<PAGE>
 
               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549


                                   FORM 10-Q
                                        

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                             EXCHANGE ACT OF 1934
                                        
             For the quarterly period ended     MARCH 31, 1998
                                            -----------------------

                                      OR
                                        
[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
                             EXCHANGE ACT OF 1934
                                        
      For the transition period from________________to_____________

                        Commission File Number 0-22258

                                        
                             AVIVA PETROLEUM INC.
            (Exact name of registrant as specified in its charter)

TEXAS                                                           75-1432205
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                                  Identification  
                                                                Number)

8235 DOUGLAS AVENUE,                                            75225
SUITE 400, DALLAS, TEXAS                                        (Zip Code)
(Address of principal executive offices)

                                (214) 691-3464
             (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 _______
                                                          ---

Number of shares of Common Stock, no par value, outstanding at March 31, 1998,
was 31,482,716 of which 10,336,835 shares of Common Stock were represented by
Depositary Shares.  Each Depositary Share represents five shares of Common Stock
held by a Depositary.
<PAGE>
 
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.
-----------------------------

                     AVIVA PETROLEUM INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEET
                    (in thousands, except number of shares)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                 March 31,     December 31, 
                                                                      1998             1997
                                                                 ---------     ------------ 
<S>                                                              <C>           <C>         
ASSETS                                                                                     
                                                                                           
Current assets:                                                                            
  Cash and cash equivalents                                      $     543     $        690 
  Accounts receivable                                                1,396            1,803
  Inventories                                                          576              602
  Prepaid expenses and other                                           106              203
                                                                 ---------     ------------
    Total current assets                                             2,621            3,298
                                                                 ---------     ------------  
 
Property and equipment, at cost (note 3): 
  Oil and gas properties and equipment (full cost method)           61,251           61,036 
  Other                                                                606              606
                                                                 ---------     ------------   
                                                                    61,857           61,642
 
    Less accumulated depreciation, depletion                       
      and amortization                                             (53,289)         (49,873)
                                                                 ---------     ------------    
                                                                     8,568           11,769 
Other assets                                                         1,409            1,378 
                                                                 ---------     ------------    
                                                                 $  12,598     $     16,445                                    
                                                                 =========     ============ 
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                       
                             
Current liabilities:
  Current portion of long term debt (note 4)                     $     230     $        480 
  Accounts payable                                                   2,341            3,091  
  Accrued liabilities                                                  449              356 
                                                                 ---------     ------------
    Total current liabilities                                        3,020            3,927    
                                                                 ---------     ------------ 
Long term debt, excluding current portion (note 4)                   7,210            7,210 
Gas balancing obligations and other                                  1,585            1,560 
Deferred income taxes                                                    -                -
Stockholders' equity:
 Common stock, no par value, authorized 348,500,000 shares;   
    issued 31,482,716 shares                                         1,574            1,574  
 Additional paid-in capital                                         33,376           33,376
 Accumulated deficit/*/                                            (34,167)         (31,202)
                                                                 ---------     ------------  
   Total stockholders' equity                                          783            3,748 
                                                                       
Commitments and contingencies (note 6)
                                                                 ---------     ------------  
                                                                 $  12,598     $     16,445                                     
                                                                 =========     ============ 
</TABLE> 
                             
                                                                      
/*/  Accumulated deficit of $70,057 was eliminated at December 31, 1992 in
connection with a quasi-reorganization.

See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>
 
                     AVIVA PETROLEUM INC. AND SUBSIDIARIES
                Condensed Consolidated Statement of Operations
                     (in thousands, except per share data)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                             March 31,

                                                         1998         1997 
                                                      -------      ------- 
<S>                                                   <C>          <C>     
Oil and gas sales                                     $ 1,146      $ 3,214 
                                                      -------      ------- 
                                                                           
Expense:                                                                   
 Production                                               799        1,102 
 Depreciation, depletion and amortization                 671        1,795 
 Write-down of oil and gas properties (note 3)          2,764        1,986 
 General and administrative                               360          349 
                                                      -------      ------- 
                                                                           
   Total expense                                        4,594        5,232 
                                                      -------      ------- 
                                                                           
Other income (expense):                                                    
 Interest and other income (expense), net (note 5)        745           24 
 Interest expense                                        (165)        (166)
                                                      -------      ------- 
                                                                           
   Total other income (expense)                           580         (142)
                                                      -------      ------- 
                                                                           
Loss before income taxes                               (2,868)      (2,160)
                                                                           
Income taxes                                               97          265 
                                                      -------      ------- 
                                                                           
     Net loss                                         $(2,965)     $(2,425)
                                                      =======      ======= 
                                                                           
                                                                           
Weighted average common shares outstanding             31,483       31,483 
                                                      =======      ======= 
                                                                           
Basic and diluted net loss per common share           $ (0.09)     $ (0.08)
                                                      =======      =======  
</TABLE> 

See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                     AVIVA PETROLEUM INC. AND SUBSIDIARIES
                Condensed Consolidated Statement of Cash Flows
                                (in thousands)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                                March 31,

                                                             1998         1997
                                                          -------      -------
<S>                                                       <C>          <C>    
Net loss                                                  $(2,965)     $(2,425)
Adjustments to reconcile net loss to net cash                                 
 provided by operating activities:                                            
  Depreciation, depletion and amortization                    671        1,795
  Write-down of oil and gas properties                      2,764        1,986
  Deferred foreign income taxes                                 -           22
  Changes in working capital and other                       (141)      (1,422)
                                                          -------      -------
                                                                              
   Net cash provided by (used in) operating activities        329          (44)
                                                          -------      -------
                                                                              
Cash flows from investing activities:                                         
 Property and equipment expenditures                         (215)        (754)
 Proceeds from sale of assets                                   -           19
 Other                                                         (6)          (5)
                                                          -------      -------
                                                                              
   Net cash used in investing activities                     (221)        (740)
                                                          -------      -------
                                                                              
Cash flows from financing activities -                                        
 principal payments on long term debt                        (250)         (75)
                                                          -------      -------
                                                                              
Effect of exchange rate changes on cash and                                   
 cash equivalents                                              (5)         (19)
                                                          -------      -------
                                                                              
Net decrease in cash and cash equivalents                    (147)        (878)
Cash and cash equivalents at beginning of the period          690        2,041
                                                          -------      -------
                                                                              
Cash and cash equivalents at end of the period            $   543      $ 1,163
                                                          =======      ======= 
</TABLE>


See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                     AVIVA PETROLEUM INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                    (in thousands, except number of shares)
                                  (unaudited)



<TABLE>
<CAPTION>
                                              Common Stock                                                  
                                        -------------------------                                                  
                                                                     Additional                             Total 
                                              Number                    Paid-in     Accumulated      Stockholders'  
                                           of Shares       Amount       Capital         Deficit            Equity      
                                        ------------  -----------    ----------    ------------    -------------- 
<S>                                     <C>           <C>            <C>           <C>             <C>            
Balances at December 31, 1997            31,482,716   $     1,574    $   33,376    $    (31,202)   $        3,748   
Net loss                                          -             -             -          (2,965)           (2,965)  
                                        -----------   -----------    ----------    ------------    --------------   
 
Balances at March 31, 1998               31,482,716   $     1,574    $   33,376    $    (34,167)   $          783
                                        ===========  ============    ==========    ============    ==============
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
                     AVIVA PETROLEUM INC. AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


1.   GENERAL

     The condensed consolidated financial statements of Aviva Petroleum Inc. and
     subsidiaries (the "Company" or "Aviva") included herein have been prepared
     by the Company without audit, pursuant to the rules and regulations of the
     Securities and Exchange Commission. Certain information and footnote
     disclosures normally included in financial statements prepared in
     accordance with generally accepted accounting principles have been
     condensed or omitted pursuant to such rules and regulations, although the
     Company believes that the disclosures contained herein are adequate to make
     the information presented not misleading. These condensed financial
     statements should be read in conjunction with the Company's prior audited
     yearly financial statements and the notes thereto, included in the
     Company's latest annual report on Form 10-K.

     In the opinion of the Company, all adjustments, consisting of normal
     recurring accruals, necessary to present fairly the information in the
     accompanying financial statements have been included. The results of
     operations for such interim periods are not necessarily indicative of the
     results for the full year.

     Effective January 1, 1998, the Company adopted Statement of Financial
     Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income."
     SFAS No. 130 establishes standards for reporting and display of
     comprehensive income in a full set of general-purpose financial statements.
     Comprehensive income includes net income and other comprehensive income
     which is generally comprised of changes in the fair value of available-for-
     sale marketable securities, foreign currency translation adjustments and
     adjustments to recognize additional minimum pension liabilities. The
     Company had no accumulated other comprehensive income at December 31, 1997,
     and no other comprehensive income for the three months ended March 31, 1998
     and 1997.

2.   MERGER PLANS

     On April 16, 1998, the Company signed a letter of intent to merge with
     Garnet Resources Corporation ("Garnet"), a publicly traded international
     oil and gas exploration and production company. Garnet, through its 99.24%-
     owned subsidiary, Argosy Energy International ("Argosy"), is the co-owner
     (55%) and operator of the Colombian joint operations in which the Company
     has the remaining working interest (45%). Garnet also holds a carried
     working interest in an oil and gas Production Prospecting License in Papua
     New Guinea.

     The proposed arrangements include Aviva refinancing Argosy's outstanding
     debt to Chase Bank of Texas (approximately $6 million, net, at March 31,
     1998) which is guaranteed by the U.S. Overseas Private Investment
     Corporation ("OPIC"), issuing approximately 1.1 million, 12.9 million and
     0.1 million new Aviva common shares to Garnet shareholders, Garnet
     debenture holders and the minority interest owners of Argosy, respectively,
     and canceling Garnet's $15 million of 9.5% subordinated debentures due
     December 21, 1998.

     Aviva will be the surviving entity following the merger, which is subject
     to various contingencies including completion of negotiations, execution
     and delivery of the definitive Agreement and Plan of Merger, Debenture
     Purchase Agreement and Limited Partnership Interest Purchase Agreement,
     approvals thereof by ING Capital, OPIC, Colombian agencies,

                                       6
<PAGE>
 
                     AVIVA PETROLEUM INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            (unaudited) (continued)

     and shareholders of Aviva and Garnet. The proposed merger is also subject
     to execution and delivery of agreements for the proposed credit facility
     discussed in Note 6.

3.   PROPERTY AND EQUIPMENT

     Internal general and administrative costs directly associated with oil and
     gas property acquisition, exploration and development activities have been
     capitalized in accordance with the accounting policies of the Company. Such
     costs totaled $7,000 for the three months ended March 31, 1998 and $36,000
     for the three months ended March 31, 1997.

     Unevaluated oil and gas properties totaling $263,000 and $251,000 at March
     31, 1998 and December 31, 1997, respectively, have been excluded from costs
     subject to depletion. The Company capitalized interest costs of $3,000 and
     $22,000 for the three-month periods ended March 31, 1998 and 1997,
     respectively, on these properties.

     The following table summarizes the write-down of the carrying amounts of
     the Company's oil and gas properties as a result of ceiling limitations on
     capitalized costs:

<TABLE>
<CAPTION>
                                       Three Months Ended  
                                           March 31,                   
                                          (thousands)                  
                                        1998        1997              
                                      ------      ------              
               <S>                    <C>         <C>                    
               Colombia               $2,302      $    -
               United States             462       1,986
                                      ------      ------
                                      $2,764      $1,986
                                      ======      ======
</TABLE>

     The aforementioned write-downs were primarily due to lower oil and gas
     prices. A future decrease in the prices the Company receives for its oil
     and gas production or downward reserve adjustments could, for either the
     U.S. or Colombian cost centers, result in a ceiling test write-down that is
     significant to the Company's operating results.

4.   LONG TERM DEBT

     On August 6, 1993, the Company entered into a credit agreement with ING
     (U.S.) Capital Corporation ("ING Capital"), secured by a mortgage on
     substantially all U.S. oil and gas assets, a pledge of Colombian assets and
     the stock of three subsidiaries, pursuant to which ING Capital agreed to
     loan to the Company up to $25 million, subject to an annually redetermined
     borrowing base which is predicated on the Company's U.S. and Colombian
     reserves. As of December 31, 1997, the borrowing base permitted and the
     outstanding loan balance was, $7,690,000. The outstanding loan balance has
     been subject to interest at the prime rate, as defined (8.5% at March 31,
     1998) plus 1% or, at the option of the Company, a fixed rate, based on the
     London Interbank Offered Rate, for a portion or portions of the outstanding
     debt from time to time. The terms of the loan, among other things, prohibit
     the Company from merging with another company or paying dividends, limit
     additional indebtedness, general and administrative expense, sales of
     assets and investments and require the maintenance of certain minimum
     financial ratios.

                                       7
<PAGE>
 
                     AVIVA PETROLEUM INC. AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            (unaudited) (continued)

     In February 1998, the Company entered into an agreement with ING Capital
     pursuant to which the outstanding loan balance was paid down to $7,440,000
     from $7,690,000, the interest rate was increased to the prime rate, as
     defined, plus 1.5%, or at the option of the Company, a fixed rate based on
     LIBOR plus 3%, and the repayment schedule was amended to require monthly
     payments of 80% of defined monthly cash flows until October 1, 1999, at
     which time the remaining balance is due and payable. Additionally, ING
     Capital reduced to $2 million the minimum amount of consolidated tangible
     net worth that the Company is required to maintain.

     As of March 31, 1998, the borrowing base permitted, and the outstanding
     loan balance was, $7,440,000, but the Company was not in compliance with
     the above-referenced tangible net worth covenant. The Company has
     requested, and ING Capital has agreed to, a waiver of the Company's non-
     compliance with this covenant through April 1, 1999.

5.   INTEREST AND OTHER INCOME (EXPENSE)

     A summary of interest and other income (expense) follows:

<TABLE> 
<CAPTION> 
                                                  Three Months Ended  
                                                      March 31,       
                                                     (thousands)       
                                                     1998       1997  
                                                  -------   --------  
          <S>                                     <C>       <C>        
          Gain on settlement of litigation        $   720   $      -
          Interest income                              25         43
          Foreign currency exchange loss               (2)       (21)
          Gain (loss) on sale of assets, net            -        (13)
          Other, net                                    2         15
                                                  -------   --------
                                                  $   745   $     24
                                                  =======   ========
</TABLE>

     In January 1998, the Company realized a $720,000 gain on the settlement of
     litigation involving the administration of a take or pay contract
     settlement.

6.   COMMITMENTS AND CONTINGENCIES

     In the U.S., the Company is currently committed to the drilling of a
     saltwater disposal well at its Breton Sound 31 field facilities in order to
     comply with a state-wide prohibition against discharges of produced water
     to coastal waters offshore Louisiana. The cost to drill and equip such a
     well is estimated at $0.3 million, net to the Company's interest. Pursuant
     to a revised produced water termination schedule approved by the Louisiana
     Department of Environmental Quality, the Company has until September 1,
     1998, to cease discharges of produced water. If the Company is unable to
     complete the project and reinject the produced water by September 1, 1998,
     the Company will be required to curtail or even cease production from its
     Breton Sound leases. Additionally, the Company is upgrading certain
     equipment at its Main Pass 41 field facilities, the cost of which is
     expected to aggregate $0.3 million, net to the Company's interest.

     The Company, along with Argosy (referred to collectively as the "Co-
     owners"), is also engaged in an ongoing development program on the Santana
     concession in Colombia. The contract obligations of the Santana concession
     have been met. The Co-owners currently anticipate, however, the
     recompletion of certain existing wells and various miscellaneous projects.
     The

                                       8
<PAGE>
 
                     AVIVA PETROLEUM INC. AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            (unaudited) (continued)
                                        
     Company's share of the estimated future costs of these development
     activities is approximately $0.7 million at March 31, 1998. Depending on
     the results of future exploration and development activities, substantial
     expenditures that have not been anticipated may be required. Failure by the
     Company to fund certain of these capital expenditures could, under either
     the concession agreement or joint operating agreement with Argosy, or both,
     result in the forfeiture of all or part of the Company's interest in this
     concession.

     In addition, the Company's ability to continue its Colombian development
     program is dependent upon the ability of Argosy to finance its portion of
     such costs and expenses. If Argosy cannot fund its obligations, the Company
     may be required to accept an assignment of Argosy's interest therein and
     assume those funding obligations. If, thereafter, the Company were to be
     unable to raise sufficient funds to meet such obligations, the Company's
     interests in the properties may be forfeited.

     In reports filed with the U.S. Securities and Exchange Commission, which
     are publicly available, Garnet has disclosed, among other things, that: (i)
     Argosy is no longer in compliance with certain covenants required by its
     finance agreement with Chase Bank of Texas which is guaranteed by the
     Overseas Private Investment Corporation and secured by Argosy's assets in
     Colombia; (ii) its management believes that Garnet's available working
     capital and cash flows from operations will not be sufficient to make its
     required debt principal and interest payments as they become due beginning
     March 31, 1998; and (iii) in the absence of a business transaction or a
     restructuring of Garnet's indebtedness, Garnet may seek protection from its
     creditors under the Federal Bankruptcy Code.

     As discussed in Note 2, the Company has signed a letter of intent to merge
     with Garnet. Pursuant to the merger plan, Garnet's $15 million of
     subordinated debentures will be canceled and Argosy's bank debt, along with
     Aviva's existing bank debt, will be refinanced through a proposed $15
     million credit facility that the Company has requested ING Capital to
     provide to the Company. In addition to refinancing the existing bank debt
     of Argosy and Aviva, this proposed new credit facility is expected to
     supplement the Company's working capital and, to the extent not funded by
     cash flow from operations, fund the Company's remaining estimated capital
     expenditures for 1998.

     Management of the Company is currently involved in efforts to effectuate
     the merger. Such efforts include the completion of negotiations, execution
     and delivery of the definitive Agreement and Plan of Merger, Debenture
     Purchase Agreement, Limited Partnership Interest Purchase Agreement and the
     proposed new credit facility with ING Capital. Additionally, approval by
     the shareholders of Aviva and Garnet will be required to consummate the
     merger.

     While management believes that the merger will be consummated substantially
     as planned, there can be no assurance that this will be the case. If the
     Company is unable to consummate the merger, then, in the absence of another
     business transaction or debt restructuring, Garnet may seek bankruptcy
     protection or other alternatives, any of which may have a material adverse
     effect on Aviva's consolidated financial condition. As indicated above, if
     Argosy cannot fund its obligations, the Company may be required to accept
     an assignment of Argosy's interest therein and assume those funding
     obligations. Aviva itself has experienced significant losses which have
     resulted in recurring noncompliance with the minimum consolidated tangible
     net

                                       9
<PAGE>
 
                     AVIVA PETROLEUM INC. AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            (unaudited) (continued)

     worth covenant and its debt repayment schedule under its credit agreement
     with ING Capital. Without the Garnet merger and the proposed new credit
     facility, management's current cash flow analysis does not indicate that
     the Company would be able to make the October 1, 1999 scheduled debt
     repayment under the existing ING Capital Credit Agreement. In the past, ING
     Capital has amended or waived compliance with these covenants when the
     Company has been unable to comply with them. There can be no assurance,
     however, that ING Capital will continue to make similar concessions in the
     future.

     Activities of the Company with respect to the exploration, development and
     production of oil and natural gas are subject to stringent foreign,
     federal, state and local environmental laws and regulations including the
     Oil Pollution Act of 1990 ("OPA 90"), the Outer Continental Shelf Lands
     Act, the Federal Water Pollution Control Act, the Resource Conservation and
     Recovery Act, and the Comprehensive Environmental Response, Compensation,
     and Liability Act. Such laws and regulations have increased the cost of
     planning, designing, drilling, operating and abandoning wells. In most
     instances, the statutory and regulatory requirements relate to air and
     water pollution control procedures and the handling and disposal of
     drilling and production wastes. Risks of substantial costs and liabilities
     are inherent in oil and gas operations and there can be no assurance that
     significant costs and liabilities, including civil or criminal penalties
     for violations of environmental laws and regulations, will not be incurred.
     Moreover, it is possible that other developments, such as stricter
     environmental laws and regulations or claims for damages to property or
     persons resulting from the Company's operations, could result in
     substantial costs and liabilities. For additional discussions on the
     applicability of environmental laws and regulations and other risks that
     may affect the Company's operations, see the Company's latest annual report
     on Form 10-K.

     The Company is involved in certain litigation involving its oil and gas
     activities, but unrelated to environmental contamination issues. Management
     of the Company believes that these litigation matters will not have any
     material adverse effect on the Company's financial condition or results of
     operations.

                                       10
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------------------------------------------------------------------------------
OF OPERATIONS.
--------------

RESULTS OF OPERATIONS
---------------------

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                         United States         Colombia                   
                                       Oil           Gas         Oil        Total      
                                     ------         ------    --------    --------    
       <S>                           <C>            <C>       <C>         <C>          
       (Thousands)
 
       Revenue - 1997                $  459         $  245     $2,510     $  3,214
                                       
       Volume variance                 (187)          (170)      (975)      (1,332)
                                       
       Price variance                   (98)           (16)      (608)        (722)
                                       
       Other                              -            (14)         -          (14)
                                     ------         ------     ------     --------
 
       Revenue - 1998                 $ 174         $   45     $  927     $  1,146
                                     ======         ======     ======     ========
</TABLE>

Colombian oil volumes were 75,000 barrels in the first quarter of 1998, a
decrease of 48,000 barrels as compared to the first quarter of 1997. Such
decrease is due to a 57,000 barrel decrease resulting from production declines,
partially offset by a 9,000 barrel increase resulting from the completion of a
development well in June 1997.

U.S. oil volumes were 13,000 barrels in 1998, down approximately 8,000 barrels
from 1997.  Of such decrease, approximately 5,000 barrels was due to the
Company's Main Pass 41 field being shut-in for approximately 60 days during the
first quarter of 1998 due to equipment failures and 3,000 barrels resulted from
normal production declines.  U.S. gas volumes before gas balancing adjustments
were 14,000 thousand cubic feet (MCF) in 1998, down 60,000 MCF from 1997.  Of
such decrease, approximately 40,000 MCF was due to the aforementioned shut-in of
the Main Pass 41 field and 20,000 MCF was due to normal production declines.

The above-referenced equipment failures at the Company's Main Pass 41 field
necessitate upgrading and additional modification of production and water
treatment facilities.  As of May 14, 1998, this field had been shut-in an
additional 25 days since April 1, 1998, and there can be no assurance that
further shut-in periods will not occur prior to the completion of the project.

Colombian oil prices averaged $12.29 per barrel during the first quarter of
1998.  The average price for the same period of 1997 was $20.35 per barrel.  The
Company's average U.S. oil price decreased to $13.86 per barrel in 1998, down
from $21.66 per barrel in 1997.  In 1998 prices have been lower than in the
first quarter of 1997 due to a dramatic decrease in world oil prices.  U.S. gas
prices averaged $2.43 per MCF in 1998 compared to $2.48 per MCF in 1997.

In addition to the above-mentioned variances, U.S. gas revenue decreased
approximately $14,000 as a result of gas balancing adjustments.

Operating costs decreased approximately 28%, or $303,000, primarily due to lower
operating costs in Colombia.  Such decreases have resulted mainly from the
elimination of the production tax on the majority of the Company's Colombian
production and lower pipeline tariffs resulting from lower volumes.

Depreciation, depletion and amortization decreased by 63%, or $1,124,000,
primarily due to a decrease in costs subject to amortization resulting from 
property write-downs and lower levels of production.

                                       11
<PAGE>
 
The Company recorded write-downs of $2,302,000 and $462,000 to the carrying
amounts of its Colombian and U.S. oil and gas properties, respectively, as a
result of ceiling test limitations on capitalized costs at March 31, 1998.

Interest and other income increased during the first quarter of 1998 as the
Company realized a $720,000 gain on the settlement of litigation involving the
administration of a take or pay contract settlement.

Income taxes were $168,000 lower in 1998 principally as a result of lower
Colombian "presumptive" income tax and due to the fact that the threshold for
incurring Colombian remittance tax was not achieved in the first quarter of
1998.

YEAR 2000
---------

Based on a preliminary study, the Company expects to spend an aggregate of
approximately $100,000 in 1998 and 1999 to modify its computer information
systems enabling proper processing of transactions relating to the year 2000 and
beyond.  The Company continues to evaluate appropriate courses of corrective
action, including replacement of certain systems whose associated costs would be
recorded as assets and amortized.  Accordingly, the Company does not expect the
amounts required to be expensed over the next two years to have a material
effect on its financial position or results of operations.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Since December 31, 1997, costs incurred in oil and gas property acquisition,
exploration and development activities by the Company totaled approximately $0.2
million, almost all of which was incurred in Colombia.  These activities were
funded by cash provided by operating activities.

In the U.S., the Company is currently committed to the drilling of a saltwater
disposal well at its Breton Sound 31 field facilities in order to comply with a
state-wide prohibition against discharges of produced water to coastal waters
offshore Louisiana.  The cost to drill and equip such a well is estimated at
$0.3 million, net to the Company's interest. Pursuant to a revised produced
water termination schedule approved by the Louisiana Department of Environmental
Quality, the Company has until September 1, 1998, to cease discharges of
produced water.  If the Company is unable to complete the project and reinject
the produced water by September 1, 1998, the Company will be required to curtail
or even cease production from its Breton Sound leases.  Additionally, the
Company is upgrading certain equipment at its Main Pass 41 field facilities, the
cost of which is expected to aggregate $0.3 million, net to the Company's
interest.

The Company, along with Argosy (referred to collectively as the "Co-owners"), is
also engaged in an ongoing development program on the Santana concession in
Colombia.  The contract obligations of the Santana concession have been met.
The Co-owners currently anticipate, however, the recompletion of certain
existing wells and various miscellaneous projects.  The Company's share of the
estimated future costs of these development activities is approximately $0.7
million at March 31, 1998. Depending on the results of future exploration and
development activities, substantial expenditures that have not been anticipated
may be required.  Failure by the Company to fund certain of these capital
expenditures could, under either the concession agreement or joint operating
agreement with Argosy, or both, result in the forfeiture of all or part of the
Company's interest in this concession.

In addition, the Company's ability to continue its Colombian development program
is dependent upon the ability of Argosy to finance its portion of such costs and
expenses.  If Argosy cannot fund its obligations, the Company may be required to
accept an assignment of Argosy's interest therein and 

                                       12
<PAGE>
 
assume those funding obligations. If, thereafter, the Company were to be unable
to raise sufficient funds to meet such obligations, the Company's interests in
the properties may be forfeited.

In reports filed with the U.S. Securities and Exchange Commission, which are
publicly available, Garnet has disclosed, among other things, that: (i) Argosy
is no longer in compliance with certain covenants required by its finance
agreement with Chase Bank of Texas which is guaranteed by the Overseas Private
Investment Corporation and secured by Argosy's assets in Colombia; (ii) its
management believes that Garnet's available working capital and cash flows from
operations will not be sufficient to make its required debt principal and
interest payments as they become due beginning March 31, 1998; and (iii) in the
absence of a business transaction or a restructuring of Garnet's indebtedness,
Garnet may seek protection from its creditors under the Federal Bankruptcy Code.

As discussed in Note 2 of the condensed consolidated financial statements, the
Company has signed a letter of intent to merge with Garnet. Pursuant to the
merger plan, Garnet's $15 million of subordinated debentures will be canceled
and Argosy's bank debt, along with Aviva's existing bank debt, will be
refinanced through a proposed $15 million credit facility that the Company has
requested ING Capital to provide to the Company.  In addition to refinancing the
existing bank debt of Argosy and Aviva, this proposed new credit facility is
expected to supplement the Company's working capital and, to the extent not
funded by cash flow from operations, fund the Company's remaining estimated
capital expenditures for 1998.

Management of the Company is currently involved in efforts to effectuate the
merger.  Such efforts include the completion of negotiations, execution and
delivery of the definitive Agreement and Plan of Merger, Debenture Purchase
Agreement, Limited Partnership Interest Purchase Agreement and the proposed new
credit facility with ING Capital. Additionally, approval by the shareholders of
Aviva and Garnet will be required to consummate the merger.

While management believes that the merger will be consummated substantially as
planned, there can be no assurance that this will be the case.  If the Company
is unable to consummate the merger, then, in the absence of another business
transaction or debt restructuring, Garnet may seek bankruptcy protection or
other alternatives, any of which may have a material adverse effect on Aviva's
consolidated financial condition.  As indicated above, if Argosy cannot fund its
obligations, the Company may be required to accept an assignment of Argosy's
interest therein and assume those funding obligations.  Aviva itself has
experienced significant losses which have resulted in recurring noncompliance
with the minimum consolidated tangible net worth covenant and its debt repayment
schedule under its credit agreement with ING Capital.  Without the Garnet merger
and the proposed new credit facility, management's current cash flow analysis
does not indicate that the Company would be able to make the October 1, 1999
scheduled debt repayment under the existing ING Capital Credit Agreement.  In
the past, ING Capital has amended or waived compliance with these covenants when
the Company has been unable to comply with them.  There can be no assurance,
however, that ING Capital will continue to make similar concessions in the
future.

With the exception of historical information, the matters discussed in this
quarterly report contain forward-looking statements that involve risks and
uncertainties.  Although the Company believes that its expectations are based on
reasonable assumptions, it can give no assurance that its goals will be
achieved.  Important factors that could cause actual results to differ
materially from those in the forward-looking statements herein include, among
other things, general economic conditions, volatility of oil and gas prices, the
impact of possible geopolitical occurrences world-wide and in Colombia,
imprecision of reserve estimates, changes in laws and regulations, unforeseen
engineering and mechanical or technological difficulties in drilling, working-
over and operating wells during the 

                                       13
<PAGE>
 
periods covered by the forward-looking statements, as well as other factors
described in the Company's annual report on Form 10-K.


PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------

a) Exhibits
-----------

27.1 Financial Data Schedule.

b) Reports on Form 8-K
----------------------

The Company filed the following Current Reports on Form 8-K during and
subsequent to the end of the first quarter:

Date of 8-K         Description of 8-K
-----------         ------------------

February 16, 1998   Submitted a copy of the Company's Press Release dated
                    February 16, 1998, reporting on the Company's Restructuring
                    Plan.

April 17, 1998      Submitted a copy of the Company's Press Release dated April
                    17, 1998 announcing the merger plans between Aviva Petroleum
                    Inc. and Garnet Resources Corporation.

                                       14
<PAGE>
 
                                   SIGNATURES
                                   ----------
                                        
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                         AVIVA PETROLEUM INC.



Date:  May 14, 1998                      /s/ Ronald Suttill
                                         --------------------------------
                                         Ronald Suttill
                                         President and Chief Executive Officer
 



                                         /s/  James L. Busby
                                         --------------------------------
                                         James L. Busby
                                         Treasurer and Secretary
                                         (Chief Accounting Officer)

                                       15
<PAGE>
 
                               INDEX TO EXHIBITS

                                        
Exhibit
Number    Description of Exhibit
------    ----------------------

 27.1     Financial Data Schedule.

                                       16