<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, 1997
                                            -----------------------

                                      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, 1997,
was 31,482,716 of which 10,324,615 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,
                                   1997             1996
                                 ---------        --------  
<S>                              <C>             <C>
ASSETS
 
Current assets:
 Cash and cash equivalents       $  1,163         $  2,041 
 Accounts receivable                2,373            3,750
 Inventories                          745              721
 Prepaid expenses and other           199              282
                                 --------         --------
   Total current assets             4,480            6,794
                                 --------         --------
                                                  
Property and equipment, at                        
 cost (note 2):                                   
 Oil and gas properties                           
  and equipment (full cost                        
  method)                          59,034           58,324
 Other                                609              613
                                 --------         --------
                                   59,643           58,937
   Less accumulated                               
    depreciation, depletion                       
     and amortization             (27,727)         (23,991)
                                 --------         --------
                                   31,916           34,946
Other assets                        1,317            1,204
                                 --------         --------
                                 $ 37,713         $ 42,944    
                                 ========         ========
 
LIABILITIES AND
 STOCKHOLDERS' EQUITY
 
Current liabilities:
 Current portion of long
  term debt (note 3)             $  4,268         $  2,780    
 Accounts payable                   3,568            6,271
 Accrued liabilities                  344              357
                                 --------         --------
   Total current                                  
    liabilities                     8,180            9,408
                                 --------         --------
                                                  
Long term debt, excluding                         
 current portion (note 3)           3,647            5,210
Gas balancing obligations                         
 and other                          1,367            1,404
Deferred foreign income                           
 taxes                                714              692
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/*/           (11,145)          (8,720)
                                 --------         --------
   Total stockholders'                            
    equity                         23,805           26,230
                                                  
Commitments and                                   
 contingencies (note 5)          
                                 --------         --------                 
                                 $ 37,713         $ 42,944       
                                 ========         ========
</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,
 
                                                     1997      1996
                                                  -------   -------
<S>                                               <C>       <C>
 
Oil and gas sales                                 $ 3,214    $3,533
                                                  -------   -------
 
Expense:
 Production                                         1,102     1,230
 Depreciation, depletion and amortization           1,795     1,784
 Write-down of oil and gas properties (note 2)      1,986         -
 General and administrative                           349       528
 Severance (note 4)                                     -       172
                                                  -------   -------
 
   Total expense                                    5,232     3,714
                                                  -------   -------
 
Other income (expense):
 Interest and other income (expense), net              24        72
 Interest expense                                    (166)     (204)
 Debt refinancing expense (note 3)                      -      (100)
                                                  -------   -------
 
   Total other income (expense)                      (142)     (232)
                                                  -------   -------
 
Loss before income taxes                           (2,160)     (413)
 
Income taxes                                          265        38
                                                  -------   -------
 
     Net loss                                     $(2,425)  $  (451)
                                                  =======   =======
 
Weighted average common shares outstanding         31,483    31,483
                                                  =======   =======

Net loss per common share                         $ (0.08)  $ (0.01)
                                                  =======   =======
</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,

                                                           1997      1996
                                                           ----      ----
<S>                                                      <C>       <C>
                                                         
Net loss                                                 $(2,425)    $  (451)
Adjustments to reconcile net loss to net cash                        
 provided by operating activities:                                   
 Depreciation, depletion and amortization                  1,795       1,784
 Write-down of oil and gas properties                      1,986           -
 Deferred foreign income taxes                                22        (146)
 Changes in working capital and other                     (1,422)      1,021
                                                         -------     -------
                                                                     
   Net cash provided by (used in) operating activities       (44)      2,208
                                                         -------     -------
                                                                     
Cash flows from investing activities:                            
 Property and equipment expenditures                        (754)     (1,669)
 Proceeds from sale of assets                                 19           -
 Other                                                        (5)          -
                                                         -------     -------
                                                                     
   Net cash used in investing activities                    (740)     (1,669)
                                                         -------     -------
                                                                     
Cash flows from financing activities -                           
 principal payments on long term debt                        (75)        (40)
                                                         -------     -------
                                                                 
Effect of exchange rate changes on cash and                      
 cash equivalents                                            (19)        (32)
                                                         -------     -------
                                                                 
Net increase (decrease) in cash and cash equivalents        (878)        467
Cash and cash equivalents at beginning of the period       2,041       4,200
                                                         -------     -------
                                                                 
Cash and cash equivalents at end of the period           $ 1,163     $ 4,667
                                                         =======     =======
                                                                     
</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, 1996    31,482,716  $1,574     $33,376     $ (8,720)        $26,230
Net loss                                  -       -           -       (2,425)         (2,425)
                                 ----------  ------     -------     --------         -------
 
Balances at March 31, 1997       31,482,716  $1,574     $33,376     $(11,145)        $23,805
                                 ==========  ======     =======     ========         =======
 
</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") 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.

2. 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 $36,000 for the three months ended March 31, 1997 and $30,000
  for the three months ended March 31, 1996.

  Unevaluated oil and gas properties totaling $1,129,000 and $1,066,000 at March
  31, 1997 and December 31, 1996, respectively, have been excluded from costs
  subject to depletion.  The Company capitalized interest costs of $22,000 and
  $76,000 for the three-month periods ended March 31, 1997 and 1996,
  respectively, on these properties.

  At March 31, 1997, the Company wrote down the carrying amount of its U.S. oil
  and gas properties by approximately $1,986,000 as a result of a ceiling
  limitation on capitalized costs.

3. 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 March 31, 1997, the borrowing base permitted and the
  outstanding loan balance was, $7,915,000.  The outstanding loan balance bears
  interest at the ING Capital prime rate (8.5% at March 31, 1997) 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.
  Commitment fees of .5% on the unused credit were payable quarterly until
  December 31, 1995, at which time the credit facility converted from a
  revolving credit facility to a term loan.  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.  The agreement also requires the Company to maintain a
  minimum consolidated tangible net worth of $22,000,000.

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


  In December 1996, the Company entered into an agreement with ING Capital
  pursuant to which the outstanding loan balance was paid down to $7,990,000
  from $10,790,000 concurrent with the sale of the U.S. onshore properties and
  the repayment schedule was amended to require monthly payments of $25,000 for
  the first seven months of 1997 and $521,000 for the last five months of 1997
  and the first ten months of 1998.

  In March 1996, the Company paid a fee of $100,000 to ING Capital in
  consideration for certain modifications to the Company's credit agreement.

4. SEVERANCE EXPENSE

  The Board of Directors had charged a committee of the Board with the task of
  reviewing the Company's general and administrative expenses and making
  recommendations as to the reduction of such expenses.  On March 18, 1996, the
  Board, acting on one of such committee's recommendations, determined to
  terminate the employment of the Executive Vice President and Chief Operating
  Officer of the Company (the "Officer") effective on June 1, 1996.  In
  connection with the severance arrangements between the Company and the
  Officer, the Company accrued $172,000 as of March 31, 1996.

  On July 25, 1996, the above mentioned committee was dissolved and its function
  was assumed by the entire Board of Directors.
 
5. COMMITMENTS AND CONTINGENCIES

  The Company, along with its co-owner (referred to collectively as the "Co-
  owners"), is engaged in an ongoing development and exploration program on
  concessions in Colombia.

  The contract obligations of the Santana concession have been met.  The Co-
  owners currently anticipate, however, completing one development well that is
  currently drilling, drilling two additional development wells and recompleting
  certain existing wells on the Santana concession.  As of March 31, 1997,
  future development costs are estimated at approximately $2.7 million, net to
  the Company's interest, for these expenditures.

  The Co-owners have completed a 3-D seismic survey over the Mary and Miraflor
  fields in the Santana concession and such data is currently being interpreted.
  Additionally, a 2-D seismic program was initiated on the Yuruyaco concession
  in late December 1996.  As of March 31, 1997, the aggregate remaining future
  expenditures for these and certain other miscellaneous projects were
  approximately $.5 million, net to the Company's interest.

  The Co-owners have completed their seismic obligations for the first two years
  of the La Fragua concession and were obligated to acquire additional seismic
  data for the third year.  The Co-owners determined, however, that it was not
  technically justified to explore this concession further and, accordingly,
  requested and received from Ecopetrol a change of commitment that would allow
  the Co-owners to substitute certain exploratory expenditures within the
  Santana concession for the remaining seismic commitment on the La Fragua
  concession.  The indigenous people of the new commitment area, however, have
  objected to the proposed exploratory work and it appears unlikely that the Co-
  owners will be able to comply with the new commitment.  Management of the
  Company believes that the Co-owners have no further obligation with respect to
  the La Fragua concession and, accordingly, have requested that Ecopetrol allow
  the Co-owners to surrender the concession without further expenditure.
  Management of the Company believes that Ecopetrol will agree to such request,
  although there can be no assurance

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


  that this will be the case.  All unevaluated costs relating to the La Fragua
  concession have been transferred into the Colombian amortization base.

  The Company's aggregate remaining estimated exploratory and development
  expenditures for 1997 and 1998 were $3.2 million at March 31, 1997.  Any
  substantial increases in the amounts of the above referenced expenditures
  could adversely affect the Company's ability to fund these activities.

  Failure to fund certain of these capital expenditures could, under either the
  concession agreements or joint operating agreements with the Company's co-
  owner, or both, result in the forfeiture of all or part of the Company's
  interest in these Colombian concessions.

  The Company plans to fund these exploration and development activities using
  cash provided from operations.  Risks that could adversely affect funding
  include, among others, a decrease in the Company's borrowing base, delays in
  obtaining the required environmental approvals and permits, increases in
  required expenditures as a result of inflation or cost overruns, interruptions
  of production, failure to produce the reserves as projected, or a decline in
  the sales prices of oil and gas.  Depending on the results of the exploration
  and development activities, substantial expenditures which have not been
  included in the Company's cash flow projections may be required.  Although the
  ultimate outcome of these matters cannot be projected with certainty,
  management believes that its existing capital resources are adequate to fund
  its present obligations or that sufficient capital can be obtained by means of
  sales of assets or revision of current debt repayment terms to meet those
  obligations.

  Under the terms of the contracts with Ecopetrol, 25% of all revenues from oil
  sold to Ecopetrol is paid in Colombian pesos which may only be utilized in
  Colombia.  To date, the Company has experienced no difficulty in repatriating
  the remaining 75% of such payments, which are payable in U.S. dollars.

  Activities of the Company with respect to the exploration, development and
  production of oil and natural gas are subject to stringent federal, state and
  local environmental laws and regulations including but not limited to 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. Although the
  Company believes that compliance with environmental laws and regulations will
  not have a material adverse effect on the Company's operations or earnings,
  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 on the Company's operations, see the Company's prior audited
  yearly financial statements and the notes thereto included in the Company's
  latest annual report on Form 10-K.

  The Company is currently awaiting a response from the Louisiana Department of
  Environmental Quality ("LDEQ") regarding the Company's request to extend the
  date by which it must comply with the state-wide prohibition against
  discharges of produced waters to coastal

                                       8
<PAGE>
 
                     AVIVA PETROLEUM INC. AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            (UNAUDITED) (CONTINUED)


  waters offshore Louisiana.  Under current state regulations, unless an
  extension is granted by the LDEQ, the prohibition will take effect on July 1,
  1997.  The Company has requested an extension until January 1, 1999.
  Depending on the timing and nature of the LDEQ's response, the Company may
  have to temporarily curtail production from its Breton Sound Block 31
  facilities.  Should the Company's request not be approved by the LDEQ,
  management does not expect that the incremental cost to comply with the
  prohibition will have a material adverse effect on the Company's operating
  results.

  On March 25, 1997, the United States Department of the Interior Minerals
  Management Service ("MMS") promulgated a proposed rule implementing the
  recently amended OPA 90 financial responsibility requirements.  For offshore
  facilities that have a worst case oil spill potential of more that 1,000
  barrels, the OPA 90 amendments provide that the amounts of financial
  responsibility that must be demonstrated by most facilities range from $10
  million to $35 million, with higher amounts, up to $150 million, in certain
  limited instances where the MMS believes such a level is justified by the
  risks posed by the quantity or quality of oil that is handled by the facility.
  The proposed rule implements the financial responsibility criteria set forth
  in amended OPA 90 based on the "worst case" oil spill discharge volume
  calculated for the facility.  The Company cannot predict whether these
  financial responsibility requirements under the OPA 90 amendments or proposed
  rule will result in the imposition of substantial additional annual costs to
  the Company in the future or otherwise materially adversely effect the
  Company, but the impact is not expected to be any more burdensome to the
  Company than it will be to other similarly situated companies involved in oil
  and gas exploration and production in the Gulf of Mexico.

  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.

                                       9
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------------------------------------------------------------------------------
OF OPERATIONS.
--------------

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

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
 
 
                           United States   Colombia
                             Oil    Gas       Oil     Total
                           ------  ------  --------   ------
<S>                        <C>     <C>     <C>        <C>
       (Thousands)
 
       Revenue - 1996       $457   $ 683     $2,393   $3,533
 
       Volume variance       (63)   (609)      (193)    (865)
 
       Price variance         65     188        310      563
 
       Other                   -     (17)         -      (17)
                            ----   -----     ------   ------
 
       Revenue - 1997       $459   $ 245     $2,510   $3,214
                            ====   =====     ======   ======
 
</TABLE>

Colombian oil volumes were 123,000 barrels in the first quarter of 1997, a
decrease of 11,000 barrels as compared to the first quarter of 1996. Such
decrease is the result of a 37,000 barrel decrease due to the Company's net
revenue interest declining from 18% to 12.6% in June 1996 when cumulative
production from the Santana concession reached the 7 million barrel threshold
specified in the risk-sharing contract, and an 11,000 barrel decrease resulting
from normal production declines, partially offset by a 37,000 barrel increase
due to the completion of two development wells in the latter part of 1996.

U.S. oil volumes were 21,000 barrels in 1997, down approximately 3,000 barrels
from 1996.  This decrease  resulted primarily from the sale of the Company's
U.S. onshore properties on December 23, 1996.  U.S. gas volumes before gas
balancing adjustments were 74,000 thousand cubic feet (MCF) in 1997, down
237,000 MCF from 1996.  Of such decrease, approximately 262,000 MCF was due to
the U.S. onshore property sale, partially offset by new production from a
development well completed at Main Pass 41 during October 1996.

Colombian oil prices averaged $20.35 per barrel during the first quarter of
1997.  The average price for the same period of 1996 was $17.83 per barrel.  The
Company's average U.S. oil price increased to $21.66 per barrel in 1997, up from
$18.61 per barrel in 1996.  In 1997 prices have been higher than in the first
quarter of 1996 due to a general increase in world oil prices.  U.S. gas prices
averaged $2.48 per MCF in 1997 compared to $1.93 per MCF in 1996.

In addition to the above-mentioned variances, U.S. gas revenue decreased
approximately $17,000 as a result of gas balancing adjustments.

Operating costs decreased approximately 10%, or $128,000, primarily due to the
sale of the U.S. onshore properties while depreciation, depletion and
amortization increased by only 1%, or $11,000.

The Company recorded a $1,986,000 write-down of the carrying amount of its U.S.
oil and gas properties as a result of a ceiling test limitation on capitalized
costs at March 31, 1997.  No similar charge was recorded in 1996.

General and administrative ("G&A") expenses declined $179,000 during the first
quarter of 1997 as a result of a cost reduction program implemented by the
Company during the first quater of 1996.


                                       10
<PAGE>
 
The program has targeted all categories of G&A. The largest decreases, however,
have resulted from reductions in the number of employees, officers and directors
of the Company and reductions in fees paid to outside professionals and
consultants.

The Company accrued $172,000 of severance expense as of March 31, 1996 relating
to the termination of the Executive Vice President and Chief Operating Officer
of the Company.  For more information see Note 4 of Notes to Condensed
Consolidated Financial Statements.  The Company has not terminated the
employment of any employees in 1997.

Interest expense decreased $38,000 in the first quarter of 1997, primarily as a
result of lower average outstanding balances of long term debt.

Debt refinancing expense of $100,000 in the first quarter of 1996 represents a
fee paid to ING Capital in consideration for certain modifications to the
Company's credit agreement.  There have been no such fees incurred by the
Company in 1997.

Income taxes were $227,000 higher in 1997 principally as a result of deferred
tax benefits recorded in the first quarter of 1996 that were not present in
1997.

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

Since December 31, 1996, costs incurred in oil and gas property acquisition,
exploration and development activities by the Company totaled approximately $0.8
million, almost all of which was incurred in Colombia.  These activities were
funded by cash provided by operating activities.

As described in Note 5 of Notes to Condensed Consolidated Financial Statements,
the Company has aggregate remaining estimated exploratory and development
expenditures for 1997 and 1998 of $3.2 million at March 31, 1997.  Delays in
obtaining the required environmental approvals and permits on a timely basis and
construction delays could both, through the impact of inflation, increase the
required expenditures.  Cost overruns resulting from factors other than
inflation could also increase the required expenditures.  Historically, the
inflation rate of the Colombian peso has been in the range of 20-30% per year.
Devaluation of the peso against the U.S. dollar has historically been slightly
less than the inflation rate in Colombia.  The Company has historically funded
capital expenditures in Colombia by converting U.S. dollars to pesos at such
time as the expenditures have been made.  As a result of the interaction between
peso inflation and devaluation of the peso against the U.S. dollar, inflation,
from the Company's perspective, has not been a significant factor.  During 1994,
the first half of 1995, and 1996, however, devaluation of the peso was
substantially lower than the rate of inflation of the peso, resulting in an
effective inflation rate in excess of that of the U.S. dollar.  There can be no
assurance that this condition will not occur again or that, in such event, there
will not be substantial increases in future capital expenditures as a result.
Due to Colombian exchange controls and restrictions and the lack of an effective
market, it is not feasible to hedge against the risk of net peso inflation
against the U.S. dollar and the Company has not done so.

The Company is a party to a credit agreement with ING (U.S.) Capital Corporation
("ING Capital") pursuant to which the borrower thereunder may borrow up to $25
million, subject to a borrowing base the determination of which is predicated on
the Company's U.S. and Colombian reserves and which is redetermined annually.
As of March 31, 1997, the borrowing base permitted and the outstanding loan
balance was $7,915,000.  Borrowings under the credit agreement bear interest at
the ING Capital prime rate (8.5% at March 31, 1997) plus 1% per annum or, at the
Company's option, a fixed rate based on the London Interbank Offered Rate for a
portion or portions of the outstanding indebtedness.  The borrower under the
credit agreement is Neo Energy, Inc., a wholly owned subsidiary of the Company
and the owner of the Company's interests in the Colombian concessions.  The
indebtedness under the credit agreement is guaranteed by the Company and certain
other subsidiaries, including the wholly owned subsidiary that is the owner of
substantially all of the Company's domestic oil and gas properties.  The loan,
among other things, prohibits the payment of dividends by the Company and
requires the maintenance of certain financial ratios.  In December 1996, the
Company entered into an agreement with ING Capital pursuant to which the

                                       11
<PAGE>
 
outstanding loan balance was paid down to $7,990,000 from $10,790,000 and the
repayment schedule was amended to require monthly payments of $25,000 for the
first seven months of 1997 and $521,000 for the last five months of 1997 and the
first ten months of 1998.

The Company plans to fund its exploration and development activities and the
debt service relating to the ING Capital credit agreement using cash flow from
operations and working capital.  Risks that could adversely affect the Company's
plans include, among others, a decrease in the Company's borrowing base, delays
in obtaining the required environmental approvals and permits, increases in
required expenditures as a result of inflation or cost overruns, interruptions
of production, failure to produce the reserves as projected, or a decline in the
sales prices of oil and gas.  Depending on the results of the exploration and
development activities, substantial expenditures which have not been included in
the Company's cash flow projections may be required.  Although the ultimate
outcome of these matters cannot be projected with certainty, management believes
that its existing capital resources are adequate to fund its present obligations
or that sufficient capital can be obtained by means of sales of assets or
revision of current debt repayment terms to meet those obligations.  For
information regarding the risks relating to the Company's business see Note 5 of
Notes to Condensed Consolidated Financial Statements and the Company's Annual
Report on Form 10-K.

During late 1995, the Company engaged in discussions with Garnet Resources
Corporation, the parent of the co-owner of the Company's Colombian concessions,
regarding a possible merger of the Company and Garnet Resources Corporation.  In
December 1995, these discussions were terminated as a result of the inability of
the parties to reach agreement on terms and conditions of the proposed merger.
At that time, the Board of Directors of the Company empowered a committee of
directors to investigate and evaluate other strategic alternatives for the
Company.  That committee was dissolved on July 25, 1996 and its function was
assumed by the entire Board of Directors.

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 such expectations will be
realized.  Important factors that could cause actual results to differ
materially from those in the forward-looking statements herein include the
timing and extent of changes in commodity prices for oil and gas, the extent of
the Company's success in discovering, developing and producing reserves,
political conditions in Colombia and conditions of the capital markets and
equity markets during the periods covered by the forward-looking statements, as
well as other factors.

                                       12
<PAGE>
 
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
-----------         ------------------

January 7, 1997     Submitted a copy of the Company's Press Release dated
                    January 7, 1997, reporting on the closing of the U.S.
                    onshore properties sale.

January 8, 1997     Submitted a copy of the Company's Press Release dated
                    January 8, 1997 reporting on the Company's Colombian
                    exploration and development operations.

                                       13
<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, 1997                      /s/ Ronald Suttill
                                         -------------------------------------
                                         Ronald Suttill
                                         President and Chief Executive Officer
 



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

                                       14
<PAGE>
 
                               INDEX TO EXHIBITS

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

   27.1   Financial Data Schedule.

                                       15