120            281     6,080    1,294    4,241         18.3

  Total
   International 646          8,341      6,080   9,354    7,914         34.3
Total           1,229        13,905     22,998  17,738   23,125        100.0
                =====        ======     ======  ======  =======        =====



---------------
(1) Includes locations  attributed to proved  undeveloped  reserves and wells in
which Saba holds royalty interests.

                                       31

<PAGE>


         California

         Producing Properties

         Saba  operates  most of its  wells  in the  Central  Coast  Fields  and
maintains an average working interest in these wells of 98.8% and an average net
revenue  interest of 89.4%.  These fields  produced 1,465 net BOEPD for the year
ended  December  31, 1998 and had proved  reserves  at December  31, 1998 of 2.8
MMBOE.

         Cat Canyon Field. The Cat Canyon Field is Saba's  principal  California
producing property,  representing  approximately 13.5% of Saba's proved reserves
at December 31, 1998. This field, which covers approximately 1,775 acres of land
is located in northern Santa Barbara County and was acquired by Saba in 1993. At
the time of acquisition,  there were 89 producing wells and 74 suspended  wells,
all of  which  were  vertically  drilled  to  either  the  Sisquoc  or  Monterey
Formations (lying between approximately 2,400 feet and 3,400 feet and 4,000 feet
and 6,600 feet,  respectively).  At the time of acquisition,  average production
was 425 Bopd and for the year ended  December 31, 1998,  average  production was
approximately  966 Bopd. Daily production varies depending upon various factors,
including normal decline in production  levels,  the production of newly drilled
wells and whether  remedial work is being done on wells in the field.  The field
produces a heavy grade of viscous oil,  which is in demand at Saba's Santa Maria
Refinery.  The property is considered (as are many heavy oil  properties) a high
production cost field and reductions in prices paid for crude  generally  affect
such  properties  more  dramatically  than higher gravity lower  production cost
fields.

         Saba owns a 100%  working  interest  (99.7% net  revenue  interest)  in
approximately 45 producing wells and a number of non-producing  wells located in
this field which consists of two major producing  horizons,  the Sisquoc and the
Monterey.  The Sisquoc formation,  which consists of a number of separate zones,
is divided by two major  north-south  trending  faults into three  separate  and
distinct areas.  The area between the faults contains the bulk of the productive
reservoir volume and has the highest  cumulative  production.  A portion of that
area was the subject of a waterflood  instituted in 1962 by a previous operator.
The  waterflood  was not  economically  successful.  Saba  believes that the two
faults are sealing faults,  thus preventing  communication  with the portions of
the field lying outside of the fault block,  which areas were not the subject of
waterflood operations.

         In 1995,  Saba  drilled  its first  horizontal  well into the  Monterey
formation. The well developed mechanical problems and operations were suspended.
Saba has deferred  attempts to correct the problem until such time as oil prices
increase  sufficiently to justify further  efforts.  In 1996, Saba initiated its
present  horizontal  well  drilling  program in the Cat Canyon Field by drilling
five horizontal  wells into the Sisquoc  formation S1b sand (which is one of the
multiple  separate sand bodies  comprising the Sisquoc  formation).  Of the five
wells,  three  wells  were  drilled  in the  central  fault  block,  on  which a
waterflood  operation was previously  conducted,  and one in each of the eastern
and western  portions of the field. The well in the western portion of the field
initially produced at rates approaching 400 Bopd and, as expected,  has declined
to a present  rate of  approximately  130 Bopd.  Wells  drilled into the Sisquoc
formation may be expected to produce  varying amounts of formation water as part
of the production process.  The well drilled in the eastern portion of the field
has  encountered  mechanical  problems  and plans are to rework the well  during
1998. The three wells drilled in the central portion,  or waterflood area of the
field, developed initial production rates of approximately 150 Bopd per well and
have declined to  approximately  40 Bopd per well. In 1997,  Saba  continued its
horizontal drilling program in the Cat Canyon Field by drilling eight additional
wells into the Sisquoc S1b sand. Of the eight wells,  five were drilled into the
waterflood area and the remaining three were drilled into other areas.  Year end
average  production  rates for the wells in the waterflood area were 82 Bopd and
1,100  barrels of water per day per well.  Production  rates for the other wells
were 88 Bopd and 13 barrels of water per day per well.  The wells  drilled  into
the central waterflood area, as expected, are producing oil with high volumes of
residual water from the prior waterflood operations. Saba believes that by using
high volume pumps and lifting large volumes of fluid,  the ratio of oil to total
fluids produced will gradually  increase.  Production declines have been in line
with Saba's  expectations  of roughly a 40-50% decline in production  during the
first 12 months of the wells' operation,  followed by a more moderate 10% annual
decline in production.  Results from the horizontal  well drilling  program have
not met Saba's  expectations and continuing study is being given to the field to
determine how to maximize production. In addition, Saba has implemented measures
designed to ensure that operations are conducted with greater efficiency.

                                       32

<PAGE>

         In addition to the Cat Canyon Field,  Saba has interests in a number of
fields in California, none of which had proved reserves equal to five percent or
more of Saba's proved  reserves at December 31, 1998.  Among such fields are the
following:

         Richfield  East Dome Unit  (REDU).  The REDU  unit,  which  represented
approximately 1.3% of Saba's proved reserves at December 31, 1998, is located in
Orange  County,  California  and covers  approximately  420  acres.  Saba is the
operator  of this unit and owns a working  interest  of 50.6% and a net  revenue
interest  of 40.8%.  The unit is under  waterflood  in the  Kraemer  and Chapman
formations and contains  approximately  68 producing wells, 39 shut-in wells and
54 water injection wells.  Saba conducted  remedial  operations on this property
during 1997 which resulted in increasing  production by approximately  100 Bopd.
Saba  owns fee  interests  in  lands in this  unit  which  it  believes  will be
developable for real estate purposes as oil operations are curtailed.

         Other.  Saba also owns  other  producing  properties  located  in Santa
Barbara,  Ventura,  Solano, Kern and Orange counties,  California,  which in the
aggregate  represented  approximately 7.3% of Saba's proved reserves at December
31, 1998.

         California Exploration Ventures

         Coalinga  Exploratory  Prospect,  Kern  County,  California.  Saba  has
acquired  leases  covering  approximately  3,600  acres of land and  contractual
rights covering an additional  approximate  7,000 acres of land in the region of
the prolific  Coalinga oil field in the San Joaquin Valley of  California.  Saba
has  participated  in a 16 square mile 3-D seismic survey covering this area and
has partially interpreted the survey. Nineteen anomalies have been identified in
the prospect area, covering five potentially  productive zones, ranging in depth
from 6,500 to 12,000 feet. Under the agreement, Saba would bear 100% of the cost
of the wells, which is estimated at approximately $300,000 in the aggregate as a
dry hole and $450,000 as a completed  well.  Saba would have an 85% working (68%
net revenue) interest in the wells.

         Northern  California  Exploratory  Project.  In late 1997, Saba entered
into a joint  venture  with a large  independent  company and a company in which
Rodney C.  Hill,  a former  director,  has a  financial  interest,  to acquire a
multi-thousand  acre block of oil and gas leases and drill an  exploratory  well
for gas on such block.  Saba has a 30% initial  interest in the exploratory well
to earn a 20% working  interest in the well and in the block and any  additional
wells that may be drilled by the venture thereon.  Saba regards the project as a
high risk venture with possible  commensurate returns. The initial objective was
the sands of the Cretaceous Age at a depth of  approximately  8,500 feet.  Lease
acquisition costs are estimated at approximately $300,000 to the venture and the
cost of the well is estimated at approximately  $1,250,000.  An exploratory well
was drilled on this prospect during March and April 1998 and has been abandoned.
A technical review of the land block is being performed.

         Louisiana

         Manila Village is located in Jefferson Parish, Louisiana. Saba operates
this property and at year end 1998, owned a working interest of 50.7% (34.5% net
revenue interest). The property represented  approximately 1.1% of Saba's proved
reserves at December 31, 1998. The property covers approximately 450 gross acres
of land  covered by shallow  waters,  and is located  approximately  forty miles
south of New Orleans.  There are six producing wells that produced an average of
approximately  201  BOEPD  for  the  year  ended  December  31,  1998.  Saba  is
participating in a 3-D seismic program which includes the field and expects that
the  results of the survey  will assist  Saba in its  evaluation  of  additional
drilling opportunities in the field.

                                       33

<PAGE>

         Potash Field, which is located in Plaquemines  Parish,  Louisiana,  was
acquired  by Saba in  September  1997.  Saba  operates  all of the  wells in the
property  that  represented  approximately  19.0% of Saba's  proved  reserves at
December 31, 1998. The property is a salt dome feature originally  discovered by
Humble Oil and  Refining  Company  and covers  approximately  3,600  acres.  The
property is located in a shallow marine environment southeast of New Orleans. At
year end 1998,  Saba  owned a 100%  working  interest  and a 84.5%  net  revenue
interest in this property, on which are located ten active wells and a number of
shut-in or suspended  wells.  Average  production from the property for the year
ended  December 31, 1998,  was 371 BOEPD.  Saba  believes  that remedial work on
several of the wells will result in increased  production  levels. The salt dome
feature in the field has not been fully explored. Saba plans on conducting a 3-D
seismic  survey  to  delineate  the  field.  Production  in this  field  is from
multiplay zones, the deepest of which is 15,000 feet.

         The Louisiana properties in which Saba has producing oil and gas fields
were damaged by the 1998 Hurricane Georges.  Although portions of the properties
were minimally damaged,  others were considerably  damaged.  Initial assessments
did not indicate environmental problems; however, tanks, piping, living quarters
and other  equipment  have been  heavily  damaged,  causing  delays in  resuming
operations.  Saba is in the process of  processing  an insurance  claim for that
damage.

         Other United States Properties

         In addition  to its  California  and  Louisiana  properties,  Saba owns
producing  properties  in a number of states,  primarily  New Mexico,  Michigan,
Texas and Oklahoma, which collectively represented  approximately 5.1% of Saba's
proved   reserves  at  December  31,  1998.   Production   from  the  properties
approximated 695 BOEPD for the year ended December 31, 1998. (see "Saba - Recent
Developments - Sale of Certain Assets") The principal producing property is:

         Southwest Tatum Field,  which is located in Lea County,  New Mexico was
acquired  by Saba as an  exploratory  project  in late 1996.  Saba holds  leases
covering  approximately  2,000 gross acres of land,  in which Saba has a working
interest of 50% (38.75%  net  revenue  interest).  During the last part of 1996,
Saba, as operator,  commenced the drilling of a 14,000 foot exploratory Devonian
test well.  In  addition  to the  deepest  zone,  the  Devonian  (which has been
abandoned  after  having  produced in excess of 20,000  barrels of high  gravity
oil),  the  well  has  three  other  potential  oil  producing  zones.  Saba has
recompleted  the well in the shallower Cisco zone. A second reentry well to test
the  shallower  zones was  completed  in  September  1997.  A gas sales line was
completed  in  February  1998,  allowing  for gas sales from the two wells.  Two
additional wells were drilled on this property in 1998 at an approximate cost of
$350,000 each to Saba's  interest.  One well was completed in September  1998 in
the Cisco zone,  and the other was  drilled in August 1998 and is being  tested.
The property  produced  approximately  132 BOEPD for the year ended December 31,
1998.

                                       34

<PAGE>

         Colombian Properties

         General

         At December 31, 1998, Saba's Colombian operations were conducted on two
Association Areas and one mineral fee property.  These properties are located in
the Middle Magdalena Basin of Colombia, some 130 miles northwest of Bogota. Saba
and Omimex  acquired their interests in the Middle  Magdalena  Basin  properties
from  Texaco  in 1994 and 1995  transactions;  each had a 25%  working  (20% net
revenue)  interest in Nare and Cocorna  Association  properties  at December 31,
1998, while  Ecopetrol,  the Colombian state oil company owned the remaining 50%
working interest. The mineral fee property,  Velasquez,  was owned 75% by Omimex
and 25% by Saba at December 31,  1998.  The three areas cover 52,894 gross acres
of  land.  Saba  has  sold  all of those  assets,  which  were  owned by  Saba's
subsidiary  Sabacol,  to Omimex  as  described  under  "Item 1.  Description  of
Business - Recent Saba  Developments - Bankruptcy of Sabacol,  Inc. and Contract
for Sale of Sabacol's Assets."

     The Nare Association is the northernmost area in which Saba had an interest
and covers  approximately  37,164 gross (approximately 9,300 net) acres of land.
The exploitation  and development of the Teca and Nare Fields,  and the adjacent
Nare North,  Chicala and Morichi Fields are governed by the association contract
originally  entered  into  between  Ecopetrol  and Texaco in 1980.  Under  these
contracts,  the cost of  exploratory  wells  was  borne  solely  by Saba and its
partner,  who were entitled to all revenues from such wells. Once an area within
an Association was declared to be a commercial  area by Ecopetrol,  Saba and its
partner  would have each received 20% of the crude oil produced at these fields,
while  Ecopetrol  would  have  received  40% of  production  and  the  Colombian
government  would have  received the  remaining 20% of production in the form of
royalties.  A commercial area is roughly equivalent to a field. Each of Saba and
its partner bore 25% of the production  costs of commercial  areas and Ecopetrol
was  responsible  for the  remaining  50%. The  exploitation  rights under these
contracts  expire in September  2008 and were not  renewable by Saba under their
current terms.  Saba  understands  that  legislation is being  considered by the
Colombian government which would permit such extensions to be obtained. At April
15,  1999,  Saba  intended  to seek an  extension  of  these  contracts.  Omimex
anticipated that the costs associated with preparing the necessary documentation
for  applying to extend the terms of the  exploitation  rights on the North Nare
Field through 2030 would cost approximately $1 million. On October 2, 1998, Saba
agreed with Omimex that it will pay up to $500,000 to prepare such documentation
if the  contract  for the North  Nare  Field is  extended.  That  liability  was
cancelled under the agreement between Sabacol and Omimex that closed on June 30,
1999 as described in "Item 1. Description of Business - Recent Saba Developments
- Bankruptcy of Sabacol, Inc. and Contract for Sale of Sabacol's Assets."

         Generally,  as in the  case of  Saba's  interests  under  the  Nare and
Cocorna  Associations  held at December 31, 1998, the Articles  require that the
contracting oil company perform various work obligations (including the drilling
of any exploratory wells) at its cost on the lands covered by the Articles,  and
allow production of hydrocarbons for a stated period of years. Upon discovery of
a fieldcapable of commercial production and upon commencement of production from
that field,  Ecopetrol reimburses the contracting party out of Ecopetrol's share
of production for 50% of the allowable  costs.  Thereafter,  costs of operations
and  working  interest  revenues  are  shared  50% by  Ecopetrol  and 50% by the
contracting  oil company,  which in that case was Omimex and Saba, as successors
to Texaco, the original  contracting party. The working interest is subject to a
royalty of 20% which is paid to Ecopetrol on behalf of the Colombian government.
The Cocorna Concession area, located within the Cocorna  Association,  which was
acquired by Saba from Texaco, reverted to Ecopetrol because of the expiration of
the term of the Articles governing that field.

                                       35

<PAGE>

         Description of the Properties

         As of April 15, 1999:

*    three fields within the Cocorna Association had been declared commercial by
     Ecopetrol:

*    Teca (approximately 1938 acres),

*    Toche (approximately 150 acres), and

*    South Cocorna (approximately 700 acres), and

*    four fields within the Nare Association had been declared commercial:

*    South Nare (approximately 660 acres),

*    North Nare (approximately 1,700 acres),

*    Chicala (approximately 830 acres), and

*    Moriche (approximately 1085 acres).

         The Teca and South  Nare  Fields  that  Saba  previously  owned,  which
represented  approximately 28.4% of Saba's proved reserves at December 31, 1998,
produced an average of 1.87 MBopd for the year ended  December 31, 1998 and 1.75
MBOPD for the year ended December 31, 1997,  from 329 wells covering 2,598 gross
(649  net)developed  acres and is the primary  producing  area. Saba owned a 25%
mineralfee  interest in the Velasquez  Field which covered  approximately  3,800
gross(950  net) acres of land,  and produced an average of 505 Bopd for the year
ended December 31, 1997 and 487 Bopd for the year ended December 31, 1998.

         Saba's Colombian  properties in the aggregate  represented 8.1 MMBOE at
December 31, 1998 or  approximately  45.4% of Saba's  total proved  reserves and
approximately  16% of Saba's  present  value  (discounted  at 10%) of future net
revenues at that date.  The  following  table  provides  information  concerning
Saba's interest in thecommercial  areas and fee minerals in Colombia at December
31, 1998.

                                                       Average Daily Barrels of
                       Proved Reserves     Number        oil produced for the
                      at Dec. 31, 1998      of               year ended
Field Name                (MMBbls)         Wells          December 31, 1998
- -------------------   ----------------   ------      -----------------------

Velasquez                    1.7            196                487

North Nare                   3.3              3                  0

Magdalena                    0.8              2                 21

Teca & South Nare            2.3            325              1,748
                       ==============    =======         ===============
Total                        8.1            526              2,256
                       ==============    =======         ===============


         Production  from  all  of  the  fields  came  from  relatively  shallow
reservoirs  lying at approximate  depths of from 1,200 to 3,000 feet. All of the
production  (save that produced  from the  Velasquez  field) was of a relatively
heavy grade of crude oil,  generally  in the area of  10(Degree)  to  13(Degree)
gravity API.  Wells  generally  produced  small  amounts of  formation  water in
conjunction  with oil. Because of the viscosity of the oil, wells were initially
produced  without  artificial  stimulation  and thereafter  stimulated by cyclic
steam  injection.  Wells cost  approximately  $250,000  to $300,000 to the total
working interest, depending upon depth.

                                       36
<PAGE>


         During  1997,  Saba and the  operator  participated  in the drilling or
recompletion  of thirteen  wells in the Teca and South Nare  Fields.  All of the
wells drilled were  productive  and the operator is in the process of installing
steaming  equipment.  During  1998,  Saba and the operator  participated  in the
drilling and completion of seven wells in the Teca and South Nare Fields.

         In 1997, Saba and Omimex  reentered a suspended  Texaco drilled well to
an area under the  Magdalena  River and  recompleted  the well as  productive of
approximately 30 Bopd without artificial stimulation.  A second well was drilled
and completed  under the Magdalena River in 1998. In the Velasquez  field,  Saba
and Omimex  recompleted  three wells in a behind-pipe zone in 1997.  Initial per
well production rates rangefrom 142 Bopd to 223 Bopd.  Studies through April 15,
1999 indicated up to 23 additional wells with behind pipe reserves  suitable for
recompletion.

         During 1997,  the operator in conjunction  with Saba  formulated a plan
for the  drilling  of  approximately  200  development  wells in the Nare North,
Chicala and Moriche fields.

         Crude Oil Sales and Pipeline Ownership

         All of Saba's  crude oil  produced  at Saba's  properties  in  Colombia
during  1998 was  sold  exclusively  to  Ecopetrol  at  negotiated  prices.  See
"Business  -Marketing  of  Production."  In  conjunction  with its  purchase  of
interests  in the Nare  Association,  Saba also  purchased a 50% interest in the
118-mile Velasquez-Galan Pipeline, which connects the fields to the 250,000 Bopd
Colombian  government-owned  refinery at  Barrancabermeja.  See "Exploration and
Development  Drilling Activities - Colombia." The pipeline  transported oil from
Saba's  fields,  together with a lighter  crude oil supplied by Ecopetrol  which
acted as a diluent to Saba's  heavier  crude,and  crude oil from other  adjacent
fields.  The pipeline  generated  revenues through collection of tariffs for the
use of the  pipeline.  Throughput  on this  pipeline in September  1998 averaged
28,900 Bopd of which Saba's share was  approximately  2,100 Bopd. In addition to
the operator and Saba, three other companies transported their crude oil through
the pipeline at tariff rates established by Colombian authorities.

         Saba has sold its interest in the Valasquez-Galan  Pipeline,  which was
owned by  Saba's  subsidiary  Sabacol,  to Omimex as  described  under  "Item 1.
Description of Business - Recent Saba Developments - Bankruptcy of Sabacol, Inc.
and Contract for Sale of Sabacol's Assets."

         Canadian Properties

         Saba's  Canadian  properties,  which are  owned  through  Beaver  Lake,
represented  approximately  7.3% of Saba's proved reserves at December 31, 1998.
The  Canadian  properties  produced  an  average of 464 BOEPD for the year ended
December 31, 1998,  from wells  covering  47,688 gross  (11,363.0 net) developed
acres,  most of which are located in the  province  of Alberta.  These wells had
proved reserves of 1.3 MMBOE at December 31, 1998. The information presented has
not been adjusted for the approximate 26% minority  interest in Beaver Lake held
by others at December 31, 1998.

         In July 1999,  GREKA  Energy  acquired  the  remaining  common stock of
Beaver Lake Resources  Corporation  ("BLRC") that it did not hold effective July
31, 1999 whereby GREKA Energy will issue a total of approximately  68,000 shares
resulting in each BLRC  shareholder  receiving 1 share of GREKA Energy's  common
stock in exchange for 74.4 shares of BLRC's common stock.  Beaver Lake Resources
Corporation is now a wholly-owned subsidiary of GREKA Energy.

                                       37

<PAGE>

     Other International Properties

     Saba has oil and gas  projects  in  Indonesia,  China and Great  Britain as
described in "Exploration and Development Drilling Activities."

Oil and Gas Reserves

         Saba's proved  reserves and net the  estimated  present value of future
revenues from proved  developed and  undeveloped  oil and gas properties in this
document have been estimated by the following  independent  petroleum engineers.
In 1996, 1997 and 1998, Netherland,  Sewell & Associates,  Inc. prepared reports
on Saba's  reserves in the United  States and  Colombia  and Sproule  Associates
Limited  prepared a report on Saba's Canadian  reserves.  The estimates of these
independent  petroleum engineers were based upon review of production  histories
and other geological, economic, ownership and engineering data provided by Saba.
In accordance with the SEC's guidelines, Saba's estimates of future net revenues
from Saba's proved reserves and the present value thereof are made using oil and
gas  sales  prices in  effect  as of the  dates of such  estimates  and are held
constant  throughout the life of the  properties,  except where such  guidelines
permit alternate treatment,  including, in the case of gas contracts, the use of
fixed and  determinable  contractual  price  escalation.  Future net revenues at
December 31, 1998,  reflect weighted average prices of $8.29 per BOE compared to
$13.13  per  BOE  and  $17.05  per  BOE  as  of  December  31,  1997  and  1996,
respectively.  There have been no reserve  estimates filed with any other United
States  federal  authority  or  agency,  except  that  Saba  participates  in  a
Department of Energy annual survey,  which includes furnishing reserve estimates
of certain of Saba's properties.  The estimates furnished are identical to those
included herein with respect to the properties covered by the survey.

         The  following   tables  present  total  estimated   proved   developed
producing, proved developed non-producing and proved undeveloped reserve volumes
as of December 31,  1996,  1997 and 1998,  and the  estimated  present  value of
future  net  revenues  ("PV  10")  (based  on  current  prices  and costs at the
respective years end, using a discount factor of 10 percent per annum).  As used
herein, the term "proved  undeveloped  reserves" are those which can be expected
to be recovered  from new wells on undrilled  acreage,  or from  existing  wells
where a relatively major expenditure is required for  recompletion.  Reserves on
undrilled acreage shall be limited to those drilling units offsetting productive
units that are reasonably  certain of production  when drilled.  Proved reserves
for other undrilled units can be claimed only where it can be demonstrated  with
certainty  that there is continuity of production  from the existing  productive
formation.  Under no  circumstances  should  estimates  for  proved  undeveloped
reserves  be  attributable  to any  acreage  for which an  application  of fluid
injection or other  improved  recovery  technique is  contemplated,  unless such
techniques  have been proved  effective  by actual  tests in the area and in the
same  reservoir.  There can be no assurance  that these  estimates  are accurate
predictions  of reserves or of future net revenues  from oil and gas reserves or
their present value. As indicated elsewhere, the prices received for oil and gas
have increased since the preparation of the 1998 year end engineering estimates.


                                       38



<PAGE>



                                     Estimated Proved Oil and Gas Reserves

                                                   At December 31,
                                         ---------------------------------
                                          1996          1997         1998
                                         ------        ------       ------

Net oil reserves (MBbl)
   Proved developed producing........    12,029       13,977         6,661
   Proved developed non-producing....     1,367        2,639         1,775
   Proved undeveloped................    13,283        7,309         5,469
                                         ------        ------       ------
    Total proved oil reserves (MBbl)..   26,679       23,925        13,905
                                         ======        ======       ======
Net natural gas reserves (MMcf)
   Proved developed producing.........   12,659       11,995         5,252
   Proved developed non-producing.....    1,516        5,407         5,865
   Proved undeveloped.................    9,490       13,894        11,880
                                         ------        ------       ------
    Total proved natural gas
      reserves (MMcf) ................   23,665       31,296        22,997
                                         ======        ======       ======

Total proved reserves (MBOE)..........   30,623       29,141        17,738

         Estimates  of proved  reserves  may vary  from year to year  reflecting
changes in the price of oil and gas and  results of drilling  activities  during
the intervening period. Reserves previously classified as proved undeveloped may
be completely  removed from the proved reserves  classification  in a subsequent
year as a consequence of negative  results from  additional  drilling or product
price declines which make such  undeveloped  reserves  non-economic  to develop.
Conversely, successful development and/or increases in product prices may result
in additions to proved undeveloped reserves.


                                              Estimated Present Value of
                                                 Future Net Revenue

                                                    At December 31,
                                        -------------------------------------
                                          1996             1997        1998
                                          ----             ----        ----
PV-10 Value                                           (In thousands)
   Proved developed producing.......... $ 84,916        $ 62,215      $ 9,406
   Proved developed non-producing......    9,227          16,097       7,369
   Proved undeveloped..................   61,796          40,317       6,376
                                        --------         --------    --------

      Total..........................   $155,939        $118,629      $23,125
                                        ========         ========    ========

                                       39

<PAGE>


As used herein,  the terms "proved oil and gas reserves,"  "proved developed oil
and gas reserves," and "proved  undeveloped  reserves" have the meanings defined
by the SEC as set forth in the Table of  Contents  to this  document.  Reservoir
engineering  is a  subjective  process of  estimating  the sizes of  underground
accumulations  of oil and gas that  cannot  be  measured  in an exact  way.  The
accuracy of any reserve  estimate is a function of the quality of available data
and of engineering and geological  interpretation and judgment.  Reserve reports
of other engineers might differ from the reports  contained  herein.  Results of
drilling,  testing and  production  subsequent  to the date of the  estimate may
justify  revision of such estimate.  Future prices  received for the sale of oil
and gas may be different from those used in preparing these reports. The amounts
and timing of future operating and development  costs may also differ from those
used. Accordingly,  reserve estimates are often different from the quantities of
oil and gas that are ultimately recovered.

         Colombia

         Oil  produced  from Saba's  previously  owned  Middle  Magdalena  Basin
Fields,  after  being  sold  to  Ecopetrol,  was  processed  in a  250,000  Bopd
government  owned  refinery  in  Barrancabermeja,  Colombia.  The  refinery  was
connected  to Saba's  Colombian  fields  through  the  118-mile  Velasquez-Galan
Pipeline  which  was  owned by Saba and its  partner.  At April  15,  1999,  the
pipeline was operating at  approximately  12,000 Bopd (together with 18,000 Bbls
of diluent  per day) and had the  capacity  to carry  approximately  20,000 Bopd
(together with 30,000 Bbls of diluent per day).

         The  formula  for  determining  the price paid for oil  produced at the
Teca-Nare  Fields was based upon the average of two price baskets of fuel: (A) a
crude fuel oil basket (1% sulphur  United States Gulf Coast and  Ecopetrol  fuel
oil for  exportation) and (B) an  international  crude basket (Maya,  Mandji and
Isthmus) adjusted for gravity API and sulphur content.  The average of Baskets A
and B was then discounted based on the price of West Texas Intermediate  ("WTI")
crude oil, an industry posted price generally  indicative of prices for sweeter,
lighter crude oil. If WTI was less than $16.00 per Bbl, the average of Baskets A
and B was  discounted by $1.65 per Bbl; if WTI was between $16.00 and $20.00 per
Bbl, the average of Baskets A and B was  discounted by $2.05 per Bbl; and if WTI
was greater than $20.00 per Bbl,  the average of Baskets A and B was  discounted
by  $2.45  per  Bbl.  Ecopetrol  was  required  to pay for oil  produced  at the
Teca-Nare  Field in the following  denominations:  75% in United States  dollars
paid in the United States and 25% in Colombian pesos paid in Colombia.

         For  production  from its Velasquez  Field,  Saba received a contracted
price of between  $6.00 and $7.00 per Bbl for basic  production of up to 34 MBbl
per month. For incremental  production above such amount,  Saba received a price
equal to the average of (a) the prior quarter average of the prices of Baskets A
and B and (b) the average  international  price of crude oil from the  Velasquez
and  Tisquirama  Fields  in  Colombia,  which  average  was then  discounted  by
approximately 47%.

         The average sales price of Saba's Colombia production was $8.05 per Bbl
for the year ended December 31, 1998,  and $12.04 per Bbl in 1997,  representing
approximately 67.6% and 64.6%, respectively, of the average posted price per Bbl
for WTI crude oil during those periods.

         The following table summarizes sales volume, sales price and production
cost  information for Saba's net oil and gas production for each of the years in
the three-year period ended December 31, 1998.

                                       40

<PAGE>



                               Year Ended December 31,
                         --------------------------------
                          1996          1997         1998
                         ------        ------       ------

Production Data:
  Oil (MBbls)             1,968        2,107        1,855
  Gas (MMcf)              1,651        2,408        2,243
    Total (MBOE)          2,243        2,508        2,229

Average Sales
  Price Data
  (Per Unit):
  Oil (Bbls)            $ 14.43      $ 13.73       $ 8.58
  Gas (Mcf)             $  1.88      $  2.09       $ 1.69
  BOE                   $ 14.05      $ 13.54       $ 8.84

Selected Data
 per BOE:
  Production costs (1)  $  6.51      $  6.62       $ 6.11
  General and
    administrative      $  1.72      $  1.93       $ 2.69
  Depletion,
    depreciation and
    amortization        $ 2.43       $  2.84       $ 3.07

---------------------
(1)      Production costs include production taxes.


Drilling Activity

         The  following  tables sets forth certain  information  for each of the
years in the  three-year  period ended  December  31,  1998,  relating to Saba's
participation in the drilling of exploratory and development wells in:

         United States


                                    Year Ended December 31,
                         -------------------------------------------------
                             1996              1997           1998
                         ---------------  --------------   ---------------
                         Gross(1) Net(2)  Gross(1) Net(2)  Gross(1) Net(2)
                         -------- ------  -------- ------  -------- ------

Exploratory Wells
  Oil                       -       -        2       -        -         -
  Gas                       3     1.35       -       -        -         -
  Dry (3)                   3     1.28       -       -        1         .20
Development Wells
  Oil                      10     6.59      10     10.00      2        1.00
  Gas                       3      .64       -       -        -         -
  Dry (3)                   1      .35       1      1.00      -         -
Total Wells
  Oil                      10     6.59      12     11.00      2        1.00
  Gas                       6     1.99       -       -        -         -
  Dry (3)                   4     1.63       1      1.00      1        .20


                                       41

<PAGE>


-----------------------

(1)  A gross well is a well in which a working  interest is owned. The number of
     gross  wells is the total  number of wells in which a working  interest  is
     owned.

(2)  A net well is deemed to exist when the sum of fractional  ownership working
     interest in gross wells  equals one.  The number of net wells is the sum of
     fractional  working  interests  owned in  gross  wells  expressed  as whole
     numbers and fractions thereof.

(3)  A dry hole is an exploratory  or  development  well that is not a producing
     well.

                                       42

<PAGE>

         Colombia and Great Britain

                                    Year Ended December 31,
                        -------------------------------------------------
                             1996              1997           1998
                        ---------------  --------------   ---------------
                       Gross(1) Net(2)  Gross(1) Net(2)  Gross(1) Net(2)
                       -------- ------  -------- ------  -------- ------

Exploratory Wells
   Oil                    -        -        -      -        -        -
   Gas                    -        -        -      -        -        -
   Dry (3)                -        -        -      -        1      .38
Development Wells
   Oil                    -        -       13     3.25      8     2.25
   Gas                    -        -        -       -       -        -
   Dry (3)                -        -        -       -       -        -
 Total Wells
   Oil                    -        -       13     3.25      8     2.25
   Gas                    -        -        -        -      -        -
   Dry (3)                -        -        -        -      1      .38


-------------

(1)  A gross well is a well in which a working  interest is owned. The number of
     gross  wells is the total  number of wells in which a working  interest  is
     owned.

(2)  A net well is deemed to exist when the sum of fractional  ownership working
     interest in gross wells  equals one.  The number of net wells is the sum of
     fractional  working  interests  owned in  gross  wells  expressed  as whole
     numbers and fractions thereof.

(3)  A dry hole is an exploratory  or  development  well that is not a producing
     well.


         Canada

                                    Year Ended December 31,
                      -------------------------------------------------
                           1996              1997           1998
                      ---------------  --------------   ---------------
                      Gross(1) Net(2)  Gross(1) Net(2)  Gross(1) Net(2)
                      -------- ------  -------- ------  -------- ------

Exploratory Wells
  Oil                    -       -        -       -        -        -
  Gas                    -       -        -       -        -        -
  Dry (3)                1      .01       1      1.00      -        -
Development Wells
  Oil                    -       -        -       -        -        -
  Gas                    -       -        -       -        -        -
  Dry (3)                -       -        -       -        -        -
Total Wells
  Oil                    -       -        -       -        -        -
  Gas                    1      .01       -       -        -        -
  Dry (3)                -       -        1      1.00      -        -

-------------

                                       43

<PAGE>

(1)  A gross well is a well in which a working  interest is owned. The number of
     gross  wells is the total  number of wells in which a working  interest  is
     owned.

(2)  A net well is deemed to exist when the sum of fractional  ownership working
     interest in gross wells  equals one.  The number of net wells is the sum of
     fractional  working  interests  owned in  gross  wells  expressed  as whole
     numbers  and  fractions  thereof.  No  reduction  is made for the  minority
     interest in Beaver Lake.

(3)  A dry hole is an exploratory  or  development  well that is not a producing
     well.

Productive Oil and Gas Wells

         The  following  table sets forth  information  at  December  31,  1998,
relating  to the number of  productive  oil and gas wells  (producing  wells and
wells  capable of  production,  including  wells that are shut in) in which Saba
owned a working interest:


                         Oil                     Gas                 Total
                 Gross           Net      Gross         Net       Gross     Net
                 -----          -----     -----        ------    ------    -----
United States     258           162.2       35          21.3      293      183.5
Canada (1)         57            25.7       63          14.9      120       40.6
Colombia          575           143.9        -             -      575      143.9
              ---------      ---------    --------    -------   ------   -------
                  890           331.8       98          36.2      988      368.0
              =========      ==========   ========    =======   ======   =======

-------------

(1)  No reduction is made for the minority  interest in Beaver Lake that existed
     at December 31, 1998.

         In addition to its working  interests,  Saba held royalty  interests in
approximately  82  productive  wells in the United States and Canada at December
31, 1998. Saba does not own any royalty interests in Colombia.

Oil and Gas Acreage

    The  following  table sets forth  certain  information  at December 31, 1998
relating to oil and gas acreage in which Saba owned a working interest:


                             Developed (1)                    Undeveloped
                       -----------------------           -------------------
                       Gross               Net           Gross           Net

United States          27,347          10,774.0          28,778     22,382.0
Canada (2)             47,688          11,363.0          38,954     12,243.0
Colombia                6,398           1,599.0          46,496     11,624.0
                  ------------        -----------      ----------  ----------
    Total              81,433          23,736.0         114,228      46,249.0
                  ============        ===========      ==========  ==========

----------------

(1)  Developed acreage is acreage assigned to productive wells.

(2)  No reduction is made for the minority  interest in Beaver Lake that existed
     at December 31, 1998.
                                       44

<PAGE>

Title to Properties

         Many of Saba's oil and gas  properties  are held in the form of mineral
leases, licenses, reservations, concession agreements and similar agreements. In
general,  these agreements do not convey a fee simple title to Saba, but rather,
depending  upon the  jurisdiction  in which the  apposite  property is situated,
create  lesser  interests,  varying  from a profit a prendre  to a  determinable
interest in the minerals. In some jurisdictions, notably non-U.S. jurisdictions,
Saba's  interest is only a contractual  relationship  and bestows no interest in
the  oil or gas in  place.  As is  customary  in the oil  and  gas  industry,  a
preliminary  investigation  of  title  is made at the  time  of  acquisition  of
undeveloped properties.  Title investigations are generally completed,  however,
before  commencement  of drilling  operations  or the  acquisition  of producing
properties.  Saba  believes  that its  methods  of  investigating  title to, and
acquisition  of,  its oil and  gas  properties  are  consistent  with  practices
customary in the industry and that it has  generally  satisfactory  title to the
leases covering its proved  reserves.  Because most of Saba's oil and gas leases
require  continuous  production  beyond the primary term, it is always  possible
that a cessation of producing or operating  activities  could result in the loss
of a lease.  Assignments  of  interest  to and/or  from Saba may not be publicly
recorded.

         Substantially  all of  Saba's  properties,  including  its stock in its
subsidiaries are  hypothecated to secure Saba's current and future  indebtedness
to its bank. Saba's working interest in properties may be subject to lienholders
by  non-payment.  Saba  expects  liens to be filed  against its assets and to be
subject to lawsuits arising out of Saba's non-payment or untimely payment of its
obligations.  The Santa Maria Refinery and the associated real property owned by
Saba is  encumbered by a first trust deed in the amount of $1.0 million in favor
of the seller of the refinery and is in place to secure  Saba's  performance  of
obligations as provided under the terms of the purchase and sale agreement.  Oil
and gas leases in which Saba has an  interest  may be  deficient  and subject to
action by Saba.

         Saba may require ratifications for various leases for Vacca Tar Sand in
California. Maintenance of Saba's interest is subject to fulfillment of drilling
and other  obligations  contained  in its  agreements  with the  operator of the
property.  Maintenance  of the leases is dependent  upon  fulfillment of various
drilling  and  producing  operations  over which Saba has little if any control.
Consequently,  it is  possible  for Saba to lose its  interests  in such  leases
through  action or inaction of the operator.  Saba  understands  that the leases
have been essentially non-productive for various periods of time, which fact may
result in  termination  of the leases.  Saba does not follow  operations  on the
leases and  consequently is not aware of whether the leases are in good standing
or may be subject to termination.

Average Sales Price and Production Cost

         The following table sets forth information  concerning average per unit
sales  price and  production  cost for  Saba's  oil and gas  production  for the
periods indicated:

                                       45


<PAGE>


                       Year Ended December 31,
                    -----------------------------
                    1996       1997          1998
                    ----       ----          ----
Average sales
 price per BOE
  California    $  15.10    $  13.49        $ 7.90
  Colombia         12.49       11.96          8.05
  Canada           13.26       10.52          8.09
  Other            17.39       17.68         12.10
  Combined         14.05       13.54          8.84

Average production
 cost per BOE
  California     $  8.50     $  7.48        $ 7.19
  Colombia          5.11        5.71          4.70
  Canada            5.15        4.87          5.16
  Other             7.88        7.47          7.14
  Combined          6.51        6.62          6.11


         Asphalt Refinery

         In June 1994,  in an effort to increase  margins on the heavy crude oil
produced from Saba's oil and gas properties in Santa Barbara County, California,
Saba  acquired from Conoco Inc. and Douglas Oil Company of California an asphalt
refinery in Santa Maria, California, which had been inoperative since 1992. Saba
refurbished   the  refinery  and,  in  May  1995,   completed  a   re-permitting
environmental  impact  review  process with Santa  Barbara  County,  receiving a
Conditional Use Permit to operate the refinery.

         Pursuant  to the  refinery  purchase  agreement,  Conoco is required to
perform certain remediation and other  environmental  activities on the refinery
property.  Recently,  evidence  of  current  contamination  of  ground  water by
hydrocarbons has been brought to the attention of Saba.

         Prior to the  acquisition  of the  refinery,  Saba  had an  independent
consultant  perform an  environmental  compliance  survey for the refinery.  The
survey did not disclose required remediation in areas other than those where the
seller is  responsible  for  remediation,  but did disclose that it was possible
that all of the  required  remediation  may not be  completed  in the  five-year
period. Conoco performs all environmental obligations that arose during and as a
part of its operations of the refinery prior to the  acquisition.  The extent of
such remediation is ongoing.

         During June 1998, Saba was advised by the seller's consulting engineers
that groundwater monitoring conducted in May 1998 had revealed levels of benzene
in all four monitoring wells which exceeds allowable limits. Prior to that time,
groundwater   monitoring   wells  have  not  shown   evidence   of   groundwater
contamination.  In addition,  detectable  amounts of toluene,  ethylbenzene  and
xylenes were  reported.  Historically,  BTEX compounds have not been detected in
groundwater  samples  obtained  since 1992. At the request of the Regional Water
Quality  Control Board,  the wells were resampled in July 1998.  Consistent with
the historical analytical results,  petroleum  hydrocarbons were not detected in
the July  1998  samples.  The  environmental  contractor,  who has used the same
sampling  protocol  since 1992,  could not identify any specific  reason for the
apparent  inconsistency  found in the May 1998 samples.  The RWQCB has requested
additional  monitoring wells to be placed on site and on property  directly west
of the refinery  perimeter.  Four additional  monitoring wells were installed in
October  1998  within  or  immediately  downgradient  of  areas  of  known  soil
contamination  on and adjacent to the  refinery.  Preliminary  sampling  results
indicate the presence of heavy hydrocarbons in the groundwater  samples from two
of the wells, at  concentrations  2 to 4 times above typical  regulatory  action

                                       46

<PAGE>

levels. Benzene was also detected in these same wells at concentrations equal to
or slightly  above  drinking  water limits.  At the  hydrocarbon  concentrations
detected in the two groundwater samples,  Saba expects that continued monitoring
will be required but that active groundwater  remediation will not be necessary.
Additional   groundwater  sampling  to  confirm  the  preliminary  results  were
conducted in December 1998. Saba believes that the contamination is attributable
to the previous refinery owner's operations,  since contaminates at the refinery
were produced by the previous owner of the refinery and were identified prior to
purchase.  Appropriate  authorities  have been  notified of this  condition.  In
November  1998,  the RWQCB  advised  Saba  that it is  preparing  a  Cleanup  or
Abandonment  Order to establish  soil and  groundwater  investigation,  cleanup,
monitoring  and a time  schedule at the refinery  required to address  pollution
resulting from post refinery operations.  In its notification,  the RWQCB stated
that its perspective of the site has changed and its water quality  concerns are
increased since the groundwater table elevation has risen to be proximate to the
base of the hydrocarbon contaminated soil.

         Further,  the owner of land  adjoining the refinery,  and the seller in
August 1998 of said adjoining property to an affiliate of Saba, had advised Saba
that his adjoining property had been contaminated by underground  emissions from
the refinery.  Saba asserts remediation is the responsibility of Conoco.  Should
the  foregoing  matters  not be  resolved  satisfactorily,  they may  result  in
litigation.  It is also  possible  that a failure to resolve the  matters  could
result in  significant  liability  to Saba.  While the  seller of the  adjoining
property  retains  a  mortgaged  interest  in  the  adjoining  property,  Saba's
subsidiary  that  operates  the  refinery  has  agreed  to toll the  statute  of
limitations  for any claims by the seller  against the  subsidiary and to obtain
the  seller's  consent  prior to entering  into any  agreement  with  respect to
hazardous materials on the adjoining property.

         Saba entered into a processing  agreement  PetroSource in May 1995, and
commenced  operations  of the  refinery  in  June  1995.  Under  the  processing
agreement,  PetroSource  purchases  crude oil  (including  crude oil produced by
Saba),  delivers it to the refinery,  reimburses Saba's  out-of-pocket  refining
costs,  markets the asphalt and other products and generally  shares any profits
equally with Saba.  The  processing  agreement  was renewed  with Crown  Asphalt
Distribution  LLC  (successor to  PetroSource)  for an  additional  year through
December 31, 1999 with a ninety day termination  provision.  Saba terminated the
agreement  in January  1999 and  announced  on  February 9, 1999 that it will be
taking over the marketing and sale of its refinery products on April 30, 1999.

         The  refinery is a fully  self-contained  plant with steam  generation,
mechanical shops, control rooms, office, laboratory,  emulsion plant and related
facilities, and is staffed with a total of 23 operating, maintenance, laboratory
and administrative personnel. Crude oil is delivered to the refinery by truck to
crude oil  storage  consisting  of one 27,000 Bbl tank and two 40,000 Bbl tanks.
Crude oil processing  equipment  consists of a conventional  pre-flash tower, an
atmospheric  distillation tower, strippers and a vacuum fractionation tower. The
refinery has truck and rail loading  facilities,  including  some  capability of
tank car unloading. Throughput at the refinery has ranged between 2,000 to 6,000
Bopd, while production capacity is approximately 8,000 Bopd.  Permitted capacity
for the refinery is 10,000 Bopd.

                                       47

<PAGE>

Real Estate Activities

         Saba from time to time purchased  real estate in  conjunction  with its
acquisition  of oil and gas and refining  properties in California  and plans to
continue  this  practice.  In  connection  with the  acquisition  of oil and gas
producing  properties in Santa Maria,  California in June 1993,  Saba  purchased
approximately  1,707 acres in Santa  Barbara  County for an  aggregate  purchase
price of $465,000. In addition,  Saba acquired  approximately 370 acres in Santa
Maria,  California in June 1994 in connection  with the acquisition of its Santa
Maria  refinery.  In  addition,  Saba  entered  into  an  agreement  to  acquire
approximately   385  acres  in  Santa  Barbara  County  in  connection  with  an
acquisition of producing oil and gas properties at a contract  purchase price of
$400,000,  the  closing  of which took place in June  1995.  In  addition,  Saba
acquired  approximately  1 acre in October 1997 for $50,000 and  approximately 4
acres in February  1998,  for $500,000  located in Yorba Linda,  Orange  County,
California. Saba has used a portion of its real estate holdings for agricultural
purposes.  Saba plans to retain  some of these real  estate  holdings  for asset
appreciation which may include developmental activities at a future date.

Item 3.  Legal Proceedings.

         In re Sabacol,  Inc., Debtor (BK Case No. ND 98-15858-RR  United States
Bankruptcy Court,  Central District of California,  Northern Division,  December
1998) On December 11, 1998,  Sabacol,  Inc., a  wholly-owned  subsidiary  of the
Company  ("Sabacol"),  filed a voluntary petition under Chapter 11 of the United
States Bankruptcy Code in the Central District of California. On April 26, 1999,
following  Sabacol's  motion,  it was  announced  that Sabacol had  successfully
obtained the Bankruptcy  Court's approval of the sale of  substantially  all its
assets and the authorized dismissal of its bankruptcy case, upon consummation of
the sale.  Following  Sabacol's  request filed in July 1999 with the  bankruptcy
court an order dismissing the bankruptcy case was entered on August 4, 1999.

         Gitte-Ten v. Saba  Petroleum  Company (Case No. CV 980202  Superior and
Municipal  Courts of the State of California,  County of San Luis Obispo,  March
1998).  In December  1997,  Saba  contracted  with  Gitte-Ten,  Inc.  ("GTI") to
purchase  from GTI all of its surface  fee and  leasehold  interests  in certain
property located in Santa Barbara County,  California. A portion of the purchase
price was paid at closing on December  31, 1997,  at which time GTI's  interests
were conveyed to Saba.  The remaining  purchase price of $350,000 was to be paid
through overriding royalty payments of Saba's gross income from the leases until
the balance was  retired  but no later than  January 1, 2003,  on which date any
unpaid  balance was to be  immediately  due and payable.  To provide GTI with an
assurance of Saba's payment  obligation,  Saba executed a promissory note in the
principal  amount of $350,000  which  provided  that said amount (less the total
amount of overriding  royalties paid to GTI) was all due and payable on February
27,  1998,  unless  Saba  replaced  the  note  by  February  24,  1998,  with an
irrevocable and non-cancelable  surety bond or letter of credit in the amount of
the then unpaid  balance.  Saba was unable to procure either  instrument and the
note became all due and payable on February 27, 1998.  Notwithstanding attempted
settlement conferences by Saba with GTI, GTI filed a claim against Saba in March
1998, for breach of contract,  seeking  damages of $350,000 plus interest at the
rate of 13.5% per annum and attorney fees. The court has granted but not entered
summary  judgement in favor of GTI. Saba appealed that  judgment.  In July 1999,
the court vacated its summary judgment previously granted to Gitte-Ten, Inc. The
matter was settled in September  1999 which  included a dismissal with prejudice
as to the action.

         Orleans Levee Board v. Saba Energy of Texas,  Inc., et al.  (Docket No.
98-14233 Civil District  Court,  Parish of Orleans,  State of Louisiana,  August
1998).  With  respect to its  interest in the Potash  Field,  Louisiana,  Saba's
subsidiary  had  suspended   approximately  $380,000  through  January  1998  of
royalties for unknown royalty owners who have since been identified.  One of the
parties,  Orleans Levee Board, had instituted legal proceedings against Saba for
all of the  royalties  suspended  and double said amount for damages and for the
dissolution  of the subject  leases.  The Levee Board has agreed to an extension
for Saba to respond  pending a resolution  with all  identified  royalty  owners

                                       48

<PAGE>

and/or  their  geologists  in an attempt to reach an agreement  regarding  their
respective  allocations  of said  suspended  royalties and to create a voluntary
unit. The approximate amount of the suspended  royalties upon Saba's acquisition
of the subject property was approximately  $372,000 which Saba had applied as an
adjustment  to  the  purchase  price.  Saba  and/or  its  subsidiary  bears  the
obligation  to pay the  royalties  upon  resolution.  Failure to pay timely or a
judgement  for the Levee  Board may result in Saba  losing its  interest  in the
leases  and  incurring  a  payment  obligation  for  the  royalties,   interest,
attorney's fees, and damages sought at double the amount of royalties.

         Chase v. Saba Petroleum, Inc. (Case No. SM108977, Superior Court of the
State of California, County of Santa Barbara-Cook Division, July 1998). In July,
1998,  Saba was served with a lawsuit filed by an individual  alleging  personal
injury in the amount of $515,000  resulting  from  general  negligence  premises
liability  on one of the oil  leases  that  Saba  operates  and  which he claims
occurred while  supervising  the  installation of a pump into a well operated by
Saba and on a drilling  rig owned by a  co-defendant.  Saba was  represented  by
counsel  appointed by Saba's insurance carrier by a claim submitted under Saba's
general  liability  policy.  In July  1999,  the  matter  was  settled by Saba's
insurance  carrier,  which  included a release of all claims and dismissal  with
prejudice as to Saba.

     Saba Energy of Texas,  Inc. v. Marks & Garner  Production  Ltd. Co., et al.
(Case No.  CV-97-106 FR District  Court Lea County,  State of New Mexico,  March
1997).  Saba instituted an action for  declaratory  judgment for the validity of
Saba's oil, gas and mineral lease as being  superior to the prior lease covering
the  subject  lands,  said  prior  lease,  as Saba  asserts,  having  expired by
cessation  of  production.  If  Saba  prevails,  it  will  be  obligated  to pay
consideration of approximately $55,000 to the lessors. Saba's motion for summary
judgment was denied on April 6, 1999 and the matter is in the pre-trial stage.

         Wellspring  Partners,  LLC v. Saba Energy of Texas,  Inc., et al. (Case
No.1999-24729,  125th  Judicial  District  Court of Harris  County,  Texas,  May
1999)Wellspring  brought  suit for  damages  alleging  breach  of  contract  and
conspiracy  for Saba's  non-payment  of fees  claimed  pursuant  to a  brokerage
agreement  between  Wellspring  and  Saba.  Wellspring  moved  for  a  Temporary
Restraining  Order and  Temporary  Injunction  to restrain  Saba from  allegedly
breaching  the  brokerage  agreement and from closing the pending sale of Saba's
properties to Enervest Energy LP without first providing Wellspring with certain
information  regarding the sale and depositing with the court the alleged broker
fee due Wellspring.  The court denied Wellspring's motion, and in June 1999 Saba
filed a  counterclaim  against  Wellspring  for damages  incurred as a result of
Wellspring's  tortious  interference  with Saba's  contractual  and  prospective
business relationships with Enervest Energy LP.

         Enervest Energy LP v. Saba Energy of Texas, Inc. (Case No.  1999-30673,
152nd Judicial District Court of Harris County, Texas, June 1999) Enervest filed
an action  claiming  that Saba  breached the  agreement  between the parties for
failing to close the sale of Saba's  interests in certain oil and gas properties
for $12.5 million. In accordance with the agreement,  Enervest deposited earnest
money in the amount of $1.25 million to a jointly  controlled  account to assure
Enervest's  performance  of the  agreement.  Enervest  further seeks the court's
declaration  that it is  entitled  to the  deposit.  In July 1999,  Saba filed a
counterclaim  against  Enervest for damages  incurred as a result of  Enervest's
breach of the  agreement  by  failing to close the sale.  This  matter is in its
discovery stage.

                                       49

<PAGE>

         Crown Asphalt Distribution LLC, et al. v. Santa Maria Refining Company,
et al. (Case No.  CV99-895 DOC (Anx),  United  States  District  Court,  Central
District of  California,  Southern  Division,  July 1999) Crown brought suit for
damages  alleging breach of contract,  breach of covenant of good faith and fair
dealing,   conversion,   fraud,  claim  and  delivery,   unjust  enrichment  and
constructive  trust,  unfair  competition,   declaratory  relief,  and  specific
performance  pursuant to Santa Maria's  termination of the processing  agreement
with Crown.  Crown moved for a  Preliminary  Injunction or Writ of Possession to
compel Santa Maria,  amongst other things, to continue doing business with Crown
beyond  the  termination  date of the  processing  agreement.  The court  denied
Crown's motion, and the matter is in its preliminary, pre-discovery stage.

         Statutory  Liens.  Statutory  liens  have  been  recorded  against  the
Louisiana  and New Mexico  properties  owned by Saba for  Saba's  failure to pay
trade payables.  Actions have been taken to proceed with  foreclosure on some of
these  liens.  Further,   lawsuits  have  been  filed  and  served  upon  Saba's
subsidiaries  for the payment of trade payables.  Saba has contacted  certain of
these claims with respect to Louisiana and New Mexico known by it to propose and
agree upon a payment plan with the vendors in exchange for their  forbearance on
any further action. Saba has entered, is entering or plans to enter into payment
plans agreed upon with such vendors and any additional vendors so required.

     Capco  Resources,  Ltd. v. GREKA Energy  Corporation  and Randeep S. Grewal
(Case No. 99-8521-K,  U.S. District Court,  Central District of California).  In
August 1999, Capco Resources,  Ltd.  ("Capco") filed an action against GREKA and
Randeep S. Grewal,  President of GREKA,  alleging that GREKA  breached and GREKA
and Mr.  Grewal made  misrepresentations  in  connection  with a Stock  Exchange
Agreement  entered  into  between  GREKA and Capco and Capco's  affiliates  (the
"Exchange"). Capco claims that it is entitled to $12.25 million, in damages plus
interest  and  costs,  and  requests  that  the  court  require  GREKA to file a
registration  statement for the resale of 1 million shares of GREKA common stock
that Capco  received  pursuant to the  Exchange.  Shortly after filing this suit
Capco  threatened to exert control over and sell the GREKA shares in a brokerage
account  that was to have  been  transferred  to GREKA as part of the  Exchange.
GREKA filed the case of GREKA vs.  Capco and Service  Asset  Management  Company
d/b/a Penson Financial  Services,  Inc. d/b/a Global Hanna Trading in the Denver
Colorado  District Court and obtained a temporary  restraining order temporarily
restraining  this  conduct  by  Capco  (Case  No.  99-CV-6006).   Prior  to  the
preliminary  injunction  hearing  Capco  removed  the case to the  U.S.  Federal
District Court in Denver,  Colorado (Civil Action No.  99-K-1814).  On September
17,  1999 GREKA  received a new  temporary  restraining  order from the  federal
district court. A motion for preliminary  injunction has been set for hearing on
September 27, 1999.  While GREKA and Mr.  Grewal plan to  vigorously  defend all
claims asserted by Capco and to aggressively  pursue all counter and third party
claims, the litigation is in its preliminary, pre-discovery stages.

         Saba may be subject to resolving  property  matters,  including  claims
related to mineral interests,  working interests, and/or surface use and rights,
including without limitation  relocations of gas transfer lines,  abandonment of
wells or failure to abandon  giving rise to claims of lost  profits from surface
owners and/or a third parties in interest, and errors in disclosure of location,
production and/or rights may have occurred by Saba with respect to its operating
activities.

         Internal  Revenue  Service.  In its  review of Saba's  payroll  tax and
information returns for the years ended 1993-1995,  the Internal Revenue Service
proposed  adjustments  based  upon the  assertions  that Saba  misclassified  as
independent  contractors  various  persons who were employees of Saba, that Saba
did not withhold income taxes from payments made to such persons,  and that Saba
failed to file its information  returns timely.  This matter was settled in 1998
through  payments  and audits  resulting in an  associated  liability of $10,000
recorded by Saba at December 31, 1998.

         From  time to time,  Saba is a party  to  certain  litigation  that has
arisen in the normal course of its business and that of its subsidiaries. In the
opinion  of  management,  none of this  litigation  is likely to have a material
adverse effect on Saba's financial condition or results of operations.  Saba may
be subject to legal actions that have been threatened without Saba's knowledge.

                                       50

<PAGE>

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

         No matters were submitted to a vote of security holders of GREKA Energy
during the quarter ended December 31, 1998.


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters.

         GREKA Energy common stock is listed for trading on the Nasdaq  SmallCap
Market under the symbol "GRKA".  Prior to March 25, 1999, the trading symbol was
"HVNV".  Except for a period from August to  December  of 1997,  GREKA  Energy's
common stock has been quoted on NASDAQ since  February 19, 1993.  The  following
table sets  forth,  for the  periods  indicated,  the high and low  closing  bid
quotations  per share of GREKA  Energy  common  stock as  reported on the Nasdaq
SmallCap  Market.  GREKA Energy common stock quotations  represent  inter-dealer
quotations,  without  retail  markup,  markdown  or  commissions,  and  may  not
represent  actual  transactions.  There can be no assurance that a public market
for GREKA Energy's common stock will be sustained in the future.

                                       51
<PAGE>



                                                        Bid*
            Quarter Ended                         Low        High

            March 31, 1996 . . . . . .  . . .   $ .19       $  .22
            June 30, 1996 . . . . . . . . . .     .13          .13
            September 30, 1996 . . . . . . . .    .25          .31
            December 31, 1996 . . . . . . . .     .19          .25
            March 31, 1997 . . . . . . . . . .    .19          .25
            June 30, 1997 . . . . . . . . . .     .03          .09
            September 30, 1997 . . . . . . . .    .03          .03
            December 31, 1997 . . . . . . . .    6.82        19.00
            March 31, 1998 . . . . . . . . . .  12.00        14.75
            June 30, 1998 . . . . . . . . . .  8.0625        10.00
            September 30, 1998 . . . . . . . .   7.25         9.25
            December 31, 1998 . . . . . . . .   8.813       14.938
            March 31, 1999 . . . . . . . . .    5.875        10.50
                  June 30, 1999 . . . . . . . . 6.375        9.125



*Effective  November 8, 1997, a 1 share for 220 share reverse split  approved by
the U.S. Bankruptcy court was effected thus dramatically affecting the per share
price of GREKA Energy's stock.

         On March 31, 1999, there were approximately 3,275 registered holders of
GREKA Energy's common stock.  Based on a broker count,  GREKA Energy believes at
least an additional 5,861 persons are shareholders with street name positions.

         Holders of GREKA  Energy  common  stock are  entitled  to receive  such
dividends as may be declared by GREKA Energy  board of  directors.  GREKA Energy
has not yet paid any  dividends,  and the  board of  directors  of GREKA  Energy
presently intends to pursue a policy of retaining  earnings,  if any, for use in
GREKA Energy's operations and to finance expansion of its business. With respect
to GREKA Energy common stock,  the  declaration  and payment of dividends in the
future,  of which there can be no  assurance,  will be  determined  by the GREKA
Energy board of directors in light of conditions then existing,  including GREKA
Energy's earnings, financial condition, capital requirements and other factors.

Item 6.  Management's Discussion and Analysis.

     GREKA's independent  accountants issued a modified report on April 15, 1999
expressing substantial doubt about GREKA Energy's ability to continue as a going
concern.  That matter is also  discussed in Note 1 of the Notes to  Consolidated
Financial  Statements of GREKA Energy. On September 16, 1999 GREKA's independent
accountants  issued a report  which  reflects  the  removal of their  previously
modified opinion concerning their doubt about GREKA Energy's ability to continue
as a going  concern.  That  matter  is  discussed  in Note  14 of the  Notes  to
Consolidated Financial Statements of GREKA Energy.

                                       52



<PAGE>

Overview

         In view of significant material changes to GREKA Energy during 1998 and
the  acquisition of Saba in March 1999,  management  believes that the financial
condition  and results of  operations  of GREKA Energy  reported  herein are not
indicative of the future financial  condition and results of operations of GREKA
Energy.  Saba's 1998  financial  statements,  which  appear  separately  in this
document,  are not  consolidated  with GREKA Energy's 1998 financial  statements
since  the  acquisition   had  not  been   consummated  by  December  31,  1998.
Furthermore,  in accordance with the accounting rules for reverse  mergers,  the
GREKA  Energy  statements  of  operations  are not  reflective  of the  combined
revenues from the September 1997 merger of Petro Union and  Horizontal  Ventures
on an annualized  basis but rather  reflect the combined  income from the merger
date.

         Current  management  was appointed  during the latter part of the third
quarter   of  1997  and  spent   the   balance   of  the  year   re-structuring,
re-capitalizing, and completing mergers and acquisitions that all were part of a
specific and focused  strategy.  Management has established a clear directive to
focus on capitalizing  on its experience  with the low cost horizontal  drilling
technology  developed  and  patented by Amoco and  thereafter  licensed to GREKA
Energy.  It is the  intent of  management  to become a leader in  applying  this
horizontal  drilling  technology and exploiting  declining  production  wells on
properties  such as Saba's  which  have been  acquired  by GREKA  Energy or on a
service basis for major oil and gas companies.

         During  the first  part of 1998,  management  of GREKA  Energy  focused
substantially  all of its efforts on corporate  restructuring,  recapitalization
and acquisition efforts and an investment in a horizontal drilling pilot program
in the Cat Canyon  field in  California  that all were part of its  strategy  to
capitalize on its experience with  horizontal  drilling  technology.  During the
first nine months of 1998,  GREKA Energy drilled three  horizontal  wells in the
Cat Canyon  field,  namely  UCB-09,  UCB-38 and  UCB-28.  Each well was  drilled
utilizing  GREKA  Energy's  Short Radius  horizontal  drilling  technology,  and
resulted in a 47 foot radius with a 435 foot lateral on UCB-09, a 60 foot radius
with a 414 foot  lateral on UCB-38 and a 50 foot radius with a 252 foot  lateral
on  UCB-28.  In view of GREKA  Energy's  long-term  strategy  and the known sand
problem in the Cat  Canyon  basin,  GREKA  Energy's  completed  each well with a
different  technique  to  establish  a  standard.  UCB-09 was  completed  with a
standard Ace down-hole  pump and a KD system,  UCB-38 was completed  with a KUDU
pump, and UCB-28 was completed with a Ace Teflon-Luber  Plunger  down-hole pump.
The kick-off point for each well was at a depth of 2,940-3,000 feet.

         The variances in the completions  allowed GREKA Energy to obtain direct
experience on the production capability from each of the techniques.  UCB-09 net
production stabilized at 20 barrels of oil per day, UCB-38 sanded up following a
few weeks of  production,  while UCB-28 has net  production of 65 barrels of oil
per day. Each of these wells were  re-entries into an abandoned well bore in the
Sisquoc formation, which is one of the two pay zones within GREKA Energy's lease
in the Cat Canyon  basin.  Following  this  drilling  operation  and  completion
technique definition, GREKA Energy proceeded with its discussions with Saba with
the intent of applying this technique on Saba's reserves.

         During the latter of part of 1998 and early 1999,  management  of GREKA
Energy  was  primarily  focused  on the  acquisition  of Saba  and  considerable
expenses were incurred in connection  with the Saba  transactions  in the fourth
quarter of 1998 and the first quarter of 1999. Due to the  significance to GREKA
Energy of the Saba  acquisition,  GREKA Energy's  management and staff devoted a
substantial  amount of time and  effort to the  acquisition.  GREKA  Energy  has
already  executed,  and continues to execute,  an aggressive  rework  program to
return to production  existing  wells on all  properties  that had wells shut-in
over eighteen months. Subsequent to the reworks, GREKA Energy intends during the
third quarter of 1999 to implement  its  horizontal  drilling  program using its
proprietary technology on the Santa Maria Valley area assets.

                                       53

<PAGE>

         In view of the significant differences between GREKA Energy's corporate
structure  before the March 1999  acquisition  of Saba and during 1997 and 1998,
comparisons  of GREKA  Energy's  results of  operations  for those  periods  are
considered by management not to be either  relevant or  representative  of GREKA
Energy's long-term potential.

Results of Operations

         Revenues  decreased  from  $211,696  for  1997 to  $145,813  for  1998.
Revenues for 1998 were from oil production at the Cat Canyon field.  The decline
in oil prices of over 50%  coupled  with the El Nino storms in  California  that
essentially shut the field down during February 1998 caused revenues to be lower
than initially expected.

         Operating  costs decreased from $247,979 for 1997 to $121,016 for 1998.
Planned  pilot program  drilling  operations in the Cat Canyon field account for
most of the expenses  during 1998,  and such  expenses are not  proportional  to
revenues  since the three  wells  drilled  in the Cat  Canyon  field were not in
production  during  the  entire  period.  In  addition,  GREKA  Energy  incurred
significant  repair  expenses  resulting  from the El Nino storms in  California
during February 1998.

         Salaries  and wages  increased  from  $213,213 for 1997 to $455,510 for
1998.

         Depreciation,  depletion and  amortization  increased  from $24,016 for
1997 to $333,468 for 1998.

         The  writedown  of oil and gas  properties  of  $3,171,485  in 1998 was
primarily  attributable to the dramatic decrease in oil prices during the fourth
quarter of 1998.

         Other  administrative  expenses  increased  from  $495,823  for 1997 to
$933,244  for  1998.  The  increase  was  primarily  attributable  to legal  and
consulting fees resulting from GREKA Energy's  acquisition and financing efforts
related  to the  1998  Saba  transactions,  the  completion  of  GREKA  Energy's
bankruptcy reorganization, and related SEC reporting requirements.

         The  equity  in loss of Saba of  $586,020  for  1998  was a  result  of
applying the equity method of accounting for the investment in Saba beginning in
the fourth quarter of 1998.

         Interest  income  increased  from $11,873 for 1997 to $83,242 for 1998.
The increase was primarily  attributable to the significant amount of cash which
GREKA Energy had at the beginning of 1998 as a result of the private  placements
of its common stock in the fourth quarter of 1997.

Liquidity and Capital Resources

         Working capital decreased  approximately $5.1 million from $3.1 million
at December 31, 1997 to a deficit of $2.0 million at December 31, 1998.  Current
liabilities  increased from $820,327 as of December 31, 1997 to $2,249,661 as of
December 31, 1998. The $1,429,334  increase in current liabilities was primarily
due  to  the  issuance  of a  total  of $2  million  in  short-term  notes  to a
shareholder in connection with the Saba acquisition,  which was partially offset
by the decrease in accounts  payable and accrued expenses from December 31, 1997
to December 31, 1998.

         During the fourth quarter of 1997, GREKA Energy successfully  concluded
three private placements to re-capitalize the reorganized company. The first two
placements  were done at $10 per share while the third was  concluded at $13 7/8
per share.  GREKA Energy issued a total of 552,470 shares with gross proceeds of
approximately   $5,801,518  that  resulted  in  net  proceeds  of  approximately
$5,946,681.

                                       54

<PAGE>

         On December 31, 1998 GREKA Energy's cash and cash  equivalents  totaled
$250,212.  The decrease in cash and cash  equivalents  from December 31, 1997 to
December 31, 1998 was primarily  attributable to GREKA Energy's final payment on
the Cat Canyon field and the drilling program  expenditures related thereto, and
legal  and  consulting  fees  resulting  from  GREKA  Energy's  acquisition  and
financing  efforts  during 1998. The $2 million in proceeds from the issuance of
short-term  notes in 1998  were  immediately  used for the  acquisition  of Saba
capital stock.

         On February  26,1999,  GREKA Energy obtained  bridge  financing for the
Saba  business  in the  form of a $1  million  15%  debenture  secured  by GREKA
Energy's limestone reserves.

         GREKA  Energy's net cash used in operating  activities  increased  from
$449,052  for  1997  to  $2,293,744  for  1998.   This  increase  was  primarily
attributable to the larger operating loss of GREKA Energy during 1998.

         GREKA  Energy's net cash used in investing  activities  decreased  from
$3,059,690  for  1997 to  $1,826,546  for  1998.  This  decrease  was  primarily
attributable  to the decrease in  investments in time deposits and funds held in
escrow from 1997 to 1998,  which was partially offset by the cash used to invest
in shares of Saba common and preferred stock during 1998.

         GREKA Energy's net cash provided by financing activities decreased from
$5,821,236  for 1997 to  $2,051,550  for 1998.  Net cash  provided by  financing
activities  for 1997  included  the issuance of common stock for cash in the net
amount of $5.9 million,  while the only  significant  financing  activity during
1998 was the issuance of short-term notes in the amount of $2 million.

Liquidity

         Under the direction of GREKA Energy's  management  and strategy,  GREKA
Energy has significantly  improved its liquidity and expects to have low capital
requirements.  Specifically,  GREKA Energy expects to have an annual capex of $5
million  funded by its cash flow.  The  Company  is current on all its  interest
payments,  and has  sufficient  cash  flow for all its  operating  and  foreseen
capital requirements. Further, GREKA Energy intends to achieve the following:

*    Obtain long term  financing  of at least $14 million to pay  currently  due
     Bank One debt, reducing current liabilities from $36,591,543 to $22,591,543
     as of June 30, 1999.

*    Utilize the in-house  proprietary  and cost effective  horizontal  drilling
     technology to enhance production in the Santa Maria Valley area.

*    Continue  integration of GREKA  Energy-operated  oil and gas properties and
     the wholly-owned and operated  asphalt refinery that  collectively  provide
     for low cost operating expenses and high cash flow.

     The  acquisition of Saba gives GREKA Energy a stronger  consolidated  asset
base upon which it can rely in securing future financings, both equity and debt.
however,  there is no assurance that any specific level of cost savings or other
synergies will be achieved within the time periods  contemplated,  or that GREKA
Energy will be able to secure future  financings.  GREKA Energy  disposed of its
non-core  Colombian oil and gas assets for at least $10 million during 1999. The
proceeds  of the sale  were  used  largely  to  reduce  GREKA  Energy's  current
liabilities, thus strengthening GREKA Energy's working capital.

                                       55

<PAGE>

Recent Accounting Pronouncements

         The following new accounting  pronouncements have been issued which may
affect GREKA Energy upon their adoption in future accounting periods.

         Statement Of Position Number 98 - 5, issued by the Accounting Standards
Executive Committee of the American Institute of CPAs, entitled Reporting On The
Cost  Of  Start-Up   Activities,   became   effective   January  1,  1999.  This
pronouncement requires that costs of start-up activities, including organization
costs, be expensed as incurred. Initial application of this SOP will be reported
by GREKA Energy as the cumulative effect of a change in accounting principle, as
described in Accounting  Principles  Board Opinion No. 20,  Accounting  Changes.
When  adopting  this SOP,  entities  are not  required  to report  the pro forma
effects of  retroactive  application.  GREKA Energy will  expense  approximately
$25,000 in 1999 as a result of the implementation of this pronouncement.

         Statement  of  Financial   Accounting   Standards  No.  132,  Employers
Disclosures about Pensions and Other Postretirement Benefits,  becomes effective
in  1999  and   revises   employers'   disclosures   about   pension  and  other
postretirement benefit plans, but does not change the measurement or recognition
of those  plans.  Because  GREKA  Energy does not  currently  have in effect any
pension or postretirement  plans,  this  pronouncement is not expected to affect
GREKA Energy.

     SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
becomes  effective on January 1, 2001, and prescribes  accounting and disclosure
requirements   for  derivative   instruments   and  hedging   activities.   This
pronouncement  is not  expected to affect  GREKA  Energy  because it has no such
investments.

Year 2000

         Computer  programs or other embedded  technology that have been written
using two digits (rather than four) to define the applicable  year and that have
time-sensitive  logic may  recognize  a date using "00" as the Year 1900  rather
than the Year 2000, which could result in widespread  miscalculations  or system
failures.  Both information  technology  ("IT") systems and non-IT systems using
embedded  technology may be affected by the Year 2000.  GREKA Energy's  drilling
and other  equipment  does not make use of  embedded  chips,  and  GREKA  Energy
believes that its equipment will not be affected by the Year 2000.

     GREKA  Energy  has not  completed  an  assessment  of Year 2000  compliance
issues,  but management  currently  believes that since GREKA Energy's  drilling
equipment does not make use of embedded  computer chips and its other  operating
equipment  is not  heavily  automated  with  technology  systems,  the  costs of
becoming  ready  for the Year 2000 will not have a  material  adverse  effect on
GREKA Energy's financial condition, results of operations or cash flows.

                                       56


<PAGE>


         GREKA Energy currently  believes that its existing  technology  systems
and software will not need to be upgraded to become Year 2000 compliant,  except
that GREKA Energy must  replace its current  integrated  accounting  software in
order to  accurately  process Year 2000 data.  Should it not do so, GREKA Energy
would be unable to properly  process and report on its own  operating  data,  as
well as  information  provided  to it by  outside  sources  that are  Year  2000
compliant.  GREKA Energy's  third-party  accounting software vendor has modified
the current  operating system utilized by GREKA Energy and provided the modified
system  to  GREKA  Energy  in the  first  quarter  of  1999.  The  cost  of this
modification  was included in the vendor's  system support  contract and did not
result in a significant additional expense for GREKA Energy.

         GREKA Energy is in the process of verifying whether vendors,  suppliers
and significant customers with which GREKA Energy has material relationships are
Year 2000 compliant. GREKA Energy believes that some of these third parties will
not be  materially  affected  by the Year 2000 since  those  third  parties  are
relatively  small entities  which do not rely heavily on technology  systems for
their  operations.  GREKA Energy does not know  whether the other third  parties
will be Year 2000 compliant.  Under a worst-case  scenario,  if GREKA Energy and
such third parties are not Year 2000 compliant on a timely basis, there could be
financial risk to GREKA Energy,  including  supplier and service customer delays
resulting in short-term  delay of revenue and substantial  unanticipated  costs.
Accordingly,  GREKA  Energy plans to devote all  resources  necessary to resolve
significant  Year 2000 issues in a timely manner.  GREKA  Energy's  current Year
2000  contingency  plan is  essentially  to have all necessary  tasks  performed
manually in the event of material  Year 2000  problems  affecting  GREKA Energy.
Management of GREKA Energy believes that GREKA Energy has adequate  personnel to
perform  those  functions  manually  until any Year 2000  problems are resolved.
Inflation

         GREKA  Energy  does not  believe  that  inflation  will have a material
impact on GREKA Energy's future operations.

Item 7.  Financial Statements.

         Please see  accompanying  Index to Financial  Statements  commencing on
page F-1.


Item 8.  Changes  in  and  Disagreements  With  Accountants  on  Accounting  and
         Financial Disclosure.

         On February  18,  1999,  GREKA Energy  engaged  Arthur  Andersen LLP to
replace  Bateman & Co., Inc., P.C. as GREKA Energy's  independent  accountant to
audit  GREKA  Energy's  consolidated  financial  statements  for the year  ended
December 31, 1998.  Bateman & Co.,  Inc.,  P.C. was dismissed as GREKA  Energy's
independent  accountant  on the same date.  GREKA  Energy's  Board of  Directors
approved the change in GREKA Energy's independent accountant.

         The independent auditor's report of Bateman & Co., Inc., P.C. for GREKA
Energy's  financial  statements  for the year ended  December  31,  1997 did not
contain an adverse  opinion or a disclaimer of opinion,  and was not modified as
to uncertainty, audit scope, or accounting principles.

                                       57

<PAGE>

         During GREKA Energy's two most recent fiscal years and through the date
of the  dismissal of Bateman & Co.,  Inc.,  P.C.,  GREKA Energy did not have any
disagreements  with  Bateman & Co.,  Inc.,  P.C.  on any  matter  of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure.

                                    PART III


Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act

         The directors and executive officer of GREKA Energy are as follows:

        Name                   Age           Positions
        ----                   ---           ---------

  Randeep S. Grewal (A)         33      Chairman, President and Chief
                                        Executive Officer
                                        and a Director(1)
  Dr. Jan F. Holtrop (B)        62      Director(1)
  George G. Andrews (B)         72      Director(1)
  Dirk Van Keulen(C)            39      Director(1)
  Dai Vaughan (C)               60      Director(1)



(1)      The  directors  are divided into three  classes,  Class A, Class B, and
         Class C, with each  director  serving for three years and  rotating the
         class up for election at each annual meeting.

     (A)  Class A Director.
     (B)  Class B Director.
     (C)  Class C Director.

     Randeep S. Grewal - Chairman,  President  and Chief  Executive  Officer and
Director.  Mr.  Grewal most recently  served as Chairman and CEO for  Horizontal
Ventures,  Inc. He assumed this responsibility in April 1997 and established the
Company's strategies and business plan resulting in consistent growth year after
year. He has been involved in various joint ventures, acquisitions,  mergers and
reorganizations  since 1986 in the United States, Europe and the Far East within
diversified  businesses.  Mr.  Grewal  has  a  Bachelor  of  Science  degree  in
Mechanical Engineering from Northrop University.

     Dr. Jan Fokke Holtrop - Director.  Mr. Holtrop has been a senior Production
Technology professor at the Delft University of Technology within the Faculty of
Petroleum Engineering and Mining in The Hague,  Netherlands since 1989. Prior to
the Delft  University,  he  served in  various  positions  within  the Shell Oil
Company where he started his career in 1962.  Mr.  Holtrop has almost forty (40)
years of experience within the oil and gas exploration,  drilling and production
industry with a global  hands-on  background.  In January 1999,  Mr. Holtrop was
appointed to the Board of directors of Saba.  Mr.  Holtrop has a Ph.D. and a MSC
in Mining Engineering from the Delft University of Technology.

         George G. Andrews - Director.  Mr.  Andrews has been a  consultant  and
private  investor  since his  retirement  from the oil and gas industry in 1987.
From  1982  until  1987  he  was  employed  as  corporate   Vice   President  of
Intercontinental  Energy  Corporation  of  Englewood,   Colorado  directing  the
company's land acquisition,  lease and management operations.  Between June 1981
and November 1982 Mr. Andrews was Vice President of Shelter  Hydrocarbons,  Inc.
of  Denver,  Colorado  where he  directed  all  land  management  and  operation
procedures   including   contract   systems  and   negotiations  of  acquisition
agreements.  From 1979 to June of 1981 Mr.  Andrews  was Senior  Landman for the
National  Cooperative  Refinery  Association  in Denver,  Colorado  where he was
responsible for  negotiation  and acquisition of oil and gas leases,  certifying
title  requirements  and ongoing  daily  operations in his office.  Mr.  Andrews
obtained his B.S. degree from the University of Tulsa,  Tulsa,  Oklahoma in 1947
where he majored in Economics.

                                       58

<PAGE>

         Dirk Van Keulen -  Director.  Mr. Van Keulen has served  since  January
1996 as a Director  of  Horizontal  Ventures,  Inc.,  which was one of the first
licensees of the Amoco technology and is currently GREKA Energy's core business.
He served as a tax  official in the Dutch  Ministry of Finance from 1979 through
1987 and then as a tax consultant with Koolman & Co., until 1989. Since 1984 Mr.
Van Keulen has been  actively  involved  in various  investment  activities.  He
studied higher  education in fiscal law and accounting  under the Dutch Ministry
of Finance.

     Dai Vaughan - Director.  A director  since March 1999, Mr. Vaughan has been
an independent  airline  consultant since he left Continental  Airlines in 1984.
His last position with Continental Airlines was Manager of Aircraft Acquisition.
Mr.  Vaughan  has  served in  numerous  positions  in his 44 year  career in the
airline industry with British Airlines,  El Al and finally Continental Airlines,
including Systems Engineering,  Aircraft  Maintenance and Aircraft  Acquisition.
Mr. Vaughan received a HNC degree (B.S. equivalent) in Electrical Engineering at
an El Al sponsored program.

         There are no family  relationships  among the  directors.  There are no
arrangements  or  understandings  between any  director  and any other person by
which that director was elected.

         During  the past five  years,  there have been no  petitions  under the
Bankruptcy Act or any state  insolvency law filed by or against,  nor have there
been any receivers,  fiscal agents,  or similar officers  appointed by any court
for the  business or property of any of GREKA  Energy's  directors  or executive
officers,  or any  partnership  in which any such  person was a general  partner
within two years before the time of such filing,  or any corporation or business
association  of which any such  director or  executive  officer was an executive
officer  within two years before the time of such  filing.  During the past five
years,  no  incumbent  director or  executive  officer of GREKA  Energy has been
convicted of any criminal  proceeding  (excluding  traffic  violations and other
minor  offenses)  and no such  person is the  subject of a criminal  prosecution
which is presently pending.

Item 10. Executive Compensation

         The following summary compensation table sets forth in summary form the
compensation  received  during each of GREKA Energy's last two completed  fiscal
years by GREKA Energy's Executive Officers.

                                       59



<PAGE>

         (a) Summary Compensation Table

                             Annual                          Long Term
                          Compensation                     Compensation
                    -------------------------        ---------------------------
                                                               Awards
Name/Position       Year     Salary   Bonus(1)       Stock Awards      Options
----------------    ----    --------  -------        ------------      -------
Randeep S. Grewal   1998    $120,000      0           30,000(2)        110,000
 Chairman and Chief 1997    $120,000      0           70,000(3)        150,000
 Executive Officer  1996         -        -              -                -

--------------

(1)  During  the  period  covered  by the  Table,  GREKA  Energy did not pay its
     executive officers any bonuses or other compensation.

(2)  The Board of  Directors  of GREKA  Energy  granted  30,000  shares of GREKA
     Energy  common  stock to Mr.  Grewal on  October  18,  1998  subject to the
     consummation of the merger between GREKA Energy and Saba.

(3)  Stock grants approved as part of GREKA Energy's  bankruptcy  reorganization
     plan.

         No other  officer,  director or employee of Horizontal  Ventures or its
subsidiaries  received total  compensation in excess of $100,000 during the last
two fiscal  years.  The  Company has an  employment  agreement  with  Randeep S.
Grewal. No other form of compensation was paid during 1998.


(b)  Option and Long-Term Compensation Tables

                                          Long Term Compensation

                                     Awards                     Payouts
                                     ------                     -------

                              Restricted           Securities          LTIP
                            Stock award(s)         Underlying        Payouts
                                  ($)            Options/SARS (#)      ($)
                             -------------     ----------------       ------

Name/Position
- -------------
Randeep S. Grewal   1998       $367,500              110,000            -0-
Chairman and Chief
Executive Officer

(c)  Options and Stock Appreciation Rights


                                 Option/SAR Grants in Last Fiscal Year


                                  (Individual Grants)
         Number of Securities      Percent of total         Exercise
             Underlying          options/SARS granted        or base
            Options/SARS        granted(#) to employees       price   Expiration
Name          granted #             in fiscal year           ($/Sh)      date
-----   ----------------------  -----------------------      ------   ----------

Randeep S.    110,000                     52.4%               $8.25     9/16/07
Grewal

                                       60

<PAGE>


     Aggregated  Option/SAR  Exercises in Last Fiscal Year and FY-End Option/SAR
Values

                                                                   Value of
                                              Number of       unexercised in-the
                                         unexercised options  money options/SARS
               Shares                      SARS at FY-end (#)     at FY-end
             acquired on      Value           exercisable/        exercisable/
Name         exercise (#)   realized ($)     un-exercisable       un-exercisable
------       ------------   ------------   -----------------  ------------------
Randeep S.
Grewal           -0-            -0-         60,000/200,000     $232,500/$840,000

         GREKA  Energy has not granted any other  options or stock  appreciation
rights to any of its directors or executive officers.

         (d) Employment Contracts and Termination Agreements

         On September 9, 1997, GREKA Energy entered into a five-year  employment
agreement with Randeep S. Grewal. This agreement was amended on October 14, 1998
as discussed  below.  His salary under the original  agreement  was $120,000 per
year.  Compensation  is reviewed  annually.  Mr.  Grewal  participates  in GREKA
Energy's benefit plans and is entitled to bonuses and incentive  compensation as
determined  by the  board  of  directors  of  GREKA  Energy.  The  agreement  is
terminable for cause or by the death or disability of Mr.  Grewal.  In addition,
the agreement may be terminated by Mr. Grewal in the event of any  diminution by
the Company in Mr. Grewal's  position,  authority,  duties or  responsibilities.
Upon  termination  of the agreement by the Company for any reason other than for
cause,  death or disability,  or upon termination of the agreement by Mr. Grewal
in the  event  of  any  diminution  by the  Company  in Mr.  Grewal's  position,
authority, duties or responsibilities, the Company is obligated to pay within 30
days after the date of termination (1) Mr. Grewal's Base Salary through the date
of the  Severance  Period,  (2) Mr.  Grewal's base salary for the balance of the
term of the agreement if the Date of Termination is within the first three years
of the  Employment  Agreement  (Base Salary is the rate in effect at the Date of
Termination),  (3) the Annual Bonus paid to Mr.  Grewal for the last full fiscal
year during the Employment Period and (4) all amounts of deferred  compensation,
if any.  The  agreement  allows  Mr.  Grewal  to  receive  an  assignment  of 2%
overriding  royalty  of all  oil  and  gas  production  received  by  Horizontal
Ventures.

         On October 14,  1998,  GREKA  Energy  amended Mr.  Grewal's  employment
agreement  contingent  upon the  closing of the  acquisition  of Saba  Petroleum
Company by GREKA Energy. Under the amendments,  on March 24, 1999, the effective
date of the merger of Saba with and into a subsidiary of GREKA  Energy,  (i) Mr.
Grewal's  annual salary was  increased to $250,000,  (ii) 30,000 shares of GREKA
Energy  common  stock  were  issued to Mr.  Grewal,  (iii) Mr.  Grewal's  fringe
benefits were increased to included an automobile  allowance of $1,000 per month
and (iv) the employment  agreement was extended through the fifth anniversary of
March 24, 1999.

         On March 12, 1998, GREKA Energy entered into a Confidential Termination
and Settlement Agreement and Complete Release with Richard Wedel relating to his
resignation  as an  executive  of GREKA  Energy  and as a member of the Board of
Directors.  Under the agreement, Mr. Wedel received a $50,000 severance payment.
In addition,  GREKA  Energy  agreed to maintain Mr.  Wedel's  medical  insurance
coverage as currently in effect through July 31, 1998. In exchange for the above
consideration,   Mr.   Wedel  agreed  not  to  compete  with  GREKA  Energy  and
specifically  with GREKA Energy's  horizontal  drilling business for a period of
three years after his date of termination. Mr. Wedel also agreed not to disclose
any  confidential  information  of GREKA Energy which he acquired as a result of
his employment.  GREKA Energy and Mr. Wedel agreed to mutually release the other
from any claim or action arising from Mr. Wedel's Executive Employment Agreement
with GREKA Energy.

         (e) Director Compensation

         Each  director  who is not an  employee of GREKA  Energy (the  "Outside
Directors")  will be reimbursed for expenses  incurred in attending  meetings of
the board of directors  and related  committees.  As of the date of this report,
GREKA  Energy  has three  Outside  Directors.  No  compensation  was paid to any
Outside  Director  during  fiscal 1998 and is none is planned for the  immediate
future.

         GREKA Energy has no knowledge of any  arrangement or  understanding  in
existence  between any  executive  officer  named above and any other  person by
which any such  executive  officer  was or is to be  elected  to such  office or
offices.  All  officers of GREKA  Energy  serve at the  pleasure of the board of
directors.  No family  relationship  exists  among the  directors  or  executive
officers of GREKA  Energy.  All  officers of GREKA Energy will hold office until
the next annual meeting of the shareholders of GREKA Energy.  There is no person

                                       61

<PAGE>

who is not a  designated  Officer  who  is  expected  to  make  any  significant
contribution  to the business of GREKA Energy.  The executive  officers of GREKA
Energy  serve at the  pleasure of the board of  directors  and do not have fixed
terms.  Any officer or agent  elected or appointed by the board of directors may
be removed by the board  whenever in its  judgment  the best  interests of GREKA
Energy will be served thereby without prejudice, however, to contractual rights,
if any, of the person so removed.

Working Interests

         There are no agreements  in which any employee of  Horizontal  Ventures
receives a working interest in GREKA Energy's oil and gas properties.

Overriding Royalty Income

         GREKA Energy has historically  assigned overriding royalty interests to
certain of its employees.  Employees own overriding royalty interests on oil and
gas wells  invested in by GREKA Energy.  Conflicts of interest may arise between
employees owning overriding royalty interests in GREKA Energy-operated locations
and GREKA Energy.

     As  part of Mr.  Grewal's  employment  agreement,  he is to  receive  a two
percent (2%) overriding royalty of all oil and gas production  received by GREKA
Energy.

Future Transactions

         All  transactions  between  GREKA  Energy  and  an  officer,  director,
principal  stockholder  or  affiliate  of GREKA  Energy  will be  approved  by a
majority of the  uninterested  directors,  only if they have determined that the
transaction is fair to GREKA Energy and its  stockholders  and that the terms of
such  transaction  are no less  favorable to GREKA Energy than could be obtained
from unaffiliated parties.

Section 16(a) Beneficial Ownership Reporting Compliance

         Under U.S. securities laws,  directors,  certain executive officers and
persons  holding  more than 10% of GREKA  Energy  common stock must report their
initial  ownership of the common stock and any changes in that  ownership to the
SEC.  The SEC has  designated  specific  due dates for these  reports  and GREKA
Energy  must  identify  in this  document  those  persons who did not file these
reports when due. Based solely on its review of copies of the reports filed with
the SEC and written  representations  of its directors  and executive  officers,
GREKA Energy  believes that all persons  subject to reporting filed the required
reports on time in 1998.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The following  table sets forth,  as of September 17, 1999,  the common
stock ownership of each person known by GREKA Energy to be the beneficial  owner
of 5% or more of GREKA Energy  common  stock,  all  directors  and the executive
officer individually and all directors and the executive officer of GREKA Energy
as a group.  Except as noted,  each person has sole voting and investment  power
with  respect to the shares  shown.  There are no  contractual  arrangements  or
pledges  of the  Company's  securities,  known to GREKA  Energy,  which may at a
subsequent  date result in a change of control of GREKA Energy.  As of September
17, 1999,  there were  4,311,603  shares of GREKA Energy common stock issued and
outstanding,  which  amount does not include  140,886  shares  GREKA Energy will
issue to  International  Publishing  Holding s.a.  upon the  effectiveness  of a
registration statement covering the resale of those shares.

                                       62

<PAGE>


                                                 Amount of Beneficial
                                                       Ownership
                                           -----------------------------
      Name and Address                      Common            Percent of
      of Beneficial Owner                  Stock(1)             Class
      -------------------                  --------            --------
      International Publishing             416,979 (4)           9.4%
      Holding s.a.
      Postbus 84019
      2508 AA The Hague
      The Netherlands

      Capco Resources Ltd.(2)            1,340,000              31.1%
      3201 Airpark Drive, Suite 201
      Santa Maria, CA  93455

      Randeep S. Grewal                  1,610,000 (3)          35.9%
      Chairman and
      Chief Executive Officer
      10815 Briar Forest Drive
      Houston, TX 77042/
      630 Fifth Avenue, Suite 1501
      New York, NY 10111

      Dr. Jan F. Holtrop                     6,108               < 1%
      Director
      Van Alkemadelaan
      2596 AS The Hague
      The Netherlands

      Dirk Van Keulen                         -0-                -0-%
         Director
         Heemraadslag 14
         2805 DP Gauda
         The Netherlands

      George G. Andrews                       -0-                -0-%
      Director
      7899 West Frost Drive
      Littleton, CO 80123

      Dai Vaughan                             -0-                -0-%
      900 Powers Ferry Road #101
         Mariettta, GA 30067


      All directors and the
      executive officer                   1,616,108              36.1%
      as a group (5 persons)

----------------

(1)      Rule 13d-3  under the  Securities  Exchange  Act of 1934,  as  amended,
         involving  the   determination  of  beneficial  owners  of  securities,
         includes as beneficial owners of securities,  among others,  any person
         who  directly  or  indirectly,   through  any  contract,   arrangement,
         understanding,  relationship or otherwise has, or shares,  voting power
         and/or  investment  power with  respect to such  securities;  and,  any
         person  who has the  right  to  acquire  beneficial  ownership  of such
         security within sixty days through means, including but not limited to,
         the exercise of any option, warrant or conversion of a security.

(2)      Capco  Resources  Ltd.  is  controlled  by  Ilyas  Chaudhary,  a former
         executive  officer,  director and principal  shareholder  of Saba. By a
         Stock  Exchange  Agreement  dated November 23, 1998,  among  Horizontal
         Ventures and the former shareholders of Saba Aquisub,  Inc.,  including
         Capco,  Capco has delivered a proxy to Randeep S. Grewal  conferring on
         Mr.  Grewal  voting power with respect to the GREKA Energy common stock
         owned by Capco.

(3)      Includes options presently  exercisable or exercisable  within the next
         60 days to acquire 170,000 shares of GREKA Energy common stock, 100,000
         shares of GREKA Energy common stock held individually by Mr. Grewal and
         1,340,000  shares of GREKA  Energy as to which Mr.  Grewal  has  voting
         power under a proxy from Capco.

                                       63

<PAGE>

(4)       Includes   140,886   shares  of  GREKA   Energy   common   stock  that
          International Publishing Holding may be issued within the next 60 days
          upon the effectiveness of a registration statement covering the resale
          of those shares.

Item 12. Certain Relationships and Related Transactions

         During  the last two  fiscal  years,  there  have been no  transactions
between  GREKA  Energy  and any  officer,  director,  nominee  for  election  as
director,  or any  shareholder  owning  greater  than five percent (5%) of GREKA
Energy's outstanding shares, nor any member of the above referenced individuals'
immediate family, except as set forth below.

         Randeep S. Grewal, GREKA Energy's Chairman and Chief Executive Officer,
also receives an overriding  royalty of 2 percent of all oil and gas  production
received by GREKA Energy during the term of his employment.  GREKA Energy issued
previously  quoted 30,000 shares of GREKA Energy common stock to Mr. Grewal upon
the effective date of the acquisition of Saba.

         On March  12,  1998,  Richard  Wedel,  then an  executive  officer  and
director of GREKA Energy,  resigned and entered into an agreement  providing for
certain severance benefits and mutual covenants.

         It is GREKA  Energy's  policy  that any  future  material  transactions
between it and members of its management or their  affiliates  shall be on terms
no less favorable than those available from unaffiliated third parties.


Item 13. Exhibits and Reports on Form 8-K.

         (a)  Exhibits.  The  following  exhibits are  furnished as part of this
report:


Exhibit No.       Exhibit Description

3.1       Restated  Articles of Incorporation  of Horizontal  Ventures (filed as
          Exhibit 3A to Horizontal Ventures' Quarterly Report on Form 10-QSB for
          the quarter  ended June 30, 1998 (File No.  0-20760) and  incorporated
          herein by reference)

3.2       Articles of Amendment to Articles of Incorporation effective March 22,
          1999 (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K
          dated March 15, 1999 and incorporated herein by reference)

3.3       By-Laws of Horizontal  Ventures  (incorporated by reference to Exhibit
          No.   3   to   the   Horizontal   Ventures'   Registration   Statement
          (#33-24265-LA)

10.1      Post-Petition Loan Agreement (incorporated by reference to Exhibit 10E
          to  Horizontal  Ventures'  Annual  Report on Form  10-KSB for the year
          ended December 31, 1996).

10.2      Amended  Post-Petition  Loan Agreement  (incorporated  by reference to
          Exhibit 10-F to Horizontal  Ventures' Annual Report on Form 10-KSB for
          the year ended December 31, 1996).

10.3      Horizontal   Drilling  Services  Letter  Agreement   (incorporated  by
          reference to Exhibit 10-G to  Horizontal  Ventures'  Annual  Report on
          Form 10-KSB for the year ended December 31, 1996).

10.4      Agreement  and  Plan of  Acquisition  (incorporated  by  reference  to
          Exhibit 10.1 to Horizontal  Ventures'  Current  Report on Form 8-K for
          event dated August 11, 1997).

10.5      Randeep S. Grewal Employment  Agreement  (incorporated by reference to
          Exhibit 10.1 to Horizontal  Ventures'  Current  Report on Form 8-K for
          event dated August 28, 1997).

10.6      Post Petition  Loan  Agreement  (incorporated  by reference to Exhibit
          10.1 to  Horizontal  Ventures'  Current  Report  on Form 8-K for event
          dated August 28, 1997.

10.7      Cat  Canyon  Lease  Purchase   Agreement  (filed  as  Exhibit  10K  to
          Horizontal  Ventures'  Annual Report on Form 10-KSB for the year ended
          December  31,  1997  (File No.  0-20760)  and  incorporated  herein by
          reference).

10.8      Employment  Agreement with Ilyas  Chaudhary  (filed as Exhibit 10.3 to
          Saba's  Registration  Statement on Form SB-2 (File No.  33-94678)  and
          incorporated herein by reference)

10.9      Employment  Agreement  with Walton C. Vance (filed as Exhibit 10.31 to
          Saba's  annual  report  on Form  10-KSB  for the year  ended  December
          31,1996 (File No. 001-13880) and incorporated herein by reference)

                                       64

<PAGE>

10.10     First  Amendment,  Letter  Agreement with Bradley T. Katzung (filed as
          Exhibit  10.33 to Saba's  annual  report on Form  10-KSB  for the year
          ended December 31, 1996 (File No.  001-13880) and incorporated  herein
          by reference)

 10.11    Second  Amendment  to  Employment  Agreement  with  Bradley T. Katzung
          (Filed as Exhibit  10.5 to Saba's  annual  report on Form 10-K for the
          year ended  December 31, 1997 (File No.  001-13880)  and  incorporated
          herein by reference)

10.12     Employment  Agreement  with Burt  Cormany  (filed as  Exhibit  10.1 to
          Saba's  quarterly  report on Form 10-QSB for the quarter  ending March
          31, 1997 (File No. 001-13880) and incorporated herein by reference)

10.13     Employment  Agreement with Alex Cathcart,  dated March 1, 1997, (filed
          as Exhibit 10.38 to Saba's  Quarterly Report Form 10-Q for the quarter
          ended June 30, 1997 (file  No.001-13880)  and  incorporated  herein by
          reference)

10.14     Retainer  Agreement with Rodney C. Hill, A  Professional  Corporation,
          dated  March 16,  1997  (filed as  Exhibit  10.39 to Saba's  Quarterly
          Report  Form  10-Q  for the  quarter  ended  June  30,  1997(File  No.
          001-13880) and incorporated herein by reference)

10.15     Amendment to Retainer  Agreement  with Rodney C. Hill, A  Professional
          Corporation  dated  March 13,  1998  (Filed as Exhibit  10.9 to Saba's
          annual report on Form 10-K for the year ended  December 31, 1997 (File
          No. 001-13880) and incorporated herein by reference)

10.16     Saba  Petroleum  Company 1996 Equity  Incentive Plan (filed as Exhibit
          4.4 to Saba's  Registration  Statement  on Form S-8,  dated August 21,
          1997 (File No. 333-34035) and incorporated herein by reference)

10.17     Saba  Petroleum  Company  1997  Stock  Option  Plan  for  Non-Employee
          Directors  (filed as Exhibit 4.5 to Saba's  Registration  Statement on
          Form S-8, dated August 21, 1997 (File No.  333-34035) and incorporated
          herein by reference)

10.18     First Amended and Restated Loan  Agreement  between Saba and Bank One,
          Texas,  N.A. (filed as Exhibit 10.1 to Saba's quarterly report on Form
          10-QSB for the quarter ended  September 30, 1996 (File No.  001-13880)
          and incorporated herein by reference)

10.19     Amendment  Number One to First  Amended and  Restated  Loan  Agreement
          between  Saba and Bank One,  Texas,  N.A.  (filed as Exhibit  10.20 to
          Saba's  annual  report on Form 10-KSB for the year ended  December 31,
          1996 (File No. 1-12322) and incorporated herein by reference)

10.20     Amendment  Number Two to First  Amended and  Restated  Loan  Agreement
          between  Saba and Bank One,  Texas,  N.A.  (filed as  Exhibit  10.1 to
          Saba's  quarterly  report on Form 10-Q for the quarter ended September
          30, 1997 (File No. 001-13880) and incorporated herein by reference)

10.21     Amendment  Number Three to First Amended and Restated  Loan  Agreement
          between  Saba and Bank One,  Texas,  N.A.  (filed as  Exhibit  10.2 to
          Saba's  quarterly  report on Form 10-Q for the quarter ended September
          30, 1997 (File No. 001-13880) and incorporated herein by reference)

10.22     Amendment  Number Four to First  Amended and Restated  Loan  Agreement
          between Saba and Bank One, Texas,  N.A. (filed as Exhibit 10 to Saba's
          Current  Report  on Form  8-K  filed  September  24,  1997  (File  No.
          001-13880) and incorporated herein by reference)

10.23     Corrections  relating to Second  Amendment  dated August 28, 1997, and
          Fourth  Amendment  dated  September  9, 1997 to the First  Amended and
          Restated Loan Agreement  between Saba and Bank One, Texas, N.A. (filed
          as  Exhibit  10.4 to  Saba's  quarterly  report  on Form  10-Q for the
          quarter ended September 30, 1997 (File  No.001-13880) and incorporated
          herein by reference)

10.24     Amendment  Number Five to First  Amended and Restated  Loan  Agreement
          between  Saba and Bank One,  Texas,  N.A.  (filed as  Exhibit  10.4 to
          Saba's  Current  Report on Form 8-K filed  January  15, 1998 (File No.
          001-13880) and incorporated herein by reference)

10.25     Consent  Letter to Preferred  Stock  Transaction  by Bank One,  Texas,
          N.A.  dated December 31, 1997 (filed as Exhibit 10.2 to Saba's Current
          Report on Form 8-K filed  January  15, 1998 (File No.  001-13880)  and
          incorporated herein by reference)

10.26     Amendment of the First  Amended and Restated  Loan  Agreement  between
          Saba and Bank One,  Texas,  N.A.,  dated  December  31, 1997 (filed as
          Exhibit  10.3 to Saba's  Report Form 8-K filed  January 15, 1998 (File
          No. 001-13880) and incorporated herein by reference)

10.27     Amendment  Number Seven to First Amended and Restated  Loan  Agreement
          between  Saba and Bank One,  Texas,  N.A.  (Filed as Exhibit  10.21 to
          Saba's annual report on Form 10-K for the year ended December 31, 1997
          (File No. 001-13880) and incorporated herein by reference)

10.28     Stock  Purchase  Agreement  (filed as an  exhibit  to  Saba's  Current
          Report on Form 8-K dated  January  10,  1995  (File No.  1-12322)  and
          incorporated herein by reference)

                                       65

<PAGE>

 10.29    Processing  Agreement  between Santa Maria Refining  Company and Petro
          Source  Refining   Corporation   (filed  as  Exhibit  10.6  to  Saba's
          Registration   Statement  on  Form  SB-2  (File  No.   33-94678)   and
          incorporated herein by reference)

10.30     Agreement among Saba Petroleum Company,  Omimex de Colombia,  Ltd. and
          Texas  Petroleum  Company to acquire  Teca and Nare  fields  (filed as
          Exhibit  10.7 to Saba's  Registration  Statement  on Form  SB-2  (File
          No.33-94678) and incorporated herein by reference)

10.31     Agreement among Saba Petroleum Company,  Omimex de Colombia,  Ltd. and
          Texas  Petroleum  Company to acquire  Cocorna  Field (filed as Exhibit
          10.8 to Saba's Registration Statement on Form SB-2 (File No. 33-94678)
          and incorporated herein by reference)

10.32     Agreement  among  Saba  Petroleum   Company  and  Cabot  Oil  and  Gas
          Corporation  to acquire  Cabot  Properties  (filed as Exhibit  10.9 to
          Saba's  Registration  Statement on Form SB-2 (File No.  33-94678)  and
          incorporated herein by reference)

10.33     Agreement  among  Saba  Petroleum   Company,   Beaver  Lake  Resources
          Corporation and Capco Resource Properties Ltd. (filed as Exhibit 10.10
          to Saba's Registration  Statement on Form SB-2 (File No. 33-94678) and
          incorporated herein by reference)

10.34     Amendment to Agreement among Saba, Omimex de Colombia,  Ltd. and Texas
          Petroleum  Company  to  acquire  the Teca and Nare  fields  (filed  as
          Exhibit 2.2 to Saba's Current  Report on Form 8-K dated  September 14,
          1995 (File No. 1-12322) and incorporated herein by reference)

10.35     Promissory   Notes  of  Saba   (filed  as  Exhibit   10.13  to  Saba's
          Registration   Statement  on  Form  SB-2  (File  No.   33-94678)   and
          incorporated herein by reference)

10.36CRI  Stock Purchase  Termination  Agreement  (filed as Exhibit 10.14 to
          Saba's  Registration  Statement on Form SB-2 (File No.  33-94678)  and
          incorporated herein by reference)

10.37     Form of  Common  Stock  Conversion  Agreement  between  Capco and Saba
          (filed as Exhibit 10.15 to Saba's Registration  Statement on Form SB-2
          (File No. 33-94678) and incorporated herein by reference)

10.38     Form of Agreement  regarding  exercise of  preemptive  rights  between
          Capco  and  Saba  (filed  as  Exhibit  10.16  to  Saba's  Registration
          Statement on Form SB-2 (File No. 33-94678) and incorporated  herein by
          reference)

10.39     Letter  Agreement,  as amended,  between Omimex de Colombia,  Ltd. and
          Saba (filed as Exhibit 10.17 to Saba's Registration  Statement on Form
          SB-2 (File No. 33-94678) and incorporated herein by reference)

10.40     Promissory  Note of Mr.  Chaudhary  (filed as  Exhibit  10.2 to Saba's
          quarterly  report on Form 10-QSB for the  quarter  ended June 30, 1996
          (File No. 001-13880) and incorporated herein by reference)

10.41     Form of Stock  Option  Agreements  between Mr  Chaudhary  and  Messrs.
          Hickey and Barker (filed as Exhibit 10.3 to Saba's quarterly report on
          Form 10-QSB for the quarter  ended June 30, 1996 (File No.  001-13880)
          and incorporated herein by reference)

10.42     Form of Stock Option  Termination  Agreements between Saba and Messrs.
          Hagler and Richards (filed as Exhibit 10.4 to Saba's  quarterly report
          on Form 10-QSB for the quarter ended June 30, 1996 (File No.001-13880)
          and incorporated by reference)

10.43     Agreement  Minutes  concerning  Colombia  oil sales  contract  between
          Omimex as operator  and  Ecopetrol  (filed as Exhibit  10.21to  Saba's
          annual  report on Form  10-KSB for the year ended  December  31,  1996
          (File No. 001-13880) and incorporated herein by reference)

10.44     Operating  Agreement  between  Omimex and  Sabacol-Velasquez  property
          (filed as Exhibit 10.22 to Saba's annual report on Form 10-KSB for the
          year ended  December 31, 1996 (File No.  001-13880)  and  incorporated
          herein by reference)

10.45     Operating  Agreement  between  Omimex  and  Sabacol-Cocorna  and  Nare
          properties  (filed  as  Exhibit  10.23  to  Saba's  annual  report  on
          Form10-KSB for the year ended  December 31, 1996 (File No.  001-13880)
          and incorporated herein by reference)

10.46     Operating   Agreement   between  Omimex  and   Sabacol-Velasquez-Galan
          Pipeline  (filed  as  Exhibit  10.24 to Saba's  annual  report on Form
          10-KSB for the year ended  December 31, 1996 (File No.  001-13880) and
          incorporated herein by reference)

10.47     Operating  Agreement  between  Omimex and  Sabacol-Cocorna  Concession
          property  (filed  as  Exhibit  10.25 to Saba's  annual  report on Form
          10-KSB for the year ended  December 31, 1996 (File No.  001-13880) and
          incorporated herein by reference)

10.48     Life insurance  contract on life of Ilyas Chaudhary  (filed as Exhibit
          10.26 to  Saba's  annual  report  on Form  10-KSB  for the year  ended
          December  31, 1996 (File No.  001-13880)  and  incorporated  herein by
          reference)

                                       66

<PAGE>

10.49     Life insurance  contract on life of Ilyas Chaudhary  (filed as Exhibit
          10.27 to  Saba's  annual  report  on Form  10-KSB  for the year  ended
          December  31, 1996 (File No.  001-13880)  and  incorporated  herein by
          reference)

10.50     Agreement  for  Assignment of Leases  between Saba and Geo  Petroleum,
          Inc.  (filed as an exhibit  to Saba's  amended  annual  report on Form
          10-KSB/A for the year ended December 31, 1996 (File No. 001-13880) and
          incorporated herein by reference)

10.51     Amendment to Agreement for  Assignment of Leases  between Saba and Geo
          Petroleum,  Inc.  (Filed as Exhibit  10.45 to Saba's  annual report on
          Form 10-K for the year ended  December  31, 1997 (File No.  001-13880)
          and incorporated herein by reference)

10.52     Agreement  to  Provide  Collateral  between  Capco and Saba  Petroleum
          Company (filed as Exhibit 10.29 to Saba's annual report on Form 10-KSB
          for the  year  ended  December  31,  1996  (File  No.  001-13880)  and
          incorporated herein by reference)

10.53     Purchase and Sale Agreement between DuBose Ventures,  Inc., Rockbridge
          Oil & Gas, Inc., Saba Energy of Texas,  Incorporated  and Energy Asset
          Management  Corporation to acquire  properties in Jefferson Parish, LA
          (filed as Exhibit 10.30 to Saba's annual report on Form 10-KSB for the
          year ended  December 31, 1996 (File No.  001-13880)  and  incorporated
          herein by reference)

10.54     Beaver Lake Resources  Corporation March 1997  Re-Financing  Agreement
          (filed as Exhibit 10.3 to Saba's  quarterly  report on Form 10-QSB for
          the  quarter   ending  March  31,  1997  (File  No.   001-13880)   and
          incorporated herein by reference)

10.55     Production  Sharing Contract between  Perusahaan  Pertambangan  Minyak
          Dan Gas Bumi Nagara  (Pertamina) and Saba Jatiluhur  Limited (filed as
          Exhibit 10.5 to Saba's  quarterly  report on Form 10-Q for the quarter
          ended September 30, 1997 (File No. 001-13880) and incorporated  herein
          by reference)

10.56     Agreements  among Saba,  Amerada Hess Corporation and Hamar Associates
          II,  LLC dated  November  1, 1997  (Filed as  Exhibit  10.50 to Saba's
          annual report on Form 10-K for the year ended  December  31,1997 (File
          No. 001-13880) and incorporated herein by reference)

10.57     Agreements among Saba,  Chevron U.S.A.  Production  Company and Nahama
          Natural Gas (Filed as Exhibit  10.51 to Saba's  annual  report on Form
          10-K for the year ended  December  31, 1997 (File No.  001-13880)  and
          incorporated herein by reference)

10.58     Exchange  Agreement between Saba and Energy Asset Management  Company,
          L.L.C.  dated March 6, 1998 (Filed as Exhibit  10.52 to Saba's  annual
          report on Form 10-K for the year  ended  December  31,  1997 (File No.
          001-13880) and incorporated herein by reference)

10.59     Office Lease Agreement,  3201 Airpark Drive,  Santa Maria,  California
          (filed as Exhibit 10.2 to Saba's  quarterly  report on Form 10-QSB for
          the  quarter   ending  March  31,  1997  (File  No.   001-13880)   and
          incorporated herein by reference)

10.60     Office Lease Agreement,  17526 Von Karman Avenue,  Irvine,  California
          (Filed as Exhibit  10.54 to Saba's  annual report on Form 10-K for the
          year ended  December 31, 1997 (File No.  001-13880)  and  incorporated
          herein by reference)

10.61     Purchase and Sale Agreement between Saba and Statoil  Exploration (US)
          Inc.  dated  August 19,  1997  (filed as an exhibit to Saba's  Current
          Report on Form 8-K dated  September  24,1997 (File No.  001-13880) and
          incorporated herein by reference)

10.62     Securities  Purchase  Agreement  dated  December  31,  1997  (filed as
          Exhibit  10.1 to Saba's  Report Form 8-K filed  January 15, 1998 (File
          No. 001-13880) and incorporated herein by reference)

10.63     Registration  Rights  Agreement dated as of December 31,1997 (filed as
          Exhibit 3(I).1(a) to Saba's Registration  Statement on Form S-1, dated
          January  27,  1998 (File No.  333-45023)  and  incorporated  herein by
          reference)

10.64     Stock Purchase Warrant (Closing Warrant) dated December  31,1997(filed
          as Exhibit  3(I).1(a)to  Saba's  Registration  Statement  on Form S-1,
          dated January 27, 1998 (File No. 333-45023) and incorporated herein by
          reference)

10.65     Stock Purchase  Warrant  (Redemption  Warrant) dated December 31, 1997
          (filed as Exhibit 3(I).1(a) to Saba's  Registration  Statement on Form
          S-1,  dated  January 27, 1998 (File No.  333-45023)  and  incorporated
          herein by reference)

10.66     Finder  Agreement  dated as of  December  31,  1997  (Filed as Exhibit
          10.60 to Saba's annual report on Form 10-K for the year ended December
          31, 1997 (File No. 001-13880) and incorporated herein by reference)

10.67     Stock Purchase  Warrant (Finder Warrant) dated as of December 31, 1997
          (Filed as Exhibit  10.61 to Saba's  annual report on Form 10-K for the
          year ended  December 31, 1997 (File No.  001-13880)  and  incorporated
          herein by reference)

                                       67

<PAGE>

10.68     Preliminary  Agreement  To Enter  Into A  Business  Combination  dated
          March 18, 1998 by and among Saba and Omimex Resources,  Inc. (filed as
          Exhibit 10.1 to Saba's Current Report on Form 8-K dated March 30, 1998
          (File No. 001-13880) and incorporated herein by reference)

10.69     Press Release  announcing  the Proposed  Combination  between Saba and
          Omimex Resources,  Inc. dated March 18, 1998 (filed as Exhibit 10.2 to
          Saba's  Current  Report on Form 8-K dated  March  30,  1998  (File No.
          001-13880) and incorporated herein by reference) 10.70 Preferred Stock
          Transfer  Agreementdated  October 7, 1998 between Horizontal  Ventures
          and RGC  (filed as  Exhibit  10.1 to  Horizontal  Ventures'  Quarterly
          Report on Form 10-QSB for the  quarter  ended  September  30, 1998 and
          incorporated herein by reference).

10.71     Common  stock  Purchase   Agreement  dated  October  8,  1998  between
          Horizontal  Ventures  and Saba  (filed as Exhibit  10.2 to  Horizontal
          Ventures'  Quarterly  Report  on Form  10-QSB  for the  quarter  ended
          September 30, 1998 and incorporated herein by reference).

10.72     Option Agreement dated July 22, 1998 between  Horizontal  Ventures and
          IPH (filed as Exhibit 10.3 to Horizontal Ventures' Quarterly Report on
          Form 10-QSB for the quarter ended September 30, 1998 and  incorporated
          herein by reference).

10.73     Promissory  Note dated October 6, 1998 payable by Horizontal  Ventures
          to IPH (filed as Exhibit 10.4 to Horizontal Ventures' Quarterly Report
          on  Form  10-QSB  for  the  quarter  ended   September  30,  1998  and
          incorporated herein by reference).

10.74     Pledge  Agreement  dated October 6, 1998 between  Horizontal  Ventures
          and IPH  (filed as  Exhibit  10.5 to  Horizontal  Ventures'  Quarterly
          Report on Form 10-QSB for the  quarter  ended  September  30, 1998 and
          incorporated herein by reference).

10.75     Promissory Note dated November 4, 1998 payable by Horizontal  Ventures
          to IPH (filed as Exhibit 10.6 to Horizontal Ventures' Quarterly Report
          on  Form  10-QSB  for  the  quarter  ended   September  30,  1998  and
          incorporated herein by reference).

10.76     Pledge  Agreement dated November 4, 1998 between  Horizontal  Ventures
          and IPH  (filed as  Exhibit  10.7 to  Horizontal  Ventures'  Quarterly
          Report on Form 10-QSB for the  quarter  ended  September  30, 1998 and
          incorporated herein by reference).

10.77     Agreement and Plan of  Reorganization  dated as of June 1, 1998 by and
          among Saba and Ominex Resources, Inc. et al. (filed as Exhibit 10.1 to
          Saba's  Current  Report  on Form 8-K  dated  June 16,  1998  (File No.
          001-13880) and incorporated herein by reference).

10.78     Consent  letter to provisions of Section 1.7 of the Agreement and Plan
          of Reorganization by Bank One, Texas, NA, dated June 2, 1998 (filed as
          Exhibit 10.2 to Saba's  Current Report on Form 8-K dated June 16, 1998
          (File No. 001-13880) and incorporated herein by reference).

10.79     Amendment  to  First  Amended  and  Restated  Loan   Agreement   dated
          September 23, 1996, as amended among Saba et al. And Bank One,  Texas,
          NA dated June  9,(filed as Exhibit  10.3 to Saba's  Current  Report on
          Form 8-K dated June 16,  1998 (File No.  001-13880)  and  incorporated
          herein by reference).

 10.80    Mutual  Termination and Release  Agreement dated September 15, 1998 by
          and among Saba, Saba Acquisition,  Inc.,  Omimex Resources,  Inc., the
          Omimex  Resources,  Inc.  stockholders  and Ilyas Chaudhary  (filed as
          Exhibit 10.67 to Amendment No. 2 to Saba's  Registration  Statement on
          Form S-1 dated December 22, 1998 (File No. 333-45023) and incorporated
          herein by reference).

10.81     Letter  Agreement  dated  October 8, 1998 between Saba and  Horizontal
          Ventures  (filed as Exhibit 10.3 to Saba's  Current Report on Form 8-K
          dated October 6, 1998 (File No. 001-138807) and incorporated herein by
          reference).

10.82     Employment  Agreement with Imran Jattala dated July 23, 1998 (filed as
          Exhibit 10.71 to Amendment No. 2 to Saba's  Registration  Statement on
          Form S-1 dated December 22, 1998 (File No. 333-45023) and incorporated
          herein by reference).

 10.83    Stock  Exchange  Agreement  dated  November 23, 1998 among  Horizontal
          Ventures and the Shareholders of Saba Acquisub, Inc.*

 10.84    Agreement to Amend Common stock Purchase  Agreement  dated December 3,
          1998  between Saba and  Horizontal  Ventures  (filed as Exhibit  10.85
          Amendment No. 1 dated  December 15, 1998 to Stock  Exchange  Agreement
          dated November 23, 1998 among Horizontal Ventures and the shareholders
          of Saba Acquisub, Inc. 10.1 to Saba's Current Report on Form 8-K dated
          December  18,  1998 File No.  001-13880)  and  incorporated  herein by
          reference).

 10.86    Amendment to  $1,500,000  Promissory  Note (filed as Exhibit  10.86 to
          the Amendment No. 2 to the Company's  Registration  Statement filed on
          Form S-4 dated February 19, 1999 and incorporated herein by reference)

10.87     Exchange   Agreement   between  GREKA  Energy  and  RGC  International
          Investors*

                                       68

<PAGE>

10.88     Secured  Convertible  Promissory  Note*

10.89A    sset  Purchase  Agreement  entered into March 17, 1999 among Sabacol,
          Inc. and the Omimex Group*

10.90     First   Amendment  to  Employment   Agreement  of  Randeep  S.  Grewal
          effective October 14, 1998*

16.1      Letter  by   PricewaterhouseCoopers,   LLP  dated  February  15,  1999
          regarding  change in  accountants  (filed as Exhibit 16.1 to Amendment
          No.  2 to the  Company's  Registration  Statement  on Form  S-4  dated
          February 16, 1999 and incorporated herein by reference)

16.2      Letter by Bateman & Co., Inc., P.C., dated February 19, 1999 regarding
          change in accountants.

21.1      Subsidiaries of Horizontal Ventures Acquisition  Corporation (filed as
          Exhibit 21.1 to Horizontal  Ventures'  Registration  Statement on Form
          S-4 dated December 22, 1998 and incorporated herein by reference).

21.2      Subsidiaries  of Saba  (filed as Exhibit  21.1 to Saba's  Registration
          Statement on Form S-1 dated January 21, 1998 and  incorporated  herein
          by reference).

23.1      Consent of Arthur Andersen LLP **

23.2      Consent of Bateman & Co., Inc.,  P.C.,  Independent  Certified  Public
          Accountants,  related to the  financial  statements  for GREKA  Energy
          Corporation**

23.3      Consent of Netherland, Sewell & Associates, Inc.**

23.4      Consent of Sproule Associates Limited **

23.5      Consent  of  PricewaterhouseCoopers   LLP  related  to  the  financial
          statements of Saba Petroleum Company.**

27.1      Financial Data Schedule*

99.1      Consolidated Financial Statements of Saba Petroleum Company*

     *    Filed with the previously filed Form 10-K of GREKA Energy for the year
          ended December 31, 1998.

     **   Filed herewith.

(b)  Reports on Form 8-K.  No  reports on Form 8-K were filed  during the fourth
     quarter of 1998.

                                       69
<PAGE>



                            GREKA ENERGY CORPORATION
                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
                         REQUIRED BY ITEM 8 AND ITEM 14


                                                                          Page
Financial Statements of GREKA Energy Corporation

Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . .  F-3
Report of Independent Public Accountants . . . . . . . . . . . . . . . .  F-2
Consolidated Balance Sheet as of December 31, 1998 . . . . . . . . . . .  F-4
Consolidated Statements of Operations for each of the
   two years ended December 31, 1998 . . . . . . . . . . . . . . . . . .  F-5
Consolidated Statements of Owners' Equity for each
   of the two years ended December 31, 1998 . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for each of the two
   years ended December 31, 1997 . . . . . . . . . . . . . . . . . . . .  F-9
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . .  F-11

Financial Statements of Saba Petroleum Company

Reports of Independent Public Accountants . . . . . . . . . . . . . . . . F-30
Consolidated Balance Sheets as of December 31, 1998 and 1997 . . . . . .  F-32
Consolidated Statements of Operations for each of the
   three years ended December 31, 1998 . . . . . . . . . . . . . . . . .  F-34
Consolidated Statements of Stockholders' Equity (deficit) for each
   of the three years ended December 31, 1998 . . . . . . . . . . . . . . F-35
Consolidated Statements of Cash Flows for each of the three
   years ended December 31, 1998 . . . . . . . . . . . . . . . . . . . . .F-37
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . .F-39
Supplemental Information About Oil and Gas Producing Activities . . . . . F-70

Financial  statement  schedules  have been  omitted  since  they are  either not
required,  are not  applicable  or the required  information  is included in the
consolidated financial statements or the notes thereto.

                                      F-1


<PAGE>



Bateman & Co., Inc. P.C.                      5 Briardale Court
Certified Public Accountants                  Houston, TX 77027-2904
                                              (713) 552-9800
                                              Fax (713) 552-9700
                                              www.batemanhouston.com


                          INDEPENDENT AUDITORS' REPORT

To The Stockholders and Board of Directors
GREKA Energy Corporation, Inc.

         We  have  audited  the  consolidated  balance  sheet  of  GREKA  Energy
Corporation  formerly known as Petro Union, Inc. (a Colorado  corporation),  dba
Horizontal Ventures, Inc., as of December 31, 1997, and the related consolidated
statements of  operations,  owners'  equity,  and cash flows for the years ended
December 31, 1997 and 1996. These financial statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  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  financial  statements  referred to above  present
fairly,  in all  material  respects,  the  financial  position  of GREKA  Energy
Corporation,  as of December 31, 1997, and the results of its operations and its
cash flows for the years ended  December  31, 1997 and 1996 in  conformity  with
generally accepted accounting principles.


/S/ BATEMAN & CO., INC., P.C.
Houston, Texas
April 14, 1998

                                      F-2


<PAGE>



                    Report of Independent Public Accountants


To the Shareholders of GREKA Energy Corporation:

We have  audited the  accompanying  consolidated  balance  sheet of GREKA Energy
Corporation (a Colorado  corporation)  and subsidiaries as of December 31, 1998,
and the related consolidated  statements of operations,  owners' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides 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 GREKA  Energy
Corporation  and  subsidiaries as of December 31, 1998, and the results of their
operations  and their  cash  flows for the year then  ended in  conformity  with
generally accepted accounting principles.




Arthur Andersen LLP

New York, New York
April 15, 1999  (except for the matters  discussed in Note 14 for which the date
is September 16, 1999)

                                      F-3


<PAGE>



                        GREKA ENERGY CORPORATION (Note 2)
                           Consolidated Balance Sheet
                                December 31, 1998

                                     ASSETS

Current assets:
  Cash and cash equivalents                                    $      250,212

Accounts Receivable
  Trade, net of allowance for doubtful accounts of $74,092             20,807
  Other                                                               150,788
                                                               ---------------
Total Current Assets                                                  421,807

Investment in Saba Petroleum Company                               15,804,110
Investment in limestone property, at cost                           3,500,000
Properties and Equipment, at cost, net of accumulated
  depreciation and depletion of $4,081,340                            925,951
Deposits, prepayments and deferred charges                            154,937
                                                               ---------------

Total Assets                                                      $20,806,805
                                                               ===============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
  Current maturities of long term notes and notes payable      $    2,013,338
  Accounts payable and accrued expenses                               236,323
                                                               ---------------
Total Current Liabilities                                           2,249,661

Long term notes payable                                                52,634

Commitments and contingencies

Stockholders' equity
  Common Stock, no par value, 50,000,000 shares authorized,
    2,910,988 shares issued and outstanding                        25,735,019
  Accumulated deficit                                              (7,230,509)
                                                               ---------------

Total Stockholders' Equity                                         18,504,510
                                                               ---------------

Total Liabilities And Stockholders' Equity                        $20,806,805
                                                               ===============



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

                                      F-4
<PAGE>



                        GREKA ENERGY CORPORATION (Note 2)
                      Consolidated Statements of Operations
                 For The Years Ended December 31, 1998 and 1997


                                               1998                 1997
                                       ------------------   ------------------
Revenues                               $         145,813    $         211,696
                                       ------------------   ------------------

Costs and Expenses
  Operating costs                                121,016              247,979
  Salaries and wages                             455,510              213,213
  Depreciation, depletion and
   amortization                                  333,468               24,016
  Writedown of oil and gas properties          3,171,485                    -
  Rentals                                         94,828               31,262
  Taxes, other than on income                     58,207               16,059
  Other administrative expenses                  933,244              495,823
                                       ------------------   ------------------
Total costs and expenses                       5,167,758            1,028,352
                                       ------------------   ------------------
Loss from operations                          (5,021,945)            (816,656)


Other income (expense)
  Equity in loss of Saba                        (586,020)                   -
  Gain (loss) on sale of assets                    9,223              (21,062)
  Interest income                                 83,242               11,873
  Interest expense                               (32,145)             (25,271)
                                       ------------------   ------------------
Net other income (expense)                      (525,700)             (34,460)
                                       ------------------   ------------------


Loss before income taxes                      (5,547,645)            (851,116)
Provision for income tax                               -                    -
                                       ------------------   ------------------
Net loss                               $      (5,547,645)   $        (851,116)
                                       ==================   ==================
Loss per share of common stock         $           (3.42)   $           (1.44)
                                       ==================   ==================
Weighted average number of shares
  outstanding                                  1,621,483              591,053
                                       ==================   ==================



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

                                      F-5


<PAGE>



                        GREKA ENERGY CORPORATION (Note 2)
                    Consolidated Statements of Owners' Equity
                 For The Years Ended December 31, 1998 and 1997


                                 Common Stock          Series A Preferred Stock
                              --------------------     -------------------------
                              Shares        Amount          Shares      Amount
                              ------        ------          ------      ------

Balance, December 31, 1996    3,690      $     37                -      $    -

Stock issued for services    30,000           300                -           -

Stock issued in exchange
  for subordinated
  convertible debentures,
  and net assets of
  limited partnership       725,770         7,258                -           -

Stock issued for cash             -             -        3,000,000      30,000
                           --------      ---------      ----------   ----------

Balance prior to reverse
  merger with Petro
  Union, Inc.               759,460         7,595        3,000,000      30,000

Effect of reverse merger
  with Petro Union, Inc.    240,805      6,174,675      (3,000,000)    (30,000)

Stock issued for cash in
  Reg "S" offerings         552,470      5,801,518               -           -

Less, related offering
  costs                           -       (454,837)              -           -

Issuance of stock to
  retire note payable to
  related party               6,108          59,122              -           -

Net loss                          -               -              -           -
                           --------       ---------      ----------   ----------

Balance, December 31,
  1997                    1,558,843       11,588,073             -            -
                           --------        ---------     ----------   ----------

Stock issued for cash
  in Reg. "S" offering,
  net                        12,145           84,446             -            -

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

                                      F-6
<PAGE>


                        GREKA ENERGY CORPORATION (Note 2)
                    Consolidated Statements of Owners' Equity
                 For The Years Ended December 31, 1998 and 1997
                                   (Continued)

                                                        Capital
                          Capital In                   Contributed
                        Excess of Par    Accumulated    by Limited
                            Value          Deficit       Partners      Total
                         ----------      ------------ ----------- ------------

Issuance of stock to
  purchase shares of
  Saba Petroleum
  Company                 1,340,000       14,062,500           -            -

Net loss                          -                -           -            -
                         ----------      ------------ ----------- ------------

Balance, December 31,
  1998                    2,910,988      $25,735,019           -  $         -
                         ==========      ============ =========== ============


Balance, December 31,
  1996                   $    3,445      $  (831,748) $  818,000  $   (10,266)

Stock issued for services         -                -           -          300

Stock issued in exchange
  for subordinated
  convertible debentures,
  and net assets of
  limited partnership     1,398,831                -    (818,000)     588,089

Stock issued for cash       570,000                -           -      600,000
                         ----------      ------------ ----------- ------------

Balance prior to reverse
  merger with Petro
  Union, Inc.             1,972,276         (831,748)          -    1,178,123

Effect of reverse merger
  with Petro Union, Inc. (1,972,276)               -           -    4,172,399

Stock issued for cash in
  Reg "S" offerings               -                -           -    5,801,518

Less, related offering
  costs                           -                -           -     (454,837)

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

                                      F-7
<PAGE>


                        GREKA ENERGY CORPORATION (Note 2)
                    Consolidated Statements of Owners' Equity
                 For The Years Ended December 31, 1998 and 1997
                                   (Continued)

                                                        Capital
                          Capital In                   Contributed
                        Excess of Par    Accumulated    by Limited
                            Value          Deficit       Partners      Total
                         ----------      ------------ ----------- ------------
Issuance of stock to
  retire note payable to
  related party                   -                -           -       59,122

Net loss                          -         (851,116)          -     (851,116)
                         ----------      ------------ ----------- ------------

Balance, December 31,
  1997                            -       (1,682,864)          -    9,905,209
                         ----------      ------------ ----------- ------------

Stock issued for cash
  in Reg. "S" offering,
  net                             -                -           -       84,446

Issuance of stock to
  purchase shares of
  Saba Petroleum
  Company                         -                -           -   14,062,500

Net loss                          -       (5,547,645)          -   (5,547,645)
                         ----------      ------------ ----------- ------------

Balance, December 31,
  1998                   $        -      $(7,230,509) $        -  $18,504,510

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


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

                                      F-8
<PAGE>


                        GREKA ENERGY CORPORATION (Note 2)
                      Consolidated Statements of Cash Flows
                 For The Years Ended December 31, 1998 and 1997


                                               1998                 1997
                                        -----------------   ------------------
Cash flow operating activities:
  Net loss                             $      (5,547,645)   $        (851,116)
  Adjustments to reconcile net loss
    to net cash used in operations:
  Depreciation, depletion, and
    amortization                                 333,468              177,426
  Writedown of oil and gas properties          3,171,485                    -
  (Gain) loss on sale of assets                   (9,223)              21,062
  Equity in net loss of Saba                     586,020                    -
  Stock and partners' capital issued
    for services                                       -                  300
  (Increase) decrease in accounts
    receivable                                    (3,626)              66,040
  (Increase) in accounts receivable,
    other                                       (147,355)                 520
  (Increase) in net other assets                (114,646)                   -
  Increase (decrease) in accounts
    payable and accrued expenses                (562,222)             136,716
                                       ------------------   ------------------
Net cash used in operating activities         (2,293,744)            (449,052)
                                       ------------------   ------------------

Cash flow from investing activities:
  Decrease (increase) in time deposits
    and funds held in escrow                   1,613,695           (1,613,695)
  Purchases of property and equipment         (1,168,519)          (1,502,462)
  Proceeds from sale of property and
    equipment                                     55,908               55,181
  (Increase) decrease in deposits and
    prepayments                                        -                1,286
  Acquisition of Saba common and
    preferred shares                          (2,327,630)                   -
                                       ------------------   ------------------
Net cash (used) in investing activities       (1,826,546)          (3,059,690)
Cash flows from financing activities:
  Repayments of Notes Payable                    (32,896)            (206,084)
  Proceeds of loans from affiliates            2,000,000               59,122
  Decrease in customer payments
    received in advance                                -              (30,000)

Proceeds from sale of stock, net of
  expenses                                        84,446            5,946,681
Other                                                  -               51,517
                                       ------------------   ------------------

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

                                      F-9
<PAGE>


                        GREKA ENERGY CORPORATION (Note 2)
                      Consolidated Statements of Cash Flows
                 For The Years Ended December 31, 1998 and 1997
                                   (Continued)

Net cash provided by financing
  activities                                   2,051,550            5,821,236
                                       ------------------   ------------------

Net increase (decrease) in cash and
  cash equivalents                            (2,068,740)           2,312,494
Cash and cash equivalents:
  Beginning of period                          2,318,952                6,458
                                       ------------------   ------------------
End of period                          $         250,212    $       2,318,952
                                       ==================   ==================


Non-cash financing and investing activities:
  Stock issued for services            $               -    $             300
  Stock issued for subordinated
    convertible debentures                             -              433,231
  Stock issued for net assets of
    limited partnership                                -              972,858
  Stock issued in satisfaction of
    note payable                                       -               59,122
  Stock issued for investment in
    Saba Petroleum Co.                        14,062,500                    -
  Property and equipment acquired by
    issuance of notes payable                          -              500,000
  Property and equipment acquired in
    reverse merger with Petro Union,
    Inc., net of debt assumed                          -            4,120,882


Supplementary cash flow data:
  Interest paid                                   20,562               26,324
  Income taxes paid                                    -                    -


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


                                      F-10

<PAGE>


                        GREKA Energy Corporation (Note 2)
                   Notes to Consolidated Financial Statements
                                December 31, 1998



NOTE 1 - FINANCIAL CONDITION AND MANAGEMENT'S PLANS

The  accompanying  consolidated  financial  statements  represent  the financial
position  and  results  of  operations  of  Horizontal  Ventures,   Inc.,  which
subsequent  to December 31, 1998  changed its name to GREKA  Energy  Corporation
(see  Note 2).  The  Company's  financial  statements  have been  prepared  on a
going-concern  basis  which  contemplates  the  realization  of  assets  and the
settlement of liabilities and commitments in the normal course of business.

During  1998,  due to  decreased  prices  for  natural  gas and crude oil in all
locations in which the Company does  business  (including  the  locations of its
equity  method  investment),   the  Company  incurred  significant  losses,  due
primarily to reduced production and related oil and gas sales and a $3.2 million
non-cash  ceiling  writedown of its oil and gas assets without any reduction for
tax  benefits.  As a result of these  factors,  the  reported  net loss was $5.5
million, or $3.42 per share. The Company has also not made payments on two loans
from one of its primary  stockholders,  but has requested  extensions in the due
dates  for  such  repayments.  In  addition,  the  Company  made  a  substantial
investment in Saba Petroleum  Company  ("Saba") during the year and subsequently
merged with such company in March 1999.  Saba is not in compliance  with certain
requirements,  restrictions  and other  covenants in its 9%  convertible  senior
subordinated  debentures ($3.6 million),  its revolving ($15.6 million) and term
($4.5  million) bank loan  agreements,  its loan from the operator of properties
owned by the Company in Colombia  ($4.2  million)  and its Series A  Convertible
Preferred  Stock (with a stated value of $8.0  million).  As a  consequence,  it
cannot  borrow under its  revolving  bank loan  agreement.  In addition,  Saba's
exploratory  prospect in  Indonesia  requires a multi-year  commitment  of $17.0
million,  which period began in October,  1997.  Saba also  received a notice of
default from the Colombian tax  authorities  for the payment of income taxes for
1997 and 1998. In addition,  the Company's independent public accountants issued
a modified  report  with  respect to the ability of the Company to continue as a
going concern,  which also constitutes a default under the revolving bank credit
agreements.  Due to the Company and Saba not being in compliance  with the above
mentioned  requirements,  restrictions and other covenants,  combined with other
normal maturities of long term debt,  approximately  $2.0 and $28.8 million,  of
such long term debt is classified as currently  payable by the Company and Saba,
respectively,  and,  as a result,  the  Company  and Saba have  working  capital
deficiencies of approximately $1.8 million and $35.4 million, respectively.

To  improve  its   financial   situation,   management  is  in  the  process  of
renegotiating the terms of Saba's 9% convertible senior subordinated  debentures
and Saba's Series A Convertible  Preferred  Stock and is  negotiating a term and
revolving  credit  agreement  with a new  bank.  In  addition,  the  Company  is
negotiating to sell certain non-core assets, including its Colombian subsidiary.
In addition, the Company will begin operating Saba's refinery in California on a
100% basis beginning May 1, 1999,  which is expected to  significantly  increase
operating cash flows from this asset.  The above mentioned  transactions  are in
various  stages of  completion,  and  management  believes that they will all be
closed by June 30, 1999. As a result of the above factors and the pending nature
of  negotiations,  there is  substantial  doubt about the  Company's  ability to
continue  as  a  going  concern  if   management   is  not   successful  in  its
recapitalization   plan.   Management   believes  that  the  completion  of  the
refinancing and sale transactions discussed above will remove any uncertainty as
to its  ability to  continue  as a going  concern.  The  accompanying  financial
statements do not include any  adjustments  relating to the  recoverability  and
classification of the asset carrying amounts or the amounts and  classifications
of  liabilities  that might result should the Company be unable to continue as a
going concern.  See Management's  Discussion and Analysis of Financial Condition
and Results of  Operations - Liquidity  and Capital  Resources.  See Note 14 for
Subsequent Events' Note discussing the status of the Company's  recapitalization
plan and the  independent  accountants'  decision to remove the  modification to
their report on the 1998 financial statements of GREKA Energy.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         Nature  of  business  and  organization  -  GREKA  Energy   Corporation
("GREKA"),  which was named Horizontal Ventures, Inc. prior to changing its name
in March  1999,  was  engaged in  contract  drilling of oil and gas wells and in
development of oil and gas properties for its own account.  All of the Company's
operations are in one industry segment. Its executive offices are located in New
York,  New York, and a field office in Tulsa,  Oklahoma.  It offers its services
primarily in the western, Midwestern, and southwestern United States. It has oil
and gas properties in California  and oil, gas, and limestone  properties in the
Midwestern United States. As of December 31, 1998, GREKA Energy Corporation also

                                      F-11

<PAGE>

held an approximate 30% ownership  interest in Saba Petroleum  Company ("Saba").
Subsequent to year end, the company  acquired all of the remaining common shares
of Saba through the issuance of 1.3 million  shares of GREKA common  stock.  The
merged  company  changed  its  name  to  GREKA  Energy  Corporation.  Saba is an
international  oil and gas producer with principal  producing  properties in the
continental  United  States,  Canada,  and Columbia  and an asphalt  refinery in
California.

         Petro  Union was a debtor in  possession  under  Chapter 11 of the U.S.
Bankruptcy  Code until  August 28,  1997,  at which  time the  Bankruptcy  Court
approved its plan of  reorganization.  As a part of its plan of  reorganization,
PUI agreed to acquire all the  outstanding  stock of Horizontal  Ventures,  Inc.
("HVI").  The  acquisition  of HVI was completed on September 9, 1997, and after
the acquisition,  HVI shareholders owned more than 50% of the outstanding shares
of  PUI.  Therefore,  pursuant  to the  rules  of the  Securities  and  Exchange
Commission,  the  transaction  has been  accounted  for as a  "reverse  merger."
Accordingly,   the  accompanying   consolidated  statements  of  operations  and
consolidated statements of cash flows reflect the historical operations and cash
flows HVI (including those of PUI after September 9, 1997, the effective date of
the merger),  whereas previous reports filed by the Company reflected operations
and cash flows of PUI. HVI and Petro Union,  Inc.  completed a statutory  merger
under the laws of the State of Colorado effective December 31, 1997.

         Basis of presentation - The consolidated  financial  statements include
the accounts of the company and wholly owned  subsidiaries.  The  investment  in
Saba was acquired through share purchases during the 1998 fourth quarter.  As of
December 31, 1998,  GREKA owns  approximately  30% of Saba's  common shares and,
accordingly,  has  accounted  for this  investment  using the  equity  method of
accounting.

         The  consolidated  financial  statements  also include the accounts and
transactions  of Calox,  Inc. a subsidiary of GREKA , whose  principal  asset is
nonproducing  limestone  reserves,  and HVI Cat  Canyon,  Inc.  All  significant
intercompany  accounts and transactions have been eliminated in the accompanying
consolidated financial statements.

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

         Cash and cash  equivalents  - The Company  considers  all highly liquid
investments  purchased  with an original  maturity of three months or less to be
cash equivalents.

         Fair value of financial  instruments - The carrying amounts of cash and
cash equivalents,  accounts  receivable,  accounts payable and accrued expenses,
other current  liabilities and notes payable,  approximate fair value because of
the short maturity of these items.  These fair value estimates are subjective in
nature and involve  uncertainties  and  matters of  significant  judgment,  and,
therefore,  cannot be determined  with precision.  Changes in assumptions  could
significantly affect these estimates.

         Accounts   receivable  -  The  Company   provides  an   allowance   for
uncollectible  receivables  when it is determined  that  collection is doubtful.
Substantially  all of the Company's  trade  receivables are from its directional
drilling services.

         Concentrations  of credit  risk -  Substantially  all of the  Company's
accounts receivable are from companies engaged in the oil and gas business,  and
concentrated in the Southwestern United States.  Generally, the Company does not
require  collateral  for its  accounts  receivable.  The Company  has  performed
services for only a limited  number of customers  each period;  therefore,  each
customer may be considered a major customer.

                                      F-12

<PAGE>


         Properties and equipment - Properties and equipment are stated at cost.
The  Company  follows  the  "full-cost"  method  of  accounting  for oil and gas
property  and  equipment   costs.   Under  this  method,   all   productive  and
nonproductive costs incurred in the acquisition, exploration, and development of
oil and gas reserves are  capitalized.  Such costs include  lease  acquisitions,
geological  and  geophysical  services,  drilling,  completion,  equipment,  and
certain general and administrative  costs directly  associated with acquisition,
exploration,  and  development  activities.  General  and  administrative  costs
related to production and general overhead are expensed as incurred. No gains or
losses are recognized  upon the sale or  disposition of oil and gas  properties,
except in  transactions  that  involve a  significant  amount of  reserves.  The
proceeds  from the sale of oil and gas  properties  are  generally  treated as a
reduction  of oil and gas  property  costs.  Fees  from  associated  oil and gas
exploration  and development  partnerships,  if any, will be credited to oil and
gas property costs to the extent they do not represent  reimbursement of general
and  administrative  expenses  currently  charged  to  expense.  Internal  costs
capitalized  as  intangible  development  costs  include  direct  wages  paid to
drilling  crews,  related  payroll taxes,  and travel expenses while on drilling
sites;  such costs  approximated $0 and $10,900 in 1998 and 1997,  respectively.
Such  costs  can  be  directly  identified  with  acquisition,  exploration  and
development  activities  and do not  include  any costs  related to  production,
general corporate overhead, or similar activities.

         Future development, site restoration, and dismantlement and abandonment
costs,  net of salvage  values,  are estimated on a  property-by-property  basis
based on  current  economic  conditions  and are  amortized  to  expense  as the
Company's  capitalized  oil and gas property costs are amortized.  The Company's
properties  are all onshore,  and the Company  expects that the salvage value of
the  tangible  equipment  offsets any site  restoration  and  dismantlement  and
abandonment costs.

         The provision for depreciation,  depletion, and amortization of oil and
gas properties is computed on the unit-of-production  method. Under this method,
the Company computes the provision by multiplying the total unamortized costs of
oil and gas properties  including  future  development,  site  restoration,  and
dismantlement and abandonment costs, but excluding costs of unproved  properties
by an overall rate  determined  by dividing  the  physical  units of oil and gas
produced  during the period by the total  estimated  units of proved oil and gas
reserves.  This  calculation  is done on a country  by  country  basis for those
countries with oil and gas production. Excluding the operations of the company's
equity  investment  in Saba,  it currently  has  production in the United States
only. The cost of  unevaluated  properties  not being  amortized,  to the extent
there is such a cost, is assessed  quarterly to determine  whether the value has
been impaired below the  capitalized  cost. Any impairment  assessed is added to
the cost of  proved  properties  being  amortized.  The  costs  associated  with
unevaluated  properties relate to projects which were undergoing  exploration or
development  activities  or in  which  the  company  intends  to  commence  such
activities  in the future.  The Company will begin to amortize  these costs when
proved reserves are established or impairment is determined.

         At the end of each quarterly  reporting period, the unamortized cost of
oil and gas properties,  net of related deferred income taxes, is limited to the
sum of the estimated  future net revenues from proved  properties  using current
prices,  discounted  at 10%,  and the  lower of cost or fair  value of  unproved
properties, adjusted for related income tax effects ("Ceiling Limitation").

         The   calculation   of  the  ceiling   limitation   and  provision  for
depreciation,  depletion,  and  amortization  is based on  estimates  of  proved
reserves.  There are numerous uncertainties inherent in estimating quantities of
proved  reserves and in projecting the future rates of production,  timing,  and
plan of development.  The accuracy of any reserves estimate is a function of the
quality of available data and of engineering and geological  interpretation  and
judgment. Results of drilling, testing, and production subsequent to the date of
the  estimate  may  justify  revision  of such  estimate.  Accordingly,  reserve
estimates  are  often  different  from  the  quantities  of oil and gas that are
ultimately recovered.

         During the fourth  quarter of 1998,  the Company  recorded a $3,059,119
non-cash ceiling writedown of its oil and gas properties.

         Depreciation  for all other  property and  equipment  is provided  over
estimated  useful  lives  using the  straight  line method of  depreciation  for
financial reporting purposes and the accelerated cost recovery system for income
tax purposes.  Renewals and betterments are capitalized when incurred.  Costs of
maintenance and repairs that do not improve or extend asset lives are charged to
expense.

         The Company's  investment in limestone  reserves will be amortized on a
unit-of-production  basis as the  reserves  are  mined and  produced.  Since the
acquisition of the limestone  reserves in 1993, there has been no development or
production  of these  properties.  Management  has  determined  that there is no
impairment in value of the reserves at December 31, 1998.

         License agreements and organization expenses - The Company has acquired
certain  licenses for the use of  horizontal  drilling  technology  developed by
Amoco Corporation.  License  agreements and organization  expenses are amortized
over a fifteen and five year life, respectively,  using the straight line method
of amortization.  Amortization  charged to operations was $16,593 and $16,510 in
1997 and 1998, respectively.

         Environmental  expenditures - If and when  remediation of a property is
probable   and   the   related   costs   can  be   reasonably   estimated,   the
environmentally-related  remediation  costs will be  expensed  and  recorded  as
liabilities.  If  recoveries  of  environmental  costs  from third  parties  are
probable,  a receivable  will be recorded.  Management is not currently aware of
any required remediation.

                                      F-13

<PAGE>


         Revenue recognition - For financial  reporting purposes,  revenues from
drilling  operations are recognized in the accounting  period which  corresponds
with the  performance  of the service to the customer.  Revenue from oil and gas
production is recognized in the period in which the product is sold. The related
costs and expenses are recognized when incurred.

         Federal  and State  income  taxes - The Company  follows  SFAS No. 109,
"Accounting  for  Income  Taxes",  which  accounts  for income  taxes  using the
liability  method.  Under SFAS No. 109,  deferred tax liabilities and assets are
determined based on differences between the financial statement and tax bases of
assets and liabilities  using enacted tax rates expected to be in effect for the
year in which  the  differences  are  expected  to  reverse.  The net  change in
deferred tax assets and liabilities is reflected in the statement of operations.
The primary  differences between financial reporting and tax reporting relate to
the availability of net operating loss carryforwards, and the use of accelerated
methods of depreciation for income tax purposes.

     Earnings  per share - Basic  (loss) per share has been  computed  using the
weighted  average  number of common  shares  outstanding  during the  respective
periods.  In computing average  outstanding  shares during 1997, the Company has
converted  Horizontal  Ventures  shares  outstanding  prior  to  the  merger  to
equivalent Petro Union shares on a pro rata basis. Diluted earnings per share is
computed by considering the effect of outstanding options and warrants. However,
diluted  earnings per share is the same as basic earnings per share in instances
where a loss has been incurred. Accordingly,  diluted earnings per share has not
been presented.

         Accounting  Pronouncement Issued, but Not Yet Adopted - The Company has
not yet adopted  AICPA  Statement of Position  98-5  "Reporting  on the Costs of
Start-Up  Activities." Such  pronouncement will require that the Company expense
the balance of its unamortized  organization costs in the first quarter of 1999.
At December 31, 1998, the balance of unamortized organization costs is $16,542.

NOTE 3 - MERGER OF PETRO UNION, INC. AND HORIZONTAL VENTURES, INC.:

         On June 13, 1997,  Horizontal  Ventures,  Inc.  and Petro  Union,  Inc.
entered  into  an  agreement  under  which  all of the  outstanding  common  and
preferred  shares HVI would be  acquired  by Petro  Union.  Petro Union was also
engaged in  performing  contract  drilling  services  using the  licensed  Amoco
technology.  Petro Union was subject to supervision in the U.S. Bankruptcy Court
for the Southern  District of Indiana  under  Chapter 11 of the U.S.  Bankruptcy
Code,   and  the  agreement   with  HVI  was  part  of  Petro  Union's  Plan  of
Reorganization.  On August 28, 1997, the Bankruptcy Court approved the Plan, the
principal points of which are as follows:

     *    The par value of Petro Union stock was converted  from $.125 par value
          to no par value.

     *    All secured debt was paid according to the terms previously contracted
          for.

     *    Unsecured  creditors in class C-1 received  20,000 shares of new Petro
          Union  no par  value  stock  in  satisfaction  of  their  claims,  and
          unsecured  creditors in class C-2 received 80,000 shares of new HVI no
          par value stock in satisfaction of their claims.

     *    The  priority  post-petition  promissory  note of  Pembrooke  Holdings
          Corporation  (Pembrooke)  in the  amount  of  $150,000  was paid  with
          $100,000 in cash and the  issuance of 49,999  shares of new HVI no par
          value stock valued at $50,000.

     *    Existing  shareholders  of Petro Union  received  new HVI no par value
          stock in the ratio of 1 new share for each 220 shares of old stock.

     *    Randeep C. Grewal, CEO of HVI and Richard D. Wedel, President of Petro
          Union  received  70,000  shares  each of new Petro  Union no par value
          stock valued at $20,000 each, or $40,000 in total.

     *    International  Publishing  Holding s.a. ("IPH"),  a Luxembourg society
          anonyme, loaned $200,000 to Petro Union secured by 50% interest in its
          nonproducing  limestone  reserves;  the loan was then  converted  into
          40,000 shares of new HVI no par value stock.

     *    Petro Union  issued  590,000  shares of new HVI no par value stock for
          all the outstanding common and preferred stock of HVI.

                                      F-14

<PAGE>


     After the Plan was consummated on September 9, 1997, HVI shareholders owned
approximately 63% of the new HVI no par value stock.

     Pro-forma summary  statements of operations,  combining Petro Union,  Inc.,
and HVI, are as follows, assuming the merger had occurred January 1, 1997:

                                         Year Ended December 31, 1997

                          Petro Union, Inc.  Petro Union, Inc.,
                         (January 1 through        d/b/a
                         September 9, 1997)         HVI           Pro-Forma
                         ------------------    -------------     -------------

Revenues                    $    311,798       $    211,696      $    523,494
Cost of revenues                 237,801            247,979           485,780
                            -------------      -------------     -------------
Gross profit (loss)               73,997            (36,283)           37,714


General and administrative
  expenses                       264,550            780,373         1,044,923
                            -------------      -------------     -------------


(Loss) from operations          (190,553)          (816,656)       (1,007,209)
Other income (expense)            (7,933)           (34,460)          (42,393)
                            -------------      -------------     -------------


(Loss) before tax               (198,486)          (851,116)       (1,049,602)
Provision for taxes                    -                  -                 -
                            -------------      -------------     -------------


Net  (loss)                 $   (198,486)      $   (851,116)     $ (1,049,602)
                            =============      =============     =============


NOTE 4 -  PURCHASE  OF  EQUITY  INTEREST  IN AND  SUBSEQUENT  MERGER  WITH  SABA
PETROLEUM COMPANY

During 1998,  GREKA  entered  into the  following  transactions  to purchase its
interests in Saba Petroleum Company (Saba).


Date          Consideration     Common Stock     Preferred Stock       Cost
----          -------------     ------------     ---------------  ------------

October                Cash           80,000                      $    70,130
October                Cash                                 690       750,000
November               Cash          333,333                        1,500,000
December       1.34 million
                  shares of
                      GREKA        2,971,766                       14,070,000
                                  ----------         -----------  ------------
Total                              3,385,099                 690  $16,390,130
                                  ==========         ===========  ============

                                      F-15

<PAGE>

In November,  1998,  the Company paid  $500,000 to the holder of Saba's Series A
Preferred Stock to extend the term of an option to purchase 6,910 shares of Saba
Series A  Preferred  Stock  for an  additional  30 days.  The  cash  payment  is
reflected in the above table as part of the November  purchases of shares.  Such
option  expired  unexercised.  Therefore,  as of December 31,  1998,  GREKA held
3,385,099  common  shares  (29.8%  of  total  outstanding)  and  690  shares  of
convertible  preferred stock of Saba. As of December 31 1998, GREKA accounts for
its investment using the equity method.

GREKA 's $16.4 million  equity method  investment has been allocated to the fair
value of each of Saba's assets and  liabilities,  as of December 31, 1998 in the
following  table.  The amounts  presented  represent 29.8% of the estimated fair
value of Saba's assets and liabilities (dollars in thousands).

            Refinery                           $12,218.0
            Oil and Gas Properties              10,581.8
            Land                                 3,580.5
            Other Assets                         5,994.2
            Liabilities and minority interest  (13,675.2)
            Preferred stock                     (2,309.2)
                                              -----------
            Total investment                   $16,390.1
                                              ===========


The  summarized  audited  financial  information  of Saba is  shown  below as of
December 31, 1998 and for the years ended December 31, 1998 and 1997:

Balance Sheet Data ................        1998           1997
                                        -----------    -----------
Oil and gas properties, net .......    $32,904,810    $54,844,840
Other assets, net .................     16,783,602     22,812,106
Current liabilities ...............     40,003,281     39,075,063
Other liabilities and
preferred stock ...................     13,176,220     28,984,304
                                        -----------    -----------
Net assets ........................   $ (3,491,089)   $ 9,597,579
                                        ===========    ===========
GREKA 's equity in net assets .....   $ (1,040,344)   $       N/A
                                        ===========    ===========


Earnings Data                           1998            1997
                                   ------------     ------------
Revenues ......................    $ 23,331,331     $ 35,995,762
Operating (loss) income .......     (24,024,215)       6,744,071
Net (loss) earnings ...........    $(28,650,823)    $  2,397,447
                                   ============     ============
GREKA's equity in loss ........    $   (586,020)             N/A
                                   ============     ============

GREKA's equity in loss of Saba  represents  GREKA's share of Saba's losses since
the acquisition dates of Saba's shares during the fourth quarter of 1998.

                                      F-16
<PAGE>

In addition to the shares  owned  directly  by GREKA,  568,000  Saba shares were
owned by IPH, an GREKA shareholder. Such shares were subject to a call agreement
by GREKA at an  exercise  price equal to 120% of the cost of such shares to IPH,
payable in cash or common shares of GREKA.  IPH had a put agreement  that became
effective April 1, 1999 and was exercised on such date. GREKA will issue 140,886
shares following the filing of a registration statement.

In December,  1998,  GREKA's Board of Directors  approved the acquisition of all
the remaining  outstanding shares of Saba common stock through a proposed merger
with GREKA based on an  exchange  ratio of one share of GREKA  common  stock for
each six shares of Saba common  stock.  In March 1999,  the  Company,  through a
wholly owned  subsidiary,  merged with Saba in a transaction  accounted for as a
purchase  with a cost of  approximately  $9.0 million based upon the issuance of
1,332,500  shares of GREKA  stock.  The results of  operations  for Saba will be
included  in  the  Company's  consolidated  results  of  operations  as  of  the
acquisition date.

Saba's principal assets are an asphalt refinery,  proved oil and gas reserves of
21.4 MBOE,  with a standardized  measure value of $38.4 million (using prices as
of April 1, 1999) and various real estate holdings.

The following are the unaudited pro forma  revenue,  net loss and loss per share
of the Company giving effect to the acquisition of Saba, as if such  acquisition
had occurred at the beginning of 1998. The unaudited pro forma financial data do
not purport to be indicative of the financial  position or results of operations
that would actually have occurred if the  acquisition  had occurred as presented
or that may be obtained in the future.


                                                                     Year Ended
                                                                    December 31,
                                                                        1998
                                                                    ------------
Dollars in thousands, except share amounts
Revenue ..........................................................     $ 23,477
Net loss .........................................................      (34,273)
Loss per common share ............................................        (8.08)

NOTE 5 - NON PRODUCING LIMESTONE PROPERTY

The Company  owns,  through a wholly  owned  subsidiary,  a limestone  property,
including  the land,  timber  and all the  mineral  rights  associated  with the
property.  International  Publishing  Holding s.a. (IPH), the Company's  largest
shareholder, holds an option that expires on September 9, 2000 to acquire 90% of
such company for $3.5 million.

Subsequent  to year-end,  the Company  entered  into an  agreement  with IPH and
Pembrooke Holdings Corporation  (Pembrooke).  Under the terms of such agreement,
Pembrooke  has the  following  options  to  acquire  100% of the  shares of such
subsidiary of GREKA:

     -    Pay  $3.5  million  by  March  31,  1999  and  four  $200,000   annual
          installments beginning March 31, 2001

     -    Pay  $3.85  million  by  May  30,  1999  and  four   $200,000   annual
          installments beginning March 31, 2001

     -    Issue a non-recourse  note for $5.7 million due on or before  November
          1,1999,  the  terms of which  would  require  Pembrooke  to pay  $3.85
          million  to GREKA by May 31,  1999 or to pay  GREKA  $5.7  million  on
          November 1, 1999.

In connection with the above, GREKA shall pay Pembrooke $50,000 and issue shares
of GREKA common stock having a value equal to $150,000 based upon the average of
the  closing  prices for the last 30 days prior to  February  16, 1999 and GREKA
will file a registration statement to register such shares by April 15, 1999 or,
if the filing of such registration statement is not done by May 15, 1999, due to
the negligence of GREKA, then GREKA will pay Pembrooke $150,000.

                                      F-17

<PAGE>

NOTE 6 - PROPERTY AND EQUIPMENT:

         A summary of the  Company's  property and  equipment as of December 31,
1998 is as follows:

          Oil and gas properties:
            Leasehold Costs                    $     2,058,177
            Intangible development
              costs                                    910,270
            Lease and well equipment                   289,717
            Storage facilities and
              gathering systems                        187,652
                                               ----------------
          Total                                      3,445,816
          Land and buildings                            85,814
          Drilling equipment                         1,242,189
          Transportation equipment                     163,632
          Office computer equipment                     69,840
                                               ----------------
          Total cost                                 5,007,291
          Accumulated depletion and
            depreciation                             4,081,340
                                               ----------------
                                               $       925,951
                                               ================

Depreciation,  depletion and  amortization  (including  an impairment  charge of
$3,171,485) charged against income was $3,504,953 and $160,833 in 1998 and 1997,
respectively.

Useful lives are as follows:

Buildings .............................................           20 to 40 years
Drilling equipment ....................................           5 to 10 years
Transportation equipment ..............................           5 to 6 years
Office and computer equipment .........................           3 to 10 years

NOTE 7 - COMMITMENTS AND CONTINGENCIES:

         The Company  leases office  space,  automobiles,  computers,  and other
equipment under various operating leases. The Company has options to renew these
leases.  Aggregate  commitments  under these leases at December 31, 1998 were as
follows:

                          Year Ending December 31:       Amount
                          -----------------------     ----------
                                  1999                $   29,418
                                  2000                    20,570
                                  2001                    16,146
                                  2002                    16,146
                                  2003                    16,146



         Rent expense included in the accompanying  statements of operations was
$76,778 and $31,262 in 1998 and 1997, respectively.

                                      F-18

<PAGE>

         In October 1994,  the Company  licensed  certain  directional  drilling
technology  from  Amoco  Corporation,  a  major  oil  corporation.  The  license
currently  requires  minimum  annual  payments of $15,000 per year or $1,639 per
well  drilled  under the  license,  whichever  is  greater,  and the amounts are
adjusted  periodically  for inflation.  The Company  incurred  license  payments
approximating $15,000 and $20,000 for the year ended December 31, 1998 and 1997,
respectively.  Quarterly  settlements are required under the license,  and Amoco
has the  right to  terminate  the  license  for  non-payment.  If Amoco  were to
terminate  the  Company's  license,  it  could  have an  adverse  affect  on the
Company's operations.

NOTE 8 - FEDERAL AND STATE INCOME TAXES:

         Due to the  losses  incurred  in 1998 and  1997,  the  Company  has not
recorded any provision or benefit for Federal and State income taxes.

         The Company  follows  SFAS No. 109,  "Accounting  for Income  Taxes" in
accounting for deferred Federal income taxes. The Company has recorded  deferred
tax assets and liabilities, using an expected tax rate of 35%, as follows:


                                                            December 31,
                                                                 1998
                                                            ------------
Deferred tax asset (liability) attributable to:
  Net operating loss carryover ............................   14,996,540
  Accumulated depreciation ................................      974,692
                                                            ------------

Subtotal ..................................................   15,971,232
Less, Valuation allowance .................................  (15,971,232)
                                                            ------------

Net deferred tax asset .................................... $       --
                                                            ============


As indicated above, a significant net operating loss carryover has been incurred
in prior years, primarily by Petro Union.  Management has not yet determined the
extent to which the net operating  loss will be limited under Section 382 of the
Internal  Revenue  Code,  if any,  as a result of the merger  with HVI.  The net
operating loss expires, if unused, as follows:

                         Expires in            Amount
                         ----------       -------------
                           2007           $     214,000
                           2008               7,236,400
                           2009               4,551,900
                           2010                 510,700
                           2011              24,437,600
                           2012               1,103,400
                           2013               4,847,300
                                          -------------
                          Total           $  42,901,300
                                          =============

                                      F-19

<PAGE>



NOTE 9 - NOTES PAYABLE:

Details of long term notes payable are as follows:

Note payable to International Publishing
  Holding, S.A. (IPH) dated November 2, 1998,
  with interest at 6% .......................   $ 1,500,000
Note payable to IPH dated October 8, 1998,
  without interest ..........................       500,000
Other Notes .................................        65,972
                                                -----------
Total .......................................     2,065,972
Less, amount due within one year ............    (2,013,338)
                                                -----------
Net long term portion .......................   $    52,634
                                                ===========


Current maturities of long term notes are as follows:

                           1999          2,013,338
                           2000             18,660
                           2001             13,719
                           2002             12,072
                           2003              8,183
                                       ------------
                          Total        $ 2,065,972
                                       ============

The notes payable to IPH are due on May 31, 1999.


NOTE 10 - LITIGATION:

At December 31, 1998,  the Company had trade accounts  receivable  approximating
$94,899 from  several  debtors,  some of whom have  refused to pay.  Although no
lawsuits  have been  filed to  collect  these  debts,  management  is  currently
continuing  to have  discussions  with the  debtors in an effort to resolve  any
disputes  and  collect  the  amounts  due.  In one case,  the Company has a lien
against  an oil and gas  property,  and in  another  it has  received  a written
promise to pay the amount  due. If  continuing  efforts  are  unsuccessful,  the
Company  intends to pursue its claims through other legal actions,  and believes
it will be  successful.  An allowance for doubtful  accounts of $74,092 has been
provided  for any  uncollectible  amounts,  and  management  believes it will be
adequate to absorb any losses.


NOTE 11 - RELATED PARTY TRANSACTIONS:

The Company has an agreement with Grupo de Creacion,  Ltd. ("GDC"),  a Gibraltar
corporation and a shareholder of the Company, for financial consulting services.
Under the  agreement,  GDC  assisted  the  Company  in  arranging  three "Reg S"
securities  offerings  during  1997,  resulting  in  proceeds  of  approximately
$5,800,000  for the sale of  Company  stock.  As  compensation,  GDC  receives a
negotiated  commission  of not less than 7% of any  financing up to $10 million,
and reduced percentages over that amount; in addition, it receives an overriding
royalty of 2% of all oil and gas  production  received by the Company during the
term of the  agreement.  The agreement  expires  December 31, 2004. GDC was paid
commissions of approximately  $337,400 for completed  financings in 1997, and an
overriding royalty of approximately $500.

                                      F-20

<PAGE>

On September 9, 1997,  the Company  entered into an  employment  agreement  with
Randeep S. Grewal for a five-year  term.  Mr.  Grewal is the  Chairman and Chief
Executive Officer and a director of the Company.  His current salary is $120,000
per year.  Compensation  is reviewed  annually.  Mr. Grewal  participates in the
Company's benefit plans and is entitled to bonuses and incentive compensation as
determined by the Board of Directors of the Company. The agreement is terminable
for Cause or by the death or disability of Mr. Grewal.  Upon  termination of the
agreement  by the  Company  for any  reason  other  than  for  Cause,  death  or
disability,  the  Company is  obligated  to pay within 30 days after the date of
termination  (1) Mr.  Grewal's  Base Salary  through  the date of the  Severance
Period,  (2) Mr.  Grewal's  base  salary  for  the  balance  of the  term of the
agreement  if the Date of  Termination  is within the first  three  years of the
Employment  Agreement  (Base  Salary  is the  rate  in  effect  at the  Date  of
Termination),  (3) the Annual Bonus paid to Mr.  Grewal for the last full fiscal
year during the Employment Period and (4) all amounts of deferred  compensation,
if any.  The  agreement  allows  Mr.  Grewal  to  receive  an  assignment  of 2%
overriding  royalty  of all oil  and gas  production  received  by the  Company.
Effective as of the Saba merger date of March 24, 1999, Mr. Grewal's  employment
agreement has been amended. See Item 10 in Form 10-KSB.

On March 12,  1998,  an officer of the  Company  resigned  and  entered  into an
agreement  providing for certain severance  benefits and mutual  covenants.  The
Company agreed to pay the former officer a severance payment of $50,000.


NOTE 12- STOCK OPTIONS AND WARRANTS:

On  September 9, 1997,  the  Company's  Chairman and CEO was granted  options to
purchase an  aggregate  of 150,000  shares of the  Company's no par value common
stock at an  option  price of $5 per  share,  exercisable  at the rate of 30,000
shares per year, with the first such installment becoming exercisable  September
9,  1998,  and an  additional  30,000  shares  on each  succeeding  September  9
thereafter.  A similar  option was granted to the Company's  President,  but the
option lapsed upon his resignation in 1998. No compensation expense was recorded
in connection with the granting of these options as the option price equaled the
market price on the date of grant.

On October 14,  1998,  the  Company's  Chairman  and CEO was granted  options to
purchase an additional 110,000 shares of the Company's no par value common stock
at an option  price of $8.25 per share  (which  equaled the market price on this
date). In addition,  other  employees,  directors and  consultants  were granted
options to purchase an additional  140,000  shares of the Company's no par value
common stock at an option price of $8.25 per share.

A summary of the outstanding options follows:

                                            1998                    1997
                                         -------                 -------------
                                         Weighted                  Weighted
                                          Average                  Average
                                         Exercise                  Exercise
                            Shares        Price      Shares          Price
                           --------      -------    --------     -------------
Options outstanding,
  January 1                 300,000      $  5.00           -     $          -
Options granted             250,000         8.25     300,000             5.00
Options terminated          150,000         5.00           -                -
                           --------      -------    --------     -------------
Options outstanding,
  December 31               400,000         7.03     300,000             5.00
Exercisable at year end      30,000         5.00           -                -
Weighted average fair
  value of options granted                  3.30                         7.88

                                      F-21

<PAGE>


The Company also granted  warrants to purchase common stock to the purchasers of
shares from one of the 1997 "Reg S" offerings. A summary is as follows:

                Number of
Date Granted     Shares       Option Price    Effective Date  Expiration Date
------------     ------       ------------    --------------  ---------------
September 29,
    1997         127,750         $15.00         January 1,      December 31,
                                                   1998              1999

Such warrants expired unused on December 31, 1998.

As permitted  under SFAS 123, the Company has elected to continue to account for
stock-based  compensation  under the  provisions  of APB  Opinion  No.  25.  Had
compensation  cost been  determined  consistent with SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the  following  pro
forma amounts:

                                               December 31,   December 31,
                                                   1998           1997
                                               -------------  ------------

   Net loss:               As reported         $ (5,547,645)  $  (851,116)
                           Pro forma           $ (6,139,691)  $(1,245,162)


   Basic and diluted EPS   As reported         $      (3.42)  $     (1.44)
                           Pro forma           $      (3.78)  $     (2.11)

The fair value of each option  granted in 1998 and 1997 is estimated on the date
of grant  using  the  Black-Scholes  option  pricing  model  with the  following
assumptions: (a) risk free interest rates ranging from 5.2% to 6.4% (b) expected
volatility  of 59.2% (c) average  time to  exercise of 7 years and (d)  expected
dividend yield of zero.


NOTE 13 - SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)

The following  data is presented  pursuant to FASB Statement No. 69 with respect
to oil and gas acquisition,  exploration,  development and producing activities,
which is based on  estimates  of  year-end  oil and gas reserve  quantities  and
forecasts of future development costs and production schedules.  These estimates
and forecasts are inherently  imprecise and subject to substantial revision as a
result  of  changes  in  estimates  of  remaining  volumes,  prices,  costs  and
production rates.

Future cash inflows are estimated using year-end  prices.  Oil and gas prices at
December  31,  1998 are not  necessarily  reflective  of the prices the  Company
expects to receive in the future.

                                      F-22

<PAGE>



Production Revenues and Costs

                                           For the year ended December 31,
                                       --------------------------------------
                                            1998                     1997
                                       ------------             -------------

Revenue                                $    145,813             $    211,696
Production Costs                            121,016                  247,979
Depreciation, depletion,
amortization                                333,468                   24,016
Writedown of oil and gas properties       3,171,485                        -
                                       -------------            --------------
Pretax (loss) from producing
activities                             $ (3,480,156)            $    (60,299)


                                            1998                     1997
                                       ------------             -------------
Capitalized costs at year end:
  Proved reserves                      $  3,445,816             $  1,963,337
  Unproved reserves                               -                  400,000
                                       -------------            --------------
                                          3,445,816                2,363,337

Less, Accumulated depreciation,
  depletion and amortization             (3,242,711)                 (57,598)
                                       -------------            --------------

Net investment in oil and gas
  properties                           $    203,105             $  2,305,739
                                       =============            ==============


                                            1998                     1997
                                       ------------             -------------
Capitalized
  Costs Incurred:
  Acquisition of properties:
  Proved                               $          -             $  1,679,131
  Unproved                                        -                  400,000
  Exploration costs                               -                        -
  Development costs                       1,082,479                  284,206
                                       -------------            --------------
  Total Capitalized Cost, Incurred     $  1,082,479             $  2,363,337
                                       =============            ==============


Discounted Future Net Cash Flows (unaudited)

The following  information relating to discounted future net cash flows has been
prepared on the basis of the Company's estimated net proved oil and gas reserves
in accordance with FASB Statement No. 69.

                                      F-23
<PAGE>



Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves

                                            1998                     1997
                                       ------------             -------------
Future cash flows                      $  1,725,500             $ 40,103,600

Future costs:
  Development                              (440,000)              (5,281,800)
  Production                               (793,700)             (23,805,600)
                                       -------------            --------------

Future net cash flows before income
  taxes                                     491,800               11,016,200
Future income taxes                               -               (3,304,800)
                                       -------------            --------------

Future net cash flow after income
  taxes                                     491,800                7,711,400
Discount at 10% per annum                  (231,100)              (3,101,100)
                                       -------------            --------------

Standardized measure of discounted
  future net cash flows                $    260,700             $  4,610,300
                                       =============            ==============

Changes in Discounted Future Net Cash Flow, from Proved Reserve Quantities:

                                            1998                     1997
                                       ------------             -------------
Balance, beginning of year
                                       $  4,610,300             $          -
  Sales and transfers of oil and gas
    produced, net of production costs       (17,443)                 (13,578)
  Net changes in prices and production
    costs                                (3,721,007)                       -
  Purchases of minerals in place                  -                4,623,878
  Sales of minerals in place                      -                        -
  Changes in estimated future
    development costs                     4,841,800                        -
  Revisions of previous quantity
    estimates                            (4,771,053)                       -
  Accretion of discounts                    861,000                        -
  Net change in income taxes              1,751,000                        -
  Change in production rates (timing)
    and other                            (3,293,897)                       -
                                       -------------            --------------
Standardized measure of discounted
  future net cash flows                $    260,700             $  4,610,300
                                       =============            ==============


                                      F-24


<PAGE>

Reserve Information (Unaudited):

The following information with respect to the Company's 1998 and 1997 net proved
oil and gas  reserves are  estimates  based on reports  prepared by  Netherland,
Sewell & Associates,  Inc. for the California  properties and evaluations by two
individual independent engineers and geologists pursuant to principles set forth
by the  Standards  Pertaining  to the  Estimating  and  Auditing  of Oil and Gas
Reserve Information  promulgated by the Society of Petroleum  Engineers.  Proved
developed  reserves  represent  only those  reserves  expected  to be  recovered
through existing wells using equipment  currently in place.  Proved  undeveloped
reserves  represent  proved reserves  expected to be recovered from new wells or
from  existing  well  after  material  recompletion  expenditures.  All  of  the
Company's reserves,  excluding those of its equity method investment are located
in the United States.

                                            1998                     1997
                                          Oil bbls                Oil bbls
                                       ------------             -------------
   Proved developed and
     undeveloped reserves
   Balance, beginning of year            2,553,007               1,826,385
   Production                              (12,935)                 (2,112)
   Discoveries, extensions, etc.


   Acquisition of reserves in
     place                                                         728,734
   Revisions of estimates               (2,289,851)
                                       ------------            ------------
Balance, end of year                       250,221               2,553,007
                                       ============            ============


Equity Share of Saba Oil and Gas Information:

As of December 31, 1998, the Company has a 30% equity interest in Saba Petroleum
Company (See Note 4).  Accordingly,  the following  information  represents  the
Company's equity share of Saba's oil and gas reserves and  standardized  measure
of discounted future net cash flows as of December 31, 1998.

                                        Gas          Oil
                                       MMcf         Mbbl
                                   -----------   ---------
   Proved reserves                  6,853,334       4,144
                                   -----------   ---------


                                                    (Dollars in
                                                     Thousands)

      Future cash inflows .........................   $ 43,815

      Future costs

           Production .............................    (24,243)

           Development ............................      (7864)

      Future income tax expense ...................        (93)
                                                      --------

      Net future cash flows .......................     11,615

           Discount - 10% .........................     (4,724)

      Standardized measure of
      discounted future net cash flows ............   $  6,891
                                                      ========
                                      F-25

<PAGE>


Acquisition of Saba in March 1999:

As  discussed  in Note 4,  subsequent  to year end,  the Company  completed  its
acquisition  of Saba.  The following  information  with respect to the Company's
estimated  net proved oil and gas  reserves  are  estimates  based upon  reports
prepared by independent  petroleum engineers  (Netherland,  Sewell & Associates,
Inc. for the U.S.  properties  and Sproule  Associates  Limited for the Canadian
properties)  If this  acquisition  had  been  recorded  in 1998,  it would  have
increased the Company's proved reserves as of December 31, 1998 as follows:

                                Acquired Properties      Company Pro Forma
                                -------------------      -----------------
                                  Gas          Oil       Gas          Oil
                                 MMcf         Mbbl      MMcf         Mbbl
                          -----------    ---------  -----------  ---------
   Proved Reserves         22,997,765       13,905   22,997,765     14,155
                          ===========    =========  ===========  =========

Discounted  future  cash flows at  December  31,  1998  related to Saba and on a
Company  pro  forma  basis as if the  acquisition  had  occurred  in 1998 are as
follows (in thousands):

                                                     Company Pro
                                                   Saba         Forma
                                              -----------    -----------
   Future cash inflows                        $   147,033    $   148,758
   Future costs
     Production                                   (81,354)       (81,754)
     Development                                  (26,389)       (27,183)
     Future income tax expense                       (312)          (312)
                                              ------------   ------------
     Future net cash flows                         38,978         39,509
     Discount - - 10% annually                    (15,853)       (16,084)
                                              ------------   ------------
   Standardized measure of discounted future
     net cash flows                           $    23,125    $    23,425
                                              ============   ============


NOTE 14 - SUBSEQUENT EVENTS, FINANCIAL CONDITION, AND MANAGEMENT'S PLANS:

As discussed in Note 1, the Company's financial statements have been prepared on
a  going-concern  basis which  contemplates  the  realization  of assets and the
settlement of liabilities and commitments in the normal course of business.

The Company's  independent  public accountants issued a modified report on April
15, 1999 expressing substantial doubt as to the Company's ability to continue as
a going concern.

To improve its financial situation,  the Company has entered into, and executed,
transactions  that conform to the Company's  strategy to capitalize on its asset
base, including the following events:

     *    The  Company,  effective  on  May  1,  1999,  began  direct  and  full
          management  of all of the  operational  and  financial  affairs of its
          wholly-owned  asphalt  refinery  in  California.   Assumption  of  the
          refinery's  management  by the  Company has  increased  cash flow from
          operations,

     *    The Company  negotiated  and  executed a new $11.0  million  financing
          facility ($6 million term Loan and $5 million revolving loan) with BNY
          Financial Corporation, a new bank, in May, 1999,

     *    The Company  repaid $6.0 million of Saba's  existing  Bank One,  Texas
          note payable in May , 1999,

                                      F-26

<PAGE>

     *    The  Company,  Saba,  and Bank One,  Texas  executed in July,  1999 an
          amended and restated forbearance agreement under which Bank One, Texas
          has agreed to forbear  from  exercising  its  remedies  to collect the
          indebtedness  owed  by Saba  through  September  15,  1999  under  the
          condition that the Company obtain a financing  commitment from another
          financial  institution which will fund the Company's retirement of all
          liabilities owed to Bank One, Texas on, or before, September 15, 1999.

     *    The Company executed a commitment with a financial institution to lend
          the Company $14 million. The proceeds of this or other new loan, to be
          closed  prior to September  30,  1999,  will be used by the Company to
          retire all liabilities owed to Bank One, Texas,

     *    The  Company  executed a term  sheet to  restructure  Saba's  Series A
          Convertible  Preferred  Stock, * The Company  executed a term sheet to
          restructure Saba's 9% Convertible Senior Subordinated Debentures,

     *    The Company  executed  on June 30,  1999 the $10  million  sale of its
          Colombian  oil  and  gas  assets.  As  part  of the  transaction,  the
          Company's  note payable was cancelled to the operator of the Company's
          Colombian  oil and gas  properties  and the purchaser of the Company's
          oil and gas  properties  assumed the Company's  liability for 1997 and
          1998 Colombian income taxes. As part of this transaction,  the Company
          acquired  interests  in  two  producing  oil  and  gas  properties  in
          California  valued at $790,000.  The Company may receive an additional
          payment of up to $5 million from the purchaser of the Colombian assets
          if certain conditions are met by May 31, 2000,

     *    The Company  acquired on July 31, 1999 the  remaining  common stock of
          Beaver Lake  Resources  Corporation  that it did not  previously  own.
          Beaver Lake  Resources  Corporation  and its  valuable  assets are now
          wholly-owned by the Company,

     *    The Company  executed an extension  of the maturity  date to September
          30, 1999 on notes payable to primary stockholders,

     *    The Company executed on August 17, 1999 a production  sharing contract
          with the China  United  Coalbed  Methane  Corporation  Ltd. to jointly
          exploit coalbed methane  resources in Fengcheng,  East China's Jiangxi
          Province.  The  thirty-year  contract  provides  that the Company,  as
          operator,  will  drill at  least  ten  coalbed  methane  wells  over a
          three-year term.

The Company  reported net income in the amount of $1,250,000 for the three-month
quarterly  period ended June 30, 1999 and generated cash flow from operations of
nearly  $4,000,000  for the same  period.  Management  attributes  the  improved
results to the conclusion of the transactions  discussed above, the improved oil
and  gas  market  selling  prices,  and  the  full  operation  of the  Company's
California asphalt refinery. With the improved operating results and the related
improvement in cash flows and refinancings, the Company's financial position has
improved.

The  Company's  Independent  Public  Accountants,  after  consideration  of  the
refinancing  transactions  and the  improvements in the operations and financial
position as a whole,  on September 16, 1999 revised its Report,  first issued on
April 15, 1999, deleting the fourth paragraph of the previously issued report in
its  entirety.   The  deleted   paragraph   expressed  the  Independent   Public
Accountants' substantial doubt as to the ability of the Company to continue as a
going concern.

                                      F-27

<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Saba Petroleum Company:

We have audited the  accompanying  consolidated  balance sheet of Saba Petroleum
Company and  subsidiaries as of December 31, 1998, and the related  consolidated
statements of operations,  stockholders' (deficit) equity and cash flows for the
year ended December 31, 1998. These financial  statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly in all
material respects, the consolidated financial position of Saba Petroleum Company
and subsidiaries, as of December 31, 1998, and the consolidated results of their
operations  and cash flows for the year ended  December 31, 1998,  in conformity
with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial  statements,  the  Company  incurred  a  significant  noncash  ceiling
writedown,  has  violated  certain  of  its  debt  covenants  and  has  negative
stockholders'  equity all of which raise  substantial doubt about its ability to
continue as a going concern.  Management's  plans in regard to these matters are
also  described  in  Note  1.  The  financial  statements  do  not  include  any
adjustments  relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.


/s/ Arthur Andersen LLP
New York, New York
April 15, 1999


                                      F-28

<PAGE>


To the Board of Directors and Stockholders
Saba Petroleum Company

We have audited the  accompanying  consolidated  balance sheet of Saba Petroleum
Company and  subsidiaries as of December 31, 1997, and the related  consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits in  accordance  with  generally  accepted  accounting
standards. Those standards require that we plan and perform the audits 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 financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial  position of Saba Petroleum
Company and subsidiaries as of December 31, 1997, and the  consolidated  results
of their operations and their cash flows for each of the two years in the period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements, the Company's near term liquidity may not be sufficient to
satisfy their short term obligations, which raises substantial doubt about their
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also  described in Note 1. The  financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.



/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
April 15, 1998

                                      F-29
<PAGE>
<TABLE>

<CAPTION>


                     SABA PETROLEUM COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997

                  ASSETS

                                                                                  1998            1997
                                                                          ------------    ------------
<S>                                                                       <C>             <C>

Current Assets ........................................................   $    999,132
         Cash and cash equivalents ....................................   $  1,507,641
         Accounts receivable, net of allowance for doubtful accounts of
         $81,000 (1990) and $69,000 (1997) ............................      4,178,756       6,459,074
         Other current assets .........................................      2,509,819       4,589,501
                                                                          ------------    ------------
         Total Current Assets .........................................      7,687,707      12,556,216
                                                                          ------------    ------------
Property and Equipment
         Oil and gas properties (full cost method) ....................     79,077,124      76,562,279
         Land .........................................................      3,191,616       2,685,605
         Plant and equipment
                                                                             6,086,056       5,682,800
                                                                          ------------    ------------
                                                                            88,354,796      84,930,684
         Less accumulated depletion, depreciation and impairment
                                                                           (47,781,369)    (22,325,276
                                                                          ------------    ------------
         Total Property and Equipment .................................     40,573,427      62,605,408
                                                                          ------------    ------------
Other Assets
         Notes receivable, less current portion .......................        522,888       1,385,092
         Deferred financing costs .....................................        440,943         553,030
         Due from related parties .....................................         31,919         235,608
         Deposits and other ...........................................        431,528         321,592
                                                                          ------------    ------------
                  Total Other Assets ..................................      1,427,278       2,495,322
                                                                          ------------    ------------
                                                                          $ 49,688,412    $ 77,656,946
                                                                          ============    ------------
</TABLE>

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


                                      F-30

<PAGE>
<TABLE>

<CAPTION>


                                        SABA PETROLEUM COMPANY AND SUBSIDIARIES
                                              CONSOLIDATED BALANCE SHEETS
                                              DECEMBER 31, 1998 AND 1997


                                    LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY


                                                                                  1998            1997
                                                                          ------------    ------------
<S>                                                                      <C>              <C>
Current Liabilities
         Accounts payable and accrued liabilities .....................   $ 12,671,215    $ 10,104,519
         Income taxes payable .........................................      2,156,321         733,887
         Current portion of long-term debt ............................     28,750,743      13,441,542
                                                                          ------------    ------------

         Total Current Liabilities ....................................     43,578,279      24,279,948
                                                                          ------------    ------------

Long-term Debt, net of current portion ................................      1,627,835      19,609,855
Other Liabilities .....................................................         98,923          78,069
Deferred Taxes ........................................................           --           784,930
Minority Interest in Consolidated Subsidiary ..........................        585,292         752,570
Convertible Preferred Stock, $.001 par value, authorized 50,000,000
shares; issued and outstanding 8,000 (1998) and 10,000 (1997) shares
                                                                             7,289,170       8,511,450

Commitments and contingencies

Stockholders' (Deficit) Equity
         Common Stock, $.001 par value, authorized 150,000,000 shares;
         issued and outstanding 11,385,726 (1998) and 10,883,908 (1997)
         shares .......................................................         11,386          10,884
         Capital in excess of par value ...............................     18,720,797      17,321,680
         (Accumulated deficit) Retained earnings ......................    (21,981,818       7,200,292
         Deferred compensation ........................................           --          (803,000)
         Accumulated other comprehensive loss .........................       (241,452)        (89,732)
                                                                          ------------    ------------

                  Total Stockholders' (Deficit) Equity ................     (3,491,087)
                                                                                            23,640,124

                                                                          $ 49,688,412    $ 77,656,946
                                                                          ============    ============
</TABLE>

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


                                      F-31


<PAGE>
<TABLE>

<CAPTION>



                                        SABA PETROLEUM COMPANY AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                 FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


                                                                         1998            1997            1996
                                                                 ------------    ------------    ------------
<S>                                                              <C>             <C>              <C>
Revenues
         Oil and gas sales ...................................   $ 19,706,232    $ 33,969,151    $ 31,520,757
         Other ...............................................      3,625,099       2,016,611       1,681,587
                                                                 ------------    ------------    ------------

         Total Revenues ......................................     23,331,331      35,995,762      33,202,344
                                                                 ------------    ------------    ------------

Expenses
         Production costs ....................................     13,608,466      16,607,027      14,604,291
         General and administrative ..........................      6,529,961       5,124,771       3,919,435
         Depletion, depreciation and amortization
                                                                    7,124,269       7,264,956       5,527,418
         Write down of oil and gas properties ................     20,092,850         254,937               -
                                                                 ------------    ------------    ------------

         Total Expenses ......................................     47,355,546      29,251,691      24,051,144
                                                                 ------------    ------------    ------------

Operating (Loss) Income ......................................    (24,024,215)      6,744,071       9,151,200
                                                                 ------------    ------------    ------------
Other Income (Expense)
         Interest income .....................................        137,842         165,949         114,302
         Other ...............................................       (402,495)       (280,489)         92,149
         Interest expense ....................................     (3,589,332)     (2,304,517)     (2,401,856)
         Gain on issuance of shares of subsidiary ............              -           4,036           8,305
                                                                 ------------    ------------    ------------

         Other Income (Expense), net .........................     (3,853,985)     (2,415,021)     (2,187,100)
                                                                 ------------    ------------    ------------
         (Loss) Income Before Income Taxes ...................    (27,878,200)      4,329,050       6,964,100

Provision for Taxes on Income ................................       (887,050)     (1,875,720)     (2,957,983)
Minority Interest in Loss (Earnings of Consolidated Subsidiary
                                                                      114,427         (55,883)       (241,401)
                                                                 ------------    ------------    ------------

         Net (Loss) Income ...................................    (28,650,823)      2,397,447       3,764,716

Other Comprehensive Loss - net of tax
         Foreign currency translation adjustments ............       (151,720)       (101,014)        (11,198)
                                                                 ------------    ------------    ------------
         Comprehensive (Loss) Income .........................   $(28,954,263)   $  2,296,433    $  3,753,518
                                                                 ============    ============    ============

Net (Loss) Earnings per Common Share
         Basic ...............................................   $      (2.60)   $       0.23    $       0.43
         Diluted .............................................   $      (2.60)   $       0.22    $       0.37

Weighted Average Common Shares Outstanding
         Basic ...............................................     11,031,193      10,649,766       8,803,941
         Diluted .............................................     11,031,193      12,000,940      11,825,453

</TABLE>

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

                                      F-32

<PAGE>
<TABLE>

<CAPTION>



                                        SABA PETROLEUM COMPANY AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


                                           Common Stock

                                                                        Accumulated                  Regained          Total
                                                           Capital in      Other       Unearned      Earnings      Stock-holders'
                                                         Excess of Par Comprehen-sive  Compensa    Accumulated        Equity
                                  Shares      Amount        Value      Income (Loss)    -tion       (Deficit)       (Deficit)
                                  ------      ------        -----      -------------    -----       ---------       ---------
<S>                               <C>         <C>           <C>        <C>              <C>         <C>             <C>

Balance at December 31, 1995     8,529,180   $ 8,529   $  6,787,611    $  22,480    $  (8,500)   $  1,038,129    $  7,848,249

Issuance and exercise of
options .....................      118,000       118        646,982         --           --              --           647,100

Issuance of common stock ....       14,000        14         41,986         --           --              --            42,000

Foreign currency translation
        adjustment ..........         --        --             --        (11,198)        --              --           (11,198)

Unearned compensation .......         --        --             --           --          8,500            --             8,500

Debenture conversions .......    1,419,846     1,420      5,414,423         --           --              --         5,415,843


Net income ..................         --        --             --           --           --         3,764,716       3,764,716
                                ----------   -------   ------------    ---------    ---------    ------------    ------------

Balance at December 31, 1996    10,081,026    10,081     12,891,002       11,282         --         4,802,845      17,715,210

Issuance and exercise of
options .....................      154,000       154      1,409,842         --       (803,000)           --           606,996

Issuance of warrants ........         --        --          622,000         --           --              --           622,000

Foreign currency translation
        adjustment ..........         --        --             --       (101,014)        --              --          (101,014)

Debenture conversions .......      648,882       649      2,398,836         --           --              --         2,399,485

Net income ..................         --        --             --           --           --         2,397,447       2,397,447
                                ----------   -------   ------------    ---------    ---------    ------------    ------------

Balance at December 31, 1997    10,883,908    10,884     17,321,680      (89,732)    (803,000)      7,200,292      23,640,124

Issuance and exercise of
options .....................       58,000        58        105,042         --           --              --           105,100

Issuance of common stock ....      438,333       439      1,288,311         --           --              --         1,288,750

Foreign currency translation
        adjustment ..........         --        --             --       (151,720)        --              --          (151,720)

Debenture conversions .......        5,485         5         20,887         --           --              --            20,892

Amortization of deferred
        compensation ........         --        --             --           --         37,877            --            37,877


                                      F-33
<PAGE>

Cancellation of stock options         --        --         (765,123)        --        765,123            --              --

Preferred Stock dividends ...         --        --             --           --           --          (531,287)       (531,287)

Stockholder contribution ....         --        --          750,000         --           --              --           750,000


Net loss ....................         --        --             --           --           --       (28,650,823)    (28,650,823)
                                                       ------------    ---------    ---------    ------------    ------------

Balance at December 31, 1998    11,385,726   $11,386   $ 18,720,797    $(241,452)   $    --      $(21,981,818)   $ (3,491,087)
                                ==========   =======   ============    =========    =========    ============    ============

</TABLE>


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

                                      F-34
<PAGE>

<TABLE>
<CAPTION>


                                       SABA PETROLEUM COMPANY AND SUBSIDIARIES
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

                                                                 1998            1997            1996
                                                         ------------    ------------    ------------
<S>                                                      <C>             <C>             <C>
Cash Flows from Operating Activities
 Net (loss) income ...................................   $(28,650,823)   $  2,397,447    $  3,764,716
 Adjustments to reconcile net (loss) income to
  net cash provided by operating activities:

   Depletion, depreciation and amortization ..........      7,124,269       7,264,956       5,527,418
   Writedown of oil and gas properties ...............     20,092,850         254,937            --
   Amortization of unearned compensation .............         37,877            --             8,500
   Deferred tax provision ............................       (784,930)        248,645         366,389
   Compensation expense attributable to
    the issuance of non-employee options .............        311,350         106,000          91,600
   Minority interest in (losses) earnings of
    consolidated subsidiary ..........................       (114,427)         55,883         241,401
   Gain on issuance of shares of subsidiary ..........           --            (4,036)         (8,305)
   Changes in:

    Accounts receivable ..............................      1,718,418         859,286      (2,919,285)
    Other assets .....................................        519,578         (24,304)       (572,233)
    Accounts payable and accrued liabilities .........      2,679,787       4,768,747        (237,328)
    Income taxes payable and other liabilities .......      1,523,953        (973,681)        650,644
                                                         ------------    ------------    ------------
     Net Cash Provided by Operating Activities .......      4,457,902      14,953,880       6,913,517
                                                         ------------    ------------    ------------
Cash Flows from Investing Activities

 Deposit of restricted certificate of deposit ........           --              --         1,750,000
 Expenditures for oil and gas properties .............     (6,571,573)    (32,874,800)    (12,171,392)
 Expenditures for equipment, net .....................       (543,973)     (2,039,234)       (585,893)
 Proceeds from sale of oil and gas properties ........      5,254,066         234,141         256,646
 Increase in notes receivable ........................        (36,000)     (2,114,953)     (1,172,639)
 Proceeds from notes receivable ......................        366,111         629,109          67,384
                                                         ------------    ------------    ------------
     Net Cash Used in Investing Activities ...........     (1,531,369)    (36,165,737)    (11,855,894)
                                                         ------------    ------------    ------------

Cash Flows from Financing Activities
Proceeds from notes payable and long-term debt .......      4,151,288      28,725,454      17,085,315
 Principal payments on notes .........................     (7,110,941)    (15,972,780)    (12,296,839)
     payable and long-term debt
 Preferred stock dividends paid ......................        (51,288)           --              --
 Redemption of preferred stock .......................     (1,702,280)           --              --
 Increase in deferred financing costs ................           --              --          (165,777)
 Net change in accounts with related parties .........        203,689        (131,562)        (21,251)
 Net proceeds from exercise of options and issuance of
     common stock ....................................      1,082,500         227,500         422,500
 Proceeds from issuance of preferred stock, net ......           --         8,511,450            --
 Issuance of warrants ................................           --           622,000            --
 Capital subscription of minority interest ...........           --             8,535          12,805
                                                         ------------    ------------    ------------
 Net Cash (Used in) Provided by Financing Activities .     (3,427,032)     21,990,597       5,036,753
                                                         ------------    ------------    ------------
Effect of Exchange Rate Changes on Cash and

 Cash Equivalents ....................................         (8,010)         (5,135)           (627)
                                                         ------------    ------------    ------------
Net Increase (Decrease) in Cash and Cash Equivalents .       (508,509)        773,605          93,749
Cash and Cash Equivalents at Beginning of Year .......      1,507,641         734,036         640,287
                                                         ------------    ------------    ------------
Cash and Cash Equivalents at End of Year .............   $    999,132    $  1,507,641    $    734,036
                                                         ============    ============    ============
</TABLE>

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

                                      F-35
<PAGE>






                   SABA PETROLEUM COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


General

Saba  Petroleum  Company  ("Saba" or "the  Company")  is a Delaware  corporation
formed in 1979 as a natural resources company.  Saba is an international oil and
gas producer with  principal  producing  properties  located in the  continental
United States,  Canada and Colombia.  Until 1994, all of the Company's principal
assets were located in the United States. In 1994 and 1995, the Company acquired
interests in producing  properties  in Canada and Colombia.  In March 1999,  the
Company  entered into an agreement to sell  substantially  all of its  Colombian
assets  (see  Note  16).  For the  years  ended  December  31,  1998  and  1997,
approximately  40.6% and 38.3% of the Company's  gross revenues from oil and gas
production  were  derived  from  its  international  operations.  The  Company's
principal  United  States  oil and  gas  producing  properties  are  located  in
California, Louisiana, New Mexico and Wyoming.

Acquisition of Saba by Horizontal Ventures, Inc.

On October 8, 1998, Horizontal Ventures,  Inc. ("HVI") disclosed that, acting in
concert with International Publishing Holding, S.A., its largest shareholder, it
had acquired over five percent of the Company's  outstanding  Common Stock, with
the intent to gain  control of Saba.  On October 14,  1998,  a Schedule  13D was
filed by HVI.  On October  8, 1998,  Saba and HVI  entered  into a Common  Stock
Purchase  Agreement  by which HVI agreed to purchase  by  December 4, 1998,  2.5
million shares of Saba's Common Stock in exchange for cash in the amount of $7.5
million.  On December 3, 1998,  the Company and HVI agreed to extend the closing
date of the Common Stock Purchase Agreement to January 31, 1999.

In December  1998,  the Company  issued 333,333 shares of Common Stock to HVI in
exchange for $1.0 million paid by HVI in connection  with an interim  closing of
the Common Stock Purchase Agreement.

On December 7, 1998,  HVI and the Company  disclosed that the Board of Directors
of the Company  approved  HVI's  proposal to merge with the  Company.  Under the
merger  proposal,  the  Company's  stockholders  will receive one share of HVI's
common stock for each six shares of the Company's Common Stock outstanding. That
exchange  ratio is based upon (i) a total of  11,385,726  shares of Saba  Common
Stock  outstanding  (11,052,393  shares  outstanding as of December 2, 1998 plus
333,333 shares issued to HVI on December 7, 1998), (ii) a price of $2.02 for the
Company's  Common Stock based on a 55 percent  premium over the average  closing
price of the Company's  Common Stock from  November 2, 1998 through  December 2,
1998, and (iii) the average closing price of HVI's common stock of $12.14 during
the same period.


As of December 31, 1998,  approximately 35% of the Company's  outstanding common
stock is owned directly, or indirectly, by Horizontal Ventures, Inc. ("HVI"). In
March 1999,  the Company was  purchased by and merged into a subsidiary  of HVI,
which has subsequently been renamed Greka Energy Corporation.


                                      F-36


<PAGE>


NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT  ACCOUNTING POLICIES
(Continued)

Management's Plans

The Company's  financial  statements have been prepared on a going-concern basis
which  contemplates  the realization of assets and the settlement of liabilities
and commitments in the normal course of business.

During  1998,  due to  decreased  prices  for  natural  gas and crude oil in all
locations in which the Company does business,  the Company incurred  significant
losses,  due primarily to reduced production and related oil and gas sales and a
total of $20.1 million of non-cash ceiling writedowns of its oil and gas assets,
without  any  reduction  for tax  benefits.  As a result of these  factors,  the
reported  net loss was $28.7  million,  or $2.60 per share.  Also as a result of
these   adjustments,   the  Company  has   negative   stockholders'   equity  of
approximately $3.5 million as of December 31, 1998. In addition,  the Company is
not in compliance with certain requirements, restrictions and other covenants in
its 9% convertible senior subordinated  debentures ($3.6 million), its revolving
($15.6 million) and term ($4.5 million) bank loan agreements,  its loan from the
operator of properties  owned by the Company in Colombia  ($4.2 million) and its
Series A Convertible Preferred Stock (with a stated value of $8.0 million). As a
consequence,  the Company cannot borrow under its revolving bank loan agreement.
In  addition,  the  Company's  exploratory  prospect  in  Indonesia  requires  a
multi-year work commitment of $17.0 million,  which period began October , 1997.
The  Company  has also  received  a notice of  default  from the  Colombian  tax
authorities  for the  payment of income  taxes for 1997.  Due to the Company not
being in compliance  with the above  mentioned  requirements,  restrictions  and
other covenants,  combined with other normal maturities of long term debt, $28.8
million of such long term debt is  classified  as  currently  payable  and, as a
result, the Company has a working capital deficit of $35.9 million.

In March 1999, the Company was acquired by Horizontal  Ventures,  Inc.  (HVI), a
publicly traded company in the oil and gas industry, through the issuance of HVI
common  shares  for Saba  common  shares  (see Note 16).  Prior to and after the
merger,  HVI and  Saba  management  have  been  pursuing  steps to  improve  the
financial  condition  of  the  Company.   The  Company  is  in  the  process  of
renegotiating the terms of its 9% convertible senior subordinated debentures and
its Series A Convertible Preferred Stock and is negotiating a term and revolving
credit  agreement  with a new bank. In addition,  the Company is  negotiating to
sell certain non-core assets,  including its Colombian assets. In addition,  the
Company  will  begin  operating  its  refinery  in  California  on a 100%  basis
beginning May 1, 1999, which is expected to significantly  improve its operating
cash flows. The above mentioned transactions are in various stages of completion
and  management  believes  that they will all be closed by June 30,  1999.  As a
result of the above  factors and the pending  nature of  negotiations,  there is
substantial  doubt about the Company's ability to continue as a going concern if
management is not successful on its recapitalization  plan.  Management believes
that the  completion of the  refinancing,  and the sale  transactions  discussed
above will  remove any  uncertainty  as to its  ability to  continue  as a going
concern.  The accompanying  financial  statements do not include any adjustments
relating to the  recoverability and classification of the asset carrying amounts
or the amounts and  classifications  of liabilities that might result should the
Company be unable to continue as a going concern.

                                      F-37

<PAGE>


NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT  ACCOUNTING POLICIES
(Continued)

Reclassifications and Use of Estimates

The  preparation of the  consolidated  financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of contingent  assets and  liabilities  at the dates of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. The Company's most significant  financial  estimates are based
on remaining proved natural gas and oil reserves.  See Supplemental  Information
About Oil and Gas Producing Activities. Because there are numerous uncertainties
inherent  in the  estimation  process,  actual  results  could  differ  from the
estimates.

Certain reclassifications for prior years have been made to conform with current
year presentation.

Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  wholly  and  majority-owned  subsidiaries.   All  significant  intercompany
balances and transactions have been eliminated.

Fair Value of Financial Instruments

Cash and Cash Equivalents - The Company considers all liquid investments with an
original maturity of three months or less to be cash  equivalents.  The carrying
amount   approximates  fair  value  because  of  the  short  maturity  of  those
instruments.

Other  Financial  Instruments  - The  Company  does not hold or issue  financial
instruments for trading purposes. The Company's financial instruments consist of
notes  receivable  and long-term  debt.  The fair value of the  Company's  notes
receivable and long-term debt,  excluding the Debentures,  is estimated based on
current  rates offered to the Company for similar  issues of the same  remaining
maturities. The fair value of the Debentures is based on market prices.

Derivative  Instruments - The Company does not utilize derivative instruments in
the management of its foreign exchange,  commodity price or interest rate market
risks.

The fair value of the Company's notes  receivable and long-term debt,  excluding
the Debentures,  at December 31, 1998 and 1997, approximates carrying value. The
carrying  value and fair value of the  Debentures  at December 31, 1998 and 1997
are as follows:

                                         1998                     1997
                               -----------------------   -----------------------
                               Carrying       Fair        Carrying        Fair
                                 Value        Value         Value        Value
                               ----------   ----------   ----------   ----------
9% convertible senior
subordinated Debentures,
due 2005 ....................  $3,575,000   $3,289,000   $3,599,000   $6,298,250


                                      F-38


<PAGE>


NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT  ACCOUNTING POLICIES
(Continued)


No bid or ask price was available to determine the fair value of the  Debentures
at March 31, 1999.

Oil and Gas Properties

The Company's oil and gas producing  activities are accounted for using the full
cost method of accounting.  Accordingly,  the Company  capitalizes all costs, in
separate  cost  centers  for  each  country,  incurred  in  connection  with the
acquisition  of oil  and  gas  properties  and  with  the  exploration  for  and
development of oil and gas reserves. Such costs include lease acquisition costs,
geological and geophysical  expenditures,  costs of drilling both productive and
non-productive wells, and overhead expenses directly related to land acquisition
and exploration and development activities. Proceeds from the disposition of oil
and gas properties are accounted for as a reduction in capitalized  costs,  with
no gain or loss recognized unless such disposition involves a significant change
in reserves in which case the gain or loss is recognized.

Depletion  of  the  capitalized  costs  of oil  and  gas  properties,  including
estimated future  development,  site restoration,  dismantlement and abandonment
costs,  net of  estimated  salvage  values,  is  provided  using the  equivalent
unit-production  method based upon  estimates of proved oil and gas reserves and
production  which are  converted  to a common  unit of measure  based upon their
relative  energy content.  Unproved oil and gas properties and associated  costs
are not amortized but are individually assessed for impairment.  The cost of any
impaired  property is transferred to the balance of oil and gas properties being
depleted.  Such costs relate to projects  which were  undergoing  exploration or
development  activities,  or in which  the  Company  intends  to  commence  such
activities  in the future.  The Company will begin to amortize  these costs when
proved reserves are established or impairment is determined.

In accordance with the full cost method of accounting, the net capitalized costs
of oil and gas properties are not to exceed their related  estimated  future net
revenues discounted at 10 percent, net of tax considerations,  plus the lower of
cost or estimated fair market value of unproved properties.

A significant portion of the Company's  exploration,  development and production
activities  are conducted  jointly with others and,  accordingly,  the financial
statements reflect only the Company's proportionate interest in such activities.

In connection with its efforts to increase  proved oil and gas reserves  through
acquisition,  exploration and development activities, the Company charges to its
full cost pools certain costs related to those activities,  including  allocated
payroll  attributable  to  personnel  directly  involved  in efforts to increase
proved  reserves.  Such  charges do not  include  costs  related to  production,
general corporate overhead, or similar activities.

The total amounts of cumulative capitalized charges for internal expenses are as
follows for the listed periods:

December 31, 1998                              $1,909,850
December 31, 1997                              $1,652,200
December 31, 1996                              $1,005,950


                                      F-39


<PAGE>


NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT  ACCOUNTING POLICIES
(Continued)

The  amounts  are gross  charges to the  property  accounts  and do not  reflect
subsequent  adjustments  for abandoned  projects,  dispositions  or ceiling test
writedowns.

Plant and Equipment

Plant,  consisting of an asphalt refining facility, is stated at the acquisition
price of $500,000  plus the cost to refurbish  the  equipment.  Depreciation  is
calculated  using the  straight-line  method  over its  estimated  useful  life.
Equipment is stated at cost. Depreciation, which includes amortization of assets
under capital  leases,  is calculated  using the  straight-line  method over the
estimated  useful lives of the  equipment,  ranging from three to fifteen years.
Depreciation  expense in the years ended  December 31, 1998,  1997 and 1996, was
$607,840,  $477,239 and $293,245,  respectively.  Normal repairs and maintenance
are charged to expense as incurred. Upon disposition of plant and equipment, any
resultant gain or loss is recognized in current operations.

Interest is capitalized in connection with the construction of major facilities.
The  capitalized  interest  is recorded as part of the asset to which it relates
and is amortized over the assets estimated useful life.

Deferred Financing Costs

The costs related to the issuance of debt are  capitalized  and amortized  using
the effective  interest  method over the original  terms of the related debt. At
December 31, 1998, the Company had  unamortized  costs in the amount of $440,943
net of  accumulated  amortization  of  $1,561,349  relating  to its  Debentures.
Amortization expense in 1998, 1997 and 1996 was $105,991, $134,598 and $241,827,
respectively.

Stock-Based Compensation

In 1996, the Company  implemented  the disclosure  requirements of SFAS No. 123,
Accounting for Stock-Based  Compensation." This statement sets forth-alternative
standards for recognition of the cost of stock-based  compensation  and requires
that  a  company's  financial   statements  include  certain  disclosures  about
stock-based employee compensation  arrangements regardless of the method used to
account for them. As allowed in this statement,  the Company  continues to apply
Accounting  Principles Board Opinion (APB) No. 25,  "Accounting for Stock Issued
to Employees," and related  interpretations in recording compensation related to
its plans.

Income Taxes

The  Company  accounts  for income  taxes by the asset and  liability  method of
computing  deferred  income  taxes.  Deferred  tax  assets and  liabilities  are
established for the temporary  differences between the financial reporting bases
and the tax bases of the Company's  assets and  liabilities at enacted tax rates
expected to be in effect when such  amounts are  realized or settled.  Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.


                                      F-40
<PAGE>


NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT  ACCOUNTING POLICIES
(Continued)

Foreign Currency Translation

Assets and  liabilities  of foreign  subsidiaries  are  translated  into  United
States'  dollars using the exchange rate at each balance sheet date;  income and
expenses are  translated at the weighted  average  rates of exchange  during the
year.  The  resultant  cumulative  translation  adjustments  are  included  as a
component  of  other  comprehensive  income  in  stockholders'  equity.  Foreign
currency  transaction  gains and losses are included in net income (loss).  Such
gains (losses) in 1998, 1997 and 1996 were  $(112,000),  $(230,000) and $41,000,
respectively.

Comprehensive (Loss) Income

Effective  January 1, 1998, Saba adopted the provisions of SFAS 130,  "Reporting
Comprehensive  Income." This statement  establishes  standards for reporting and
display of  comprehensive  income and its  components in a full set of financial
statements.

The prior years'  financial  statements have been restated to conform to the new
presentation.  Saba's  comprehensive  (loss) income represents net (loss) income
adjusted for after tax foreign currency translation gains (losses).


                                               1998          1997        1996
                                            ---------   -----------   ----------
Foreign Currency Translation Adjustments:
 Before and after tax amount                $(151,720)   $(101,014)    $(11,198)


The  balance of  accumulated  foreign  currency  translation  (loss)  gain as of
 December 31 of each year is as follows:

                             1998          1997          1996
                          ----------    ---------      --------
                          $(241,452)    $ (89,732)     $ 11,282


Earnings per Common Share

Basic  earnings  per common share are based on the  weighted  average  number of
common  shares  outstanding  during each year.  SFAS 128,  "Earnings per Share",
requires dual presentation of basic and diluted earnings per share for companies
with complex capital structures.  The calculation of diluted earnings per common
share includes, when their effect is dilutive, the incremental shares that would
have been  outstanding  assuming the exercise of stock options and conversion of
the Debentures.

Sale of Subsidiary Stock

The Company accounts for a change in its  proportionate  share of a subsidiary's
equity  resulting  from the issuance by the  subsidiary  of its stock in current
operations in the consolidated financial statements.

                                      F-41
<PAGE>


NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT  ACCOUNTING POLICIES
(Continued)

Two-For-One Forward Stock Split

On November 21, 1996,  the Company's  Board of Directors  approved a two-for-one
forward stock split  effected as a stock dividend on all  outstanding  shares of
Common Stock. The Company's  outstanding stock option awards and Debentures were
also adjusted accordingly. All share and per share amounts have been adjusted to
give retroactive effect to this split for all periods presented.

New Accounting Pronouncements

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting for Derivative  Instruments and Hedging  Activities." This statement
broadens the definition of a derivative  instrument and  establishes  accounting
and reporting standards  requiring that every derivative  instrument be recorded
in the balance sheet as either an asset or liability measured at its fair market
value.  Derivatives that are not hedges must be adjusted to fair value currently
in earnings.  If a derivative is a hedge,  depending on the nature of the hedge,
special  accounting  allows changes in fair value of the derivative to be either
offset  against the change in fair value of the hedged asset or liability in the
income  statement or to be  recognized as  comprehensive  income (a component of
stockholders'  equity)  until the hedged item is  recognized  in  earnings.  The
Company  must  formally  document,  designate  and assess the  effectiveness  of
transactions  that  receive  hedge  accounting.  The  ineffective  portion  of a
derivative's change in fair value will be immediately recognized in earnings.

The Company will adopt SFAS 133 in fiscal year 1999,  but since it does not have
derivatives  currently,  there will be no impact on the financial  statements or
disclosures.


NOTE 2 - NOTES RECEIVABLE

Notes receivable are comprised of the following at December 31, 1998 and 1997:

                                                1998                   1997
                                                ----                   ----

Canadian prime plus 0.75% (6.75% at
December 31, 1997) production notes
receivable, with interest paid currently,
collateralized by producing oil and gas
properties.                                     $ -                  $65,012

Prime plus 0.75% (8.5% at December 31, 1998)
promissory  note from the former Chief
Executive Officer of the Company with
quarterly   interest  only installments,
due October 31, 1998,  collateralized by
vested, but unexercised, stock options
to purchase the Common Stock of the Company.    283,742             283,742

Prime plus 0.75% (9.25% at December 31,
1997) note receivable from joint venture
partner with principal  payments  through
October 2000 and interest  payments at
the end of twenty-four and forty-eight
months,  collateralized by producing oil
and gas properties                                  -               414,205

                                      F-42
<PAGE>


NOTE 2 - NOTES RECEIVABLE (Continued)

9% note receivable from a related party,
with principal and interest due in full
on December 31, 1998,  collateralized  by
the former Chief  Executive  Officer's
vested, but unexercised, options to purchase
the Common Stock of the Company.
                                                 96,021            101,667

11.5% note receivable from a joint venture
partner,  with principal and interest
payments through June 2002 collateralized
by producing oil and gas properties.                  -          1,737,554

10%  notes   receivable   from   unaffiliated
   companies   due  on  demand  and
collateralized by personal guarantees
from the borrower's Chief Executive Officers.     75,000           175,000

12% unsecured note receivable from a related
party due on demand.                              36,000              -

Other                                             44,228            43,940
                                                  ------            ------

                                                  534,991        2,821,120
Less: current portion                              12,103        1,436,028
   (included in other current assets)              ______        _________

                                                  $522,888      $1,385,092

NOTE 3 - OIL AND GAS PROPERTIES, LAND, PLANT AND EQUIPMENT

Oil and gas properties,  land, plant and equipment at December 31, 1998 and 1997
are as follows:



<TABLE>
<CAPTION>

December 31, 1998


                                                                                Other
                                        United                                 Foreign
                                       States        Canada      Columbia     Countries      Total
                                     -----------   ----------   -----------   ----------   -----------
<S>                                  <C>           <C>          <C>          <C>           <C>

Oil and Gas Properties

Unevaluated oil and gas properties   $ 2,319,548   $     --     $      --     $1,975,503   $ 4,295,051

Proved oil and gas properties ....    56,899,341    6,278,455    11,604,277         --      74,782,073
                                     -----------   ----------   -----------   ----------   -----------

Total capitalized costs ..........    59,218,889    6,278,455    11,604,277    1,975,503    79,077,124

Less accumulated depletion,
  depreciation and impairment ....    39,352,417    1,500,979     5,318,919         --      46,172,315
                                     -----------   ----------   -----------   ----------   -----------

Capitalized Costs, net ...........   $19,841,472   $4,802,476   $ 6,285,358   $1,975,503   $32,904,809
                                     ===========   ==========   ===========   ==========   ===========

Other Property and Equipment

Land .............................   $ 2,886,382   $     --     $   305,234   $     --     $ 3,191,616

Plant and equipment ..............     4,166,591       71,353     1,835,876       12,236     6,086,056
                                     -----------   ----------   -----------   ----------   -----------

                                       7,052,973       71,353     2,141,110       12,236     9,277,672

Less accumulated depreciation ....     1,048,207       44,958       511,586        4,303     1,609,054
                                     -----------   ----------   -----------   ----------   -----------

                                     $ 6,004,766   $   26,395   $ 1,629,524   $    7,933   $ 7,668,618
                                     ===========   ==========   ===========   ==========   ===========

</TABLE>

                                      F-43
<PAGE>



NOTE 3 - OIL AND GAS PROPERTIES, LAND, PLANT AND EQUIPMENT (Continued)


December 31, 1997
<TABLE>


                                                                                 Other
                                        United                                  Foreign
                                        States       Canada       Columbia     Countries      Total
                                     -----------   ----------   -----------   ----------   -----------
<S>                                  <C>          <C>            <C>           <C>         <C>

Oil and Gas Properties

Unevaluated oil and gas properties   $ 3,453,408   $     --     $      --     $2,101,942   $ 5,555,350

Proved oil and gas properties ....    53,107,650    7,770,588    10,128,691         --      71,006,929
                                     -----------   ----------   -----------   ----------   -----------

Total capitalized costs ..........    56,561,058    7,770,588    10,128,691    2,101,942    76,562,279

Less accumulated depletion,
  depreciation and impairment ....    15,489,222    1,265,331     4,550,919         --      21,305,472
                                     -----------   ----------   -----------   ----------   -----------

Capitalized Costs, net ...........   $41,071,836   $6,505,257   $ 5,577,772   $2,101,942   $55,256,807
                                     ===========   ==========   ===========   ==========   ===========

Other Property and Equipment

Land .............................   $ 2,380,371   $     --     $   305,234   $     --     $ 2,685,605

Plant and equipment ..............     3,769,138       81,200     1,802,085       30,377     5,682,800
                                     -----------   ----------   -----------   ----------   -----------

                                       6,149,509       81,200     2,107,319       30,377     8,368,405

Less accumulated depreciation ....       631,742       43,416       342,163        2,483     1,019,804
                                     -----------   ----------   -----------   ----------   -----------

                                     $ 5,517,767   $   37,784   $ 1,765,156   $   27,894   $ 7,348,601
                                     ===========   ==========   ===========   ==========   ===========

</TABLE>

At  December  31,  1998 and 1997,  plant and  equipment  included  $724,705  and
$620,248,  respectively,  for assets  acquired  under  capital  leases.  Related
accumulated  depreciation included $238,465 and $73,972 at December 31, 1998 and
1997, respectively.

Costs incurred in oil and gas property acquisition, exploration, and development
activities are as follows:

December 31, 1998

<TABLE>


                                                                                                           Other
                                                                  United                                  Foreign
                                                                  States       Canada       Columbia     Countries      Total
                                                               -----------   ----------   -----------   ----------   -----------
<S>                                                             <C>          <C>            <C>           <C>         <C>

Exploration ................................................   $   830,428   $  103,201   $     --     $1,172,581   $ 2,106,210

Development ................................................     2,631,620       48,115    1,386,480         --       4,066,215

Acquisition of proved properties ...........................     3,382,163         --         89,106         --       3,471,269
------------------------------------------------------------   -----------   ----------   ----------   ----------   -----------
Total Costs Incurred .......................................   $ 6,844,211   $  151,316   $1,475,586   $1,172,581   $ 9,643,694
                                                               ===========   ==========   ===========  ===========  ===========

  December 31, 1997

Exploration ................................................   $ 3,466,718   $2,082,419   $     --     $2,114,919   $ 7,664,056

Development ................................................    13,680,108      277,991    1,411,198         --      15,369,297

Acquisition of proved properties ...........................     9,035,274      488,345         --           --       9,523,619
                                                               -----------   ----------   ----------   ----------   -----------
Total Costs Incurred .......................................   $26,182,100   $2,848,755   $1,411,198   $2,114,919   $32,556,972
                                                               ===========   ==========   ==========   ==========   ===========

</TABLE>

                                      F-44

<PAGE>


NOTE 3 - OIL AND GAS PROPERTIES, LAND, PLANT AND EQUIPMENT (Continued)

Oil and gas  depletion  expense in the years ended  December 31, 1998,  1997 and
1996 was  $6,406,805,  $6,610,554 and  $4,979,361 or $2.88,  $2.64 and $2.22 per
produced barrel of oil equivalent, respectively.

Saba  periodically  reviews the carrying  value of its oil and gas properties in
accordance with requirements of the full cost method of accounting.  Under these
rules,  capitalized  costs of oil and gas  properties may not exceed the present
value of estimated future net revenues from proved reserves,  discounted at 10%,
plus the lower of cost or fair market value of unproved properties  ("ceiling").
Application  of this ceiling test generally  requires  pricing future revenue at
the  prices in effect as of the end of each  reporting  period  and  requires  a
writedown for accounting purposes if the ceiling is exceeded.

As of December 31, 1998, the Company  estimated,  using  end-of-year  prices for
natural gas and oil that, in the aggregate,  actual capitalized costs of natural
gas and oil  properties  for the  Company's  three full cost pools  exceeded the
ceiling  limitations  imposed under full cost accounting  rules by approximately
$9.5 million.  Subsequent to December 31, 1998, oil prices increased and natural
gas prices  decreased,  such that the  Company  estimated,  using April 1, 1999,
prices  that,  in  the  aggregate,   the  ceiling  limitation   exceeded  actual
capitalized  costs of  natural  gas and oil  properties  by  approximately  $2.9
million.   As  a  result,  the  Company  was  required  to  record  a  writedown
attributable  to its United  States full cost pool at December 31, 1998,  in the
amount of $1.4 million. (see Note 16).

The weighted  average  prices for oil and natural gas based on actual  prices in
effect  for each of the  Company's  properties,  actual  capitalized  costs  and
ceiling limitation amounts for each full cost pools utilizing December 31, 1998,
and April 1,  1999,  prices  are as  follows  (in  thousands,  except  for price
information):

<TABLE>


                                        Weighted Avg. Price

                                                                                                            Excess/
                                    Oil              Natural        Capitalized          Ceiling          (Deficit) of
                                                       Gas              Costs           Limitation         Limitation
                                  -------            -------          ---------          --------           -------
<S>                               <C>                <C>              <C>                <C>

  December 31, 1998:

    United States                  $ 8.33             $1.80            $20,931            $14,084           $(6,847)

    Canada                          10.92              1.47              4,802              4,527              (257)

    Colombia                         7.05                 -              6,066             $3,700           $(2,366)
                                                                         -----             ------           --------

                                                                       $31,799            $22,311           $(9,488)
                                                                       =======            =======           ========



  April 1, 1999:

    United States                  $10.99             $1.55            $21,227            $19,845           $(1,382)

    Canada                          14.71              1.44              4,802              4,816                 14

    Colombia                         8.55                 -              6,285             10,566              4,281
                                                                         -----             ------              -----

                                                                       $32,314            $35,227            $ 2,913
                                                                       =======            =======            =======
</TABLE>

                                      F-45
<PAGE>


NOTE 3 - OIL AND GAS PROPERTIES, LAND, PLANT AND EQUIPMENT (Continued)

Capitalized costs attributable to other foreign operations in the amount of $1.5
million were also charged to  operations as ceiling  writedowns  during the year
ended December 31, 1998.


NOTE 4 - STATEMENT OF CASH FLOWS

The following is certain supplemental  information  regarding cash flows for the
years ended December 31, 1998, 1997 and 1996:

                                  1998              1997             1996
                                  ----              ----             ----

 Interest paid               $2,790,840       $2,088,252          $2,309,475
 Income taxes paid           $  253,863       $2,531,157          $1,150,029

Non-cash investing and financing transactions:

In February 1996, the Company issued 14,000 shares of Common Stock to a director
of the Company in settlement of an obligation in the amount of $42,000.

Debentures  in the  principal  amount  of  $6,212,000,  less  related  costs  of
$796,157,  were converted into 1,419,846  shares of Common Stock during the year
ended December 31, 1996.

The Company  credited  Stockholders'  Equity in the amount of $91,600  resulting
from the  issuance  of stock  options  to a  consultant  during  the year  ended
December 31, 1996.

The Company credited Stockholders' Equity in the amount of $133,000 attributable
to the  income  tax  effect of stock  options  exercised  during  the year ended
December 31, 1996.

Cumulative  foreign currency  translation gains (losses),  before adjustment for
minority interest, of $(196,562),  $(131,050) and $(15,655) were recorded during
the years ended December 31, 1998, 1997 and 1996, respectively.

The Company realized gains in 1997 and 1996 of $4,036 and $8,305,  respectively,
as a result of the  issuance  of common  stock by a  subsidiary.  No gains  were
realized in 1998.

The Company  incurred  capital  lease  obligations  in the amount of $598,827 to
acquire equipment during the year ended December 31, 1997.

Debentures  in the  principal  amount  of  $2,839,000,  less  related  costs  of
$439,515,  were  converted  into 648,882  shares of Common Stock during the year
ended December 31, 1997. The Company credited Stockholders' Equity in the amount
of $273,496  attributable  to the income tax effect of stock  options  exercised
during the year ended December 31, 1997.

The Company credited to Stockholders' Equity in the amount of $909,000 resulting
from the  granting  of stock  options  to a  consultant  during  the year  ended
December 31, 1997. Of this amount $106,000 was reported as compensation  expense
during the year ended  December  31, 1997.  The options  were  canceled in March
1998, resulting in a reduction of deferred compensation expense in the amount of
$803,000 during the year ended December 31, 1998.

                                      F-46



<PAGE>


NOTE 4 - STATEMENT OF CASH FLOWS (Continued)

Debentures  in the  principal  amount of $24,000,  less related costs of $3,108,
were  converted into 5,485 shares of Common Stock during the year ended December
31, 1998.

The Company incurred  credits to Stockholders'  Equity in the amounts of $22,600
and $288,750  resulting  from the  issuance of fully  vested  stock  options and
performance shares of Common Stock, respectively, during the year ended December
31, 1998.

Quarterly  dividend  obligations  on the Series A  Preferred  Stock  ("Preferred
Stock")  that were due and  payable  on March 31,  June 30,  September  30,  and
December 31, 1998,  in the total amount of $480,000  were settled by an increase
to that issue's Conversion Amount.

The  acquisition  of two  producing  oil and gas  properties in April 1998, at a
total cost of $3,239,835, was partially funded by the assumption of accounts and
notes  receivable  due to the  Company  in the  amount  of  $2,390,354,  and the
issuance of a stock subscription payable recorded at a cost of $750,000.

The  Company  incurred a capital  lease  obligation  in the amount of $90,637 to
acquire equipment during the year ended December 31, 1998.

Fee  interest in an oil  property  owned by the Company was acquired in February
1998 by seller-provided financing in the amount of $375,000.

NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts  payable and accrued  liabilities  at December 31, 1998 and 1997 are as
follows:


                                                 1998                  1997
                                                 ----                  ----

 Trade accounts payable                     $ 8,944,683           $ 6,705,897
 Undistributed revenue payable                  736,717               780,475
 Insurance and tax assessments payable          657,792               760,177
 Other accrued expenses                       2,332,023             1,857,970
                                              ---------             ---------

                                            $12,671,215           $10,104,519
                                             ==========            ==========


NOTE 6 - INCOME TAXES

The components of (loss) income before income taxes and after minority  interest
in (losses) earnings of consolidated subsidiary for the years ended December 31,
1998, 1997 and 1996 are as follows:


                        1998          1997         1996
                ------------    ----------   ----------

United States   $(28,972,142)   $  457,166   $  383,453

Canada ......       (310,977)      262,852      693,439

Colombia ....      1,519,346     3,553,149    5,645,807
                ------------    ----------   ----------

        Total   $(27,763,773)   $4,273,167   $6,722,699
                ============    ==========   ==========

                                      F-47

<PAGE>




NOTE 6 - INCOME TAXES (Continued)

Components of income tax expense for the years ended December 31, 1998, 1997 and
1996 are as follows:


                                  1998          1997         1996
                           -----------    ----------   ----------

Current

  Federal             $            -0-    $  291,581   $  149,600

  State                         40,000        21,201      259,994

  Foreign                    1,631,980     1,310,987    2,182,000
                           -----------    ----------   ----------

                           $ 1,671,980    $1,623,769   $2,591,594
                           -----------    ----------   ----------

Deferred

  Federal                    (784,930)       114,114       207,787

  State                            -0-        35,265      158,602

  Foreign                          -0-       102,572         --
                           -----------    ----------   ----------

                              (784,930)      251,951      366,389
                           -----------    ----------   ----------

                           $   887,050    $1,875,720   $2,957,983
                           ===========    ==========   ==========

The  provision  for income taxes  differs from the amount that would result from
applying the federal  statutory rate for the years ended December 31, 1998, 1997
and 1996 as follows:


                                               1998       1997      1996
                                             ------     ------    ------

Expected tax provision (benefit) .........      (34.0)%     34.0%     34.0%

State income taxes, net of federal benefit        0.1        1.3       4.1

Effect of foreign earnings ...............        3.2        7.6       5.6

Other ....................................        0.9        1.0        .3

Valuation allowance ......................       33.1
                                               ------     ------    ------

        Total ............................        3.3%      43.9%     44.0%
                                               ======     ======    ======


The components of the tax effected  deferred income tax asset  (liability) as of
December 31, 1998 and 1997 are as follows:

                                      F-48

<PAGE>


NOTE 6 - INCOME TAXES (Continued)


                                         1998           1997
                                  -----------    -----------

Property and equipment ........   $ 4,895,941    $(1,365,800)

Foreign tax credits ...........     3,475,450      2,249,200

Alternative minimum tax credits       194,100        194,100

Other .........................       230,978         73,500
                                  -----------    -----------

                                    8,796,469      1,151,000

Valuation allowance ...........    (8,796,469)    (1,870,200)
                                  -----------    -----------

Net Deferred Income Tax Liability   $   -0-       $(719,200)
                                  ===========    ===========

At December 31, 1998 and 1997,  $-0- and $69,000 of current  deferred  taxes are
included in other current assets, respectively.

At December 31, 1998,  the Company had  approximately  $3,475,450 of foreign tax
credit  carryovers,  which will begin to expire in the year 2000.  A  $3,475,450
valuation  allowance has been provided for the foreign tax credits which are not
likely to be realized during the carryforward  period. Saba also has alternative
minimum tax credit carryforwards for federal and state purposes of approximately
$194,100.  The credits carry over  indefinitely and can be used to offset future
regular tax.

The  Company  is in  receipt  of a notice  of  default  from the  Colombian  tax
authorities for the outstanding payment of income taxes for the year 1997 in the
approximate  amount of $1.1 million and for  prepayment  of income taxes for the
year 1998 in the approximate  amount of $572,000.  The  outstanding  amounts may
accrue  interest  until  paid  at the  current  rate  of  approximately  33% and
increasing to 55% on April 1, 1999.

In general,  Section 382 of the Internal Revenue Code includes  provisions which
limit the amount of net operating  loss  carryforwards  and other tax attributes
that may be used annually in the event that a greater than 50% ownership  change
(as defined) takes place in any three year period.


NOTE 7 - LONG-TERM DEBT

Long-term debt at December 31, 1998 and 1997 consists of the following:

<TABLE>

                                                                   1998          1997
                                                            -----------   -----------
<S>                                                          <C>          <C>

9% convertible senior subordinated Debentures due 2005(a)   $ 3,575,000   $ 3,599,000
Revolving loan agreement with a bank (b) ................    15,600,000    17,410,000
Term loan agreements with a bank (c) ....................     4,501,769     8,803,769
Demand loan agreement with a bank (d) ...................     1,363,073     2,362,809
Capital lease obligations (e) ...........................       474,591       525,819
Promissory note (f) .....................................       345,290       350,000
Term loan with a bank (g) ...............................       367,567          --
Promissory note - Omimex (h) ............................     4,151,288          --
                                                            -----------   -----------
                                                             30,378,578    33,051,397
Less current portion ....................................    28,750,743    13,441,542
                                                            -----------   -----------
                                                            $ 1,627,835   $19,609,855
                                                            ===========   ===========

</TABLE>


                                      F-49
<PAGE>


NOTE 7 - LONG-TERM DEBT - continued

(a) On December 26,  1995,  Saba issued  $11,000,000  of 9%  convertible  senior
subordinated debentures ("Debentures") due December 15, 2005. The Debentures are
convertible  into  Common  Stock of Saba,  at the  option of the  holders of the
Debentures,  at any time prior to  maturity at a  conversion  price of $4.38 per
share,  subject to adjustment  in certain  events.  Saba has reserved  3,000,000
shares of its Common Stock for the conversion of the Debentures.  The Debentures
have been  redeemable by Saba since  December 15, 1997.  Mandatory  sinking fund
payments of 15% of the original principal,  adjusted for conversion prior to the
date of  payments,  are required  annually  commencing  December  15, 2000.  The
Debentures  are  uncollateralized  and  subordinated  to all  present and future
senior  debt,  as  defined,  of Saba  and are  effectively  subordinated  to all
liabilities of subsidiaries of Saba. The principal use of proceeds from the sale
of the  Debentures  was to retire  short term  indebtedness  incurred by Saba in
connection  with  its  acquisitions  of  producing  oil  and gas  properties  in
Colombia.  A portion of the proceeds was used to reduce the balance  outstanding
under Saba's  revolving  credit  agreement.  On February 7, 1996, Saba issued an
additional  $1,650,000 of  Debentures by the exercise of an allotment  option by
the underwriting group. Net proceeds to Saba were approximately $1.5 million and
a portion was utilized to reduce the outstanding  balance under Saba's revolving
line of credit.

Certain terms of the Debentures  contain  requirements  and restrictions on Saba
with regard to the following  limitations on Restricted  Payments (as defined in
the Indenture),  on transactions  with  affiliates,  and on oil and gas property
divestitures;  Change of Control  (as  defined),  which will  require  immediate
redemption;  maintenance of life insurance coverage of $5,000,000 on the life of
Saba's former Chief Executive Officer,  Ilyas Chaudhary;  and the limitations of
fundamental   changes   and   certain   trading   activities,   on  Mergers  and
Consolidations  (as  defined)  of Saba,  and on ranking of future  indebtedness.
Debentures in the amount of $6,212,000  were converted into 1,419,846  shares of
Common  Stock  during  the year ended  December  31,  1996,  and  $2,839,000  of
Debentures  were  converted  into 648,882 shares of Common Stock during the year
ended December 31, 1997. An additional $24,000 of Debentures were converted into
5,485 shares of Common Stock during the year ended December 31, 1998.

The  Company  is  not  in  compliance  with  certain  of  the  restrictions  and
accordingly, such debt is classified as currently payable at December 31, 1998.

(b) The revolving loan  ("Agreement") is subject to semi-annual  redetermination
and is presently scheduled to convert to a three-year term loan on July 1, 1999.
Funds advanced under the facility are  collateralized  by  substantially  all of
Saba's  U.S.  oil and gas  producing  properties  and the  common  stock  of its
principal subsidiaries.  The Agreement also provides for a second borrowing base
term loan of which $3.4 million was borrowed for the purpose of  development  of
oil and gas properties in California, with the outstanding balance ($814,000) at
December 31, 1998,  due July 31, 1998. At December 31, 1998,  the borrowing base
for the revolving loan was $12.5 million. The borrowing base reduces at the rate
of  $300,000  per month.  Interest on the two loans is payable at the prime rate
plus 0.25%,  or LIBOR rate  pricing  options plus 2.25%.  The  weighted  average
interest  rate for  borrowings  outstanding  under the two loans at December 31,
1998, was 7.73%.

The Agreement requires, among other things, that Saba maintain at least a 1 to 1
working  capital  ratio  (exclusive  of the  current  maturities  if any, of the
outstanding loans),  stockholders' equity of $18.0 million, a ratio of cash flow
to debt  service  of not less than 1.25 to 1.0 and  general  and  administrative
expenses at a level not greater than 20% of revenue, all as


                                      F-50

<PAGE>


NOTE 7 - LONG-TERM DEBT (Continued)

defined in the Agreement. Additionally, Saba is restricted from paying dividends
and advancing funds in excess of specified limits to affiliates. Saba was not in
compliance with financial covenants at December 31, 1998.

(c) In September 1997, Saba borrowed $9.7 million from its principal  commercial
lender to finance  the  acquisition  cost of a producing  oil and gas  property.
Interest is payable at the prime rate (7.75% at  December  31,  1998) plus 3.0%.
Principal  payments of $7.0 million on December  31,  1997,  and $2.0 million on
June 5, 1998,  reduced the  outstanding  balance to $688,000  due July 31, 1998.
Payment of this loan is personally  guaranteed by Saba's former Chief  Executive
Officer.

In November, 1997 Saba established a term loan ($3.0 million) with its principal
commercial lender.  Interest is payable at the prime rate (7.75% at December 31,
1998) plus 3.0% with the outstanding  balance of $3.0 million due July 31, 1998.
Payment of this loan is personally  guaranteed by Saba's former Chief  Executive
Officer.

These two loans,  plus the borrowing base term loan with an outstanding  balance
of $814,000,  discussed in (b) above, in the aggregate  principal amount of $4.5
million  matured  on July 31,  1998,  and were  not paid nor  extended,  and the
borrowing  base  deficit  of $3.1  million  on the  revolving  loan has not been
satisfied,  either by providing  additional  collateral to the bank, or reducing
the outstanding  principal  balance.  Based on the events  described  above, the
entire principal indebtedness to the bank ($20.1 million) has been classified as
currently payable at December 31, 1998.

(d) Saba's  Canadian  subsidiary  has a demand  revolving  reducing  loan with a
borrowing  base of $1.4  million.  Interest is payable at variable rate equal to
the Canadian  prime rate plus 0.75% per annum (7.5% at December 31,  1998).  The
loan is collateralized by the subsidiary's oil and gas producing properties, and
a first and fixed  floating  charge  debenture in the  principal  amount of $3.6
million over all assets of the Company.  The borrowing  base reduces at the rate
of  $32,600  per  month.  In  accordance  with the terms of the loan  agreement,
$391,000 of the total loan  balance of $1.4 million is  classified  as currently
payable at December  31, 1998.  Although the bank can demand  payment in full of
the loan at any time, it has provided a written  commitment  not to do so except
in the event of default.

(e) Saba leases  certain  equipment  under  agreements  that are  classified  as
capital  leases.  Lease  payments  vary from three to five years.  The effective
interest rate on the total amount of capitalized leases at December 31, 1998 was
8.21%.

(f)  The  promissory  note  ($345,290)  is due to the  seller  of an oil and gas
property,  which was acquired by Saba in December  1997. The note bears interest
at the rate of 13.5%, and is classified as a current liability.

(g) The term loan with a bank  ($367,567) is due to the seller of a fee interest
in property in which Saba owns mineral interests. The note bears interest at the
rate of 13.5%,  and a portion of such  indebtedness  is  classified as a current
liability.

(h) In June 1998,  Saba  borrowed  $4.2  million  from  Omimex  Resources,  Inc.
(Omimex),  of which $2.0 million was paid to Saba's principal  commercial lender
to reduce indebtedness under one of Saba's short-term loans, and the balance was
used for a partial  redemption  of  Preferred  Stock in the face  amount of $2.0
million, plus accrued dividends. Interest is payable at the prime rate

                                      F-51


<PAGE>


NOTE 7 - LONG-TERM DEBT (Continued)

(7.75% at December 31, 1998) plus 3%. The loan is  collateralized  by Saba's 50%
interest in the  Velasquez-Galan  pipeline in  Colombia,  ownership  of which is
titled in the name of Sabacol,  Inc., a wholly-owned  subsidiary of the Company.
The loan was due to be repaid no later than  December 14, 1998.  On December 11,
1998,  Sabacol,  Inc. filed a voluntary  petition under Chapter 11 of the United
States Bankruptcy Code in the Central District of California.  Sabacol filed the
bankruptcy  petition to protect its asset base and to provide  adequate  time to
develop a reorganization plan.

On March 30,1999, it was announced that Sabacol had entered into an agreement to
sell  substantially  all of its real and personal assets to Omimex. A portion of
the  total  consideration  for the sale  consists  of  cancellation  of the note
payable to Omimex.

Maturities of long term debt at December 31, 1998, are as follows:

 Year Ended
 December 31,
 1999                           $28,750,743
 2000                               574,925
 2001                               832,643
 2002                               208,515
 2003                                11,752
Thereafter                                -
                                $30,378,578


NOTE 8 - RELATED PARTY TRANSACTIONS

Related party transactions are described as follows:

In 1998,  1997 and 1996,  Saba  charged  related  parties  $12,190,  $18,600 and
$26,300,  respectively,  for reimbursement of certain general and administrative
expenses.

In 1995, Saba loaned $101,700 to a company  controlled by Saba's Chief Executive
Officer at an interest rate of 9% per annum. The loan is  collateralized  by the
officer's vested, but unexercised, Common Stock options. Also see footnote 2.

In 1995,  related  parties  loaned a total of $2,221,900 to Saba, at an interest
rate of 9% per annum,  in connection  with the  acquisition of producing oil and
gas properties in Colombia. Of this amount,  $600,000 was converted to equity by
the issuance of 150,000  shares of Common Stock of Saba.  The debt was repaid in
1997.  Saba  incurred  interest  expense  in the  amount of $67,600 in 1995 as a
result of this indebtedness.

In 1996, Saba provided a short-term  advance to a related party in the amount of
$10,000.

In 1996,  Saba  received  remittances  in the amount of  $120,200  from  related
parties  and made  payments  in the amount of $90,900  to  related  parties  for
reimbursement of prior period account balances.

In 1996,  Saba  charged  related  parties  $19,400 and was  charged  $152,300 by
related parties for interest on promissory notes.


                                      F-52


<PAGE>


NOTE 8 - RELATED PARTY TRANSACTIONS (Continued)

In 1996,  Saba  loaned  $30,000 to a former  director of Saba,  on an  unsecured
basis,  at an interest  rate of 9% per annum.  At December 31, 1998 the loan was
unpaid.

In 1996,  Saba  loaned  $300,000  to the Chief  Executive  Officer of Saba at an
interest  rate of prime plus 0.75% due in  quarterly  installments.  The loan is
collateralized by the officer's vested, but unexercised, Common Stock options.
Also see footnote 2.

In 1997,  Saba charged  interest in the amount of $45,343 to related parties and
was charged interest in the amount of $60,220 by related parties.  Saba paid the
related  parties a total of $142,000 for such interest  charges,  which included
amounts charged, but unpaid, at the end of the previous year.

In 1997, Saba received $10,000 in repayment of a short-term advance to a related
party,  and $61,193 from the Chief  Executive  Officer for accrued  interest and
principal on his loan from Saba.

In 1997, Saba charged a related party $23,335 for charges incurred in connection
with a potential  property  acquisition,  and $93,642 for an advance and related
expenses against an indemnification provided by the related party.

During  the year  1997,  Saba  billed a  related  party a total of  $18,814  and
received payments of $91,983 which included amounts billed in the prior year, in
connection  with the related  party's  participation  in drilling and production
activities in one of Saba's oil properties.

In 1997, Saba incurred  airplane  charter expenses in the amount of $72,774 from
non-affiliated  airplane leasing  services,  for the use of an airplane owned by
Saba's Chief Executive Officer.

In 1998,  Saba advanced  $36,000 to a related  party,  evidenced by an unsecured
promissory note.

In 1998,  Saba charged  interest in the amount of $40,774 to a related  party on
outstanding,  interest-bearing,  indebtedness  to  the  Company.  Saba  received
$37,264 for accrued  interest and $5,646 for  principal  repayment  from related
parties during the year 1998.

In 1998, Saba provided short-term cash advances to related parties in the amount
of $38,932,  and received  reimbursements in the amount of $243,534 from related
parties for prior advances.

In 1998,  Saba billed a related party a total of $141,978 and received  payments
of $88,605 in connection with the related party's  participation in drilling and
production activities on one of the Company's oil properties.

NOTE 9 - CONVERTIBLE PREFERRED STOCK

On  December  31,  1997,  Saba sold  10,000  shares  of Series A 6%  Convertible
Preferred Stock ("Preferred Stock") for $10 million. The Preferred Stock bears a
cumulative  dividend of 6% per annum,  payable quarterly,  and, at the option of
Saba,  can be paid  either in cash or through  the  issuance of shares of Saba's
Common Stock. The Preferred Stock is senior to all other classes of

Saba's equity  securities.  The conversion price of the Preferred Stock is based
on the future price of Saba's Common  Stock,  without  discount,  but will be no
greater than $9.345 per share. Conversion of the Preferred Stock could not

                                      F-53

<PAGE>


NOTE 9 - CONVERTIBLE PREFERRED STOCK (Continued)

begin  until May 1, 1998.  Three  years  from date of  issuance,  any  remaining
Preferred  Stock will  automatically  convert  into  Saba's  Common  Stock.  The
Preferred  Stock is  redeemable,  at the  option  of  Saba,  at  various  prices
commencing at 115% of the issue price plus any accrued,  but unpaid,  dividends.
Under certain circumstances, the holders of the Preferred Stock may require that
Saba redeem the  Preferred  Stock at an amount per share equal to the greater of
(i)  115% of the  stated  value of the  shares  plus any  accrued,  but  unpaid,
dividends  and (ii) the  market  value of the  shares  of  Saba's  Common  Stock
underlying the Preferred  Stock on the date of redemption.  Those  circumstances
include  Saba's  failure  to issue and  transfer  shares of Common  Stock to the
Preferred  Stockholder upon conversion of the Preferred Stock; Saba's failure to
remove a restrictive legend from the Common Stock when required to do so; Saba's
failure to obtain effectiveness with the Securities and Exchange Commission of a
registration  statement  covering  the  shares of Common  Stock  underlying  the
Preferred  Stock prior to May 15,  1998;  Saba's  assignment  for the benefit of
creditors,  or consent to the  appointment  of a receiver for Saba or for all or
substantially all of its property;  the institution by or against Saba or any of
Saba's  subsidiaries of a bankruptcy or insolvency  proceeding,  which continues
undismissed  for 45 days;  and  Saba's  failure  to  maintain a listing on AMEX.
Should  Saba  choose to redeem the issue,  the  Preferred  Stock  holder will be
entitled to receive 200,000  warrants to purchase Saba's Common Stock.  Upon the
liquidation of Saba, the holders of the Preferred  Stock are entitled to receive
an amount equal to the stated value per share of the  Preferred  Stock  ($1,000)
plus all  accrued  and  unpaid  dividends.  In  connection  with the sale of the
Preferred Stock, warrants to purchase 224,719 shares of Common Stock were issued
to the purchaser of the Preferred  Stock and warrants to purchase  44,944 shares
of  Common  Stock  were  issued as a fee for the  placement  of the  issue.  The
warrants are exercisable over a three year period at a price of $10.68. The fair
value of the warrants at December 31, 1997,  was estimated at $622,000 using the
Black-Scholes pricing model.

In June 1998,  Saba redeemed 2,000 shares of Preferred  Stock in the face amount
of $2.0 million at a total cost of $2.15 million, which included a 5% redemption
premium of $100,000 and accrued dividends of $51,000.  Saba incurred a charge to
operations in the amount of $398,000 in connection with the redemption.  Accrued
dividends for the year ended December 31, 1998, in the amount of $480,000 on the
remaining  outstanding issue were deemed settled by an increase to the Preferred
Stock's conversion amount.

On October 6, 1998, HVI acquired 690 shares of Preferred  Stock from the holders
of the Preferred Stock in exchange for $750,000 in cash with the exclusive right
until  November 5, 1998,  to acquire a minimum of 6,310 shares of the  remaining
7,310 shares of  Preferred  Stock still  outstanding.  The  exclusive  right was
extended for 30 days pursuant to HVI's payment to the Preferred Stock holders of
an additional $500,000. HVI did not exercise its right to acquire the additional
6,310  shares  of  Series  A  Preferred  Stock  prior to the  expiration  of the
extension  period.  The 690 shares of Series A Preferred  Stock acquired by HVI,
along with the accrued but unpaid dividends  thereon,  is currently  convertible
into an aggregate of 300,012 shares of Saba's

Common  Stock  based on a  conversion  price  negotiated  by HVI and  Saba.  HVI
currently is negotiating  with the holders of the Preferred  Stock to extend and
amend the  Preferred  Stock  Transfer  Agreement  to enable HVI to  acquire  the
additional 6,310 shares of Series A Preferred Stock (see Subsequent Events).



                                      F-54


<PAGE>


NOTE 9 - CONVERTIBLE PREFERRED STOCK (Continued)

Under the terms of the Preferred  Stock  offering (as amended) Saba was required
to  register  with the  Securities  and  Exchange  Commission  the Common  Stock
underlying  the issue no later than May 15, 1998.  Failure to do so would result
in a penalty of $20,000  per month for each $1 million of  Preferred  Stock that
remained  outstanding.  At December 31, 1998, a registration  statement covering
the shares of Common Stock  underlying the Preferred Stock had not been declared
effective.  (HVI's current  negotiations with the holders of the Preferred Stock
include provisions to waive the penalty (see Subsequent Events).

NOTE 10 - COMMON STOCK AND STOCK OPTIONS

In April  1996 and June  1996,  Saba's  Board  of  Directors  and  shareholders,
respectively,  approved Saba's 1996 Incentive Equity Plan ("Plan").  The purpose
of the Plan is to enable  Saba to  provide  officers,  other key  employees  and
consultants  with appropriate  incentives and rewards for superior  performance.
Subject to certain adjustments, the maximum aggregate number of shares of Saba's
Common Stock that may be issued by the Plan, and the maximum number of shares of
Common Stock granted to any  individual in any calendar  year,  shall not in the
aggregate exceed 1,000,000 and 200,000, respectively.

During the year 1996,  Saba issued  options to acquire  100,000 shares of Saba's
Common  Stock to a  consultant.  The options had an exercise  price of $4.00 and
were exercisable over a period of 180 days,  beginning May 21, 1996. The options
were fully  exercised  during the year 1996. Saba also issued options to acquire
20,000  shares  of  Saba's  Common  Stock to an  employee  under the terms of an
employment  agreement;  options to acquire  10,000  shares of Common  Stock were
subsequently canceled.

On May 30, 1997,  Saba issued  options to acquire  470,000 and 125,000 shares of
Common Stock to certain employees and a consultant,  respectively, in accordance
with the  provisions  of the 1996  Incentive  Equity  Plan.  Options  to acquire
202,000 shares of Common Stock granted to certain  employees  were  subsequently
canceled.  On August 28, 1998, Saba issued an option to acquire 15,000 shares of
Common  Stock to an  employee.  The options  have  exercise  prices equal to the
market  value at date of grant  and  become  exercisable  over  various  periods
ranging from two to five years from the date of grant. No options were exercised
as of December 31, 1998.  Options to acquire 104,000 shares of Common Stock were
exercisable at December 31, 1998. Saba recognized deferred  compensation expense
of $909,000 in the year ended December 31, 1997, resulting from the grant to the
consultant. Of this amount, $106,000 was reported as compensation expense during
the year ended  December 31,  1997,  and an  additional  $37,877 was reported as
compensation  expense  during the year ended December 31, 1998. The option grant
was canceled in March 1998, and the unamortized portion of deferred compensation
expense was reversed from the applicable accounts.

In March 1998, Saba issued options to acquire 30,000 shares of Common Stock to a
consultant. The options have an exercise price equal to the market value at date
of grant and are fully vested. Saba recognized  compensation  expense of $22,600
in the year ended December 31, 1998, attributable to the option grant.

                                      F-55

<PAGE>


NOTE 10 - COMMON STOCK AND STOCK OPTIONS (Continued)

In May 1997,  Saba's  stockholders  approved  Saba's 1997 Stock  Option Plan for
Non-Employee   Directors  (the  "Directors  Plan"),  which  provided  that  each
non-employee director shall be granted, as of the date such person first becomes
a director and  automatically  on the first day of each year  thereafter  for so
long as he continues to serve as a non-employee  director,  an option to acquire
3,000  shares of Saba's  Common Stock at fair market value at the date of grant.
For as long as the director  continues to serve, the option shall vest over five
years at the rate of 20% per year on the first anniversary of the date of grant.
On August 28, 1998,  Saba's  stockholders  approved an increase in the number of
shares of Saba's Common Stock subject to option from 3,000 to 15,000 vesting 20%
per year.  Subject to  certain  adjustments,  a maximum  of  250,000  options to
purchase shares (or shares transferred upon exercise of options received) may be
outstanding under the Directors Plan. At December 31, 1998, options to acquire a
total of 90,000  shares of Common  Stock had been  granted  under the  Directors
Plan.  Options  to  acquire  42,000  shares of Common  Stock  were  subsequently
canceled due to the  resignations of directors.  Options to acquire 6,000 shares
of Common Stock were exercisable at December 31, 1998.

As of  December  31,  1998 and 1997,  Saba had  outstanding  options  to acquire
400,000 and 548,000 shares,  respectively,  of Common Stock to certain employees
of Saba.  These  options,  which are not covered by the  Incentive  Equity Plan,
become  exercisable  ratably over a period of five years from the date of issue.
The exercise price of the options, which ranges from $1.25 to $4.38, is the fair
market value of the Common Stock at the date of grant.  There is no  contractual
expiration  date for exercise of a portion of these options.  Options to acquire
58,000  and  154,000  shares of Common  Stock were  exercised  in 1998 and 1997,
respectively,  and options to acquire  90,000 and 40,000  shares of Common Stock
were  canceled in 1998 and 1997,  respectively.  Options to acquire  400,000 and
344,000  shares of Common Stock were  exercisable at December 31, 1998 and 1997,
respectively.

Information  regarding  the shares under option and  weighted  average  exercise
price for the years ended December 31, 1998, 1997 and 1996 is as follows:

<TABLE>

                                             1998                          1997                           1996
                                  --------------------------   ---------------------------       -------------------------
                                                   Weighted                       Weighted                       Weighted
                                                   Average                        Average                        Average
                                                  Exercise                        Exercise                       Exercise
                                  Shares            Price         Shares          Price          Shares          Price
                               ----------           ------      ----------        ------          ------          -----
<S>                            <C>                 <C>           <C>              <C>            <C>              <C>

Beginning of year               1,173,000           $ 8.95         742,000        $ 1.49          740,000         $1.40
Granted                            90,000           $ 1.50         640,000        $15.50          120,000         $4.06
Exercised                        (58,000)           $ 1.42       (154,000)        $ 1.47        (118,000)         $3.58
Canceled                        (444,000)           $12.25        (55,000)        $ 5.31                -         $0.00
                                --------            ------        -------         ------          -------         -----
End of Year                       761,000            $6.72       1,173,000         $8.95          742,000         $1.49
                                  =======            =====       =========         =====          =======         =====
Options exercisable at            540,000           $ 9.47         344,000        $ 1.38          306,000        $ 1.37
                                  =======           ======         =======        ======          =======        ======
end of year


</TABLE>

                                      F-56

<PAGE>


NOTE 10 - COMMON STOCK AND STOCK OPTIONS (Continued)

Weighted average
fair value of options
granted during the
year             $     1.33             $     6.99           $    1.17
                   ==========           ==========           =========

The fair value of each option granted during 1998, 1997 and 1996 is estimated on
the  date of  grant  using  the  Black-Scholes  option-pricing  model  with  the
following  assumptions:  (a) risk-free interest rates ranging from 4.9% to 7.9%,
(b)  expected  volatility  ranging  from  43.2% to 58.4%,  (c)  average  time to
exercise ranging from six months to five years, and (d) expected  dividend yield
of 0.0%.

The following table summarizes  information  about stock options  outstanding at
December 31, 1998:

<TABLE>

                Options Outstanding                                    Options Exercisable
      ----------------------------------------         -------------------------------------------
                       Number         Average           Weighted            Number
      Range of     Outstanding at    Remaining           Average        Exercisable at   Weighted
      Exercise      December 31,    Contractual         Exercise         December 31,     Average
      Prices           1998           Life               Price             1998          Exercise
     -------          -------      ---------            ------           -------         --------
    <S>              <C>           <C>                  <C>              <C>             <C>
     $ 1.25 -         290,000          (1)               $1.29           290,000            $1.29
     $ 1.38

     $ 1.50           175,000          (2)               $1.50           130,000            $1.50

     $ 4.38            10,000     Not stated             $4.38            10,000            $4.38

     $15.50           286,000      8.4 years             $15.50          110,000           $15.50
                      -------                                            -------
   $ 1.25 - $         761,000                                            540,000
     15.50            =======                                            =======

</TABLE>

(1)  No  contractual  expiration  date for 145,000  options;  balance of 145,000
     options   expire  one  year  following   termination  of  option   holder's
     employment.

(2)  No contractual  expiration date for 100,000 options;  30,000 options expire
     in 2.75 years and 45,000 options expire in 9.67 years.


The Company  accounts for stock based  compensation to employees under the rules
of Accounting  Principles Board Opinion No 25. The compensation cost for options
granted in 1998, 1997 and 1996 was $60,308, $482,793 and $30,136,  respectively.
If the  compensation  cost for the  Company's  1998,  1997 and  1996  grants  to
employees had been  determined  consistent  with SFAS No. 123, the Company's net
(loss) income and net (loss)  earnings per common share  (basic) for 1998,  1997
and 1996 would approximate the proforma amounts set forth below:

                                      F-57
<PAGE>


NOTE 10 - COMMON STOCK AND STOCK OPTIONS (Continued)

<TABLE>


                                            1998                          1997                       1996
                                --------------------------    -------------------------    ------------------------
                                As Reported      Pro Forms    As Reported     Pro Forma    As Reported    Pro Forma
                                 ----------      ---------    -----------     ---------    -----------    ---------
<S>                             <C>              <C>          <C>             <C>          <C>            <C>

  Net (loss) income             $(28,650,823)  $(28,745,690)    $2,397,447     $2,094,736    $3,764,716   $3,745,218

  Net (loss) earnings per
  common share (basic)               $ (2.60)       $ (2.61)        $ 0.23         $ 0.20        $ 0.43        $0.43

</TABLE>

On May 30, 1997,  the  Company's  Board of Directors  authorized,  on a deferred
basis,  the  issuance  of  200,000  shares  of  Common  Stock  to the  Company's
President,  the  issuance  of such  shares  being  contingent  upon the  officer
remaining in the employ of the Company for a period of two years  succeeding the
expiration of his existing  employment  contract at December 31, 1999, with such
shares  to be issued  in two  equal  installments  at the end of each of the two
succeeding years.  Additionally,  the Board of Directors authorized the issuance
of 100,000 shares of performance shares to the Company's President,  issuable at
the end of calendar  year 1998  provided  that  certain  operating  results were
reported by the Company at the end of that year.  In November  1998,  due to the
resignation of the officer, both of the grants were canceled.

In March  1998,  Saba  issued  20,000  performance  shares of Common  Stock to a
consultant  and  recognized  compensation  expense  of $61,250 in the year ended
December 31, 1998.

In May 1998, Saba issued 85,000  performance shares to employees and consultants
and recognized  compensation  expense of $227,500 in the year ended December 31,
1998.


NOTE 11 - EARNINGS PER SHARE
(In thousands, except per share data)

<TABLE>

                                       1998                             1997                                  1996
                       --------------------------------   ------------------------------      ---------------------------------
                       Income                   Per                               Per                                     Per
                       (Loss)      Shares      Share      Income      Shares      Share       Income        Shares       Share
                      ---------    ---------   --------   ---------   ---------   ------      --------     --------     -------
<S>                   <C>          <C>         <C>        <C>         <C>         <C>         <C>          <C>          <C>
 Share
Income (loss)
available to
common                 $(28,650)     11,031     $(2.60)    $ 2,397     10,650     $ 0.23        $ 3,765        8,804     $ 0.43
stockholders -
basic EPS
Effect of
dilutive
securities:                    -          -           -          _        350                                    371
Contingently
issuable shares
Convertible                    -          -           -        203      1,001          -            559        2,650
debentures
Income available
to common
stockholders and
assumed                $(28,650)     11,031     $(2.60)     $2,600     12,001     $ 0.22         $4,324       11,825     $ 0.37
conversions -
diluted EPS

</TABLE>

                                      F-58


<PAGE>

NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a tabulation of unaudited  quarterly operating results for 1998
and 1997:

<TABLE>
<CAPTION>

                                                                                          Basic Net       Diluted Net
                                   Total            Operating          Net Income       Income (Loss)    Income (Loss)
  1998                            Revenues          Income              (Loss)             Per Share        Per Share
                                 ----------      ------------        -------------           -------         -------
<S>                              <C>             <C>                 <C>                     <C>             <C>
 First Quarter                  $6,473,469      $(11,573,619)       $(12,016,500)           $(1.12)         $(1.12)

  Second Quarter                  6,405,776        (7,908,209)         (9,577,165)            (0.88)          (0.88)

  Third Quarter                   5,803,917          (301,509)         (1,904,552)            (0.18)          (0.18)

  Fourth Quarter                  4,648,169        (4,240,878)         (5,152,606)            (0.42)          (0.42)
                                  ---------        -----------         -----------            ------          ------

                                $23,331,331      $(24,024,215)       $(28,650,823)          $ (2.60)        $ (2.60)
                                ===========      =============       =============          ========        ========

<CAPTION>

                                                                                          Basic Net       Diluted Net
                                   Total            Operating          Net Income       Income (Loss)    Income (Loss)
  1997                            Revenues          Income              (Loss)             Per Share        Per Share
                                 ----------      ------------        -------------           -------         -------
<S>                              <C>             <C>                 <C>                     <C>             <C>
  First Quarter                  $9,563,474         $2,804,882          $1,441,582             $0.14           $0.12

  Second Quarter                  8,271,953          1,265,636             507,300              0.05            0.05

  Third Quarter                   8,942,773          1,978,235             598,618              0.06            0.05

  Fourth Quarter                  9,217,562            950,255           (150,053)            (0.01)          (0.01)
                                  ---------            -------           --------             ------          ------

                                $35,995,762         $6,999,008          $2,397,447            $ 0.23          $ 0.22
                                ===========         ==========          ==========            ======          ======

</TABLE>

NOTE 13 - RETIREMENT PLAN

The Company  sponsors a defined  contribution  retirement  savings plan ( 401(k)
Plan") to assist all eligible  U.S.  employees in providing  for  retirement  or
other  future  financial  needs.  The  Company   currently   provides   matching
contributions equal to 50% of each employee's contribution, subject to a maximum
of 4% of employee earnings. The Company's  contributions to the 401(k) Plan were
$54,616, $41,762 and $44,014 in 1998, 1997 and 1996, respectively.


NOTE 14 - COMMITMENTS AND CONTINGENCIES

The  Company is a defendant  in various  legal  proceedings,  which arise in the
normal course of business.  Based on discussions with legal counsel,  management
does not  believe  that the  ultimate  resolution  of such  actions  will have a
significant  effect  on  the  Company's  financial   statements  or  results  of
operations.

Leases

The  Company  leases  office  space,   vehicles  and  office   equipment   under
non-cancelable  operating leases expiring in the years 1999 through 2002. Future
minimum lease payments under all operating leases are as follows:


                                      F-59

<PAGE>


NOTE 14 - COMMITMENTS AND CONTINGENCIES - continued

Year Ending
December 31,

     1999            $229,611
     2000             141,711
     2001             108,951
     2002               8,133
     2003                   -
                      -------
                     $488,406

Rent  expense  amounted to  $206,003,  $248,596 and $246,013 for the years ended
December 31, 1998, 1997 and 1996, respectively.


Concentration of Credit Risk and Major Customers

The Company  invests its cash  primarily in deposits  with major banks.  Certain
deposits may, at times, be in excess of federally  insured limits  ($975,828 and
$3,951,106  at  December  31,  1998 and 1997,  respectively,  according  to bank
records). Saba has not incurred losses related to such cash balances.

The Company's accounts  receivable result from its activities in the oil and gas
industry.  Concentrations  of credit risk with respect to trade  receivables are
limited  due to the  large  number of joint  interest  partners  comprising  the
Company's customer base.  Ongoing credit evaluations of the financial  condition
of joint  interest  partners are  performed  and  generally,  no  collateral  is
required.  The Company  maintains  reserves for potential credit losses and such
losses  have  not  exceeded  management's  expectations.  Included  in  accounts
receivable  at  December  31, 1998 and 1997 are the  following  amounts due from
unaffiliated parties (each accounting for 10% or more of accounts receivable):


                                      1998              1997
                                      ----              ----

 Customer A                        $583,879          $1,482,600
                                    =======          ==========
 Customer B                        $791,571          $  931,965
                                    =======          ==========
 Customer C                        $      -          $  745,567
                                    =======          ==========

Sales to major unaffiliated  customers  (customers  accounting for 10 percent or
more of gross revenue),  all representing  purchasers of oil and gas and related
transportation tariffs and the applicable geographic area for each customer, for
each of the years ended December 31, 1998, 1997 and 1996 are as follows:

             Geographic Area        1998           1997          1996

Customer A     Colombia          $7,374,751    $10,769,000   $13,594,000
                                  =========     ==========    ==========
Customer B     United States     $5,821,445    $ 7,738,280   $ 4,117,000
                                  =========     ==========    ==========

All sales to the  geographic  area of Colombia are to the  government  owned oil
company.

                                      F-60
<PAGE>


NOTE 14 - COMMITMENTS AND CONTINGENCIES - continued

Contingencies

The Company is subject to extensive Federal, state, and local environmental laws
and  regulations.  These  requirements,  which change  frequently,  regulate the
discharge of materials into the environment.  The Company believes that it is in
compliance with existing laws and regulations.

Environmental Contingencies

Pursuant to the  purchase  and sale  agreement  of an asphalt  refinery in Santa
Maria,  California,  the sellers agreed to perform certain remediation and other
environmental activities on portions of the refinery property through June 1999.
Because the purchase and sale agreement contemplates that the Company might also
incur remediation  obligations with respect to the refinery, the Company engaged
an independent consultant to perform an environmental  compliance survey for the
refinery.  The survey did not disclose required  remediation in areas other than
those where the seller is responsible for remediation,  but did disclose that it
was possible  that all of the required  remediation  may not be completed in the
five-year period. The Company,  however,  believes that all required remediation
will be  completed  by the  seller  within the five year  period.  Environmental
compliance  surveys such as those the Company has had  performed  are limited in
their scope and may not disclose all environmental contamination as may exist.

In accordance with the Articles of Association for the Cocorna  Concession,  the
Concession  expired in  February  1997 and the  property  interest  reverted  to
Ecopetrol.  The property is presently  under  operation by Ecopetrol.  Under the
terms of the  acquisition of the  Concession,  the Company and the operator were
required  to  perform  various  environmental  remedial  operations,  which  the
operator advises have been substantially,  if not wholly, completed. The Company
and the operator are awaiting an inspection of the Concession  area by Colombian
officials  to  determine  whether  the  government  concurs  in  the  operator's
conclusions.  Based  upon the  advice  of the  operator,  the  Company  does not
anticipate any significant future expenditures associated with the environmental
requirements for the Cocorna Concession.

In 1993,  the Company  acquired a producing  mineral  interest  from a major oil
company ( Seller").  At the time of  acquisition,  the  Company's  investigation
revealed  that the Seller had suffered a discharge of diluent (a light oil based
fluid which is often mixed with heavier grade  crudes).  The purchase  agreement
required  the  Seller to  remediate  the area of the  diluent  spill.  After the
Company assumed operation of the property,  the Company became aware of the fact
that diluent was seeping into a drainage area, which traverses the property. The
Company took action to eliminate the fluvial  contamination  and requested  that
the Seller bear the cost of remediation.  The Seller has taken the position that
its obligation is limited to the specified contaminated area and that the source
of the contamination is not within the area that the Seller agreed to remediate.
The Company has commenced an investigation  into the source of the contamination
to ascertain  whether it is physically  part of the area which the Seller agreed
to remediate or is a separate spill area. Investigation and discussions with the
Seller are ongoing. Should the Company be required to remediate the area itself,
the  cost  to  the  Company  could  be   significant.   The  Company  has  spent
approximately $240,000 to date in remediation activities,  and present estimates
are that the cost of complete  remediation could approach $1 million.  Since the
investigation is not complete, an accurate estimate of cost cannot be made.

                                      F-61
<PAGE>


NOTE 14 - COMMITMENTS AND CONTINGENCIES - continued

Environmental Contingencies (Continued)

In 1995,  the Company agreed to acquire,  for less than $50,000,  an oil and gas
interest on which a number of oil wells had been drilled by the seller.  None of
the  wells  were in  production  at the  time of  acquisition.  The  acquisition
agreement  required that the Company  assume the obligation to abandon any wells
that the Company did not return to production,  irrespective  of whether certain
consents of third parties necessary to transfer the property to the Company were
obtained. The Company has been unable to secure all of the requisite consents to
transfer the property but  nevertheless  may have the  obligation to abandon the
wells. The leases have expired and the Company is presently  considering whether
to  attempt  to  secure  new  leases.  A  preliminary  estimate  of the  cost of
abandoning the wells and restoring the well sites is approximately $800,000. The
Company is  currently  unable to assess  its  exposure  to third  parties if the
Company elects to plug such wells without first obtaining necessary consent.

The Company,  as is customary in the  industry,  is required to plug and abandon
wells and remediate facility sites on its properties after production operations
are completed.  The cost of such  operation will be significant  and will occur,
from time to time, as properties are abandoned.

There  can  be no  assurance  that  material  costs  for  remediation  or  other
environmental  compliance will not be incurred in the future.  The occurrence of
such environmental  compliance costs could be materially adverse to the Company.
No  assurance  can be given that the costs of  closure  of any of the  Company's
other oil and gas  properties  would not have a material  adverse  effect on the
Company.


NOTE 15 - BUSINESS SEGMENTS

Effective  January 1, 1998, the Company  adopted the provisions of SFAS No. 131,
Disclosures  about  Segments  of an  Enterprise  and Related  Information."  The
Company  considers that its operations are  principally in one industry  segment
that of  acquisition,  exploration,  development  and  production of oil and gas
reserves.  The  factors for  determining  reportable  segments  are based on the
distinct nature of their operations. Another criteria for determining reportable
segments  is that they are  managed as  separate  business  units  because  each
requires and is responsible for executing a unique business strategy.

Earnings of industry  segments and  geographic  areas exclude  interest  income,
interest expense and unallocated corporate expenses.

Foreign  income and other taxes and certain  state taxes are included in segment
earnings  on the basis of  operating  results.  U.S.  Federal  income  taxes are
allocated to segments  except for amounts in lieu thereof that represent the tax
effect of operating charges resulting from purchase accounting adjustments.

Identifiable  assets are those assets used in the  operations  of the  segments.
Corporate  assets consist of cash,  short-term  investments,  certain  corporate
receivables, and other assets.

                                      F-62

<PAGE>


NOTE 15 - BUSINESS SEGMENTS - continued

A summary of the Company's  operations  by  geographic  area for the years ended
December 31, 1998, 1997 and 1996 is as follows: (Dollars
in thousands).

<TABLE>

<CAPTION>

                                                                                 Other
                                                                                Foreign
  Year Ended                   United States     Canada       Colombia          Countries     and Other       Total
                               -------------     ------       --------         -----------   ---------       -----
<S>                            <C>              <C>           <C>              <C>           <C>             <C>
 December 31, 1998

  Total revenues                      $12,044       $1,546         $7,375           $   -       $ 2,366     $ 23,331

  Production costs                      8,867          874          3,867               -             -       13,608

  Other operating expenses              1,177          604            253             130         4,366        6,530

  Depreciation, depletion
  and amortization                      5,370          366            938               6           444        7,124

  Writedown of oil and gas
  properties                           18,583            -              -           1,510             -       20,093

  Income tax expense
  (benefit)                             (182)         (93)          1,226            (13)          (51)          887

  Results of operations
  from oil and gas                 $ (21,771)      $ (205)        $ 1,091       $ (1,633)
                                   ----------      -------        -------       ---------
  producing activities

  Interest and other
  expenses (net)                                                                                  3,741        3,741
                                                                                                  -----        -----

  Net (loss) income                                                                           $ (6,024)   $ (28,650)
                                                                                              =========   ==========

  Identifiable assets at
  December 31, 1998                  $ 23,744      $ 5,225        $11,056         $ 2,068       $ 7,595     $ 49,688
                                     ========      =======        =======         =======       =======     ========


</TABLE>

                                      F-63

<PAGE>


NOTE 15 - BUSINESS SEGMENTS (Continued)

<TABLE>

 <CAPTION>

                                                                                 Other
                                                                                Foreign
  Year Ended                   United States     Canada       Colombia          Countries     and Other       Total
                               -------------     ------       --------         -----------   ---------       -----
<S>                            <C>              <C>           <C>              <C>           <C>             <C>
 December 31, 1997

  Total revenues                    $21,359       $2,582         $10,769            $   -       $ 1,286     $ 35,996

  Production costs                   10,461        1,080           5,066                -             -       16,607

  Other operating expenses            1,130          472             246               63         3,214        5,125

  Depreciation, depletion
  and amortization                    4,540          543           1,797                2           383        7,265

  Income tax expense
  (benefit)                             752          158           1,495                -         (529)        1,876

  Results of operations
  from oil and gas                  $ 4,476        $ 329         $ 2,165           $ (65)
                                    -------        -----         -------           ------
  producing activities

  Interest and other
  expenses (net)                                                                                  2,726        2,726
                                                                                                  -----        -----

  Net (loss) income                                                                            $(4,508)       $2,397
                                                                                               ========       ======

  Identifiable assets at
  December 31, 1997                $ 44,713      $ 7,460         $11,047          $ 2,174       $12,263     $ 77,657
                                   ========      =======         =======          =======       =======     ========

<CAPTION>

                                                                                 Other
                                                                                Foreign
  Year Ended                   United States     Canada       Colombia          Countries     and Other       Total
                               -------------     ------       --------         -----------   ---------       -----
<S>                            <C>              <C>           <C>              <C>           <C>             <C>
  December 31, 1996

  Total revenues                    $15,907       $3,105         $13,594            $   -         $ 596     $ 33,202

  Production costs                    8,160        1,172           5,272                -             -       14,604

  Other operating expenses            1,209          536             213               58         1,904        3,920

  Depreciation, depletion
  and amortization                    2,564          353           2,275                1           334        5,527

  Income tax expense
  (benefit)                           1,561            -           2,917                -       (1,520)        2,958

  Results of operations
  from oil and gas                   $2,413      $ 1,044         $ 2,917           $ (59)
                                     ------      -------         -------           ------
  producing activities

  Interest and other
  expenses (net)                                                                                  2,428        2,428
                                                                                                  -----        -----

  Net income (loss)                                                                           $ (2,550)       $3,765
                                                                                              =========       ======

  Identifiable assets at
  December 31, 1996                $ 28,466      $ 5,346        $ 12,473            $ 264       $ 2,568     $ 49,117
                                   ========      =======        ========            =====       =======     ========

</TABLE>

                                      F-64

<PAGE>


NOTE 16 - SUBSEQUENT EVENTS (UNAUDITED)

Writedown of Natural Gas and Oil Properties

As of December 31, 1998, the Company  estimated,  using  end-of-year  prices for
natural gas and oil that, in the aggregate,  actual capitalized costs of natural
gas and oil  properties  for the  Company's  three full cost pools  exceeded the
ceiling  limitations  imposed under full cost accounting  rules by approximately
$9.5 million.  Subsequent to December 31, 1998, oil prices increased and natural
gas prices  decreased,  such that the  Company  estimated,  using April 1, 1999,
prices  that,  in  the  aggregate,   the  ceiling  limitation   exceeded  actual
capitalized  costs of  natural  gas and oil  properties  by  approximately  $2.9
million.  The Company was  required  to record a writedown  attributable  to its
United  States  full cost  pool at  December  31,  1998,  in the  amount of $1.4
million.

The weighted  average  prices for oil and natural gas based on actual  prices in
effect  for each of the  Company's  properties,  actual  capitalized  costs  and
ceiling  limitation amounts for each full cost pool utilizing December 31, 1998,
and April 1,  1999,  prices  are as  follows  (in  thousands,  except  for price
information):


<TABLE>

                                        Weighted Avg. Price
                                                                                                            Excess/
                                                                                                           (Deficit)
                                                                                            Ceiling            of
                                         Oil          Natural Gas     Capitalized Costs    Limitation      Limitation
                                      ---------        ----------        -----------        ---------     ----------
<S>                                   <C>              <C>               <C>                <C>           <C>
  December 31, 1998:

          United States                   $8.33            $ 1.80            $20,931         $14,084       $ (6,847)

          Canada                         $10.92            $ 1.47            $ 4,802         $ 4,527          $(275)

          Colombia                       $ 7.05                 -            $ 6,066         $ 3,700       $ (2,366)
                                                                             -------         -------       ---------

                                                                             $31,779         $22,311       $ (9,488)
                                                                             =======         =======       =========

  April 1, 1999:

          United States                  $10.99            $ 1.55            $21,227         $19,845       $ (1,382)

          Canada                         $14.71            $ 1.44            $ 4,802         $ 4,816            $ 14

          Colombia                       $ 8.55                 -            $ 6,285         $10,566         $ 4,281
                                                                             -------         -------         -------

                                                                             $32,314         $35,227         $ 2,913
                                                                             =======         =======         =======
</TABLE>

Approximately  $4.5  million in  principal  amount of bank debt that matured for
payment on July 31, 1998, has not been paid nor extended, and the borrowing base
deficit of $3.1 million on the revolving loan at December 31, 1998, has not been
satisfied  either by providing  additional  collateral to The Company's  bank or
reducing  the  principal  balance  that was  outstanding  at December  31, 1998.
Additionally,  the  Company  was not in  compliance  with  the  loan  agreements
financial  covenants at December 31, 1998.  In February  1999,  Bank One,  Texas
notified the Company that as a result of continuing defaults under the Company's
principal  credit  facilities  with Bank One the entire  amount of $20.1 million
then outstanding  under the facilities was accelerated and declared  immediately
due and  payable.  The Company and its bank are in  discussions  to address such
non-compliance.

                                      F-65
<PAGE>


NOTE 16 - SUBSEQUENT EVENTS (UNAUDITED) (Continued)

The  Company  has  negotiated,  and  continues  to  pursue,  the sale of certain
producing oil and gas assets and real estate  assets.  In September  1998,  Saba
listed certain of its California real estate  properties  with a broker,  and in
October  1998,  Saba listed its domestic  non-California  producing  oil and gas
properties with a broker. Proceeds from the sale of such properties will be used
to reduce bank indebtedness and provide working capital.

In October 1998,  Saba executed a letter  presented by the operator of the North
Nare  Association in Colombia  whereby Saba confirmed its agreement to pay up to
$500,000 in January 1999 if the operator is successful in procuring an extension
from Ecopetrol of the North Nare contract for  twenty-two  years beyond the year
2008, the time at which the areas under the terms of the  Association  Agreement
revert back to Ecopetrol.

The  Company's  obligation  to repay the  principal  sum of  approximately  $4.2
million,  plus  interest,  as evidenced by a promissory  note secured by its 50%
interest  in  a  118-mile  pipeline  in  Colombia  owned  by  Sabacol,  Inc.,  a
wholly-owned  subsidiary  of the Company ( Sabacol"),  became due and payable in
its entirety on December 14, 1998. The  promissory  note was not paid in full by
December 14, 1998.  However,  on December 15, 1998,  the Company  disclosed that
Sabacol  filed a  voluntary  petition  under  Chapter  11 of the  United  States
Bankruptcy  Code in the Central  District of  California  on December  11, 1998.
Sabacol's  assets,  located  solely in Colombia,  consist of a 50% interest in a
118-mile  pipeline  and varying  interests  in heavy oil  producing  properties.
Sabacol  had filed the  bankruptcy  petition  to  protect  its asset base and to
provide adequate time to develop a  re-organization  plan. On March 30, 1999, it
was announced  that Sabacol had entered into an agreement to sell  substantially
all of its real and personal  assets. A portion of the total  consideration  for
the sale consists of  cancellation  of the promissory  note,  including  accrued
interest.  Sabacol has filed a motion for an order  authorizing  the sale of the
assets and, upon consummation of the sale, dismissing the bankruptcy case.

On March 22, 1999, the Company and HVI announced that the  shareholders  of both
companies  approved the merger between the Company and HVI at a special  meeting
of each company held in March 19,1999.  Under the terms of the merger,  HVI will
be the  surviving  entity  following its  acquisition  of 100% of the issued and
outstanding Common Stock of Saba. At the HVI meeting, shareholders also approved
a name change to Greka Energy Corporation.

The  Company  deferred  the  semi-annual  interest  payment of  $162,000  due in
December  1998 on the  Debentures.  The interest  payment was made in January of
1999.

On March 15, 1999 HVI and RGC  International  Investors  LDC entered into a term
sheet that provided for the conversion of Saba's Series A Convertible  Preferred
Stock to a Secured Convertible Note obligation of HVI.  Negotiations relating to
the final documentation of this agreement are ongoing.

                                      F-66

<PAGE>



                     SABA PETROLEUM COMPANY AND SUBSIDIARIES
         SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES
                                   (UNAUDITED)

Estimated Proved Reserves

Estimates of the Company's proved developed and undeveloped oil and gas reserves
for its  working  and  royalty  interest  wells  were  prepared  by  independent
engineers.  The  estimates  are  based  upon  engineering  principles  generally
accepted  in the  petroleum  industry  and take into  account the effect of past
performance and existing economic  conditions.  Reserve estimates vary from year
to year because they are based upon judgmental  factors involved in interpreting
and  analyzing  production  performance,  geological  and  engineering  data and
changes in prices, operating costs and other economic, regulatory, and operating
conditions.  Changes  in such  factors  can  have a  significant  impact  on the
estimated  future  recoverable  reserves  and  estimated  future net  revenue by
changing the economic lives of the  properties.  Proved  undeveloped oil and gas
reserves  include  only those  reserves  which are  expected to be  recovered on
undrilled acreage from new wells which are reasonably certain of production when
drilled,  or from presently  existing wells which could require relatively major
expenditures  to effect  recompletion.  Presented  below is a summary  of proved
reserves of the Company's oil and gas properties:

<TABLE>

                                                     United States       Canada (1)          Colombia           Total
                                                    -------------       ----------          --------           -----
<S>                                                 <C>                 <C>                 <C>                <C>
  Year Ended December 31, 1998

  Oil (Barrels)
  Proved Reserves:


        Beginning of year                             10,550,203            806,700        12,568,182        23,925,085

        Acquisition, exploration and
        development of minerals in place                 278,429                  -                 -           278,429

        Revisions of previous estimates              (3,825,390)          (210,793)       (3,685,077)       (7,721,260)

        Production                                     (964,613)           (67,007)         (823,361)       (1,854,981)

        Sales of minerals in place                     (474,195)          (248,300)                 -         (722,495)
                                                       ---------          ---------        ----------         ---------

        End of year                                    5,564,434            280,600         8,059,744        13,904,778
                                                       =========            =======         =========        ==========

  Proved developed reserves, end of year               3,756,848            177,600         4,501,423         8,435,871
                                                       =========            =======         =========         =========



  Gas (thousands of cubic feet) Proved Reserves:


        Beginning of year                             20,310,456         10,984,000                 -        31,294,456

        Acquisition, exploration and
        development of minerals in place               1,298,845                  -                 -         1,298,845

        Revisions of previous estimates                  610,050        (4,132,701)                 -       (3,522,651)

                                      F-67
<PAGE>

        Production                                   (1,628,495)          (614,399)                 -       (2,242,894)

        Sales of minerals in place                    (3,673,391          (156,600)                 -       (3,829,991)
                                                      ----------          ---------        ----------       -----------

        End of Year                                   16,917,465          6,080,300                 -        22,997,765
                                                      ==========          =========        ==========        ==========

  Proved developed reserves, end of year               8,863,795          2,254,500                 -        11,118,295
                                                       =========          =========        ==========        ==========

(1) see reference (1) on page F-70


                                                     United States       Canada (1)         Colombia            Total
                                                     -------------       ----------         --------            -----
<S>                                                  <C>                 <C>                <C>                 <C>
  Year Ended December 31, 1997

  Oil (Barrels)
  Proved Reserves:


        Beginning of year                               16,151,058          920,800         9,607,067          26,678,925

        Acquisition, exploration and
        development of minerals in place                 4,200,193            9,640         1,600,225           5,810,058

        Revisions of previous estimates                (6,139,246)         (24,055)         2,247,541         (3,915,760)

        Production                                     (1,120,645)         (99,685)         (886,651)         (2,106,981)

        Sales of minerals in place                     (2,541,157)                -                 -         (2,541,157)
                                                       -----------        ---------         ---------         -----------

        End of year                                     10,550,203          806,700        12,568,182          23,925,085
                                                        ==========          =======        ==========          ==========

  Proved developed reserves, end of year                 8,048,356          603,600         7,964,016          16,615,972
                                                         =========          =======         =========          ==========



  Gas (thousands of cubic feet) Proved Reserves:


        Beginning of year                               13,113,965       10,551,000                 -          23,664,965

        Acquisition, exploration and
        development of minerals in place                13,337,886        1,190,546                 -          14,528,432

        Revisions of previous estimates                (4,477,286)         (23,832)                 -         (4,501,118)

        Production                                     (1,673,914)        (733,714)                 -         (2,407,628)

        Sales of minerals in place                           9,805                -                 -               9,805
                                                       -----------       ----------         ---------         -----------

        End of Year                                     20,310,456       10,984,000                 -          31,294,456
                                                        ==========       ==========         =========         ===========

  Proved developed reserves, end of year                13,988,220        3,412,000                 -          17,400,220
                                                        ==========        =========         =========         ===========
                                      F-68
<PAGE>


                                                    United States       Canada (1)          Colombia             Total
                                                    -------------       ----------          --------             -----
<S>                                                 <C>                 <C>                 <C>                <C>
  Oil (Barrels)
  Proved Reserves:


        Beginning of year                               6,562,595          926,200           5,042,502          12,531,297

        Acquisition, exploration and
        development of minerals in place                4,501,828          103,837                   -           4,605,665

        Revisions of previous estimates                 5,950,525           24,771           5,595,772          11,571,068

        Production                                      (803,070)        (134,008)         (1,031,207)         (1,968,285)

        Sales of minerals in place                       (60,820)                -                   -            (60,820)
                                                         --------         --------         ----------             --------

        End of year                                    16,151,058          920,800           9,607,067          26,678,925
                                                       ==========          =======           =========          ==========

  Proved developed reserves, end of year                7,993,854          710,000           4,692,140          13,395,994
                                                        =========          =======           =========          ==========



  Gas (thousands of cubic feet) Proved Reserves:


        Beginning of year                               9,103,049       10,376,000                   -          19,479,049

        Acquisition, exploration and
        development of minerals in place                4,186,184          924,033                   -           5,110,217

        Revisions of previous estimates                 1,046,326           48,213                   -           1,094,539

        Production                                    (1,089,576)        (561,042)                   -         (1,650,618)

        Sales of minerals in place                      (132,018)        (236,204)                   -           (368,222)
                                                        ---------        ---------          ----------           ---------

        End of Year                                    13,113,965       10,551,000                   -          23,664,965
                                                       ==========       ==========           ==========         ==========

  Proved developed reserves, end of year               11,520,707        2,654,000                   -          14,174,707
                                                       ==========        =========           ==========         ==========

</TABLE>

                                      F-69
<PAGE>


(1) see reference (1) on page F-68


(1)      The proved  reserve  information  on December 31,  1998,  1997 and 1996
         includes the  following  proved  reserve  amounts  attributable  to the
         approximately 26% minority  interest  ownership by unrelated parties in
         Beaver Lake Resources Corporation.


                                               1998         1997         1996
                                         ----------   ----------   ----------

Oil (Bbls) ...........................       72,495      208,417      236,911

Gas (Mcf) ............................    1,570,888    2,837,793    2,714,646

Barrels of oil equivalent (BOE) ......      334,310      681,382      689,352

Standardized measure of
      discounted future net cash flows   $1,095,738   $2,351,565   $2,840,628


Standardized  Measure of  Discounted  Future Net Cash Flows and Changes  Therein
Relating to Proved Oil and Gas Reserve

The following  information at December 31, 1998, 1997 and 1996 has been prepared
in accordance  with  Statement of Financial  Accounting  Standards No. 69, which
requires  the  standardized  measure of  discounted  future net cash flows to be
based on sales  prices in effect at  year-end,  costs and  statutory  income tax
rates in effect at the time the  projections  are made and a 10 percent per year
discount rate. The projections  should not be viewed as estimates of future cash
flows nor  should the  standardized  measure"  be  interpreted  as  representing
current value to the Company (dollars in thousands).


                                      F-70
<PAGE>

<TABLE>


December 31, 1998                  United States   Canada (1)  Colombia     Total
-----------------                  -------------   ----------  --------     -----
<S>                               <C>             <C>          <C>          <C>
Future cash inflows                   $ 76,773      $ 13,407   $ 56,853   $ 147,033
Future production costs                (35,593)       (5,144)   (40,617)    (81,354)
Future development costs               (16,826)       (1,307)    (8,256)    (26,389)
Future income tax expenses                   -          (312)         -        (312)
                                        ------         -----     ------       -----

Future net cash flows                   24,354         6,644      7,980      38,978
10 percent annual discount for
 estimated timing of cash flows         (9,143)       (2,403)    (4,307)    (15,853)
                                        ------        ------     ------     -------

Standardized measure of discounted
 future net cash flows                $ 15,211      $  4,241   $  3,673   $  23,125
                                       =======       =======    =======    ========

December 31, 1997

Future cash inflows                   $184,240      $ 30,826   $167,418    $382,484
Future production costs                (87,803)      (11,639)   (71,327)   (170,769)
Future development costs               (18,263)       (1,604)    (8,269)    (28,136)
Future income tax expenses             (15,773)       (4,307)   (36,022)    (56,102)
                                      --------        ------    -------     -------

Future net cash flows                   62,401        13,276     51,800     127,477
10 percent annual discount for
 estimated timing of cash flows        (16,572)       (4,174)   (16,878)    (37,624)
                                      --------       --------   -------     -------

Standardized measure of discounted
 future net cash flows               $  45,829       $ 9,102    $34,922     $89,853
                                      ========        ======     ======      ======

(1) see reference (1) on page F-68


December 31, 1996                     United States   Canada (1)    Colombia   Total
-----------------                     -------------   ----------    --------   -----
<S>                                   <C>             <C>          <C>         <C>
Future cash inflows                    $  324,206     $  39,985     $157,552  $521,743
Future production costs                  (143,964)      (13,247)     (63,458) (220,669)
Future development costs                  (24,432)         (587)     (22,153)  (47,172)
Future income tax expenses                (36,539)       (9,529)     (22,172)  (68,240)
                                          -------        ------      -------   -------

Future net cash flows                     119,271        16,622       49,769   185,662
10 percent annual discount for
 estimated timing of cash flows           (45,942)       (5,581)     (17,650)  (69,173)
                                          -------        ------      -------   -------

Standardized measure of discounted
 future net cash flows                  $  73,329      $ 11,041     $ 32,119   $116,489
                                         ========       =======      =======    =======

The following are the principal  sources of changes in the standardized  measure
of  discounted  future net cash flows  during  1998,  1997 and 1996  (dollars in
thousands).

                                      F-71
<PAGE>




December 31, 1998          United States    Canada (1)        Colombia           Total
-----------------          -------------    ----------        ---------        --------
<S>                        <C>              <C>               <C>              <C>
Balance at beginning of year     $45,829    $     9,102       $34,923         $89,854
Acquisitions, discoveries
 and extensions                    1,263              -             -           1,263
Sales and transfers of oil
 and gas produced, net of
 production costs                 (2,841)          (479)       (2,761)         (6,081)
Changes in estimated future
 development costs                (5,805)           228          (412)         (5,989)
Net changes in prices, net of
 production costs                (20,970)        (2,077)      (45,030)        (68,077)
Sales of reserves in place        (4,391)        (1,540)            -          (5,931)
Development costs incurred
 during the period                   330              -         1,216           1,546
Changes in production rates
 and other                         4,586           (236)       (7,360)         (3,010)
Revisions of previous
 quantity estimates              (13,550)        (3,280)       (4,830)        (21,660)
Accretion of discount              5,144          1,640         5,714          12,498
Net change in income taxes         5,616            883        22,213          28,712
                                --------           ----        ------          ------
Balance at end of year         $  15,211       $  4,241      $  3,673        $ 23,125
                                 =======        =======       =======          ======

(1) see reference (1) on page F-68


December 31, 1997             United States  Canada (1)    Colombia        Total
                                ---------    ---------    ---------    ---------
<S>                             <C>          <C>          <C>          <C>
Balance at beginning of year    $  73,329    $  11,041    $  32,119    $ 116,489
Acquisitions, discoveries
 and extensions .............      31,593          726        8,368       40,687
Sales and transfers of oil
 and gas produced, net of
 production costs ...........     (10,497)      (1,254)      (5,611)     (17,362)
Changes in estimated future
 development costs ..........       9,920       (1,108)       9,231       18,043
Net changes in prices, net of
 production costs ...........     (51,463)      (4,739)     (15,151)     (71,353)
Sales of reserves in place ..      (4,314)        --           --         (4,314)
Development costs incurred
 during the period ..........       1,601           70         (719)         952
Changes in production rates
 and other ..................      (9,298)        (927)       2,076       (8,149)
Revisions of previous
 quantity estimates .........     (20,764)        (126)       9,761      (11,129)
Accretion of discount .......       9,515        1,540        4,471       15,526
Net change in income taxes ..      16,207        3,879       (9,622)      10,464
                                ---------    ---------    ---------    ---------
Balance at end of year ......   $  45,829    $   9,102    $  34,923    $  89,854
                                =========    =========    =========    =========
</TABLE>

                                      F-72
<PAGE>



December 31, 1996

Balance at beginning of year    $  19,234    $   7,393    $  12,438   $  39,065
Acquisitions, discoveries
 and extensions .............      43,988        1,604         --        45,592
Sales and transfers of oil
 and gas produced, net of
 production costs ...........      (7,590)      (1,845)      (7,605)    (17,040)
Changes in estimated future
 development costs ..........     (15,038)       2,430      (16,233)    (28,841)
Net changes in prices, net of
 production costs ...........      14,951        5,680       20,390      41,021
Sales of reserves in place ..        (667)         (77)        --          (744)
Development costs incurred
 during the period ..........         330          120         --           450
Changes in production rates
 and other ..................          16         (490)      (2,236)     (2,710)
Revisions of previous
 quantity estimates .........      32,023          436       32,781      65,240
Accretion of discount .......       2,467          748        1,601       4,816
Net change in income taxes ..     (16,385)      (4,958)      (9,017)    (30,360)
                                ---------    ---------    ---------   ---------
Balance at end of yea .......   $  73,329    $  11,041    $  32,119   $ 116,489
                                =========    =========    =========   =========

(1) see reference (1) on page F-68


                                      F-73

<PAGE>





                                   SIGNATURES

       In  accordance  with  Section  13 or  15(d)  of  the  Exchange  Act,  the
  registrant  has  caused  this  report  to be  signed  on  its  behalf  by  the
  undersigned, thereunto duly authorized.


                                   GREKA ENERGY CORPORATION



  Dated: September 17, 1999    By:/s/ Randeep S. Grewal
                                  ----------------------------------------
                                  Randeep S. Grewal, Chairman of the Board
                                  and Chief Executive Officer


       In accordance with the Exchange Act, this report has been signed below by
  the following persons on behalf of the registrant and in the capacities and on
  the dates indicated.

       Signature                Title                         Date


  /s/ Randeep S. Grewal
  ---------------------
  Randeep S. Grewal        Chairman of the Board of         September 17, 1999

                           Directors and Chief
                           Executive Officer
                           (Principal Executive
                           Officer, Financial Officer
                           and Accounting Officer)

  /s/ Dr. Jan F. Holtrop
  ----------------------
  Dr. Jan F. Holtrop       Director                         September 17, 1999


  /s/ Dirk Van Keulen
  ----------------------
  Dirk Van Keulen          Director                         September 17, 1999


  /s/ George C. Andrews
  ----------------------
  George C. Andrews        Director                         September 17, 1999


  /s/ Dai Vaughan
  ----------------------
  Dai Vaughan              Director                         September 17, 1999




<PAGE>
                                                                    Exhibit 23.1

  Arthur Andersen LLP


                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

       As independent public accountants, we hereby consent to the incorporation
  of   our   reports   included   in   this   Form   10-K   into   Greka  Energy
  Corporation's  previously filed  registration  statements (File Nos. 333-60621
  and 333-78673).

  /s/ Arthur Andersen LLP


  New York, New York
  September 16, 1999



<PAGE>



                                                                    Exhibit 23.2

  Bateman & Co., P.C.


               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

       We consent to the  inclusion in this amended  Annual  Report on Form 10-K
  for the year ended  December  31,  1998,  which report will upon its filing be
  incorporated  by  reference  into  Greka  Energy  Corporation's   registration
  statements  on Form S-3 (File Nos.  333-60621  and  333-78673),  of our report
  dated April 14, 1998, on our audits of the consolidated  financial  statements
  of  Greka  Energy  Corporation,  formerly  known as Petro  Union,  Inc.  doing
  business as  Horizontal  Ventures Inc. as of December 31, 1997 and for each of
  the two years in the period ended December 31, 1997.

                                                          /s/Bateman & Co., P.C.
                                                             -------------------
                                                             Bateman & Co., P.C.

  Houston, Texas
  September 16, 1999



<PAGE>


                                                                   Exhibit 23.3

  Netherland, Sewell & Associates, Inc.


            CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS

     We hereby  consent  to  references  to our firm in the form and  context in
which they  appear in the  amended  Annual  Report on Form 10-K of GREKA  Energy
Corporation  for the year ended December 31, 1998. We hereby further  consent to
the use of information contained in our reports, as of January 1, 1997, 1998 and
1999 setting forth the Saba  Petroleum  Company oil and gas reserves and revenue
estimates for the United States and Colombia and to the use of information  from
our report dated April 5, 1999, setting forth the Horizontal Ventures,  Inc. oil
and gas reserves and revenue  estimates,  as of January 1, 1999,  for Cat Canyon
Field  in  California.  We  understand  the oil and  gass  assets  owned by Saba
Petroleum Company and Horizontal  Ventures,  Inc. were merged on March 24, 1999,
to form GREKA Energy  Corporation.  We further consent to the  incorporation  by
reference  thereof into GREKA Energy  Corporation's  registration  statements on
Form S-3 (File Nos. 333-60621 and 333-78673).

                                     Netherland, Sewell & Associates, Inc.

                                     By: /s/ Frederic D. Sewell
                                             -----------------------
                                             Frederic D. Sewell
                                             President

  Dallas, Texas
  September 20, 1999



<PAGE>
                                                                    Exhibit 23.4

  Sproule Associates Limited

  September 16, 1999


  Greka Energy Corporation
  630 Fifth Avenue, Suite 1501
  New York, New York 10111

       Re: Evaluation of the P&NG Reserves of Beaver Lake
           Reserves Corporation, as of January 1, 1999

  Dear Sirs:

       Sproule  Associates Limited hereby consents to being named in the amended
  Annual Report on Form 10-K of Greka Energy Corporation,  which upon its filing
  will be incorporated by reference into Greka Energy Corporation's registration
  statements on Form S-3, File Nos. 333-60621 and 333-78673.

       We confirm that we have read excerpts from the draft document and that we
  have no  reason  to  believe  that  there  are any  misrepresentations  in the
  information contained therein that is derived from our Report.

                                     Sincerely,


                                     /s/R.K. MacLeod
                                        --------------------------
                                        R. K. MacLeod, Eng.
                                        Vice-President, Engineering
                                        U.S. and International




<PAGE>


                                                                    Exhibit 23.5
  PricewaterhouseCoopers LLP


                       CONSENT OF INDEPENDENT ACCOUNTANTS

       We  consent  to  the  incorporation  by  reference  in  the  registration
  statements of Greka Energy  Corporation's on Form S-3 (File Nos. 333-60621 and
  333-78673) of our report,  which contained an explanatory  paragraph regarding
  Saba Petroleum  Company's ability to continue as a going concern,  dated April
  15,  1998,  on our audits of the  consolidated  financial  statements  of Saba
  Petroleum Company as of December 31, 1997 and for the years ended December 31,
  1997 and 1996,  which report is included in this amended Annual Report on Form
  10-K.

  /s/PricewaterhouseCoopers LLP
     ---------------------------

  Los Angeles, California
  September 21, 1999