<PAGE>
=============================================================================
                 U. S. SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549
                                FORM 10-KSB
                            (AMENDMENT NO. 1)    

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

               For the fiscal year ended December 31, 1997

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

               For the transition period from ___________ to ____________

                    Commission File Number: 001-12679

                        ENERGY SEARCH, INCORPORATED
              (Name of Small Business Issuer in Its Charter)

                TENNESSEE                           62-1423071
   (State or Other Jurisdiction of     (I.R.S. Employer Identification No.)
    Incorporation or Organization)

    280 FORT SANDERS WEST BLVD., SUITE 200
              KNOXVILLE, TENNESSEE                        37922
   (Address of Principal Executive Offices)             (Zip Code)

                              (800) 551-5810
             (Issuer's Telephone Number, Including Area Code)

 Securities Registered Pursuant to Section 12(b) of the Exchange Act: NONE

  Securities registered under Section 12(g) of the Exchange Act: COMMON
                            STOCK, NO PAR VALUE

Check whether the Registrant has: (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 Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.   [ ]


<PAGE>
The Registrant's total revenues for the year ended December 31, 1997, were
$2,361,249.

As of March 27, 1998, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was approximately $27,812,950.  This
amount is based on the sale price of $10.125 per share for the Registrant's
stock as of such date.

As of March 27, 1998, the Registrant had outstanding 3,773,241 shares of
Common Stock, no par value.

Portions of the Registrant's definitive proxy statement to be filed no
later than April 30, 1998 for the Registrant's annual meeting of
stockholders are incorporated by reference into Part III of this Report.

Transitional Small Business Disclosure Format (check one): Yes ____  No __X__

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
































<PAGE>
                                  PART I

ITEM 1. DESCRIPTION OF BUSINESS.

GENERAL.

Energy Search, Incorporated ("Energy Search" or the "Company") is an
independent oil and natural gas company engaged in the exploration,
development, production and acquisition of domestic oil and natural
gas properties primarily in the Appalachian Basin.  In 1997, 95% of
the Company's production was natural gas.  Commencing in January 1997,
the Company shifted its focus from drilling primarily for limited
partnerships which it sponsored ("Affiliated Drilling Partnerships")
to developing reserves for its own account.  As a result of this
shift, daily net production, which the Company estimates averaged 0.9
million cubic feet equivalent per day ("MMcfed") in 1997, reached the
level of approximately 2.7 MMcfed by January 1998.  The Company
drilled 36 wells in 1997 (28 net to the Company), of which over 90%
were successfully completed thereby increasing its reserves by 93.7%.
According to the 1997 year-end reserve report prepared by the
Company's independent certified petroleum engineers, Wright & Company,
the Company as of December 31, 1997 had proven natural gas reserves
of 30.8 billion cubic feet of gas equivalent ("Bcfe") with a pre-tax
present value of proved reserves discounted at the rate of 10% per
year ("SEC PV-10") of $32.4 million.  The Company's future growth is
anticipated to be driven by development, exploitation and controlled
exploration drilling on its existing properties and the continuation
of an opportunistic acquisition strategy in the Appalachian Basin
region.  The Company drills primarily developed wells and, on
occasion, exploratory wells.

The Company was organized as a Tennessee corporation in 1990.  Since
its inception, the Company has raised over $40.0 million for
Affiliated Drilling Partnerships and other energy related
partnerships, and has drilled over 230 gross wells in the Appalachian
Basin with more than a 90% success rate.  During the last 18 months,
the Company has grown primarily through opportunistic acquisitions of
Appalachian Basin properties and the subsequent development,
exploitation and exploration of these properties.  These activities
have resulted in substantial increases in its reserves and production.
In 1996 and 1997, the Company made two significant acquisitions which,
due to development by the Company, currently have SEC PV-10 values
that are several times their original acquisition price.  As a result,
the Company has significantly increased its asset base, as shown in
the following table.





<PAGE>
<TABLE>
<CAPTION>
ASSET GROWTH
----------------------------------------------------------------------------------------------------------------
 DECEMBER 31,                                     1996                     1997                      % CHANGE
----------------------------------------------------------------------------------------------------------------
<S>                                            <C>                      <C>                            <C>
Net gas reserves (Bcfe)                              16                       31                         93.7
SEC PV-10 ($000s)                               $21,327                  $32,361                         51.7
Acreage under lease                              59,720                   68,610                         14.9
Gross wells drilled                                  23                       36                         56.5
Wells operated                                      177                      370                        109.0
Miles of pipeline operated                           60                       92                         53.3

----------------------------------------------------------------------------------------------------------------
</TABLE>

The Company's operations presently are focused entirely in the
Appalachian Basin.  The Appalachian Basin is characterized by shallow
natural gas formations, which historically have provided for highly
predictable drilling success rates.  In addition, because wells
drilled in the Appalachian Basin are closer to the large demand
centers in the northeastern United States, natural gas from this area
typically has commanded a premium price relative to natural gas
produced in areas such as the Gulf Coast and Mid-Continent regions of
the United States.  In 1997, the Company received an average price for
its natural gas of $3.08 per thousand cubic feet ("Mcf") verses an
average New York Mercantile Exchange ("NYMEX") price of $2.35 per Mcf.

Throughout the 1990s, the Company averaged drilling of approximately
25 to 35 wells per year.  Until February of 1997, substantially all of
the Company's wells were drilled in joint ventures with Affiliated
Drilling Partnerships which were syndicated primarily by the Company's
affiliate, Equity Financial Corporation.  The Affiliated Drilling
Partnerships participated primarily in development drilling in
Washington, Athens and Meigs Counties, Ohio.  The Company has drilled
over 200 wells with Affiliated Drilling Partnerships, 191 of which the
Company operated as of December 31, 1997.  The primary geological
formations which the Company had targeted in southeastern Ohio for
exploration and development are the Clinton Sandstone, the Medina
Sandstone, the Lockport Dolomite, the Oriskany Sandstone and the Berea
Sandstone.

Management's business plan for the Company currently anticipates
drilling an average of approximately 25 to 50 wells per year over the
next five years with net cash flow, proceeds of future equity
offerings, incurring of additional limited long-term debt, and, on a
limited basis, proceeds of future Affiliated Drilling Partnerships.

                                     -2-
<PAGE>
Management believes it can efficiently maintain the planned level of
drilling activity in the foreseeable future.  Management plans to
continue drilling and development activities primarily for the
Company's own account which should enable the Company to expand its
activities and operations.  This plan, management believes, should
result in the continued growth of the Company's proved natural gas and
oil reserves, net cash flow and shareholder value.  As the Company's
revenues and net cash flows grow, the Company intends to expand its
drilling activities and continue to evaluate and execute natural gas
and oil property acquisitions.

The Company was formed by a three member management team with energy,
financial, legal and transactional experience.  Since formation, the
Company has developed a qualified team of geologists, petroleum
engineers and land managers.  In 1997, the Company hired a chief
petroleum engineer from one of the Company's Appalachian Basin
competitors.  This individual now serves as the Company's Chief
Operating Officer.  In addition, two land department professionals
were added to the Company's management team in 1997 to enhance further
the Company's ability to identify, evaluate, acquire and exploit new
oil and natural gas development opportunities.

   Prior to 1997, substantially all of the Company's wells were drilled in
joint ventures with affiliated Tennessee limited partnerships managed by
the Company (the "Affiliated Drilling Partnerships") which were syndicated,
and over $40,000,000 in investor capital raised, primarily by the Company's
affiliate, Equity Financial Corporation ("EFC"), a member of the National
Association of Securities Dealers, Inc. ("NASD").  The Affiliated Drilling
Partnerships participated primarily in development drilling in Washington,
Athens and Meigs Counties, Ohio.  The Company has drilled over 230 wells
with Affiliated Drilling Partnerships, 191 of which the Company operated as
of December 31, 1997.  In 1998, the Company has sponsored one Affiliated
Drilling Partnership which, as of June 30, 1998,  has been capitalized with
approximately $120,000 in investor capital.

The Company operates an approximately 100-mile gas gathering system
servicing its primary areas of operation in southeastern Ohio.  A portion
of the gas gathering system (approximately 92 miles of pipeline) is owned
by a Tennessee limited partnership (the "Pipeline Operating Partnership")
which is comprised of the Company, as managing general partner owning a
28.74% general partner interest, and a single limited partner which is
another Tennessee limited partnership (the "Pipeline Income Partnership")
for which the Company also serves as managing general partner.  The
Pipeline Income Partnership was syndicated by EFC and capitalized with
investor funds raised in a private offering conducted in 1992 and 1993.

The Affiliated Drilling Partnerships have engaged in primarily development
drilling in southeastern Ohio.  All of the Affiliated Drilling Partnerships

                                     -3-
<PAGE>
were structured in a similar fashion. The Affiliated Drilling Partnerships
typically enter into a joint venture with the Company to drill and develop
the wells (the "ADP Wells.")  The joint venture is evidenced by a joint
drilling and operating agreement ("JDOA") between the Company, as
participant, project manager and driller-operator, and the Affiliated
Drilling Partnership, as participant. Pursuant to the JDOA, drillsites are
selected by the Company from its lease inventory.  The Company is obligated
to contribute drillsites to the joint ventures evidenced by the JDOA for
each Affiliated Drillings Partnership on a drillsite-by-drillsite basis. 
No Affiliated Drilling Partnership has any right to develop any acreage
"proved up" by the drilling of a well on its drillsite. The Company, as
driller-operator, has discretion under the JDOA to select the target
geological formation and depth of the ADP Wells to be drilled, and to make
all operational decisions regarding drilling, completion (if warranted) or
plugging and abandonment of the ADP Wells.

ADP Wells are drilled on a "functional allocation" basis.  Pursuant to this
arrangement, the Affiliated Drilling Partnership contributes to the joint
venture drilling funds for intangible drilling costs in exchange for direct
ownership of a working interest in the ADP Wells.  The Company, on the
other hand, contributes the drillsite, tangible well equipment, excess
intangible drilling funds in the event of cost overruns and services in
exchange for direct ownership of a working interest in the ADP Wells.  The
allocation of the percentage of the working interest owned between the
Affiliated Drilling Partnership and the Company varies somewhat from
program to program, but is generally based on the Company's estimate of the
relative value contributed.  The Company's direct ownership of the working
interest of the ADP Well ranges in various Affiliate Drilling Partnerships
from approximately 7.0% to 20.0%.  Under the JDOA,  the Company, in its
capacity as driller-operator under the JDOA,  agrees to drill and complete
(if warranted) or plug and abandon the ADP Wells on a "turnkey" basis for a
"fixed price" or"adjustable fixed price" (based on depth of the well and
number of zones stimulated).  To the extent actual well development costs
exceed the "turnkey price" or "adjustable turnkey price," the Company may
experience a loss on drilling operations.  However, to the extent actual
drilling costs are less than the "turnkey price" or "adjustable turnkey
price" received, the Company may realize a profit.  Typically under a JDOA,
the drilling funds are pre-paid to the Company, in its capacity as driller-
operator, to allow the Company the opportunity to inventory drill sites,
maintain a field office and line up drilling rigs, related equipment and
crews.

After ADP Wells are drilled and completed in its primary field of
operations in southeastern Ohio, a flow line is constructed and the well is
hooked up to the Company's gas gathering system so that natural gas
produced from the wells can be transported to market.  The Company is
responsible for managing all production operations concerning the wells and
the gas gathering system.  Such operations on the wells include equipment

                                     -4-
<PAGE>
repairs and maintenance, well swabbing, production chart reading,
accounting and administration.  For performing such services, the Company
generally receives a monthly, per-producing-well "tending" fee and is
reimbursed, generally at cost, for equipment and generally charges standard
rates for services provided to the wells.  With respect to the gas
gathering system, the Company maintains and repairs the equipment, monitors
and reads gas meters, negotiates gas sales contracts and otherwise manages
the system.  For  performing these services, the Company currently receives
from the Pipeline Operating Partnership a monthly fee of $2,500 and is
reimbursed for materials, services and administrative overhead contributed
toward managing the system.  The Company, as the managing general partner
in the Pipeline Operating Partnership, maintains a 28.74% interest in such
partnership entitling it to 28.74% of the net revenues of the Pipeline
Operating Partnership.  The remaining 71.26% interest in the Pipeline
Operating Partnership is owned by an affiliated limited partnership (the
"Pipeline Income Partnership") of which the Company serves as general
partner and owns a 3.5% interest.

After an ADP Well has been completed and produced, and when a well is no
longer capable of production in commercial quantities, the Company, as
operator under the JDOA, is responsible for plugging the well and restoring
the drillsite.  Costs of plugging and restoration are shared by the
participants under a JDOA according to the particular agreement.  The
Company's ownership interest in the wells results from, among other things,
its furnishing of the tangible well equipment.  Accordingly, the Company is
responsible, under the JDOA, for paying reclamation costs allocable to such
tangible well equipment and is entitled to reclaim any salvageable tangible
well equipment.    

BUSINESS STRATEGY

The Company's objective is to maximize shareholder value by growing
reserves, production, cash flow and earnings through active
development of its existing properties and through the opportunistic
acquisition of Appalachian properties with underexploited value.
Fundamental to the execution of the Company's strategy is its focus on
the Appalachian Basin region and its foundation of experienced
technical personnel strengthened by a high level of financial and
transactional experience.

GEOGRAPHIC AND NATURAL GAS FOCUS.  The Company focuses on natural gas
in the Appalachian Basin.  Unlike many exploration and production
companies, the Company has concentrated on one region and is one of
only a few publicly traded pure Appalachian Basin natural gas
producers.  The Company believes this region remains attractive for
future development, exploration and acquisition activities due to
significant reserve potential, a well developed Company infrastructure
of gathering systems and pipelines and premium pricing and economics.

                                     -5-
<PAGE>
This geographic focus has enabled the Company to build and utilize a
base of region-specific geological, geophysical, engineering and
production expertise.

Management believes that natural gas is gaining popularity as a power
source and is expected to continue to increase market share relative
to other fossil fuels due to its efficiency and its environmental
characteristics.  According to industry statistics, in 1996, more than
22.4 trillion cubic feet of natural gas ("Tcf") were consumed in the
United States, and consumption may increase 16.5% to reach 26.1 Tcf by
the year 2005.  Uses of natural gas include steam; process heat and
co-generation for industrial uses; feedstock for chemicals used in
fertilizer and gasoline production; electric generation and
residential and commercial heating.  In addition, the Company believes
that deregulation of certain sectors of the natural gas industry,
which has resulted in lower prices for natural gas, may increase
market demand.

Management believes that natural gas in the Appalachian Basin enjoys
favorable economics.  The Appalachian Basin has a price advantage over
the Gulf Coast and other natural gas producing regions given its
proximity to the primary markets on the East Coast.  In 1997, the
Company enjoyed an average premium of $0.73 per Mcf over the average
gas price listed on NYMEX.

ACQUISITION OF PROPERTIES WITH UNDEREXPLOITED VALUE.  The Company
employs an acquisition strategy of purchasing Appalachian Basin
natural gas properties from large independents and major oil
companies.  These properties provide opportunities to increase
reserves, production and cash flow through development and
exploitation drilling and lease operating expense reduction.  The
Company uses its in-house landmen and network of relationships in the
region to discover acquisitions that are not widely advertised.  The
Company also believes its reputation in the region has caused many
property owners to approach the Company for potential acquisitions.

FOCUS ON DEVELOPMENT AND EXPLOITATION WITH CONTROLLED EXPLORATION.
The Company integrates its reservoir and production engineering
expertise with its geological interpretation abilities to enhance the
results of its exploration and production business.  The Company's
ability to integrate geophysics with detailed geology, reservoir
engineering and production engineering allows it to identify multiple
development and exploratory prospects in mature producing fields that
were not identified by previous operators and to identify multiple
horizon wells that have previously been unexploited.  The Company
continues to drill its Beaver Coal Company in central West Virginia
(the "Beaver Lease") and has recently begun drilling in its newly


                                     -6-
<PAGE>
acquired Simmons Field in Washington County, Ohio (the "Simmons
Field") where it has identified as many as four horizons.

The Company has assembled a multi-year inventory of development,
exploitation and exploratory drilling opportunities in the Appalachian
Basin and has identified more than 170 drill sites on its current
lease inventory.  Most of the properties comprising this inventory are
located in fields that have established production histories.  Based
on its experience on these properties and on independent reports from
its petroleum engineers, the Company believes these properties may
yield significant additional recoverable reserves.

CONTROL OF OPERATIONS.  The Company seeks to operate and maintain a
majority working interest position in each of its core properties.
Consequently, the Company can control directly all aspects of
drilling, completion and production.  In addition, the Company intends
to maintain a low cost overhead structure by controlling the timing of
the development of its properties.  By operating its producing wells,
the Company believes it is well positioned to control the expenses and
timing of development and exploitation of such properties and better
manage cost reduction efforts.

EMPLOYMENT OF TECHNOLOGY.  The Company uses advanced technology in
both its development and exploration activities to reduce drilling
risks and finding costs and to prioritize its drilling prospects based
on return potential.  Specifically, the Company uses GeoGraphix for
determining well location, mapping and possible viability of potential
leases.  GeoGraphix is one of the top programs used for mapping
reserve geology and overall reserve evaluation.  The Company also has
a proprietary database of over 25,000 wells that has been integrated
into GeoGraphix making the program a powerful planning tool.  The
Company has spent years developing this extensive proprietary database
and has a full time employee dedicated to accumulating and inputting
data from its drilling experiences and from public and other records
to form this database.

INTEGRATION.  The Company operates gas gathering and pipeline systems
throughout its fields.  The Company believes that through this
integration it has been able to improve overall margins on the sale of
gas; in particular, in 1997 the Company received an average gas price
in some areas of $0.20 per Mcf above the average sales price for that
region.  The Company is actively examining additional integration
possibilities for transmission, gathering and marketing of gas to
continue this integration of its natural gas business.





                                     -7-
<PAGE>
MARKET FOR OIL AND NATURAL GAS

GENERAL.  The revenues generated from the Company's oil and gas
operations are highly dependent upon the prices of and the demand for
its oil and natural gas production.  The prices received by the
Company for its oil and gas production depend upon numerous factors
beyond the Company's control including seasonality, the condition of
the United States economy, foreign imports of oil and natural gas,
political conditions in other oil and natural gas producing countries,
the actions of the Organization of Petroleum Exporting Countries and
domestic government regulation, legislation and regulatory policies.
Decreases in the prices of oil and natural gas could have an adverse
effect on the carrying value of the Company's proved reserves, and the
Company's revenues, profitability and cash flow.

Although the Company has not entered into any crude oil or natural gas
price swaps or other similar hedging transactions for the purpose of
reducing its exposure to future price fluctuations, it may engage in
such transactions from time to time in the future as management deems
it advisable to do so.

Although the Company currently is not experiencing any involuntary
curtailments of its oil or natural gas production, market, economic
and regulatory factors in the future may materially affect the
Company's ability to sell its oil or natural gas production.  Due to
the availability of other markets and pipeline connections, the
Company does not believe that the loss of any single oil or natural
gas customer would have a material adverse effect on the Company's
results of operations.

NATURAL GAS SALES.  Natural gas produced from completed wells must be
transported through pipeline systems to get to market.  In the
Company's primary fields of operations in southeastern Ohio
substantially all the Company's completed wells are connected to the
Company's gas gathering system (the "Ohio Gas Gathering System") which
collects the gas from wells in the field, sends it through compressor
stations to enhance transportability and delivers it to the East Ohio
Company interstate pipeline and to Columbia Gas Company interstate
pipeline.  Much of the Ohio Gas Gathering System is owned by ESI
Pipeline Operating L.P., an affiliate of the Company (the "Pipeline
Operating Partnership").  The Company, for its own account and on
behalf of the Affiliated Drilling Partnerships it manages, has entered
into a gas servicing agreement (the "Gas Servicing Agreement") with
the Pipeline Operating Partnership pursuant to which all natural gas
produced from wells connected to the Ohio Gas Gathering System is
purchased by the Pipeline Operating Partnership and subsequently
resold.  The price received by the Company for its natural gas is a
function of what the Pipeline Operating Partnership sells it for on

                                     -8-
<PAGE>
the market (i.e. the "Adjusted Gas Price Spread").  The Gas Servicing
Agreement thus provides for natural gas purchased from the Company and
Affiliated Drilling Partnerships on a "net back" basis.  As of
December 31, 1997, the Adjusted Gas Price Spread with respect to the
Gas Servicing Agreement ranged from approximately $0.45 per Mcf to
$0.48 per Mcf where no compression is used.

Natural gas produced from the Company's wells is sold by the Pipeline
Operating Partnership pursuant to one or more natural gas sales
contracts to gas marketers, interstate or intrastate pipelines, local
utilities or industrial end users in the Appalachian Basin.  For the
fiscal year ended December 31, 1997, gross natural gas prices received
by the Company for its natural gas ranged from $2.23 to $5.04 per Mcf
before royalties and gathering and transportation costs.

REGULATION AND ENVIRONMENTAL MATTERS

GENERAL REGULATION.   Oil and natural gas exploration, production and
related operations are subject to extensive rules and regulations
promulgated by federal, state and local agencies.  Failure to comply
with such rules and regulations can result in substantial penalties.
The regulatory burden on the oil and gas industry increases the
Company's cost of doing business and affects its profitability.
Although the Company believes it is in substantial compliance with all
applicable laws and regulations, because such rules and regulations
frequently are amended or interpreted, the Company is unable to
predict the future cost or impact of complying with such laws.

Environmental enforcement efforts with respect to natural gas and oil
operations recently have increased and it can be anticipated that such
regulation will expand and have a greater impact on future natural gas
and oil operations.  There is no assurance that laws and regulations
enacted in the future will not adversely affect the Company's
exploration for, and production and transmission of, oil and natural
gas.  Such legislation and/or actions of local, state and federal
governments may have a material effect on the Company in the future.
To the best knowledge of management, the Company has complied in all
material respects with applicable regulatory requirements of the
states in which it operates.  To date, the Company has received no
material notice of violation or complaint concerning its compliance
with federal, state or local laws respecting the environment.  There
can be no assurance, however, that the Company's business operations
will not result in violations of environmental laws or related
liabilities in the future.

STATE REGULATION.  Natural gas and oil operations are regulated by an
agency of state government in every state of the United States.  Many
state authorities require permits for drilling operations, drilling

                                     -9-
<PAGE>
bonds and reports concerning operation and impose other requirements
relating to the exploration and production of oil and gas.  Some
states also have statutes or regulations addressing conservation
matters, including provisions for the pooling of oil and gas
properties, the establishment of maximum rates of production from oil
and gas wells and the regulation of spacing, plugging and abandonment
of such wells.  The statutes and regulations also may limit the rate
at which oil and gas can be produced from certain properties.  In Ohio
and West Virginia, where most of the Company's natural gas and oil
properties are located, such regulation is by the Ohio Department of
Natural Resources and the West Virginia Division of Environmental
Protection Office of Oil and Gas, respectively.  Each of these
agencies has been granted broad regulatory and enforcement powers
which are likely to create additional financial and operational burdens
on natural gas and oil operations like those of the Company.  Ohio and
West Virginia also have in place other pollution and environmental
control laws which have become increasingly burdensome in recent
years.

FEDERAL REGULATION.  The Company's sales of natural gas are affected
by the availability, terms and cost of transportation.  The price and
terms for access to pipeline transportation are subject to extensive
regulation.  The Federal Energy Regulatory Commission ("FERC")
regulates the transportation and sale for resale of natural gas in
interstate commerce pursuant to the Natural Gas Act of 1938 and the
Natural Gas Policy Act of 1978.  In the past, the federal government
has regulated the prices at which oil and natural gas can be sold.
While sales by producers of natural gas, and all sales of oil and
natural gas liquids currently can be made at uncontrolled market
prices, Congress could reenact price controls in the future.

In recent years, FERC has undertaken various initiatives to increase
competition within the natural gas industry.  As a result of
initiatives like FERC Order 636, issued in April 1992 and its progeny,
the interstate natural gas transportation and marketing system has
been substantially restructured to remove various barriers and
practices that historically limited non-pipeline natural gas sellers,
including producers, from effectively competing with interstate
pipelines for sales to local distribution companies and large
industrial and commercial customers.  The most significant provisions
of Order No. 636 require that interstate pipelines provide
transportation separate or "unbundled" from their sales service, and
require that pipelines provide firm and interruptible transportation
service on an open access basis that is equal for all natural gas
supplies.  In many instances, the result of Order No. 636 and related
initiatives has been to substantially reduce or eliminate the
interstate pipelines' traditional role as wholesalers of natural gas
in favor of providing only storage and transportation services.

                                     -10-
<PAGE>
Although Order No. 636 has largely been upheld on appeal, several
appeals remain pending in related restructuring proceedings.  It is
difficult to predict when these remaining appeals will be completed or
their impact on the Company.

FERC has announced several important transportation-related policy
statements and proposed rule changes, including a statement of policy
and a request for comments concerning alternatives to its traditional
cost-of-service ratemaking methodology to establish the rates
interstate pipelines may charge for their services.  A number of
pipelines have obtained FERC authorization to charge negotiated rates
as one such alternative.  In February 1997, FERC announced a broad
inquiry into issues facing the natural gas industry to assist FERC in
establishing regulatory goals and priorities in the post-Order No. 636
environment.  While the changes being considered by federal and state
regulators would affect the Company only indirectly, they are intended
to further enhance competition in natural gas markets.  Additional
proposals and proceedings that might affect the natural gas industry
are pending before Congress, FERC, state commissions and the courts.
The natural gas industry historically has been very heavily regulated;
therefore, there is no assurance that the less stringent regulatory
approach recently pursued by FERC and Congress will continue.

The price the Company receives from the sale of oil and natural gas
liquids is affected by the cost of transporting products to markets.
Effective January 1, 1995, FERC implemented regulations establishing
an indexing system for transportation rates for oil pipelines, which,
generally, would index such rates to inflation, subject to certain
conditions and limitations.  The Company is not able to predict with
certainty the effect, if any, of these regulations on its operations.
However, the regulations may increase transportation costs or reduce
well head prices for oil and natural gas liquids.

ENVIRONMENTAL REGULATION.  The Company's operations and properties are
subject to extensive and changing federal, state and local laws and
regulations relating to environmental protection, including the
generation, storage, handling, emission, transportation and discharge
of materials into the environment, and relating to safety and health.
The recent trend in environmental legislation and regulation generally
is toward stricter standards, and this trend likely will continue.
These laws and regulations may require the acquisition of a permit or
other authorization before construction or drilling commences;
restrict the types, quantities and concentration of various substances
that can be released into the environment in connection with drilling
and production activities; limit or prohibit construction, drilling
and other activities on certain lands lying within wilderness,
wetlands and other protected areas; require remedial measures to
mitigate pollution from former operations such as plugging abandoned

                                     -11-
<PAGE>
wells; and impose substantial liabilities for pollution resulting from
the Company's operations.  The permits required for various of the
Company's operations are subject to revocation, modification and
renewal by issuing authorities.  Governmental authorities have the
power to enforce compliance with their regulations, and violators are
subject to civil and criminal penalties or injunction.  Management
believes that the Company is in substantial compliance with current
applicable environmental laws and regulations, and that the Company
has no material commitments for capital expenditures to comply with
existing environmental requirements.  Nevertheless, changes in existing
environmental laws and regulations or in interpretations thereof could
have a significant impact on the Company, as well as the oil and gas
industry in general and thus the Company is unable to predict the
ultimate cost and effects of such continued compliance in the future.

The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") and comparable state statutes impose strict, joint and
several liability on certain classes of persons who are considered to
have contributed to the release of a "hazardous substance" into the
environment.  These persons include the owner or operator of a
disposal site or sites where a release occurred and companies that
disposed or arranged for the disposal of the hazardous substances
released at the site.  Under CERCLA such persons or companies may be
liable for the costs of cleaning up the hazardous substances that have
been released into the environment and for damages to natural
resources, and it is not uncommon for the neighboring land owners and
other third parties to file claims for personal injury, property
damage and recovery of response costs allegedly caused by the
hazardous substances released into the environment.  The Resource
Conservation and Recovery Act ("RCRA") and comparable state statutes
govern the disposal of "solid waste" and "hazardous waste" and
authorize imposition of substantial civil and criminal penalties for
noncompliance.  Although CERCLA currently excludes petroleum from its
definition of "hazardous substance," state laws affecting the
Company's operations impose clean-up liability relating to petroleum
and petroleum-related products.  In addition, although RCRA classifies
certain oil field wastes as "non-hazardous," such exploration and
production wastes could be reclassified as hazardous wastes thereby
making such wastes subject to more stringent handling and disposal
requirements.

The Company has acquired leasehold interests in numerous properties
that for many years have produced oil and natural gas.  Although the
Company believes that the previous owners of these interests used
operating and disposal practices that were standard in the industry at
the time, hydrocarbons or other wastes may have been disposed of or
released on or under the properties.  In addition, most of the
Company's properties are operated by third parties whose treatment and

                                     -12-
<PAGE>
disposal or release of hydrocarbons or other wastes is not under the
Company's control.  These properties and the wastes disposed thereon
may be subject to CERCLA, RCRA and analogous state laws.
Notwithstanding the Company's lack of control over properties operated
by others, the failure of the operator to comply with applicable
environmental regulations may, in certain circumstances, adversely
impact the Company.

The Federal Clean Water Act and analogous state laws require permits
to be obtained to authorize discharge into surface waters or to
construct facilities in wetland areas.  With respect to certain of its
operations, the Company is required to maintain such permits or meet
general permit requirements.  The Environmental Protection Agency
("EPA") has adopted regulations concerning discharges of storm water
runoff.  This program requires covered facilities to obtain individual
permits, participate in a group or seek coverage under an EPA general
permit.  The Company believes that it will be able to obtain, or be
included under, such permits, where necessary, and to make minor
modifications to existing facilities and operations that would not
have a material effect on the Company.

COMPETITION

The oil and natural gas industry is highly competitive in all of its
phases.  The Company competes with many other companies in the search
for and acquisition of oil and natural gas properties and leases for
exploration and development, and also competes with other companies in
its activities as drilling contractor and natural gas marketers.  The
Company's competitors include numerous independent oil and natural gas
companies, major integrated oil and natural gas companies, individuals
and drilling and income programs.  Many of these companies have
substantially greater financial, technical and other resources than
the Company and have been engaged in the exploration and production
business for a much longer time than the Company.  Such companies may
be able to pay more for leases on oil and natural gas properties and
exploratory prospects, as well as to define, evaluate, bid for or
purchase a greater number of properties and prospects than the
Company's financial or human resources would permit.  The Company will
be required to maintain and enhance its ability to conduct its
operations, to evaluate and select suitable properties and to
consummate transactions in a highly competitive environment.
Competition among oil and gas companies for favorable oil and natural
gas prospects can be expected to continue.  It is anticipated that the
cost of acquiring oil and natural gas properties may increase
appreciably.

The Company competes with a number of other companies which offer
interests in drilling partnerships with a wide range of investment

                                     -13-
<PAGE>
objectives and program structures.  Competition for investment capital
for both public and private drilling programs is intense.

OPERATING HAZARDS AND UNINSURED RISKS

Drilling activities are subject to many risks, including the risk that
no commercially productive reservoirs will be encountered.  There can
be no assurance that new wells drilled by the Company will be
productive or that the Company will recover all or any portion of its
investment.  Drilling for oil and natural gas may involve unprofitable
efforts, not only from dry wells, but from wells that are productive
but do not produce sufficient net revenues to return a profit after
drilling, operating and other costs.  The cost of drilling, completing
and operating wells is often uncertain.  The Company's drilling
operations may be curtailed, delayed or canceled as a result of
numerous factors, many of which are beyond the Company's control,
including title problems, weather conditions, compliance with
governmental requirements and shortages or delays in the delivery of
equipment and services.  The Company's future drilling activities may
not be successful and, if unsuccessful, may have a material adverse
effect on the Company's future results of operations and financial
condition.

The Company's operations are subject to hazards and risks inherent in
drilling for and producing and transporting oil and natural gas, such
as fires, natural disasters, explosions, encountering formations with
abnormal pressures, blowouts, craterings, pipeline ruptures and
spills, uncontrollable flows of oil, natural gas or well fluids, any
of which can result in the loss of hydrocarbons, environmental
pollution, personal injury claims and other damage to properties of
the Company and others.  The Company maintains insurance against some
but not necessarily all of the risks described above.  In particular,
the insurance maintained by the Company does not cover claims relating
to failure of title to oil and natural gas leases, trespass during
survey acquisition or surface change attributable to seismic
operations and, except in limited circumstances, losses due to
business interruption.  The Company may elect to self-insure if
management believes that the cost of insurance, although available, is
excessive relative to the risks presented.  In addition, pollution and
environmental risks generally are not fully insurable.  The occurrence
of an event that is not covered, or not fully covered, by insurance
could have a material adverse effect on the Company's business,
financial condition and results of operations.

OFFICES AND EMPLOYEES

The Company's administrative offices are located at Suite 200, 280
Fort Sanders West Boulevard, Knoxville, Tennessee, 37922.  At this

                                     -14-
<PAGE>
office, all executive management, financial, accounting and general
administrative functions for the Company and its Affiliated Drilling
Partnerships are performed.  The Company's main field office is
located at 217 Second Street, Marietta, Ohio, with a satellite field
office at 114 Club Circle, Daniels, West Virginia.  Geological,
engineering and exploration and production activities are coordinated
from the Marietta office.

As of March 31, 1998, the Company had 23 full-time employees, including
one geologist, one engineer, two landmen and seven pumpers.  As drilling
production activities increase, the Company intends to hire additional
technical, operational and administrative personnel as appropriate.  None
of the Company's employees are represented by any labor union.  The
Company believes its relations with its employees are good.  From time to
time, the Company uses the services of independent consultants and
contractors to perform various professional services, particularly in the
area of drilling services, water hauling acquisition of leases and lease
options, construction, design, well-site surveillance, permitting and
environmental assessment.  The Company believes that this use of
third-party service providers enhances its ability to contain general
and administrative expenses.

   ACTIVITIES OF EQUITY FINANCIAL CORPORATION

EFC, a wholly-owned subsidiary of the Company, is a securities brokerage
firm and member of the NASD.  It is engaged primarily in the business of
providing investment services and products to its clients.  Charles P.
Torrey, Jr., Chief Executive Officer of the Company, and Robert L. Remine,
Chief Financial Officer of the Company, are each licensed agents and
principals of EFC.  They founded EFC in 1985.  EFC has five additional
licensed sales agents.  EFC maintains offices adjacent to the Company
offices in Knoxville, Tennessee.

At times, EFC serves as placement agent for the private placement of the
Company's securities, including, Common Stock, Preferred Stock and
partnership interests in Affiliated Drilling Partnerships.    For these
services, EFC receives placement fees and sales commissions.  These fees
and commissions are consistent with NASD requirements and commensurate with
what would be charged by unrelated firms performing similar services.    

ITEM 2. DESCRIPTION OF PROPERTY.

COMPANY OIL AND NATURAL GAS ASSETS

As of December 31, 1997, the Company partially owned and operated
approximately 370 wells and approximately 92 miles of natural gas
gathering systems on approximately 68,610 acres in the Appalachian
Basin.  For the year ended December 31, 1997, the Company's wells had

                                     -15-
<PAGE>
a net average daily production of approximately 0.9 MMcfed.  As of the
date of this Report, the Company's gross production of natural gas was
approximately 3.5 MMcfed and net production was estimated to be 2.7
MMcfed.  Following is a summary of the Company's oil and natural gas
assets.

BECKLEY, WEST VIRGINIA AREA -- BEAVER LEASE/DUPONT FIELDS.  On July 17,
1996, the Company acquired the Beaver Lease, approximately 17,000 leasehold
acres, mostly contiguous, in Raleigh County, West Virginia from the
Beaver Coal Company.  The Company has drilled 27 wells on the Beaver
Lease and an additional well on acreage contiguous to the Beaver
Lease.  Twenty producing gross natural gas wells are currently
on the property producing an average of 1.6 MMcfed with an additional
four wells which have been completed and awaiting hook-up, one well
which is in the process of evaluation and three dry holes.  The
Company plans to continue drilling the Beaver Lease for its own
account and to exploit other similar opportunities in the area.  Based
on its experience on these properties and on reports from its
independent petroleum engineers, the Company currently believes that
at least 75 developmental well sites exist for further drilling in
this acreage.  All of the working interest of the Beaver Lease is
owned by the Company.  The Company also has 13 producing gross natural
gas wells on its Dupont Field located in Wood County, West Virginia
(the "Dupont Field").  As of December 31, 1997, the Company and its
independent petroleum engineers have estimated the remaining proved
developed reserves in these West Virginia properties to be
approximately 6.0 Bcf of natural gas with a SEC PV-10 of $7.7 million
and proved undeveloped reserves to be approximately 8.7 Bcf with a SEC
PV-10 value of $10.4 million.

SIMMONS FIELD.  In November 1997, the Company acquired the Simmons
field (the "Simmons Field"), comprised of approximately 9,000 acres
of oil and natural gas properties from Lomak Petroleum, Incorporated
("Lomak").  The purchase included 192 wells on leases located in Ohio
and West Virginia, wellhead equipment, surface equipment, a 10-mile,
6-inch gas gathering pipeline system and a compression facility.  One
hundred forty-one producing gross (100% co-owned) natural gas wells
are currently on the property producing an average of 0.7 MMcfed of
which 135 are located in Ohio and six are located in West Virginia.
As of December 31, 1997, the Company and its independent petroleum
engineers have estimated remaining proved developed reserves in these
properties to be approximately 3.6 Bcf of natural gas with a SEC PV-10
of $4.2 million and proved undeveloped reserves to be approximately
7.5 Bcf with a SEC PV-10 value of $5.0 million.  Since this
acquisition, the Company has begun remediating and increasing
production from existing wells, identifying more than 30 wells with
uphole recompletion potential, and drilling its first developmental
well.  Management believes that this property is a prototype of what

                                     -16-
<PAGE>
the Company targets as an acquisition candidate, a property with
remediation and enhanced production potential, unexploited uphole
reserves and a significant number of developmental sites left to be
drilled.  The Company currently believes that at least 70
developmental well sites exist for further drilling in this acreage.
All of the working interest of the oil and natural gas leases
concerning the Simmons Field is wholly owned by the Company.

   BARTLETT/TORCH/CHURCHTOWN FIELDS.  The Bartlett, Torch and Churchtown
fields (the "Bartlett Field," "Torch Field," and "Churchtown Field,"
respectively) are accumulations of many small lease tracts from
individual owners into relatively contiguous field operation areas
located in Washington, Athens and Meigs Counties, Ohio.  The acreage
was accumulated in large part in connection with Company-sponsored
Affiliated Drilling Partnerships over the past eight years.  These
fields total approximately 33,000 acres.  There are currently 167
producing gross natural gas wells in these fields producing an
average of 1.2 MMcfed.  As of December 31, 1997, the Company and
its independent petroleum engineers have estimated, for the
Company's working interest, remaining proved developed reserves in
these properties to be approximately 1.8 Bcf of natural gas with a SEC
PV-10 of $2.6 million, and proved undeveloped reserves to be
approximately 3.2 Bcf with a SEC PV-10 value of $2.5 million.  The
Company currently believes that at least 25 developmental well sites
exist for further drilling in this acreage.  The Company owns 100% of
the well equipment on this acreage and varying percentages of working
interest in the wells in conjunction with Affiliated Drilling
Partnerships.    

GAS GATHERING SYSTEMS.  Throughout its various fields of operation in
Ohio and West Virginia, the Company owns and operates approximately
92-miles of pipeline and natural gas gathering systems.  In the Torch,
Bartlett and Churchtown Fields, the Company operates approximately 60
miles of natural gas gathering systems most of which are owned by the
Pipeline Operating Partnership.  Substantially all completed wells in
this area are connected to these natural gas gathering systems which
collects the natural gas from the wells, sends it through one or more
compressor stations to enhance transportability and delivers it to the
East Ohio Company interstate pipeline and to the Columbia Gas Company
interstate pipeline.  In connection with the Simmons Field, the
Company owns and operates approximately 18 miles of natural gas
gathering systems.  The Company owns and operates approximately four
miles of gas gathering systems in the Dupont Field and approximately
10 miles of gas gathering systems in connection with the Beaver Lease.





                                     -17-
<PAGE>
OIL AND NATURAL GAS RESERVES

The Company's oil and natural gas reserves are located in Ohio and
West Virginia.  Proved reserves represent estimated quantities of
crude oil and natural gas which geological and engineering data
demonstrate to be reasonably certain to be recoverable in the future
from known reservoirs under existing economic and operating
conditions.  Proved developed oil and natural gas reserves are proved
reserves that can be expected to be recovered through existing wells
using existing equipment and operating methods.  Proved undeveloped
reserves are proved reserves expected to be recovered from new wells
on undrilled acreage, or from existing wells at depths below the
present bottom of the wells.

The following tables summarize information with respect to the
estimated net proved oil and natural gas reserves as reviewed,
evaluated and certified by the independent engineers and/or a
geologist attributable to the Company's interests in oil and natural
gas properties as of December 31, 1997, 1996 and 1995.  The
substantial difference in total proved reserves of the Company's
natural gas from 1996 to 1997 is primarily due to the acquisition and
development of the Company's Beaver Lease in central West Virginia and
the Simmons Field in Ohio and West Virginia.  The year-end reserve
reports for December 31, 1996 and December 31, 1995 were prepared by
Kim A. Walbe, independent certified geologist.  The year-end reserve
report for December 31, 1997 was prepared by Wright & Company, Inc.,
independent certified petroleum engineers.

   The reserve amounts in the following tables represent well interests
and reserves directly owned 100% by the Company.  While the Company and
Affiliated Drilling Partnerships may each own separate percentages of the
entire working interest in certain wells, their respective percentage
ownership is separate and direct.  No reserves included as owned by the
Company are owned indirectly through any Affiliated Drilling Partnership.    















                                     -18-
<PAGE>
                  TOTAL ESTIMATED NET RESERVE QUANTITIES
<TABLE>
<CAPTION>
                                                                    AT DECEMBER 31,
                                             ----------------------------------------------------------------
                                                  1997                   1996                        1995
                                             --------------         --------------              -------------
COMPANY - TOTAL
---------------
<S>                                            <C>                      <C>                       <C>
Total Proved Reserves:<F1>
  Oil (Bbls)                                        23,624                   16,736                   22,340
  Natural Gas (Mcf)                             30,609,977               15,692,300                3,564,527
  Equivalent Bbls (BOE)<F2>                      5,125,287                2,632,119                  616,428
  Equivalent Mcf (Mcfe)<F2>                     30,751,721               15,892,716                3,698,567

Total Proved Undeveloped Reserves:<F1>
  Oil (Bbls)                                             -                       11                   10,616
  Natural Gas (Mcf)                             19,417,960               14,543,536                2,305,073
  Equivalent Bbls (BOE)<F2>                      3,236,327                2,423,934                  394,795
  Equivalent Mcf (Mcfe)<F2>                     19,417,960               14,543,602                2,368,769

Total Proved Developed Reserves:<F1>
  Oil (Bbls)                                        23,624                   16,725                   11,724
  Natural Gas (Mcf)                             11,192,017                1,148,764                1,259,454
  Equivalent Bbls (BOE)<F2>                      1,888,960                  208,186                  221,633
  Equivalent Mcf (Mcfe)<F2>                     11,333,761                1,249,114                1,329,798

---------------------
<FN>
<F1>Reserves are net to the Company's interest.  Applicable royalties have been deducted from these volumes.
<F2>After conversion on the basis of 6.0 Mcf of natural gas to 1.0 barrel of crude oil.
</FN>
</TABLE>

DISCOUNTED PRESENT VALUE OF FUTURE NET REVENUES

The following tables represent the estimated future net revenues and
the present value of the future estimated net reserves discounted at a
rate of 10% per year from the proved developed producing, proved
developed non-producing and proved undeveloped reserves of the Company.

With respect to the tables below, the Estimated Discounted Present
Value Future Net Cash Flows from Proved Oil and Gas Reserves is
computed assuming a constant price of $3.45 per Mcf.  For the fiscal
year ended December 31, 1997, gross natural gas prices received by the
Company for its natural gas ranged from $2.23 to $5.04 per Mcf before
royalties and gathering and transportation costs.

                                     -19-
<PAGE>
     ESTIMATED DISCOUNTED PRESENT VALUE OF FUTURE NET CASH FLOWS
               FROM PROVED OIL AND NATURAL AS RESERVES
<TABLE>
<CAPTION>
                                                                   AT DECEMBER 31,
                                            ----------------------------------------------------------------
                                                 1997                      1996                     1995
                                            --------------           ---------------           -------------
COMPANY - TOTAL
---------------
<S>                                         <C>                       <C>                     <C>
Proved Developed Producing
  Oil (Bbl)                                        23,624                   13,859                    7,798
  Natural Gas (Mcf)                             7,475,526                  943,584                  969,573
Proved Developed Non-Producing
  Oil (Bbl)                                            --                    2,866                    3,926
  Natural Gas (Mcf)                             3,716,491                  205,180                  289,881
Proved Undeveloped
  Oil (Bbl)                                            --                       11                   10,616
  Natural Gas (Mcf)                            19,417,960               14,543,536                2,305,073

Estimated Future Net Cash Flows
  Before Income Taxes
    Proved Producing                         $ 20,212,160              $ 2,356,125             $  2,080,061
    Proved Non-Producing                        9,575,898                  362,073                  461,001
    Proved Undeveloped                         41,354,112               33,605,186                2,707,583
                                             ------------              -----------             ------------
  Total                                      $ 71,142,170              $36,323,384             $  5,248,645
                                             ============              ===========             ============
Estimated Future Net Cash Flows
  Before Income Taxes Discounted
   at 10%
    Proved Producing                         $  9,703,797              $ 1,434,504             $  1,203,549
    Proved Non-Producing                        4,748,113                  227,129                  279,747
    Proved Undeveloped                         17,909,290               19,665,164                1,237,353
                                             ------------             ------------             ------------
Total                                        $ 32,361,200              $21,326,797             $  2,720,649
                                             ============              ===========             ============
</TABLE>

For additional information concerning the discounted future net cash
flows to be derived from the Company's reserves, see the Supplemental
Information to Consolidated Financial Statements incorporated herein.

In accordance with applicable requirements of the Securities and
Exchange Commission (SEC), estimates of the Company's proved reserves
and future cash flows are made using sales prices estimated to be in
effect as of the date of such reserve estimates and are held constant

                                     -20-
<PAGE>
throughout the life of the properties (except to the extent a contract
specifically provides otherwise).  Estimated quantities of proved
reserves and future cash flows therefrom are affected by natural gas
and oil prices, which have fluctuated widely in recent years.

There are numerous uncertainties inherent in estimating oil and
natural gas reserves and their values, including many factors beyond
the control of the producer.  The reserve data set forth in this Form
10-KSB represents estimates only.  The meaningfulness of such
estimates is highly dependent upon the accuracy of the assumptions
upon which they were based.  Reserve engineering and evaluation is a
subjective process of estimating underground accumulations of oil and
gas that cannot be measured in an exact manner.  The accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment.  As a result,
estimates of different engineers and geologists often vary.  In
addition, estimates of reserves are subject to revision by the results
of drilling, testing and production subsequent to the date of such
estimate.  Accordingly, reserve estimates are often different from the
quantities of oil and natural gas that are ultimately recovered.
While the Company believes that reserve estimates presented in this
Form 10-KSB are reasonable, the estimates should be viewed with the
understanding that subsequent reservoir performance, the timing and
success of future development drilling and changes in pricing
structure or market demand will affect the reserve estimates.

In general, the volume of production from oil and gas properties
declines as reserves are depleted.  Except to the extent the Company
acquires properties containing proven reserves or conducts successful
exploration and development activities, or both, the proven reserves
of the Company will decline as reserves are produced.  The Company's
future oil and natural gas production is, therefore, highly dependent
upon its level of success in acquiring or developing additional
reserves.

PRODUCING WELLS

The following table sets forth certain information regarding the
Company's ownership, as of December 31, 1997, of productive wells in
Ohio and West Virginia.  For purposes of this table, productive wells
are producing wells and wells capable of production.  A gross well is
a well in which a working interest is owned by the Company.  The
number of gross wells is the total number of wells in which the
Company owns a working interest.  A net well is deemed to exist when
the sum of the fractional ownership interests in gross wells equals
one.  The number of net wells is the sum of the fractional working
interests owned by the Company in gross wells expressed as whole
numbers and fractions thereof.

                                     -21-
<PAGE>
   The well amounts in the tables below represent well interests directly
owned 100% by the Company.  While the Company and Affiliated Drilling
Partnerships may each own separate percentages of the entire working
interest in certain wells, their respective percentage ownership is
separate and direct.  No well interests included as owned by the Company
are owned indirectly through any Affiliated Drilling Partnership.    

<TABLE>
<CAPTION>
                                          PRODUCTIVE WELL SUMMARY

                                     OIL                      NATURAL GAS                  TOTAL
                           ---------------------        -----------------------        ----------------
                           GROSS             NET        GROSS               NET        GROSS        NET
                           -----             ---        -----               ---        -----        ---
<S>                        <C>                <C>       <C>               <C>          <C>        <C>
Ohio                        10.0               1.2       302.0             177.9        312.0      179.1
West Virginia                2.0               0.3        39.0              28.6         41.0       28.9
                            ----               ---       -----             -----        -----      -----
  Total                     12.0               1.5       341.0             206.5        353.0      208.0
                            ====               ===       =====             =====        =====      =====
</TABLE>

As of December 31, 1997, the Company owned three wells, not included
in the above tables, which were awaiting completion.

PRODUCTION VOLUMES, AVERAGE PRICES AND PRODUCTION COSTS

The following table sets forth certain information regarding the
production volumes of, average sales prices received for, and average
production costs associated with, the Company's sales of oil and
natural gas for the periods indicated.

<TABLE>
<CAPTION>
                                                                       AT DECEMBER 31,
                                            -----------------------------------------------------------------
                                                 1997                      1996                       1995
                                            --------------            --------------             ------------
<S>                                         <C>                       <C>                        <C>
NET PRODUCTION:
  Oil (Bbls)                                       1,158                       957                    1,166
  Natural Gas (Mcf)                              138,958                    82,260                   91,119
  Total (BOE)                                     24,318                    14,667                   16,353
  Total (Mcfe)                                   145,906                    88,002                   98,115
AVERAGE SALES PRICE:
  Oil ($/Bbl)                                $     18.06               $     19.26                $   16.48
Natural Gas ($/Mcf)                          $      3.08               $      2.97                $    2.34

                                     -22-
<PAGE>
AVERAGE PRODUCTION LIFTING COST:
($/Mcf) <F1>                                 $      0.39               $      0.41                $     0.82

----------------
<FN>
<F1>Includes direct lifting costs (labor, repairs and maintenance, materials and supplies) and property and severance taxes.
</FN>
</TABLE>

   The production volumes set forth in the tables above reflect gross
production volumes from Company well interests prior to reduction for gas
pipeline shrinkage and compressor use (approximately 7% of total gross
production) and prior to reduction for landowner and overriding
royalties (approximately 15% of production delivered for sale).  The oil
and gas sales amount set forth in the Company's Consolidated Statement of
Operations for the year ended December 31, 1997 represents the sale of oil
and gas production actually delivered (after reduction for line shrinkage
and compressor use) and sold for the Company's account (excluding revenues
payable to landowner and overriding royalty interests).    

DEVELOPMENT, EXPLORATION AND ACQUISITION EXPENDITURES

The following table sets forth certain information regarding the costs
incurred by the Company in its development, exploration and
acquisition activities on its Ohio and West Virginia properties during
the periods indicated.

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                         -----------------------------------------------------------------
                                              1997                     1996                       1995
                                         --------------           --------------            --------------
<S>                                       <C>                      <C>                       <C>
Development Costs                          $ 5,683,356              $ 1,066,814               $ 622,642
Exploration Costs                          $    84,616              $   288,376               $ 124,887
Property Acquisition Costs                 $ 1,535,173              $    72,640               $ 146,109
</TABLE>

RECENT DRILLING ACTIVITIES

The Company has drilled or participated in the drilling of wells in
its Ohio and West Virginia properties as set out in the tables below
for the periods indicated.





                                     -23-
<PAGE>
<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                         -------------------------------------------------------------------------------------
                                 1997                          1996                             1995
                         --------------------         --------------------             -----------------------
                         GROSS            NET         GROSS            NET             GROSS             NET
                         -----            ---         -----            ---             -----             ---
<S>                        <C>            <C>          <C>              <C>             <C>             <C>
OHIO
----
DEVELOPMENT WELLS
  Oil                       0.0            0.0           0.0             0.0              0.0            0.0
  Natural Gas               8.0            3.8          17.0             3.5             17.0            2.7
  Dry                       0.0            0.0           1.0             0.2              1.0            0.2
                           ----           ----          ----            ----             ----           ----
  Total                     8.0            3.8          18.0             3.7             18.0            2.9
                           ====           ====          ====            ====             ====           ====
EXPLORATORY WELLS
  Oil                       0.0            0.0           0.0             0.0              0.0            0.0
  Natural Gas               1.0            0.1           1.0             0.1              0.0            0.0
  Dry                       0.0            0.0           0.0             0.0              2.0            0.2
                           ----           ----          ----            ----             ----           ----
  Total                     1.0            0.1           1.0             0.1              2.0            0.2
                           ====           ====          ====            ====             ====           ====

WEST VIRGINIA
DEVELOPMENT WELLS
  Oil                       0.0            0.0           0.0             0.0              0.0            0.0
  Natural Gas              24.0           20.1           4.0             0.8              0.0            0.0
  Dry                       3.0            3.0           0.0             0.0              0.0            0.0
                           ----           ----          ----            ----             ----           ----
  Total                    27.0           23.1           4.0             0.8              0.0            0.0
                           ====           ====          ====            ====             ====           ====
EXPLORATORY WELLS
  Oil                       0.0            0.0           0.0             0.0              0.0            0.0
  Natural Gas               1.0            1.0           0.0             0.0              0.0            0.0
  Dry                       0.0            0.0           0.0             0.0              0.0            0.0
                           ----           ----          ----            ----             ----           ----
  Total                     1.0            1.0           0.0             0.0              0.0            0.0
                           ====           ====          ====            ====             ====           ====
</TABLE>

The Company has drilled 36 gross wells during fiscal year ended
December 31, 1997.  Twenty-eight wells were drilled in southern West
Virginia, completed in one or more of the multiple horizons available
(Princeton, Ravencliff, Maxton, Big Lime, Weir).  Eight wells were


                                     -24-
<PAGE>
drilled and completed in multiple zones including the Clinton, the
Medina and the Berea sands in southeastern Ohio.

OIL AND NATURAL GAS LEASES

LEASEHOLD ACREAGE.  As of December 31, 1997, the Company owned oil and
natural gas leasehold acres located in Washington, Athens, Meigs,
Noble and Morgan Counties, Ohio, and in Gilmer, Ritchie, Wood and
Raleigh Counties, West Virginia.

The following table sets forth certain information regarding the
Company's developed and undeveloped leasehold acreage as of December
31, 1997.

<TABLE>
<CAPTION>
                                                       LEASEHOLD ACREAGE

                              DEVELOPED                    UNDEVELOPED                          TOTAL
                         -------------------         ----------------------            ----------------------
                         GROSS           NET         GROSS             NET             GROSS             NET
                         -----           ---         -----             ---             -----             ---
<S>                     <C>           <C>           <C>             <C>               <C>             <C>
Ohio                     25,383         9,057        22,547          19,729            47,930          28,786
West Virginia            18,766        14,098         1,914           1,675            20,680          15,773
                         ------        ------       -------          ------            ------          ------
   Total                 44,149        23,155        24,461          21,404            68,610          44,559
                         ======        ======       =======          ======            ======          ======
</TABLE>

Substantially all of the Company's Ohio and West Virginia leases are
subject to landowner royalties of 12.5% and, occasionally, subject to
additional overriding royalty interests of 3.125%. Thus, the net
revenue interest of the Company's Ohio and West Virginia leases
generally ranges from 87.5% to 84.375%.

ITEM 3. LEGAL PROCEEDINGS.

Neither the Company, its properties, nor any of its directors or
officers, is involved in any material litigation or administrative
proceedings.

ITEM 4. SUBMISSION OF MATTERS to a VOTE OF SECURITIES HOLDERS.

None.




                                     -25-
<PAGE>
                               PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's common stock is quoted on the Nasdaq SmallCap Market
under the ticker symbol "EGAS." The following table sets forth for the
periods indicated, the high and low quarterly sales prices for a share
of common stock as reported on the Nasdaq Small CapMarket.  On
January 24, 1997, the Company completed an initial public offering of
1,000,000 units (the "Unit(s)") comprised of one share of common stock
and one Series A common stock purchase warrant each.  The Units ceased
trading and the Company's common stock began trading separately from
the Series A common stock purchase warrant on May 28, 1997.

<TABLE>
<CAPTION>
        QUARTER ENDED                                         HIGH                        LOW
        -------------                                         ----                        ---
<S>                                                       <C>                          <C>
June 30, 1997                                              $   9.81                     $ 6.75
September 30, 1997                                         $   9.25                     $ 7.58
December 31, 1997                                          $  11.50                     $ 8.00
January 1, 1998, through March 26, 1998                    $  10.38                     $ 9.00
</TABLE>

The estimated number of holders of common stock of the Company was
approximately 900 as of March 27, 1998.

The Company has not paid any dividends on its common stock and
currently intends to retain earnings for the future operation and
development of its use in its business.  Therefore, it does not expect
to declare cash dividends in the foreseeable future.

On January 24, 1997, the Company's SB-2 registration statement for its
initial public offering ("IPO") of common stock and Series A common
stock purchase warrants was declared effective by the SEC.  The IPO
was completed by January 30, 1997 at which time all of the securities
covered by the registration statement were sold.  The managing
underwriters were Neidiger/Tucker/Bruner, Inc. and National Securities
Corporation.  The securities offered and sold in the IPO were Units
comprised of one share of common stock and one Series A common stock
purchase warrant.

Underwriting discounts and commissions for the IPO totaled $800,000.
Expenses paid to or for the underwriters were $232,938.  Other
expenses of the IPO amounted to $465,571.  Total expenses of the IPO
were $1,498,509.

                                     -26-
<PAGE>
The net IPO offering proceeds to the Company after all offering
expenses were $6,501,491, which total was applied as follows:
$5,267,492 to explore for, acquire and develop natural gas and oil
reserves; $912,500 for working capital; $261,750 for repayment of
certain indebtedness to officers of the Company; and $59,749 for
payment of accrued dividends to Class A preferred shareholders whose
preferred stock converted to common stock upon consummation of the
IPO.

In October 1997, the Company completed the private placement sale of
749,961 shares of common stock at $7.00 per share.  The Placement
Agent for the sale of such common stock was Neidiger/Tucker/Bruner,
Inc., of Denver, Colorado (the "Placement Agent").  Certain other
NASD-member broker-dealers, including Equity Financial Corporation, a
wholly owned subsidiary of the Company, participated in the offering
as selling agents.  The shares of common stock were sold primarily to
accredited investors, as defined in Rule 501 of Regulation D, and to
no more than 35 nonaccredited investors.  The offer and sale of common
stock by the Company in this transaction was exempt from registration
under Rule 4(2) of the Securities Act and Rule 506 of Regulation D,
promulgated thereunder.  The total offering proceeds were $5,249,727.
Total commissions payable to the Placement Agent were $367,481 (7%),
and nonaccountable expense allowance payable to the Placement Agent
was $157,492 (3%) some of which commissions and nonaccountable expense
allowance were allowed to the Placement Agent and the participating
selling agents.  Net proceeds to the Company after deductions and
expenses were $4,671,582.  As additional compensation for selling the
common stock in this transaction, the Company issued to the Placement
Agent (and its authorized designees) warrants to purchase 74,996
shares of common stock (the "Participating Selling Agent Warrants").
The Participating Selling Agent Warrants provide for an exercise price
of $7.00 per share and an exercise date of no later than January 30,
2002.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995

This discussion and analysis of financial condition and results of
operations, and other sections of this Form 10-KSB, contain
forward-looking statements that are based on management's beliefs,
assumptions, current expectations, estimates and projections about the
oil and gas industry, the economy and about the Company itself.  Words
such as "anticipates," "believes," "estimates," "expects,"
"forecasts," "intends," "is likely," "plans," "predicts," "projects,"
variations of such words and similar expressions are intended to
identify such forward-looking statements.  These statements are not

                                     -27-
<PAGE>
guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict with
regard to timing, extent, likelihood and degree of occurrence.
Therefore, actual results and outcomes may materially differ from what
may be expressed or forecasted in such forward-looking statements.
Furthermore, the Company undertakes no obligation to update, amend or
clarify forward-looking statements, whether as a result of new
information, future events or otherwise.

Important factors that could cause actual results to differ materially
from the forward-looking statements include, but are not limited to,
changes in production volumes, worldwide demand and commodity prices
for petroleum natural resources; the timing and extent of the
Company's success in discovering, acquiring, developing and producing
oil and natural gas reserves; risks incident to the drilling and
operation of oil and natural gas wells; future production and
development costs; the effect of existing and future laws,
governmental regulations and the political and economic climate of the
United States; the effect of hedging activities; and conditions in the
capital markets.  Other risks are discussed elsewhere in this Form
10-KSB, including those risks described under the headings "Market for
Oil and Gas," "Regulation and Environmental Matters" and "Operating
Hazards and Uninsured Risks."

OVERVIEW

The Company is an independent oil and gas company organized as a
Tennessee corporation in 1990 and engaged in the exploration,
development, production and acquisition of natural gas properties in
the Appalachian Basin.  Since its inception, the Company has raised
over $40.0 million for Affiliated Drilling Partnerships and other
energy related investment partnerships and drilled over 230 gross
wells in the Appalachian Basin with more than a 90% completion rate.
During the last 18 months, the Company has grown primarily through
opportunistic acquisitions of Appalachian properties for its own
account and the subsequent development, exploitation and exploration
of these properties, resulting in significant increases in its
reserves and production.  In 1997, 95% of the Company's production was
natural gas.  In January 1997, the Company shifted its focus from
being primarily a driller-operator for limited partnerships in which
it took a small working interest to an independent energy company
developing reserves for its own account.  Management believes that
this strategic shift has begun to improve the Company's financial
condition and results of operations.  Daily net production averaged
0.9 MMcfed in 1997, and reached a level of approximately 2.7 MMcfed in
January 1998.  The Company drilled 36 wells in 1997 (28 net to the
Company), of which over 90% were successfully completed thereby
increasing its overall reserves by 93.7%. According to the year-end

                                     -28-
<PAGE>
reserve report prepared by the Company's independent certified
petroleum engineers, Wright & Company, the Company as of December 31,
1997 had proven natural gas reserves of 30.8 Bcfe with a SEC PV-10 of
$32.4 million.

The Company's future growth is expected to be driven by development,
exploitation and controlled exploration drilling on its existing
properties and the continuation of an opportunistic acquisition
strategy in the Appalachian Basin region.  The Company has
approximately 170 developmental well sites to drill on its existing
leasehold acreage.  Most of these sites are located in fields with
well established production histories.

In January of 1997, the Company completed the IPO of Units by which it
raised $6,501,491 net of expenses.  With these proceeds the Company
shifted its primary operational focus from the drilling of wells for
Affiliated Drilling Partnerships to the development of wells wholly
owned by the Company.  While the Company anticipates the continued
sponsoring of Affiliated Drilling Partnerships on a limited basis,
management believes the Company's new focus will allow the Company to
more expeditiously develop its own reserves, cash flow from oil and
natural gas revenues and shareholder value.

In October of 1997, the Company completed the private placement of
749,961 shares of common stock at $7.00 per share.  The total offering
proceeds were $5,249,727 and the net proceeds to the Company, after
selling commissions and expenses of the offering, were $4,671,582.
The Company utilized the funds for the continued development of its
Beaver Lease and Churchtown Lease areas, the acquisition of the
Simmons Field from Lomak and for the commencement of enhancement efforts
and development of the newly acquired Simmons Field.

In 1996 and 1997, the Company made two significant acquisitions.
In July of 1996, the Company acquired approximately 17,000 leasehold
acres, mostly contiguous, in Raleigh County, West Virginia, for
$170,000 from the Beaver Coal Company.  The Company has drilled 27
wells on the Beaver Lease and an additional well on acreage contiguous
to the Beaver Lease.  Twenty producing gross natural gas wells are
currently on the property producing an average of 1.6 MMcfed with an
additional four wells which have been completed and awaiting hook-up,
one well which is in the process of evaluation and three dry holes.
As of December 31, 1997, the Company and its independent petroleum
engineers have estimated remaining proved developed reserves in these
properties of approximately 6.0 Bcf of natural gas with a SEC PV-10 of
$7.7 million and proved undeveloped reserves of approximately 8.7 Bcf
with a SEC PV-10 value of $10.4 million.  The Company plans to
continue drilling the Beaver Lease for its own account and to exploit
other similar opportunities in the area.  Based on its experience on

                                     -29-
<PAGE>
these properties and on reports from its independent petroleum
engineers, the Company believes that at least 75 developmental well
sites exist for further drilling on this acreage.  The Beaver Lease is
wholly owned by the Company.

In November 1997, the Company acquired the Simmons Field,
approximately 9,000 acres of oil and natural gas properties from Lomak
for $1.25 million.  The purchase included 192 wells on leases located
in Ohio and West Virginia, wellhead equipment, surface equipment, a
10-mile, 6-inch gas gathering pipeline system and a compression
facility.  One hundred forty-one producing gross natural gas wells are
currently on the property producing an average of 0.7 MMcfed of which
135 are located in Ohio and six are located in West Virginia.  As of
December 31, 1997, the independent petroleum engineers and the Company
have estimated remaining proved developed reserves in these properties
of approximately 3.6 Bcf of natural gas with a SEC PV-10 to be $4.2
million and proved undeveloped reserves of approximately 7.5 Bcf with
a SEC PV-10 value to be $5.0 million.  Since this acquisition, the
Company has begun remediating and increasing production of existing
wells, identifying more than 30 wells with uphole recompletion
potential, and successfully drilling its first two developmental
wells.  Management believes this property acquisition is a prototype
of what the Company targets as an acquisition candidate, a property
with remediation and enhanced production potential, unexploited uphole
reserves and a significant number of developmental sites left to be
drilled.  The Company currently believes that at least 70
developmental well sites exist for further drilling in this acreage.
The Simmons Field is wholly owned by the Company.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31,
1996

FINANCIAL CONDITION

Total assets increased $9,452,328 or 142% from December 31, 1996 to
December 31, 1997, primarily due to the funds received from the IPO
and the October, 1997 Regulation D Offering.

Current assets for the year ended December 31, 1997 increased
$2,580,541 to $3,320,051, or a 349% increase compared to current
assets for the year ended December 31, 1996.  The Company has raised
to date approximately $11,200,000 net of underwriter fees, professional
fees and various other costs associated with its two stock offerings
completed in 1997.  The Company invested the proceeds in short-term,
investment grade obligations.  At  December 31, 1997, the balance in
the investment account was approximately $1,850,000.  Accounts
receivable for the year ended December 31, 1997 increased $408,689 to
$976,065, or a 72% increase compared to accounts receivable for the

                                     -30-
<PAGE>
year ended December 31, 1996.  The increase in the Company's oil and
natural gas sales is due to drilling 28 net wells for the account of
the Company in 1997 and the year end acquisition of the Simmons Field
from Lomak.

Oil and natural gas properties for the year ended December 31, 1997
increased $6,254,024 to $9,700,884, or 181% from the amount reported
at December 31, 1996.  The increase primarily is a result of a
significant increase in drilling activity for its own account in 1997,
the acquisition of the Simmons Field and the acquisition by the
Company of oil and natural gas lease interests in proved properties.
Due to the increased drilling activity, the Company increased capital
expenditures for well-related equipment and drilling equipment from
December 31, 1996 to December 31, 1997 in the amount of $5,833,488.
Included in this amount are intangible drilling costs of $3,324,484
associated with Company drilled wells.

Other assets for the year ended December 31, 1997 increased $617,763
to $3,099,765, or 24.9%. The increase primarily is due to an increase
in property and equipment of $168,512 (86.6%) due to the purchase of
Company vehicles, an increase in investments in affiliated
partnerships of $286,426 (21%) due to contributions made to Affiliated
Drilling Partnerships, the net income recognized during the period and
an increase in the deferred tax asset of $237,400.  An offsetting
decrease in other assets was due to the prepaid stock offering costs
of $265,948 being charged against the common stock account when the
IPO closed.

Total liabilities decreased $1,321,355 or 37.8% from December 31,
1996, to December 31, 1997, due to a decrease in current liabilities
of $1,304,156 or 39.0% and a decrease in long-term debt of $17,199 or
11.1%.

Current liabilities decreased primarily due to a decrease in drilling
advances of $1,335,124.  Drilling advances decrease (and revenues are
recognized) with the Company drilling Affiliated Drilling Partnership
wells.  The drilling advance decrease represents the Company drilling
all wells required to be drilled for Affiliated Drilling Partnerships
through the second quarter of 1997.  The Company raised an additional
$765,000 and $440,000 on its two 1997 Affiliated Drilling Partnerships.
The Company completed the required drilling for the 1997 and
the 1997-A Affiliated Drilling Partnerships by December 31, 1997.
Accounts payable and accrued expenses increased $323,285 to $1,356,748
at December 31, 1997, an increase of 31.3%. Notes payable decreased
$251,772 to $650,684 at December 31, 1997, a decrease of 27.9%. This
decrease is due to the payment by the Company of notes payable due to
officers of the Company.


                                     -31-
<PAGE>
RESULTS OF OPERATIONS

For the year ended December 31, 1997, the Company had a net loss after
tax of $367,281 compared to a net loss after tax of $684,391 for the
year ended December 31, 1996.

Total net revenues increased $790,842 or 54.8% from December 1, 1996
to December 31, 1997 primarily due to an increase in oil and natural
gas revenue, an increase in other income and an offsetting decrease in
turnkey revenue as explained in the following paragraphs.

In 1997, net turnkey revenue decreased $406,301 or 46.1% as compared
to the amounts reported at December 31, 1996.  Net turnkey revenue is
drilling revenue received from the offering proceeds of Affiliated
Drilling Partnerships.  The Company contemplates sponsoring one or
more Affiliated Drilling Partnerships in 1998, and if successful,
would expect some level of turnkey revenues attributable to such
programs.  However, there can be no assurance that the Company will be
successful in sponsoring Affiliated Drilling Partnerships and, if
successful, will raise any particular level of funds.

Oil and natural gas revenue increased $509,768 to $798,956 for the
year ended December 31, 1997, an increase of 176% over that reported
as of December 31, 1996.  The increase primarily is due to the 28
wells drilled (net to the Company) and the related revenue recognized.
This increase is consistent with the Company's changing focus to
drilling wells for its own account.  The Company expects to drill a
higher number of wells for its own account resulting in further
increases in production and revenues for 1998.

The increase in other revenue primarily is due to the interest earned
on the IPO investment account of approximately $154,000, and
approximately $496,131 of gross operating commission revenue earned by
Equity Financial Corporation.  The Company acquired Equity Financial
Corporation, an affiliate of the Company, during 1997.  The Company
expects Equity Financial Corporation to continue to be a profitable
segment of the Company's operation.  The increase in earnings also is
due to an increase in management fees for the year ended December 31,
1997, of $50,924 to $264,590, or 23.8% for the year.

Total operating expenses increased $555,492 or 24.4% for the year
ended December 31, 1997, over the same period ending December 31,
1996.  This increase primarily is due to an increase in general and
administrative expenses of $536,424, or 41.9% for the year.  The
increase in general and administrative expenses primarily is due to an
increase in salaries of the Company's officers and employees, as well
as the addition of two new officers.  Messrs. Torrey and Remine were,
prior to the IPO, on the payroll of Equity Financial Corporation.  The

                                     -32-
<PAGE>
Company acquired Equity Financial Corporation as of May 1, 1997 and
Messrs.  Torrey and Remine no longer receive a salary from that
company.  As a direct result of the Company's public status, general
and administrative costs have increased in marketing, printing and
production, and professional fees.  The balance of the increase in
operating expenses is a net result of an increase in production
expenses of $103,235 or 60.2% for the year due to the 28 wells (net to
the Company) drilled and operated in 1997; a decrease in exploration
costs of $165,320 or 68.3% for the year due to the capitalization of
landman expenses related to the Company wells; an increase in
depreciation, depletion and amortization expense of $182,456 or 48.7%
for the year due to an increase in depletion expense related to the
Company's Affiliated Drilling Partnership Wells; and the write down of
the investments in related partnerships; and interest expense
decreased $101,303 or 48.9% for the year due to the Company's decrease
in long-term debt as discussed above.

   Prior to 1997, the Company incurred certain lease acquisition costs
(e.g. landman expenses) which were part of the costs of acquiring and
developing leases for the Affiliated Drilling Partnerships which were
offset against turnkey revenues.  In 1997, the Company has incurred
similar costs; however, some of these costs have been incurred and
capitalized in connection with properties acquired by the Company for
its own portfolio.    

The other income and expense category includes the profit (loss) from
partnership investments, costs of subsidizing various drilling
programs and other non-operating income and expense.  For the year
ended December 31, 1997, other income and expense changed from a net
expense of $189,345 for the year ended December 31, 1996 to net income
of $48,195.  The change is a result of a decrease in program subsidies
of $117,508 or 59.4%, an increase in partnership income of $86,263 or
230% and no write-off of stock issuance costs ($83,080 in 1996).  The
improvement in partnership income and reduction of program subsidies
resulted from higher natural gas prices and improved production.

LIQUIDITY AND CAPITAL RESOURCES

The primary source of funds for the year ended December 31, 1997, was
from the issuance of common stock in two offerings.  The Company
raised approximately $11,200,000, net of costs from the two
offerings.  The proceeds from the two offerings have been spent
primarily on developing the Beaver Lease, other developmental drilling
activities located generally in the southeastern Ohio and West
Virginia areas and the acquisition of the Simmons Field.

To a lesser degree the Company also had funds available from oil and
natural gas revenues, turnkey revenues and bank financing.  The Company

                                     -33-
<PAGE>
expects oil and natural gas revenues to increase and turnkey revenues
to remain level or perhaps decrease.  The Company envisions the use of
bank debt to leverage corporate growth as a viable alternative.

The Company maintains a line of credit (the "Bank One Credit
Facility") with Bank One, Texas, N.A. ("Bank One").  The Bank One
Credit Facility is secured by all oil and natural gas assets of the
Company.  Pending renewal, interest is payable on the amounts drawn
and outstanding.  The applicable interest rate is based on a floating
rate equal to Bank One's base rate, published from time to time, plus,
1 3/4.  As of December 31, 1997, the Bank One Credit Facility was
$920,000.  This amount is subject to a monthly decrease.  The credit
limit on the Bank One Credit Facility is to be reviewed periodically
and is expected to be increased based on the year-end independent
reserve evaluation reflecting current Company reserves in place.

The Company used $1,703,426 and $896,745 of cash flows for operations in
the years ended December 31, 1997 and 1996, respectively.  Cash was
absorbed by losses of $367,281 and $684,391 and decreases in drilling
advances of $1,335,124 and $1,079,996 in 1997 and 1996, respectively.
Cash was also used in 1997 by an increase in accounts receivable.  The
increase in accounts receivable is a result of increased gas
production in the fourth quarter.  Cash was provided by depreciation,
depletion and amortization (DDA) of $557,167 and $374,711 and an
increase in accounts payable and accrued expenses of $323,286 and
$340,660 in 1997 and 1996, respectively.  The increases in DDA and
payables are a direct result of increased drilling and gas operations.
In 1996, operating cash was provided by an increase in accounts
payable.

In 1997, cash flows used for investing activities increased from
$1,172,375 in 1996 to $7,117,384.  The larger investing activities in
1997 were purchases of proven properties of $4,129,663, purchase of
wells and related equipment of $2,513,051, purchase of other property
and equipment of $251,244 and contributions to Affiliated Drilling
Partnerships of $318,100.  The only significant cash flow from
investing activities in 1997 were distributions from Affiliated
Drilling Partnerships of $92,426.  The more significant uses of cash
flows for investing activities in 1996 were the purchase of other
property and equipment for $892,165, purchase of proven properties for
$170,000 and contributions to Affiliated Drilling Partnerships of
$125,898.

Cash flows from financing activities increased $9,007,850 or 447% from
$2,014,209 to $11,022,059 in 1997 from 1996.  The primary cause of the
increase in 1997 was the net proceeds from the sale of common stock
sales in the amount of $11,466,661. The primary use of cash for


                                     -34-
<PAGE>
financing activities was an increase in payments on long-term debt of
$168,696 from $270,695 to $439,391.

The Company intends to fund its budgeted capital expenditures through
the end of 1998 from cash flow from operations and borrowings under
the Bank One Credit Facility.

The Company's revenues, profitability, future growth and ability to
borrow funds or obtain additional capital, and the carrying value of
its properties, substantially are dependent on prevailing prices of
oil and natural gas.  The Company cannot predict future oil and
natural gas price movements with certainty.  Declines in prices
received for oil and natural gas may have an adverse effect on the
Company's financial condition, liquidity, ability to finance capital
expenditures and results of operations.  Lower prices also may impact
the amount of reserves that can be produced economically by the
Company.

The Company has experienced and expects to continue to experience
substantial working capital requirements primarily due to the
Company's active exploration and development programs and its
increased participation percentages and its technology enhancement
programs.  While the Company believes that cash flow from operations
and borrowings under the Bank One Credit Facility should allow the
Company to implement its present business strategy through 1998,
additional financing may be required in the future to fund the
Company's growth, development and exploration program and continued
technological enhancement.  In the event such capital resources are
not available to the Company, its exploration and other activities may
be curtailed.

EFFECTS OF INFLATION AND CHANGES IN PRICE

The Company's results of operations and cash flows are affected by
changing oil and natural gas prices.  If the price of oil and natural
gas increases (decreases), there could be a corresponding increase
(decrease) in the operating cost that the Company is required to bear
for operations, as well as an increase (decrease) in revenues.  Recent
rates of inflation have had a minimal effect on the Company.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
each of which will require expanded disclosures effective for 1998.
The Company does not expect the application of these statements to


                                     -35-
<PAGE>
have a material effect on its financial position, liquidity or results
of operations.

ENVIRONMENTAL AND OTHER REGULATORY MATTERS

The Company's business is subject to certain federal, state and local
laws and regulations relating to the exploration for, and the
development, production and transportation of, oil and natural gas, as
well as environmental and safety matters.  Many of these laws and
regulations have become more stringent in recent years, often imposing
greater liability on a larger number of potentially responsible
parties.  Although the Company believes it is in substantial
compliance with all applicable laws and regulations, the requirements
imposed by laws and regulations frequently are changed and subject to
interpretation, and the Company is unable to predict the ultimate cost
of compliance with these requirements or their effect on its
operations.  Any suspensions, terminations or inability to meet
applicable bonding requirements could materially adversely affect the
Company's business, financial condition and results of operations.
Although significant expenditures may be required to comply with
governmental laws and regulations applicable to the Company,
compliance has not had a material adverse effect on the earnings or
competitive position of the Company.  Future regulations may add to
the cost of, or significantly limit, drilling activity.

COMPUTER MODIFICATIONS FOR YEAR 2000

The Company has assessed and will continue to assess the impact of the
Year 2000 issue on the Company's reporting systems and operations.
The Year 2000 issue exists because many computer systems and
applications abbreviate dates by eliminating the first two digits of
the year, assuming that these two digits would always be "19." Unless
corrected, this shortcut is expected to cause problems when the
century date occurs.  On that date, some computer programs may
recognize the date as January 1, 1900 instead of January 1, 2000.
This may cause the Company's systems to incorrectly process critical
financial and operational information, or stop processing altogether.
Additionally, computer applications may be affected before January 1,
2000, if calculations into the year 2000 are involved.

The Company has a plan to address the Year 2000 issue and will
continue to assess the impact of the Year 2000 issue on the remainder
of its computer-based systems and applications throughout 1998.

At December 31, 1997, no material expenditures had been made by the
Company directly with respect to the Year 2000 issue.  The Company
estimates that approximately $10,000 will be incurred in 1998 and 1999
on Year 2000 issues.  These costs are expected to consist primarily of

                                     -36-
<PAGE>
personnel expense for staff dedicated to the effort and professional fees
paid to third party providers of remedial services.  It is the Company's
policy to expense such costs as incurred.  The Company also may invest in
new or upgraded technology which has definable value lasting beyond 2000.
In these instances, where Year 2000 compliance is merely ancillary, the
Company may capitalize and depreciate such an asset over its estimated
useful life.

If the Company's plans are not successful, there could be a
significant disruption of the Company's ability to bill customers and
pay suppliers, as well as a possible slowdown of certain computer-
dependent processes.  Based on currently available information,
management does not presently anticipate that the costs to address the
Year 2000 issues or potential operating disruptions will have an
adverse impact on the Company's financial conditions, results of
operations or liquidity.

In addition to reviewing its own computer operating systems and
applications, the Company plans to initiate formal communications with
its significant suppliers and large customers to determine the extent
to which the Company's interface systems are vulnerable to those third
parties' failure to resolve their own Year 2000 issues.  There is no
assurance that the systems of other companies on which the Company's
systems rely will be converted in a timely manner.  If such
modifications and conversions are not made, or are not completed in a
timely manner, the Year 2000 issue could have an adverse impact on the
operations of the Company.

The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's
best estimates.  There can be no guarantee that these estimates will
be achieved and actual results could differ from those anticipated.
Specific factors that might cause differences include, but are not
limited to, the ability of other companies on which the Company's
systems rely to modify or convert their systems to be Year 2000
compliant, the ability to locate and correct all relevant computer
codes and similar uncertainties.

ITEM 7. FINANCIAL STATEMENTS.

The response to this Item is set forth herein in a separate section to
this Annual Report, beginning on Page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.

On February 25, 1997, the Registrant dismissed Ronald D. Cameron,
Certified Public Accountant, as its independent accountant.  The

                                     -37-
<PAGE>
reports of Ronald D. Cameron on the financial statements for the year
ended December 31, 1994 and December 31, 1995 contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principle.  The Registrant's
board of directors participated in and approved the decision to change
independent accountants.

In connection with its audits for years ended December 31, 1994 and
1995, respectively, as well as thereafter, there have been no
disagreements with Ronald D. Cameron on any matter of accounting
principles or practices, financial statements disclosure or auditing
scope or procedure, which disagreements if not resolved to the
satisfaction of Ronald D. Cameron would have caused him to reference
thereto in his report on the financial statements for such years.

During the two most recent fiscal years and through February 25, 1997,
there were no reportable events (as defined in Regulation S-K Item 304
(a)(1)(v)).

The Registrant requested that Ronald D. Cameron furnish it with a
letter addressed to the SEC stating whether or not it agrees with the
above statements.

The Registrant engaged Plante & Moran, LLP as its new independent
accountants as of December 2, 1996, to audit the financial statements
for the year ended December 31, 1996 as required by the Nasdaq
SmallCap Stock Market and the National Market System for the listing
of Energy Search, Incorporated Common Stock and Redeemable Series A
Common Stock Purchase Warrants.  During the most recent fiscal year
and through February 25, 1997, the Registrant engaged Plante & Moran,
LLP to assist the Company's former auditor, Ronald D. Cameron, CPA, in
applying generally accepted accounting principles and SEC reporting
disclosure issues in connection with the registration statement, filed
with the SEC on January 24, 1997.  The Registrant has not consulted
with Plante & Moran LLP on items which concerned the subject matter of
a disagreement or reportable event with the former auditor (as
described in Regulation S-K Item 304(a)(2)).


                               PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

There is incorporated by reference herein in response to this Item,
the material under the heading "Board of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive


                                     -38-
<PAGE>
proxy statement for its 1998 annual meeting of stockholders, to be filed
on or before April 30, 1998.

ITEM 10.  EXECUTIVE COMPENSATION.

There is incorporated by reference herein in response to this Item the
material under the heading "Executive Compensation," "Employment
Agreements and Termination of Employment and Change in Control
Arrangements" and "Compensation Committee Report on Executive
Compensation" in the Company's definitive proxy statement for its 1998
annual meeting of stockholders to be filed on or before April 30,
1998.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

There is incorporated by reference herein in response to this Item,
the material under the heading "Ownership of Common Stock" and
"Securities Ownership of Management" in the Company's definitive proxy
statement for its 1998 annual meeting of stockholders to be filed on
or before April 30, 1998.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

There is incorporated by reference herein in response to this Item,
the material under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for its 1998
annual meeting of stockholders to be filed on or before April 30,
1998.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

    EXHIBITS

  EXHIBIT NUMBER               DESCRIPTIONS

       3.1    Fourth Amended and Restated Charter of the Registrant<F1>    
       3.2    Bylaws of the Registrant<F2>    
       4.1    Specimen of Common Stock Certificate<F3>    
       4.2    Specimen of Redeemable Series A Common Stock Purchase
              Warrant Certificate<F3>    
       4.3    Specimen of Underwriters' Warrant Certificate<F3>    
       4.4    Charter (See Exhibit 3.1)
       4.5    Bylaws (See Exhibit 3.2)
       9.1    Shareholder Voting Agreement and Irrevocable Proxy<F3>    
      10.1    Energy Search Natural Gas 1995-A L.P. Limited Partnership
              Agreement, dated December 31, 1995<F3>    


                                     -39-
<PAGE>
      10.2    Energy Search Natural Gas 1995-A L.P. Joint Drilling and
              Operating Agreement, dated December 31, 1995<F3>    
      10.3    Energy Search Natural Gas 1996 L.P.-Limited Partnership
              Agreement, dated June 10, 1996<F3>    
      10.4    Energy Search Natural Gas 1996 L.P.-Joint Drilling and
              Operating Agreement, dated June 10, 1996<F3>    
      10.5    ESI Pipeline Operating Partnership-Limited Partnership
              Agreement, dated January 7, 1993<F3>    
      10.6    Energy Search Natural Gas Pipeline Income Partnership-Limited
              Partnership Agreement, dated January 7, 1993<F3>    
      10.7    Gas Servicing Agreement between the Registrant and ESI
              Pipeline Operating L.P., dated January 5, 1993<F3>    
      10.8    Selling Agreement-Class B Convertible Preferred Shares
              between Registrant and Equity Financial Corporation, dated
              March 4, 1996<F3>    
      10.9    Selling Agreement-Class A and Class B Preferred Shares
              between Registrant and Equity Financial Corporation, dated
              March 4, 1996<F3>    
     10.10    Selling Agreement-Variable Rate Subordinated Debentures
              between Registrant and Equity Financial Corporation, dated
              September 19, 1994<F3>    
     10.11    Aircraft Lease between Charles P. Torrey, Jr. and the
              Registrant dated February 1, 1995<F3>    
     10.12    Beaver Coal Company Lease between Beaver Coal Company
              Limited and the Registrant, dated September 15, 1996<F3>    
     10.13    Employment Agreements with officers and key employees of the
              Registrant
                           (a) John M. Johnston<F3><F*>    
                        
    
   (b) Robert L. Remine<F3><F*>    
                        
    
   (c) Charles P. Torrey, Jr.<F3><F*>    
                        
    
   (d) Richard S. Cooper<F3><F*>    
                        
    
   (e) Michael W. Mooney<F4><F*>    
     10.14    Promissory Notes of Executive Officers in Favor of
              Registrant
                        
    
   (a) Charles P. Torrey, Jr.<F3>    
                           (b) Robert L. Remine<F3>    
                           (c) Richard S. Cooper<F3>    
     10.15    Stock Option Plan<F3><F*>    

    
     10.16    Outside Directors' Stock Option Plan<F3><F*>    

    
     10.17    Form of Lock-Up Agreement<F3>    
     10.18    Stock Option and Restricted Stock Plan of 1998<F1><F*>    

    
     10.19    Form of Indemnification Agreement<F1><F*>    

    
      11.1    Statement Regarding Computation of Earnings Per Common
              Share<F4>    
      21.1    Subsidiaries<F4>    




                                     -40-
<PAGE>
      23.1    Consent of Experts and Counsel
                           (a) Consent of Independent Accountant, Ronald
                               D. Cameron, CPA<F1>
                           (b) Consent of Independent Accountant, Plante &
                               Moran, LLP, CPA
                           (c) Consent of Independent Geologist, Kim A.
                               Walbe
                           (d) Consent of Independent Petroleum Consultant,
                               Wright & Company, Inc.
      27.1    Financial Data Schedule

------------------
[FN]
   
<F*>  Management contract or compensatory plan or arrangement.

<F1>  Previously filed with the Company's Definitive Proxy Statement
      filed on April 28, 1998 with the Securities and Exchange
      Commission, and here incorporated by reference.

<F2>  Previously filed with the Company's Form 10-QSB for the quarter
      ended June 30, 1998.

<F3>  Previously filed with the Company's Registration Statement on Form
      SB-2 (Registration No. 333-12755) filed with the Securities and Exchange
      Commission, and here incorporated by reference.

<F4>  Previously filed with the Company's Form 10-KSB Annual Report for
      the fiscal year ended December 31, 1997, and here incorporated
      by reference.
</FN>
    

    REPORTS ON FORM 8-K

          The Company filed no reports on form 8-K during the fourth quarter
          of 1997.












                                      -41-
<PAGE>
                              SIGNATURES

    In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                    ENERGY SEARCH, INCORPORATED

   Date:  September 18, 1998        /s/ Richard S. Cooper, President
                                    Richard S. Cooper


    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/ Charles P. Torrey, Jr.  Chief Executive Officer     September 18, 1998    
Charles P. Torrey, Jr.      and Director (Principal
                            Executive Officer)

/s/ Richard S. Cooper       President and Director      September 18, 1998    
Richard S. Cooper

/s/ Robert L. Remine        Secretary, Treasurer and    September 18, 1998    
Robert L. Remine            Director (Principal
                            Financial and Accounting
                            Officer)




















                                      -42-
<PAGE>
                ENERGY SEARCH, INCORPORATED AND SUBSIDIARY

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


                                 CONTENTS


REPORT LETTER                                                           F-1


FINANCIAL STATEMENTS

     Consolidated Balance Sheet                                         F-2

     Consolidated Statement of Operations                               F-3

     Consolidated Statement of Stockholders' Equity                     F-4

     Consolidated Statement of Cash Flows                             F-5-6

     Notes to Consolidated Financial Statements                      F-7-24


REPORT LETTER                                                          F-25


ADDITIONAL INFORMATION

     Cost Incurred in Oil and Gas Property Acquisition,
        Exploration and Development Activities                         F-26

     Estimates of Natural Gas and Oil Reserves                      F-27-29

















<PAGE>
                       Independent Auditor's Report



To the Stockholders of
Energy Search, Incorporated and Subsidiary

We have audited the accompanying balance sheet of Energy Search,
Incorporated and Subsidiary, (the Company) as of December 31, 1997 and 1996
and the related statements of operations, stockholders' equity, and cash
flows for the years then ended.  These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Energy Search,
Incorporated and Subsidiary, as December 31, 1997 and 1996 and the results
of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.


                                     /s/ Plante & Moran, LLP

Grand Rapids, Michigan
February 20, 1998












                                                          PLANTE & MORAN, LLP
                                                          ======   ==========

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
                                      CONSOLIDATED BALANCE SHEET
<CAPTION>
                                                                                     DECEMBER 31,
                                                                           ---------------------------------
                                                                                 1997             1996
                                                                            --------------   ---------------
                                                 ASSETS
<S>                                                                       <C>              <C>
CURRENT ASSETS
    Cash and cash equivalents                                              $    2,252,316   $        51,067
    Accounts receivable (Note J)                                                  976,065           567,376
    Other current assets                                                           91,670            66,067
    Deferred tax asset (Note D)                                                       --             55,000
                                                                           --------------   ---------------
         Total current assets                                                   3,320,051           739,510
OIL AND GAS PROPERTIES
    Proven properties                                                           4,546,833           420,040
    Unproven properties                                                           193,965           186,159
    Wells and related equipment                                                 8,100,764         5,591,760
    Less accumulated depreciation, depletion
       and amortization                                                        (3,140,678)       (2,751,099)
                                                                           --------------   ---------------
          Net oil and gas properties                                            9,700,884         3,446,860
OTHER ASSETS
    Other property and equipment - net (Note C)                                   363,180           194,668
    Investments in related partnerships (Note B)                                1,649,849         1,363,423
    Deferred tax asset (Note D)                                                   650,400           413,000
    Due from affiliated partnerships, net of $172,431
       allowance for uncollectible accounts in 1997 and
       $160,464 in 1996 (Notes B and L)                                           213,246           165,865
    Prepaid stock offering costs (Note M)                                          75,336           265,948
    Other                                                                         147,754            79,098
                                                                           --------------   ---------------
         Total other assets                                                     3,099,765         2,482,002
                                                                           --------------   ---------------
         Total assets                                                      $   16,120,700   $     6,668,372
                                                                           ==============   ===============
                                  LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
    Notes payable (Note E)                                                 $      650,684   $       902,456
    Current portion of long-term debt (Note F)                                     29,184            69,729
    Accounts payable and accrued liabilities                                    1,356,748         1,033,463
    Drilling advances (Note J)                                                       --           1,335,124
                                                                           --------------   ---------------
       Total current liabilities                                                2,036,616         3,340,772
LONG-TERM DEBT - less current portion (Note F)                                    137,595           154,794

                                      F-2

<PAGE>
STOCKHOLDERS' EQUITY (Notes G, H, I and K)
    Class A convertible preferred stock (no par value;
       5% cumulative; 216,945 shares authorized;
       207,700 shares issued and outstanding at $10 per
       share stated value)                                                           --           2,049,307
    Class B convertible preferred stock (no par value;
       no dividend preference; 450,000 shares authorized;
       242,300 shares issued and outstanding at $10 per share
       stated value)                                                                 --           2,196,853
    Common stock (no stated value, 10,000,000 shares
       authorized; 3,768,241 and 1,100,000 shares issued
       and outstanding at December 31, 1997, and 1996,
       respectively)                                                           15,448,073             1,200
Accumulated deficit                                                            (1,501,584)       (1,074,554)
                                                                           --------------   ---------------
       Total stockholders' equity                                              13,946,489         3,172,806
                                                                           --------------   ---------------
       Total liabilities and stockholders' equity                          $   16,120,700   $     6,668,372
                                                                           ==============   ===============
</TABLE>



See Notes to Financial Statements.

























                                      F-3

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
                                   CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
                                                                                     DECEMBER 31,
                                                                           --------------------------------
                                                                                 1997             1996
                                                                           ---------------   --------------
<S>                                                                       <C>              <C>
REVENUE
    Net turnkey revenue                                                    $      475,936   $       882,237
    Oil and gas sales                                                             798,956           289,188
    Management fees (Note J)                                                      264,590           213,666
    Other revenue (Note M)                                                        693,188            56,737
                                                                           --------------   ---------------
         Total revenue                                                          2,232,670         1,441,828

OPERATING EXPENSES
    Production costs                                                              274,571           171,336
    Exploration costs                                                              76,810           242,130
    Depreciation, depletion and amortization                                      557,167           374,711
    Interest                                                                      105,735           207,038
    General and administrative                                                  1,816,163         1,279,739
                                                                           --------------   ---------------
          Total operating expenses                                              2,830,446         2,274,954
                                                                           --------------   ---------------

NET (LOSS) FROM OPERATIONS                                                       (597,776)         (833,126)

OTHER INCOME (EXPENSE)
    Program subsidies (Note J)                                                    (80,384)         (197,892)
    Stock issuance expense                                                           --             (83,080)
    Gain on sale of assets                                                          4,785            54,096
    Equity in income of related partnerships (Note B)                             123,794            37,531
                                                                           --------------   ---------------
       Total other income (expense)                                                48,195          (189,345)
                                                                           --------------   ---------------

NET (LOSS) BEFORE INCOME TAXES AND
   EXTRAORDINARY ITEM                                                            (549,581)       (1,022,471)

INCOME TAX BENEFIT (Note D)                                                       182,300           417,000
                                                                           --------------   ---------------
NET (LOSS) BEFORE EXTRAORDINARY ITEM                                             (367,281)         (605,471)

EXTRAORDINARY ITEM - loss on early extinguishment of
   debt, net of income tax benefit of $51,000 (Note G)                                 --           (78,920)
                                                                           --------------   ---------------

                                      F-4
<PAGE>
NET (LOSS)                                                                 $     (367,281)  $      (684,391)
                                                                           ==============   ===============

NET LOSS PER SHARE AVAILABLE TO COMMON                                     $        (0.14)  $         (0.60)


EXTRAORDINARY ITEM PER SHARE                                                           --             (0.07)
                                                                           --------------   ---------------
NET LOSS PER SHARE TO COMMON STOCKHOLDERS                                  $        (0.14)  $         (0.67)
                                                                           ==============   ===============
</TABLE>

See Notes to Financial Statements.




































                                      F-5
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
                                       CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
                                                  PREFERRED STOCK             COMMON STOCK
                                              -----------------------    ---------------------
                                                                                                      ACCUMULATED
                                               SHARES        AMOUNT        SHARES       AMOUNT          DEFICIT          TOTAL
                                               ------       ---------    ----------     ------        -----------        -----
<S>                                         <C>         <C>            <C>           <C>             <C>             <C>
BALANCE-January 1, 1996                          --      $      --           1,200    $     1,200     $  (366,163)    $  (364,963)

Recapitalization of common stock (Note H)        --             --         548,800          --               --              --

Issuance of preferred stock A (Note G)        207,700      2,049,307          --            --               --         2,049,307

Issuance of preferred stock B (Note G)        242,300      2,196,853          --            --               --         2,196,853

Distribution of shareholders in excess of
  capital                                        --             --            --            --            (24,000)        (24,000)

Two-for-one stock split (Note H)                 --             --         550,000          --               --              --

Net loss for the year ended December 31,
  1996                                           --             --             --           --           (684,391)       (684,391)
                                            ---------    -----------    ----------    -----------     -----------     -----------
BALANCE - December 31, 1996                   450,000      4,246,160     1,100,000          1,200      (1,074,554)      3,172,806

Issuance of common stock (Note H)                --             --       1,755,761     11,178,273             --       11,178,273

Conversion of preferred stock A and B to
  common stock                               (450,000)    (4,246,160)      900,000      4,246,160             --              --

Exercise of pre-IPO warrants                     --             --          12,480         22,440             --           22,440

Dividends on preferred stock A                   --             --             --            --           (59,749)        (59,749)

Net loss for the year ended December 31,
  1997                                           --             --             --            --          (367,281)       (367,281)
                                            ---------    -----------     ---------    -----------     -----------     -----------
BALANCE - December 31, 1997                      --      $        --     3,768,241    $15,448,073     $(1,501,584)    $13,946,489
                                            =========    ===========     =========    ===========     ===========     ===========
</TABLE>



See Notes to Financial Statements.


                                             F-6

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
                                   CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                           ----------------------------------
                                                                                 1997               1996
                                                                           ---------------   ----------------
<S>                                                                        <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)                                                                  $    (367,281)   $     (684,391)
Adjustments to reconcile net (loss) to net cash from
  operating activities:
     Depreciation, depletion and amortization expense                             557,167           374,711
     Dryholes and abandonments of previously capitalized oil
        and gas properties                                                          2,865           125,854
     Loss on early extinguishment of debt                                            --             129,920
     (Gain) on sale of assets                                                      (4,785)          (54,096)
     Equity in (income) losses of related partnerships                           (123,794)          (37,531)
     (Increase) in deferred taxes                                                (182,300)         (468,000)
     (Increase) decrease in assets:
            Accounts receivable and due from partnerships                        (456,070)          460,026
            Other current assets                                                  (25,603)           (3,902)
            Other assets                                                          (91,787)             --
     Increase (decrease) in liabilities:
            Accounts payable and accrued liabilities                              323,286           340,660
            Drilling advances                                                  (1,335,124)       (1,079,996)
                                                                            -------------    --------------

              Net cash used in operating activities                            (1,703,426)         (896,745)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of proven properties                                                  (4,129,663)         (170,000)
Proceeds from sale of other property and equipment                                 10,054            38,000
Purchase of wells and related equipment                                        (2,513,051)             --
Purchase of other property and equipment                                         (251,244)         (892,165)
Distributions from affiliated partnerships                                         92,426            23,934
Contributions to affiliated partnerships                                         (318,100)         (125,898)
Purchase of oil and gas leases                                                     (7,806)          (46,246)
                                                                           --------------    --------------

               Net cash used in investing activities                           (7,117,384)       (1,172,375)
</TABLE>




See Notes to Financial Statements.

                                      F-7

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
                                    CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                                            -------------------------------
                                                                                 1997             1996
                                                                            --------------   --------------
<S>                                                                       <C>               <C>
CASH FLOWS FROM FINANCING ACTIVITIES
     Net proceeds from issuance of common stock                            $    11,466,661             --
     Net proceeds from short-term debt                                                --    $       265,683
     Net proceeds from issuance of preferred stock                                    --          2,169,160
     Proceeds from issuance of long-term debt                                      129,874          140,145
     Payment of dividends on preferred stock                                       (59,749)            --
     Net (increase) decrease in prepaid offering costs                             (75,336)        (261,783)
     Payments on long-term debt                                                   (439,391)        (270,695)
     Payments of loan issue costs                                                      --           (28,301)
                                                                           ---------------    -------------

              Net cash provided by financing activities                         11,022,059        2,014,209
                                                                           ---------------    -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             2,201,249          (54,911)

CASH AND CASH EQUIVALENTS--Beginning of year                                        51,067          105,978
                                                                           ---------------   --------------

CASH AND CASH EQUIVALENTS--End of year                                     $     2,252,316  $        51,067
                                                                           ===============  ===============
SUPPLEMENTAL DISCLOSURE
     Cash paid for interest during the year                                $       120,017  $       192,994
                                                                           ===============  ===============
     Cash paid for income taxes during the year                            $         6,500  $          --
                                                                           ===============  ===============
NONCASH ACTIVITIES
     Assets distributed to shareholders                                    $         --     $        24,000
                                                                           ===============  ===============
     Debt converted to preferred stock (Note G)                            $         --     $     2,077,000
                                                                           ===============  ===============
     Conversion of preferred to common stock (Note G)                      $     4,246,160             --
                                                                           ===============  ===============
</TABLE>




See Notes to Financial Statements.


                                      F-8

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     NATURE OF OPERATIONS - Energy Search, Incorporated and Subsidiary
     (the Company) consists of Energy Search, Inc. (ESI), and Equity
     Financial Corporation (EFC), a wholly owned subsidiary acquired
     May 1, 1997.

     ESI is engaged in the exploration, development, production and
     marketing of oil and natural gas in the Appalachian Basin area
     including southeastern Ohio and southern West Virginia.  ESI's
     revenue is primarily derived from the drilling of oil and gas
     wells on a contract basis, the sale of natural gas and crude oil
     from wells in which it has working interest, the transmission of
     natural gas through a pipeline and gathering system owned by an
     affiliated partnership in which ESI has an ownership interest,
     the management and operation of oil and gas wells, and the
     formation and management of oil and gas partnerships (Affiliated
     Drilling Partnerships).

     In 1997, ESI transitioned from being primarily a driller-operator
     for syndicated Affiliated Drilling Partnerships to an energy
     company developing reserves for its own account.  The shift of
     its primary operational focus was financed from public funds
     raised through an initial public offering (Note L) and funds
     raised through a private placement.  While the Company
     anticipates the continued sponsoring of Affiliated Drilling
     Partnerships on a limited basis, management's primary focus will
     be the development of its own reserves and acquisition of
     primarily proved undeveloped properties for exploitation.

     EFC is engaged in the operations of providing investment advice
     and brokering and dealing in stocks, bonds, and other securities
     in the east Tennessee region.  EFC uses a clearing broker on a
     fully disclosed basis to execute trades.

     PRINCIPLES OF CONSOLIDATION - The consolidated financial
     statements include the accounts of ESI and its wholly owned
     subsidiary, EFC, since the date of acquisition.  All significant
     intercompany balances and transactions have been eliminated in
     consolidation.

     ESTIMATES - The preparation of financial statements in conformity
     with generally accepted accounting principles requires management
     to make estimates and assumptions that affect the reported
                                      F-9

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     amounts of assets and liabilities and disclosure of contingent
     assets and liabilities at the date of the financial statements
     and reported amounts of revenues and expenses during the
     reporting period.  Actual results could differ from those
     estimates.

     OIL AND GAS PROPERTIES - ESI uses the successful efforts method
     of accounting for oil and gas producing activities.  Acquisition
     costs for proved and unproved properties are capitalized when
     incurred.  Costs of unproved properties are transferred to proved
     properties when proved reserves are discovered.  Exploration
     costs, including geological and geophysical costs and costs of
     carrying and retaining unproved properties, are charged to
     expense as incurred.

     Exploratory drilling costs are capitalized initially; however, if
     it is determined that an exploratory well does not contain proved
     reserves, such capitalized costs are charged to expense, as dry
     hole costs, at that time.

     Prior to 1997, wells were drilled with capital raised primarily
     through limited partnerships.  Under the terms of the partnership
     and drilling contracts, ESI does not capitalize intangible
     drilling costs since these costs are the responsibility of the
     contracting parties.  Intangible drilling costs are the expense
     for labor, fuel, repair, hauling, rig rental and supplies used in
     the drilling of a well.  ESI does capitalize all tangible drilling
     costs when incurred, since they retain ownership of the well
     equipment.  Tangible costs are equipment such as casing, tubing,
     pumps, tanks and other equipment installed on a well.  Prior to
     1997, the Company incurred certain lease acquisition costs (e.g.
     landman expenses) which were part of the costs of acquiring and
     developing leases for the Affiliated Drilling Partnerships which
     were offset against turnkey revenues.  In 1997, the Company has
     incurred similar costs; however, some of these costs have been
     incurred and capitalized in connection with properties acquired
     by the Company for its own portfolio.  For 1997 and future years,
     all intangible and tangible drilling costs for successful development
     wells drilled with the Company's capital will be capitalized.  Costs
     incurred to operate and maintain wells and equipment and to lift oil
     and gas to the surface are generally expensed.    


                                      F-10
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


     Oil and gas properties that are individually significant are
     periodically assessed for impairment of value, and a loss is
     recognized at time of impairment.  Because the individual wells
     are generally insignificant and the Company's business is
     primarily drilling development wells, the impairment test is
     performed on a field basis.  Proved properties represent
     purchased working interests in producing oil and gas wells, costs
     to acquire oil and gas leases and intangible well development
     costs.  Oil and gas properties are depreciated and depleted by
     the units-of-production method using estimates of proven
     reserves.  Because of inherent uncertainties in estimating proven
     reserves, estimates of depletion and depreciation could change
     significantly.    

     OTHER PROPERTY AND EQUIPMENT - Other property and equipment are
     recorded at cost.  Major additions and improvements are
     capitalized, while repairs, replacements and maintenance that do
     not improve or extend the life of the respective assets are
     expensed.  Depreciation is computed under the double-declining
     balance method over the estimated useful lives.

     INVESTMENTS IN RELATED PARTNERSHIPS - Investments in related
     partnerships are accounted for by the equity method.  ESI, as the
     managing general partner of the oil and gas partnerships, makes
     initial capital contributions to the partnerships in accordance
     with provisions in the respective placement memorandum governing
     the activities of the particular partnership.  Income or losses
     are allocated to the investments according to ESI's ownership
     interest in the partnerships, and distributions or withdrawals
     are deducted from the investments (see Note B for additional
     partnership information).

     TURNKEY DRILLING REVENUE - ESI enters into contracts with the
     affiliated oil and gas partnerships to drill oil and gas wells
     under turnkey agreements.  Under the terms of the contracts, ESI
     provides all tangible well equipment and receives working
     interests in the completed wells.  The partnerships pay all
     intangible drilling costs and receive working interests in the
     wells.  The partnerships advance funds to ESI in order to finance
     the drilling activity.  ESI initially defers the full amount of
     the drilling advances and recognizes drilling revenue as the

                                      F-11

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     wells are completed.  Drilling expenses are netted against
     turnkey drilling revenue and were $2,209,872 and $2,046,458 in
     1997 and 1996, respectively.

     INCOME TAXES - The Company accounts for income taxes following
     the liability method.  A current tax liability or asset is
     recognized for the estimated taxes payable or refundable on tax
     returns.  Deferred tax liabilities or assets are recognized for
     the estimated future tax effect of temporary differences between
     book and tax accounting and operating loss and tax credit carry
     forwards.  Valuation allowances are established when necessary to
     reduce deferred tax assets to the amount expected to be realized.

     FAIR VALUE OF FINANCIAL INSTRUMENTS - A summary of the methods
     and significant assumptions used to estimate the fair value of
     financial instruments is as follows:

     -    SHORT-TERM FINANCIAL INSTRUMENTS - The fair value of
          short-term financial instruments, including cash, trade
          accounts receivable and trade accounts payable, approximate
          their carrying amounts in the financial statements due to
          the short maturity of such instruments.

     -    NOTES PAYABLE AND LONG-TERM DEBT - Based on interest rates
          currently available to the Company for debt instruments with
          similar terms and remaining maturities, the fair values of
          notes payable and long-term debt approximate their carrying
          amounts in the financial statements.

     STOCK OPTIONS AND WARRANTS - The Company has stock option and
     stock warrant plans (Note K).  Options and warrants granted to
     employees are accounted for using the intrinsic value method,
     under which compensation expense is recorded at the amount by
     which the market price of the underlying stock at the grant date
     exceeds the exercise price of an option.

     EARNINGS PER SHARE - Earnings (loss) per share of common and
     common equivalent stock are computed by dividing net income
     (loss) less any preferred stock dividend by the weighted average
     common shares outstanding and are retroactively adjusted for
     stock splits.  The convertible preferred stock is considered to
     be the equivalent of common stock from the time of its issuance

                                      F-12

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     in 1996; however, conversion was not assumed due to the net
     losses for 1997 and 1996.  Stock options and warrants more fully
     described in Notes I and K that could potentially dilute basic
     EPS in the future were not included in the computation of EPS,
     since doing so would have been antidilutive.

     CASH EQUIVALENTS - The Company considers all highly liquid
     investments with a maturity of three months or less when
     purchased to be cash equivalents.

     NEW ACCOUNTING STANDARDS - In 1997, the FASB issued SFAS No. 130,
     "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
     about Segments of an Enterprise and Related Information," each of
     which will require expanded disclosures effective for 1998.  The
     Company does not expect the application of these statements to
     have a material effect on its financial position, liquidity or
     the results of operations.

     RECLASSIFICATIONS - Certain reclassifications have been made to
     1996 amounts to conform to 1997 presentations.























                                     F-13
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996

NOTE B - AFFILIATED OIL AND GAS PARTNERSHIP

     Since 1989, ESI has sponsored the formation of partnerships for
     the purpose of conducting oil and gas exploration, development,
     and production activities on certain oil and gas properties.
     Such partnerships include the Natural Gas/Tax Credit 1989 L.P.,
     the Natural Gas/Tax Credit 1990 L.P., the Natural Gas/Tax Credit
     1991 L.P., the Natural Gas/Tax Credit 1992 L.P., the Natural
     Gas/Tax Credit 1992-A L.P., the Natural Gas 1993 L.P., the Energy
     Search Natural Gas 1993-A L.P., the Energy Search Natural Gas
     1994 L.P., the Energy Search Natural Gas 1994-A L.P., the Energy
     Search Natural Gas 1995 L.P., the Energy Search Natural Gas 1995-A
     L.P., the Energy Search Natural Gas 1996 L.P., the Energy
     Search Natural Gas 1996-A L.P., the Energy Search Natural Gas
     1997 L.P. and the Energy Search Natural Gas 1997-A L.P.  ESI
     serves as managing general partner of these partnerships and, as
     such, has full and exclusive discretion in the management and
     control of the partnerships.  The turnkey drilling and operating
     agreements that ESI enters into with the partnerships provide
     that the partnerships pay for the intangible drilling costs of
     the wells at an agreed-upon price per well.  ESI provides all
     tangible equipment required in the drilling, equipping,
     completing and operating of the properties.  Revenue from the
     partnership oil and gas properties is allocated based on the
     working interest ownership percentage of the properties.  ESI's
     interests in the limited partnerships range from .5 percent to 9
     percent.

     In 1993, ESI sponsored the formation of the ESI Pipeline
     Operating L.P. (the Operating Partnership), which purchased a
     portion of ESI's gas pipeline and gathering system.  ESI
     contributed its remaining interest in the pipeline system to the
     new partnership in exchange for an ownership interest in the
     Operating Partnership.  ESI has advanced funds to the Operating
     Partnership for each extension of the pipeline.  ESI has no legal
     obligation to continue to advance funds in the future.  ESI
     provided a guaranteed 10 percent return to pipeline investors
     through 1997.  Operations of the pipeline have been sufficient to
     fund the preferential return through 1997.  After preferential
     returns, all cash is used to repay advances used to fund pipeline
     extensions.




                                      F-14

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996

NOTE B - AFFILIATED OIL AND GAS PARTNERSHIP (CONTINUED)

     Also, in 1993, ESI sponsored the formation of the ESI Natural Gas
     Pipeline Income L.P. (the Pipeline Partnership).  The Pipeline
     Partnership made a capital contribution to the Operating
     Partnership to finance the initial purchase of ESI's pipeline
     system.  In turn, the Pipeline Partnership received an ownership
     interest in the Operating Partnership.  ESI serves as managing
     general partner for both of these partnerships and, as such, has
     full and exclusive discretion in the management of and control of
     the partnerships.  The Operating Partnership earns revenue by
     charging gas wells a transportation fee based on the volume of
     gas moved through the pipeline system.  Substantially all of
     these gas wells are operated by ESI.  As of December 31, 1997
     and 1996, the Pipeline Partnership owned approximately 57 percent
     of the Operating Partnership, with ESI owning the remaining 43
     percent.

     Total assets and equity of the related partnerships in the
     aggregate were approximately $5,813,197 and $5,772,464,
     respectively, at December 31, 1997, and $6,382,000 and
     $5,808,000, respectively, at December 31, 1996.

     Revenue and net income for ESI's share of such items of the
     following equity investees for the years ended December 31, 1997,
     and 1996, are given below.  In the case of each equity investee,
     the net income (loss) from continuing operations equals the net
     income (loss).

















                                      F-15

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
                                                                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                                 DECEMBER 31, 1997 AND 1996

NOTE B - AFFILIATED OIL AND GAS PARTNERSHIP (CONTINUED)
<CAPTION>
                                                     REVENUE                     NET INCOME (LOSS) FROM
                                         -------------------------------         CONTINUING OPERATIONS
                                                                             -----------------------------
           EQUITY INVESTEE                    1997              1996              1997            1996
------------------------------------     -------------      ------------     --------------  -------------
<S>                                      <C>                <C>              <C>            <C>
Energy Search Natural Gas
   Pipeline Income, L.P.                  $       75         $        5       $        (79)  $     (3,169)

ESI Pipeline Operating L.P.                  117,357            178,282             86,290         37,460

Energy Search Natural Gas
   1993 L.P.                                   4,572              8,452              4,375            821

Energy Search Natural Gas
   1993-A L.P.                                 8,931             14,315              8,541          5,506

Energy Search Natural Gas
   1994 L.P.                                  10,684             11,607             10,387          4,604

Energy Search Natural Gas
   1994-A L.P.                                   656                567                617         (2,056)

Energy Search Natural Gas
   1995 L.P.                                   6,921              6,914              6,642         (1,408)

Energy Search Natural Gas
   1995-A L.P.                                 6,454              2,879              6,287         (4,684)

Energy Search Natural Gas
   1996 L.P.                                     536               --                  510        (32,193)

Energy Search Natural Gas
   1996-A L.P.                                   123               --                  105         (6,400)

Energy Search Natural Gas
   1997 L.P.                                     118               --                  117            --

Energy Search Natural Gas
   1997-A L.P.                                  --                 --                 --              --
</TABLE>

                                                F-16

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
   
<TABLE>
                                                                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                                 DECEMBER 31, 1997 AND 1996


NOTE C - PROPERTY AND EQUIPMENT


     The principal categories of property and equipment are as
     follows:

<CAPTION>
                                                                                              DEPRECIABLE
                                                                 1997            1996          LIFE-YEARS
                                                           ---------------  --------------  ---------------
<S>                                                        <C>              <C>               <C>
Machinery and equipment                                     $  108,851       $   39,942               5
Office furniture, equipment and software                       212,860          143,785               5
Airplane                                                       165,932          146,932               5
Vehicles                                                       218,645          112,784               5
                                                            ----------       ----------
         Total cost                                            706,288          443,443

Less accumulated depreciation                                  343,108          248,775
                                                            ----------       ----------
         Net carrying amount                                $  363,180       $  194,668
                                                            ==========       ==========
</TABLE>
    

     Depreciation expense totaled $74,750 and $66,445 for the years
     ended December 31, 1997, and 1996, respectively.

NOTE D - INCOME TAXES

     ESI and its subsidiary file a consolidated federal income tax
     return.  The following is a summary of the provisions for income
     taxes for years ended December 31:









                                      F-17

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
                                                                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                                 DECEMBER 31, 1997 AND 1996

NOTE D - INCOME TAXES (CONTINUED)
<CAPTION>
                                                                                1997             1996
                                                                           --------------   --------------

<S>                                                                       <C>              <C>
Deferred benefit                                                           $      182,300   $      468,000
Amount allocated to extraordinary item                                                --           (51,000)
                                                                           --------------   --------------
         Income tax benefit                                                $      182,300   $      417,000
                                                                           ==============   ==============
</TABLE>

     The following is a reconciliation of the statutory federal income
     tax rate to the Company's effective tax rate:
<TABLE>
<CAPTION>
Company's effective tax rate:
                                                                                 1997            1996
                                                                            --------------   ------------
<S>                                                                              <C>            <C>
Income tax at federal statutory rate                                              34.0%          34.0%
State income tax, net of federal benefit                                           6.0%           6.0%
Other                                                                             (6.8)%         (0.5)%
                                                                                 -----           ----
         Actual effective tax rate                                                33.2%          39.5%
                                                                                 =====           ====
</TABLE>



     The significant components of ESI's deferred tax assets and
     liabilities are as follows:











                                      F-18
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
                                                                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                                 DECEMBER 31, 1997 AND 1996

NOTE D - INCOME TAXES (CONTINUED)
<CAPTION>
                                                                                 1997             1996
                                                                            --------------   --------------
<S>                                                                       <C>              <C>
Deferred tax assets:
    Allowance for uncollectible accounts                                   $       59,000   $      55,000
    Accounting for equity investments                                             177,000         198,000
    Federal net operating loss                                                  2,213,800         657,000
    State net operating loss                                                      125,800         102,000
    Other                                                                             --            6,000
                                                                           --------------   -------------
       Total deferred tax asset                                                 2,575,600       1,018,000

Valuation allowance for deferred tax assets                                          --              --

Deferred tax liabilities:
    Depreciation and pooling of capital                                           784,200         550,000
    Intangible drilling costs                                                   1,126,000            --
    Other                                                                          15,000            --
                                                                           --------------   -------------
       Total deferred tax liabilities                                           1,925,200         550,000
                                                                           --------------   -------------
       Net deferred tax asset                                              $      650,400   $     468,000
                                                                           ==============   =============
</TABLE>

     At December 31, 1997, the Company had federal and state operating
     loss carryforwards of approximately $6,500,000 and $2,100,000
     respectively, that expire in the years 2005 to 2017.  These
     carryforwards are available to offset future taxable income.













                                      F-19

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
                                                                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                                 DECEMBER 31, 1997 AND 1996

NOTE E - NOTES PAYABLE

<CAPTION>
                                                                                 1997              1996
                                                                            --------------  ---------------
<S>                                                                       <C>               <C>
Notes payable to shareholders, unsecured, due on
    demand, annual interest-only payments at 10%                           $         --      $     251,773

Line-of-credit at bank, collateralized by lien on oil
    and gas property, interest payable at prime plus
    1.75%                                                                         650,684          650,683
                                                                           --------------    -------------
       Total                                                               $      650,684    $     902,456
                                                                           ==============    =============
</TABLE>



     The Company has a $920,000 line-of-credit.  The initial borrowing
     base is reduced by $20,000 per month.  It has various loan
     covenants including requirements on its tangible net worth, debt
     to tangible net worth, limits on partnership subsidies,
     restrictions on payment of dividends and general and
     administrative costs.

     The following is a summary of certain information regarding ESI's
     short-term borrowings for years ended December 31:

<TABLE>
<CAPTION>
                                                                                 1997              1996
                                                                            --------------  --------------
<S>                                                                       <C>              <C>

Balance at end of year                                                     $      650,684   $     902,456

Weighted average interest rate at end of year                                       10.00%           9.80%

Average amount outstanding during the year                                 $      776,570   $     769,614

Maximum amount outstanding at any month end
    during the year                                                        $      902,456   $     902,456
</TABLE>
                                      F-20

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
                                                                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                                 DECEMBER 31, 1997 AND 1996


NOTE F - LONG-TERM DEBT

     Long-term debt consisted of the following at December 31:

<CAPTION>
                                                                                 1997              1996
                                                                            --------------   --------------
<S>                                                                       <C>              <C>
Note payable to bank, collateralized by equipment,
    interest only payable at a rate of 8.5% through
    March 17, 1997, monthly installments of $2,863,
    including interest of 8.5% commencing April 17,
    1997, paid in 1997                                                     $         --     $     140,145

Note payable to bank, collateralized by equipment,
    payable in monthly installments of $3,600, including
    interest at prime plus .50%, which was 9% at
    December 31, 1997, through October 15, 2002                                   166,779          84,378
                                                                           --------------   -------------
    Total                                                                         166,779         224,523

       Less current portion                                                        29,184          69,729
                                                                           --------------   -------------
       Total long-term debt                                                $      137,595   $     154,794
                                                                           ==============   =============
</TABLE>


     Principal maturities of long-term debt at December 31, 1997 are
     as follows:
<TABLE>
<CAPTION>

<S>                             <C>                                    <C>
                                 1998                                   $    29,184
                                 1999                                        31,962
                                 2000                                        34,976
                                 2001                                        38,332
                                 2002                                        32,325
                                                                        -----------
                                     Total                              $   166,779
                                                                        ===========
</TABLE>
                                  F-21

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996


NOTE G - PREFERRED STOCK

     During 1996, ESI issued 207,700 shares of Class A convertible
     preferred stock with a $10 stated value in exchange for and to
     retire the outstanding principal on its variable rate
     subordinated debentures.  Of the $2,169,500 debentures payable
     outstanding at December 31, 1995, a total of $2,077,000 was
     converted to Class A convertible preferred stock, with the
     remaining $92,500 in debentures being retired with cash.  The
     write-off of the deferred loan costs of $129,920 related to the
     debentures has been reflected as a loss on early extinguishment
     of the debt.  In addition, ESI issued 242,300 shares of Class B
     convertible preferred stock with a $10 stated value during this
     period.  Issue costs of $27,693 and $226,147 related to the Class
     A and Class B preferred stock, respectively, were netted against
     the respective preferred stock accounts.

     Both the Class A and B preferred stock was redeemable by the
     Company, at the option of the holder, at $10 per share or, if not
     redeemed, was automatically convertible on a share-by-share basis
     into common stock upon the occurrence of certain events.  Such
     events included the undertaking of a registration and initial
     public offering of any of ESI's common stock.  The preferred
     stock was converted to common stock in 1997 in conjunction with
     the successful initial public offering of ESI's common stock.
     The number of shares issued at conversion was doubled as a result
     of the two-for-one stock split (Note H).

NOTE H - COMMON STOCK

     RECAPITALIZATION OF COMMON STOCK - On July 1, 1996, ESI's
     shareholders' surrendered 1,200 shares of common stock
     outstanding in exchange for 550,000 shares of no par common stock
     for no additional consideration.  In January 1997, immediately
     prior to completion of the initial public offering, a two-for-one
     stock split was completed which doubled the number of outstanding
     shares of common stock to 1,100,000.  These changes were
     retroactively reported in the 1996 financial statements.

     INITIAL PUBLIC OFFERING - In January 1997, the Company registered
     its stock in a public offering of 1,000,000 common shares and
     raised $6,551,765 net of underwriter fees, professional fees, and
     various other costs associated with this stock offering of
     $1,498,509.
                                      F-22

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996

NOTE H - COMMON STOCK (CONTINUED)

     REGULATION D OFFERING - On October 27, 1997, the Company
     completed a private offering of 749,961 shares of common stock
     and raised $4,671,582, net of underwriter fees, professional
     fees, and various other costs associated with this stock offering
     of $578,145.

     OTHER - In addition to the plans described in Notes I and K, the
     Company issued 2,500 warrants to each of the two outside
     directors during 1997.  Each warrant entitles the holder to
     purchase one share of common stock at an exercise price of $6.50
     and the warrants expire January 30, 2002.

NOTE I -  STOCK OPTION AND WARRANT PLANS

     The Company has established a stock option plan effective January
     1, 1997, for officers, directors other than outside directors,
     employees, and advisors of the Company.  A total of 300,000
     shares of common stock have been authorized and reserved for
     issuance under this plan.  The Company has also established an
     outside directors stock option plan, effective January 1, 1997.
     A total of 50,000 shares of common stock have been authorized and
     reserved for issuance under this plan.  The exercise price of
     each option granted under both stock option plans may not be less
     than the fair market value of the common stock on the day of the
     grant of the option, and no option may be exercisable more than
     10 years after the date of the grant.  No options have been
     issued under either of these plans as of December 31, 1997.

     SERIES A WARRANTS - As part of ESI's public offering, the Board
     of Directors issued 1,000,000 Series A warrants included in units
     that consist of one share of common stock and one Series A
     warrant.  The Board issued additional Series A warrants
     consisting of 100,000 units pursuant to the Underwriters' over-
     allotment option, and 100,000 "representative's" warrants
     pursuant to Underwriters' compensation.  An equivalent number of
     shares of common stock has been authorized and reserved for
     issuance upon exercise of such Series A warrants.

     Each Series A warrant entitles the holder to purchase one share
     of common stock at an exercise price of $9.60 per unit
     exercisable at any time after February 28, 1998, until January
     30, 2002.  The Series A warrants could not be traded separately

                                      F-23

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996

NOTE I -  STOCK OPTION AND WARRANT PLANS (CONTINUED)

     until July 24, 1997.  The warrants are subject to redemption by
     the Company at a price of $.05 per Series A warrant on 30 days
     written notice at any time after July 24, 1998, provided that the
     closing sale price per share for the common stock has equaled or
     exceeded 200 percent of the offering price per unit for 20
     consecutive trading days within the 30-day period immediately
     preceding such notice.

     REGULATION D WARRANTS - As part of ESI's private offering of
     common stock that took place in October 1997, 74,996 warrants
     were issued to unaffiliated parties pursuant to the Placement
     Agent Agreement.  The warrants entitle each holder to purchase
     one share of common stock and are exercisable at $7 per share at
     any time up to October 27, 2002.  The number, type of security
     and the exercise price is subject to adjustment upon occurrence
     of certain events including consolidation, merger, subdivision or
     combination of shares and issuance of stock dividends.  None of
     these warrants have been exercised at December 31, 1997.

NOTE J  -  RELATED PARTY TRANSACTIONS

     Because of the nature of ESI's business, a significant number of
     transactions are with related parties.

     During 1997 and 1996, ESI received drilling advances from two
     affiliated oil and gas partnerships in the amount of $1,156,800
     and $2,037,750, respectively.  Included in accounts receivable at
     December 31, 1997 and 1996 is $426,800 and $456,000, respectively,
     due from affiliated partnerships.

     In its role as operator of the oil and gas wells owned by various
     related partnerships, ESI charges a monthly wellhead and
     administrative fee of between $100 and $300 for each producing
     well.  These fees totaled $239,433 and $158,666 for 1997 and
     1996, respectively.  In its role as general partner of the
     partnership, which owns the gas pipeline and gathering system,
     ESI charges the partnership a management fee of $5,000 per month.
     These fees totaled $60,000 and $55,000 for 1997 and 1996,
     respectively.

     Equity Financial Corporation (EFC), a wholly owned subsidiary
     acquired in 1997, acts as placement agent for ESI programs.  ESI

                                      F-24

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996

NOTE J - RELATED PARTY TRANSACTIONS (CONTINUED)

     paid EFC $136,950 and $183,150 in 1997 and 1996, respectively,
     for costs associated with program placement.  The balance owed
     EFC was $77,800 and $84,900 as of December 31, 1997 and 1996,
     respectively.  In 1996, ESI paid EFC $83,080 in sales commissions
     for conversion of subordinated debentures to preferred stock.
     ESI paid EFC $0 and $28,000 in 1997 and 1996, respectively, for
     rent and management fees under a monthly shared service
     arrangement.  Intercompany balances between ESI and EFC relating
     to 1997 have been eliminated through consolidation.

     The Company, in its discretion and given the business environment
     existing at the time, chose not to collect certain amounts due
     from partnerships and also paid certain expenses due to others on
     behalf of partnerships.  ESI is under no legal or contractual
     obligation to continue this activity, and there is no expectation
     that it will continue in future years.

     The following is a summary for the years ended December 31, 1997 and
     1996 of expenses paid on behalf of the partnerships and advances
     forgiven:
<TABLE>
<CAPTION>
                                                                                 1997            1996
                                                                           ---------------  -------------
<S>                                                                       <C>              <C>

Expenses paid on behalf of partnership                                     $       80,834   $     197,852
                                                                           ==============   =============
Advances forgiven                                                          $       11,728   $      57,996
                                                                           ==============   =============

</TABLE>

     ESI has the contractual right to charge partnership
     administrative fees and production operating fees in excess of
     the aggregate amounts charged to the partnerships during 1997 and
     1996.

NOTE  K - EMPLOYEE BENEFIT AND STOCK-BASED COMPENSATION PLANS

     The Company sponsors a simplified employee pension plan (SEP) for
     qualifying employees.  Employee contributions to individual

                                      F-25

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996

NOTE K - EMPLOYEE BENEFIT AND STOCK-BASED COMPENSATION PLANS
(CONTINUED)

     retirement plans may not exceed the greater of 15 percent of
     employee earnings or $22,500 per year per employee.  The Company
     contributed $25,370 and $15,726 to the SEP during 1997 and 1996,
     respectively.

     The Company has a fixed employee stock-based compensation plan
     under which the Company has granted warrants for 55,650 shares of
     restricted common stock.  The exercise price of each option is
     equal to the market price of the Company's stock on the date of
     grant.  The warrants expire January 30, 2002 and vest
     immediately upon grant.

     The Company also has a fixed executive officer stock-based
     compensation plan under which executive officers have been
     granted warrants for the purchase of up to 450,000 shares
     of restricted common stock.  The exercise price of each
     option is $8.00 per share, which equaled the market price
     of the Company's stock on the date of grant.  The term
     of the warrants is five years starting in 1997 and the warrants
     vest at 30,000 shares per officer per year.

     The Company applies intrinsic value accounting to its fixed
     stock-based compensation plans.  Accordingly, no compensation
     cost has been recognized for the fixed plans in 1997 or 1996.
     Had compensation cost been determined using the fair value
     method, net loss would have been $(476,563) and $(705,511) for
     1997 and 1996, respectively, and earnings per share would have
     been $(.18) and $(.63) for 1997 and 1996, respectively.  The fair
     value of the warrants was determined using the Black-Scholes
     model with application of an additional 30% discount due to the
     fact that the shares are restricted.  The following assumptions
     were made in estimating the fair value: risk-free interest rate-6%,
     expected expiration of the warrants-January 30, 2002, expected
     price volatility-20% and dividend yield-0%.

     The following is a summary of the status of the fixed stock-based
     compensation plans during 1997.





                                      F-26

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996

NOTE  K - EMPLOYEE BENEFIT AND STOCK-BASED COMPENSATION PLANS (CONTINUED)
<TABLE>
<CAPTION>
                                                                              NUMBER OF
                                                                            SHARES (AFTER      WEIGHTED
                                                                             TWO FOR ONE        AVERAGE
                                                                              STOCK SPLIT)  EXERCISE PRICE
                                                                             -------------- --------------
<S>                                                                       <C>              <C>
Outstanding at January 1, 1996                                                       --     $        --

Granted                                                                            27,950            3.57
                                                                           --------------   -------------
Outstanding - December 31, 1996                                                    27,950            3.57

Granted                                                                           505,650            7.84

Expired                                                                           (15,470)          10.00

Exercised                                                                         (12,480)           3.59
                                                                           --------------   -------------
Outstanding - December 31, 1997                                                   505,650   $        7.84
                                                                           ==============   =============
Exercisable at December 31, 1997                                                  145,650   $        7.43
                                                                           ==============   =============
Weighted average per share fair value of
    options granted during 1997                                            $         1.29
                                                                           ==============
</TABLE>
     The following is a summary of the status of the fixed options
     outstanding at December 31, 1997.
<TABLE>
<CAPTION>
             OUTSTANDING OPTIONS                                           EXERCISABLE OPTIONS
------------------------------------------------             ---------------------------------------------
                                      WEIGHTED                                                   WEIGHTED
                                      AVERAGE                                                    AVERAGE
                                     REMAINING                                                  REMAINING
    EXERCISE                         CONTRACTUAL               EXERCISE                        CONTRACTUAL
     PRICE            NUMBER           LIFE                      PRICE           NUMBER            LIFE
     -----            ------           ----                     -----           ------            ----
<S><C>              <C>                 <C>                    <C>              <C>                <C>
    $6.50             55,650             5                      $6.50            55,650             5
    $8.00            450,000             5                      $8.00            90,000             5
</TABLE>
                                        F-27

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            DECEMBER 31, 1997 AND 1996

NOTE L - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS

     As general partner in various affiliated oil and gas
     partnerships, the Company is subject to contingencies that may
     arise in the normal course of business of these partnerships.
     Management is of the opinion that liabilities, if any, related to
     such contingencies that may arise would not be material to the
     financial statements.

     CONCENTRATIONS OF CREDIT RISK - The Company extends credit to
     affiliated partnerships in the normal course of business.  Within
     this industry, certain concentrations of credit risk exist.  ESI,
     in its role as operator of co-owned properties, assumes
     responsibility for payment to vendors for goods and services
     related to joint operations and extends credit to these
     partnerships as co-owners of these properties.

     This concentration of credit risk may be similarly affected by
     changes in economic or other conditions and may, accordingly,
     impact the Company's overall credit risk.  However, management
     believes that its accounts receivable are well diversified,
     thereby reducing potential risk to the Company.

     GEOGRAPHIC CONCENTRATION - The Company plans to increase its oil
     and gas reserves by continued developmental drilling in
     southeastern Ohio in the area serviced by its gas gathering
     system, its Dupont Field and its Beaver Coal Company Lease in
     Wood and Raleigh Counties, West Virginia, respectively.  The
     Company may also undertake activities elsewhere in the
     Appalachian Basin and the mid-continent region of the United
     States.  It plans to drill an increasing number of wells for its
     own account, while at the same time continuing to drill wells
     with future affiliated drilling partnerships to be syndicated on
     a private placement basis.

NOTE M - BUSINESS SEGMENTS

     The Company's operations are classified into two principal
     industry segments.  Oil and gas operations and brokerage
     services.  The oil and gas operations are conducted entirely
     through ESI which is the primary industry segment.  The
     brokerage services are conducted exclusively through EFC.
     See Note A for a description of the operations and accounting


                                      F-28

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
                                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                     DECEMBER 31, 1997 AND 1996

NOTE M - BUSINESS SEGMENTS (CONTINUED)

     policies of each Company.  ESI acquired EFC during 1997 and,
     therefore, prior to 1997 the Company operated only in the oil and gas
     industry.  The following is a summary of segment information for 1997.

<TABLE>
<CAPTION>
                                    OIL & GAS         BROKERAGE     CONSOLIDATIONS
             1997                   OPERATIONS        SERVICES      & ELIMINATIONS      CONSOLIDATED
--------------------------------    ----------        --------      --------------      ------------
<S>                              <C>               <C>            <C>                 <C>
Net revenues to
   unaffiliated customers         $   1,736,539     $   500,131    $          --       $     2,236,670
Intersegment revenues                      --            92,400            (92,400)               --
                                  -------------     -----------    ---------------     ---------------
       Total net revenue              1,736,539         592,531            (92,400)          2,236,670
                                  -------------     -----------    ---------------     ---------------
Operating income (loss)                (678,044)        185,390           (105,122)           (597,776)
Other income                            175,285            --             (127,090)             48,195
                                  -------------     -----------    ---------------     ---------------
Net income (loss) before
     income taxes                 $    (502,759)    $   185,390    $      (232,212)    $      (549,581)
                                  =============     ===========    ===============     ===============
Identifiable assets               $  16,181,777     $   276,984    $      (338,061)    $    16,120,700
                                  =============     ===========    ===============     ===============
Capital expenditures              $   6,901,159     $       605    $          --       $     6,901,764
                                  =============     ===========    ===============      ==============
Depreciation, depletion
     and amortization             $     543,749     $     4,696    $         8,722     $       557,167
                                  =============     ===========    ===============     ===============
</TABLE>













                                      F-29
<PAGE>











To the Stockholders of
Energy Search, Incorporated and Subsidiary


We have audited the financial statements of Energy Search,
Incorporated and Subsidiary for the years ended December 31, 1997 and
1996.  The accompanying schedules of Costs Incurred in Oil and Gas
Producing Activities and Estimates of Natural Gas and Oil Reserves on
pages 26 through 29 are not a required part of the basic financial
statements of Energy Search, Incorporated, but constitute additional
supplementary information required by the Financial Accounting
Standards Board.  We have applied certain limited procedures, which
consisted principally of inquiries of management regarding the methods
of measurement and presentation of the supplementary information.
However, we did not audit the information and express no opinion on
it.



/s/ Plante & Moran, LLP

Grand Rapids, Michigan
February, 20, 1998















                                      F-30

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY

                              SUPPLEMENTARY INFORMATION (UNAUDITED)


COST INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND
DEVELOPMENT ACTIVITIES

The following costs are comprised of both capitalized and expensed
costs included in the balance sheet and income statement:
<TABLE>
<CAPTION>

                                                                           YEAR ENDED DECEMBER 31,
                                                                  -----------------------------------------
                                                                        1997                     1996
                                                                  ---------------          ----------------
<S>                                                              <C>                      <C>
Property acquisition costs                                        $      1,535,173         $        72,640
                                                                  ================         ===============
Exploration costs                                                 $         84,616         $       288,376
                                                                  ================         ===============
Developments costs                                                $      5,683,356         $     1,066,814
                                                                  ================         ===============
</TABLE>


ESTIMATES OF NATURAL GAS AND OIL RESERVES

The following estimates of proven developed natural gas and oil
reserve quantities and related standardized measure of discounted net
cash flow are estimates prepared by an independent petroleum engineer
on behalf of the Company's engineer as of December 31, 1997 and 1996.
They do not purport to reflect realizable values or fair market values
of ESI's reserves.  ESI emphasizes that reserve estimates are
inherently imprecise and that estimates of new discoveries are more
imprecise than those of producing oil and gas properties.
Accordingly, these estimates are expected to change as future
information becomes available.

Proven reserves are estimated reserves of crude oil (including
condensate and natural gas liquids) and natural gas that geological
and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions.  Proven developed reserves are
those expected to be recovered through existing wells, equipment and
operating methods.


                                      F-31

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY

                              SUPPLEMENTARY INFORMATION (UNAUDITED)

ESTIMATES OF NATURAL GAS AND OIL RESERVES (CONTINUED)

The standardized measure of discounted future net cash flows is
computed by applying year-end prices of oil and gas to the estimated
future production of proven oil and gas reserves, less estimated
future expenditures (based on year-end costs) to be incurred in
developing and producing the proven reserves, less estimated future
severance tax expenses and assuming continuation of existing economic
conditions.  The estimated future net cash flows are then discounted
using a rate of 10 percent per year to reflect the estimated timing of
the future cash flows.
   
<TABLE>
<CAPTION>
                                                                        OIL (BBL)               GAS (MCF)
                                                                    ---------------         -----------------
<S>                                                               <C>                     <C>
Proven, developed and undeveloped reserves:

    January 1, 1996                                                         22,340               3,564,527
       Revisions and other changes                                          (2,568)               (431,499)
       Extensions and discoveries                                             --                13,471,501
       Purchases of reserves                                                (2,079)               (829,969)
       Production                                                             (957)                (82,260)
                                                                   ---------------         ---------------
    December 31, 1996                                                       16,736              15,692,300
       Revisions and other changes                                         (12,583)             (1,608,121)
       Extensions and discoveries                                            --                  4,649,023
       Purchases and sales of reserves                                      20,600              12,099,800
       Production                                                           (1,129)               (223,025)
                                                                   ---------------         ---------------
    December 31, 1997                                                       23,624              30,609,977
                                                                   ===============         ===============
Proven developed reserves<F1>:
    December 31, 1996                                                       16,725               1,148,764
    December 31, 1997                                                       23,624              11,192,017

Equity interest in proven reserves<F2>:
    December 31, 1996                                                        1,612                 145,585
    December 31, 1997                                                          268                 138,228





                                  F-32

<PAGE>
-----------------------------------
<FN>
<F1>  These reserves are owned directly by the Company.

<F2>  These are reserves owned indirectly by the Company through its
      interests in affiliated partnerships.

</TABLE>
    








































                                  F-33
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>

                                      SUPPLEMENTARY INFORMATION (UNAUDITED)


ESTIMATES OF NATURAL GAS AND OIL RESERVES (CONTINUED)

<CAPTION>
                                                                                    DECEMBER 31,
                                                                        -----------------------------------
                                                                             1997                 1996
                                                                        --------------      ---------------
<S>                                                                    <C>                 <C>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE PRETAX
     NET CASH FLOWS
            Future cash inflows                                         $     105,929,500  $     53,269,424
            Future production costs                                           (18,076,980)       (6,876,455)
            Future development costs                                          (16,710,350)      (10,069,585)
                                                                        -----------------  ----------------
            Future pretax net cash flows                                       71,142,170        36,323,384
            10% annual discount for estimated timing
               of cash flows                                                  (38,780,970)      (14,996,587)
                                                                        -----------------  ----------------
            Standardized measure of discounted future
               pretax net cash flows relating to proven
               oil and gas reserves                                     $      32,361,200  $     21,326,797
                                                                        =================  ================
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET
     CASH FLOWS
            Future cash inflows                                         $     105,929,500  $     53,269,424
            Future production costs                                           (18,076,980)       (6,876,455)
            Future development costs                                          (16,710,350)      (10,069,585)
            Future income taxes                                               (22,149,426)      (10,747,719)
                                                                        -----------------  ----------------
            Future net cash flows                                              48,992,744        25,575,665
            10% annual discount for estimated timing
               of cash flows                                                  (24,897,377)      (10,402,907)
                                                                        -----------------  ----------------
            Standardized measure of discounted future
               net cash flows relating to proven oil
               and gas reserves                                         $      24,095,367  $     15,172,758
                                                                        =================  ================
ESI's share of equity method investors' standardized
     measure of discounted future cash flows                            $         181,570  $        215,995
                                                                        =================  ================
</TABLE>


                                      F-34

<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY

                       SUPPLEMENTARY INFORMATION (UNAUDITED)


ESTIMATES OF NATURAL GAS AND OIL RESERVES (CONTINUED)

The following reconciles the change in the standardized measure of
discounted future net cash flows for the year ended December 31,

<TABLE>
<CAPTION>
                                                                                 1997             1996
                                                                            -------------  -----------------
<S>                                                                      <C>                <C>
Beginning of year                                                         $    15,172,758    $    2,720,651
Sales of oil and gas produced, net of
     production costs                                                            (524,385)         (117,852)
Extensions, discoveries, and improved recovery -
     Less related costs                                                         4,853,796        23,352,526
Revisions of previous quantity estimates                                         (394,343)         (271,797)
Changes in prices                                                               1,231,832         1,372,168
Net change from purchases and sales of
     minerals in place                                                         10,716,000          (632,667)
Net change in income taxes                                                    (11,258,007)      (10,279,719)
Accretion of discount                                                          (1,517,276)         (272,065)
Other                                                                           5,814,992          (698,487)
                                                                          ---------------    --------------
End of year                                                               $    24,095,367    $   15,172,758
                                                                          ===============    ==============
</TABLE>


















                                         F-35
<PAGE>
                               EXHIBIT INDEX

     EXHIBIT
     NUMBER   DESCRIPTIONS

       3.1    Fourth Amended and Restated Charter of the Registrant<F1>    
       3.2    Bylaws of the Registrant<F2>    
       4.1    Specimen of Common Stock Certificate<F3>    
       4.2    Specimen of Redeemable Series A Common Stock Purchase
              Warrant Certificate<F3>    
       4.3    Specimen of Underwriters' Warrant Certificate<F3>    
       4.4    Charter (See Exhibit 3.1)
       4.5    Bylaws (See Exhibit 3.2)
       9.1    Shareholder Voting Agreement and Irrevocable Proxy<F3>    
      10.1    Energy Search Natural Gas 1995-A L.P. Limited Partnership
              Agreement, dated December 31, 1995<F3>    
      10.2    Energy Search Natural Gas 1995-A L.P. Joint Drilling and
              Operating Agreement, dated December 31, 1995<F3>    
      10.3    Energy Search Natural Gas 1996 L.P.-Limited Partnership
              Agreement, dated June 10, 1996<F3>    
      10.4    Energy Search Natural Gas 1996 L.P.-Joint Drilling and
              Operating Agreement, dated June 10, 1996<F3>    
      10.5    ESI Pipeline Operating Partnership-Limited Partnership
              Agreement, dated January 7, 1993<F3>    
      10.6    Energy Search Natural Gas Pipeline Income Partnership-Limited
              Partnership Agreement, dated January 7, 1993<F3>    
      10.7    Gas Servicing Agreement between the Registrant and ESI
              Pipeline Operating L.P., dated January 5, 1993<F3>    
      10.8    Selling Agreement-Class B Convertible Preferred Shares
              between Registrant and Equity Financial Corporation, dated
              March 4, 1996<F3>    
      10.9    Selling Agreement-Class A and Class B Preferred Shares
              between Registrant and Equity Financial Corporation, dated
              March 4, 1996<F3>    
     10.10    Selling Agreement-Variable Rate Subordinated Debentures
              between Registrant and Equity Financial Corporation, dated
              September 19, 1994<F3>    
     10.11    Aircraft Lease between Charles P. Torrey, Jr. and the
              Registrant dated February 1, 1995<F3>    
     10.12    Beaver Coal Company Lease between Beaver Coal Company
              Limited and the Registrant, dated September 15, 1996<F3>    
     10.13    Employment Agreements with officers and key employees of the
              Registrant
                           (a) John M. Johnston<F3><F*>    
                        
    
   (b) Robert L. Remine<F3><F*>    
                        
    
   (c) Charles P. Torrey, Jr.<F3><F*>    
                        
    
   (d) Richard S. Cooper<F3><F*>    
                        
    
   (e) Michael W. Mooney<F4><F*>    


<PAGE>
     10.14    Promissory Notes of Executive Officers in Favor of
              Registrant
                        
    
   (a) Charles P. Torrey, Jr.<F3>    
                           (b) Robert L. Remine<F3>    
                           (c) Richard S. Cooper<F3>    
     10.15    Stock Option Plan<F3><F*>    

    
     10.16    Outside Directors' Stock Option Plan<F3><F*>    

    
     10.17    Form of Lock-Up Agreement<F3>    
     10.18    Stock Option and Restricted Stock Plan of 1998<F1><F*>    

    
     10.19    Form of Indemnification Agreement<F1><F*>    

    
      11.1    Statement Regarding Computation of Earnings Per Common
              Share<F4>    
      21.1    Subsidiaries<F4>    
      23.1    Consent of Experts and Counsel
                           (a) Consent of Independent Accountant, Ronald
                               D. Cameron, CPA<F1>
                           (b) Consent of Independent Accountant, Plante &
                               Moran, LLP, CPA
                           (c) Consent of Independent Geologist, Kim A.
                               Walbe
                           (d) Consent of Independent Petroleum Consultant,
                               Wright & Company, Inc.
      27.1    Financial Data Schedule

------------------
[FN]
   
<F*>  Management contract or compensatory plan or arrangement.

<F1>  Previously filed with the Company's Definitive Proxy Statement
      filed on April 28, 1998 with the Securities and Exchange
      Commission, and here incorporated by reference.

<F2>  Previously filed with the Company's Form 10-QSB for the quarter
      ended June 30, 1998.

<F3>  Previously filed with the Company's Registration Statement on Form
      SB-2 (Registration No. 333-12755) filed with the Securities and Exchange
      Commission, and here incorporated by reference.

<F4>  Previously filed with the Company's Form 10-KSB Annual Report for
      the fiscal year ended December 31, 1997, and here incorporated
      by reference.
</FN>