U.S. Securities and Exchange Commission

                             Washington, D.C. 20549


                                    Form 10-K
                                 Amendment No. 2


(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, 1999

[  ]      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-K or any
amendment to this Form 10-K. [X]

The issuer's revenues for 1999 were $29,137,810.

The  aggregate  market  value  of  2,476,853  shares  of  common  stock  held by
non-affiliates of the issuer, based on the closing bid price of the common stock
on April 13, 2000 of $7.875 as reported on the Nasdaq National Market System and
based  on a total  of  4,339,940  shares  being  outstanding  on that  date  was
$19,505,217.

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


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 [ ]




<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

 Part III is  incorporated  by  reference to the Company  proxy  statement to be
filed within 120 days of its year end.

           Transitional Small Business Disclosure Format (check one).

                               Yes [ ]   No [X]
<TABLE>
<CAPTION>

                                Table of Contents

<S>           <C>                                                                                     <C>
PART I...................................................................................................4
Item 1.       Description of Business....................................................................4
Item 2.       Description of Property...................................................................18
Item 3.       Legal Proceedings.........................................................................30
Item 4.       Submission of Matters to a Vote of Security Holders.......................................31
PART II.................................................................................................31
Item 5.       Market for Common Equity and Related Stockholder Matters..................................31
Item 6.       Selected Financial Data...................................................................33
Item 7.       Management's Discussion and Analysis of Financial Conditions and Results of Operation.....33
Item 7A.      Quantitative and Qualitative Disclsoures About Market Risk................................37
Item 8.       Financial Statements......................................................................37
Item 9.       Changes  in  and  Disagreements  With  Accountants  on  Accounting  and Financial
              Disclosure................................................................................37
PART III................................................................................................37
Item 10.      Directors, Executive Officers, Promoters and Control Persons; Compliance With
              Section 16(a) of the Exchange Act.........................................................37
Item 11.      Executive Compensation....................................................................37
Item 12.      Security Ownership of Certain Beneficial Owners and Management............................37
Item 13.      Certain Relationships and Related Transactions............................................37
Part IV.................................................................................................39
Item 14.      Exhibits and Reports on Form 8-K..........................................................39



</TABLE>



<PAGE>

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.

         As used in this Form 10-K:

         "Mcf" means thousand cubic feet, "MMcf" means million cubic feet, "Bcf"
means billion cubic feet,  "Tcf" means trillion cubic feet,  "Bbl" means barrel,
"MBbls" means  thousand  barrels,  "MMBbls" means million  barrels,  "BOE" means
equivalent  barrels of oil, "MBOE" means thousand  equivalent barrels of oil and
"MMBOE" means million equivalent barrels of oil.

         Unless otherwise indicated in this Form 10-K, gas volumes are stated at
the legal  pressure  base of the state or area in which the reserves are located
and at 60/o/  Fahrenheit.  Equivalent  barrels of oil are  determined  using the
ratio of 5.56 Mcf of gas to 1 Bbl of oil.

         The term  "gross"  refers  to the  total  acres  or wells in which  the
Company  has a  working  interest,  and  "net"  refers  to gross  acres or wells
multiplied  by the  percentage  working  interest  owned  by the  Company.  "Net
production"  means  production  that is owned by the Company less  royalties and
production due others.

                                       1
<PAGE>



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.  All
statements,   other  than  statements  of  historical  facts,   included  in  or
incorporated by reference into this Form 10-K which address  activities,  events
or developments  which the Company expects,  believes or anticipates will or may
occur in the  future  are  forward-looking  statements.  The  words  "believes,"
"intends," "expects,"  "anticipates,"  "projects,"  "estimates,"  "predicts" and
similar  expressions are also intended to identify  forward-looking  statements.
These forward-looking statements include, among others, statements concerning:

*    the benefits expected to result from GREKA's  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 as a result of the Saba acquisition, and
*    the  complementary  nature of GREKA's  horizontal  drilling  technology and
     certain oil reserves acquired with the acquisition of Saba, 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 timing, amount and
     nature thereof),
*    drilling and reworking 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,
*    oil, gas and asphalt prices and demand,
*    exploitation and exploration prospects,
*    expansion and other development trends of the oil and gas industry, and
*    expansion and growth of business operations.

     These statements are based on certain  assumptions and analyses made by the
management of GREKA in light of its  experience and its perception of historical
trends,  current  conditions and expected  future  developments as well as other
factors it believes are appropriate in the circumstances.

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

*    the financial environment,
*    general economic, market and business conditions,
*    the regulatory environment,
*    business opportunities that may be presented to and pursued by GREKA,
*    changes in laws or regulations
*    exploitation and exploration successes,
*    availability to obtain additional financing on favorable conditions,
*    trend projections, and
*    other factors, many of which are beyond GREKA's control,

                                       2

<PAGE>

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 and risk factors
discussed  from time to time in the Company's  filings with the  Securities  and
Exchange Commission.

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

*    the inability of GREKA to obtain financing for capital expenditures and
     acquisitions,
*    declines in the market prices for oil, gas and asphalt,  and
*    adverse changes in the regulatory environment affecting GREKA.

         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 or persons acting on its
or their  behalf.  GREKA  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.


















                                       3
<PAGE>



                                     PART I

Item 1.    Description of Business

Overview of GREKA Energy Corporation

         GREKA  Energy  Corporation,  a  Colorado  corporation  ("GREKA"  or the
"Company") is an independent  integrated  energy  company  committed to creating
shareholder  value by capitalizing on consistent cash flow hedged from oil price
fluctuations  within  integrated  operations,  exploiting E&P  opportunities and
penetrating new niche markets utilizing proprietary  technology with an emphasis
on low cost short radius horizontal drilling technology patented by BP Amoco and
licensed  to  GREKA  .  GREKA  has  oil  and  gas  production,  exploration  and
development  activities in North America and the Far East, with primary areas of
activity  in  California,  Louisiana,  and China.  In  addition,  GREKA owns and
operates an asphalt refinery in California through a wholly-owned subsidiary.

     As of December 31, 1999,  the Company had estimated net proved  reserves of
approximately 14,614 MBOE with a PV-10 value before tax of $73.3 million. During
1999,  the Company  added an estimated net proved  producing  reserves of 10,108
MBOE at an average finding cost of $1.81 per BOE.  During the period  commencing
May 1, 1999, when GREKA'S subsidiary assumed full operation of its refinery, the
throughput  averaged  4,000  BBL per day  with  the  Company's  present  goal of
reaching  full plant  capacity  of 10,000  BBL per day by year end 2001.  Of the
current   throughput,   the   Company's   subsidiaries   supply  an  average  of
approximately 36%, or 1200 BBL per day, from their production in California, and
the subsidiary plans to increase its feed stock to 2,000 BBL per day by December
31, 2000.

           The principal offices of the Company are located at 630 Fifth Avenue,
Suite 1501, New York, New York 10111 and its telephone number is (212) 218-4680.

Business Strategy

     GREKA's objective is to build shareholder value through consistent economic
growth  both in the  increased  throughput  at its asphalt  refinery  and in the
growth of its reserves and production  thereby creating an increase in net asset
value per  share,  cash flow per share and  earnings  per share.  Management  is
focused on a balanced program of low to medium risk exploitation and development
of its existing reserves utilizing its low cost horizontal short radius drilling
technology  licensed from BP Amoco. This is balanced by rapid growth through the
acquisition of synergistic  businesses  such as the Saba  acquisition  concluded
during the first quarter of 1999. All asset and capital investment decisions are
measured and ranked by their risk-adjusted impact on per share value.

         GREKA has  established a three prong  strategy that  capitalizes on its
asset base to enhance shareholder value as follows:

         Integrated Hedged Operations

     Hedged  operations of GREKA are planned to focus on the  integration of its
subsidiaries' Santa Maria (California) assets,  including an asphaltrefinery and
interest in heavy oil fields.  The hedged  operations are targeted to capitalize
on the stable  asphalt market in California by providing a balance of equity and
third party  feedstock  (heavy oil) into the refinery.  The  integration  of the
refinery (100% owned) with the interests in the heavy oil producing fields (100%
working  interest)  has  successfully  provided a stable  hedge to GREKA on each
equity barrel (since June 1999).  GREKA's strategy in these integrated assets is
two-fold:

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

2.   GREKA intends to implement the  proprietary  BP 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.

                                       4

<PAGE>

The two actions are targeted to increase  throughput  into the refinery from the
highest  rate  during  1999 of  approximately  4,500  barrels  per day to 10,000
barrels per day by year end 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  's
shareholders.

         Exploitation, Exploration & Production

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

         BP Amoco Horizontal Drilling Technology

         GREKA 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.

     Significant  and lucrative  markets exist for the  application of the niche
technology for GREKA'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 to  acquire  such  fields  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 has found that
California  is  a  unique   opportunity   due  to  its  stringent  new  drilling
regulations.  GREKA'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 owners which,  rather than attempt a costly  endeavor to
drill new wells in urban  areas,  choose  to sell  their oil and gas  interests.
GREKA intends to pursue such opportunities.

Business Development of GREKA

         GREKA Energy  Corporation was formed in 1988 as a Colorado  corporation
under the name of Kiwi III,  Ltd. On May 13,  1996,  GREKA , then known as Petro
Union, Inc., filed a voluntary petition for relief pursuant to Chapter 11 of the
United States  Bankruptcy Code.  Current GREKA management  acquired Petro Union,
Inc. and  simultaneously  procured on August 28, 1997, an order confirming Petro
Union's First Amended Plan of  Reorganization  from the Bankruptcy Court for the
Southern District of Indiana. The bankruptcy court approved the final accounting
and closed the bankruptcy proceedings on March 26, 1998.

         During  1998,  management  of GREKA  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  implementing  its strategic niche growth plan.
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'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 of the Saba  acquisition,
GREKA's  management and staff devoted a substantial amount of time and effort to
the acquisition.

                                       5

<PAGE>

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

         Immediately subsequent to the completion of the acquisition, management
commenced  its strategy to reverse the decline in value of the Saba assets which
resulted in the following material events:

         *        In May 1999, the Company's  subsidiary  assumed full operation
of its  asphalt  refinery  which  significantly  increased,  and is  expected to
continue to increase, operating cash flows.

         *        Also in May 1999, the Company's subsidiaries secured financing
with a new bank, BNY Financial  Corporation  ("BNY"),  for $11 million which was
later increased to $12 million in September 1999.

         *        Further in May 1999, the Company's  subsidiary paid $6 million
to Bank One Texas,  N.A.  ("Bank One") to reduce the debt owed by Saba which was
in default since 1998.

         *        In  June 1999,  the  Company's  subsidiary  sold its  non-core
assets in Colombia,  further reducing its debt by $10 million while  maintaining
upside  potential  through  either a repurchase  option which has recently  been
exercised or a court order directing rescission of the sale.

         *        In July 1999, the Company  completed the acquisition of all of
the Beaver  Lake  Resources  Corporation  (the owner of the  Company's  Canadian
assets)  shares it did not already  own,  thereby  privatizing  Beaver Lake as a
wholly owned subsidiary.

         *        In  August  1999,  the  Company  entered  into a term sheet to
restructure Saba's 9% senior subordinated debentures.

         *        Also  in August 1999, the Company  released record earnings of
$0.27 per share for the  second  quarter  1999  which was the first  opportunity
since the  acquisition  of Saba that the Company  recognized  a full three month
reporting  period of earnings  resulting from the successful  implementation  of
management's business plan.

         *        Also  in August 1999,  the Company's  subsidiary  emerged from
voluntary bankruptcy  following  consummation of the sale of its non-core assets
in Colombia.

         *        Further  in August 1999,  the  Company's  subsidiary  signed a
production  sharing  contract with the China United Coalbed Methane  Corporation
Ltd. to jointly exploit coalbed methane (CBM) resources in China.

         *        In  September  1999, the Company filed with the Securities and
Exchange  Commission  an amendment  to its annual  report on Form 10-KSB for the
year  ending  December  31,  1998  which  included  the  revised  opinion of the
Company's  independent  auditors  withdrawing  their  previous  doubt  as to the
ability of the Company to continue as a going concern,  after  consideration  of
the Company's  refinancing  transactions  and the Company's  improvements in the
operations and financial position as a whole.

         *        In  November  1999,  the  Company's  subsidiaries  closed  the
financing of a $35 million  facility with GMAC Commercial  Credit LLC to provide
financing to reduce current liabilities and for future acquisitions.

         *        Also  in  November  1999,  the  Company's  subsidiary  made an
additional  payment of $11.2  million to Bank One to reduce the  defaulted  debt
owed by Saba.

                                       6

<PAGE>

         *        Also  in November 1999, the Company  reported  record earnings
for the third  quarter of $.33 per share  which  principally  resulted  from the
success of management's hedging strategy  attributable to the integration of its
Santa Maria assets, including the asphalt refinery and heavy oil fields.

         *        Further  in November 1999,  the Company  adopted a shareholder
rights plan to preserve the long-term value of the Company for its shareholders.

         *        In  December  1999,  the  Company  announced  that its  shares
commenced trading on the Nasdaq National Market System.

Acquisition Activities

         Acquisition of Saba Petroleum Company

         During the first quarter of 1999, the Company completed the acquisition
of Saba  Petroleum  Company  which was  effective  as of March 24,  1999.  GREKA
believes  that the  acquisition  of Saba  represented  a unique  opportunity  to
capitalize on substantial oil and gas properties which are  particularly  suited
to exploitation by GREKA 's horizontal drilling  technology.Through  open-market
purchases   conducted  by  the  Company  in  conjunction   with  its  affiliate,
International Publishing Holdings (IPH), the direct purchase of Saba shares from
Saba and the  acquisition  of what the Company  believed was a control  block of
Saba shares from Saba's largest shareholder,  the Company acquired a roughly 27%
stake in Saba prior to the end of 1998.  At  approximately  the same  time,  the
Company  entered  into a merger  agreement  with Saba which was  approved by the
shareholders  on March 19, 1999  resulting in the merger of Saba with and into a
wholly owned subsidiary of GREKA effective March 24, 1999 whereby, at a ratio of
1 share of GREKA  common  stock  for every 6 shares of Saba  common  stock,  the
Company issued approximately 1.24 million shares of its common stock.

         Privatization of Beaver Lake Resources Corporation

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

         Assumption of Full Operations at Refinery

     In May 1999,  GREKA 's subsidiary  assumed all  marketing and  distribution
operations  at its  refinery in Santa  Maria,  California  that were  previously
performed by a third party under a processing  agreement  terminated by GREKA 's
subsidiary.  Under the terms of this  agreement,  each party had been  receiving
approximately  fifty  percent  of the net  income  from  the  refinery,  and the
subsidiary  had only  recognized and reported its fifty percent share of the net
profits.  Since  termination of the processing  agreement,  GREKA recognizes and
reports one hundred  percent of the refinery  revenues and expenses,  as well as
increased  operating  cash  flows as a result  of  assuming  the  marketing  and
distribution operations.

Divestiture Activities

         Sale of Non-Core Colombian Assets

     In April 1999, a subsidiary  of the Company and Omimex  Resources,  Inc., a
privately-held oil and gas company which then operated a substantial  portion of
Saba's producing properties, entered into an agreement to sell substantially all
of the assets of the subsidiary in exchange for  consideration of at least $10.0
million  consisting of cash,  interests in oil and gas  producing  properties in
California,  and full release of the related debts. The agreement,  which closed
in June 1999,  provides for the payment of additional  consideration  to GREKA'S
Subsidiary.  If the  reserves  sold at  January 1, 1999 when  re-evaluated  with
fourth quarter 1999 prices had certain  variances to the calculation  done prior
to the sale in June  1999,  additional  consideration  is owed to the  Company's
subsidiary.  If the  differential  were $5  million or less,  by March 31,  2000
Omimex had to pay such amount to the  subsidiary  in cash or, upon  non-payment,
reassign to the subsidiary the 50% interest in the  Velasquez-Galan  pipeline in
Colombia  sold by the  subsidiary to Omimex . If the  differential  were greater
than  $5  million,  the  subsidiary  has the  option  through  May  31,  2000 of
repurchasing  for  approximately  $12  million  the  assets  sold to Omimex  and
reassigning to Omimex the California assets acquired from Omimex. If this option
had not been  exercised,  Omimex would have been obligated to pay the subsidiary
$5  million  in cash  or,  upon  non-payment,  reassign  to the  subsidiary  the
Velasquez-Galan pipeline.

                                       7

<PAGE>

     The sale was approved by the  bankruptcy  court in April 1999, and an order
dismissing the  subsidiary's  bankruptcy  case that was filed in 1998 to protect
the subsidiary pending the sale of its Colombian assets was entered by the court
in August 1999.

         In February 2000, GREKA announced that it had the option to re-purchase
the Colombian assets valued at approximately $65 million (PV-10) pursuant to the
Company's  calculations that the look-back provision is three times greater than
the required valuation  threshold.  In March 2000, GREKA further announced that,
subject to a court order directing  rescission of the sale, it had exercised its
option to re-purchase its Colombian  assets for an estimated cost of $12 million
which  will  result in the  Company's  receipt of assets  with a PV-10  value of
approximately $65 million at December 31, 1999  (approximately  $12.22 per share
outstanding). (See Item 3-"Legal Proceedings")

         Sale of Non-Core Limestone Property

     In April  1999,  the  Company and IPH closed an  agreement  with  Pembrooke
Calox,  Inc.  for the sale of the  Company'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 has not paid
any funds to the Company or IPH.  (See Item  3-"Legal  Proceedings")  As part of
this transaction, the Company paid Pembrooke $50,000 and issued 16,736 shares of
Common Stock following the filing of a registration statement on May 17, 1999.

         Sale of Non-Core Canadian Assets

         In July  and  August  1999,  GREKA's  subsidiary,  BLRC,  sold  certain
Canadian oil and gas interests for an aggregate contract price of $915,000.

         Sale of Mid-Continent Assets

     In January 1999, a purchase  agreement  entered into by Saba to sell all of
the  outstanding  stock of a subsidiary  of Saba's,  but  excluding  oil and gas
property interests in the Potash Field located in Louisiana for a contract price
of $6.25 million was terminated. Concurrently, a purchase and sale agreement was
entered into by the subsidiary to sell all of its 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 the  subsidairy
$1.5  million,  In February  1999,  the  agreement  was  terminated  for buyer's
non-performance.

     In April 1999, the same subsidiary entered into an agreement to sell all of
its 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.
(See Item 3-"Legal Proceedings")

                                       8
<PAGE>

Financing & Debt Restructuring Activities

         Bank Financing

         In  February  1999,  Bank  One  notified  Saba  that,  as a  result  of
continuing  defaults under Saba's principal credit facilities with Bank One, the
entire  amount  of $20.1  million  then  outstanding  under the  facilities  and
classified as currently payable was accelerated and declared immediately due and
payable. 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.

         In April 1999, GREKA and Bank One entered into a forbearance  agreement
whereby Bank One agreed to forebear  through June 11, 1999 from  exercising  its
various remedies for Saba's defaults under the Bank One loan agreements in order
to  afford  GREKA's  subsidiaries  the  opportunity  to  complete   contemplated
transactions on the condition that, among other things, each of the transactions
would be completed by June 11, 1999.

         In April  1999,  GREKA's  subsidiaries  procured  a loan  from BNY that
provided funds of up to $11 million under two credit facilities.  A term loan in
the amount of $6 million was funded  upon  closing,  the  proceeds of which were
used to  reduce  the  indebtedness  owed by Saba to Bank  One.  In  addition,  a
revolving  credit  facility  provided  advances for working  capital of up to $5
million against  eligible  receivables and inventory of the refinery.  The loans
are secured by real estate  interests  located in Santa  Maria,  California  and
certain assets owned by the Company's subsidiaries.

         In July 1999,  GREKA,  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  maintained  compliance  with certain
conditions  regarding  events of default,  made  timely  interest  payments  and
secured alternative financing to retire the Bank One indebtedness.

         In September 1999, the revolving credit facility with BNY that provided
advances  to GREKA's  subsidiaries  for  working  capital of up to $5.0  million
against  eligible  receivables and inventory of the Santa Maria asphalt refinery
was increased to $6.0 million,  raising the total  available  funds  acquired in
April 1999 under the  revolving  credit  facility and the reducing  term loan of
$6.0 million from $11.0 million to $12.0 million.

         In November 1999, the borrowers of the BNY credit facility entered into
a loan and security  agreement with GMAC  Commercial  Credit LLC ("GMAC").  That
agreement  amends the loan and security  agreement  the parties  entered into in
April  1999.  The  November  1999  agreement  increased  from $11 million to $35
million  the amount  which  GREKA's  subsidiaries  may borrow from GMAC upon the
satisfaction  of the  terms  and  conditions  of the  agreement.  The  financing
consists of a term loan of $25 million  and a revolving  credit  facility of $10
million.  Of the proceeds,  $11.2  million were used to reduce the  indebtedness
owed by Saba to Bank One.  The  financing  is secured  by GREKA's  subsidiaries'
interests in certain California oil and gas properties and real estate.

         IPH Loan

         In October 1998 and November  1998, the Company  borrowed  $500,000 and
$1,500,000,  respectively,  from IPH which matured December 31, 1999 pursuant to
several   extensions.   Effective   January  1,  2000,  the  loan  amounts  were
consolidated into a loan with a maturity date of June 30, 2000, bearing interest
at the rate of 9% per annum from January 1, 2000 payable quarterly, with monthly
installment payments of $100,000.  The Company paid $180,000 in consideration of
the loan extension.  If the entire unpaid  principal  and/or accrued interest is
not paid at maturity,  the amount of principal  owed and rate of increase  shall
increase. The loan is collateralized by all of the issued and outstanding shares
of capital stock of a subsidiary of the Company.

         Debentures

         In  February  1999,  GREKA  issued  convertible   senior   subordinated
debentures in the principal  amount of $1 million.  The debentures bear interest

                                       9
<PAGE>

at 15%  through  maturity  on  February  1,  2001,  and are  secured  by GREKA's
subsidiary's interest in limestone deposits.  The debentures may be converted by
the holders  into GREKA common  stock at any time from  February 1, 2000,  until
January  31, 2001 at a  conversion  price of $20.00 per share.  At December  31,
1999,  there were no conversions.  GREKA may call all or a portion of the amount
at any time during the term of the debenture by paying the principal  amount due
plus any accrued  interest.  The  principal use of proceeds from the sale of the
debentures was to provide funds to conclude the Saba acquisition.

         In July  and  August  1999,  GREKA  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 with interest at the rate of 9%,
maturing on December 31, 2005 with a right of GREKA 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 at any time.  The
conversion  price  offered by GREKA is 95% of the  average  closing bid price of
GREKA 's common  stock for the 30  consecutive  trading  days of GREKA's  common
stock ending one day prior to the date notice of conversion is received by GREKA
, but in no event less than $8.50 nor greater  than $12.50  per share.  Assuming
full conversion,  the minimum and maximum number of shares of GREKA common stock
issued would be 286,000 and 420,588,  respectively. The Company is acting as the
exchange  agent for the  issuance  of new GREKA  debentures,  the terms of which
include that, commencing August 1, 2000, each holder of GREKA's debentures shall
have the right  upon  written  notice  to GREKA 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'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 BP Amoco and licensed to
GREKA 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.

         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

                                       10
<PAGE>

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
BP 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 BP 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 BP 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  measurement  while  drilling  ("MWD")  tools.  The  system  is  purely
mechanical and very simple in design.

         The  BP   Amoco   bit  is  an   anti-whirl,   bi-center,   low-friction
poly-crystalline  diamond  ("PCD") bit.  Consistent and reliable angle build and
improved  directional  control  is a  result  of  stabilizing  the  PCD  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  cutter  chips  against  the bore hole  wall.  This
design  minimizes  the side cutting  action that is typically  observed with PCD
bits and results in consistent well bore diameter.

         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  PCD bit to achieve a smooth well bore and obtain  fairly  consistent
responses. Of the two lateral assemblies, one is engineered for gentle rise with
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.

                                       11
<PAGE>

         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  considers  this  proprietary  technology a leading
edge and a ground floor  opportunity as a producer.  GREKA  management  believes
that  through  the   utilization  of  this  system  GREKA  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  anticipates that the economics of this
system will be improved.  Management of GREKA believes that potential zones such
as shale  gas and  coalbed  methane  that  contain  trillions  of cubic  feet of
untapped reserves in the United States and China are candidates for short radius
horizontal drilling technology.

Marketing

         Marketing of Asphalt Refinery Production

         GREKA'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. No one customer accounted for more than ten percent

of the Company's sales of North American refinery  production during 1999 except
Granite Construction, Lawson Rock and Oil, and Union Asphalt Company.

         GREKA 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.
Prices for asphalt  exceed  market  prices for crude and costs of operating  the
refinery. GREKA believes that as road building and repair increase in California
and   surrounding   western   states,   the  market  for  asphalt   will  expand
significantly.

         GREKA's  subsidiary  markets two principal  products from its refinery:
liquid asphalt and light-end products (gas oil, naphtha and distillates). Liquid
asphalt,  which accounted for approximately 65% of total refinery  production in
1999, is marketed by GREKA's subsidiary primarily in California. While liquidate
asphalt is principally used for road paving and manufacturing  roofing products,
all of the  liquid  asphalt  sold by  GREKA's  subsidiary  is used for  pavement
applications.  Paving grade liquid asphalt is sold by GREKA's  subsidiary to hot
mix asphalt  producers,  material supply  companies,  contractors and government
agencies.

                                       12
<PAGE>

         These customers further treat the liquid asphalt which is used for road
paving.  In addition to conventional  paving grade asphalt,  GREKA's  subsidiary
also produces modified and cutback asphalt products. Modified asphalt is a blend
of recycled  plastics,  rubber and polymer materials with liquid asphalt,  which
produces  a  more  durable  product  that  can  withstand   greater  changes  in
temperature.  Cutback asphalt is a blend of liquid asphalt and lighter petroleum
products and is used primarily to repair  asphalt road  surfaces.  Additionally,
some of the paving grade and modified  asphalts  produced by GREKA's  subsidiary
are sold as base stocks for emulsified  asphalt products that are primarily used
for pavement maintenance.

         GREKA's  subsidiary  is  particularly  well  positioned  to supply  the
asphalt  specifications  in  accordance  with the standards  established  by the
National Highway and Transportation  Administrations  Strategic Highway Research
Program  (SHRP)  or  set  by the  American  Association  of  State  Highway  and
Transportation Officials.

         Demand for liquid  paving  asphalt  products is  primarily  affected by
federal,  state and local highway spending,  as well as the general state of the
California  economy,  which drives  commercial  construction.  Another factor is
weather,  as asphalt paving  projects are usually shut down in cold, wet weather
conditions.  All of these demand  factors are beyond the control of the Company.
Government  highway  spending  provides  a  source  of  demand  which  has  been
relatively   unaffected   by  normal   business   cycles  but  is  dependent  on
appropriations.  During 1999,  approximately  70% of liquid  asphalt  sales were
ultimately funded by the public sector as compared to approximately 75% in 1998.

         The California  economy  continued to improve in 1999, fueled by growth
in  foreign   trade  as  well  as  growth  in  high   technology,   tourism  and
entertainment.  This growth in business  activity  resulted in increases in road
construction and repair activity in both the private and public sectors. Further
expansion is being  forecast for California in 2000, as growth rates as measured
by growth in jobs,  personal  income,  consumer  spending and  construction  are
expected to exceed national averages. Growth in the California economy generally
bodes well for the Company,  as increased business activity results in increased
construction  activity,  including increased new road construction and increased
repair efforts on existing roads in both the public and private sectors. Private
asphalt demand rebounded  slightly in 1997 and continued to improve through 1998
and 1999 due to the improvement in the California economy.

         As the asphalt refinery of GREKA's subsidiary is located in California,
the  following  discussion  focuses on  government  highway  funds  available in
California.

         Federal Funding

         Federal funding of highway projects is accomplished through the Federal
Aid Highway  Program.  The Federal Aid Highway Program is a  federally-assisted,
state-administered  program  that  distributes  federal  funds to the  states to
construct  and  improve  urban  and  rural  highway  systems.   The  program  is
administered  by the Federal  Highway  Administration  (FHWA),  an agency of the
Department of Transportation.  Nearly all federal highway funds are derived from
gasoline user taxes assessed at the pump.

         In June 1998, the $217 billion federal highway bill,  officially  known
as the Transportation Equity Act for the 21st Century or TEA-21 was enacted. The
bill  is  estimated  to  increase  transportation-related  expenditures  by $850
million a year in  California  alone over a six  fiscal  year  period  beginning
October  1, 1997.  This will  equate to a 51%  increase  over  previous  funding
levels.  For fiscal 1998 and 1999 funding  apportioned to California  under this
legislation  was $2.07  billion  and $2.42  billion  respectively.  The  average


                                       13


<PAGE>

California  apportionment  over the six year  period  ending in October  2003 is
estimated  to be  $2.50  billion  per year or a total  of $15  billion.  Of this
amount,   approximately   $4.65  billion  has  been  designated  for  Interstate
Maintenance and the National Highway System while another $4.56 billion has been
designated for the Surface  Transportation and the Congestion Mitigation and Air
Quality  Improvement  programs,  which  concentrate on state and local roadways.
However,  while management of GREKA's subsidiary  believes it has benefited from
and should  benefit in the future from such  funding  increases  there can be no
guarantee that it will in fact do so in the future.

         State and Local Funding

         In  addition  to  federal   funding   for  highway   projects,   states
individually fund transportation  improvements with the proceeds of a variety of
gasoline  and  other  taxes.  In  California,   the  California   Department  of
Transportation  (CALTRANS)  administers state expenditures for highway projects.
According  to the  Department  of Finance  for the State of  California  funding
available  from the State Highway  Account is estimated to average $1.13 billion
per year over the next 10 years  excluding the Seismic  Retrofit Bond Fund. This
compares to an average of $0.36 billion over the previous ten years.

         Marketing of GREKA's Oil and Gas Production

         The prices  obtained for oil and gas are dependent on numerous  factors
beyond the control of GREKA,  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 Company's sales of North American oil and gas production during 1999.

         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 GREKA's  sales to the market of asphalt,
naphtha and distillates rather than hydrocarbons.  GREKA '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 and
operation by the Company's subsidiary of the refinery gives GREKA's subsidiary a
steady and stable  market for its local  crude oil which is not enjoyed by other
producers.

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  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  to  compete  effectively.  Many of GREKA 's  competitors,  however,  have
financial  resources and exploration,  development and acquisition  budgets that
are  substantially  greater than those of GREKA,  and these may adversely affect
GREKA 's  ability  to  compete,  particularly  in  regions  outside  of GREKA 's
principal producing areas. Because of this competition, GREKA cannot assure that
it  will be  successful  in  finding  and  acquiring  producing  properties  and
development and exploration prospects.

         Management of GREKA  believes it hs an advantage  over its  competition
due to its  acquired  license  from BP  Amoco  of the  Short  Radius  Horizontal
Drilling  technology,  its level of field  expertise in applying the patented BP
Amoco Short Radius Horizontal Drilling technology and its ability to apply these
drilling techniques at a fraction of the cost compared to conventional  drilling
techniques utilized by the competition. Although, BP Amoco has provided licenses



                                       14


<PAGE>

to others, GREKA feels that its strategy to apply the proprietary  technology to
its own oil and gas properties and to penetrate new niche markets  utilizing the
proprietary  technology is within an entirely  different market segment than any
of the other  licensees who are  concentrating  on providing  contract  drilling
services to non-owned  properties  within their  respective  geographical  area.
GREKA has not felt any competitive pressure relative to its acquisition strategy
focused on the unique application of its niche, short-radius horizontal drilling
technology.

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 and its subsidiaries may be subject.

         Price Controls on Liquid Hydrocarbons

         Oil sold by GREKA's  subsidiaries 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 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's subsidiaries 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 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,
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'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  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 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.

         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


                                       15


<PAGE>

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 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  and  its
subsidiaries.

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'S subsidairies operate 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 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'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  "hazardous
waste". If such legislation were to pass, it could have a significant  impact on
the  operating  costs of GREKA , 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'S  subsidiaries
has  operations,  and these various  initiative  could have a similar  impact on
GREKA.

         GREKA 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.

                                       16
<PAGE>

Operational Hazards and Insurance

         GREKA's  subsidiaries'  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 and its subsidiaries  has up to $15 million of general  liability
insurance. GREKA's insurance does not cover every potential risk associated with
the drilling, production and processing 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 's financial condition
and results of operations.  Moreover,  no assurance can be given that GREKA will
be able to  maintain  adequate  insurance  in the  future at rates it  considers
reasonable.

Employees

         As of April 13,  2000,  GREKA  and its  subsidiaries  had 78  full-time
employees.  None of GREKA's  employees  is subject  to a  collective  bargaining
agreement. GREKA considers its relations with its employees to be satisfactory.

Shareholders Rights Plan

         In November 1999, the Board of Directors of GREKA unanimously  approved
the  Company's  adoption of a  shareholder  rights plan in order to preserve the
long-term value of the Company for GREKA 's shareholders.  Under the shareholder
rights plan, one right will be distributed for each  outstanding  share of GREKA
common  stock.  Each  right  will  entitle  the holder to buy one share of GREKA
common stock for an initial  exercise price of $60.00 per share. The rights will
initially  trade with common shares and will not be  exercisable  unless certain
takeover  events occur.  The plan  generally  provides that if a person or group
acquires or announces a tender offer for the acquisition of 33% or more of GREKA
common stock without approval of the Board of Directors,  the rights will become
exercisable  and the holders of the rights,  other than the acquiring  person or
group,  will be  entitled  to purchase  shares of GREKA  common  stock (or under
certain  circumstances  stock of the  acquiring  entity)  for 50% of its current
market price. The rights may be redeemed by GREKA for a redemption price of $.01
per right.

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 8% of their eligible contribution.

Net Profit Sharing Plan

         The Company has a net profit  sharing  plan (NPSP) for  employees  that
fulfill  certain  qualification  requirements.  The NPSP  provides  for an equal
disbursement  of 10% of the Company's  pretax  income,  excluding  extraordinary
gains.  Such  disbursement is planned to follow the filing of the annual audited
financial  statements  of the  Company.  The  NPSP  could  be  suspended  at the
discretion of the Company's Board of Directors for any specific year.

                                       17
<PAGE>



Item 2.    Description of Property

         The following  description of the GREKA properties at December 31, 1999
include all  discussions  of prior  operations of all of GREKA's  properties and
those of its wholly owned subsidiaries.

GREKA's Properties as of December 31, 1999

         GREKA owned interests in approximately 805 wells at December 31, 1999.

The  majority  of these  wells  are  concentrated  along  the  central  coast of
California and  Louisiana.  California  (heavy oil) and Louisiana  (gas) are the
primary and focused areas of exploitation and development activities in the near
term. At December 31, 1999,  GREKA also operated wells and had  exploitation and
development activities in other regions of California, in several states outside
of  California  and  Louisiana,  and in western  Canada.  GREKA's  evaluation of
international  projects  resulted in the acquisition of exploration  projects in
Indonesia and China. The Company continuously evaluates the profitability of its
oil, gas and related  activities  and, as part of its strategic  business  plan,
intends  to  divest  unprofitable  leases  or areas of  operations  that are not
consistent with its business strategy.

Exploitation and Development Activities

         The following is a brief discussion of significant  developments in the
Company's recent exploitation and development activities through its whollyowned
subsidiaries:

         United States

         California (Integrated)

         Approximately  38% of GREKA's proved reserves at December 31, 1999 (5.5
MMBOE) were located in four onshore fields in California's central coast region.
Daily  production  from the Central Coast Fields averaged 1,254 BOE for the year
ended December 31, 1999,  representing  47% of GREKA's total  production.  GREKA
operates all of its wells in the Central Coast Fields.

         California (E&P)

         GREKA also holds interests in other California areas, which represented
24% (3.2  MMBOE)  of  GREKA's  proved  reserves  at  December  31,  1999.  Daily
production  from  these  other  interests  averaged  635 BOE for the year  ended
December 31, 1999, representing 24% of GREKA's total production.

         Louisiana

         Approximately  22% of GREKA's proved reserves at December 31, 1999 (4.0
MMBOE)  were  located  in two  fields  in  Louisiana.  GREKA's  share  of  daily
production  from  the  Louisiana  fields  averaged  580 BOE for the  year  ended
December 31, 1999, representing 22% of the Company's total production.

         Other States

         In addition to its  California  and  Louisiana  properties,  GREKA owns
producing  properties  in a number of other  states,  primarily  New  Mexico and
Texas, which collectively  represented 8% of GREKA's proved reserves at December
31, 1999 (1.0 MMBOE). Daily production from these properties averaged 75 BOE for
the year ended December 31, 1999, representing 9% of GREKA's total production.

       Canada

         Approximately  8% of GREKA's proved reserves at December 31, 1999 (1.0
MMBOE) were located in Canada.  Daily production from these properties  averaged
226 BOE for the year ended December 31, 1999,  representing  9% of GREKA's total
production.

                                       18
<PAGE>

         GREKA 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.  GREKA  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,   GREKA  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.

         GREKA's 2000 capital  expenditure  budget for  properties  is dependent
upon the price for which its  products are sold and upon the ability of GREKA to
obtain external  financing.  Subject to these variables and based on the current
asset base, GREKA expects its cash flow to fund  approximately  $12.0 million in
2000 for capital  expenditures.  By example,  the Company  expects  that capital
improvements costing approximately $2.5 million will result in increased oil and
gas production of approximately 2300 BOEPD.

Exploration Activities

         GREKA further  plans to expand its existing  reserve base by developing
high potential exploration prospects in known productive regions. GREKA believes
these  activities  complement  its  traditional   development  and  exploitation
activities. In pursuing these exploration opportunities,  GREKA may use advanced
technologies,  including 3-D seismic and satellite imaging.  In addition,  GREKA
may seek to limit its direct  financial  exposure  in  exploration  projects  by
entering into strategic  partnerships  that shift the drilling related financial
risks to partners  while  providing the Company with an upside upon a successful
event. At December 31, 1999, GREKA had exploration plays in three primary areas:
California, Indonesia and China.

         The following is a brief discussion of significant  developments in the
Company's recent exploration activities through its whollyowned subsidiaries:

         California

         Coalinga Nose Exploration Prospect, Kern County, California.  GREKA 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.  GREKA
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.  GREKA has an 85% working (68% net revenue)  interest
in the well which it is seeking to farmout.

         Indonesia

         West Java Exploration Prospect, Jakarta, Indonesia. GREKA is a party to
a production sharing contract,  along with Pertamina, the Indonesian state-owned
oil company,  covering 1.7 million unexplored acres on the Island of Java near a
number of producing oil and gas fields.  The 30-year contract  provides that oil
and gas in commercial  quantities must be discovered  prior to September 2003. A
portion  of the  block  has  been  distinctly  identified  as the  Jonggol  area
consisting of 500,000 acres. The Jonggol area has two prospects and eleven leads
with a well scheduled to be drilled in December  2000. The Company,  which has a
75% interest in the block,  is currently  looking for a joint venture partner to
participate  in the drilling of the Jonggol well.  The remainder of the block is
being developed with additional seismic.

                                       19

<PAGE>

         China

     Fengcheng Coalbed Methane Exploration Prospect,  Jiangxi,  China. In August
1999,  GREKA announced its execution of a production  sharing  contract with the
China United Coalbed Methane  Corporation  Ltd.,  which has been approved by the
Chinese Ministry of Foreign Trade and Economic  Cooperation,  to jointly exploit
coalbed  methane  resources in Fengcheng,  East China's  Jiangxi  Province.  The
contract block in which GREKA has a 49% working  interest covers a total area of
380,534 acres. The 30-year  contract  provides that GREKA as operator will drill
at least ten coalbed methane wells over a three year term. Production test wells
have been  drilled and were both  successful.  The Company  intends to drill six
wells in 2000 to  conform  proved  reserves  this  year and  expects  commercial
operations commencing in 2001.

Oil and Gas Producing Properties

         At December 31, 1999, the Company through its wholly owned subsidiaries
owned  and  operated  producing  properties  in 8 states,  with its U.S.  proved
reserves  located  primarily in two core areas:  California and Louisiana  which
represent  approximately 58% and 27%,  respectively,  of GREKA's proved reserves
(BOE).

         The following table  summarizes  GREKA's  estimated  proved oil and gas
reserves by  geographic  area as of  December  31,  1999.  The  following  table
includes  both  proved  developed   (producing  and  non-producing)  and  proved
undeveloped  reserves.  Approximately 38% 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, 1999,  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
$25.30 per Bbl and the comparable price for March,  2000 was $29.90.  Quotations
for the comparable periods for natural gas were $2.27 per Mcf and $2.90 per Mcf,
respectively.  The proved  developed and proved  undeveloped oil and gas reserve
figures are estimates based on reserve reports  prepared by GREKA'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  GREKA'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 GREKA and its operations.

                                   December 31, 1999

                       Proved Reserves, net                     PV-10 Value
                 Gross        Oil        Gas
 Property        Wells      (MBbls)     (MMcf)    MBOE  Dollar Value   %
 --------       ---------   -------      ------   ----  ------------   -------
                                                       (In thousands)
California:
  Integrated Ops..178 .....5,239.5    1,275.3     5,454.4  $27,611         38%
  E&P ............163      3,147.3      591.5     3,253.0  $17,793         24%
Total
   California ....341 .....8,386.8    1,866.8     8,707.4  $45,404         62%
Louisiana .........55      1,665.9   13,922.6     4,152.1  $16,215         22%
Other United
    States........206        617.8    1,880.9       953.7  $ 5,534          8%
Total United
   States ........602......10,531.7   17,598.3    13,674.4 $67,153         92%
Canada ............68 ........235.4    3,937.6       940.1 $ 6,162          8%
Total Americas... 670      10,767.1   21,535.9    14,614.4 $73,315        100%

                                       20
<PAGE>



         The  following  is a  brief  discussion  of the  Company's  oil and gas
operations for major fields:

         California

         Central Coast Fields.  GREKA's  subsidiary  operates four fields in the
Central  Coast area of  California.  These fields  provide  equity crude oil for
GREKA's wholly owned asphalt refinery. The fields are Cat Canyon, Casmalia, Gato
Ridge and Santa Maria Valley which collectively have an average working interest
of 100% and an  approximate  average net  revenue  interest of 90% in 124 active
wells producing 1254 BOEPD.  These fields  represent 36% of GREKA's total proved
reserves.

         New drilling  activity  centered on  horizontal  drilling  beginning in
1995. During the intervening  years twenty-two  horizontal wells were drilled in
these four fields.  The drilling program resulted in mixed success,  four of the
wells were  extremely  profitable,  but the others were  marginally  economic or
uneconomic, primarily due to the high cost of drilling new wells with long reach
lateral sections. These long reach wells typically cost more than $500,000 each.
Additional  problems were encountered due to sand intrusion  during  production.
Current  management has spent  considerable  effort in developing a sand control
completion  technique  that  supports  long-term  production  and thus  enhances
related economics.

         Commencing in 1999 management  changed the horizontal  drilling program
by  re-entering  existing  idle  wellbores  and drilling  short radius  laterals
utilizing  proprietary  technology  patented from BP Amoco. The reduced cost for
re-entries  ($125,000 per well) should  contribute to a higher economic  success
rate and additional  economic reserves.  Earlier drilling has delineated the S1b
Sisquac Sand in the Cat Canyon Field and S2 Sisquac Sand in the Gato Ridge Field
as those formations with the highest opportunities for success. Management plans
to drill ten  horizontal  re-entries  during 2000 primarily to exploit these two
reservoirs.

         Two of the horizontal  wells drilled in the Gato Ridge Field are a SAGD
(steam assisted gravity drainage) pair. This pair of long reach lateral wells is
drilled in the S1b Sisquac  formation  with one wellbore in the upper section of
the  formation and the other located  directly  underneath  it. These wells were
designed to  continuously  inject  steam in the upper well and produce  from the
lower well.  The project was  discontinued  in late 1997 before  production  and
after procuring all necessary equipment. Current management is working to secure
regulatory  permits,  and plans to activate  the project  with  minimal  capital
requirements in the current year.

         The results of the horizontal  drilling program in these fields provide
significant  encouragement  that the  ultimate  recovery of heavy oil from these
fields can be increased.  Current  estimates of ultimate recovery vary with each
of the  fields  in the  range  from 25% to as low as 5% of the  original  oil in
place.  Horizontal  drilling offers a new technology that should add reserves in
heavy oil fields  that could not  otherwise  be  economically  recovered  due to
several  reasons   including  the  following:   1)the  propensity  of  water  to
preferentially  channel  through  the heavy  oil to the well bore thus  reducing
ultimate recoveries in heavy oil reservoirs  2)reduced friction pressures can be
created when heavy oil moves to a horizontal wellbore in the reservoir.


                                       21

<PAGE>

         Richfield  East Dome Unit. The Richfield East Dome Unit is a waterflood
in Orange County,  California,  operated by GREKA's subsidiary and producing 780
BOPD. The field has proved net reserves of 1.9 MMBO valued at PV-10 $8.2 million
or 12%  of  the  Company's  total  reserve  value.  Waterflood  operations  were
initiated in 1974 by Texaco.  Field facilities are in sufficiently  satisfactory
condition  to service  the  waterflood  operation  through  the  eighteen  years
remaining in the life of the field.

         North  Belridge  Field.  The North  Belridge  Field is  located in Kern
County,  California.  GREKA's  subsidiary  is the operator and owns 100% working
interest in 37 wells on three leases  covering 270 contiguous  acres.  The wells
produce from two  formations--  light oil from the Diatomite  zone and heavy oil
from the Tulare  formation.  Current  production is about 330 BOEPD,  net proved
reserves  are 1.1  MMBOE  valued  at PV-10  $7.2  million.  (See  Item  3-"Legal
Proceedings")

         Louisiana

         Potash  Dome  Field.  The Potash  Dome Field is located in  Plaquemines
Parish south of New Orleans, Louisiana,  overlying a salt dome. The wells on the
west side of the field are land based  while the wells on the east side  produce
from single well structures located in shallow inland water.  GREKA's subsidiary
operates the 3000 acre field and has 100% working  interest in 23 wells.  Proved
net  reserves  in the  field are 1.5 MMBO and 13.9  BCFG  valued at PV-10  $15.3
million.  There exists substantial drilling  opportunities in the field with net
proved undeveloped reserves of 0.9 MMBO and 10.7 BCFG in five drilling locations
as determined by  Netherland,  Sewell & Associates,  Inc.,  GREKA's  independent
petroleum   engineers.   Additionally   GREKA   believes  there  is  substantial
opportunity  to add gas  reserves  in a deeper  zone called the Tex "W" which is
owned 50% by GREKA's subsidiary and 50% by Exxon-Mobil.  To minimize the cost of
testing the deeper zones management  expects to deepen at least one of the wells
required  to develop the proved  locations a maximum  1000' below the zone which
has proved  reserves.  Additionally  there are several  shut in wells  requiring
workovers  which  management  plans to return to  production.  The  potential of
workovers was proven in 1999 with the successful recompletion of the State Lease
508 #25 well in the Miocene 12B zone.  The well  initially  produced at rates as
high as 1.5 MMCFGPD from a zone previously assigned probable/possible reserves.

         Manila  Village  Field.  The Manila  Village  is  located in  Jefferson
Parish,  south  Louisiana.  The field is  operated  by  GREKA's  subsidiary  and
produces  300 BOPD  (160 BOPD net)  from 12 wells  all  located  on single  well
structures in shallow inland water. Proved developed reserves are 138 MBO net to
GREKA's subsidiary.

         Other United States

         Southwest  Tatum Field.  The Southwest  Tatum Field operated by GREKA's
subsidiary is located in Lea County,  New Mexico.  This field was  discovered in
1996  through  the use of 3-D  seismic.  There  are  four  different  productive
horizons in the field,  Devonian,  Canyon, Cisco, and Wolfcamp.  The emphasis is
currently focused on increasing production by recompleting the existing wells in
the optimum interval.  Remaining  drilling  locations are under study. There are
net  proved  developed  reserves  of 172 MBO and 225  MMCFG  in the  field as of
December 31, 1999.

         San Simeon  Field.  The San Simeon Field is located in Lea County,  New
Mexico.  GREKA's  subsidiary  operates one oil well and three gas wells. The oil
well is the only producer in the field completed in the Wolfcamp  formation.  It
currently  flows oil at 85 BOPD with 150  MCFGPDGREKA.  The well has  cumulative
production of 330 MBO and 461 MMCFG with estimated  remaining  gross reserves of
181 MBO (73 MBO net) and 334 MMCFG (136 MMCFG net) with net PV-10  value of $1.0
million.  The gas wells  produce from the deeper  Morrow  formation  offering an
opportunity  to drill a second  Wolfcamp  well and test the Morrow  formation at
minimal additional cost. GREKA's independent reservoir engineers have assigned a
proved  undeveloped  drilling  location in the  Wolfcamp  which is valued at net
PV-10 $402,000.

                                       22

<PAGE>

Oil and Gas Reserves

         GREKA's  proved  reserves  and 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 1997, 1998 and 1999 Netherland, Sewell & Associates, Inc. prepared reports on
GREKA's reserves in the United States and Sproule  Associates Limited prepared a
report  on  GREKA'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 GREKA.  In
accordance with the SEC's  guidelines,  GREKA's estimates of future net revenues
from GREKA'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, 1999, reflect weighted average prices of $17.97 per BOE compared to
$8.29 per BOE and $13.13 per BOE as of December 31, 1998 and 1997, respectively.
There have been no reserve  estimates filed with any other United States federal
authority or agency,  except that GREKA  participates  in a Department of Energy
annual survey, which includes furnishing reserve estimates of certain of GREKA'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, 1997, 1998 and 1999 and the estimated present value of future
net  revenues  ("PV-10")  (based on current  prices and costs at the  respective
year's 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 1999 year end engineering estimates.

                                     Estimated Proved Oil and Gas Reserves

                                                   At December 31,
                                         ---------------------------------
                                          1997(1)     1998(1)    1999(1)
                                         ------       ------     ------

Net oil reserves (MBbl)
   Proved developed producing ........       78       1,915       6,608
   Proved developed non-producing ....      153         659         826
   Proved undeveloped ................    2,321       1,732       3,333
                                         ------      ------      ------
    Total proved oil reserves (MBbl) .    2,553       4,336      10,767
                                         ======      ======      ======
Net natural gas reserves (MMcf)
   Proved developed producing ........     --           899       4,134
   Proved developed non-producing ....     --         1,759       5,398
   Proved undeveloped ................     --         2,416      12,005
                                         ------      ------      ------
    Total proved natural gas
      reserves (MMcf) ................     --         5,074      21,536
                                         ======      ======      ======

Total proved reserves (MBOE) .........    2,553       5,242      14,614

                                       23
<PAGE>

(1) Does not include reserve volumes  attributable to the Company's  interest in
Colombian  assets  sold in June  1999  (see  generally  Item  1-"Description  of
Business, Divestiture Activities")

         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,
                                    -------------------------------------
                                      1997(1)      1998(1)      1999(1)
                                      ----         ----         ----
PV-10 Value                                                 (In thousands)
   Proved developed producing ...   $    71       $ 2,247       $42,516
   Proved developed non-producing       278         2,253         8,977
   Proved undeveloped ...........     4,579         1,473        21,822
                                    -------       -------       -------

      Total .....................   $ 4,927       $ 5,931       $73,315
                                    =======       =======       =======

(1) Does not include reserve volumes  attributable to the Company's  interest in
Colombian  assets  sold in June  1999  (see  generally  Item  1-"Description  of
Business, Divestiture Activities")

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.

                                       24

<PAGE>

         The following table summarizes sales volume, sales price and production
cost information for GREKA's net oil and gas production for each of the years in
the three-year period ended December 31, 1999.

                             Year Ended December 31,
                         --------------------------------
                          1997(1)    1998(1)      1999(1)
                         ------      ------       ------

Production Data:
  Oil (MBbls) ........        2          13         528
  Gas (MMcf) .........       --          --       1,144
    Total (MBOE) .....        2          13         736


Average Sales
  Price Data
  (Per Unit):

  BOE ................   $   12      $    6      $13.86

Selected Data
 per BOE:
  Production costs (2)   $  124      $    9      $ 7.47
  General and
    administrative ...   $  378      $  119      $ 2.98
  Depletion,
    depreciation and
    amortization .....   $   12      $   26      $ 2.94


---------------------
(1) Does not include reserve volumes  attributable to the Company's  interest in
Colombian  assets  sold in June  1999  (see  generally  Item  1-"Description  of
Business, Divestiture Activities")

(2)      Production costs include production taxes.


Drilling Activity


         With respect to GREKA's  participation  in the drilling of  exploratory
and  development  wells  (excluding  information  attributable  to the Company's
interest in Colombian assets (see Item  1-"Description of Business,  Divestiture
Activities"))  for  each of the  three  years in the  three  year  period  ended
December  31,  1999,  there has been no  drilling  activity  in Canada or in the
United States except as set forth in the following table:


         United States


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

Development Wells
  Oil                       2      1.67      3      2.30
  Gas                       -       -        -         -
  Dry (3)                   -       -        -         -


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

(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.

                                       25

<PAGE>

(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.




Productive Oil and Gas Wells

     The following table sets forth  information at December 31, 1999,  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  GREKA  through its
subsidiaries owned a working interest:

                       Oil                   Gas                 Total
                 Gross      Net         Gross    Net        Gross     Net
                 -----      -----      -----    ------     ------    -----
United States     430       226.9       135      49.0       565      275.9
Canada (1)         39        19.0        29      10.4        58       29.4
                 -----      -----      -----    ------     ------    -----
                  469       245.9       164      59.4       633      305.3
                 =====      =====      =====    ======     ======    =====
-------------

(1) No reduction  is made for the minority  interest in Beaver Lake that existed
until July, 1999.

                                       26

<PAGE>

Oil and Gas Acreage

     The  following  table sets forth certain  information  at December 31, 1999
relating to oil and gas acreage in which GREKA through its subsidiaries  owned a
working interest:

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

United States          33,034           20,063        17,137       8,025
Canada (2)             23,840            7,192        20,400       9,206
------------         --------          -------        ------     -------
    Total              56,874           27,255        37,537      17,231
                     ========          =======        ======     =======

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

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


(2)  No reduction is made for the minority  interest in Beaver Lake that existed
     until July, 1999.

Title to Properties

     Many of GREKA's  subsidiaries'  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
GREKA,  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,  GREKA's  subsidiaries'  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.  GREKA  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
GREKA'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 GREKA'S subsidiaries may not be publicly recorded.

     From time to time,  substantially all of GREKA's properties,  including its
stock in its Subsidiaries, are hypothecated to secure GREKA's current and future
indebtedness.  GREKA's  subsidiaries'  working  interest  in  properties  may be
subject to lienholders by  non-payment.  In the event of GREKA's  non-payment or
untimely payment of its obligations, GREKA expects liens to be filed against its
assets  and to be  subject  to  lawsuits.  Oil and gas  leases in which  GREKA'S
subsidiaries  have an interest may be deficient,  require  ratifications  and be
subject to action by GREKAsubsidiaries.

Average Sales Price and Production Cost

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

                                       27

<PAGE>


                                    Year Ended December 31,
                               --------------------------------
                               1997          1998          1999
                               ----          ----          ----
Average sales price per BOE:
  Integrated Ops...........    $ 11           $6          $10.82
  E&P Americas.............      19            -           17.14
  Combined.................      12            6           13.86

Average production cost per BOE:
  Integrated Ops..             $109           $9          $ 8.74
  E&P Americas.............     109            -            5.80
  Combined.................     109            9            7.47



Asphalt Refinery

     GREKA owns an asphalt refinery in Santa Barbara County,  California through
a wholy owned  subsidiary.  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.

         The refinery 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.   Further,   asphalt  prices  have
historically  been less volatile than feedstock  prices,  providing GREKA 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  refinery has ranged  between  2,000 and 4,500 Bopd,
while production  capacity is approximately  10,000 Bopd. Only approximately 36%
of the  throughput  has come from GREKA's  production.  GREKA  believes that the
asphalt refinery's margins will improve significantly as it increases production
from the Central Coast Fields,  providing additional feedstock and spreading the
fixed cost of the refinery over more units produced.  Furthermore, GREKA intends
to increase the throughput to 10,000 Bopd by year end 2001. GREKA 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,  the Company's  subsidiary  assumed full  operation of its
asphalt refinery. (see Item 1-"Description of Business, Acquisition Activities")

         The  results of  operations  of the  Company's  refinery  are  somewhat
seasonal due to seasonal fluctuations in the asphalt market.  Asphalt sales have
been generally  higher in the third quarter and lower in the first quarter.  Due
to these  seasonal  fluctuations,  results of operations  for interim  quarterly
periods  may not be  indicative  of results  which may be  realized on an annual
basis.

Real Estate Activities

     GREKA'S subsidiaries from time to time purchased real estate in conjunction
with their acquisition of oil and gas and refining  properties in California and
plan to continue this practice.  At December 31, 1999, the Company owned through



                                       28

<PAGE>

its subsidiaries  approximately 2,500 acres in Santa Barbara County,  California
and approximately 6 acres in Orange County, California. GREKA has used a portion
of its real estate  holdings for  agricultural  purposes.  GREKA plans to retain
some of these real  estate  holdings  for asset  appreciation  which may include
developmental activities at a future date.

Limestone Properties

         Indiana - Monroe Field.  At December 31, 1998,  GREKA owned through its
wholly owned  subsidiary,  Calox Inc, a 355 acre limestone  property  located in
Monroe County,  Indiana. GREKA 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,   IPH 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 and IPH sold their  interests  in the  limestone  property to
Pembrooke Calox, Inc. in exchange for a non-recourse promissory note, secured by
the  limestone  property.  (See Item  1-"Description  of  Business,  Divestiture
Activities") During October 1999, Pembrook filed a legal action against GREKA in
an effort to extend  the  transaction  which  suit is still  pending.  (See Item
3-"Legal Proceedings")

Offices

         GREKA  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
three year lease through  March 31, 2001.  GREKA 's offices are located in Santa
Maria, California;  Houston, Texas; Beijing,  China;Jakarta,  Indonesia; Bogota,
Colombia; and Calgary, Alberta.









                                       29
<PAGE>




Item 3.    Legal Proceedings

Enervest LP v. Saba of Texas, Inc. (Case No. 1999-30673, 152nd Judicial District
Court of Harris County, Texas, June 1999) Enervest filed an action claiming that
the Company's  subsidiary breached the agreement between the parties for failing
to  close  the sale of its  interests  in  certain  oil and gas  properties.  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,  the  Company's  subsidiary  filed a
counterclaim  against  Enervest for damages  incurred as a result of  Enervest's
breach of the agreement by failing to close the sale. While the subsidiary plans
to vigorously defend all claims asserted by Enervest and to aggressively  pursue
all counter and third party claims, the matter is in its discovery stage.

Capco Resources,  Ltd. v. GREKA Energy Corporation,  et al. (Case No. 99-K-2155,
U.S. District Court for the District of Colorado,  August 1999). This action was
initially filed in the United States District Court for the Central  District of
California  and later  moved to  Colorado  pursuant  to a court  order  granting
GREKA's motion to transfer. Plaintiff Capco Resources, Ltd. ("Capco") has raised
claims  for breach of  contract,  specific  performance,  fraud,  and  negligent
misrepresentation  against  the Company and Randeep  Grewal,  the  President  of
GREKA. The Company has brought counterclaims against Capco,  CapcoEnergy,  Inc.,
Ilyas  Chaudhary,  and Kal  Saifi  (the  "Capco  Group")  for  violation  of the
Securities  Exchange Act of 1934, Section 10B, and Rule 10b-5,  fraud, breach of
contract, negligent misrepresentation, breach of fiduciary duty, and negligence.
The parties'  respective  claims  relate to a November  23, 1998 Stock  Exchange
Agreement between the Company and Capco, pursuant to which Capco was to exchange
2,971,766 shares of Saba stock,  constituting all of Capco's ownership  interest
in Saba, for 1,340,000  newly-issued shares of the Company to Capco. Even though
GREKA, in accordance  with the terms of the agreement and in good faith,  issued
all  1,340,000  shares of GREKA common stock,  GREKA had actually  received only
2,006,566  shares  (two-thirds)  of Saba common stock  agreed upon.  The Company
subsequently    determined    that   the   Capco   Group   had   made   numerous
misrepresentations  and  omissions of material  fact in inducing  GREKA to enter
into this transaction. These factual circumstances form the basis for the claims
in dispute.  Capco is seeking damages of approximately $12.25 million related to
the  Company's  refusal  to file a  registration  statement  for the resale of 1
million  shares of GREKA  common  stock  that  Capco  received  pursuant  to the
exchange.  GREKA  claims that it is entitled  to damages  and  requests  partial
rescission and/or reformation of the Stock Exchange Agreement. Additionally, the
Company  also plans to seek to recover  from the Capco  Group all monies owed by
the Capco  Group and  related  parties  since 1998 for unpaid  accounts  such as
promissory notes, interest on promissory notes, and reimbursable expenses. While
GREKA  plans  to  vigorously   defend  all  claims  asserted  by  Capco  and  to
aggressively pursue all counter and third party claims, the litigation is in its
early stages of discovery.

Pembrooke Calox, Inc. v. GREKA Energy Corporation,  et al. (Index No. 604905/99,
Supreme  Court,  New  York  County,   October  1999).   Pembrooke  Calox,   Inc.
("Pembrooke")  has brought an action against GREKA and others seeking damages of
approximately  $5 million for an alleged  breach of a settlement  agreement  and
related contracts pursuant to which Pembrooke was to receive GREKA's interest in
a limestone reserve located in Indiana in exchange for payment on a $5.7 million
non-recourse  promissory note. Pembrooke alleges that it was unable to make such
payment  because of GREKA's  purported  failure  to provide  certain  geological
documents  concerning  mineral  reserves  located under the property.  GREKA has
filed fraud-based  counterclaims,  and the parties have agreed that the property
is to be held in escrow pending adjudication of all claims. While GREKA plans to
vigorously defend all claims asserted by Pembrooke and seek all  counter-relief,
the litigation is in its preliminary discovery stages.

RGC International Investors,  LDC v. GREKA Energy Corporation,  et al. (C.A. No.
17674NC,  Delaware Chancery Court, December 1999). RGC International  Investors,
LDC ("RGC")  brought suit against GREKA,  Saba and the former  directors of Saba
based on claims arising from GREKA's  acquisition of Saba on March 24, 1999. RGC
seeks, among other things, rescission of the merger and an unspecified amount of
damages for GREKA's alleged failure  adequately to provide for RGC's rights as a
Saba  preferred  shareholder  in  consummating  that merger.  GREKA has moved to
dismiss the complaint and that motion has not yet been scheduled for hearing.

                                       30

<PAGE>

Sabacol,  Inc. v. Omimex Resources,  Inc., Omimex de Colombia,  Ltd., and Omimex
International  Corporation  dba  Omimex  Petroleum,  Inc.  (C.A.  No.  BC224339,
California  Superior  Court,  Los  Angeles  County,   February  2000).   GREKA's
subsidiary,  filed an action against Omimex Resources, Inc. and its subsidiaries
seeking an order directing  rescission of an asset purchase agreement  effective
January  1,  1999  or,  alternatively,  directing  specific  performance  of the
agreement  by Omimex.  The  Company's  subsidiary  alleges  claims for breach of
contract,  breach  of  covenant  of  good  faith  and  fair  dealing,  negligent
misrepresentation  and fraudulent  inducement and seeks damages.  Omimex alleges
counter-claims of breach of contract and seeks declaratory  judgment.  While the
subsidiary  plans to vigorously  pursue all claims against Omimex and defend all
counter-allegations, the litigation is in its preliminary discovery stages.

     From time to time,  the Company and its  subsidiaries  are a named party in
legal proceedings arising in the ordinary course of business.  While the outcome
of such  proceedings  cannot be predicted with  certainty,  management  does not
expect  these  matters  to  have a  material  adverse  effect  on the  Company's
financial condition or results of operations.

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

At the Annual Meeting of  Stockholders  held on December 22, 1999, the following
individuals  were  elected to the Board of  Directors to serve for a 3-year term
ending 2002:

                            Votes For   Votes Withheld
                            ---------   --------------
         Dai Vaughan....... 3,665,095   73,777
         Susan M. Whalen... 3,668,444   70,428

The following proposal was voted on by Stockholders at the Annual Meeting:

                                            Votes             Votes
                                            For               Against
                                            ---------         -------
         To approve the adoption of
         GREKA's 1999 Omnibus
         Stock Option Plan.                 2,250,759         140,242


                                     PART II

Item 5.    Market for Common Equity and Related Stockholder Matters

         GREKA common stock is listed for trading on the Nasdaq  National 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'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 common stock as reported on the Nasdaq National Market. GREKA 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's common stock will be sustained in the
future.

                                                 Bid
                                           Low        High
                Quarter Ended
                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           4.875       10.50
                June 30, 1999            6.375       9.125
                September 30, 1999         7.0        13.5
                December 31, 1999          7.5        12.0


                                       31
<PAGE>


         On April 13, 2000 there were  approximately  879 registered  holders of
GREKA's  common  stock.  Based on a broker  count,  GREKA  believes  at least an
additional 5,861 persons are shareholders with street name positions.

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



















                                       32
<PAGE>



Item 6.    Selected Financial Data.

         The following table sets forth selected consolidated financial data for
the Company as of the dates and for the periods  indicated.  The financial  data
for each of the five years  ended  December  31,  1999,  were  derived  from the
Consolidated  Financial  Statements of the Company. The following data should be
read in  conjunction  with  "Management's  Discussion  and Analysis of Financial
Condition  and Results of  Operations,"  which  includes a discussion of factors
materially  affecting the  comparability  of the information  presented,  and in
conjunction with the Company's  financial  statements included elsewhere in this
report.
<TABLE>
<CAPTION>

                                                                Years Ended December 31,
                                                                ------------------------
                                                1999         1998         1997         1996          1995
                                                ----         ----         ----         ----          ----
                                                          (In thousands, except per share data)
Income Statement Data:

<S>                                           <C>          <C>           <C>          <C>          <C>
Sales                                         $29,138      $   146       $   212      $   604      $     -

Production and Product Costs                  $17,821      $   121       $   248      $   367      $     -

General and administrative                    $ 3,205      $ 1,542       $   756      $   575      $   474

Depletion, depreciation &
  amortization                                $ 3,024      $   333       $    24       $   19      $    17

Interest Expense                              $ 1,860      $    32       $    25       $   35      $    17

Other Income(Expense) Net                     $(1,696)     $  (526)      $   (34)      $   15      $     2

Minority Interest                             $    20      $     -       $     -       $    -      $     -

Income tax (expense) benefit                  $   (46)     $     -       $     -       $    -      $     -

Equity in Earnings/Loss of Saba

  (pre-acquisition)                           $   569      $   586       $     -       $    -      $     -

Net income(loss)                              $ 3,367      $(5,548)      $  (851)      $ (377)     $  (423)

Income (loss) per common share:

Basic net income(loss) per share              $  0.84      $ (3.42)      $ (1.44)      $(4.70)     $   n/a

Cash dividend per share                       $     -      $     -       $     -       $    -      $     -
Basic weighted average common
  shares outstanding                            4,003        1,621           591           80      $   n/a
Diluted weighted average common
  shares outstanding                            4,575        1,621           591           80      $   n/a

Balance Sheet Data (end of period):

Working Capital                              $(14,176)     $(1,828)      $ 3,133      $   276      $   (15)
Net property and equipment                    $70,287      $   926       $ 6,795      $   735      $     0
Total assets                                  $84,214      $20,807       $10,803      $   901      $    68
Long-term obligations                         $15,696      $    53       $    77      $   541      $    25
Total stockholders' equity                    $33,378      $18,505       $ 9,095      $   (10)     $    (3)

</TABLE>

Item 7. Management's Discussion and Analysis of Financial Conditions and Results
of Operation

Overview

         In view of  significant  material  changes to GREKA  during  1998,  the
acquisition of Saba in March 1999, and assumption of full operations  related to

                                       33
<PAGE>

the asphalt  refinery,  management  believes  that the  financial  condition and
results of  operations  of GREKA  reported for periods prior to those herein are
not  indicative of the future  financial  condition and results of operations of
GREKA. As a consequence of GREKA's subsidiary's assumption of full operations at
its refinery in May 1999, the Company has been reporting 100% of the revenue and
net income  resulting from  operations in contrast to  recognition  prior to May
1999 of only 50% of the net profit  resulting from the same  operations.  Saba's
1998  financial  statements  are not  consolidated  with GREKA'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 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  in  September  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  patented  by  Amoco  and
thereafter  licensed to GREKA. 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.


         During the latter of part of 1998 and early 1999,  management  of GREKA
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 of the Saba
acquisition,  GREKA's  management and staff devoted a substantial amount of time
and effort to the  acquisition.  GREKA 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 for over eighteen months.

         In  view  of the  significant  differences  between  GREKA's  corporate
structure  before the March 1999  acquisition  of Saba and during 1997 and 1998,
comparisons  of GREKA '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

Comparison of Years Ended December 31, 1999 and 1998

     Revenues increased from $145,813 for 1998 to $29,137,810 for 1999 primarily
as a result of acquisitions and restructuring of assets.

     Production  costs  increased from $121,016 for 1998 to $17,820,620 for 1999
primarily as a result of significantly larger asset base of operations.

     General and  administrative  expenses increased from $1,541,789 for 1998 to
$3,205,276 for 1999 primarily as a result of significantly  larger asset base of
operations.

     Depreciation,  depletion and amortization  increased from $333,468 for 1998
to $3,023,783 for 1999 primarily as a result of significantly  larger asset base
of operations.

     Interest  expense  increased  from $32,145 for 1998 to $1,859,688  for 1999
primarily as a result of higher debt as a result of acquisitions.

Comparison of Years Ended December 31, 1998 and 1997

         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.

                                       34

<PAGE>

         Production 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 incurred  significant
repair expenses  resulting from the El Nino storms in California during February
1998.

     General and  administrative  expenses  increased  from $756,357 for 1997 to
$1,541,789 for 1998 primarily as a result of additional staff managing  acquired
properties.

         Depreciation,  depletion and  amortization  increased  from $24,016 for
1997 to $333,468 for 1998 primarily as a result of additional properties.

         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.

         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 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

     The working capital  deficit at December 31, 1999 of $14,175,635  increased
from a working  capital  deficit of  $1,827,854  at December 31,  1998.  Current
assets  increased  $11,562,166 from $421,807 at December 31, 1998 to $11,983,973
at  December  31,  1999 which  includes a decrease  of $152,932 in cash and cash
equivalents  from $250,212 at December 31, 1998 to $97,319 at December 31, 1999.
Approximately  $6.2  million of  refinery  raw  material  and  finished  product
inventory and refinery  accounts  receivable  result from  refinery  operations.
Current   liabilities   increased  from  $2,249,661  at  December  31,  1998  to
$26,159,608  at December  31,  1999,  an increase  of  $23,909,947.  The current
portion of long term debt increased $11,159,958 during the period. The foregoing
changes are a result of the acquisition of Saba and the Company's  assumption of
the marketing and sales operations of its Santa Maria refinery.

Cash Flows

     Cash used in operations improved from an outflow of $2,293,744 for the year
ended  December 31, 1998 to an outflow of $401,150  for the year ended  December
31,1999.  Net income for the period,  adjusted  for non-cash  charges,  provided
$7,073,686 of cash inflow.

     The Company's net cash flows from investing activities decreased from a net
outflow of $1,826,546  for the year ended  December 31, 1998 to a net outflow of
$788,351  for the year ended  December  31,  1999.  This  change  was  primarily
attributable  to the cash outflow in the prior year to acquire the investment in
Saba.

     The Company's net cash provided by financing  activities  decreased from an
inflow of $2,051,550  for the year ended December 31, 1998 to $1,036,608 for the
year ended December 31, 1999. Cash was provided during 1999 from proceeds of the
Company's  financing  facility  with BNY/GMAC in the amount of  $22,219,470  and


                                       35

<PAGE>

from the  Company's  15%  Debenture  in the amount of $1 million.  Cash was used
during 1999 to reduce the Company's obligation to Bank One by $17,115,272.

Capital Expenditures

         The Company's  growth is focused on  acquisitions  that are synergistic
with its  technology.  It is intended  that such  acquisitions  will be achieved
concurrent with the closing of adequate financing.  Operationally on the current
asset base, the Company expects to fund its annual capex of $12.0 million by its
cash flow.

     Under the  direction  of  GREKA's  management  and in  accordance  with its
business  strategy,  GREKA has  improved its  liquidity  and expects to have low
capital requirements.  The Company is current on all its interest payments,  and
has  sufficient  cash  flow  for  all  of its  operating  and  foreseen  capital
requirements. Further, GREKA intends to achieve the following:

     *    Continue  to  execute  an  aggressive  rework  program  to  return  to
          production existing wells on all properties that have shut-in wells.

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

     *    Continue  to acquire  assets to  enhance  the  benefit  of  integrated
          operations that collectively  provide for low cost operating  expenses
          and high cash flow.

GREKA's  management also believes that the disposition of non-core assets brings
opportunities for cost savings, and other synergies,  resulting in improved cash
flow  potential  for the  long-term  growth of GREKA and of  shareholder  value.
Further,  these dispositions give GREKA 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 or that such cost savings or other  synergies  will be achieved
within  the time  periods  contemplated,  or that  GREKA  will be able to secure
future financings.

Removal of Modified Opinion

GREKA's  independent  accountants  issued a  modified  report on April 15,  1999
expressing  substantial  doubt  about  GREKA's  ability to  continue  as a going
concern as a result of GREKA's acquisition of Saba whose independent accountants
issued a modified report in 1998 with respect to Saba's ability to continue as a
going concern.  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's ability to continue as a going concern.

Recent Accounting Pronouncements

     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  because  it  has  no  such
investments.

Year 2000

          To date, GREKA has not observed any damage to its operations resulting
from the Y2K change over.

                                       36

<PAGE>

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

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.

           At December 31, 1999,  the Company's  operations  were not exposed to
market  risks  primarily as a result of changes in  commodity  prices,  interest
rates and foreign  currency  exchange rates. The Company does not use derivative
financial instruments for speculative or trading purposes.

Item 8.    Financial Statements.

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

Item 9.  Changes  in  and  Disagreements  With  Accountants  on  Accounting  and
         Financial Disclosure

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

         During GREKA's two most recent fiscal years and through the date of the
dismissal of Bateman & Co.,  Inc.,  P.C.,  GREKA 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.

                                       37
<PAGE>


                                    PART III


Item  10.  Directors,   Executive  Officers,   Promoters  and  Control  Persons;
           Compliance With Section 16(a) of the Exchange Act

The directors and executive officers of GREKA are as follows:
<TABLE>
<CAPTION>

                                                                                            Director
              Name                  Age                Positions                             Since
              ----                  ---                ---------                             -----
<S>                                 <C>    <C>                                            <C>
Randeep S. Grewal                   35     Chairman of the Board, Chief Executive         September 1997
                                           Officer and President, Class A Director
Dr. Jan F. Holtrop                  64     Class B Director                               September 1997
George G. Andrews                   74     Class B Director                               July 1998
Dai Vaughan                         60     Class C Director                               March 1999
Susan M. Whalen                     38     Vice President - Legal and Corporate           December 1999
                                           Affairs, Secretary, Class C Director
</TABLE>

         Randeep S. Grewal.  Mr. Grewal most recently served since April 1997 as
Chairman and Chief Executive Officer for Horizontal  Ventures,  Inc., an oil and
gas horizontal drilling technology company which became a subsidiary of GREKA in
September  1997. At that time Mr. Grewal assumed  responsibility  as Chairman of
the  Board,  Chief  Executive  Officer  and  President  of GREKA  and has  since
established  GREKA'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.  Dr.  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.  Dr.  Holtrop  has almost  forty
(40)years  of  experience  within  the  oil and gas  exploration,  drilling  and
production industry with a global hands-on  background.  Dr. Holtrop has a Ph.D.
and a MSC in Mining Engineering from the Delft University of Technology.

         George G.  Andrews.  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 and directed  the  company's  land
acquisition, lease and management operations. Between June 1981and 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 in 1947
from the University of Tulsa, where he majored in Economics.

                                       38
<PAGE>

         Dai  Vaughan.  A director  since  March 1999,  Mr.  Vaughan has been an
independent  management  consultant since 1994 with  concentrated  experience in
business plan development,  implementation, and business turn-arounds. From 1985
until  1994,  he was with  Continental  Airlines,  most  recently  as Manager of
Aircraft  Acquisition.  Mr.  Vaughan has served in numerous  positions in his 44
year career in the airline industry with British  Airways,  Eastern Airlines and
finally   Continental   Airlines,   including  Systems   Engineering,   Aircraft
Maintenance and Aircraft  Acquisition.  Mr. Vaughan  received a HNC degree (B.S.
equivalent) in Electrical Engineering.

         Susan M. Whalen . Ms.  Whalen  served as Associate  Legal Counsel since
November  1997  until her  appointment  as  General  Counsel in July 1998 and as
Corporate Secretary since August 1998 for Saba Petroleum Company, an oil and gas
exploration and  development  company that traded on the American Stock Exchange
and became a subsidiary of GREKA in March 1999. At that time Ms. Whalen  assumed
responsibility  as Vice  President-Legal  and  Corporate  Affairs and  Corporate
Secretary  of GREKA and has since  executed the legal and  corporate  aspects of
GREKA's  strategies and business plan. Ms. Whalen obtained a Juris Doctor degree
from Western State  University - College of Law in 1987. From 1987 through 1997,
Ms. Whalen was involved in various niche-market, product developments within the
retail industry.

         There are no family  relationships  among the  directors.  There are no
arrangements  or  understandings  between  any  director  and any  other  person
pursuant to 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 '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 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.

Section 16(a) Beneficial Ownership Reporting Compliance

         Based solely on a review of reports  filed with GREKA,  all  directors,
executive  officers  and  beneficial  owners of more than ten  percent  of GREKA
common  stock  timely  filed  all  reports  regarding  transactions  in GREKA 's
securities  required to be filed during the last fiscal year by Section 16(a) of
the Securities Exchange Act of 1934.

                                       39
<PAGE>

Item 11.   Executive Compensation

         The following summary compensation table sets forth in summary form the
compensation  received during each of GREKA's last three completed  fiscal years
by GREKA's executive officers.

Executive Compensation

                           Summary Compensation Table
<TABLE>
<CAPTION>

                                       Annual Compensation            Long Term Compensation
                                  ----------------------------     -----------------------------
                                                                    Restricted       Securities
Name and principal                                                 stock awards      underlying       All other
position                  Year    Salary ($)      Bonus ($)(1)          ($)         options/SARS     compensation
------------------        ----    ----------      -----------      ------------     ------------     ------------
<S>                       <C>     <C>                   <C>          <C>              <C>              <C>
Randeep S. Grewal,        1999    $248,400              --               --             --             $12,000(4)
Chairman and  Chief
Executive Officer
                          1998    $120,000              --           $367,500(2)      110,000          $ 4,200(4)
                          1997    $120,000              --           $80,000(3)       150,000          ---------
</TABLE>


(1) GREKA did not pay its executive officers any bonuses during the three fiscal
years ended December 31, 1999.

(2) Awarded  pursuant  to the First  Amendment  to  Employment  Agreement  dated
October 14, 1998 and valued at the fair market value on such date

(3) Awarded  pursuant to the  Agreement  and Plan of  Acquisition  between Petro
Union, Inc. and Horizontal Ventures,  Inc. dated June 13, 1997 and valued at the
fair market value on such date

(4) Auto expense allowance.

         No other form of  compensation  was paid during 1997,  1998 or 1999. No
other officer,  director or employee of GREKA or its subsidiaries received total
compensation in excess of $100,000 during the last three fiscal years.

                      Option/SAR Grants in Last Fiscal Year
                               (Individual Grants)
<TABLE>
<CAPTION>

                              Number of      Percent of total
                              Securities       options/SARS
                              Underlying        granted to       Exercise or
                             Options/SARS      employees in       base price     Expiration
            Name              granted(#)        fiscal year         ($/Sh)          date
            ----             ------------     ---------------     ----------     ----------
<S>                               <C>              <C>               <C>            <C>
   Randeep S. Grewal              0                ----              ----           ----
</TABLE>


                                       40
<PAGE>

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

<TABLE>
<CAPTION>
            Name           Shares acquired    Value realized    Number of unexercised      Value of unexercised
                           on exercise (#)          ($)            options SARS at      in-the-money options/SARS
                                                                      FY-end (#)        at FY-end ($) exercisable/
                                                                     exercisable/             Unexercisable
                                                                    unexercisable

<S>                               <C>              <C>                <C>                     <C>
   Randeep S. Grewal              0                ----               260,000/0               $1,657,500/$0
</TABLE>


Employment Contracts and Termination Agreements

         On  September  9,  1997,  GREKA  entered  into a  five-year  employment
agreement  with Randeep S.  Grewal.  This  agreement  was amended on October 14,
1998,  and on  November  3, 1999 the Board of  Directors  adopted an amended and
restated employment agreement for Mr. Grewal (the "Restated  Agreement").  Under
the terms of the Restated  Agreement,  Mr.  Grewal's  annual  salary is $287,500
subject to an annual  increase  effective on the  anniversary  date.  Mr. Grewal
participates  in GREKA 's benefit plans and is entitled to bonuses and incentive
compensation  as  determined  by the board of directors  of GREKA.  The Restated
Agreement  also allows Mr.  Grewal to receive an  assignment  of a 2% overriding
royalty of all oil and gas  properties of GREKA and to receive  fringe  benefits
which  include an automobile  allowance of $1,000 per month.  Under the original
agreement, 30,000 shares of GREKA common stock were issued to Mr. Grewal.

         The term of the Restated  Agreement is through the fifth anniversary of
December 31, 1999;  however, it automatically rolls over so that it is a minimum
of three  years  unless  sixty days prior to any  anniversary  date the  Company
notifies Mr. Grewal that the change of control  period shall not be extended.  A
change of  control  termination  clause  was added  which is  intended  to deter
hostile changes of control by providing a substantial termination payment should
Mr. Grewal  terminate his employment or be terminated as a result of a change of
control.  The  Restated  Agreement  is  terminable  for cause or by the death or
disability of Mr. Grewal. In addition,  the Restated Agreement may be terminated
by Mr. Grewal in the event of any diminution by GREKA in Mr. Grewal's  position,
authority,  duties  or  responsibilities.   Upon  termination  of  the  Restated
Agreement by GREKA for any reason other than for cause, death or disability,  or
upon  termination  of the Restated  Agreement by Mr.  Grewal in the event of any
diminution   by  GREKA  in  Mr.   Grewal's   position,   authority,   duties  or
responsibilities,  GREKA is  obligated  to pay  within 30 days after the date of
termination:  (a) Mr.  Grewal's  base salary  through the date of the  severance
period,  (b) Mr.  Grewal's  base  salary  for  the  balance  of the  term of the
agreement  if the date of  termination  is within  the first  five  years of the
employment  agreement  (base  salary is the salary rate in effect at the date of
termination),  (c) the annual bonus paid to Mr.  Grewal for the last full fiscal
year during the employment period, and (d) all amounts of deferred compensation,
if any.

                                       41
<PAGE>

Director Compensation

         Each  director  who is not an  employee  of  GREKA  is  reimbursed  for
expenses  incurred in attending  meetings of the board of directors  and related
committees.  As of the date of this  proxy  statement,  GREKA has three  outside
directors.  No compensation  was paid to any outside director during fiscal 1999
and none is planned for the immediate future.

         On March 17, 1999 when Mr. Vaughan became a director, he was granted an
option to purchase  14,000 shares of common stock at an exercise price of $7.75.
These options have all now vested.

         GREKA has no knowledge of any arrangement or understanding in existence
between any executive officer named above and any other person pursuant to which
any such  executive  officer  was or is to be elected to such office or offices.
All officers of GREKA serve at the pleasure of the board of directors. No family
relationship exists among the directors or executive officers of GREKA. There is
no  person  who  is not a  designated  officer  who  is  expected  to  make  any
significant  contribution to the business of GREKA. 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  will be  served  thereby  without
prejudice, however, to any contractual rights of the person so removed.

Future Transactions

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

Item 12.   Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners and Management

         The  following  table  presents as of April 14,  2000 the common  stock
ownership  of each  person  known by GREKA  to be the  beneficial  owner of five
percent  or  more  of  GREKA  's  common  stock,   all  directors  and  officers
individually,  and all  directors  and  officers of GREKA as a group.  Except as
noted,  each person has sole  voting and  investment  power with  respect to the
shares shown.  GREKA is not aware of any contractual  arrangements or pledges of
GREKA 's securities which may at a subsequent date result in a change of control
of GREKA.  As of April 14,  2000,  there were  4,339,940  shares of GREKA common
stock issued and outstanding.

                                       42
<PAGE>

                              Amount of Beneficial
                                    Ownership

<TABLE>
<CAPTION>
     Name and Address
     of Beneficial Owner                                 Common Stock (1)          Percent of Class
     -------------------                                 ------------              ----------------

     <S>                                                 <C>                       <C>
     Capco Resources Ltd (2)                             1,290,000                 29.7%
     2922 E. Chapman Ave., Suite 202
     Orange, CA  92869

     International Publishing Holding s.a.               416,979                   9.6%
     Postbus 84019
     2508 AA The Hague
     The Netherlands

     Randeep S. Grewal                                   370,000(3)                7.9%
     Chairman of the Board, Chief Executive Officer,
     and a Director
     10815 Briar Forest Drive
     Houston, TX 77042/
     630 Fifth Avenue, Suite 1501
     New York, NY 10111

     Dr. Jan F. Holtrop                                  31,108 (4)                <1%
     Director
     Van Alkemadelaan
     2596 AS The Hague
     The Netherlands

     George G. Andrews                                   35,000 (5)                <1%
     Director
     7899 West Frost Drive
     Littleton, CO 80123

     Dai Vaughan                                         19,000 (6)                <1%
     Director
     900 Powers Ferry Road #101
     Marietta, GA 30067

     Susan M. Whalen                                     0                         <1%
     Vice Pres-Legal & Corp Affairs,
     Secretary, and a Director
     630 Fifth Avenue, Suite 1501
     New York, NY 10111

     All directors and officers as a group (5 persons)   455,108(7)                9.7%
</TABLE>

                                       43
<PAGE>

 (1)  Rule  13d-3  under  the  Securities  Exchange  Act of 1934  involving  the
determination of beneficial owners of securities,  includes as beneficial owners
of  securities  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,  including through the exercise of any option,  warrant or conversion of a
security.

(2) The securities  are  restricted by GREKA's right of first  refusal,  and the
ownership of the securities is presently being  litigated.  (See Item 3 - "Legal
Proceedings")

(3) Includes  options  presently  exercisable to acquire 270,000 shares of GREKA
common  stock,  10,000 of which  options  were  granted on January  31,  2000 in
accordance with the terms of GREKA's 1997 Stock Option Plan at an exercise price
of $8.625 per share; and 100,000 shares of GREKA common stock held  individually
by Mr. Grewal.

(4) Includes  options  presently  exercisable  to acquire 25,000 shares of GREKA
common  stock,  5,000 of which  options  were  granted  on January  31,  2000 in
accordance with the terms of GREKA's 1997 Stock Option Plan at an exercise price
of $8.625 per share.

(5) Consists of options presently  exercisable to acquire 35,000 shares of GREKA
common  stock,  5,000 of which  options  were  granted  on January  31,  2000 in
accordance with the terms of GREKA's 1997 Stock Option Plan at an exercise price
of $8.625 per share.

(6) Consists of options presently  exercisable to acquire 19,000 shares of GREKA
common  stock,  5,000 of which  options  were  granted  on January  31,  2000 in
accordance with the terms of GREKA's 1997 Stock Option Plan at an exercise price
of $8.625 per share.

(7) Includes  options  presently  exercisable to acquire 349,000 shares of GREKA
common stock held by directors and an executive officer of GREKA.

Item 13.   Certain Relationships and Related Transactions

         During the last three  fiscal  years,  there have been no  transactions
between GREKA and any officer,  director,  nominee for election as director,  or
any  shareholder  owning  greater than five percent (5%) of GREKA's  outstanding
shares,  nor any member of the above referenced  individuals'  immediate family,
except for Mr. Grewal's restated employment  agreement (See Item 11 - "Executive
Compensation"),  the loan  from  IPH (See  Item 1 -  "Description  of  Business;
Financing & Debt Restructuring Activities"), and as set forth below.

         GREKA  has an  agreement  with  Grupo  de  Creacion,  Ltd.  ("GDC"),  a
Gibraltar  corporation  and a  shareholder  of the  Company,  for  any  European
financing.  Under the  agreement,  GDC  assisted  GREKA in  arranging  a private
convertible   debenture   offering   during  1999   resulting   in  proceeds  of
approximately $1,000,000. As compensation,  GDC received a negotiated commission
of 10% of the financing less expenses.

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

         It is GREKA '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.



                                       44

<PAGE>

                                     Part IV

Item 14.   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           ByLaws  of  Horizontal  Ventures  (incorporated  by  reference  to
              Exhibit No. 3 to the Horizontal Ventures'  Registration  Statement
              (#33-24265-LA)

3.4           Amendment  to Article II of the Bylaws of GREKA  (filed as Exhibit
              3.1 to the  GREKA  Report  on  Form  10-Q  for the  Quarter  ended
              September 30, 1999 and incorporated by reference herein)

10.1      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)

10.2      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)

10.3      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)

10.4      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)

10.5      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)

10.6      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)

10.7      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)

10.8      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)

10.9      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)

10.10     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)

10.11     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)

10.12     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)


                                       45
<PAGE>


10.13         Amendment to Promissory Notes dated January 20, 2000 between Greka
              and International Publishing Holding, Inc. (filed as Exhibit 10.13
              to GREKA'S amended Report on Form 10-K filed on April 14, 2000 for
              the  fiscal year  ended  December 31, 1999,  and  incorporated  by
              reference herein)


10.14         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)

10.15         Preferred  Stock Transfer  Agreement dated 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).

10.16         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).

10.17         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).

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

10.19         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).

10.20         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).

10.21         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).

10.22         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
              herein by reference).

10.23         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).

10.24         Stock Exchange  Agreement dated November 23, 1998 among Horizontal
              Ventures and the  Shareholders  of Saba Acquisub,  Inc.  (filed as
              Exhibit  10.85 to the GREKA  Engrgy  Report on Form 10-K/A for the
              fiscal year ended  December  31, 1998 and  incorporated  herein by
              reference).

10.25         Agreement to Amend Common stock Purchase  Agreement dated December
              3, 1998 between  Saba and  Horizontal  Ventures  (filed as Exhibit
              10.84 to the GREKA  Engrgy  Report on Form 10-K/A  for the  fiscal
              year  ended  December   31,  1998   and  incorporated   herein  by
              reference).

10.26         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).

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

10.28         Exchange  Agreement between GREKA and RGC International  Investors
              (filed as Exhibit  10.87 to the GREKA Engrgy Report on Form 10-K/A
              for the  fiscal  year ended  December  31,  1998 and  incorporated
              herein by reference).

10.29         Secured Convertible Promissory Note (filed as Exhibit 10.88 to the
              GREKA  Engrgy  Report on Form  10-K/A  for the  fiscal  year ended
              December 31, 1998 and incorporated herein by reference).


                                       46
<PAGE>


10.30         Asset Purchase Agreement dated March 17, 1999 among Sabacol,  Inc.
              and the Omimex Group  (filed as Exhibit  10.89 to the GREKA Annual
              Report on Form 10-KSB for the fiscal year ended  December 31, 1998
              and incorporated by reference herein).

10.31         Loan and  Security  Agreement  dated  April  30,  1999  among  BNY
              Financial Corporation,  GREKA Integrated,  Inc., Saba Realty, Inc.
              and Santa Maria  Refining  Company  (filed as Exhibit  10.1 to the
              GREKA Report on Form 10-Q for the quarter ended March 31, 1999 and
              incorporated by reference herein)

10.32         Arrangement  Agreement  dated  June 16,  1999 among  GREKA  Energy
              Corporation  and  Beaver  Lake  Resources  Corporation  (filed  as
              Exhibit  10.1 to the GREKA  Report  on Form  10-Q for the  quarter
              ended June 30, 1999 and incorporated by reference herein)

10.33         Forbearance  Agreement  dated April 19, 1999,  First  Amendment To
              Forbearance  Agreement  dated  April 30,  1999,  and  Amended  And
              Restated Forbearance Agreement dated July 15, 1999 among Bank One,
              Texas, Saba Petroleum Company and GREKA Energy  Corporation (filed
              as Exhibit  10.2 to the GREKA  Report on Form 10-Q for the quarter
              ended  June 30,  1999  SEC  file  #0-207670  and  incorporated  by
              reference herein)

10.34         Closing  Agreement  dated June 30, 1999 among  Sabacol,  Inc.  and
              Omimex  Resources,  Inc. et al. (filed as Exhibit 4.2 to the GREKA
              Report  on Form 8-K  filed  July  14,  1999  and  incorporated  by
              reference herein)

10.35         Amended and Restated Executive Employment Agreement dated November
              3, 1999 among  Randeep S. Grewal and GREKA  (filed as Exhibit 10.2
              to the GREKA Report on Form 10-Q for the quarter  ended  September
              30, 1999 and incorporated by reference herein)

10.36         Amendment dated September 24, 1999 to Loan and Security  Agreement
              dated  April 30,  1999  among  BNY  Financial  Corporation,  GREKA
              Integrated,  Inc.,  Saba  Realty,  Inc.  and Santa Maria  Refining
              Company  (filed as Exhibit  10.3 to the GREKA  Report on Form 10-Q
              for the  quarter  ended  September  30, 1999 and  incorporated  by
              reference herein)

10.37         Rights  Agreement dated November 3, 1999 (filed as Exhibit 10.4 to
              the GREKA Report on Form 10-Q for the quarter ended  September 30,
              1999 and incorporated by reference herein)

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


21.1          Subsidiaries of  GREKA (filed as  Exhibit 21.1  to GREKA'S amended
              Report on Form 10-K filed on  April 14, 2000 for  the  fiscal year
              ended  December 31, 1999  and  incorporated  by reference herein)


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 *

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

23.4          Consent of Sproule Associates Limited *


27.1          Financial Data Schedule (filed as Exhibit 27.1  to GREKA'S amended
              Report on Form 10-K filed on  April 14, 2000 for  the  fiscal year
              ended  December 31, 1999  and  incorporated  by reference herein)


* Filed herewith.


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


                                       47
<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: April 28, 2000             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          April 28, 2000
                             Directors and Chief
                             Executive Officer
                             (Principal Executive
                             Officer, Financial Officer
                             and Accounting Officer)
/s/ Jan F. Holtrop
----------------------
Dr. Jan F. Holtrop           Director                          April 28, 2000

/s/ Susan M. Whalen
----------------------
Susan M. Whalen              Director                          April 28, 2000

/s/ George C. Andrews
----------------------
George C. Andrews            Director                          April 28, 2000

/s/ Dai Vaughan
----------------------
Dai Vaughan                  Director                          April 28, 2000



                                       48
<PAGE>

                            GREKA ENERGY CORPORATION
                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

                         REQUIRED BY ITEM 8 AND ITEM 14

                                                                    Page

Financial Statements of GREKA Energy Corporation

Report of Independent Public Accountants.............................F-2
Independent Auditors' Report.........................................F-3
Consolidated Balance Sheet as of December 31, 1999 and 1998..........F-4
Consolidated Statements of Operations for each of the
  three years ended December 31, 1999 ...............................F-5
Consolidated Statements of Stockholders' Equity for each
  of the three years ended December 31, 1999 ....................... F-6
Consolidated Statements of Cash Flows for each of the three
  years ended December 31, 1999 .....................................F-8
Notes to Consolidated Financial Statements...........................F-9
Schedule II - Valuation and Qualifying Accounts
  for the three years ended December 31, 1999........................F-28

All other 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.


<PAGE>




                    Report of Independent Public Accountants

To the Shareholders of GREKA Energy Corporation:

We have audited the  accompanying  consolidated  balance  sheets of GREKA Energy
Corporation (a Colorado  corporation)  and  subsidiaries as of December 31, 1999
and 1998, and the related consolidated  statements of operations,  stockholders'
equity and cash flows for the two years then ended.  These financial  statements
and Schedule II Valuation and Qualifying  Accounts 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also  includes,   assessing  the  accounting  principles  used  and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of GREKA  Energy
Corporation  and  subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the two years then ended in
conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic  financial
statements taken as a whole.  Schedule II - Valuation and Qualifying Accounts is
presented  for  purposes  of  complying   with  the   Securities   and  Exchange
Commission's rules and is not a required part of the basic financial statements.
This  information has been subjected to the auditing  procedures  applied in our
audit of the basic financial statements, and in our opinion, is fairly stated in
all material  respects in relation to the basic financial  statements taken as a
whole.

/s/ Arthur Andersen LLP
New York, New York

April 14, 2000

                                      F-2
<PAGE>


Bateman & Co., Inc. P.C.                                       5 Briardale Court
Certified Public Accountants                              Houston, TX 77027-2094

                                                                  (713) 552-9800
                                                              Fax (713) 552-9700
                                                          www.batemanhouston.com

                          INDEPENDENT AUDITORS' REPORT


To The Stockholders and Board of Directors
GREKA Energy Corporation



We  have  audited  the  accompanying   consolidated   statement  of  operations,
stockholders'  equity  (deficit),  and cash flows of GREKA  Energy  Corporation,
formerly  known as Petro Union,  Inc. (a Colorado  corporation),  dba Horizontal
Ventures, Inc., for the year 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 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 audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the results of  operations,  changes in  stockholders'
equity and cash flows of GREKA Energy  Corporation  for the year ended  December
31, 1997 in conformity with generally accepted accounting principles.


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

                                      F-3
<PAGE>


                    GREKA ENERGY CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                               As of December 31,
<TABLE>
<CAPTION>

                                     ASSETS

Current Assets                                                1999            1998
                                                          ------------    ------------
<S>                                                       <C>             <C>
        Cash and equivalents ..........................   $     97,319    $    250,212
        Restricted cash................................      1,000,000               -
        Accounts receivable trade, net of allowance for
          doubtfull accounts of $1,343,852 (1999)
          and $74,000 (1998)...........................      4,681,823          20,807
        Inventories ...................................      4,253,277            --
        Other current assets ..........................      1,951,554         150,788
                                                          ------------    ------------
                 Total Current Assets .................     11,983,973         421,807
                                                          ------------    ------------
Property and Equipment

        Investment in limestone property, at cost .....      3,675,973       3,500,000
        Oil and gas properties (full cost method) .....     29,653,061       3,445,816
        Land ..........................................     17,210,814          85,814
        Plant and equipment ...........................     26,875,661       1,475,661
                                                          ============    ============
                                                            77,415,509       8,507,291

        Less accumulated depletion, depreciation and
          amortization ................................     (7,128,995)     (4,081,340)
                                                          ------------    ------------
Property and Equipment Net ............................     70,286,514       4,425,951
Other Assets
        Investment in Saba Petroleum Company ..........           --        15,804,110
        Other .........................................      1,943,196         154,937
                                                          ------------    ------------
                 Total Other Assets ...................      1,943,196      15,959,047
                                                          ------------    ------------
                                                          $ 84,213,683    $ 20,806,805
                                                          ============    ============
</TABLE>

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Current Liabilities                                                   1999             1998
                                                                  ------------    ------------
<S>                                                               <C>             <C>
        Accounts payable and accrued expenses .................   $  8,235,627    $    236,323
        Current maturities of long term notes and notes payable     13,173,296      2,013,338
        Short term borrowing ..................................      4,750,685            --
                                                                  ------------   ------------
                 Total Current Liabilities ....................     26,159,608       2,249,661

Long term debt, net of current portion ........................     15,695,825          52,634

Other Liabilities .............................................      8,979,927
Commitments and contingencies .................................           --              --

Stockholders' Equity

        Common Stock, no par value, 50,000,000 shares
          authorized, 4,339,940 (1999) and 2,910,908 (1998)
          shares issued and outstanding........................     37,261,043     25,735,019
        Accumulated comprehensive income ......................        (19,243)           --
        Accumulated deficit ...................................     (3,863,477)    (7,230,509)
                                                                  ------------   ------------

        Total Stockholders' Equity ............................     33,378,323     18,504,510
                                                                  ------------   ------------
                                                                  $ 84,213,683   $ 20,806,805
                                                                  ============   ============
</TABLE>


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

                                       F-4
<PAGE>



                    GREKA ENERGY CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Operations
                         For The Years Ended December 31,

<TABLE>
<CAPTION>

                                                          1999            1998             1997
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
Revenues ...........................................  $ 29,137,810    $    145,813    $    211,696
                                                      ------------    ------------    ------------
Costs and Expenses

        Operating Costs ............................    17,820,620         121,016         247,979
        General and Administration .................     3,205,276       1,541,789         756,357
        Depreciation, depletion and ................     3,023,783         333,468          24,016
        Writedown of oil and gas properties ........          --         3,171,485            --
                                                      ------------    ------------    ------------
Total Costs and expenses ...........................    24,049,679       5,167,758       1,028,352
                                                      ------------    ------------    ------------
Operating Income (loss) ............................     5,088,131      (5,021,945)       (816,656)

Other income (expense)
        Equity in loss of Saba .....................      (568,751)       (586,020)           --
        Interest income ............................          --            83,242          11,873
        Interest expense ...........................    (1,859,688)        (32,145)        (25,271)
        Other, net .................................       732,723           9,223         (21,062)
                                                      ------------    ------------    ------------
                 Other Income (expense), net .......    (1,695,716)       (525,700)        (34,460)

Minority Interest in loss of consolidated
        subsidiary .................................        20,617            --              --
                                                      ------------    ------------    ------------
Income (loss) before income taxes ..................     3,413,032      (5,547,645)       (851,116)
Provision for income tax ...........................        46,000            --              --
                                                      ------------    ------------    ------------
Net Income (Loss) ..................................  $  3,367,032    $ (5,547,645)   $   (851,116)
                                                      ------------    ------------    ------------

Other Comprehensive (Loss) .........................       (19,243)           --              --
                                                      ============    ============    ============

Comprehensive Income (Loss) ........................  $  3,347,789    $ (5,547,645)   $   (851,116)
                                                      ============    ============    ============
Net Income (Loss) per Share - Basic ................  $       0.84    $      (3.42)   $      (1.44)
                                                      ============    ============    ============
Net Income(Loss) per Share - Diluted ...............  $       0.76    $      (3.42)   $      (1.44)
                                                      ============    ============    ============
Weighted average number of shares outstanding ......     4,002,917       1,621,483         591,053
                                                      ============    ============    ============
</TABLE>


   The accompanying notes are an integral part of these financial statements

                                      F-5
<PAGE>

<TABLE>
<CAPTION>


                    GREKA ENERGY CORPORATION AND SUBSIDIARIES
                 Consolidated Statements of Stockholders' Equity
               For Each of the Three Years Ended December 31, 1999


                                                            Common Stock            Series A Preferred Stock
                                                         Shares        Amount         Shares         Amount
                                                      -----------   -----------    -----------    -----------
<S>                                                      <C>         <C>           <C>            <C>
Balance December 31, 1996 .........................        3,690        $    37
Stock issued for services...................              30,000            300

Stock issued in exchange for subordinated
  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 ........       552,740     5,801,518           --             --
Less, related offering costs ......................          --        (454,837)          --             --
Issuance of stock to retire note payable to
   related parties ................................         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           --             --

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

Net loss ..........................................            --            --           --             --
                                                      -----------   -----------    -----------    -----------
Balance, December 31, 1998 ........................     2,910,988    25,735,019           --             --

Issuance of stock for acquisition of Saba .........     1,233,738     9,869,904           --             --

Issuance of stock for acquisition of Beaver Lake
  minority interests ..............................        67,597       506,978           --             --

Other issuances, net ..............................       127,617     1,149,142           --             --

Net income.........................................            --            --           --             --

Other comprehensive loss ..........................            --            --           --             --

Balance, December 31, 1999 ........................     4,339,940   $37,261,043           --             --



</TABLE>

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

                                      F-6
<PAGE>
<TABLE>
<CAPTION>

                            GREKA ENERGY CORPORATION
                 Consolidated Statements of Stockholders' Equity
                 For The Years Ended December 31, 1999 and 1998
                                   (Continued)


                                                                                  Capital
                                                 Capital In                     Contributed
                                               Excess of Par    Accumulated     by Limited
                                                   Value          Deficit        Partners         Total
                                               ------------    ------------    ------------    ------------
<S>                                            <C>            <C>              <C>            <C>

Balance, December 31, 1996 .................   $      3,445    $  (831,748)    $   818,000     $   (10,266)
Stock issued for services ..................             --             --              --             300
Stock issued in exchange for subordinated
  convertibel debentures, and not assets
   of limited parternership ...............       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
Loss, related offering costs                             --              --            --         (454,837)
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 Co. .................................          --             --             --       14,062,500
Net Loss ......................................          --      5,547,645)            --       (5,547,645)
                                                -----------    -----------   ------------     ------------
Balance as of December 31, 1998 ...............          --     (7,230,509)            --       18,504,510
                                                -----------    -----------   ------------     ------------
Issuance of stock for acquisition of Saba.......         --             --             --        9,869,904
Issuance of stock for acquisition of Beaver
  Lake minority interest .......................         --             --             --          506,978
Other issuances, net ...........................         --             --             --        1,149,142
Net income .....................................         --      3,367,032             --        3,367,032
Other comprehensive loss .......................         --             --        (19,243)         (19,243)
                                                ------------   -----------   ------------      ------------
Balance, December 31, 1998 ..................... $       --    $(3,863,477)  $    (19,243)    $ 33,378,323





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

                                      F-7

<PAGE>
<TABLE>
<CAPTION>
                    GREKA ENERGY CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                 For Each of the Three Years Ended December 31,

                                                    1999             1998            1997
                                               ------------    ------------    ------------
<S>                                           <C>            <C>              <C>
Cash Flow operating activities: ............             --              --              --
 Net Income (loss) .........................   $  3,367,032    $ (5,547,645)   $   (851,116)
 Adjustments to reconcile net income
      (loss) to net cash used in operations:
 Depreciation, depletion, and
  Amortization .............................      3,023,788         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 ................        553,483         586,020              --
 Stock and partners' capital issued
  for services .............................             --              --             300
Compensation expense attributable to
  the issuance of Common Stock .............        150,000              --              --
(Increase) decrease in accounts
  receivable ...............................     (1,101,994)         (3,626)         66,040
(Increase) Accounts receivables, other .....     (5,126,741)       (147,355)            520
(Increase) in inventory and other current
  assets ...................................        (66,310)       (114,646)             --
Increase (decrease) in accounts
  payable and accrued expenses .............      (1,179,791)       (562,222)       136,716
Minority Interest in (loss) of
  Consolidated subsidiary ..................        (20,617)             --              --
                                                ------------    ------------    ------------
Net cash used in
  operating activities .....................       (401,150)      (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 .......     (2,091,735)     (1,168,519)     (1,502,462)
 Proceeds from sale of property and
  Equipment ................................        915,000          55,908          55,181
 (Increase) decrease in deposits and
  prepayments ..............................             --              --           1,286
 Acquisition of Saba common and
  preferred shares .........................             --      (2,327,630)             --
 cash aquired in Saba aquisition............        444,764              --              --
Other ......................................        (56,380)             --              --
                                               ------------    ------------    ------------
Net Cash (used) in investing activities ....       (788,351)     (1,826,546)     (3,059,690)
Cash flows from financing activities:
 Repayments of Notes Payable ...............    (28,098,901)        (32,896)       (206,084)
 Proceeds of loans from affiliates .........     25,317,293       2,000,000          59,122
 Decrease in customer payments
  received in advance ......................             --              --         (30,000)
Net increase in Revolver Loan ..............      4,443,216              --              --
Payment of financing costs .................       (625,000)
Proceeds from sale of stock, net of
 expenses ..................................             --          84,446       5,946,681
Other ......................................             --              --          51,517
                                               ------------    ------------    ------------
Net Cash provided by financing activities ..      1,036,608       2,051,550       5,821,236
                                               ------------    ------------    ------------
Net increase (decrease) in cash and
 cash equivalents ..........................       (152,893)     (2,068,740)      2,312,494
Cash and cash equivalents:
 Beginning of period .......................        250,212       2,318,952           6,458
                                               ------------    ------------    ------------
End of period ..............................   $     97,319    $    250,212    $  2,318,952
                                               ============    ============    ============
Non-cash financing and investing activities:
 Stock issued for services .................   $   (180,000)             --    $        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 acquisition of
   investment in Saba Petroleum Co. ........      9,869,904      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
Stock issued for acquisition of Beaver Lake
  minority interest.........................        506,978              --              --
Supplementary cash flow data:
 Interest paid .............................      1,719,688          20,562          26,324
 Income taxes paid .........................             --              --              --
</TABLE>
   The accompanying notes are an integral part of these financial statements.
                                      F-8
<PAGE>

                            GREKA Energy Corporation
                   Notes to Consolidated Financial Statements

                                December 31, 1999


NOTE 1 - DESCRIPTION OF BUSINESS AND MANAGEMENT'S PLANS

         GREKA  Energy  Corporation,  a  Colorado  corporation  ("GREKA"  or the
"Company") is an independent  integrated  energy  company  committed to creating
shareholder  value by capitalizing on consistent cash flow hedged from oil price
fluctuations  within  integrated  operations,  exploiting E&P  opportunities and
penetrating new niche markets utilizing proprietary  technology with an emphasis
on low cost short radius horizontal drilling technology patented by BP Amoco and
licensed to GREKA. GREKA has oil and gas production, exploration and development
activities in North America and the Far East,  with primary areas of activity in
California,  Louisiana,  and China.  In  addition,  GREKA owns and  operates  an
asphalt refinery in California through a wholly-owned subsidiary.

Business Strategy

           GREKA's objective is to build  shareholder  value through  consistent
economic growth both in the increased  throughput at its asphalt refinery and in
the growth of its reserves and  production  thereby  creating an increase in net
asset value per share, cash flow per share and earnings per share. Management is
focused on a balanced program of low to medium risk exploitation and development
of its existing reserves utilizing its low cost horizontal short radius drilling
technology  licensed from BP Amoco. This is balanced by rapid growth through the
acquisition  of  synergistic  businesses  such  as the  Saba  Petroleum  Company
("Saba")  acquisition  concluded during the first quarter of 1999. All asset and
capital  investment  decisions  are measured  and ranked by their  risk-adjusted
impact on per share value.

         GREKA has  established a three prong  strategy that  capitalizes on its
asset base to enhance shareholder value as follows:

         Integrated Hedged Operations

         Hedged  operations of GREKA are planned to focus on the  integration of
its Santa Maria (California) assets,  including an asphalt refinery and interest
in heavy oil fields.  The hedged  operations  are targeted to  capitalize on the
stable  asphalt  market in California by providing a balance of equity and third
party feedstock  (heavy oil) into the refinery.  The integration of the refinery
(100% owned) with the interests in the heavy oil producing  fields (100% working
interest)  has  successfully  provided  a stable  hedge to GREKA on each  equity
barrel  (since  June  1999).  GREKA's  strategy  in these  integrated  assets is
two-fold:

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

2.   GREKA intends to implement the  proprietary  BP 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
highest  rate  during  1999 of  approximately  4,500  barrels  per day to 10,000
barrels per day by year end 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's
shareholders.

         Exploitation, Exploration & Production

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

                                      F-9
<PAGE>

         BP Amoco Horizontal Drilling Technology

         GREKA 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.

         Significant  and  lucrative  markets exist for the  application  of the
niche technology for GREKA'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 to  acquire  such  fields  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 has found that
California  is  a  unique   opportunity   due  to  its  stringent  new  drilling
regulations.  GREKA'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 owners which,  rather than attempt a costly  endeavor to
drill new wells in urban  areas,  choose  to sell  their oil and gas  interests.
GREKA intends to pursue such opportunities.

Business Development of GREKA

         GREKA Energy  Corporation was formed in 1988 as a Colorado  corporation
under the name of Kiwi III,  Ltd. On May 13,  1996,  GREKA,  then known as Petro
Union, Inc., filed a voluntary petition for relief pursuant to Chapter 11 of the
United States  Bankruptcy Code.  Current GREKA management  acquired Petro Union,
Inc. and  simultaneously  procured on August 28, 1997, an order confirming Petro
Union's First Amended Plan of  Reorganization  from the Bankruptcy Court for the
Southern District of Indiana. The bankruptcy court approved the final accounting
and closed the bankruptcy proceedings on March 26, 1998.

         During  1998,  management  of GREKA  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  implementing  its strategic niche growth plan.
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'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 of the Saba  acquisition,
GREKA's  management and staff devoted a substantial amount of time and effort to
the acquisition.

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

         Immediately subsequent to the completion of the acquisition, management
commenced  its strategy to reverse the decline in value of the Saba assets which
resulted in the following material events:

o    In May 1999, the Company's subsidiary assumed full operation of its asphalt
     refinery  which  significantly  increased,  and is  expected to continue to
     increase, operating cash flows.

o    Also in May 1999, the Company's  subsidiaries  secured financing with a new
     bank, BNY Financial  Corporation  ("BNY"),  for $11 million which was later
     increased to $12 million in September 1999.

o    Further in May 1999, the Company's  subsidiary  paid $6 million to Bank One
     Texas,  N.A.  ("Bank  One") to reduce  the debt  owed by Saba  which was in
     default since 1998.

o    In June  1999,  the  Company's  subsidiary  sold  its  non-core  assets  in
     Colombia, further reducing its debt by $10 million while maintaining upside
     potential  through  either a  repurchase  option  which has  recently  been
     exercised or a court order directing rescission of the sale.

                                      F-10
<PAGE>

o    In July 1999,  the Company  completed the  acquisition of all of the Beaver
     Lake Resources  Corporation  (the owner of the Company's  Canadian  assets)
     shares it did not already own, thereby  privatizing Beaver Lake as a wholly
     owned subsidiary.  Greka issued approximately 68,000 shares to complete the
     acquisition of the minority interest.

o    In August 1999, the Company entered into a term sheet to restructure Saba's
     9% senior subordinated debentures.

o    Also in August  1999,  the  Company's  subsidiary  emerged  from  voluntary
     bankruptcy  following  consummation  of the sale of its non-core  assets in
     Colombia.

o    Further  in August  1999,  the  Company's  subsidiary  signed a  production
     sharing contract with the China United Coalbed Methane  Corporation Ltd. to
     jointly exploit coalbed methane (CBM) resources in China.

o    In November 1999, the Company's  subsidiaries closed the financing of a $35
     million  facility with GMAC Commercial  Credit LLC to provide  financing to
     reduce current liabilities and for future acquisitions.

o    Also in November 1999, the Company's  subsidiary made an additional payment
     of $11.2 million to Bank One to reduce the defaulted debt owed by Saba.

o    Further in November 1999, the Company adopted a shareholder  rights plan to
     preserve the long-term value of the Company for its shareholders.

o    In December 1999, the Company  announced that its shares commenced  trading
     on the Nasdaq National Market System.


                                      F-11
<PAGE>
Business Segments

         During  1999,  the  Company   operated  in  three  industry   segments:
Integrated  Operations  (California  refinery and E&P),  E&P  Americas,  and E&P
International.  In 1998 and 1997, the Company operated in one segment:  contract
drilling  and  development  of oil and  gas  properties  for  its  own  account.
Information  about the  Company's  operation  by  segment as of and for the year
ended December 31, 1999, is as follows (in thousands):
<TABLE>
<CAPTION>
                                  Integrated           E&P               E&P          Corp. &
                                  Operations        Americas            Int'l            Other           Total
                                  -----------       ---------       -------------     -------            ------
<S>                                  <C>              <C>              <C>            <C>                <C>
Total Oil and Gas
    Revenue                          $3,710           $5,457           $2,815         $(3,799)           $8,183
Refinery Revenue                     20,924               --               --              --            20,924
                                    -------             -------        ------         -------            ------
Total Revenue                        24,645            5,425            2,868          (3,799)           29,138
                                    -------             -------        ------         -------            ------
Production Costs                      2,229            2,939            1,577          (3,799)            7,244
Refinery Costs                       14,375               --               --              --            10,576
Gross Profit                          7,543            2,487            1,290              --            11,318
Other Expenses                        1,426              245              576             958             3,205
DD&A Expenses                         1,453            1,064              506              --             3,024
Interest and other
    (expenses) income                   (31)             (31)             747          (2,380)           (1,695)
                                    -------          -------           ------         -------            ------
Net income/loss                      $4,630            1,147              955          (3,365)            3,367
                                     ======            =====              ===          =======            =====
Capital Expenditures                 $2,092               $0               $0              $0            $2,092
Assets at Year End                  $58,267          $16,886           $8,456            $244           $84,213
                                    =======          =======           ======            ====           =======
</TABLE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of presentation - The consolidated  financial  statements include the
accounts of the Company and wholly owned  subsidiaries.  The  investment in Saba
was accounted for using the equity method of accounting from the date of initial
share purchase through March 24, 1999 (the date of the merger, see Note 4).

           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,  inventory,  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  subsidiaries' 1999 trade receivables are from sales of asphalt
and related products and oil and gas billings, including those to joint interest
property owners,  while the 1998 trade receivables are from directional drilling
services.

     Concentrations  of  credit  risk  -  Substantially  all  of  the  Company's
subsidiaries'   accounts   receivable   are  from   companies   engaged  in  the
asphalt/paving  and oil and gas  businesses,  and  concentrated  in the West and
Southern  United States.  Generally,  the Company's  subsidiaries do not require
collateral for its account receivable. The Company performed services for only a
limited  number of customers in 1998 and 1997;  therefore,  each customer may be
considered  a  major  customer.   During  1999,  the  following  customers  were
significant:

Customers                            % of Total Revenue

Lawson Rock and Oil                          19.9%
Granite Construction                          9.8%
Union Asphalt Company                         8.1%

     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

                                      F-12
<PAGE>

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.

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  subsidiaries'  capitalized  oil and gas property costs are amortized.
The Company's subsidiaries'  properties are all onshore, and the Company expects
that  the  salvage  value  of  the  tangible  equipment  will  offset  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.  The  cost of  unevaluated  properties
(approximately  $5.2 million at December 31, 1999) 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. Management believes
no such impairment exists at December 31, 1999.

     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 proven 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 1998, the Company recorded a $3,171,485  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, 1999.

     License  agreements  and  organization  expenses - The Company has acquired
certain licenses for the use of horizontal drilling  technology  developed by BP
Amoco. License agreements are amortized over a fifteen year life,  respectively,
using  the  straight  line  method  of  amortization.  Amortization  charged  to
operations   was  $16,593,   $16,510  and  $16,593  in  1999,   1998  and  1997,
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.
                                      F-13
<PAGE>

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

   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  earning/(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,  warrants and other
convertible securities. However, diluted earnings per share is the same as basic
earnings per share in  instances  where a loss has been  incurred.

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
Horizontal  Ventures  would be  acquired  by Petro  Union.  Petro Union was also
engaged in  performing  contract-drilling  services  using the licensed BP 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 Horizontal  Ventures was part of Petro Union's Plan
of Reorganization. On August 28, 1997, the Bankruptcy Court approved the Plan.

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

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

                                      Year Ended December 31, 1997

                           Petro Union, Inc.   Petro Union, Inc.,
                             (January 1            d/b/a
                               through           Horizontal
                          September 9, 1997)      Venutres          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)
                              ===========        ===========       ===========

                                      F-14
<PAGE>

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

During 1998 and 1999, GREKA entered into the following  transactions to purchase
its interests in Saba:
<TABLE>
<CAPTION>

Date                     Consideration    Common Stock    Preferred Stock       Cost
----                     -------------    ------------    ---------------   ------------
<S>                     <C>               <C>             <C>              <C>

                                                                               (in 000's)
October 1998             Cash                 80,000                                $ 70
October 1998             Cash                                        690             750
November 1998            Cash                333,333                               1,500
December 1998            1.34 million
                         shares of GREKA   2,971,766                              14,070
                                          ------------    --------------    ------------
Total                                      3,385,099                 690     $    16,390
                                          ============    ===============   ============
</TABLE>
On October 8, 1998, the Company disclosed that it had acquired over five percent
of the  outstanding  common  stock of Saba,  with the intent to gain  control of
Saba.

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.

In December,  1998, the Boards of Directors of both companies  approved  GREKA's
proposal to acquire Saba. Under the acquisition  agreement,  Saba's stockholders
would  receive one share of the  Company's  Common  Stock for each six shares of
Saba's common stock outstanding.

In addition to the shares  owned  directly  by GREKA,  568,000  Saba shares were
owned by IPH, a 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 issued  140,886
shares to IPH in exchange for the shares of SABA owned directly.

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  $9.9
million based upon the issuance of 1,233,738 shares of GREKA stock.

GREKA's $16.4 million equity method investment and the total acquisition cost of
$25.8 million have been allocated to the fair value of each of Saba's assets and
liabilities,  as of December  31,  1998 and March 24,  1999 (as  updated) in the
following table. The amounts presented for 1998 represent 29.8% of the estimated
fair value of Saba's assets and liabilities (dollars in thousands).

                                                    12/31/98       03/24/99
                                                   ---------     ----------
 Refinery                                            $12,218     $  25,400
 Oil and Gas Properties                               10,582        29,935
 Land                                                  3,580        16,600
 Other Assets                                          5,994         7,027
 Liabilities and minority interest                   (15,984)      (53,207)
                                                   ---------     ---------
 Total investment                                  $  16,390     $  25,755
                                                   =========     =========
                                      F-15
<PAGE>
The  summarized  audited  financial  information  of Saba is  shown  below as of
December 31, 1998 and for the year ended December 31, 1998 and through March 24,
1999:

Balance Sheet Data                                  1998
                                                 -----------
Oil and gas properties, net......................$32,904,810
Other assets, net.................................16,783,602
Current liabilities...............................40,003,281
Other liabilities and
preferred stock ..................................13,176,220
 .................................................-----------
Net assets...................................... $(3,491,089)

                                                 ===========
GREKA 's equity in net assets................... $(1,040,344)
                                                 ===========

Earnings Data                                      1998                 1999
                                                ------------        -----------
Revenues .......................................$ 23,331,331        $ 3,660,742
Operating (loss)................................ (24,024,215)        (1,377,618)
Net (loss)......................................$(28,650,823)        (1,908,563)
                                                ============        ===========
GREKA's equity in loss..........................$   (586,020)       $  (568,751)
                                                ============        ===========

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 through
March 24, 1999.

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
does 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            Year Ended
                                       December 31, 1998     December 31, 1999
                                       -----------------     -----------------
Dollars in thousands,
 except share amounts
Revenue...........................          $23,137              $32,779
Net Income (loss).................          (34,234)               1,459
Income (loss) per common share....            (8.08)                0.34


NOTE 5 - PROPERTY AND EQUIPMENT:

 A summary of the Company's  subsidiaries' property and equipment as of December
31, 1999 and 1998 is as follows:

                                                        1999            1998
                                                     ----------      -----------
Investment in limestone properties.............      3,675,973      $ 3,500,000
Total oil and gas property.....................     29,653,061        3,445,816
Land and buildings.............................     17,210,814           85,814
Plant and equipment............................     26,875,661        1,475,661
                                                   -----------      -----------

Total Cost.....................................     77,415,509        8,507,291
Accumulated Depletion and depreciation.........    ( 7,128,995)      (4,081,340)
                                                   -----------      -----------
                                                   $70,286,514      $ 4,425,951
                                                   ===========      ===========

Depreciation, depletion and amortization (including an impairment charge in 1998
of $3,171,485) charged against income was $3,023,783 in 1999, $3,504,953 in 1998
and $0 in 1997.

Useful lives are as follows:

Refinery .............................................. 40 years
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

                                      F-16
<PAGE>

NOTE 6 - RESTRICTED CASH

At  December  31,  1999,  cash of  $1,000,000  was held in escrow  relating to a
potential  acquisition  by the  Company.  Subsequent  to year end,  the  Company
determined  that it would not pursue the  transaction  and the cash was released
from escrow.

NOTE 7 - EARNINGS PER SHARE

In 1998 and 1997, the company  incurred a net loss and therefore,  the basic and
diluted  loss per share are the same.  Diluted  earnings per share for 1999 were
calculated as follows:

Net Income............................................................$3,367,030
Add: Income impact of assumed conversion of convertible debt..........   241,313
                                                                      ----------
Net income plus impact of assumed conversion ......................... 3,608,343
                                                                      ==========
Weighted Average Common Shares Outstanding ........................... 4,202,917
Effect of Dilutive Securities -
    Employee stock options ...........................................   151,343
    Convertible debt .................................................   420,588
                                                                      ----------
Weighted Average Shares plus impact of assumed conversion ............ 4,774,848
                                                                      ==========

NOTE 8 - INVENTORY

In connection with assuming  operations of Saba's asphalt  refinery in May, 1999
the Company acquired finished goods and raw materials from the prior operator.

Inventory is stated at the lower of cost,  determined  on a first-in,  first-out
basis or market and includes material,  labor and manufacturing  overhead costs.
Due to the continuous  manufacturing  process,  there is no significant  work in
process at any time. Inventory consists of the following:

Raw Material ........................$ 1,830,632
Finished goods.......................  2,422,645
                                     -----------
   Total ............................$ 4,253,277
                                     ===========

NOTE 9 - COMMITMENTS AND CONTINGENCIES

 The Company and its subsidiaries  lease office space,  automobiles,  computers,
and  other  equipment  under  various  operating  leases.  The  Company  and its
subsidiaries  have options to renew these leases.  Aggregate  commitments  under
these leases at December 31, 1999 were as follows:

   Year Ending December 31:   Amount
   -----------------------  ----------
   2000                      $278,229
   2001                       155,218
   2003                        66,096
   2004                        60,588

                                      F-17
<PAGE>


Rent expense included in the accompanying statements of operations was $370,133,
$76,778 and $31,262 in 1999, 1998 and 1997, respectively.

 In October 1994, the Company licensed certain  directional  drilling technology
from BP Amoco, 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 $30,000, $15,000
and $20,000 for the years ended December 31, 1999, 1998 and 1997,  respectively.
Semi-annual  settlements  are required  under the license,  and BP Amoco has the
right to terminate  the license for  non-payment.  If BP Amoco were to terminate
the  Company's  license,  it  could  have an  adverse  affect  on the  Company's
operations.

In 1993, GREKA's subsidiary  acquired a producing mineral interest in California
from a  major  oil  company.  At  the  time  of  acquisition,  the  subsidiary's
investigation  revealed that a discharge of diluent,  a light,  oil-based  fluid
which is often mixed with  heavier  grades of crude had occurred on the acquired
property.  The purchase  agreement  required the seller to remediate the area of
the diluent spill.  After the subsidiary  assumed operation of the property,  it
became  aware of  additional  diluent  contamination  and believes the major oil
company is  responsible  to remediate  these areas as well.  The  subsidiary has
notified  the  seller  of  its  obligation  to  remediate.  Notwithstanding  the
subsidiary's  compliance in proceeding with any required remediation on seller's
account,  the  subsidiary  is committed to hold the seller  accountable  for the
required  remediation.  Since the  investigation  is not  complete,  an accurate
estimate of cost cannot be made.

In 1995,  GREKA's  subsidiary  agreed  to  acquire  an oil and gas  interest  in
California on which a number of out of production  oil wells had been drilled by
the seller.  The acquisition  agreement  required that the subsidiary assume the
obligation  to  abandon  any  wells  that  the  subsidiary  did  not  return  to
production,  irrespective of whether certain consents of third parties necessary
to transfer the property to the subsidiary  were obtained.  Management  believes
the subsidiary has no obligation to remediate this property  because it believes
the  seller  did not give the  subsidiary  any  consideration  to enter into the
contract  for the  property.  Notwithstanding  the  subsidiary's  compliance  in
proceeding with any required  remediation on seller's account, the subsidiary is
committed to hold the seller  accountable  for the required  obligations  of the
property.  Since the investigation is not complete, an accurate estimate of cost
cannot be made.

GREKA's  subsidiary owns an asphalt  refinery in Santa Maria,  California,  with
which significant  environmental  remediation  obligations are associated.  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.

GREKA's subsidiaries,  as is customary in the industry, are required to plug and
abandon wells and remediate  facility sites on their 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
subsidiaries'  other oil and gas  properties  would not have a material  adverse
effect on the Company.

                                      F-18

<PAGE>

NOTE 10 - FEDERAL AND STATE INCOME TAXES

The components of income (loss) before income taxes for the years ended December
31, are as follows:

United States           $ 2,725,143     ($5,547,645)    ($851,116)
International               687,889               -             -
                        -----------      ----------      --------
                        $ 3,413,032     ($5,547,645)    ($851,116)
                        ===========      ==========      ========

Components  of income tax  expense  for the years  ended  December  31,  1999 as
follows:

Current
  Federal       $40,000
  State          46,000
  Foreign             -
                -------
                 86,000

Deferred
  Federal       (40,000)
  State               -
  Foreign             -
                -------
                (40,000)
                -------
                $46,000
                =======

Due to the losses recorded since  inception,  no provision or benefit for income
taxes was recorded in 1998 and 1997.

The  effective  tax rate  differs  from the amount  that would  result  from the
application  ofthe  statutory rate due to the  utilization of net operating loss
carry forwards.

The  components of the deferred  income tax  asset/liability  as of December 31,
1999 are as follows:
                                                                 1999
                                                             -----------
Net operating loss carry forwards .......................... $ 4,879,000
Property and equipment ....................................    6,014,600
Foreign tax credits .......................................    6,022,000
Alternative minimum tax credits ...........................      178,000
Other .....................................................      216,000
                                                             -----------
                                                              17,309,600
Valuation allowance .......................................  (17,309,600)
Net deferred tax asset ....................................  $        --
                                                             ===========

A  significant  net operating  loss  carryover has been incurred in prior years,
primarily by Petro Union,  Horizontal  Ventures and Saba. The net operating loss
expires, if unused , as follows:

   Expires in              Amount
   ----------        ------------
   2007              $  1,039,000
   2008                 4,520,000
   2009                   452,000
   2010                    64,000
   2011                 1,067,000
   2018                   569,000
   2019                 6,229,000
                     ------------
   Total             $ 13,940,000
                     ============

The  Company's  review of its available  net  operating  loss carry  forwards is
ongoing.  Upon  completion of this review,  additional  net operating loss carry
forwards may be identified.

                                      F-19
<PAGE>


 NOTE 11 - NOTES PAYABLE AND LONG-TERM DEBT:

Notes payable and  long-term  debt consist of the following at December 31, 1999
and 1998:


                                              1999                 1998
                                           -----------          ---------
  Saba 9% senior subordinated
     Debentures Due 2005 Net of
     discount a.........................   $ 3,320,778          $       -
  Loan agreement - Bank One b ..........     2,986,497                  -
  Demand loan agreement with a bank c ..       794,185                  -
  Capital lease obligations d ..........       309,229                  -
  Term loan with a bank e ..............       351,562                  -
  Notes payable f ......................     2,000,000          2,000,000
  15% convertible senior subordinated
      Debenture due 2001 g .............     1,000,000                  -
  Term and Revolving Loan Agreement
      GMAC Financial Corporation b .....    22,219,469                  -
  Other notes and loans ................       638,086             65,972
                                           -----------          ---------
                                           $33,619,806          2,065,972

  Less current portion .................    17,923,981          2,013,338
                                           -----------          ---------
  Net Long-term debt ...................   $15,695,825          $  52,634
                                           ===========          =========

                                      F-20

<PAGE>

a    In July and August 1999, GREKA 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  with  interest  at the rate of 9%,
     maturing on  December  31, 2005 with a right of GREKA 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 at any
     time. The conversion  price offered by GREKA is 95% of the average  closing
     bid price of GREKA's  common stock for the 30  consecutive  trading days of
     GREKA's  common stock ending one day prior to the date notice of conversion
     is  received  by GREKA,  but in no event less than $8.50 nor  greater  than
     $12.50 per share. Assuming full conversion,  the minimum and maximum number
     of shares of GREKA  common  stock  issued  would be  286,000  and  420,588,
     respectively.  The Company is acting as the exchange agent for the issuance
     of new GREKA debentures, the terms of which include that, commencing August
     1,  2000,  each  holder of  GREKA's  debentures  shall  have the right upon
     written  notice to GREKA 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.

b    In February  1999,  Bank One notified  Saba that, as a result of continuing
     defaults under Saba's principal credit facilities with Bank One, the entire
     amount  of  $20.1  million  then  outstanding   under  the  facilities  and
     classified as currently  payable was accelerated  and declared  immediately
     due and payable. 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.

     In April 1999,  GREKA and Bank One  entered  into a  forbearance  agreement
     whereby Bank One agreed to forebear  through June 11, 1999 from  exercising
     its various remedies for Saba's defaults under the Bank One loan agreements
     in order  to  afford  GREKA's  subsidiaries  the  opportunity  to  complete
     contemplated  transactions on the condition that, among other things,  each
     of the transactions would be completed by June 11, 1999.

     In April 1999, GREKA's subsidiaries  procured a loan from BNY that provided
     funds of up to $11 million under two credit facilities.  A term loan in the
     amount of $6 million was funded upon  closing,  the  proceeds of which were
     used to reduce the  indebtedness  owed by Saba to Bank One. In addition,  a
     revolving credit facility provided advances for working capital of up to $5
     million against  eligible  receivables  and inventory of the refinery.  The
     loans  are  secured  by real  estate  interests  located  in  Santa  Maria,
     California and certain assets owned by the Company's subsidiaries.

     In July 1999, GREKA, 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 maintained  compliance with certain conditions
     regarding  events of default,  made timely  interest  payments  and secured
     alternative financing to retire the Bank One indebtedness.

     In September  1999,  the revolving  credit  facility with BNY that provided
     advances to GREKA's  subsidiaries for working capital of up to $5.0 million
     against  eligible  receivables  and  inventory  of the Santa Maria  asphalt
     refinery was increased to $6.0 million,  raising the total  available funds
     acquired in April 1999 under the revolving credit facility and the reducing
     term loan of $6.0 million from $11.0 million to $12.0 million.

     In November 1999, the borrowers of the BNY credit  facility  entered into a
     loan and security agreement with GMAC Commercial Credit LLC ("GMAC").  That
     agreement  amends the loan and security  agreement the parties entered into
     in April 1999.  The November 1999  agreement  increased from $11 million to
     $35 million the amount which GREKA's subsidiaries may borrow from GMAC upon
     the  satisfaction  of  the  terms  and  conditions  of the  agreement.  The
     financing  consists of a term loan of $25  million  and a revolving  credit
     facility of $10 million. Of the proceeds, $11.2 million were used to reduce
     the  indebtedness  owed by Saba to Bank One.  The  financing  is secured by
     GREKA's   subsidiaries'   interests  in  certain  California  oil  and  gas
     properties  and real estate.  The term loan had an  outstanding  balance of
     $17,500,000 and the revolving  credit  facility  $4,719,469 at December 31,
     1999.  Amounts  outstanding  under the credit facility bear interest at the
     rate of prime plus 1% (9.25% at December  31,  1999).  Amortization  of the
     term loan began in April 2000,  and  accordingly,  $4.2 million of the term
     loan amount is classified as currently payable at December 31, 1999.

                                      F-21
<PAGE>

c    The Company's Canadian subsidiary has a demand revolving reducing loan with
     a borrowing  base of $1.2  million.  Interest is payable at a variable rate
     equal to the  Canadian  prime rate plus 0.75% per annum  (7.25% at December
     31,  1999)  The  loan is  collateralized  by the  subsidiary's  oil and gas
     producing properties and a fixed floating charge debenture in the principal
     amount of $3.6 million  over all assets of the  subsidiary.  The  borrowing
     reduces at the rate of $34,175 per month.  In accordance  with the terms of
     the loan  agreement,  $290,001  of the total loan  balance of  $794,185  is
     classified as currently payable at December 31, 1999. 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. There has not been
     an event of default under this agreement.

d    A subsidiary of the Company 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, 1999 was 8.21%.

e    The term loan with a bank ($351,652) is due to the seller of a fee interest
     in property in which the Company's  subsidiary owns mineral interests.  The
     note bears interest at the prime rate plus 1% (9.25% at December 31, 1999),
     is scheduled  for repayment in monthly  installments  to a maturity date of
     February  2001,  and is  collaterized  by the fee interest  acquired by the
     subsidiary.

f    In October  1998 and  November  1998,  the Company  borrowed  $500,000  and
     $1,500,000, respectively, from IPH which matured December 31, 1999 pursuant
     to several  extensions.  Effective  January 1, 2000,  the loan amounts were
     consolidated  into a loan with a maturity  date of June 30,  2000,  bearing
     interest  at  the  rate  of 9% per  annum  from  January  1,  2000  payable
     quarterly,  with monthly installment payments of $100,000. The Company paid
     $180,000  in  consideration  of the loan  extension.  If the entire  unpaid
     principal  and/or accrued  interest is not paid at maturity,  the amount of
     principal  owed  and  rate  of  increase  shall   increase.   The  loan  is
     collateralized by all of the issued and outstanding shares of capital stock
     of a subsidiary of the Company.

g    In February 1999, GREKA issued convertible senior  subordinated  debentures
     in the principal amount of $1 million.  The debentures bear interest at 15%
     through  maturity on February 1, 2001, and are secured by GREKA's  interest
     in limestone deposits.  The debentures may be converted by the holders into
     GREKA common  stock at any time from  February 1, 2000,  until  January 31,
     2001 at a conversion price of $20.00 per share. At December 31, 1999, there
     were no  conversions.  GREKA may call all or a portion of the amount at any
     time during the term of the  debenture by paying the  principal  amount due
     plus any accrued  interest.  The principal use of proceeds from the sale of
     the debentures was to provide funds to conclude the Saba acquisition.

NOTE 12 - OTHER LIABILITIES

Other  libalities  of $8,979,927  at December 31, 1999  premarily  represent the
company's  estimated  exposure to litigation  acquired in the Saba  acquisition.



                                      F-22
<PAGE>


NOTE 13 - LITIGATION:

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 the Company's subsidiary breached the agreement between the
parties  for failing to close the sale of its  interests  in certain oil and gas
properties.  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,  the  Company's
subsidiary  filed a  counterclaim  against  Enervest  for damages  incurred as a
result of Enervest's breach of the agreement by failing to close the sale. While
the subsidiary plans to vigorously defend all claims asserted by Enervest and to
aggressively  pursue all counter and third  party  claims,  the matter is in its
discovery stage.

Capco Resources,  Ltd. v. GREKA Energy Corporation,  et al. (Case No. 99-K-2155,
U.S. District Court for the District of Colorado,  August 1999). This action was
initially filed in the United States District Court for the Central  District of
California  and later  moved to  Colorado  pursuant  to a court  order  granting
GREKA's motion to transfer. Plaintiff Capco Resources, Ltd. ("Capco") has raised
claims  for breach of  contract,  specific  performance,  fraud,  and  negligent
misrepresentation  against  the Company and Randeep  Grewal,  the  President  of
GREKA. The Company has brought  counterclaims against Capco, Capco Energy, Inc.,
Ilyas  Chaudhary,  and Kal  Saifi  (the  "Capco  Group")  for  violation  of the
Securities  Exchange Act of 1934, Section 10B, and Rule 10b-5,  fraud, breach of
contract, negligent misrepresentation, breach of fiduciary duty, and negligence.
The parties'  respective  claims  relate to a November  23, 1998 Stock  Exchange
Agreement between the Company and Capco, pursuant to which Capco was to exchange
2,971,766 shares of Saba stock,  constituting all of Capco's ownership  interest
in Saba, for 1,340,000  newly-issued shares of the Company to Capco. Even though

                                      F-23
<PAGE>

GREKA, in accordance  with the terms of the agreement and in good faith,  issued
all  1,340,000  shares of GREKA common stock,  GREKA had actually  received only
2,006,566  shares  (two-thirds)  of Saba common stock  agreed upon.  The Company
subsequently    determined    that   the   Capco   Group   had   made   numerous
misrepresentations  and  omissions of material  fact in inducing  GREKA to enter
into this transaction. These factual circumstances form the basis for the claims
in dispute.  Capco is seeking damages of approximately $12.25 million related to
the  Company's  refusal  to file a  registration  statement  for the resale of 1
million  shares of GREKA  common  stock  that  Capco  received  pursuant  to the
exchange.  GREKA  claims that it is entitled  to damages  and  requests  partial
rescission and/or reformation of the Stock Exchange Agreement. Additionally, the
Company  also plans to seek to recover  from the Capco  Group all monies owed by
the Capco  Group and  related  parties  since 1998 for unpaid  accounts  such as
promissory notes, interest on promissory notes, and reimbursable expenses. While
GREKA  plans  to  vigorously   defend  all  claims  asserted  by  Capco  and  to
aggressively pursue all counter and third party claims, the litigation is in its
early stages of discovery.

Pembrooke Calox, Inc. v. GREKA Energy Corporation,  et al. (Index No. 604905/99,
Supreme  Court,  New  York  County,   October  1999).   Pembrooke  Calox,   Inc.
("Pembrooke")  has brought an action against GREKA and others seeking damages of
approximately  $5 million for an alleged  breach of a settlement  agreement  and
related contracts pursuant to which Pembrooke was to receive GREKA's interest in
a limestone reserve located in Indiana in exchange for payment on a $5.7 million
non-recourse  promissory note. Pembrooke alleges that it was unable to make such
payment  because of GREKA's  purported  failure  to provide  certain  geological
documents  concerning  mineral  reserves  located under the property.  GREKA has
filed fraud-based  counterclaims,  and the parties have agreed that the property
is to be held in escrow pending adjudication of all claims. While GREKA plans to
vigorously defend all claims asserted by Pembrooke and seek all  counter-relief,
the litigation is in its preliminary discovery stages.

RGC International Investors,  LDC v. GREKA Energy Corporation,  et al. (C.A. No.
17674NC,  Delaware Chancery Court, December 1999). RGC International  Investors,
LDC ("RGC")  brought suit against GREKA,  Saba and the former  directors of Saba
based on claims arising from GREKA's  acquisition of Saba on March 24, 1999. RGC
seeks, among other things, rescission of the merger and an unspecified amount of
damages for GREKA's alleged failure  adequately to provide for RGC's rights as a
Saba  preferred  shareholder  in  consummating  that merger.  GREKA has moved to
dismiss the complaint and that motion has not yet been scheduled for hearing.

Sabacol,  Inc. v. Omimex Resources,  Inc., Omimex de Colombia,  Ltd., and Omimex
International  Corporation  dba  Omimex  Petroleum,  Inc.  (C.A.  No.  BC224339,
California  Superior  Court,  Los  Angeles  County,   February  2000).   GREKA's
subsidiary filed an action against Omimex  Resources,  Inc. and its subsidiaries
seeking an order directing  rescission of an asset purchase agreement  effective
January  1,  1999  or,  alternatively,  directing  specific  performance  of the
agreement  by Omimex.  The  Company's  subsidiary  alleges  claims for breach of
contract,  breach  of  covenant  of  good  faith  and  fair  dealing,  negligent
misrepresentation  and fraudulent  inducement and seeks damages.  Omimex alleges
counter-claims of breach of contract and seeks declaratory  judgment.  While the
subsidiary  plans to vigorously  pursue all claims against Omimex and defend all
counter-allegations, the litigation is in its preliminary discovery stages.

         From time to time, the Company and its  subsidiaries  are a named party
in legal  proceedings  arising in the  ordinary  course of  business.  While the
outcome of such proceedings cannot be predicted with certainty,  management does
not expect  these  matters to have a material  adverse  effect on the  Company's
financial condition or results of operations.

NOTE 14 - 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 a private convertible
debenture   offering   during  1999  resulting  in  proceeds  of   approximately
$1,000,000. As compensation,  GDC received a negotiated commission of 10% of the
financing less expenses.

                                      F-24

<PAGE>

NOTE 15 - 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 which,  by amendment to the  employment
agreement  for the  Company's  Chairman  and CEO in October  1998,  became fully
vested upon the  Company's  acquisition  of Saba.  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 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.

During 1999,  previously  granted options to employees to purchase 39,000 shares
of the  Company's no par value  common stock at an exercise  price of $8.25 were
terminated  and options to purchase  14,000 shares of the Company's no par value
common  stock at an  exercise  price of $7.75 were  granted to a director of the
Company.

A summary of the outstanding options follows:

                                   1999              1998              1997
                                  -------           ------           -------
                                 Weighted          Weighted          Weighted
                                  Average           Average           Average
                                 Exercise          Exercise          Exercise
                        Shares    Price    Shares   Price    Shares   Price
                       --------  --------  -------  ------  -------- ---------
Options outstanding,
 January 1 .........    400,000   $7.03    300,000  $5.00         --   $  --
Options granted ....     14,000    7.75    250,000   8.25    300,000    5.00
Options terminated .     39,000    8.25    150,000   5.00         --      --
                       --------  --------  -------  -----   --------  --------
Options outstanding,
 December 31 .......    375,000   $6.93   $400,000  $7.03    300,000   $5.00
Exercisable at
  year end .........    371,000    6.92     30,000   5.00         --      --


  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,   127,750        $15.00         January 1,        December 1,
1997                                          1998              2000

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

                                       1999         1998          1997
                                    ----------   -----------   ----------
Net Income (Loss) as reported       $3,367,032   $(5,547,645)  $ (851,116)
Pro Forma                            2,654,911    (6,139,691)  (1,245,162)

Basic EPS as reported                    $0.84        $(3.42)     $(1.44)
Pro Forma basic EPS                      $0.66        $(3.78)     $(2.11)

The fair value of each option granted in1999,  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% to  64.2%(c)  average  time to  exercise of 7 years and (d)
expected dividend yield of zero.

                                      F-25
<PAGE>

NOTE 16 - 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,  1999 are not  necessarily  reflective  of the prices the  Company
expects to receive in the future.

<TABLE>
                                               Colombia         Canada                                USA
                                              -----------   --------------  --------------------------------------------------------
    Proved developed and undevloped reserves     1999          1999                            1999             1998           1997
                                               Oil (Bbl)     Gas (Mcf)       Oil (Bbl)       Gas (Mcf)       Oil (Bbl)     Oil (Bbl)
                                              -----------   --------------  --------------- ------------   -------------   ---------
<S>                                           <C>           <C>            <C>               <C>           <C>             <C>
      Balance beginning of year                          -              -          250,221            -       2,553,007    1,826,385
      Production                                   220,197        281,731         (504,961)    (861,261)        (12,935)     (2,112)
      Discoveries, extensions, etc
      Acquisition of reserves in place          10,191,991      3,655,869       10,786,446   18,459,557                     728,734
      Sale of reserves in place                  9,971,794
      Revisions of previous estimates                                                                        (2,289,851)
      Balance end of year                                -      3,937,600       10,531,706   17,598,296         250,221   2,553,007
                                              ============  =============   =============== ============   =============  ==========

                                                                                               USA
    Production revenue and costs                Colombia       Canada      --------------------------------------------
                                                  1999          1999            1999           1998            1997
                                              ------------  -------------  ---------------  -----------   -------------
      Production cost                            1,111,395        465,256        5,667,665      121,016         247,979
      Depletion expense                            292,818        214,469        2,517,339      333,468          24,016
       Impairment of oil and gas
          property                                                                            3,171,485
                                              ------------  -------------  ---------------  -----------   -------------
      Income (Loss) from oil and gas
          producing                               $603,517       $127,320      ($2,728,054) ($3,480,156)       ($60,299)
                                              ============= ==============  =============== ============   =============

                                                                                                 USA
                                                                Canada      --------------------------------------------
    Capitalized Cost                                             1999            1999           1998            1997
                                                            --------------  --------------- ------------   -------------
      Proven oil and gas property                               5,910,090      $19,812,588   $3,445,816      $1,963,337
      Unproven oil and gas property                                     0        2,743,673                      400,000
                                                                5,910,090       22,556,261    3,445,816       2,363,337
      Less accumulated depletion                               (2,068,683)      (4,801,051)  (3,242,711)        (57,598)
      Net investment in oil and gas property                   $3,841,407      $17,755,210     $203,105      $2,305,739
                                                            ==============  =============== ============   =============

                                                                                                USA
                                                              Canada        --------------------------------------------
    Discounted Future Net Cash Flows                            1999            1999           1998            1997
                                                            --------------  --------------- ------------   -------------
      Future cash flows                                        17,388,623     $245,779,700   $1,725,500     $40,103,600
      Future cost:
        Development cost                                       (1,398,185)     (24,109,700)    (440,000)     (5,281,800)
        Production cost                                        (4,673,318)    (107,662,800)    (793,700)    (23,805,600)
      Future net flow before income taxes                      11,317,120      114,007,200      491,800      11,016,200
        Future income taxes                                             -                -            -      (3,304,800)
                                                            --------------  --------------- ------------   -------------
      Standardized measure of discounted
      future net cash flows                                  $  6,161,574      $67,152,900     $260,700      $4,610,300
                                                            ==============  =============== ============   =============


                                                                                              USA
                                                              Canada        --------------------------------------------
    Changes in Discounted Future Net Cash Flows                1999            1999           1998            1997
                                                            --------------  --------------- ------------   -------------
      Balance beginning of year                                      -         $260,700   $4,610,300       $       -
        production cost                                       (341,789)      (3,499,657)     (17,443)        (13,578)
      Net changes in prices and production costs                           (107,662,800)  (3,721,007)
      Changes in future development cost                     1,398,185       24,109,700    4,841,800
      Revision of previous quantity estimates                5,105,178      153,918,957   (4,771,053)
      Accretion of discounts                                                     26,000      861,000
      Net change in income taxs                                                            1,751,000
      Changes in production rates, timing and other                                       (3,293,897)
                                                         --------------  --------------- ------------   -------------
      Standardized measure of discounted
        future cash flows                                   $6,161,574      $67,152,900     $260,700      $4,610,300
                                                         ==============  =============== ============   =============

</TABLE>

                                      F-26
<PAGE>

NOTE 17 - SUBSEQUENT EVENTS

     In April 1999, a subsidiary  of the Company and Omimex  Resources,  Inc., a
privately-held oil and gas company which then operated a substantial  portion of
Saba's producing properties, entered into an agreement to sell substantially all
of the assets of the subsidiary in exchange for  consideration of at least $10.0
million  consisting of cash,  interests in oil and gas  producing  properties in
California,  and full release of the related debts. The agreement,  which closed
in June 1999,  provides for the payment of additional  consideration  to Greka"s
subsidiary.  If the  reserves  sold at  January 1, 1999 when  re-evaluated  with
fourth quarter 1999 prices had certain  variances to the calculation  done prior
to the sale in June 1999, additional consideration is owed to the subsidiary. If
the  differential  were $5 million or less,  by March 31, 2000 Omimex had to pay
such  amount to the  subsidiary  in cash or, upon  non-payment,  reassign to the
subsidiary the 50% interest in the Velasquez-Galan  pipeline in Colombia sold by
the subsidiary to Omimex . If the differential were greater than $5 million, the
subsidiary has the option through May 31, 2000 of repurchasing for approximately
$12 million the assets sold to Omimex and  reassigning  to Omimex the California
assets acquired from Omimex. If this option had not been exercised, Omimex would
have  been  obligated  to pay  the  subsidiary  $5  million  in  cash  or,  upon
non-payment, reassign to the subsidiary the Velasquez-Galan pipeline.

         The sale was  approved by the  bankruptcy  court in April 1999,  and an
order  dismissing  the  subsidiary's  bankruptcy  case that was filed in 1998 to
protect the subsidiary  pending the sale of its Colombian  assets was entered by
the court in August 1999.

     In March  2000,  GREKA  further  announced  that,  subject to a court order
directing rescission of the sale, it had exercised its option to re-purchase its
Colombian  assets for an estimated  cost of $12 million which will result in the
Company's  receipt of assets with a PV-10 value of approximately  $65 million at
December 31, 1999 (approximately $12.22 per share outstanding).

                                      F-27

<PAGE>

<TABLE>

<CAPTION>

                   Greka Energy Corporation and subsidiaries
                Schedule II - Valuation and qualifying Accounts
              For Each of the Three Years Ended December 31, 1999

                                    Balance at      Charged to         Charged to                        Balance
                                    Beginning of    costs and            other                          at End of
                   Year              Period          expenses           accounts        Deductions        Period
                   ------          --------------   ------------     --------------    -----------      ----------
<S>                <C>             <C>              <C>              <C>               <C>              <C>
Reserve for        1999            $  74,000                --       $ 1,269,852(a)            --       $1,343,852
Doubtful           1998               74,092                --                --              (92)          74,000
Account            1997                                                                                     74,092

</TABLE>

(a) Amount  represents  the reserve  for  doubtful  accounts  of Saba  petroleum
Company, which was acquired on March 24, 1999.


                                      F-28