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

                                   FORM 10-Q/A
                                 Amendment No. 1

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

      FOR THE QUARTER ENDED SEPTEMBER 30, 1997 COMMISSION FILE NO. 0-25214

                          KELLEY OIL & GAS CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                 DELAWARE                           76-0447267
      (STATE OR OTHER JURISDICTION OF            (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)            IDENTIFICATION NO.)

             601 JEFFERSON ST.
                SUITE 1100
              HOUSTON, TEXAS                           77002
 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)           (ZIP CODE)

      Registrant's telephone number, including area code: (713) 652-5200

      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

      Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.


              TITLE OF CLASS              OUTSTANDING AT OCTOBER 31, 1997

               Common Stock                         98,603,594
<PAGE>
      Kelley Oil and Gas Corporation hereby amends and restates the following
sections of its Quarterly Report on Form 10-Q for the quarter ended September
30, 1997 to include the effect of cumulative preferred stock dividends, whether
declared or not, on net income (loss) applicable to common stock and on income
(loss) per share disclosures:

          Part 1, Item 1.     Financial Statements

          Part 2, Item 6.     Exhibits and Reports on Form 8-K

      See Note 1 in the Notes to Consolidated Financial Statements (Unaudited)
      for further discussion of the restatement.

FORWARD-LOOKING STATEMENTS

      STATEMENTS MADE HEREIN THAT ARE FORWARD-LOOKING IN NATURE ARE INTENDED TO
BE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, RELATING TO MATTERS SUCH AS ANTICIPATED OPERATING AND
FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, DEVELOPMENTS AND RESULTS OF THE
COMPANY. ACTUAL PERFORMANCE, PROSPECTS, DEVELOPMENTS AND RESULTS MAY DIFFER
MATERIALLY FROM ANY OR ALL ANTICIPATED RESULTS DUE TO ECONOMIC CONDITIONS AND
OTHER RISKS, UNCERTAINTIES AND CIRCUMSTANCES PARTLY OR TOTALLY OUTSIDE THE
CONTROL OF THE COMPANY, INCLUDING RATES OF INFLATION, NATURAL GAS PRICES,
RESERVE ESTIMATES, RATES AND TIMING OF FUTURE PRODUCTION OF OIL AND GAS, AND
CHANGES IN THE LEVEL AND TIMING OF FUTURE COSTS AND EXPENSES RELATED TO DRILLING
AND OPERATING ACTIVITIES.

      WORDS SUCH AS "ANTICIPATED," "EXPECT," "ESTIMATE," "PROJECT" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING
STATEMENTS MAY BE MADE IN MANAGEMENT'S STATEMENTS (ORALLY OR IN WRITING)
INCLUDING PRESS RELEASES, AND IN FILINGS OF THE SEC, INCLUDING THIS REPORT.

                                       1
<PAGE>
                 KELLEY OIL & GAS CORPORATION AND SUBSIDIARIES
                                     INDEX


PART I.  FINANCIAL INFORMATION                                              PAGE

  Consolidated Balance Sheets as of September 30, 1997 (unaudited)
    and December 31, 1996..........................................           3

  Consolidated Statements of Income (Loss) for the three months and
    nine months ended September 30, 1997 and 1996 (unaudited)......           4

  Consolidated Statements of Cash Flows for the nine months ended
    September 30, 1997 and 1996 (unaudited)........................           5

  Notes to Consolidated Financial Statements (unaudited)...........           6


PART II.  OTHER INFORMATION........................................           8

                                      2
<PAGE>
                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                 KELLEY OIL & GAS CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                                             SEPTEMBER 30,  DECEMBER 31,
                                                                 1997          1996
                                                             -------------  ------------
                                                              (UNAUDITED)
<S>                                                             <C>           <C>
ASSETS:
  Cash and cash equivalents..........................           $   81        $4,070
  Accounts receivable................................           20,121        22,519
  Accounts receivable - drilling programs............              719         1,533
  Prepaid expenses and other current assets..........            1,612         1,347
                                                                ------        ------
    Total current assets.............................           22,533        29,469
                                                                ------        ------
  Oil and gas properties, successful efforts method:
    Unproved properties, net.........................           10,273        12,521
    Properties subject to amortization...............          376,386       338,794
  Pipelines and other transportation assets, at cost ...         4,690         4,689
  Furniture, fixtures and equipment.....................         2,268         1,700
                                                                ------        ------
                                                                393,617      357,704
  Less:  Accumulated depreciation, depletion and
    amortization........................................       (217,650)    (199,236)
                                                               --------     --------
    Total property and equipment, net...................        175,967      158,468
                                                               --------     --------
  Other non-current assets, net.........................          1,282        1,290
                                                               --------     --------
    Total assets........................................       $199,782     $189,227
                                                               ========     ========

LIABILITIES:
  Accounts payable and accrued expenses.................        $37,685      $31,093
  Accounts payable - drilling programs..................            678        4,416
                                                                 ------       ------
    Total current liabilities...........................         38,363       35,509
                                                                 ------       ------
  Long term debt........................................        195,711      184,253
                                                                -------      -------
    Total liabilities...................................        234,074      219,762
                                                                -------      -------

STOCKHOLDERS' DEFICIT:
  Preferred stock, $1.50 par value, 20,000,000 shares
     authorized at September 30, 1997 and December 31, 1996;
     1,745,431 and 1,745,500 shares outstanding at
     September 30, 1997 and December 31, 1996, respectively
     (liquidation value at September 30, 1997 and
     December 31, 1996 of $47,072 and $48,219, respectively)..    2,618        2,618
  Common stock, $.01 par value, 200,000,000 shares
     authorized at September 30, 1997 and
     December 31, 1996, respectively; 98,593,594
     and 98,293,458 shares outstanding at
     September 30, 1997 and December 31, 1996,
     respectively...........................................        986          983
  Additional paid-in capital................................    273,404      273,096
  Accumulated deficit.......................................   (311,300)    (307,232)
                                                               --------     --------
   Total stockholders' deficit..............................    (34,292)     (30,535)
                                                               -------       -------
  Total liabilities and stockholders' deficit...............   $199,782     $189,227
                                                               ========     ========
</TABLE>
See Notes to Consolidated Financial Statements.

                                        3
<PAGE>
                  KELLEY OIL & GAS CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

                                                       RESTATED
                                       ----------------------------------------
                                       THREE MONTHS ENDED     NINE MONTHS ENDED
                                          SEPTEMBER 30,         SEPTEMBER 30,
                                       ------------------     -----------------
                                         1997      1996        1997      1996
                                       -------    -------     ------    -------
REVENUES:
  Oil and gas revenues.................$16,442    $14,878    $50,482   $40,201
  Gas marketing revenues, net..........    663        370      1,748     1,078
  Interest and other income............     73        409        307       938
                                       -------    -------    -------    ------
  Total revenues....................... 17,178     15,657     52,537    42,217
                                       -------    -------    -------    ------

COSTS AND EXPENSES:
  Production expenses..................  2,457      2,471      7,388     7,638
  Exploration expenses.................    897      1,163      2,779     4,216
  General and administrative expenses..  1,281      2,124      5,268     6,950
  Interest and other debt expenses.....  6,135      6,067     18,174    18,376
  Restructuring expense................     --         --         --     2,000
  Depreciation, depletion and
     amortization......................  6,349      5,740     18,414    15,293
                                        ------    -------    -------    ------
  Total expenses....................... 17,119     17,565     52,023    54,473
                                       -------    -------    -------    ------

Net income (loss) before income taxes..     59     (1,908)       514   (12,256)
  Income taxes.........................     --         --         --        --
                                       -------    -------    -------   -------
Net income (loss)......................     59     (1,908)       514   (12,256)
  Less: Preferred stock dividends...... (1,145)    (1,145)    (3,436)   (3,436)
                                       -------    -------    -------   --------
Net loss applicable to
  common stock.........................$(1,086)   $(3,053)   $(2,922) $(15,692)
                                       =======    =======    =======  ========

Loss per share:
  Primary and assuming full dilution:
    Net loss.......................... $  (.01)   $  (.03)   $  (.03)   $ (.18)
                                       =======    =======    =======    ======

Average common and common equivalent
  shares outstanding:
  Primary and assuming full dilution.. 100,342     97,797     98,400    87,368
                                       =======    =======    =======    ======

See Notes to Consolidated Financial Statements.

                                        4
<PAGE>
                  KELLEY OIL & GAS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)
                                   (UNAUDITED)

                                                             NINE MONTHS ENDED
                                                               SEPTEMBER 30,
                                                            -------------------
                                                             1997         1996
                                                            -----        ------
OPERATING ACTIVITIES:
  Net income (loss) ......................................  $    514   $(12,256)
  Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
   Depreciation, depletion and amortization ..............    18,414     15,293
   Gain on sale of properties ............................      --          (77)
   Exploration expenses ..................................     2,779      4,216
   Accretion and amortization of debt expenses ...........     3,206      4,042
   Restructuring expense .................................      --        2,000
  Changes in operating assets and liabilities:
   Decrease (increase) in accounts receivable ............     3,212     (3,115)
   Increase in prepaid expenses and other current assets .      (265)    (1,137)
   Increase in other non-current assets ..................      (240)    (1,629)
   Increase in accounts payable and accrued expenses .....     2,854      4,794
                                                            --------   --------
  Net cash provided by operating activities ..............    30,474     12,131
                                                            --------   --------

INVESTING ACTIVITIES:
  Capital expenditures ...................................   (38,692)   (45,471)
  Proceeds from sale of properties .......................      --          530
                                                            --------   --------
  Net cash used in investing activities ..................   (38,692)   (44,941)
                                                            --------   --------

FINANCING ACTIVITIES:
  Proceeds from long term borrowings .....................    66,000     29,000
  Principal payments on long term borrowings .............   (57,500)   (44,000)
  Proceeds from sale of common stock, net ................       311     43,989
  Dividends on preferred stock ...........................    (4,582)      --
                                                            --------   --------
  Net cash provided by financing activities ..............     4,229     28,989
                                                            --------   --------
Decrease in cash and cash equivalents ....................    (3,989)    (3,821)
Cash and cash equivalents, beginning of period ...........     4,070      6,352
                                                            --------   --------
Cash and cash equivalents, end of period .................  $     81   $  2,531
                                                            ========   ========


See Notes to Consolidated Financial Statements.

                                        5
<PAGE>
                  KELLEY OIL & GAS CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 1 - BASIS OF PRESENTATION

      The accompanying unaudited interim consolidated financial statements of
Kelley Oil & Gas Corporation (the "Company") have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
in accordance with generally accepted accounting principles for interim
financial information. These financial statements reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair statement in
all material respects of the results for the interim periods presented. The
results of operations for the periods ended September 30, 1997 are not
necessarily indicative of results to be expected for the full year. The
accounting policies followed by the Company are set forth in Note 1 to the
financial statements in its Annual Report on Form 10-K for the year ended
December 31, 1996. These unaudited consolidated interim financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's 1996 Annual Report on Form 10-K.

      Certain 1996 financial statement items have been reclassified to conform
to the 1997 presentation.

        The Company has restated net income (loss) applicable to common stock
and net income (loss) per common share on the Consolidated Statements of Income
(Loss) for the three months and nine months ended September 30, 1997 and 1996 to
include the effect of cumulative preferred stock dividends, whether declared or
not. These amounts, as previously reported, include the effect of preferred
stock dividends only when declared. The restatement for the three months ended
September 30, 1997 and 1996 changes previously reported net income (loss)
applicable to common stock from $0.1 million and $(1.9) million to $(1.1)
million and $(3.1) million, respectively and changes previously reported net
income (loss) per common share from $0.00 and $(0.02) to $(0.01) and $(0.03),
respectively. The restatement for the nine months ended September 30, 1997 and
1996 changes previously reported net loss applicable to common stock from $(4.1)
million and $(12.3) million to $(2.9) million and $(15.7) million, respectively
and changes previously reported net loss per common share from $(0.04) and
$(0.14) to $(0.03) and $(0.18), respectively.

NOTE 2 - PREFERRED STOCK

      In January 1996, the Company suspended the payment of the quarterly
dividend on its $2.625 Convertible Exchangeable Preferred Stock (the "Preferred
Stock"). On April 15, 1997, the Board of Directors of the Company declared a
dividend of $2.625 per preferred share (approximately $4.6 million) which was
paid on May 1, 1997. Future dividends on the Preferred Stock are prohibited
under the Company's existing credit facility. As of September 30, 1997, $3.4
million or $1.97 per share in dividends were in arrears, increasing the total
liquidation value to $47.1 million or $26.97 per share.

NOTE 3 - EARNINGS PER SHARE

      In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per
Share." SFAS 128 establishes standards for computing and presenting earnings per
share ("EPS") and applies to entities with publicly held common stock or
potential common stock. This statement simplifies the standards for computing
EPS previously found in Accounting Principles Board Opinion No. 15, "Earnings
Per Share," and makes them comparable to international EPS standards. This
statement is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier application is not
permitted. This statement requires restatement of all prior-period EPS data
presented. Considering the guidelines as prescribed by SFAS 128, management
believes that the adoption of this statement will not have a material effect on
EPS and thus pro forma EPS, as suggested for all interim and annual periods
prior to required adoption, have been omitted.

NOTE 4 - COMPREHENSIVE INCOME

      In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components. SFAS 130 is effective for periods
beginning after December 15, 1997. Based on the provisions of SFAS 130, it is
anticipated that the Company will not have a change in its reporting
requirements.

NOTE 5 - SUBSEQUENT EVENT - ACQUISITION OF OIL AND GAS PROPERTIES

      On October 21, 1997, the Company entered into a Purchase and Sale
Agreement to purchase for $110 million substantially all of the assets of SCANA
Petroleum Resources, Inc. ("SPR") with an expected closing and effective date

                                      6
<PAGE>
of December 1, 1997. The assets expected to be acquired include proved reserves
primarily located in the shallow waters of the Gulf of Mexico and in east Texas.
In addition, the Company is to acquire exploratory interests in leasehold
acreage. The purchase price is expected to be funded in part through a $27
million equity contribution from Contour Production Company L.L.P. ("Contour").
This purchase by Contour of 27 million shares of the Company's common stock
would be made pursuant to the voluntary exercise of its February 1996 option
agreement ("Contour Option"). The balance of the funding is expected to be
provided through bank financing.

NOTE 6 - CONTINGENCIES

      In connection with the acquisition of SPR, it is anticipated that on
December 1, 1997, Contour will purchase 27 million shares of the Company's
common stock. As a result of the purchase of these shares, Contour's ownership
of the Company's voting stock will exceed 50% and would represent a change of
control under the indenture governing the Company's 7 7/8% Convertible
Subordinated Notes ("Notes") . Upon the occurrence of a change of control, each
holder of the Notes may require the Company to redeem all or any part of the
holder's Notes for cash up to 35 business days after the change of control
occurs. The redemption price of the Notes would be the Issue Price of the Notes
redeemed plus the accrued Original Issue Discount thereon to the date of
redemption and accrued and unpaid interest to the date of redemption. The
Company cannot predict with any reason of certainty how many of the Notes, if
any, will be redeemed. The maximum cash outlay and extraordinary loss to be
recognized by the Company if all its Notes were redeemed is $32.3 million and
$2.5 million, respectively. The Company expects to make arrangements with its
lenders to provide funding for the redemption of the Notes, to the extent such
redemptions occur.

                                      7
<PAGE>
                          PART II.  OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      (a)Exhibits:

         EXHIBIT
         NUMBER:  EXHIBIT
         -------  -------
            27    Amended Financial Data Schedule (included only in the
                  electronic filing of this document).

      (b)Reports on Form 8-K:

         No reports on Form 8-K were filed by the Registrant during the third
         quarter of 1997.

                                  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.


                                                KELLEY OIL & GAS CORPORATION



Date: March 27, 1998                            By:    /s/ DAVID C. BAGGETT
                                                           David C. Baggett
                                                     Senior Vice President and
                                                      Chief Financial Officer
                                                     (Duly Authorized Officer)
                                                   (Principal Financial Officer)

                                        8