United States
                       Securities and Exchange Commission
                             Washington, D. C. 20549

                                    Form 10-Q

(Mark one)
[X]   Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
        of 1934 For the Quarterly Period Ended June 30, 2001
                                  -------------

[ ]   Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
        of 1934 For the Transition Period from .......... to ..........


                     Commission File Number..........1-12508
                                     -------


                          MAGNUM HUNTER RESOURCES, INC.
                         ------------------------------
              Exact name of registrant as specified in its charter


          Nevada                                       87-0462881
          ------                                       ----------
State or other jurisdiction of               IRS employer identification No.
incorporation or organization


           600 East Las Colinas Blvd., Suite 1100, Irving, Texas 75039
         ---------------------------------------------------------------
                     Address of principal executive offices

                                 (972) 401-0752
         ---------------------------------------------------------------
               Registrant's telephone number, including area code


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

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of August 13, 2001: 35,595,318.

<PAGE>

                         PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                            (in thousands of dollars)

<TABLE>
<CAPTION>
<S>                                                                        <C>                            <C>
                                                                                June 30,                   December 31,
                                                                                  2001                        2000
                                                                           ------------------------------------------------------
                                 ASSETS                                       (Unaudited)
Current Assets
         Cash and cash equivalents.......................................    $        1,864                   $           9
         Restricted cash ................................................                 -                           1,820
         Accounts receivable
              Trade, net of allowance of $50.............................            21,507                          30,442
              Due from affiliates........................................                31                             107
         Notes receivable from affiliate.................................                 4                             377
         Current portion of long-term notes receivable,
              net of allowance of $1,170.................................                 -                              50
         Derivative assets...............................................             3,018                               -
         Prepaid and other...............................................             2,065                           2,033
                                                                           ------------------------------------------------------
               Total Current Assets......................................            28,489                          34,838
                                                                           ------------------------------------------------------
Property, Plant, and Equipment
         Oil and gas properties, full cost method
               Unproved..................................................             9,745                           5,534
               Proved....................................................           447,100                         367,822
         Pipelines.......................................................            12,594                          12,581
         Other property..................................................             3,485                           2,459
                                                                           ------------------------------------------------------
         Total Property, Plant and Equipment.............................           472,924                         388,396
               Accumulated depreciation, depletion,
                amortization and impairment..............................          (144,965)                       (127,864)
                                                                           ------------------------------------------------------
         Net Property, Plant and Equipment...............................           327,959                         260,532
                                                                           ------------------------------------------------------
Other Assets
         Deposits and other assets.......................................             5,698                           6,570
         Investment in unconsolidated affiliates.........................             9,896                           8,054
         Deferred tax asset .............................................                 -                           5,618
                                                                           ------------------------------------------------------
                                                                             $      372,042                   $     315,612
         Total Assets....................................................  ======================================================


                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
         Trade payables and accrued liabilities..........................    $       31,615                   $      27,094
         Dividends payable...............................................                 -                             169
         Suspended revenue payable.......................................             2,601                           3,201
         Current income taxes payable....................................             1,384                             234
         Current maturities of long-term debt, with recourse.............                19                              19
                                                                           ------------------------------------------------------
               Total Current Liabilities.................................            35,619                          30,717
                                                                           ------------------------------------------------------
Long-Term Liabilities
         Long-term debt, with recourse, less current maturities..........           214,592                         170,520
         Long-term debt, non recourse, less current maturities...........                 -                          20,600
         Production payment liability....................................               230                             359
         Deferred income taxes payable...................................             5,032                               -
Stockholders' Equity
         Preferred stock - $.001 par value; 10,000,000
           shares authorized, 216,000 designated
           as Series A; 80,000 issued and outstanding,
           liquidation amount $0.........................................                 -                               -
           1,000,000 designated as 1996 Series A Convertible;
             1,000,000 purchased and
             held for remarketing by subsidiary,
             liquidation amount $10,000,000..............................                 1                               1
           50,000 designated as 1999 Series A 8%
             Convertible; none and 25,000 issued and
             outstanding, respectively, liquidation amount
             $0 and $25,000,000, respectively............................                 -                               -
         Common Stock - $.002 par value; 100,000,000 shares authorized,
           35,981,581 and 30,705,398 shares issued, respectively.........                72                              61
         Additional paid-in capital......................................           151,169                         148,580
         Accumulated other comprehensive income (loss)...................               534                            (466)
         Accumulated deficit.............................................           (29,849)                        (50,152)
         Receivable from stockholder.....................................              (742)                           (442)
         Unearned common stock in ESOP, at cost (680,282 shares).........            (2,780)                         (2,780)
                                                                           ------------------------------------------------------
                                                                                    118,405                          94,802
         Treasury stock, at cost (467,463 and 455,063 shares of
           common stock, respectively)...................................            (1,836)                         (1,386)
                                                                           ------------------------------------------------------
         Total Stockholders' Equity......................................           116,569                          93,416
                                                                           ------------------------------------------------------
         Total Liabilities and Stockholders' Equity......................    $      372,042                   $     315,612
                                                                           ======================================================

</TABLE>

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

<PAGE>

                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF INCOME and COMPREHENSIVE INCOME
                                   (Unaudited)
                  (in thousands, except for per share amounts)
<TABLE>
<CAPTION>
<S>                                                        <C>             <C>                  <C>                 <C>
                                                               Three Months Ended                     Six Months Ended
                                                                     June 30,                             June 30,
                                                          -------------------------------------------------------------------------
                                                            2001                  2000            2001                2000
                                                          -------------------------------------------------------------------------
Operating Revenues:
  Oil and gas sales.......................................  $     34,494    $       23,594       $     77,631        $      44,959
  Gas gathering, marketing and processing.................         4,830             4,414             11,932                8,244
  Oil field management services...........................           606               278              1,121                  476
                                                          -------------------------------------------------------------------------
           Total Operating Revenues.......................        39,930            28,286             90,684               53,679
                                                          -------------------------------------------------------------------------
Operating Costs and Expenses:
  Oil and gas production lifting costs....................         4,956             4,269              9,606                8,885
  Production taxes and other costs........................         3,169             2,642              7,184                5,482
  Gas gathering, marketing and processing.................         4,431             3,516             11,003                6,292
  Oil field management services...........................           392               135                754                  250
  Depreciation, depletion and amortization................         9,686             5,566             17,101               11,537
  Gains on sale of assets.................................            (2)               (6)                (4)                 (24)
  General and administrative..............................         2,065             1,317              3,777                2,271
                                                          -------------------------------------------------------------------------
           Total Operating Costs and Expenses.............        24,697            17,439             49,421               34,693
                                                          -------------------------------------------------------------------------
Operating Profit .........................................        15,233            10,847             41,263               18,986
  Equity in earnings of affiliate.........................           237               230                855                  270
  Other income............................................            63               153                157                  229
  Interest expense........................................        (4,943)           (5,691)            (9,104)             (11,427)
                                                          -------------------------------------------------------------------------
Income before income tax..................................        10,590             5,539             33,171                8,058
  Provision for income tax:
  Current.................................................         (602)                 -             (1,885)                   -
  Deferred................................................       (3,409)            (2,011)           (10,679)              (2,950)
                                                          -------------------------------------------------------------------------
       Total provision for income tax.....................       (4,011)            (2,011)           (12,564)              (2,950)
Income before extraordinary loss..........................        6,579              3,528             20,607                5,108
  Extraordinary loss from early extinguishment of debt,
       net of income tax benefit of $186 .................         (304)                 -               (304)                   -
                                                          -------------------------------------------------------------------------

Net Income................................................        6,275              3,528             20,303                5,108
  Dividends Applicable to Preferred Stock.................            -             (1,076)                 -               (2,294)
                                                          -------------------------------------------------------------------------
Income Applicable to Common Shares........................  $     6,275     $        2,452       $     20,303        $       2,814
                                                          =========================================================================
Net Income................................................  $     6,275     $        3,528       $     20,303        $       5,108

Other Comprehensive Income (Loss), net of tax
  Cumulative effect on prior years of a change in
    accounting principle..................................            -                  -             (1,757)                   -
  Gain on derivatives.....................................        1,526                  -              3,429                    -
  Reclassification adjustment related to derivative
    contracts.............................................         (138)                 -               (275)                   -
  Unrealized gain (loss) on investments...................         (193)               435               (397)                 590
                                                          -------------------------------------------------------------------------
Comprehensive Income......................................  $     7,470     $        3,963       $     21,303        $       5,698
                                                          =========================================================================
Income  per Common Share - Basic
  Income before Extraordinary Loss                          $      0.19     $         0.13       $       0.59        $        0.14
  Extraordinary Loss                                              (0.01)                 -              (0.01)                   -
                                                          -------------------------------------------------------------------------
Income per Common Share - Basic                             $      0.18     $         0.13       $       0.58        $        0.14
                                                          =========================================================================
Income per Common Share - Diluted
  Income before Extraordinary Loss                          $      0.18     $         0.12       $       0.55        $        0.14
  Extraordinary Loss                                              (0.01)                 -              (0.01)                   -
                                                          -------------------------------------------------------------------------
Income per Common Share - Diluted                           $      0.17     $         0.12       $       0.54        $        0.14
                                                          =========================================================================
Common Shares Used in Per Share Calculation
  Basic...................................................   34,879,318         19,575,786         34,736,166           19,640,365
                                                          =========================================================================
  Diluted.................................................   37,307,219         29,944,340         37,364,030           20,215,751
                                                          =========================================================================
</TABLE>

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

                                        2
<PAGE>
                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                     FOR THE SIX MONTHS ENDED JUNE 30, 2001
                                   (Unaudited)
                             (dollars in thousands)

<TABLE>
<CAPTION>
<S>                                                <C>            <C>           <C>         <C>           <C>           <C>

                                                        Preferred Stock            Common Stock               Treasury Stock
                                                       Shares      Amount        Shares     Amount         Shares         Amount
                                                    -----------------------------------------------------------------------------
Balance at December 31, 2000........................ 1,105,000     $    1       30,705,398    $  61         (455,063)    $ (1,386)
   Conversion of 1999 Series A 8% convertible
    preferred stock.................................   (25,000)                  4,761,904       10
   Exercise of employees' common stock options......                               461,800        1           56,300          171
   Deferred tax benefit on exercise of employees'
        common stock options........................                                52,479        -
   Common stock contributed to 401(k) plan
        and other...................................
   Purchase of treasury stock.......................                                                         (68,700)        (621)
   Net income.......................................
   Cumulative effect on prior years of a change in
        accounting principle........................
   Gain on derivatives..............................
   Reclassification adjustment related to
        derivative contracts........................
   Unrealized loss on investments...................
   Loan to stockholder..............................
                                                    ------------------------------------------------------------------------------
Balance at June 30, 2000............................ 1,080,000     $    1       35,981,581    $  72         (467,463)     $(1,836)
                                                    ==============================================================================
</TABLE>

<TABLE>
<CAPTION>
<S>                                              <C>          <C>                 <C>            <C>          <C>         <C>
                                                   Additional  Accumulated Other                   Receivable   Unearned shares in
                                                     Paid-In    Comprehensive      Accumulated       from             ESOP
                                                     Capital    Income (Loss)        Deficit      Stockholder  Shares      Amount
                                                  ---------------------------------------------------------------------------------
Balance at December 31, 2000...................... $ 148,580    $   (466)          $  (50,152)     $   (442)   (680,282)   $(2,780)
   Conversion of 1999 Series A 8% convertible
    preferred stock...............................       (10)
   Exercise of employees' common stock options....     1,994
   Deferred tax benefit on exercise of employees'
        common stock options......................       454
   Common stock contributed to 401(k) plan
        and other.................................       151
   Purchase of treasury stock.....................
   Net income.....................................                                     20,303
   Cumulative effect on prior years of a
        change in accounting principle............                (1,757)
   Gain on derivatives............................                 3,429
   Reclassification adjustment related to
        derivative contracts......................                  (275)
   Unrealized loss on investments.................                  (397)
   Loan to stockholder............................                                                     (300)
                                                  ---------------------------------------------------------------------------------
Balance at June 30, 2000.......................... $ 151,169    $    534           $  (29,849)     $   (742)   (680,282)   $(2,780)
                                                  =================================================================================
</TABLE>

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

                                        3

<PAGE>

                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
<S>                                                                             <C>                          <C>
                                                                                            Six Months Ended
                                                                                                June 30,
                                                                              ----------------------------------------------------
                                                                                      2001                        2000
                                                                              ----------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income...........................................................           $    20,303                  $     5,108
  Adjustments to reconcile net income to cash provided by
   operating activities:
    Extraordinary loss.................................................                   304                            -
    Depreciation, depletion and amortization...........................                17,101                       11,537
    Amortization of financing fees.....................................                   735                          575
    Deferred income taxes..............................................                10,679                        2,950
    Equity in income of unconsolidated affiliate.......................                  (855)                        (270)
    Gain on sale of assets.............................................                    (4)                         (24)
    Change in fair value of derivatives................................                  (652)                           -
    Changes in certain assets and liabilities
      Accounts and notes receivable....................................                 9,011                       (5,698)
      Other current assets.............................................                   (32)                        (412)
      Accounts payable and accrued liabilities.........................                 3,921                         (247)
      Current income taxes payable.....................................                 1,150                            -
                                                                              ----------------------------------------------------
 Net Cash Provided By Operating Activities.............................                61,661                       13,519
                                                                              ----------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from sale of assets..........................................                     4                       25,056
 Additions to property and equipment...................................               (84,528)                     (14,080)
 Loan made for promissory note receivable..............................                     -                       (1,000)
 Payments received on promissory note receivable ......................                    65                            3
 Distribution from unconsolidated affiliate............................                 1,013                            -
 Investment in unconsolidated affiliate................................                (2,000)                      (1,590)
                                                                              ----------------------------------------------------
 Net Cash (Used In) Provided By Investing Activities...................               (85,446)                       8,389
                                                                              ----------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from the issuance of long-term debt and production payment...               171,480                       33,556
 Fees paid related to financing activities.............................                  (731)                        (399)
 Payments of principal on long-term debt and production payment........              (148,516)                     (42,766)
 Loan made to stockholder .............................................                  (300)                           -
 Repayment of note receivable from affiliate...........................                   360                          125
 Loan made to ESOP.....................................................                     -                         (312)
 Proceeds from issuance of common stock, net of offering costs.........                 2,317                           29
 Purchase of preferred stock by subsidiary ............................                     -                      (10,035)
 Purchase of treasury stock ...........................................                  (621)                        (500)
 Decrease in restricted cash for payment of notes payable .............                 1,820                           68
 Cash dividends paid...................................................                  (169)                      (2,657)
                                                                              ----------------------------------------------------
 Net Cash Provided By (Used In) Financing Activities...................                25,640                      (22,891)
                                                                              ----------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................            1,855                         (983)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................                9                        1,565
                                                                              ----------------------------------------------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD..................................      $     1,864                  $       582
                                                                              ----------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
      Cash interest paid....................................................      $     9,231                  $    11,075
                                                                              ----------------------------------------------------
      Cash taxes paid.......................................................      $       735                  $         -
                                                                              ====================================================

</TABLE>

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

                                        4

<PAGE>



                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2001
                                   (Unaudited)

NOTE 1 - MANAGEMENT'S REPRESENTATION

     The  consolidated  balance  sheet as of June  30,  2001,  the  consolidated
statements  of income  and  comprehensive  income  for the three  months and six
months ended June 30, 2001 and 2000, the consolidated statement of stockholders'
equity for the six months ended June 30, 2001, and the  consolidated  statements
of cash flows for the six months ended June 30, 2001 and 2000, are unaudited. In
the opinion of management,  all necessary adjustments (which include only normal
recurring  adjustments) have been made to present fairly the financial  position
at June 30, 2001,  results of operations,  changes in  stockholders'  equity and
cash flows for the three month and six month periods.

     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting  principles generally accepted
in the United States of America have been condensed or omitted.  It is suggested
that  these  condensed  financial  statements  be read in  conjunction  with the
financial  statements and notes thereto included in the December 31, 2000 annual
report and on Form 10-K for the Company. The results of operations for the three
months and six months ended June 30, 2001 are not necessarily  indicative of the
operating results for the full year.

     The accompanying  consolidated financial statements include the accounts of
the Company and its subsidiaries.  All significant intercompany transactions and
balances  have  been  eliminated  in  consolidation.  Certain  items  have  been
reclassified to conform with the current presentation.

     The Company is a holding  company with no significant  assets or operations
other than its investments in its subsidiaries. The wholly-owned subsidiaries of
the  Company,  except  for  Bluebird  Energy,  Inc.  ("Bluebird"),   are  direct
guarantors of the Company's 10% senior notes and have fully and  unconditionally
guaranteed the notes on a joint and several basis.  The guarantors  comprise all
of the direct and indirect  subsidiaries  of the Company (other than  Bluebird),
and  the  Company  has  presented  separate  condensed  consolidating  financial
statements  and other  disclosures  concerning  each guarantor and Bluebird (See
Note  6).  There  is  no   restriction  on  the  ability  of   consolidated   or
unconsolidated subsidiaries to transfer funds to the Company in the form of cash
dividends, and, except for Bluebird, loans or advances.


                                        5
<PAGE>


NOTE 2 - EARNINGS PER SHARE INFORMATION

     The  following is a  reconciliation  of the basic and diluted  earnings per
share computations.

<TABLE>
<CAPTION>
<S>                                          <C>              <C>        <C>           <C>            <C>            <C>
                                                                             Three Months Ended
                                          ---------------------------------------------------------------------------------------
                                                         June 30, 2001                                June 30, 2000
                                          ---------------------------------------------------------------------------------------
                                                                          Per Share                                  Per Share
                                              Income           Shares      Amount         Income        Shares        Amount
---------------------------------------------------------------------------------------------------------------------------------
                                                                  (Thousands, except per share amounts)

Basic EPS
   Income before extraordinary loss
     and dividends.........................   $      6,579                              $    3,528
   Dividends on preferred stock............              -                                  (1,076)
                                           -----------------                           ---------------
   Income before extraordinary loss........          6,579       34,879    $  0.19           2,452      19,576           $  0.13
   Extraordinary loss......................           (304)      34,879      (0.01)              -      19,576                 -
                                           ------------------             -----------------------------                 ---------
   Income available to common
     stockholders..........................   $      6,275       34,879    $  0.18       $   2,452      19,576           $  0.13
                                           ======================================================================================
Effect of Dilutive Securities
   Warrants................................              -          234                          -          -
   Options.................................              -        2,194                          -        844
   Convertible Preferred stock.............              -            -                      1,000      9,524
                                           --------------------------------------------------------------------------------------
Effect of Dilutive Securities..............              -        2,428                      1,000     10,368
                                           ============================                  ==================================
Diluted EPS
Income before extraordinary loss-basic.....   $      6,579       34,879                  $   2,452     19,576
Effect of dilutive securities..............              -        2,428                      1,000     10,368
                                           --------------------------------------------------------------------------------------
Income before extraordinary loss-diluted...          6,579       37,307    $  0.18           3,452     29,944            $  0.12
Extraordinary loss.........................           (304)      37,307      (0.01)              -     29,944                  -
                                           --------------------          ----------------------------           -----------------
   Income available to common
     stockholders and assumed
     conversions...........................   $      6,275       37,307    $  0.17       $   3,452     29,944            $  0.12
                                           ======================================================================================

</TABLE>


                                        6
<PAGE>

                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                  June 30, 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
<S>                                        <C>            <C>           <C>              <C>          <C>          <C>
                                                                          Six Months Ended
                                           -------------------------------------------------------------------------------------
                                                         June 30, 2001                               June 30, 2000
                                           -------------------------------------------------------------------------------------
                                                                           Per Share                                 Per Share
                                              Income         Shares         Amount          Income        Shares       Amount
                                           -------------------------------------------------------------------------------------
                                                                      (Thousands, except per share amounts)
Basic EPS
   Income before extraordinary loss
     and dividends......................... $    20,607                                    $    5,108
   Dividends on preferred stock............           -                                        (2,294)
                                           -------------------------------------------------------------------------------------

   Income before extraordinary loss........      20,607      34,736      $    0.59              2,814      19,640     $    0.14
   Extraordinary loss......................        (304)     34,736          (0.01)                 -      19,640             -
                                           -------------------------------------------------------------------------------------

   Income available to common
     stockholders.......................... $    20,303      34,736      $    0.58         $    2,814      19,640     $    0.14
                                           =====================================================================================
Effect of Dilutive Securities
   Warrants................................           -         254                                 -           -
   Options.................................           -       2,374                                 -         576
   Convertible Preferred stock.............           -           -                                 -           -
                                           -------------------------------------------------------------------------------------

Effect of Dilutive Securities..............           -       2,628                                 -         576
                                           =====================================================================================
Diluted EPS
Income before extraordinary loss-basic..... $    20,607      34,736                             2,814      19,640
Effect of dilutive securities..............           -       2,628                                 -         576
                                           -------------------------------------------------------------------------------------

Income before extraordinary loss-diluted...      20,607      37,364      $    0.55              2,814      20,216     $    0.14
Extraordinary loss.........................        (304)     37,364          (0.01)                 -      20,216             -
                                           ----------------             ---------------------------------           ------------

   Income available to common
     stockholders and assumed
     conversions........................... $    20,303      37,364      $    0.54         $    2,814      20,216     $    0.14
                                           =====================================================================================
</TABLE>

     At June 30, 2001, warrants  representing 644,749 shares of common stock and
options  representing  4,212,313  shares of common  stock were  outstanding.  On
January  1,  2001,  the  remaining  $25.0  million  (liquidation  value)  of the
Company's  1999  Series A 8%  convertible  preferred  stock was  converted  into
4,761,904  shares of  common  stock.  At June 30,  2000,  warrants  representing
11,487,149 shares of common stock and options  representing  3,842,342 shares of
common stock were outstanding.  Additionally,  for the six months ended June 30,
2000,  convertible  preferred stock representing a total of 11,428,572 shares of
common  stock,  if  converted,  was  excluded  from the  calculation  of diluted
earnings per share as the effect was anti-dilutive.

NOTE 3 - LONG-TERM DEBT

     On May 17,  2001,  the  Company  closed on an amended and  restated  $225.0
million senior bank credit facility to consolidate and replace the Company's and
Bluebird's previous credit facilities. The borrowing base, set at $112.5 million
initially,  replaced the combined  borrowing  bases totaling $90.0 million under
the previous  agreements.  In addition to  increasing  the  Company's  borrowing
capacity,  the  amended  agreement  improved on many of the  previous  borrowing
terms,  including the Company's cost of funds.  The maturity date of the amended
agreement was extended to May 17, 2004. The agreement  includes  covenants,  the
most  restrictive  of which requires  maintenance  of a current ratio,  interest
coverage  ratio and funded  debt to EBITDA  (earnings  before  interest,  taxes,
depreciation and  amortization)  ratio. On June 26, 2001, the borrowing base was
increased to $125.0  million  when  another  bank joined the group.  At June 30,
2001, borrowings under the facility were $85.0 million.

                                        7
<PAGE>

                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                  June 30, 2001
                                   (Unaudited)

     In connection with the sale of oil and gas and other property from Bluebird
to Magnum Hunter  Production,  Inc., on May 17, 2001,  the Company  caused $17.7
million of  Bluebird's  indebtedness  under its senior  bank  credit  line to be
repaid. At that time, the credit line was retired.

     On June 25, 2001, the Company repurchased $10.5 million principal amount of
its 10% Senior Notes due 2007,  which reduced the total  outstanding  balance of
10% Senior Notes from $140 million to $129.5  million.  The Company  recorded an
extraordinary  loss from early  extinguishment of debt of $304 thousand,  net of
income tax benefit, as a result of this transaction.

NOTE 4 - NEW ACCOUNTING STANDARD

     Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative  Instruments and Hedging  Activities"  (SFAS No. 133), as extended by
SFAS No. 137 (June 1999) and amended by SFAS No. 138 (June 2000),  was effective
for the Company beginning  January 1, 2001. SFAS No. 133 establishes  accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
the recognition of derivatives in the balance sheet and the measurement of those
instruments at fair value.

     The Company was  obligated to four crude oil  derivatives,  one natural gas
derivative, and one interest rate derivative on January 1, 2001. The Company has
determined  that the  interest  rate  derivative  does  not  qualify  for  hedge
treatment  as  defined  within  SFAS No.  133.  The  crude oil and  natural  gas
derivatives qualify as cash-flow hedges, which require the Company to record the
derivative  assets or  liabilities at their fair value on its balance sheet with
an offset to other  comprehensive  income.  Future hedge  ineffectiveness on the
cash-flow hedge will be recorded in earnings.

     At January 1, 2001,  all  derivatives  within the Company  were  identified
pursuant  to  SFAS  No.  133  requirements,  and  the  Company  has  designated,
documented and assessed all hedging  relationships.  Adoption of this accounting
standard  resulted in the  recognition  of $179  thousand of a derivative  asset
related to the interest rate derivative and an increase in the carrying value of
long-term  debt  with  recourse  of $179  thousand.  In June,  2001 the  Company
terminated  its  position  in  this  derivative  and  recognized  a gain of $147
thousand as a reduction in interest expense for the three and six month periods.

     With respect to the cash-flow  hedges,  at the accounting change transition
the Company  recorded a derivative  asset of $648 thousand  related to the crude
oil derivatives with a cumulative effect increase to other comprehensive  income
of $403  thousand  (net of income  taxes)  and a  derivative  liability  of $3.5
million related to the natural gas derivatives with a cumulative effect decrease
to other comprehensive income of $2.2 million (net of income taxes).

     In May, 2001 the Company entered into additional costless collars for crude
oil for the periods July 2001 through December 2001. These crude oil derivatives
qualify as cash flow hedges.

     At June 30, 2001, the Company's crude oil and natural gas derivatives had a
fair value of $465 thousand and $2.5 million,  respectively. For the three-month
period  ended  June 30,  2001,  the  income  statement  includes  a gain of $671
thousand  related  to the  crude  oil  derivatives  and a gain of $170  thousand
related to the natural gas derivatives, net of amounts reclassified out of other
comprehensive  income.  For the six-month period ended June 30, 2001, the income
statement includes a gain of $465 thousand related to crude oil derivatives at a
loss of $629  thousand  related  to  natural  gas  derivatives,  net of  amounts
reclassified  out of other  comprehensive  income.  The Company expects that the
remaining  balance  in  other  comprehensive  income  at June 30,  2001  will be
reclassified into the income statement within the next six months.
                                        8
<PAGE>



                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                  June 30, 2001
                                   (Unaudited)

NOTE 5 - SEGMENT DATA

     The Company has three reportable  segments.  The Exploration and Production
segment is engaged in exploratory drilling and acquisition, production, and sale
of crude oil,  condensate,  and natural gas. The Gas  Gathering,  Marketing  and
Processing  segment is engaged in the gathering and  compression  of natural gas
from the wellhead,  the purchase and resale of natural gas which it gathers, and
the processing of natural gas liquids. The Oil Field Services segment is engaged
in the managing and operation of producing oil and gas  properties  for interest
owners.

     The Company's  reportable  segments are strategic business units that offer
different  products  and  services.  They are managed  separately  because  each
business requires different technology and marketing strategies. The Exploration
and Production  segment has six geographic  areas that are  aggregated.  The Gas
Gathering,  Marketing and Processing  segment includes the activities of the two
gathering  systems  and three  natural gas  liquids  processing  plants in three
geographic  areas that are  aggregated.  The Oil Field Services  segment has six
geographic  areas that are aggregated.  The reason for aggregating the segments,
in each case, is due to the similarity in nature of the products, the production
processes, the type of customers, the method of distribution, and the regulatory
environments.

     The  accounting  policies  of the  segments  are the same as those  for the
Company as a whole. The Company  evaluates  performance  based on profit or loss
from operations  before income taxes. The accounting for intersegment  sales and
transfers is done as if the sales or transfers were to third  parties,  that is,
at current market prices.

     Segment  data for the  periods  ended June 30,  2001 and 2000  follows  (in
thousands):

<TABLE>
<CAPTION>
<S>                                        <C>          <C>            <C>          <C>           <C>              <C>
                                                         Gas Gathering,
                                           Exploration &  Marketing &   Oil Field
  Three Months Ended June 30, 2001:         Production    Processing    Services     All Other     Elimination      Consolidated
----------------------------------------------------------------------------------------------------------------------------------

Revenue from external customers...........  $  34,494     $  4,830      $   606       $      -      $               $  39,930
Intersegment revenues.....................                   5,258        1,533              -        (6,791)               -
Depreciation, depletion and amortization .      9,362          220          100              4                          9,686

Segment profit (loss).....................     17,010          173         (932)        (1,018)                        15,233
Equity in earnings of affiliates..........                                                 237                            237
Interest expense..........................                                              (4,943)                        (4,943)
Other income..............................                                                  63                             63
                                                                                                                     -------------

Income before income taxes................                                                                          $  10,590
Provision for income tax..................                                              (4,011)                        (4,011)
Extraordinary loss........................                                                (304)                          (304)
                                                                                                                     -------------

Net income................................                                                                          $   6,275
                                                                                                                     =============
Capital expenditures (net of asset sales).  $  54,622     $      7      $    38       $      -                      $  54,667
</TABLE>

                                       9
<PAGE>

<TABLE>
<CAPTION>
<S>                                        <C>             <C>               <C>          <C>         <C>           <C>

                                                            Gas Gathering,
                                            Exploration &    Marketing &      Oil Field
   Three Months Ended June 30, 2000:         Production      Processing       Services     All Other   Elimination   Consolidated
-----------------------------------------------------------------------------------------------------------------------------------

Revenue from external customers..............$   23,594      $ 4,414          $    270      $      8    $            $      28,286
Intersegment revenues........................                  4,323             1,602             -        (5,925)              -
Depreciation, depletion and amortization ....     5,271          219                72             4                         5,566

Segment profit (loss)........................     9,958          562             1,297          (970)                       10,847
Equity earnings of affiliates................                                                    230                           230
Interest expense.............................                                                 (5,691)                       (5,691)
Other income.................................                                                    153                           153
                                                                                                                     --------------
Income before income taxes...................                                                                        $       5,539
Provision for deferred income tax benefit....                                                 (2,011)                       (2,011)
Extraordinary loss...........................                                                                                    -
                                                                                                                     --------------
Net income...................................                                                                        $       3,528
                                                                                                                     ==============
Capital expenditures (net of asset sales)....$  (16,635)     $    54          $     83      $      -                 $     (16,498)
</TABLE>

<TABLE>
<CAPTION>
<S>                                        <C>            <C>             <C>         <C>          <C>            <C>
                                                           Gas Gathering,
                                            Exploration &   Marketing &    Oil Field
 Six Months Ended June 30, 2001:             Production     Processing     Services    All Other    Elimination    Consolidated
----------------------------------------------------------------------------------------------------------------------------------

Revenue from external customers............. $ 77,631      $  11,932       $  1,121    $       -     $             $      90,684
Intersegment revenues.......................                  12,818          2,972            -      (15,790)                 -
Depreciation, depletion and amortization ...   16,459            440            193            9                          17,101

Segment profit (loss).......................   44,385            484         (1,488)      (2,118)                         41,263
Equity in earnings of affiliates............                                                 855                             855
Interest expense............................                                              (9,104)                         (9,104)
Other income................................                                                 157                             157
                                                                                                                   ---------------

Income before income taxes..................                                                                       $      33,171
Provision for income tax....................                                             (12,564)                        (12,564)
Extraordinary loss..........................                                                (304)                           (304)
                                                                                                                   ---------------

Net income..................................                                                                       $      20,303
                                                                                                                   ===============
Capital expenditures (net of asset sales)... $ 83,485      $      13       $    172    $     854                   $      84,524
</TABLE>

<TABLE>
<CAPTION>
<S>                                       <C>             <C>               <C>          <C>         <C>           <C>
                                                           Gas Gathering,
                                           Exploration &   Marketing &       Oil Field
  Six Months Ended June 30, 2000:          Production      Processing        Services    All Other    Elimination    Consolidated
-----------------------------------------------------------------------------------------------------------------------------------
Revenue from external customers........... $  44,959        $ 8,244           $   468    $       8     $            $      53,679
Intersegment revenues.....................                    7,696             3,271            -       (10,967)               -
Depreciation, depletion and amortization .    10,951            437               140            9                         11,537

Segment profit (loss).....................    18,213          1,423             1,180       (1,830)                        18,986
Equity earnings of affiliates.............                                                     270                            270
Interest expense..........................                                                 (11,427)                       (11,427)
Other income..............................                                                     229                            229
                                                                                                                   ---------------

Loss before income taxes..................                                                                          $       8,058
Provision for deferred income tax.........                                                  (2,950)                        (2,950)
Extraordinary loss........................                                                       -                              -
                                                                                                                   ---------------

Net income................................                                                                          $       5,108
                                                                                                                   ===============
Capital expenditures (net of asset sales). $ (11,202)       $    67           $   103    $      56                  $     (10,976)
</TABLE>

<TABLE>
<CAPTION>
<S>                           <C>             <C>                <C>          <C>           <C>            <C>
                                               Gas Gathering,
                               Exploration &    Marketing &       Oil Field
  As of June 30, 2001:          Production      Processing        Services     All Other     Elimination    Consolidated
  --------------------          ----------      ----------        ---------    ---------     -----------    ------------
Segment assets.................. $ 318,309      $ 18,072          $ 28,469      $ 7,192                       $ 372,042
Equity subsidiary investments...                                                $ 9,896                       $   9,896

  As of December 31, 2000:
  ------------------------
Segment assets.................. $ 270,195      $ 20,561          $ 16,154      $ 8,702                       $ 315,612
Equity subsidiary investments...                                                $ 8,054                       $   8,054
</TABLE>


                                        10

<PAGE>


                 MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                  June 30, 2001
                                   (Unaudited)

NOTE 6 -- CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

     The Company and its wholly-owned subsidiaries,  except Bluebird, are direct
guarantors of the Company's 10% senior notes and have fully and  unconditionally
guaranteed  the notes on a joint and several  basis.  In addition to not being a
guarantor of the  Company's  10% senior  notes,  Bluebird  cannot be included in
determining  compliance  with certain  financial  covenants  under the Company's
credit agreements.  The Company has concluded that separate financial statements
related to the  guarantors  are not included  because  management has determined
that they are not  material  to  investors.  Condensed  consolidating  financial
information for Magnum Hunter  Resources,  Inc. and  subsidiaries as of June 30,
2001 and December  31, 2000,  and for the three months and six months ended June
30, 2001 and 2000, was as follows:

                 Magnum Hunter Resources, Inc. and Subsidiaries
                     Condensed Consolidating Balance Sheets
<TABLE>
<CAPTION>
<S>                                   <C>                     <C>                    <C>                      <C>
                                                          June 30, 2001
----------------------------------------------------------------------------------------------------------------------------------
                                        Magnum Hunter           Bluebird                                        Magnum Hunter
                                        Resources, Inc.         Energy, Inc.                                    Resources, Inc.
Amount in Thousands                     And Guarantor Subs      (Non Guarantor)         Eliminations            Consolidated
----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets.....................     $    25,219             $   3,270               $         -             $    28,489
Property and equipment
  (using full cost accounting).....         319,240                 8,719                         -                 327,959
Investment in subsidiaries
  (equity method)..................          14,929                     -                   (14,929)                      -
Investment in parent's bonds and
  preferred and common stock.......               -                15,356                   (15,356)                      -
Other assets.......................          15,594                     -                         -                  15,594
                                        ------------------------------------------------------------------------------------------
  Total assets.....................     $   374,982             $  27,345               $   (30,285)            $   372,042
                                        ==========================================================================================

LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities...............      $    35,289             $     330               $         -             $    35,619
Long-term liabilities.............          212,468                12,086                    (4,700)                219,854
Shareholders' equity..............          127,225                14,929                   (25,585)                116,569
                                        ------------------------------------------------------------------------------------------
  Total liabilities and
    shareholders' equity..........      $   374,982             $  27,345               $   (30,285)            $   372,042
                                        ==========================================================================================
</TABLE>

                                       11

<PAGE>

<TABLE>
<CAPTION>
<S>                                  <C>                      <C>                     <C>                      <C>
                                                                   December 31, 2000
----------------------------------------------------------------------------------------------------------------------------------
                                        Magnum Hunter           Bluebird                                        Magnum Hunter
                                        Resources, Inc.         Energy, Inc.                                    Resources, Inc.
Amount in Thousands                     And Guarantor Subs      (Non Guarantor)         Eliminations            Consolidated
----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets.....................     $    33,556             $     6,894             $      (5,612)          $      34,838
Property and equipment
  (using full cost accounting).....         208,115                  52,417                         -                 260,532
Investment in subsidiaries
  (equity method)..................          25,574                       -                   (25,574)                      -
Other assets.......................          27,173                     319                    (7,250)                 20,242
                                        ------------------------------------------------------------------------------------------
  Total assets.....................     $   294,418             $    59,630             $     (38,436)          $     315,612
                                        ==========================================================================================

LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities...............      $    30,123             $     6,206             $      (5,612)          $      30,717
Long-term liabilities.............          170,879                  27,850                    (7,250)                191,479
Shareholders' equity..............           93,416                  25,574                   (25,574)                 93,416
                                        ------------------------------------------------------------------------------------------
  Total liabilities and
    shareholders' equity..........      $   294,418             $    59,630             $     (38,436)          $     315,612
                                        ==========================================================================================
</TABLE>

                 Magnum Hunter Resources, Inc. and Subsidiaries
                Condensed Consolidating Statement of Operations

<TABLE>
<CAPTION>
<S>                                       <C>                    <C>               <C>                  <C>

                                         For the Three Months ended June 30, 2001
----------------------------------------------------------------------------------------------------------------------------------
                                               Magnum Hunter          Bluebird                            Magnum Hunter
                                              Resources, Inc.       Energy, Inc.                         Resources, Inc.
Amounts in Thousands                        And Guarantor Subs     (Non Guarantor)   Eliminations          Consolidated
----------------------------------------------------------------------------------------------------------------------------------
Revenues..................................    $    34,668           $    5,308       $       (46)          $          39,930
Expenses..................................         26,346                3,040               (46)                     29,340
                                          ----------------------------------------------------------------------------------------
Income before                                       8,322                2,268                 -                      10,590
 Equity in net earnings of subsidiary.....          1,409                    -            (1,409)                          -
                                          ----------------------------------------------------------------------------------------
Income before income taxes................          9,731                2,268            (1,409)                     10,590
Income tax provision......................         (3,152)                (859)                -                      (4,011)
                                          ----------------------------------------------------------------------------------------
Income before extraordinary loss..........          6,579                1,409            (1,409)                      6,579
Extraordinary loss........................           (304)                   -                 -                        (304)
                                          ----------------------------------------------------------------------------------------
  Net income..............................    $     6,275          $     1,409       $    (1,409)          $           6,275
                                          ========================================================================================
</TABLE>

<TABLE>
<CAPTION>
<S>                                        <C>                   <C>             <C>                <C>
                                                Three Months Ended June 30, 2000
----------------------------------------------------------------------------------------------------------------------------------
                                                Magnum Hunter       Bluebird                          Magnum Hunter
                                               Resources, Inc.    Energy, Inc.                        Resources, Inc.
Amounts in Thousands                         And Guarantor Subs  (Non Guarantor)  Eliminations        Consolidated
----------------------------------------------------------------------------------------------------------------------------------
Revenues....................................  $   17,907           $   10,494     $       (115)        $  28,286
Expenses....................................      16,893                5,969             (115)           22,747
                                            --------------------------------------------------------------------------------------
Income before                                      1,014                4,525                -             5,539
 Equity in net earnings of subsidiary.......       2,812                    -           (2,812)                -
                                            --------------------------------------------------------------------------------------
Income before income taxes..................       3,826                4,525           (2,812)            5,539
Income tax provision........................        (298)              (1,713)               -            (2,011)
                                            --------------------------------------------------------------------------------------
  Net income................................  $    3,528          $     2,812      $    (2,812)        $   3,528
                                            ======================================================================================

</TABLE>
                                       12
<PAGE>

<TABLE>
<CAPTION>
<S>                                       <C>                  <C>                <C>                <C>
                                            For the Six Months ended June 30, 2001
----------------------------------------------------------------------------------------------------------------------------------
                                               Magnum Hunter       Bluebird                            Magnum Hunter
                                              Resources, Inc.     Energy, Inc.                         Resources, Inc.
Amounts in Thousands                        And Guarantor Subs   (Non Guarantor)   Eliminations         Consolidated
----------------------------------------------------------------------------------------------------------------------------------
Revenues.................................... $     67,295        $    23,590       $       (201)         $     90,684
Expenses....................................       46,893             10,821               (201)               57,513
                                            --------------------------------------------------------------------------------------
Income before                                      20,402             12,769                  -               33,171
 Equity in net earnings of subsidiary.......        7,933                  -             (7,933)                   -
                                            --------------------------------------------------------------------------------------
Income before income taxes..................       28,335             12,769             (7,933)               33,171
Income tax provision........................       (7,728)            (4,836)                 -               (12,564)
                                            --------------------------------------------------------------------------------------
Income before extraordinary loss............       20,607              7,933             (7,933)               20,607
Extraordinary loss..........................         (304)                 -                  -                  (304)
                                            --------------------------------------------------------------------------------------
  Net income................................ $     20,303        $     7,933        $    (7,933)         $     20,303
                                            ======================================================================================

</TABLE>

<TABLE>
<CAPTION>
<S>                                    <C>                     <C>               <C>                  <C>
                                      Six Months Ended June 30, 2000
----------------------------------------------------------------------------------------------------------------------------------
                                           Magnum Hunter         Bluebird                                Magnum Hunter
                                          Resources, Inc.      Energy, Inc.                             Resources, Inc.
Amounts in Thousands                    And Guarantor Subs    (Non Guarantor)      Eliminations          Consolidated
----------------------------------------------------------------------------------------------------------------------------------
Revenues................................$         35,240         $     18,652        $     (213)         $      53,679
Expenses................................          34,172               11,662              (213)                45,621
                                        ------------------------------------------------------------------------------------------
Income before                                      1,068                6,990                 -                  8,058
 Equity in net earnings of subsidiary...           4,343                    -            (4,343)                     -
                                        ------------------------------------------------------------------------------------------
Income before income taxes..............           5,411                6,990            (4,343)                 8,058
Income tax provision....................            (303)              (2,647)                -                 (2,950)
                                        ------------------------------------------------------------------------------------------
  Net income............................$          5,108         $      4,343        $   (4,343)         $       5,108
                                        ==========================================================================================
</TABLE>

                 Magnum Hunter Resources, Inc. and Subsidiaries
                Condensed Consolidating Statements of Cash Flows
<TABLE>
<CAPTION>
<S>                                    <C>                    <C>                 <C>                <C>
                                       For the Six Months Ended June 30, 2001
----------------------------------------------------------------------------------------------------------------------------------
                                           Magnum Hunter           Bluebird                            Magnum Hunter
                                          Resources, Inc.        Energy, Inc.                         Resources, Inc.
Amounts in Thousands                    And Guarantor Subs     (Non Guarantor)      Eliminations        Consolidated
----------------------------------------------------------------------------------------------------------------------------------
Cash flow from operating activities.... $       47,472          $     14,189         $        -         $        61,661
Cash flow from investing activities....       (106,869)               40,001            (18,578)                (85,446)
Cash flow from financing activities....         61,596               (54,534)            18,578                  25,640
                                       -------------------------------------------------------------------------------------------
Net increase (decrease) in cash........          2,199                  (344)                 -                   1,855
Cash at beginning of period............         (1,811)                1,820                  -                       9
                                       -------------------------------------------------------------------------------------------
Cash at end of period.................. $          388          $      1,476         $        -         $         1,864
                                       ===========================================================================================
</TABLE>

<TABLE>
<CAPTION>
<S>                                         <C>                    <C>                <C>              <C>
                                        For the Six Months Ended June 30, 2000
----------------------------------------------------------------------------------------------------------------------------------
                                                Magnum Hunter          Bluebird                          Magnum Hunter
                                               Resources, Inc.        Energy, Inc.                       Resources, Inc.
Amounts in Thousands                         And Guarantor Subs     (Non Guarantor)    Eliminations       Consolidated
----------------------------------------------------------------------------------------------------------------------------------
Cash flow from operating activities.........   $      5,927          $     7,592        $        -       $     13,519
Cash flow provided by investing activities..          4,139                4,250                 -              8,389
Cash flow used by financing activities......        (11,049)             (11,910)               68            (22,891)
                                            --------------------------------------------------------------------------------------
Net increase (decrease) in cash.............           (983)                 (68)               68               (983)
Cash at beginning of period.................          1,565                2,145            (2,145)             1,565
                                            --------------------------------------------------------------------------------------
Cash at end of period.......................   $        582          $     2,077        $   (2,077)      $        582
                                            ======================================================================================
</TABLE>

                                       13

<PAGE>

NOTE 7 - SUBSEQUENT EVENT

     On August 7, 2001,  the Company  executed a  definitive  Purchase  and Sale
Agreement to acquire proved oil and gas properties  totaling  approximately 41.8
BCFE of reserves for $32.2 million,  subject to purchase price adjustments.  The
transaction  is scheduled  to close on or before  September  15,  2001,  with an
effective  date of July 1, 2001.  The  Company  has made a cash  deposit of $3.2
million  to the seller in  anticipation  of  closing  on this  transaction.  The
Company plans to seek additional funding in order to close this transaction,  as
the cash requirements may exceed those currently available under its Senior bank
credit facilities.

Item 2. Management's Discussion and Analysis of Financial Condition
  and Results of Operation

     The following  discussion and analysis  should be read in conjunction  with
Magnum Hunter's consolidated  financial statements and the notes associated with
them  contained  in its Form 10-K for the year ended  December  31,  2000.  This
discussion  should not be construed to imply that the results  discussed  herein
will necessarily  continue into the future or that any conclusion reached herein
will necessarily be indicative of actual operating  results in the future.  Such
discussion  represents only the best present  assessment by management of Magnum
Hunter.

     Throughout  this  document  we  make  statements  that  are  classified  as
"forward-looking."  Please refer to the "Forward-Looking  Statements" section of
this document for an explanation of these types of assertions.

     The Company's results of operations have been significantly affected by our
past success in acquiring oil and gas  properties and our ability to maintain or
increase oil and natural gas production  through  exploration  and  exploitation
activities.  Fluctuations in oil and gas prices have also significantly affected
the results of operations.

                                       14

<PAGE>

     The following table sets forth certain  information with respect to our oil
and gas operations and our gas gathering, marketing and processing operations.

<TABLE>
<CAPTION>
<S>                                            <C>                       <C>                 <C>                   <C>
                                                         Three Months Ended                             Six Months Ended
                                                              June 30,                                      June 30,
Oil and Gas Operations                            2001                        2000                2001                   2000
----------------------------------------------------------------------------------------------------------------------------------
Reported Production:
   Oil (MBbls)..................................    325                           334                627                   704
   Gas (MMcf)...................................  5,748                         4,839             11,285                 9,833
   Oil and Gas (MMcfe)..........................  7,697                         6,844             15,048                14,059
   Equivalent Daily Rate (MMcfe/day)............   84.6                          75.2               83.1                  77.2
Underlying Production (*):
   Oil (MBbls)..................................    325                           279                627                   579
   Gas (MMcf)...................................  5,748                         4,178             11,285                 8,401
   Oil and Gas (MMcfe)..........................  7,697                         5,852             15,048                11,875
   Equivalent Daily Rate (MMcfe/day)............   84.6                          64.3               83.1                  65.2
      (*) Adjusted for the sale of properties in June and September 2000.

Average Sale Prices (after hedging)
   Oil (per Bbl)................................  $  27.05                   $  23.10            $ 26.97               $  22.38
   Gas (per Mcf)................................      4.47                       3.28               5.38                   2.97
   Oil and Gas (per Mcfe).......................      4.48                       3.45               5.16                   3.20
Effect of hedging activities (per Mcfe).........  $   0.11                   $  (0.38)           $ (0.01)              $  (0.32)
Lease Operating Expense (per Mcfe)
   Lifting costs................................  $   0.64                   $   0.62            $  0.64               $   0.63
   Production tax and other costs...............      0.41                       0.39               0.48                   0.39
Gross margin (per Mcfe).........................  $   3.43                   $   2.44            $  4.04               $   2.18

Gas Gathering, Marketing and
   Processing Operations
------------------------------------------------
Throughput Volumes (Mcf per day)
   Gathering....................................    16,390                     16,557              16,409                16,689
   Processing...................................    14,718                     17,864              13,295                18,167
Gross margin (in thousands).....................  $    399                   $    898            $    929              $  1,952
   Gathering (per Mcf throughput)...............  $  (0.09)                  $   0.18            $   0.02              $   0.17
   Processing (per Mcf throughput)..............  $   0.21                   $   0.37            $   0.31              $   0.42
</TABLE>

Period to Period Comparison

For the Three Months Ended June 30, 2001 and 2000

     We reported  net income of $6.3 million for the three months ended June 30,
2001,  a 78%  increase  over net income of $3.5  million  for the same period in
2000.  The  2001  period  results  include  an  extraordinary  loss  from  early
extinguishment  of  debt  of  $304  thousand,  net of  tax  benefits,  from  the
repurchase of $10.5 million of the Company's 10% Senior Notes.  Total  operating
revenues  increased 41% to $39.9 million and operating  profit  increased 40% to
$15.2 million in 2001. A 30% increase in the price received for oil and gas sold
(on a thousand  cubic feet  equivalent,  or Mcfe,  basis),  combined  with a 12%
increase  in oil and gas  production  (on a million  cubic feet  equivalent,  or
MMcfe,  basis)  in our  oil and  gas  exploration  and  production  segment  was
primarily  responsible  for these record  results.  Income  applicable to common
shares  was $6.3  million in the 2001  period  versus  $2.5  million in the 2000
period, a 156% increase.  Income per common  share-diluted grew 42% to $0.17 per
share in the 2001  period  compared  to $0.12 per  share,  diluted,  in the 2000
period.  The effect of the  extraordinary  loss in the 2001 period was $0.01 per
share,  basic and diluted.  No dividends were recorded in the 2001 period due to
the  conversion  of $25.0  million  (liquidation  value) of our 1999 Series A 8%
Convertible  preferred stock on January 1, 2001 into  approximately  4.8 million
shares  of  our  common  stock.   We  had  previously   redeemed  $25.0  million
(liquidation  value)  of the 1999  Series A 8%  Convertible  preferred  stock in
December,  2000 and Bluebird  acquired  100% of our $10.0  million  (liquidation
value) in 1996 Series A Convertible preferred stock during May, 2000.


                                       15

<PAGE>

Oil and Gas Operations:

     For the three months ended June 30, 2001, we reported oil production of 325
Mbbls (thousand  barrels) and gas production of 5,748 MMcf (million cubic feet),
which  represents  a decline of 3% in oil and an increase of 19% in gas produced
from the  comparable  period in 2000.  Our  reported  equivalent  daily  rate of
production  on a million cubic feet per day basis  (MMcfe/day)  increased 12% to
84.6  MMcfe/day in the 2001 period.  The reported  production in the 2000 period
was impacted by the sale of certain  non-core oil and gas properties  which took
effect in June and September 2000.  Excluding the production of these properties
from  both  periods,  our  underlying  oil  production  increased  16%  and  our
underlying gas production  increased 38% in the 2001 period compared to the 2000
period, with the underlying  equivalent daily rate of production  increasing 32%
to 84.6  MMcfe/day  . These  increases  were the  result of the  success  of our
drilling program offsetting normal production declines.

     The  increase  in oil  and  gas  prices  was the  most  significant  factor
affecting the increase in net income in the 2001 period.  Prices realized in the
2001  period  averaged  $27.05 per barrel of oil and $4.47 per Mcf of gas.  This
represents  a 30%  increase on a thousand  cubic feet of gas  equivalent  (Mcfe)
basis over the 2000 period average  realized  prices of $23.10 per barrel of oil
and $3.28 per Mcf of gas.  The unit  prices  realized  include  the  effects  of
hedging.

     From time to time,  we enter into hedging  contracts in order to reduce our
exposure to the  possibility  of declining  oil and gas prices.  During the 2001
period,  hedging  increased  the average  price we received for oil by $2.06 per
barrel and for gas by $0.03 per Mcf. For the  three-month  period in 2001 we had
approximately  16% of our natural gas  production  hedged at a weighted  average
price using cost-less collars of $4.50 to $6.15 per Mcf and we had approximately
70% of our crude oil and plant liquid  production  hedged at a weighted  average
price using cost-less collars of $25.00 to $32.02 per barrel.

     As a result of higher realized prices and higher production levels, oil and
gas revenues increased 46% to $34.5 million in the 2001 period compared to $23.6
million in the 2000 period.

     Lease  operating  expenses  consist of lifting costs and production tax and
other costs. For the 2001 period,  lifting costs, on a unit of production basis,
were  $0.64  per Mcfe as  compared  to $0.62  per  Mcfe in the 2000  period,  an
increase of 3%.  Production  tax and other costs were $0.41 per Mcfe in the 2001
period  compared to $0.39 per Mcfe in the 2000  period,  an increase of 5%. This
was principally due to an increase of $0.03 per Mcfe in production tax, which is
a function of higher oil and gas prices.

     Gross margin for oil and gas  operations  (oil and gas revenues  less lease
operating  expenses) for the 2001 period was $26.4  million,  or $3.43 per Mcfe,
compared to $16.7 million,  or $2.44 per Mcfe in the 2000 period, an increase of
41% on a per unit of production  basis,  primarily as a result of higher oil and
gas prices and the increase in our daily unit production rate.

Gathering, Marketing and Processing Operations:

     For the three months ended June 30, 2001, our gathering  system  throughput
was 16.4 MMcf per day versus  16.6 MMcf per day for the same  period in 2000,  a
decline  of 1%  due  to  normal  production  declines  behind  the  system.  Gas
processing  throughput was 14.7 MMcf per day in 2001 versus 17.8 MMcf per day in
2000, a decrease of 18%. Our reported  throughput in the 2001 period was reduced
due to (i) the sale in June 2000 of a substantial  ownership interest in oil and
gas  properties  supplying  one of our  plants  and  (ii)  natural  declines  in
producing properties supplying the plants.

     Revenues  from  gathering,  marketing and  processing  increased 9% to $4.8
million in 2001 versus $4.4 million in 2000.  We received  significantly  higher
prices for  natural  gas  liquids  and plant  products  sold in the 2001  period
compared to the 2000 period.  Operating  costs for the gathering,  marketing and
processing  segment  increased  26% to $4.4 million in 2001 from $3.5 million in
2000.  Higher  natural gas prices paid  affected  the cost of gas  marketed  and
processed.

     The gross margin realized from gathering, marketing and processing for 2001
was $399  thousand  versus $898  thousand in 2000, a decrease of 56%.  Gathering
margin was a loss of $0.09 per Mcf  gathered in 2001 versus  income of $0.18 per
Mcf in 2000 due to a  decrease  in  marketing  spreads  and losses  incurred  on
pipeline  imbalance  positions.  Processing  margin  was  $0.21  per Mcf in 2001
compared  to  $0.37  per Mcf in 2000 due to  higher  prices  and less  favorable
processing economics.


                                       16

<PAGE>

Oil Field Management Services Operations:

     Revenues from oil field management  services were $606 thousand in the 2001
period  versus $278  thousand in the 2000 period due to an increase in customers
for  whom we  provided  management  and  operations  services.  Operating  costs
increased  to $392  thousand  in 2001 from $135  thousand  in 2000 due to higher
costs for labor and overhead. The gross margin for this segment in 2001 was $214
thousand versus $143 thousand in 2000, an increase of 50%.

Other Income and Expenses:

     Depreciation  and  depletion  expense  was $9.7  million in the 2001 period
versus $5.6 million in the 2000 period.  Depreciation  and  depletion on oil and
gas  properties  was $1.26 per Mcfe in 2001 versus $0.81 per Mcfe in 2000.  This
55%  increase in the  equivalent  unit cost was due  primarily to an increase in
development costs associated with our exploration efforts in the Gulf of Mexico.

     General and  administrative  expense for 2001 increased 57% to $2.1 million
from $1.3 million in 2000. The principal  cause of this increase was an increase
in  salary,  benefits  and  retirement  plan  expenses  and an  increase  in the
Company's  overall  headcount  associated with its increased  activity level. We
recorded  equity in earnings of affiliate  of $237  thousand in 2001 versus $230
thousand in 2000.  This  increase  was due to increased  net  earnings  from gas
marketing operations of the Company's 30% owned affiliate.  Other income was $63
thousand  for 2001 versus $153  thousand in 2000.  The  decrease was caused by a
decrease in interest income.

     Interest  expense was $4.9  million for 2001 versus $5.7  million for 2000.
During the 2001  period  the  interest  rate and  average  daily  balance on our
LIBOR-based bank debt was lower than in 2000. In addition,  interest expense was
reduced  in the 2001  period  by $179  thousand  as a result  of  adjusting  our
interest rate derivative to its fair value.

     We recorded a total  provision  for income tax  expense of $4.0  million in
2001  versus  $2.0  million in 2000.  The 2001 period  provision  included  $602
thousand of current taxes payable due to alternative minimum tax.

     There were no dividends  applicable to preferred  stock in 2001 as compared
to  $1.1  million  for the  2000  period.  The  elimination  of the  outstanding
preferred stock was due to the purchase, redemption and conversion of all of the
Company's outstanding dividend paying preferred stock.

For the Six Months Ended June 30, 2001 and 2000

     We reported  net income of $20.3  million for the six months ended June 30,
2001 as compared to net income of $5.1  million for the same period in 2000,  an
increase of 297%. The 2001 period  results  include an  extraordinary  loss from
early  extinguishment  of debt of $304 thousand,  net of tax benefits,  from the
repurchase of $10.5 million of the Company's 10% Senior Notes.  Total  operating
revenues  increased  69% to $90.7 million in 2001 from $53.7 million in 2000 and
operating  profit  increased 117% to $41.3 million in 2001 from $19.0 million in
2000. A 61%  increase in the price  received for oil and gas sold (on a thousand
cubic feet equivalent,  or Mcfe, basis),  combined with a 7% increase in oil and
gas production (on a million cubic feet equivalent,  or MMcfe, basis) in our oil
and gas exploration and production  segment was primarily  responsible for these
improved  results.  Income  applicable to common shares was $20.3 million in the
2001  period  versus  $2.8  million  in  the  2000  period.  Income  per  common
share-diluted was $0.54 per share in the 2001 period compared to $0.14 per share
-  diluted,  in the  2000  period,  an  increase  of  286%.  The  effect  of the
extraordinary loss in the 2001 period was $0.01 per share, basic and diluted. No
dividends  were  recorded  in the 2001  period  due to the  conversion  of $25.0
million (liquidation value) of our 1999 Series A 8% Convertible  preferred stock
on January 1, 2001 into approximately 4.8 million shares of our common stock. We
had previously  redeemed $25.0 million  (liquidation value) of the 1999 Series A
8% Convertible  preferred stock in December,  2000 and Bluebird acquired 100% of
our $10.0 million  (liquidation  value) in 1996 Series A  Convertible  preferred
stock during May, 2000.

Oil and Gas Operations:

     For the six months ended June 30, 2001,  we reported oil  production of 627
Mbbls (thousand barrels) and gas production of 11,285 MMcf (million cubic feet),
which  represents a decline of 11% in oil and an increase of 15% in gas produced
from the  comparable  period in 2000.  Our  reported  equivalent  daily  rate of
production  on a million  cubic feet per day basis  (MMcfe/day)  increased 8% to
83.1  MMcfe/day in the 2001 period from 77.2  Mmcfe/day in the 2000 period.  The
reported  production  in the 2000  period  was  impacted  by the sale of certain
non-core oil and gas properties which took effect in June

                                       17

<PAGE>


     and September 2000.  Excluding the production of these properties from both
periods,  our  underlying  oil  production  increased 9% and our  underlying gas
production  increased 35% in the 2001 period  compared to the 2000 period,  with
the  underlying  equivalent  daily  rate of  production  increasing  27% to 83.1
MMcfe/day  . These  increases  were the result of the  success  of our  drilling
program offsetting normal production declines.

     The  increase  in oil  and  gas  prices  was the  most  significant  factor
affecting the increase in net income in the 2001 period.  Prices realized in the
2001  period  averaged  $26.97 per barrel of oil and $5.38 per Mcf of gas.  This
represents  a 61%  increase on a thousand  cubic feet of gas  equivalent  (Mcfe)
basis over the 2000 period average  realized  prices of $22.38 per barrel of oil
and $2.97 per Mcf of gas.  The unit  prices  realized  include  the  effects  of
hedging. During the 2001 period, hedging increased the average price we received
for oil by $0.74 per barrel and  decreased the average price we received for gas
by $0.06 per Mcf.

     As a result of higher realized prices and higher production levels, oil and
gas revenues increased 73% to $77.6 million in the 2001 period compared to $45.0
million in the 2000 period.

     For the 2001 period,  lifting costs,  on a unit of production  basis,  were
$0.64 per Mcfe as compared to $0.63 per Mcfe in the 2000 period,  an increase of
2%.  Production  tax and other  costs  were  $0.48  per Mcfe in the 2001  period
compared to $0.39 per Mcfe in the 2000  period,  an  increase  of 23%.  This was
principally due to an increase of $0.07 per Mcfe in production taxes,  which are
a function of higher oil and gas prices.

     Gross  margin  for oil and gas  operations  for the 2001  period  was $60.8
million,  or $4.04 per Mcfe, compared to $30.6 million, or $2.18 per Mcfe in the
2000 period, an increase of 85% on a per unit of production basis,  primarily as
a result  of higher  oil and gas  prices  and the  increase  in our  daily  unit
production rate of 8%.

Gathering, Marketing and Processing Operations:

     For the six months ended June 30, 2001,  our gathering  systems  throughput
was 16.4 MMcf per day versus  16.7 MMcf per day for the same  period in 2000,  a
decline  of 2% due  to  normal  production  declines  behind  the  systems.  Gas
processing  throughput was 13.3 MMcf per day in 2001 versus 18.2 MMcf per day in
2000, a decrease of 27%. Our reported  throughput in the 2001 period was reduced
due to (i) the sale in June 2000 of a substantial  ownership interest in oil and
gas properties  supplying one of our plants,  (ii) the voluntary shutdown of one
gas processing  plant for  approximately  1 1/2 months of the 2001 period due to
adverse  processing  economics  as a result of high natural gas prices and (iii)
normal production declines on properties supplying the plants.

     Revenues from  gathering,  marketing and processing  increased 45% to $11.9
million in 2001 versus $8.2 million in 2000.  We received  significantly  higher
prices for  natural  gas  liquids  and plant  products  sold in the 2001  period
compared to the 2000 period.  Operating  costs for the gathering,  marketing and
processing  segment  increased 75% to $11.0 million in 2001 from $6.3 million in
2000.  Higher  natural gas prices paid  affected  the cost of gas  marketed  and
processed.

     The gross margin realized from gathering, marketing and processing for 2001
was $929  thousand  versus $2.0  million in 2000,  a decrease of 52%.  Gathering
margin was of $0.02 per Mcf gathered in 2001 versus $0.17 per Mcf in 2000 due to
a decrease  in  marketing  spreads and losses  incurred  on  pipeline  imbalance
positions. Processing margin was $0.31 per Mcf in 2001 compared to $0.42 per Mcf
in 2000 due to higher  prices,  less  favorable  processing  economics,  and the
temporary shutdown of a plant for a portion of the 2001 period.

Oil Field Management Services Operations:

     Revenues from oil field  management  services were $1.1 million in the 2001
period  versus $476  thousand in the 2000 period due to an increase in customers
for  whom we  provided  management  and  operations  services.  Operating  costs
increased  to $754  thousand  in 2001 from $250  thousand  in 2000 due to higher
costs for labor and overhead. The gross margin for this segment in 2001 was $367
thousand versus $226 thousand in 2000, an increase of 62%.

                                       18

<PAGE>

Other Income and Expenses:

     Depreciation  and  depletion  expense was $17.1  million in the 2001 period
versus $11.5 million in the 2000 period.  Depreciation  and depletion on oil and
gas  properties  was $1.14 per Mcfe in 2001 versus $0.82 per Mcfe in 2000.  This
38%  increase in the  equivalent  unit cost was due  primarily to an increase in
development costs associated with our exploration efforts in the Gulf of Mexico.

     General and  administrative  expense for 2001 increased 66% to $3.8 million
from $2.3 million in 2000. The principal  cause of this increase was an increase
in  salary,  benefits  and  retirement  plan  expenses  and an  increase  in the
Company's  overall  headcount  associated with its increased  activity level. We
recorded  equity in earnings of affiliate of $855 thousand in 2001 versus a gain
of $270  thousand in 2000.  This increase was due to increased net earnings from
gas marketing operations of the Company's 30% owned affiliate.  Other income was
$157 thousand for 2001 versus $229 thousand in 2000.  The decrease was caused by
a reduction in interest income.

     Interest  expense was $9.1 million for 2001 versus $11.4  million for 2000.
During the 2001  period,  the  interest  rate and average  daily  balance on our
LIBOR-based bank debt was lower than in 2000. In addition,  interest expense was
reduced  in the 2001  period  by $884  thousand  as a result  of  adjusting  our
interest rate derivative to its fair value and terminating the derivative.

     We recorded a total  provision  for income tax expense of $12.6  million in
2001  versus  $3.0  million in 2000.  The 2001 period  provision  included  $1.9
million of current taxes payable due to alternative minimum tax.

     There were no dividends  applicable to preferred  stock in 2001 as compared
to  $2.3  million  for the  2000  period.  The  elimination  of the  outstanding
preferred stock was due to the purchase, redemption and conversion of all of the
Company's outstanding dividend paying preferred stock.

Liquidity and Capital Resources

     CASH FLOW AND WORKING  CAPITAL.  Net cash provided by operating  activities
for the six month periods in 2001 and 2000 was $61.7 million and $13.5  million,
respectively.  The substantial increase in our operating cash flows in 2001 over
2000 is  primarily  the result of higher  realized oil and gas prices and higher
production  levels.  Our net  working  capital  position  at June 30, 2001 was a
deficit of $7.1 million.  On that date,  Magnum Hunter also had available  $40.0
million under its senior bank credit facility.

     INVESTING  ACTIVITIES.  Net cash  used in  investing  activities  was $85.4
million in the 2001 period. We made capital  expenditures of $84.5 million under
our capital budget during the first six months of 2001. Our capital expenditures
are discussed in further detail below. Additionally,  we received a distribution
of $1.0 million from an unconsolidated affiliate and we made an investment in an
unconsolidated  affiliate of $2.0  million.  We received  payments on promissory
notes receivable totaling $65 thousand during the 2001 period.

     In the 2000  period,  net cash  provided by investing  activities  was $8.4
million,  which  included  proceeds from asset sales of $25.1  million,  capital
expenditures  of $14.1  million,  a loan made for $1.0 million and investment in
unconsolidated affiliate of $1.6 million.

     FINANCING  ACTIVITIES.  Net cash provided by financing activities was $25.6
million in the six month 2001 period in 2001. We borrowed  $171.5  million under
our senior bank credit lines. We repaid  borrowings under our senior bank credit
lines by $137.6  million,  made payments of $138 thousand on production  payment
and other loans and repurchased  $10.5 million principal value of our 10% Senior
Notes on the open market for $10.8  million.  We received  $2.3  million in cash
from the  issuance of common  stock.  We paid $731  thousand for fees related to
financing  activities,  made a loan to stockholder  of $300  thousand,  received
repayment of stockholder loans of $360 thousand and purchased treasury stock for
$621 thousand. Cash dividends paid were $169 thousand in 2001.

     In the 2000  period,  net  cash  used in  financing  activities  was  $22.9
million.  We  borrowed a total of $33.6  million  under our senior  bank  credit
lines. We repaid borrowings under our senior bank credit lines by $42.8 million.
We realized proceeds

                                       19

<PAGE>

     from issuance of common stock of $29 thousand. We also paid fees related to
financing  activities of $399  thousand,  loaned the ESOP $312 thousand and paid
preferred  dividends  of $2.7  million.  Bluebird  purchased  $500  thousand  of
treasury  stock,  acquired our 1996 Series A convertible  preferred  stock in an
exchange for $10.0 million and had a net decrease in cash of $68 thousand. Loans
repaid by stockholders were $125 thousand.

     BLUEBIRD'S  CAPITAL  RESOURCES.  On May 17, 2001,  Bluebird sold all of its
proved and unproved oil and gas  properties,  except for its  investment  in Tel
Offshore  Trust,  and all of its  pipelines  and other fixed  asset  property to
Magnum Hunter  Production,  Inc., for $17.7 million in cash and $10.0 million of
our 1996 Series A Convertible  preferred stock.  Bluebird used the cash to repay
and retire its $17.7  million of debt under its senior  bank  credit  line.  The
effective  date of the sale was May 1, 2001.  Bluebird  remains an  unrestricted
subsidiary under the Company's senior bank credit  agreement.  At June 30, 2001,
Bluebird had no capital  spending plans or commitments  and no remaining debt or
interest payment requirements.

     MAGNUM  HUNTER'S  CAPITAL  RESOURCES.  The  following  discussion of Magnum
Hunter's  capital  resources refers to the Company and its affiliates other than
Bluebird,  whose capital resources were discussed  separately above.  Internally
generated cash flow and the borrowing capacity under its senior bank credit line
are the Company's major source of liquidity.  From time to time, the Company may
also sell properties in order to increase  liquidity.  In addition,  the Company
may use other  sources of capital,  including  the issuance of  additional  debt
securities  or equity  securities,  as  sources  to fund  acquisitions  or other
specific  needs.  In the past,  the Company has accessed both public and private
capital  markets  to provide  liquidity  for  specific  activities  and  general
corporate purposes.

     In December  2000,  the Company used $10.0 million in cash to purchase 100%
of its 1996 Series A Convertible preferred stock outstanding from Bluebird. This
preferred stock was held by another 100% owned  affiliate for possible  re-issue
at a later  date.  Also in  December  2000,  the  Company  spent  $30.5  million
(including a $5.5 million  redemption  premium) to redeem 50% of its outstanding
1999 Series A 8% Convertible preferred stock. In January, 2001 the remaining 50%
of this  preferred  stock was  converted by the holder to the  Company's  common
stock at the conversion  price of $5.25 per share. As a result of the redemption
of its 1999 Series A 8% Convertible  preferred stock, the Company will save $4.0
million in annual dividend payments.  In May 2001 the Company reissued the $10.0
million  of its 1996  Series  A  Convertible  preferred  stock  to  Bluebird  in
connection  with the  acquisition  of  Bluebird's  oil and gas  properties.  The
Company will make dividend payments of $875 thousand annually to Bluebird.

     On May 17, 2001 the Company closed on a new $225 million Senior Bank Credit
Facility,  of which $112.5 million was available  under the borrowing base. This
new credit facility  consolidated and replaced both the Company's and Bluebird's
previous credit facilities. On June 26, 2001 the borrowing base was increased by
$12.5 million to $125.0  million.  At June 30, 2001  borrowings  under this line
were $85.0  million,  leaving  availability  of $40.0 million on that date. On a
semiannual basis, the borrowing base is redetermined by the banks based on their
review of the  Company's oil and gas reserves.  If the  outstanding  senior bank
debt exceeds the redetermined borrowing base, the Company must repay the excess.

     The Company's  internally  generated cash flow, results of operations,  and
financing for its operations are dependent on oil and gas prices. As a result of
substantial  increases in oil and gas prices in the first quarter of 2001 versus
2000,  our  earnings  and cash  flows in the 2001  period  have been  materially
increased  compared  to the 2000  period.  To the extent that oil and gas prices
decline,  the  Company's  earnings  and cash  flows may be  adversely  affected.
However,  the  Company  believes  that its cash flow from  operations,  existing
working capital and  availability  under its new senior bank credit line will be
sufficient to meet interest payments and to fund the capital  expenditure budget
for the year 2001.

     CAPITAL EXPENDITURES.  During the six-month period ended June 30, 2001, the
Company's  total capital  expenditures  for property,  plant and equipment  were
$84.5 million.  Exploration activities accounted for $29.8 million,  development
activities  accounted for $47.9 million, and additions to other assets accounted
for $1.0 million of the capital expenditures. Capital expenditures also included
$5.8 million for the acquisition of proved reserves in the Gulf of Mexico. As of
June 30, 2001 the Company had total  unproved oil and gas property costs of $9.7
million, consisting entirely of property acquisition costs.

     For the year 2001, the Company has budgeted  approximately $115 million for
exploration  and  development  activities.  The  Company  is  not  contractually
obligated to proceed with any of its material budgeted capital expenditures. The
amount and

                                       20

<PAGE>

     allocation  of  future  capital  expenditures  will  depend  on a number of
factors  that are not  entirely  within  the  Company's  control  or  ability to
forecast, including drilling results, oilfield costs, and changes in oil and gas
prices. As a result,  actual capital  expenditures may vary  significantly  from
current expectations.

     In the normal course of business, the Company reviews opportunities for the
possible  acquisition  of oil and gas reserves and activities  related  thereto.
When  potential  acquisition   opportunities  are  deemed  consistent  with  the
Company's growth  strategy,  bids or offers in amounts and with terms acceptable
to the Company may be submitted. It is uncertain whether any such bids or offers
which may be submitted by the Company  from time to time will be  acceptable  to
the sellers. In the event of a future significant  acquisition,  the Company may
require  additional  financing  in  connection  therewith.  The Company does not
budget for acquisition expenditures.

     On August 7, 2001,  the Company  executed a  definitive  Purchase  and Sale
Agreement to acquire proved oil and gas properties  totaling  approximately 41.8
BCFE of reserves for $32.2 million,  subject to purchase price adjustments.  The
transaction  is scheduled  to close on or before  September  15,  2001,  with an
effective  date of July 1, 2001.  The  Company  has made a cash  deposit of $3.2
million  to the seller in  anticipation  of  closing  on this  transaction.  The
Company plans to seek additional funding in order to close this transaction,  as
the cash requirements may exceed those currently available under its Senior bank
credit facilities.

     FORWARD-LOOKING STATEMENTS. This Form 10-Q and the information incorporated
by reference  contain  statements that constitute  "forward-looking  statements"
within the meaning of Section 27A of the  Securities  Act and Section 21E of the
Securities Exchange Act. The words "expect", "project",  "estimate",  "believe",
anticipate,  "intend", "budget", "plan", "forecast", "predict" and other similar
expressions  are  intended  to  identify   forward-looking   statements.   These
statements  appear in a number of places and include  statements  regarding  our
plans,  beliefs,  or current  expectations,  including the plans,  beliefs,  and
expectations of our officers and directors.

     When considering any forward-looking statement, you should keep in mind the
risk factors that could cause our actual results to differ materially from those
contained in any forward-looking  statement.  Important factors that could cause
actual results to differ materially from those in the forward-looking statements
herein include the timing and extent of changes in commodity  prices for oil and
gas, operating risks and other risk factors as described in our Annual Report on
Form 10-K as filed with the Securities and Exchange Commission. Furthermore, the
assumptions  that  support  our   forward-looking   statements  are  based  upon
information  that  is  currently   available  and  is  subject  to  change.   We
specifically  disclaim all  responsibility  to publicly  update any  information
contained in a forward-looking statement or any forward-looking statement in its
entirety and therefore disclaim any resulting  liability for potentially related
damages.

     All  forward-looking  statements  attributable to Magnum Hunter  Resources,
Inc. are expressly qualified in their entirety by this cautionary statement.

Inflation and Changes in Prices

     During the 2001 period,  the Company  experienced  substantial  increase in
prices for oil and gas  compared to the same period in the  previous  year.  The
results of operations  and cash flow of the Company have been, and will continue
to be,  affected by the  volatility  in oil and gas  prices.  Should the Company
experience a significant increase in oil and gas prices that is sustained over a
prolonged  period,  it would  expect  that there  would also be a  corresponding
increase in oil and gas finding costs,  lease  acquisition  costs, and operating
expenses.  Periodically  the Company  enters  into  futures,  options,  and swap
contracts  to reduce the adverse  effects of  fluctuations  in crude oil and gas
prices.  It is the policy of the Company not to enter into any such arrangements
which exceed 75% of the  Company's oil and gas  production  during the projected
next 12 months.

     The Company  markets  oil and gas for its own  account,  which  exposes the
Company  to  the  attendant  commodities  risk.  A  significant  portion  of the
Company's gas production is currently sold to a 30% owned  affiliate,  NGTS, LLC
or  end-users  either  (i) on the  spot  market  on a  month-to-month  basis  at
prevailing spot market prices or (ii) under long-term contracts based on current
spot market  prices.  The Company  normally  sells its oil under  month-to-month
contracts to a variety of purchasers.

                                       21

<PAGE>

New Accounting Standard

     Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative  Instruments and Hedging  Activities"  (SFAS No. 133), as extended by
SFAS No. 137 (June 1999) and amended by SFAS No. 138 (June 2000),  was effective
for the Company beginning  January 1, 2001. SFAS No. 133 establishes  accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
the recognition of derivatives in the balance sheet and the measurement of those
instruments at fair value.

     The Company was  obligated to four crude oil  derivatives,  one natural gas
derivative, and one interest rate derivative on January 1, 2001. The Company has
determined  that the  interest  rate  derivative  does  not  qualify  for  hedge
treatment  as  defined  within  SFAS No.  133.  The  crude oil and  natural  gas
derivatives qualify as cash-flow hedges, which require the Company to record the
derivative  assets or  liabilities at their fair value on its balance sheet with
an offset to other  comprehensive  income.  Future hedge  ineffectiveness on the
cash-flow hedge will be recorded in earnings.

     At January 1, 2001,  all  derivatives  within the Company  were  identified
pursuant  to  SFAS  No.  133  requirements,  and  the  Company  has  designated,
documented and assessed all hedging  relationships.  Adoption of this accounting
standard  resulted in the  recognition  of $179  thousand of a derivative  asset
related to the interest rate derivative and an increase in the carrying value of
long-term  debt  with  recourse  of $179  thousand.  In June,  2001 the  Company
terminated  its  position  in  this  derivative  and  recognized  a gain of $147
thousand as a reduction in interest expense for the three and six month periods.

     With respect to the cash-flow  hedges,  at the accounting change transition
the Company  recorded a derivative  asset of $648 thousand  related to the crude
oil derivatives with a cumulative effect increase to other comprehensive  income
of $403  thousand  (net of income  taxes)  and a  derivative  liability  of $3.5
million related to the natural gas derivatives with a cumulative effect decrease
to other comprehensive income of $2.2 million (net of income taxes).

     In May, 2001 the Company entered into additional costless collars for crude
oil for the periods July 2001 through December 2001. These crude oil derivatives
qualify as cash flow hedges.

     At June 30, 2001, the Company's crude oil and natural gas derivatives had a
fair value of $465 thousand and $2.5 million,  respectively. For the three-month
period  ended  June 30,  2001,  the  income  statement  includes  a gain of $671
thousand  related  to the  crude  oil  derivatives  and a gain of $170  thousand
related to the natural gas derivatives, net of amounts reclassified out of other
comprehensive  income.  For the six-month period ended June 30, 2001, the income
statement includes a gain of $465 thousand related to crude oil derivatives at a
loss of $629  thousand  related  to  natural  gas  derivatives,  net of  amounts
reclassified  out of other  comprehensive  income.  The Company expects that the
remaining  balance  in  other  comprehensive  income  at June 30,  2001  will be
reclassified into the income statement within the next six months.

Item 3. Qualitative and Quantitative Disclosure About Market Risk

     The Company's  operations are exposed to market risks primarily as a result
of changes in  commodity  prices and  interest  rates.  The Company does not use
derivative financial instruments for speculative or trading purposes.

     Energy swap agreements.  The Company produces,  purchases,  and sells crude
oil,  natural  gas,  condensate,  and  natural  gas  liquids.  As a result,  the
Company's  financial  results can be  significantly  impacted as these commodity
prices fluctuate  widely in response to changing market forces.  The Company has
previously  engaged in oil and gas hedging activities and intends to continue to
consider  various  hedging  arrangements  to realize  commodity  prices which it
considers  favorable.  The Company engages in futures  contracts with certain of
its oil and gas production  through various contracts ("Swap  Agreements").  The
primary  objective  of  these  activities  is  to  protect  against  significant
decreases in price during the term of the hedge.


                                       22

<PAGE>

     The Swap  Agreements  provide for separate  contracts  tied to the New York
Mercantile  Exchange  ("NYMEX")  light sweet oil and the Inside FERC natural gas
index price posting ("Index").  The Company has contracts which contain specific
contracted  prices  ("Swaps") that are settled  monthly based on the differences
between  the  contract  prices  and the  specified  Index  prices for each month
applied to the related  contract  volumes.  To the extent the Index  exceeds the
contract  price,  the Company  pays the spread,  and to the extent the  contract
price exceeds the Index price, the Company receives the spread. In addition, the
Company has combined  contracts which have agreed upon price floors and ceilings
("Costless  Collars").  To the  extent  the Index  price  exceeds  the  contract
ceiling,  the  Company  pays the spread  between the ceiling and the Index price
applied to the  related  contract  volumes.  To the extent  the  contract  floor
exceeds the Index,  the Company  receives the spread  between the contract floor
and the Index price applied to the related contract volumes.

     To the extent the Company  receives the spread  between the contract  floor
and the Index  price  applied to related  contract  volumes,  the  Company has a
credit risk in the event of nonperformance of the counterparty to the agreement.
The Company does not anticipate any material impact to its results of operations
as a result of nonperformance by such parties.

At June 30, 2001, the Company had the following open contracts:
<TABLE>
<CAPTION>
<S>                  <C>                       <C>                 <C>                   <C>
                                  Type          Volume/Month           Duration              Avg. Price
                     -------------------------------------------------------------------------------------------------
Oil
--------------
                     Collar...............      30,000 Bbl           Jul 01 - Dec 01       Floor - $25.00
                                                                                           Cap   - $31.25
                     Collar...............      15,000 Bbl           Jul 01 - Dec 01       Floor - $25.00
                                                                                           Cap   - $32.10
                     Collar...............      15,000 Bbl           Jul 01 - Dec 01       Floor - $25.00
                                                                                           Cap   - $32.70
Gas
--------------
                     Collar...............     300,000 MMBtu         Jul 01 - Dec 01       Floor - $ 4.50
                                                                                           Cap   - $ 6.15
</TABLE>


     Based on future  market  prices at June 30,  2001,  the fair  value of open
contracts to the Company was an asset of $3.0  million.  If future market prices
were to increase  10% from those in effect at June 30,  2001,  the fair value of
open  contracts  to the  Company  would be an asset of $1.9  million.  If future
market  prices  were to decline 10% from those in effect at June 30,  2001,  the
fair  value  of the  open  contracts  to the  Company  would be an asset of $3.9
million.

     The  Company  currently  intends  to  commit  no more than 75% of its daily
production on a Bcfe basis to such  arrangements at any point in time. A portion
of the  Company's  oil and  natural  gas  production  will be  subject  to price
fluctuations unless the Company enters into additional hedging transactions.

Interest Rate Swaps

     On June 30, 1999, the Company entered into two interest rate swaps in order
to shift a  portion  of the  fixed  rate bond debt to  floating  rate  debt,  to
capitalize on what was perceived as a market  overreaction  to pending  interest
rate increases by the Federal  Reserve,  and to effectively  lower interest rate
expense over the following  twelve  months.  On June 1, 2000 one of the interest
rate swaps terminated.  The Company  terminated the remaining interest rate swap
in June, 2001.

     Fixed and  Variable  Debt.  The  Company  uses fixed and  variable  debt to
partially finance budgeted expenditures.  These agreements expose the Company to
market risk related to changes in interest rates.

                                       23

<PAGE>

     The following  table  presents the carrying and fair value of the Company's
debt along with average  interest  rates.  Fair values are calculated as the net
present value of the expected cash flows of the  financial  instruments,  except
for the fixed rate senior  notes,  which are valued at their last  traded  value
before June 30, 2001.

<TABLE>
<CAPTION>
<S>                              <C>       <C>       <C>         <C>              <C>         <C>               <C>
   Expected Maturity Dates
       (in thousands)              2001      2002      2003        2004-2006         2007        Total           Fair Value
                                -------------------------------------------------------------------------------------------------
Variable Rate Debt:
Bank Debt with Recourse (a).......$   -     $  -     $ 85,000     $        -       $       -   $  85,000        $    85,000
Fixed Rate Debt:
Senior Notes (b)..................$   -     $  -     $      -     $        -       $ 129,582   $ 129,582        $   132,703
Bank Debt with Recourse (c).......$  10     $ 19     $      1     $        -       $       -   $      30        $        30
</TABLE>

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

(a)  The average interest rate on the bank debt with recourse is 6.43%.
(b)  The interest rate on the senior notes is a fixed 10%.
(c)  The interest rate on the bank debt is a fixed 7.9%.

                                       24

<PAGE>

                          PART II -- OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
<S>               <C>
Number            Description of Exhibit

3.1 & 4.          Articles of Incorporation (Incorporated by reference to Registration Statement on Form S-18, File No.
                  33-30298-D)
3.2 & 4.2         Articles of Amendment to Articles of Incorporation (Incorporated by reference to Form 10-K for the year
                  ended December 31, 1990)
3.3 & 4.3         Articles of Amendment to Articles of Incorporation (Incorporated by reference to Registration Statement
                  on Form SB-2, File No. 33-66190)
3.4 & 4.4         Articles of Amendment to Articles of Incorporation (Incorporated by reference to Registration Statement
                  on Form S-3, File No. 333-30453)
3.5 & 4.5         By-Laws, as Amended (Incorporated by reference to Registration Statement on Form SB-2, File
                  No. 33-66190)
3.6 & 4.6         Certificate of Designation of 1996 Series A Preferred Stock (Incorporated by reference to Form 8-K
                  dated December 26, 1996, filed January 3, 1997)
3.7 & 4.7         Amendment to Certificate of Designations for 1996 Series A Convertible Preferred Stock (Incorporated
                  by reference to Registration Statement on Form S-3, File No. 333-30453)
3.8 & 4.8         Certificate of Designation for 1999 Series A 8% Convertible Preferred Stock (Incorporated by reference
                  to Form 8-K, dated February 3, 1999, filed February 11, 1999)
4.9               Indenture dated May 29, 1997 between Magnum Hunter Resources, the subsidiary guarantors named
                  therein and First Union National Bank of North Carolina, as Trustee (Incorporated by reference to
                  Registration Statement on Form S-4, File No. 333-2290)
4.10              Supplemental Indenture dated January 27, 1999 between Magnum Hunter Resources, the subsidiary
                  guarantors named therein and First Union National Bank of North Carolina, as Trustee (Incorporated by
                  reference to Form 10-K for the fiscal year-end December 31, 1998 filed April 14, 1999)
4.11              Form of 10% Senior Note due 2007 (Incorporated by reference to Registration Statement on Form S-4,
                  File No. 333-2290)
10.1 *            Third Amended and Restated Credit Agreement, dated May 17, 2001, between Magnum Hunter
                  Resources, Inc. and Bankers Trust Company, et al.
10.2              Employment Agreement for Gary C. Evans (Incorporated by reference to Form 10-K for the fiscal year-
                  end December 31, 1999 filed March 30, 2000)
10.3              Employment Agreement for Matthew C. Lutz (Incorporated by reference to Form 10-K for the fiscal
                  year-end December 31, 1999 filed March 30, 2000)
10.4              Employment Agreement for Richard R. Frazier (Incorporated by reference to Form 10-K for the fiscal
                  year-end December 31, 1999 filed March 30, 2000)
10.5              Stock Purchase Agreement among Magnum Hunter Resources, Inc. and Trust Company of the West and
                  TCW Asset Management Company, in the capacities described herein, TCW Debt and Royalty Fund IVB
                  and TCW Debt and Royalty Fund IVC, dated as of December 6, 1996 (Incorporated by reference to Form
                  8-K dated December 26, 1996, filed January 3, 1997)
10.6              Purchase and Sale Agreement, dated February 27, 1997 among Burlington Resources Oil and Gas
                  Company, Glacier Park Company and Magnum Hunter Production, Inc. (Incorporated by reference to
                  Form 8-K, dated April 30, 1997, filed May 12, 1997)
10.7              Purchase and Sale Agreement between Magnum Hunter Resources, Inc. , NGTS, et al., dated December
                  17, 1997  (Incorporated by reference to Form 8-K, dated December 17, 1997, filed December 29, 1997)
10.8              Purchase and Sale Agreement dated November 25, 1998 between Magnum Hunter Production, Inc. and
                  Unocal Oil Company of California (Incorporated by reference to Form 10-K for the fiscal year-end
                  December 31, 1998 filed April 14, 1999)
10.9              Stock Purchase Agreement dated February 3, 1999 between ONEOK Resources Company and Magnum
                  Hunter Resources, Inc. (Incorporated by reference to Form 8-K, dated February 3, 1999, filed
                  February 11, 1999)
</TABLE>


* Filed herewith

(B) Form 8-K's - None

                                       25

<PAGE>


                                    SIGNATURE

     In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

MAGNUM HUNTER RESOURCES, INC.



By /s/ Gary C. Evans                                    August 14, 2001
  ---------------------------------------------
      Gary C. Evans
      President and Chief Executive Officer


By /s/ Chris Tong                                       August 14, 2001
  ---------------------------------------------
     Sr. Vice President and
     Chief Financial Officer


By  /s/ David S. Krueger                                August 14, 2001
    -------------------------------------------
      David S. Krueger
      Vice President and
      Chief Accounting Officer


By /s/ Morgan F. Johnston                               August 14, 2001
   --------------------------------------------
      Morgan F. Johnston
      Vice President,  General Counsel and
      Secretary


                                       26