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

                                   Form 10-QSB

[X]  Quarterly  Report Under Section 13 or 15(d) of the Securities  Exchange Act
     of   1934   For   the   Quarterly   Period   Ended   September   30,   1996
                                                          ----------------------

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


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


                             MAGNUM PETROLEUM, INC.
         Exact name of small business issuer 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 1200, Irving, Texas 75039
                     Address of principal executive offices

                                 (214) 401-0752
                            Issuer's telephone number


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                                                          Yes    X      No

State the number of shares outstanding of each of the issuer's classes of common
equity, as of September 30, 1996.                                 13,644,769

Transitional Small Business Disclosure Format             Yes           No     X

        Page 1 of 15 pages contained in the sequential numbering system.


                                        1

<PAGE>



                         PART I -- FINANCIAL INFORMATION
                         -------------------------------


Item 1. Financial Statements
----------------------------

     The  financial  statements  of  Magnum  Petroleum,  Inc.  ("Magnum"  or the
"Company") required by Item 310(b) of Regulation S-B follow Item 2. Management's
Discussion and Analysis or Plan of Operation.


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

     The following  discussion and analysis  should be read in conjunction  with
Magnum's  consolidated  financial  statements and the notes associated with them
contained  in its Form  10-KSB  for the  year  ended  December  31,  1995.  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.

     On July 21,  1995,  Magnum  closed a  definitive  agreement to combine (the
"Business  Combination")  with Hunter  Resources,  Inc.  ("Hunter"),  subject to
Hunter shareholder approval. Pursuant to the definitive agreement, Magnum issued
to Hunter 2,750,000 shares of newly issued  restricted  common stock in exchange
for  substantially  all of the  assets  of  Hunter,  subject  to its  associated
liabilities.  Hunter's  assets  primarily  consisted  of stock  in  wholly-owned
subsidiaries  and stock  ownership  interests  in  limited  liability  companies
("Hunter Subsidiaries").

     On December 19, 1995 to be effective  December 22, 1995,  Magnum and Hunter
entered into an Agreement and Plan of Reorganization and Plan of Liquidation, as
amended.  The amendment was executed on December 19, 1995 by Hunter shareholders
holding over fifty  percent (50%) of the common stock of Hunter and provided for
the  issuance  to  Hunter of an  additional  2,335,077  shares  of newly  issued
restricted  common  stock  and  111,825  shares  of  Series C  preferred  stock.
Therefore,  the total  consideration paid by Magnum for the Hunter  subsidiaries
was 5,085,077  shares of restricted  common stock and 111,825 shares of Series C
preferred stock.

     On October 31, 1996,  Hunter held a special meeting of its shareholders and
formally approved the Agreement.  This action  represented the last formality in
completing the Business  Combination  and all Magnum shares  previously  held in
escrow  have  been  released  for  distribution  to  the  Hunter   shareholders.
Subsequent  to the Business  Combination,  Magnum has  conducted its oil and gas
operations  and  energy  related  acquisitions  in  conjunction  with the Hunter
Subsidiaries.  Acquisitions  completed  by Magnum and Hunter  after the  initial
agreement, were completed by Magnum Hunter Production, Inc. ("Magnum Hunter"), a
Hunter  Subsidiary.  Hunter and its subsidiaries  were  consolidated in Magnum's
financial statements beginning December 31, 1995.

     On June 26, 1996, Magnum received a commitment from Wells Fargo Bank, N.A.,
as Agent, and Banque Paribas, as Co-agent, (hereinafter collectively referred to
as  "Banks")  for a new credit  facility  for the  benefit of Magnum and several
wholly-owned  subsidiaries.  The  purpose  of the new  line of  credit  is to i)
refinance the Company's  existing  indebtedness  with First  Interstate  Bank of
Texas,  N.A. (a wholly-owned  subsidiary of Wells Fargo Bank, N.A.), ii) finance
the acquisition of oil and gas reserves including the $35.4

                                        2

<PAGE>



million "Panoma  Property"  acquisition,  as discussed below,  from Meridian Oil
Inc. ("Meridian"), a wholly-owned subsidiary of Burlington Resources, Inc., iii)
future  property  development,  and iv)  working  capital  support  and  general
corporate purposes.  The $100 million credit facility is subject to a "Borrowing
Base" determination established from time-to-time by the Banks based upon proven
oil  and  gas  reserves  and  gas  gathering  assets  owned  by  Magnum  and its
subsidiaries.  The availability under the Company's existing credit facility was
increased  from $16  million to $48  million  based upon the value of the assets
associated  with  the  acquisition  of the  Panoma  Properties.  The new  credit
facility  has  given the  Company  the  flexibility  to choose a range of either
"LIBOR" or "Prime" based interest rates options.

     On June 28,  1996,  Magnum  closed on the purchase of 469 natural gas wells
and  approximately  427 miles of a gas gathering  pipeline system from Meridian.
The  net  purchase   price  after  certain   purchase  price   adjustments   was
approximately $35,350,000, funded by a loan from Magnum's Banks. As the purchase
was not completed until the end of the second quarter of 1996, the Statements of
Operations for 1996 only include the operating  results of the Panoma Properties
for the third quarter.  The purchase price was allocated based on estimated fair
market  values  resulting  in  the  recording  of  $29,560,000  as oil  and  gas
properties and $5,790,000 as pipelines.  The gas wells and gas gathering  system
are located in the Panhandle of Texas and Western Oklahoma and are more commonly
referred to as the "Panoma Properties."

Results of Operations for the Nine Month Periods in 1996 and 1995
-----------------------------------------------------------------

     As discussed above,  Magnum  completed a business  combination with Hunter,
which  for  accounting  purposes,  was  recorded  under the  purchase  method of
accounting. Hunter's operations were consolidated with those of Magnum beginning
December 31, 1995. In addition,  as discussed  above,  the results of operations
for 1996  include  only the  third  quarter  operations  from the June 28,  1996
acquisition of the Panoma  Properties.  As such, the comparison of the increases
in the 1996 interim and nine month periods over the comparable 1995 periods are,
unless otherwise stated,  the result of the Hunter operating  activities and the
acquisition of the Panoma Properties.

     Magnum recorded an operating profit of $1,872,000 for the nine month period
ended  September  30,  1996  versus an  operating  loss of  $513,000  during the
previous  year.  This  $2,385,000  improvement  in  operations  can be  directly
attributed to i) the operating  activities of the Panoma Properties  acquired on
June 28, 1996, ii) the operating  activities  associated with the acquisition of
Hunter on  December  22,  1995 and,  iii)  improved  oil and gas sale  commodity
prices.

     Magnum realized net income after payment of dividends on preferred stock of
$154,000  during the nine month period ended  September 30, 1996,  compared to a
net loss of $869,000 for the same period of the preceding  year.  The income per
common  share  improved to $0.01 from a loss per common share in the 1995 period
of $0.16.

     Total revenues  increased 1,938% from $485,000 during the nine month period
of 1995 to $9,885,000  during 1996. During the nine month period ended September
30,  1996,  revenue from oil and gas sales  increased  1,285% to  $6,357,000  as
compared to $459,000  for the same period of the prior year.  For the first nine
months of 1996,  Magnum sold 139,874 barrels of oil and 1,596,987 mcf of gas. In
comparison,  during  the same nine  month  period of 1995,  Magnum  sold  23,852
barrels of oil and 71,313 mcf of gas. The average oil price of $15.00 per barrel
in 1995 increased to $19.91 per barrel in the 1996 period. The average gas price
of $2.24 per mcf in 1996 increased from $1.42 per mcf in 1995.

     Gas gathering and marketing  activities in 1996,  all of which are a result
of the  acquisition of the Panoma  Properties and the  combination  with Hunter,
provided  revenues  of  $3,143,000  and a net profit  from these  activities  of
$514,000.  Expenses  directly  associated  with this  activity were $469,000 and
$2,160,000,

                                        3

<PAGE>



representing  pipeline operating expenses and purchase of natural gas from third
parties, respectively.

     Revenues from oil field services and commissions  were $385,000 in the 1996
period as  compared  to $26,000 in the 1995  period.  Related  cost of  services
expense of $521,000 and $26,000 for the 1996 and 1995 period, respectively, were
recognized  resulting in a net loss in 1996 from these activities of $136,000 as
compared to a break-even in 1995.

     Lease  operating  expenses  amounted  to  2,305,000  in 1996 as compared to
$145,000 in the 1995 period.  On an  equivalent  barrel  basis,  the expense was
$5.68 per barrel and $4.06 per barrel for the respective  1996 and 1995 periods.
Depreciation  and depletion  rose to $1,888,000 in 1996 versus  $138,000 in 1995
due to  the  increased  oil  and  gas  activities  from  the  Panoma  Properties
acquisition and the combination with Hunter.

     General and administrative expense declined $19,000 to $670,000 in the 1996
period as compared to $689,000 in 1995 due to a reduction  in  professional  and
promotional expenses incurred in 1996. A gain on sale of $143,000 related to the
Company's  securities  previously  held for resale was  recognized in the second
quarter of 1996.

     Interest  expense rose to $1,550,000 in 1996 from $3,000 in 1995  primarily
as a result of commercial  bank  indebtedness  assumed in the  combination  with
Hunter and additional  property  acquisitions  completed in 1996,  including the
Panoma  Properties  acquisition  funded  at the  end  of  June  1996.  Preferred
dividends  decreased  to  $382,000  in 1996  from  $440,000  in  1995 as  Magnum
completed  the  redemption  and  conversion of all of the  outstanding  Series C
preferred  stock in the third quarter of 1996,  thereby  eliminating  any future
dividend obligations.

Results of Operations for the Three Month Periods in 1996 and 1995
------------------------------------------------------------------

     Magnum  realized  an  operating  profit of  $1,616,000  for the three month
period ended  September 30, 1996 versus an operating  loss of $86,000 during the
previous  year.  This  $1,702,000  improvement  in  operations  can be  directly
attributed to i) the operating activities of the Panoma Properties acquired June
28, 1996, ii) the operating activities associated with the acquisition of Hunter
on December 22, 1995, and iii) improved oil and gas sale commodity prices.

     Magnum realized net income,  after payment of dividends on preferred stock,
of $551,000 during the three month period ended September 30, 1996,  compared to
a net loss of $216,000 for the same period of the preceding year. The income per
common share improved to $.04 from a net loss per share of $.04.

     Total revenues  increased  3,173% from $163,000 during the third quarter of
1995 to  $5,335,000  during the third  quarter of 1996.  During the three  month
period ended September 30, 1996, revenue from oil and gas sales increased 2,152%
to $3,536,000 as compared to $157,000 for the same period of the prior year. For
the three month period of 1996,  Magnum sold 50,036 barrels of oil and 1,108,833
mcf of gas. In  comparison,  during the same three month period of 1995,  Magnum
sold 7,187 barrels of oil and 36,772 mcf of gas. The average oil price of $13.32
per  barrel in 1995  increased  to $21.00  per  barrel in the 1996  period.  The
average gas prices  increased  to $2.24 per mcf in 1996 as compared to $1.67 per
mcf in 1995.

     Gas gathering and marketing  activities in 1996,  all of which are a result
of the  acquisition of the Panoma  Properties and the  combination  with Hunter,
provided  revenues  of  $1,615,000  and a net profit  from these  activities  of
$300,000.  Expenses  directly  associated  with this  activity were $279,000 and
$1,036,000 representing pipeline operating expenses and purchases of natural gas
from third parties, respectively.

                                        4

<PAGE>




     Revenues from oil field services and commissions  were $184,000 in the 1996
period as  compared  to  $6,000 in the 1995  period.  Related  cost of  services
expense of $194,000 and $16,000 for the 1996 and 1995 period, respectively, were
recognized  resulting  in a net loss from these  activities  of $10,000 for both
periods.

     Lease  operating  expenses  amounted to  $1,179,000  in 1996 as compared to
$52,000 in the 1995 period. On an equivalent barrel basis, the expense was $5.02
per  barrel  and $3.91 per  barrel  for the  respective  1996 and 1995  periods.
Depreciation  and depletion  rose to $804,000 in 1996 versus $35,000 in 1995 due
to the increased oil and gas activities from the Panoma  Properties  acquisition
and the combination with Hunter.

     General and  administrative  expense  increased  $81,000 to $227,000 in the
1996 three  month  period as compared to $146,000 in the same 1995 period due to
an increase in personnel requirements in the 1996 period.

     Interest  expense of  $1,051,000  was realized in the third quarter of 1996
primarily as a result of commercial bank indebtedness assumed in the combination
with Hunter and new  indebtedness  incurred as a result of  additional  property
acquisitions,  including the Panoma Properties  acquisition funded at the end of
June 1996.  Preferred  dividends  decreased to $42,000 in 1996 from  $147,000 in
1995 as Magnum completed the redemption and conversion of all of the outstanding
Series C preferred stock in the third quarter of 1996,  thereby  eliminating any
future dividend obligations.

Liquidity and Capital Resources
-------------------------------

     On June 5, 1996, Magnum called for redemption  208,333 shares of its Series
C  preferred  stock  at  $10.50  per  share,  as  provided  by the  terms of the
certificate of designations,  plus accrued dividends with an extended redemption
date of July 10, 1996.  Terms of the  preferred  stock provide for the option by
the holder to convert the  preferred  shares  into  common  stock at the rate of
three (3)  shares of common  stock for each share of Series C  preferred  stock.
294,392  shares of the  preferred  stock were  converted  for 907,950  shares of
common stock  including  accrued  dividends paid in common stock.  Additionally,
8,224 shares of preferred  stock were redeemed  including the accrued  dividends
for cash in the amount of $88,860.

     On July 11, 1996,  Magnum called for the redemption  the remaining  322,384
shares of its Series C  preferred  stock.  The  redemption  price was $10.50 per
share,  plus accrued  dividends of $.141 per share from July 1, 1996 through the
extended  redemption  date of August 16, 1996, for a total  redemption  price of
$10.641 per share.  The Series C preferred  shares  could be  converted,  at the
option of the holder,  at any time prior to August 16,  1996 into common  stock.
302,492 shares of Series C preferred stock were converted into 938,451 shares of
common stock including the accrued dividends paid in common stock. Additionally,
19,892 shares of preferred stock were redeemed  including the accrued  dividends
for cash in the amount of $210,431.

     After both redemption calls,  Magnum converted 596,884 shares of its Series
C preferred  stock  including  the accrued  dividends  paid in common stock into
1,846,401  shares of common  stock and  redeemed  28,116  shares of its Series C
preferred stock including the accrued dividends for $299,291.

     At December 31, 1995,  Magnum had  unproven oil and gas  properties  with a
carrying value of $842,889  located in  predominately  three  prospects.  In the
third quarter of 1996, Magnum successfully  completed a well on one prospect and
decided to not attempt a well on another prospect. Accordingly, the

                                        5

<PAGE>



carrying  values  attributable  to these two prospects  were  transferred to the
proven  category.  At September 30, 1996, a balance of $459,000  remained in the
unproven oil and gas properties  representing  the one remaining  prospect.  The
remaining  property will be evaluated  further in the fourth quarter of 1996 and
management will then review the development  plans for this property.  If Magnum
elects to not develop the  property,  the property  would be made  available for
sale and any remaining  costs would be  transferred  to the proven  category and
depleted  over time based on Magnum's  production  and reserve base  existing at
such time.

     In 1995 and prior  years,  Magnum has been  successful  in raising  capital
through the issuance of preferred and common stock. During 1995, Magnum received
proceeds of $249,000  from the  purchase of 20,750  shares of Series C preferred
stock from the exercise of representatives'  warrants. In addition, the exercise
of 833,324  common  stock  purchase  warrants  resulted  in net  proceeds  after
offering costs of $2,840,860.

     Prior to the business combination with Hunter, Magnum's anticipated capital
expenditures for 1996 on its existing properties were not considered significant
and would be financed by existing working capital.  However, due to the business
combination with Hunter, Magnum now has a budget of approximately $2 million for
exploration  and  production  activities  during 1996.  Magnum has already spent
approximately  $700,000  for the  drilling  of six gas wells in the south  Texas
region and one oil well in West Texas. The remaining  exploration budget of $1.3
million has been  reallocated to a combination of  exploratory  and  development
projects,  specifically proved undeveloped  locations associated with the Panoma
Properties.  The source of financing  for such projects has and will continue to
be a combination  of the  following:  i) existing  available  cash, ii) Magnum's
senior bank line of credit,  iii) third party  investors,  iv) seller  financing
through  production  payments and v) new equity  capital.  At November 12, 1996,
there remained  approximately  $100,000 of available  borrowings  under Magnum's
senior  bank  line of  credit  with an  anticipated  increase  in the  Company's
borrowing base of approximately $7 million under consideration by the Banks.

     In February  1996,  Magnum  entered into an exclusive  arrangement  with an
investment  banking firm specialized in raising capital for energy companies for
a  private  placement  of  preferred  stock  for as  much as $15  million  to be
completed  during 1996. On October 30, 1996,  Magnum executed a letter agreement
with an  institution  for the issuance of $10 million of  convertible  preferred
stock with a dividend  rate of 8.75% per annum.  The purpose for the $10 million
private   placement  is  to  initially  reduce  Magnum's  existing  senior  bank
indebtedness  and to ultimately fund the capital cost necessary to fully develop
six development and waterflood projects.

Inflation and Changing Prices
-----------------------------

     During  1995  and  the  past  several  years,  Magnum  experienced  minimal
inflation  in oil and  natural gas prices with  moderate  increases  in property
acquisition and development costs. During 1996, Magnum has experienced  somewhat
greater increases in the commodity prices of the natural resources produced from
its  properties.  The results of operations and cash flow of Magnum has been and
will  continue to be effected to a certain  extent by the  volatility in oil and
gas prices.  Should Magnum experience a significant  increase in oil and natural
gas prices over a prolonged  period,  it would expect that there would also be a
corresponding  increase in oil and natural gas finding costs,  lease acquisition
costs and operating expenses.

                                        6

<PAGE>
                     MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                   (Unaudited)
                                                                   September 30,
                                                                       1996
                                                              ------------------
                                               ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                                $       1,679,000
     Accounts receivable
      Trade, net of allowance of $134,158                             3,492,000
      Due from affiliates                                               104,000
     Note receivable from affiliate                                     247,000
     Note receivable                                                    248,000
     Other current assets                                               160,000
     Current portion of long-term note receivable                        75,000
                                                              ------------------
          TOTAL CURRENT ASSETS                                        6,005,000
                                                              ------------------
PROPERTY, PLANT AND EQUIPMENT                            
     Oil and gas properties, full cost method       
          Unproved                                                      459,000
          Proved                                                     69,983,000
     Pipelines                                                        7,002,000
     Other property                                                     364,000
                                                              ------------------
          TOTAL PROPERTY, PLANT AND EQUIPMENT                        77,808,000
     Accumulated depreciation, depletion and impairment              (3,806,000)
                                                              ------------------
          NET PROPERTY, PLANT AND EQUIPMENT                          74,002,000
                                                                   
OTHER ASSETS                                                
     Deposits and other assets                                          494,000
     Long-term notes receivable, net of imputed interest                 48,000
                                                              ------------------
                                            TOTAL ASSETS      $      80,549,000
                                                              ==================

                                                   
                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
    Trade accounts payable and accrued liabilities            $       3,936,000
    Suspended revenue payable                                           867,000
    Current maturities of long-term debt                              6,022,000
                                                              ------------------
          TOTAL CURRENT LIABILITIES                                  10,825,000
                                                              ------------------
LONG-TERM LIABILITIES                     
   Long-term debt                                                    41,250,000
   Production payment liability                                         231,000
   Deferred income taxes                                              3,125,000
                                                                  
STOCKHOLDERS' EQUITY                                            
   Preferred stock - $.001 par value; 10,000,000 authorized,   
    216,000  designated as Series A; 80,000  shares
    issued and  outstanding                                                  -
   Common stock - $.002 par value; 50,000,000 shares authorized,
    14,240,564 shares issued and outstanding                             28,000
   Additional paid-in capital                                        30,182,000
   Accumulated deficit                                               (5,091,000)
   Receivable from stockholders                                              -
                                                              ------------------
                                                                     25,119,000

   Treasury stock (595,795 shares of common stock)                       (1,000)
                                                              ------------------

                 TOTAL STOCKHOLDERS' EQUITY                          25,118,000
                                                              ------------------

   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $      80,549,000
                                                              ==================

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

                                        7

<PAGE>

                     MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>



                                                                     Three Months Ended                    Nine Months Ended
                                                                        September 30,                        September 30,    
                                                             -----------------------------------------------------------------------
                                                                   1996              1995               1996               1995
                                                             -----------------------------------------------------------------------
<S>                                                            <C>               <C>                   <C>            <C>  
OPERATING REVENUES:
     Oil and gas sales                                         $     3,536,000   $       157,000       $  6,357,000   $     459,000
     Gas gathering and marketing                                     1,615,000                 -          3,143,000               -
     Oil field services and commissions                                184,000             6,000            385,000          26,000
                                                             -----------------------------------------------------------------------

 TOTAL OPERATING REVENUE                                             5,335,000           163,000          9,885,000         485,000
                                                             -----------------------------------------------------------------------

OPERATING COSTS AND EXPENSES:
     Lease operating                                                 1,179,000            52,000          2,305,000         145,000
     Pipeline operating                                                279,000                 -            469,000               -
     Purchases of natural gas                                        1,036,000                 -          2,160,000               -
     Costs of services                                                 194,000            16,000            521,000          26,000
     Depreciation and depletion                                        804,000            35,000          1,888,000         138,000
     General and administrative                                        227,000           146,000            670,000         689,000
                                                             -----------------------------------------------------------------------

 TOTAL OPERATING COSTS & EXPENSES                                    3,719,000           249,000          8,013,000         998,000
                                                             -----------------------------------------------------------------------

OPERATING PROFIT (LOSS)                                              1,616,000           (86,000)         1,872,000        (513,000)
     Gain (loss) on sale of assets                                           -           (18,000)           143,000         (33,000)
     Interest income                                                    20,000            35,000             51,000         120,000
     Other income                                                        8,000                 -             20,000               -
     Interest expense                                               (1,051,000)                -         (1,550,000)         (3,000)
                                                             -----------------------------------------------------------------------

NET INCOME (LOSS)                                                      593,000           (69,000)           536,000        (429,000)
     Dividends Applicable to Preferred Stock                           (42,000)         (147,000)          (382,000)       (440,000)
                                                             -----------------------------------------------------------------------

INCOME (LOSS) APPLICABLE TO COMMON SHARES                     $        551,000   $      (216,000)   $       154,000  $     (869,000)
                                                             =======================================================================

INCOME (LOSS) PER COMMON SHARE                                $            0.4   $         (0.04)   $          0.01  $        (0.16)
                                                             =======================================================================

Common Shares Used In Per Share Calculation                         12,924,967         5,734,269         12,084,041       5,383,238
                                                             =======================================================================

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


                                        8
</TABLE>
<PAGE>

                     MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                                                          Nine Months Ended
                                                                                                            September 30,
                                                                                               -------------------------------------

                                                                                                            1996             1995
                                                                                               -------------------------------------
<S>                                                                                             <C>                  <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:

NET INCOME (LOSS)                                                                               $          536,000   $     (429,000)
     Adjustments to reconcile net income (loss) to net cash
          provided by operating activities:
          Depreciation and depletion                                                                     1,888,000          138,000
          (Gain) loss on sale of assets                                                                   (143,000)               -
          Change in assets and liabilities
               (Increase) decrease in securities available for sale                                              -           23,000
               (Increase) decrease in accounts receivable                                               (2,211,000)         (56,000)
               (Increase) decrease in notes receivable                                                    (106,000)          62,000
               (Increase) decrease in other current assets                                                (160,000)               -
               (Increase) decrease in costs in excess of billings on uncompleted drilling contracts              -           55,000
               (Increase) decrease in deposits and other assets                                           (376,000)           1,000
               Increase (decrease) in trade accounts payable and accrued liabilities                     2,653,000         (476,000)
               Increase (decrease) in suspended revenue payable                                             73,000                -
               Increase (decrease) in other liabilities                                                   (290,000)               -
               Increase (decrease) in dividends payable                                                          -            3,000
                                                                                               -------------------------------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES                                                     1,864,000         (679,000)
                                                                                               -------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Proceeds from the sale of assets                                                                      188,000                -
     Additions to property and equipment, net                                                          (38,787,000)      (1,216,000)
     Deposits for acquisition of properties and equipment                                                        -         (200,000)
     Costs related to corporations acquired                                                                      -          (87,000)
                                                                                               -------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES                                                                 (38,599,000)      (1,503,000)
                                                                                               -------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from issuance of common and preferred stock, net of offering costs                                 -        3,332,000
     Payments received on notes receivable from shareholders                                                     -           63,000
     Proceeds from long-term debt borrowings                                                            55,313,000                -
     Payments of principal on notes payable                                                            (17,653,000)         (37,000)
     Payments on production payment liability                                                              (57,000)               -
     Payments for redemption of preferred stock                                                           (295,000)               -
     Dividends paid                                                                                       (438,000)        (437,000)
                                                                                               -------------------------------------
NET CASH PROVIDED BY (USED FOR)  FINANCING ACTIVITIES                                                   36,870,000        2,921,000
                                                                                               -------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                           135,000          739,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                           1,544,000        1,645,000
                                                                                               -------------------------------------
 CASH AND CASH EQUIVALENTS, END OF PERIOD                                                       $        1,679,000   $    2,384,000
                                                                                               =====================================
</TABLE>
                                                           

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

                                        9

<PAGE>


                     MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996
                                   (Unaudited)

(1) MANAGEMENT'S REPRESENTATION

     The  consolidated  balance sheet as of September 30, 1996, the consolidated
statements of operations for the three and nine months ended  September 30, 1996
and 1995, and the  consolidated  statements of cash flows for the three and nine
month  periods  then ended 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,  results of operations and
changes in cash flows for the three and nine month periods.

     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting  principles
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,  1995  annual  report on Form 10-KSB for
Magnum Petroleum,  Inc. ("Magnum").  The results of operations for the three and
nine month periods ended  September 30, 1996 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  wholly-owned  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 has
changed the presentation  format for the  consolidated  statements of cash flows
from the direct method to the indirect method.

     During  1995,  Magnum  changed  its  accounting  method  for  oil  and  gas
activities  from the  successful  efforts  method to the full cost  method.  The
comparable  1995 amounts in the financial  statements  included herein have been
restated to comply with the full cost method.

(2) RECENT EVENTS

     During the three and nine months ended  September  30, 1996,  41,500 shares
and 62,050  shares of Series B preferred  stock were  converted to 20,711 shares
and 30,986 shares of common stock, respectively.

     On June 26, 1996, Magnum received a commitment from Wells Fargo Bank, N.A.,
as Agent, and Banque Paribas, as Co-agent, (hereinafter collectively referred to
as  "Banks")  for a new credit  facility  for the  benefit of Magnum and several
wholly-owned  subsidiaries.  The  purpose  of the new line of  credit  was to i)
refinance the Company's  existing  indebtedness  with First  Interstate  Bank of
Texas,  N.A. (a wholly-owned  subsidiary of Wells Fargo Bank, N.A.), ii) finance
the  acquisition  of oil and gas reserves  including  the $35.4  million  Panoma
Property acquisition as discussed below from Meridian Oil Inc.  ("Meridian"),  a
wholly-owned  subsidiary of Burlington  Resources,  Inc.,  iii) future  property
development, and iv) working capital support and general corporate purposes. The
$100  million  credit  facility is subject to a "Borrowing  Base"  determination
established  from  time-to-time  by the  Banks  based  upon  proven  oil and gas
reserves  and gas  gathering  assets owned by Magnum and its  subsidiaries.  The
availability under the Company's existing credit facility was increased from $16
million to $48 million  based upon the value of the assets  associated  with the
acquisition  of the Panoma  Properties.  The new credit  facility  has given the
Company the  flexibility  to choose a range of either  "LIBOR" or "Prime"  based
interest rates options.

     On June 28,  1996,  Magnum  closed on the purchase of 469 natural gas wells
and  approximately  427 miles of a gas gathering  pipeline system from Meridian.
The  net  purchase   price  after  certain   purchase  price   adjustments   was
approximately $35,350,000, funded by a loan from Magnum's Banks. As the purchase
was not completed until the end of the second quarter of 1996, the Statements of
Operations for 1996 only include the operating  results of the Panoma Properties
for the  third  quarter.  The  initial  purchase  price was  allocated  based on
estimated  fair market values  resulting in the recording of  $29,560,000 as oil
and gas properties and $5,790,000 as pipelines.  The gas wells and gas gathering
system are located in the  Panhandle of Texas and Western  Oklahoma and are more
commonly referred to as the "Panoma Properties."

     On June 5, 1996, Magnum called for redemption  208,333 shares of its Series
C  preferred  stock  at  $10.50  per  share,  as  provided  by the  terms of the
certificate of designations, plus accrued dividends with an extended redemption

                                       10
<PAGE>



date of July 10, 1996.  Terms of the  preferred  stock provide for the option by
the holder to convert the  preferred  shares  into  common  stock at the rate of
three (3)  shares of common  stock for each share of Series C  preferred  stock.
294,392  shares of the  preferred  stock were  converted  for 907,950  shares of
common stock  including  accrued  dividends paid in common stock.  Additionally,
8,224 shares of preferred  stock were redeemed  including the accrued  dividends
for cash in the amount of $88,860.

     On July 11, 1996,  Magnum called for the redemption  the remaining  322,384
shares of its Series C  preferred  stock.  The  redemption  price was $10.50 per
share,  plus accrued  dividends of $.141 per share from July 1, 1996 through the
extended  redemption  date of August 16, 1996, for a total  redemption  price of
$10.641 per share.  The Series C preferred  shares  could be  converted,  at the
option of the holder,  at any time prior to August 16,  1996 into common  stock.
302,492 shares of Series C preferred stock were converted into 938,451 shares of
common stock including the accrued dividends paid in common stock. Additionally,
19,892 shares of preferred stock were redeemed  including the accrued  dividends
for cash in the amount of $210,431.

     After both redemption calls,  Magnum converted 596,884 shares of its Series
C preferred  stock  including the accrued  dividends  into  1,846,401  shares of
common  stock and  redeemed  28,116  shares of its Series C preferred  stock for
$299,291.

                                       11

<PAGE>



PART II -- OTHER INFORMATION

Item 1.  Legal Proceedings
--------------------------

NONE

Item 2.  Changes in Securities
------------------------------

NONE

Item 3.  Defaults Upon Senior Securities
----------------------------------------

NONE

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

NONE

Item 5.  Other Information
--------------------------

NONE

Item 6. Exhibits and Reports on Form 8-K
----------------------------------------

(a)    Reports on Form 8-K
<TABLE>
<CAPTION>

Item No.       Items Reported                    F/S Included                  Date of Event     Date Filed
---------      --------------                    ------------                  -------------     ----------
<S>            <C>                               <C>                           <C>               <C>
2              Acquisition of Assets                                           June 28, 1996     July 12, 1996

7              Financial Statements              Schedule of Financial         June 28, 1996     August 14, 1996
                                                 Statements Attached

7              Amended Financial Statements      Schedule of Financial         June 28, 1996     August 16, 1996
                                                 Statements Attached


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


7              Amended Financial Statements      Schedule of Financial         July 21, 1995     September 12, 1996
                                                 Statements Attached
</TABLE>

                                       12

<PAGE>



                        SCHEDULE OF FINANCIAL STATEMENTS

I.     Form 8-K/A filed August 13, 1996 and amended August 16, 1996

(a)    Financial Statements of the Properties Acquired:
       ------------------------------------------------

          Independent Auditor's Report
          Historical  Summary of Revenue and Direct  Operating  Expenses for the
               Year  Ending  December  31,  1995 and 1994 and the  Three  Months
               Ending March 31, 1996 and 1995
          Notes to Historical Summary of Revenues and Direct  Operating  
               Expenses for the Year Ending  December 31, 1995 and 1994 and the
               Three Months  Ending March 31, 1996 and 1995

(b)    Pro forma financial information:

          Pro  Forma Consolidated Financial Information  (unaudited) as of March
               31, 1996
          Pro  Forma  Consolidated  Statement of Operations  (unaudited) For the
               Twelve Months Ended December 31, 1995
          Pro  Forma  Consolidated  Statement of Operations  (unaudited) For the
               Three Months Ended March 31, 1996
          Notes to Unaudited Pro Forma Consolidated Financial Statements


II.    Form 8-K/A-2 filed September 12, 1996

a]        Financial Statements of Businesses Acquired:

          Accountants'  Report of  Hein+Associates  LLP,  dated  April 14,  1995
               Audited Consolidated Balance Sheet of Hunter Resources,  Inc. and
               Subsidiaries as of December 31, 1994
          Audited  Consolidated  Statements of Operations for Hunter  Resources,
               Inc. and  Subsidiaries  for the Years Ended December 31, 1994 and
               1993
          Audited  Consolidated  Statements of  Stockholders'  Equity for Hunter
               Resources, Inc. and Subsidiaries for the Years Ended December 31,
               1994 and 1993
          Audited  Consolidated  Statements of Cash Flows for Hunter  Resources,
               Inc. and  Subsidiaries  for the Years Ended December 31, 1994 and
               1993
          Unaudited  Consolidated  Balance Sheet of Hunter  Resources,  Inc. and
               Subsidiaries as of September 30, 1995
          Unaudited Consolidated  Statements of Operations for Hunter Resources,
               Inc.  and  Subsidiaries  for the  Quarters  and Nine Months Ended
               September 30, 1995 and 1994
          Unaudited Consolidated  Statements of Cash Flows for Hunter Resources,
               Inc.  and  Subsidiaries  for the  Quarters  and Nine Months Ended
               September 30, 1995 and 1994

b]         Pro Forma Financial Information:

          Consolidated Pro Forma Financial Information (unaudited)
          Consolidated Pro Forma Balance Sheet at September 30, 1995 (unaudited)
          Consolidated Pro Forma  Statement of Operations  For the Twelve Months
               Ended December 31, 1994 (unaudited)
          Consolidated Pro Forma  Statement  of  Operations  For the Nine Months
               Ended September 30, 1995 (unaudited)
          Notes to Pro Forma Consolidated Statements of Operations (unaudited)

                                       13

<PAGE>



c]        Restated Consolidated Financial Statements:

          Accountants'  Report of  HANSEN,  BARNETT &  MAXWELL,  a  Professional
               Corporation, dated March 26, 1995, except for Note 2, as to which
               the date is September 29, 1995
          Audited Restated Consolidated Balance Sheet of Magnum Petroleum,  Inc.
               and Subsidiary as of December 31, 1994 and Unaudited Consolidated
               Balance  Sheet of Magnum  Petroleum,  Inc. and  Subsidiary  as of
               September 30, 1995
          Audited  Consolidated  Statements of Operations for Magnum  Petroleum,
               Inc.  and  Subsidiary  for the Years Ended  December 31, 1994 and
               1993 and Unaudited  Consolidated  Statements  of  Operations  for
               Magnum  Petroleum,  Inc. and Subsidiary for the Nine Months Ended
               September 30, 1995 and 1994
          Audited  Consolidated  Statements of  Stockholders'  Equity for Magnum
               Petroleum,  Inc. and  Subsidiary for the Years Ended December 31,
               1994  and  1993  and   Unaudited   Consolidated   Statements   of
               Stockholders'  Equity for Magnum  Petroleum,  Inc. and Subsidiary
               for the Nine Months Ended September 30, 1995
          Audited  Consolidated  Statements of Cash Flows for Magnum  Petroleum,
               Inc.  and  Subsidiary  for the Years Ended  December 31, 1994 and
               1993 and  Unaudited  Consolidated  Statements  of Cash  Flows for
               Magnum  Petroleum,  Inc. and Subsidiary for the Nine Months Ended
               September 30, 1995

                                       14

<PAGE>


                                    SIGNATURE

     In accordance with the requirements of the Exchange Act, the Registrant has
caused  this Form 10-QSB  Report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

MAGNUM PETROLEUM, INC.



By /s/ Gary C. Evans
-------------------------------------------
      Gary C. Evans
      President and Chief Executive Officer                   November 12, 1996




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


Name and Signature     Title                                   Date


/s/ Gary C. Evans      President and Chief Executive Officer   November 12, 1996
-------------------                               
Gary C. Evans


/s/ Steven P. Smart    Senior Vice President and
-------------------    Chief Financial Officer
Steven P. Smart                                                November 12, 1996


                                       15
<PAGE>