SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q
(Mark One)

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

                For the quarterly period ended September 30, 1999

                                       or

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES ACT OF 1934

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

                           Commission File No. 1-14754

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

                            PENDARIES PETROLEUM LTD.
             (Exact name of registrant as specified in its charter)


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

                        PROVINCE OF NEW BRUNSWICK, CANADA
                 (State or other jurisdiction of incorporation)

        Internal Revenue Service - Employer Identification No. 52-2051576

                8 Greenway Plaza, Suite 910, Houston, Texas 77046
                                 (713) 355-2900

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

         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[ ]

         The total number of shares of the  registrant's  Common Shares,  no par
value, outstanding on September 30, 1999, was 8,879,470.


                                       1
<PAGE>



                            PENDARIES PETROLEUM LTD.


PART I - FINANCIAL INFORMATION                                             PAGE

 Item 1.  Financial Statements

          Consolidated Balance Sheets as of September 30, 1999
          (Unaudited) and December 31, 1998....................................3

          Consolidated Statements of Operations for the
          three and nine months ended September 30, 1999
          With Comparative Figures for the Preceding Year (Unaudited) .........4

          Consolidated Statements of Cash Flows
          for the nine months ended September 30, 1999
          With Comparative Figures for the Preceding Year (Unaudited)..........5

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

 Item 2.  Management's Discussion and Analysis of Financial
          Condition and Results of Operations..................................9

 Item 3.  Quantitative and Qualitative Disclosures About Market Risk........None

PART II.  OTHER INFORMATION

         Item 1.  Legal Proceedings...........................................15

         Item 2.  Changes in Securities and Use of Proceeds...................15

         Item 3.  Defaults Upon Senior Securities.............................15

         Item 4.  Submission of Matters to a Vote of Security Holders.........15

         Item 5.  Other Information...........................................15

         Item 6.  Exhibits and Reports of Form 8-K............................15


SIGNATURES....................................................................15


                                       2
<PAGE>





PART I:
               Item 1.       FINANCIAL STATEMENTS

                            PENDARIES PETROLEUM LTD.
                            ------------------------
                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------
                    September 30, 1999 and December 31, 1998
                    ----------------------------------------

                        (All figures are in U.S. dollars)
<TABLE>


<CAPTION>
                                                                            September 30,     December 31,
                                                                                1999              1998
                                                                             -----------      ------------         -
                                      ASSETS                                 (Unaudited)
                                      ------
CURRENT ASSETS
   <S>                                                                 <C>                   <C>
   Cash and cash equivalents                                           $       6,286,928     $   7,873,280
   Accounts receivable                                                           186,132           105,750
   Prepaid expenses and other assets                                             222,748           208,451
                                                                       -----------------     -------------

                       Total current assets                                    6,695,808         8,187,481
                                                                       -----------------     -------------

PROPERTY AND EQUIPMENT
   Oil and gas properties, recorded under the full cost method
     Proved                                                                   13,245,835         7,890,804
     Unproved                                                                  8,680,590        13,238,236
   Furniture, fixtures and office equipment                                      168,679           169,938
   Accumulated depreciation, depletion and amortization                         (784,122)         (644,449)
                                                                       -----------------    --------------

                       Net property and equipment                             21,310,982        20,654,529
                                                                       -----------------    --------------

                       Total Assets                                    $      28,006,790    $   28,842,010
                                                                       =================    ==============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable                                                     $         39,173    $       44,627
   Accrued liabilities                                                            33,956           115,235
                                                                        ----------------    --------------

                       Total current liabilities                                  73,129           159,862
                                                                        ----------------    --------------

SHAREHOLDERS' EQUITY
   Common shares
     Authorized, unlimited number of common shares
     Issued 8,879,470 and 8,781,970 common shares, respectively               32,580,051        32,501,842
     Deficit                                                                  (4,646,390)       (3,819,694)
                                                                        ----------------    --------------

                       Total shareholders' equity                             27,933,661        28,682,148
                                                                        ----------------    --------------

                       Total liabilities and shareholders' equity       $     28,006,790   $    28,842,010
                                                                        ================   ================
</TABLE>

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

                                       3
<PAGE>


                            PENDARIES PETROLEUM LTD.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                        (All figures are in U.S. dollars)
                                   (Unaudited)
<TABLE>

<CAPTION>
                                                           For the                                For the
                                                         Three-Month                            Nine-Month
                                                         Period Ended                          Period Ended
                                                        September 30,                          September 30,
                                             -------------------------------------  ------------------------------------
                                                   1999               1998               1999               1998
                                             ------------------ ------------------  ----------------  ------------------
REVENUE
  <S>                                          <C>             <C>                  <C>               <C>

  Oil and gas income                        $    149,726       $    165,014         $   321,796       $    380,732

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

EXPENSES
  Oil and gas operating expenses                  56,145             33,528             213,031            125,182

  General and administrative expenses            319,021            596,371           1,075,100          1,799,431

  Depreciation, depletion and amortization        50,323             86,625             140,374            266,623

  Exchange (gain)/loss                            (4,058)           132,514             (38,721)           103,575

  Write-off of registration costs                     -             299,397                  -             299,397

  Stock option settlement (Note 4)                    -                  -                   -             450,000
                                            ------------      -------------        ------------      -------------
                                            $    421,431      $   1,148,435        $  1,389,784      $   3,044,208
                                            ------------      -------------        ------------      -------------
OTHER INCOME

  Interest Income                                 76,478            118,290             241,292            439,109
                                            ------------      -------------        ------------      -------------


NET LOSS                                     $  (195,227)      $   (865,131)       $   (826,696)     $  (2,224,367)
                                             ===========       ============        ============      =============


NET LOSS PER SHARE
  Basic                                      $      (.02)      $       (.10)       $       (.09)     $        (.25)
                                             ===========       ============        ============      =============
  Fully Diluted                              $      (.02)      $       (.10)       $       (.09)     $        (.25)
                                             ===========       ============        ============      =============

</TABLE>
The accompanying notes are an integral part of these consolidated statements.

                                       4
<PAGE>


                            PENDARIES PETROLEUM LTD.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                        (All figures are in U.S. dollars)
                                   (Unaudited)
<TABLE>

<CAPTION>
                                                                        For the          For the
                                                                       Nine-Month       Nine-Month
                                                                      Period Ended     Period Ended
                                                                      September 30,    September 30,
                                                                          1999             1998
                                                                      -------------    ------------
CASH FLOW FROM OPERATING ACTIVITIES
   <S>                                                            <C>                    <C>
   Net loss                                                       $       (826,696)  $   (2,224,367)
   Items not affecting cash:
     Depreciation, depletion and amortization                              140,374          266,623
     Loss on sale of fixed assets                                             -              34,514
     Changes in non-cash working capital items-
        Accounts receivable                                                (80,382)          68,539
        Accounts payable                                                    (5,454)         (70,657)
        Accrued liabilities                                                (53,069)        (144,515)
        Prepaid expenses and other assets                                  (14,297)        (128,553)
                                                                   ----------------  ---------------

                    Net cash used in operating activities                 (839,524)      (2,198,416)
                                                                   ----------------  ---------------

CASH FLOW USED IN INVESTING ACTIVITIES
   Net Additions to proved and unproved oil and
         gas properties                                                   (797,385)      (4,246,494)
   Additions to furniture, fixtures and office equipment                       557          (41,563)
   Proceeds from disposal of fixed assets                                       -             6,454
                                                                   ----------------  ---------------

                     Net cash used in investing activities                (796,828)      (4,281,603)
                                                                   ----------------  ---------------

CASH FLOW FROM FINANCING ACTIVITIES
   Net proceeds from exercise of common stock options                       50,000           42,000
   Cumulative translation effects                                               -            (4,180)
                                                                   ---------------   ---------------

                     Net cash provided by financing activities              50,000           37,820
                                                                   ---------------   ---------------

DECREASE IN CASH AND CASH EQUIVALENTS                                   (1,586,352)      (6,442,199)

CASH AND CASH EQUIVALENTS, beginning of period                           7,873,280       15,133,285
                                                                   ----------------  ---------------

CASH AND CASH EQUIVALENTS, end of period                           $     6,286,928   $    8,691,086
                                                                   ================  ===============

</TABLE>
The accompanying notes are an integral part of these consolidated statements.

                                       5
<PAGE>






                            PENDARIES PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1999
                                   (Unaudited)
                        (All figures are in U.S. dollars)


1.   Nature of Operations
     --------------------

     Pendaries Petroleum Ltd. ("Pendaries" or the "Company"),  a  New Brunswick,
     Canada corporation, is  a holding company  whose  primary  interests are in
     exploration, development and production  of oil  and gas  properties in the
     People's Republic of China.

2.   NATURE OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
     ------------------------------------------------------

     The  Company  completed  an  initial  public  offering  and became a public
     company in Canada on December 12, 1996.

     The consolidated  interim  financial  statements  included herein have been
     prepared by Pendaries  without audit and reflect all adjustments which are,
     in the opinion of management,  necessary to present a fair statement of the
     results of the interim  period.  These  statements are presented on a basis
     consistent with annual audited consolidated  financial statements.  Certain
     information, accounting policies and footnote disclosures normally included
     in consolidated  financial statements prepared in accordance with generally
     accepted  accounting  principles  have been  omitted,  although the Company
     believes  that  the  disclosures  are  adequate  to  make  the  information
     presented not misleading.  These consolidated  interim financial statements
     should be read in conjunction  with the consolidated  financial  statements
     and the  summary  of  significant  accounting  policies  and notes  thereto
     included in the Company's latest annual financial statements.

     The consolidated  financial  statements  include the accounts of Pendaries,
     Pendaries    Production,    Inc.,    Sino-American    Energy    Corporation
     (Sino-American)  and  Sino-American   Overseas  Energy   Corporation.   All
     significant intercompany transactions and balances have been eliminated.

     The  Company's  registration  statement  filed on Form  20-F  was  declared
     effective by the U.S. Securities and Exchange Commission in June 1998. This
     permitted the Company to list its common shares for trading on the American
     Stock Exchange.

3.   OIL AND GAS PROPERTIES - BOHAI BAY, CHINA
     -----------------------------------------

     Laopu  Block  Relinquishment  - During  the  first  quarter  of  1999,  the
     petroleum  contract  on the Laopu Block in the Bohai Bay,  China,  covering
     approximately  78,000 gross acres was terminated by Pendaries and the other
     foreign contractors. All obligations had been fulfilled on this block.

     Block  05/36 - On  March 4,  1999,  the  Operator,  Kerr-McGee,  and  China
     National  Offshore  Oil Corp.  ("CNOOC")  agreed to  extend  the  petroleum
     contract on Block 05/36 into its second phase which covers the period March
     31, 1999 to  February  28,  2001.  Block 05/36 is located in the Bohai Bay,
     China and covers approximately  415,000 gross acres. Under the terms of the
     petroleum contract,  the foreign contractors are required to relinquish 25%
     of the  acreage  in the  block  upon  electing  to  proceed  to the  second
     exploration phase. The foreign contractors have submitted the acreage to be
     relinquished  to CNOOC and all approvals  have been  obtained.  The Company
     does not believe that the relinquishment  will materially affect the future
     potential of the block.  Entry into the second  exploration  phase  carries
     with it a bonus payment to CNOOC of $250,000 ($37,500 net to Pendaries) and
     a one well  commitment to be drilled during the second phase by the foreign
     contractors.

                                       6
<PAGE>

4.   COMMON SHARES
     -------------

     Issuance of Stock Options
     -------------------------

     On March 9, 1999,  options to purchase  84,500 common shares were issued to
     certain  outside  directors of Pendaries  under the Company's  Stock Option
     Plan. The exercise price is $0.59 per common share, the market price on the
     date of issuance,  with an expiration  date of March 9, 2004. On October 4,
     1999,  certain  directors,  officers and employees of Pendaries were issued
     options to purchase an aggregate  of 106,500  common  shares.  The exercise
     price  is  $0.9375  per  common  share,  the  market  price  on the date of
     issuance, with an expiration date of October 4, 2004.

     Issuance of Common Shares
     -------------------------

     In February  1999,  certain  outside  directors of  Pendaries  were granted
     62,500 common shares as compensation  for directors' fees. The value of the
     share  compensation  was $36,875 and was accrued at December 31,  1998.  On
     March 9, 1999,  only 47,500 of the 62,500  common  shares were issued under
     the  February  1999 grant as a result of two former  directors  electing to
     forego their respective stock compensation  grants. The value of the shares
     issued  was  $28,209.   There  were  no  shares   issued  under  the  Stock
     Compensation Plan in the second and third quarters of 1999.

     Stock Option Exercise and Cancellations
     ---------------------------------------

     In June  1999,  a director  exercised  50,000  Sino-American  options at an
     exercise  price of $1.00 per share,  for total  proceeds  to the Company of
     $50,000.  Pursuant to the Exchange Rights Agreement between the Company and
     Sino-American,  the 50,000  Sino-American  shares issued as a result of the
     exercise were converted to 50,000 common shares of the Company. On June 30,
     1999, 80,000 Sino-American options,  50,000 of which were owned by the same
     director,  expired  unexercised.  Additionally,  3,500  options to purchase
     shares of the Company,  granted under the Company's  Stock Option Plan, and
     held by a former employee expired unexercised.  On August 17, 1999, 170,000
     Sino-American  options held by four  individuals and having exercise prices
     of $1.50 and $2.00 expired  unexercised.  As a result of the  expiration of
     253,500  shares over the last two  quarters  of  unexercised  options,  the
     number of fully diluted  shares of the Company is reduced to 9,798,470 from
     10,051,970.

     Stock Option Settlement
     -----------------------

     In connection with  litigation  with  the former president of Sino-American
     over  the number of  stock  options  to  which  the  former  president  was
     entitled, in April 1998,  the parties  entered into a Settlement  Agreement
     pursuant to which the former president received $450,000 (which was accrued
     as of March 31, 1998) and  agreed to execute a new  Stock Option  Agreement
     reflecting a grant of 100,000  stock  options (the number of stock  options
     the Company claimed had  originally  been  granted) and, with the exception
     of certain restrictions not imposed  on  other  option   holders,  contains
     terms  substantially  similar  to  those  contained  in  the  Stock  Option
     Agreements of all other option  holders who had been granted  options prior
     to 1996.

                                       7
<PAGE>

     Net Loss Per Share
     ------------------

     Basic net loss per share is calculated on the basis of the weighted average
     common  shares  outstanding  for the three  and nine  month  periods  ended
     September 30, 1999 and 1998, respectively. The Company's stock options were
     not included in the computation of fully diluted net loss per share because
     to do so would have been antidilutive for the periods presented.

5.   MURPHY AGREEMENT
     ----------------

     On April 24, 1998,  Sino-American and the Company entered into an agreement
     with Murphy Exploration & Production Company ("Murphy") to purchase its 45%
     interest in Block 04/36 (the  "Murphy  Agreement"),  which was  extended to
     December 21, 1998 and then to March 22, 1999. The Murphy Agreement provided
     that the Company  would pay a total of $38 million for  Murphy's  interest;
     $35 million of the  consideration  was to be paid in cash and $3 million in
     Pendaries Common Shares.  Due to the adverse change in the condition of the
     oil and gas industry subsequent to the signing of the Murphy Agreement, the
     Company  elected  on  March  22,  1999 to let  the  agreement  expire.  The
     Company's non-refundable deposit of $1 million paid to Murphy in April 1998
     was  recorded as an  additional  investment  in its oil and gas  properties
     related to this opportunity to increase its interest in Block 04/36.

6.   RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     ------------------------------------------------------------------------

     These consolidated financial statements are expressed in U.S.dollars, which
     is the  functional  currency in all areas of  operation,  and are  prepared
     in accordance  with generally accepted  accounting   principles  in  Canada
     ("Canadian  GAAP") which conform in all material respects with those in the
     United States ("U.S.  GAAP") for the periods presented,  except as outlined
     below.

     Oil and Gas Properties
     ----------------------

     In Canada, if the net capitalized costs of oil and gas properties in a cost
     center  exceed an amount equal to the sum of estimated  future net revenues
     from  proved  oil and gas  reserves  in the cost  center  and the  costs of
     properties not being amortized,  both adjusted for income tax effects, such
     excess is charged to expense. Also, the total capitalized costs of all cost
     centers are subject to a further recoverability test which includes,  among
     other things,  provision for site  development  and  restoration and future
     general,  administrative  and financial costs.  This is not consistent with
     U.S.  GAAP.  For U.S.  GAAP,  if the net  capitalized  costs of oil and gas
     properties  in a cost center exceed an amount equal to the sum of estimated
     discounted  present value at 10% of future net revenues from proved oil and
     gas  reserves  in the cost  center  and the costs of  properties  not being
     amortized,  both adjusted for income tax effects, such excess is charged to
     expense.  Included  in the  estimated  future net cash  flows are  Canadian
     provincial tax credits expected to be realized beyond the date at which the
     legislation, under its provisions, could be repealed. To date, the Canadian
     provincial  government  has not  indicated  an  intention  to  repeal  this
     legislation.

     If U.S. GAAP had been applied  instead of Canadian  GAAP, the Company would
     have  recognized an  impairment of its oil and gas  properties in Canada in
     the  amount of  $549,555  and  $2,195,799  in China in 1998.  There were no
     material  differences  between  Canadian GAAP and U.S. GAAP during the nine
     months ended September 30, 1999.

                                       8
<PAGE>


7.   SUBSEQUENT EVENTS
     -----------------

     Block 04/36 - Effective  October 1, 1999 the Company  increased its foreign
     -----------
     contractor's  interest in Block  04/36 in the Bohai Bay,  China from 10% to
     18.2% following the withdrawal of the other non-operating  partner from the
     block.  Kerr-McGee  China,  Ltd., the operator of the block,  increased its
     foreign  contractor's  interest  from 45% to 81.8%.  There was no  monetary
     consideration associated with acquiring the increased interest.

     Also  effective  October  1, 1999,  the  Company,  along  with its  partner
     Kerr-McGee  China  Ltd.,  voted to enter into Phase  Three on Block  04/36.
     Entry into the third  exploration  phase  carries with it a  commitment  to
     drill one exploration well, which the parties expect to drill in the fourth
     quarter  of 1999.  Upon  election  to enter the third  phase,  the  foreign
     contractors  are required to  relinquish  twenty-five  percent (25%) of the
     acreage  in  the  block.   The  parties   have   selected   the  areas  for
     relinquishment  and submitted them to CNOOC for approval.  The Company does
     not  believe  that the  relinquishment  will  materially  affect the future
     potential of the block.

     Alberta,  Canada  Properties - On October 6, 1999, the Company entered into
     ----------------------------
     an agreement to sell its oil and gas properties located in Alberta,  Canada
     at a price yet to be determined,  but expected to  approximate  book value.
     The transaction is subject to  satisfactory  due diligence by the purchaser
     and there can be no assurance that the transaction will close.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        -----------------------------------------------------------
        AND RESULTS OF OPERATIONS
        -------------------------

The following  discussion and analysis  should be read in  conjunction  with the
unaudited  consolidated  financial  statements  included  elsewhere and with the
Company's Form 10-K for the year ended December 31, 1998.

ACCOUNTING POLICIES
-------------------

The unaudited  consolidated  financial  statements  and notes  thereto  included
herein have been prepared in accordance with Canadian GAAP.

As of September  30, 1999,  the  Company's  revenues  were derived from interest
income  and  oil  and  gas  production  related  to its  activities  in  Canada.
Accumulated  losses  are  presented  on the  balance  sheet  as  "Deficit."  The
unaudited statements of operations present revenues and expenses for the quarter
and year to date in comparison  with the same periods for the previous year. The
unaudited  statements of cash flows show the inflows and outflows for the period
comparatively with those of the previous year.

                                       9
<PAGE>

The  Company  follows  the  full-cost  method  of  accounting  for  oil  and gas
properties.  Under  this  method,  all costs  incurred  in  connection  with the
exploration  and development of oil and gas reserves are capitalized in separate
cost centers on a  country-by-country  basis.  Such  capitalized  costs  include
contract  and  concession   acquisition;   geological,   geophysical  and  other
exploration  work;  drilling,  completing  and  equipping  oil  and  gas  wells;
constructing  production facilities and pipelines;  and other related costs. The
Company also  capitalizes  interest  costs  related to  unevaluated  oil and gas
properties.

Capitalized  costs  associated  with the  acquisition and evaluation of unproved
properties are excluded from amortization  until it is determined whether proved
reserves  can be  assigned  to  such  properties,  or  until  the  value  of the
properties  is  impaired.  Unproved  properties  are  assessed  periodically  to
determine  whether any impairment has occurred.  If the net capitalized costs of
oil and gas  properties  in a cost center  exceed an amount  equal to the sum or
estimated  future net  revenues  from  proved oil and gas  reserves  in the cost
center and the costs of properties not being amortized, both adjusted for income
tax effects,  such excess is charged to expense.  The total capitalized costs of
all cost  centers is subject to a further  recoverability  test which  includes,
among other things, provisions for site development and restoration,  and future
general, administrative and financial costs.

Substantially  all of the  Company's  exploration,  development  and  production
activities are conducted  jointly with others,  and  accordingly,  the Company's
financial statements reflect only its proportionate interest in such activities.

The Company owns an interest in  producing  oil and gas  properties  in Alberta,
Canada.  Depletion is provided based on the Company's  proportionate interest of
production in respect of proved reserves.

The Company  currently has no producing  oil and gas  properties in the People's
Republic  of  China.  Therefore,  related  capitalized  costs  of  oil  and  gas
properties are not currently subject to depletion.

CHINESE TAXES
-------------

The  Company's  future net income,  as defined  under  Chinese law, from Chinese
sources,  will be subject to Chinese  corporate  income tax at a rate of 33%. In
accordance  with the terms of the tax treaty  between the U.S.  and China,  such
taxes are creditable to U.S.corporate income taxes.

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

Three Months Ended September 30, 1999 and 1998:
-----------------------------------------------

The Company  incurred a net loss of $195,227  and  $865,131 for the three months
ended September 30, 1999 and 1998,  respectively.  The $669,904  decrease in net
loss was a result of the following:

Oil and gas income from the  Company's  properties  located in Alberta,  Canada,
decreased  from  $165,014  for the three  months  ended  September  30,  1998 to
$149,726  for the same period in 1999.  The $15,288  decrease was due to loss of
income from the Wintering Hills Field in Alberta,  Canada,  relating to workover
operations carried out on that field and normal reservoir depletion.

Oil and gas operating expenses increased from $33,528 for the three months ended
September 30, 1998 to $56,145 for the same period in 1999.  The increase was due
to the plugging of a  non-producing  well in the Grand Forks Field,  in Alberta,
Canada.

General and  administrative  expenses decreased from $596,371 in the third three
months of 1998 to  $319,021  for the  comparable  period of 1999.  The  $277,350
decrease was due primarily to reductions in staff,  reduced salaries and related
costs,  cost  savings in  connection  with the  closing of the  Toronto,  Canada
office, and reduced outside legal and professional costs.

                                       10
<PAGE>

The  exchange  gain for the three month period  ending  September  30, 1999,  as
opposed to the exchange loss for the  comparable  period in 1998, was due to the
strengthening of the Canadian dollar in relation to the U.S. dollar.

In the third  quarter  of 1998,  the  Company  wrote-off  $299,397  in  deferred
registration  costs  related to the  Company's  postponed  initial  cross-border
offering in the United States.  There were no such costs in the third quarter of
1999.  Interest  income  decreased by $41,812  from  $118,290 in the three month
period ended  September 30, 1998 to $76,478 for the  comparable  period of 1999.
The decrease was due to the reduction of cash available for investment in 1999.

Nine Months Ended September 30, 1999 and 1998:
----------------------------------------------

The Company  incurred a net loss of $826,696 and  $2,224,367 for the nine months
ended September 30, 1999 and 1998, respectively.  The $1,397,671 decrease in net
loss was a result of the following:

Oil and gas income from the  Company's  properties  located in Alberta,  Canada,
decreased from $380,732 for the nine months ended September 30, 1998 to $321,796
for the same period in 1999. The $58,936 decrease was due to loss of income from
the Wintering Hills Field and the Morinville Field in Alberta,  Canada, relating
to  workover  operations  carried  out on the two  fields  as  well  as  natural
reservoir depletion.

Oil and gas operating expenses increased from $125,182 for the nine months ended
September 30, 1998 to $213,031 for the same period in 1999. The increase was due
to workover  operations  carried out in 1999 on one well  located in each of the
Wintering Hills and Morinville fields as well as the plugging of a non-producing
well in the Grand Fords Field, all in Alberta, Canada.

General and administrative  expenses decreased from $1,799,431 in the first nine
months of 1998 to $1,075,100  for the  comparable  period of 1999.  The $724,331
decrease was due primarily to reductions in staff,  reduced salaries and related
costs,  cost  savings in  connection  with the  closing of the  Toronto,  Canada
office, and reduced outside legal and professional costs.

The  exchange  gain for the nine month period  ending  September  30,  1999,  as
opposed to the exchange loss for the  comparable  period in 1998, was due to the
strengthening of the Canadian dollar in relation to the U.S. dollar.

In the nine  month  period  ending  September  30,  1998 the  Company  wrote-off
$299,397 in  deferred  registration  costs  related to the  Company's  postponed
initial  cross-border  offering in the United  States.  There were no such costs
recorded in the nine month period ending September 30, 1999.

During the nine months  ended  September  30,  1998,  the Company  recorded  the
settlement  of  litigation  with  the  former  president  of  its  wholly  owned
subsidiary,  Sino-American Energy Corporation,  over the number of stock options
to which the former  president  was  entitled,  and in April  1998,  the parties
entered  into a  Settlement  Agreement  pursuant  to which the former  president
received $450,000 and agreed to execute a new Stock Option Agreement  reflecting
a grant of 100,000  stock  options  (the  number of stock  options  the  Company
claimed  had  originally  been  granted)  and,  with the  exception  of  certain
restrictions not imposed on other option holders,  contains terms  substantially
similar to those  contained in the Stock Option  Agreements  of all other option
holders who had been granted  options  prior to 1996.  The  $450,000  settlement
amount was charged to expense as of March 31, 1998.  There were no such expenses
in the first nine month period of 1999.

Interest  income  decreased by $197,817  from  $439,109 in the nine month period
ended  September  30, 1998 to $241,292 for the  comparable  period of 1999.  The
decrease was due to the reduction of cash available for investment in 1999.


                                       11
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

From inception  (July 5, 1994) the Company's  capital by year is shown below. Of
the total,  $31,027,761  represents  cash raised by  issuance of common  shares,
$1,325,000  represents  oil and gas  properties  paid for by  issuance of common
shares, and $227,290 represents services paid for by issuance of common shares.
<TABLE>

<CAPTION>
                                    Common
                                    Share            Exercise of        Exercise of
           Period                   Equity            Warrants            Options             Total
           ------                   ------            --------            -------             -----
      <S>                        <C>              <C>                <C>                 <C>
      Year - 1995                $ 3,287,500      $        -         $         -         $  3,287,500
      Year - 1996                 22,812,658               -                20,000         22,832,658
      Year - 1997                     68,000          944,488            5,196,115          6,208,603
      Year - 1998                    131,081               -                42,000            173,081
      Year - 1999                     28,209               -                50,000             78,209
                                 -----------      ------------        ------------       ------------
                      Totals    $ 26,327,448      $    944,488        $  5,308,115       $ 32,580,051
                                ============      ============        ============       ============
</TABLE>

During the same periods, the Company incurred capital expenditures as follows:
<TABLE>

<CAPTION>
                                 Oil and Gas         Oil and Gas         Furniture,
                                  Properties         Properties         Fixtures and
           Period                   Canada              China            Equipment            Total
           ------                   ------              -----            ---------            -----
      <S>                      <C>                  <C>                <C>              <C>
      Year - 1995              $         -          $  3,597,631       $   59,758       $  3,657,389
      Year - 1996                 1,966,088            2,981,853           62,613          5,010,554
      Year - 1997                        -             7,739,641          105,286           7,844,927
      Year - 1998                        -             4,843,827          (57,719)          4,786,108
      Year - 1999                        -               797,385           (1,259)            796,126
                               ------------         ------------       -----------       ------------
                      Totals     $1,966,088          $19,960,337       $  168,679        $ 22,095,104
                                 ==========          ===========       ===========       ============
</TABLE>

After capital  expenditures and funds used in operations the Company had cash of
$6,286,928 at September 30, 1999.  There is no credit  facility with a financial
institution or any other outstanding debt.

YEAR 2000 DISCLOSURE
--------------------
The Year 2000 issue  relates to the problems  associated  with the  inability of
computer programs and equipment to properly calculate,  store or use dates after
December 31, 1999.  Hardware  and  software  systems  which only use a two-digit
convention for keeping track of dates would  improperly  interpret the Year 2000
as  the  Year  1900.  Errors  of  this  type  can  result  in  system  failures,
miscalculations and the disruption of operations, including, among other things,
a temporary inability to engage in normal business. In response to the Year 2000
issue,  the Company has  developed a strategic  plan divided into the  following
phases:  inventory  assessment  and review of vendor  representations,  in-house
testing, third party integration and development of a contingency plan.

                                       12
<PAGE>

The Company has completed its initial assessment phase by compiling an inventory
listing  of all  in-house  systems  and  reviewing  all  vendor  representations
regarding  the Year 2000  issue  that the  Company  has  received  to date.  The
licensor of the  Company's  in-house  software  system has  certified  that such
software is programmed to properly address Year 2000 scenarios. In addition, the
initial   assessment  has  shown  that  less  critical   in-house  software  and
non-information  technology  or  equipment  are either not date  specific or are
capable of addressing the Year 2000. Based on the initial review and reliance on
vendor representations,  the Company expects that all such in-house systems will
perform their  respective  functions in a customary  manner when faced with Year
2000  scenarios.  In addition,  the Company has determined  that functions which
have been out-sourced to third parties,  consisting  mainly of processing needs,
are performed by systems  purchased within the last few years and are programmed
to recognize the Year 2000.

The Company  conducted its in-house  testing  phase,  reviewing core systems and
core-non-information  technology.  To date, the Company has not  encountered any
material system disruption during in-house testing,  and therefore,  the Company
expects that the performance of such systems will not be substantially disrupted
by Year 2000 scenarios.  However,  being primarily  involved in the acquisition,
development  and  exploration  of oil and  gas  internationally,  the  Company's
"mission critical" equipment and technology is off-site under the control of the
operators of the  Company's  properties.  Although  these  systems are primarily
non-information  technology  systems which are not date  specific,  they rely on
external  power sources,  such as  electricity,  supplied by third parties.  The
Company is relying upon representations by these operators and their third party
suppliers that no material  disruption of services is anticipated as a result of
the Year 2000. However, the most reasonably likely worst case Year 2000 scenario
for the Company  would involve a prolonged  disruption  of third party  services
affecting the productivity of core equipment,  which could result in substantial
decreases in the Company's oil and gas  production.  It may not be  economically
feasible for the operator to maintain a separate and duplicate  secondary  power
supply for every major component of the operator's "mission critical" equipment.
Therefore,  unanticipated  prolonged  losses of  certain  services  could  cause
material  disruptions for which no economically  feasible  contingency  plan has
been developed.  Such event could result in a business  interruption  that could
have a material  adverse  effect on the Company's  production  payments from its
properties and the Company's results of operations and financial condition.

In addition to its  internal  review and testing,  the Company has  communicated
with its third party suppliers, service providers and customers to determine the
status of their Year 2000 compliance  programs.  The Company has received and is
relying on Year 2000  readiness  reports  periodically  issued by various  third
parties, such as financial services providers. The Company will continue to have
formal  communications  with its significant  suppliers and business partners to
determine  the  extent to which the  Company is  vulnerable  to either the third
parties'  or  its  own  failure  to  correct  Year  2000  issues.   Third  party
notification  and integration  was completed  during the second quarter of 1999.
All  of  these  third  parties  have  responded  and  have  provided   favorable
representations  as to their  Year 2000  readiness.  These  third  parties  have
received  similar  representations  from  the  Company.  While  there  can be no
guarantee  that the systems of other  companies on which the Company relies will
be timely converted or that the conversion will be compatible with the Company's
systems, based on representations received to date, the Company does not foresee
material  disruptions in the Company's  business as a result of Year 2000 issues
involving third parties.

During its assessment,  the Company has taken steps to prevent  anticipated Year
2000 disruptions.  However,  based on the readiness surveys received through the
second quarter of 1999 from its third party suppliers and service providers, the
Company  does  not  believe  it  will  need  to  further  develop  its  existing
contingency plan to address Year 2000 related disruptions.  Although the effects
of Year 2000 issue  cannot be predicted  with  certainty,  to date,  all systems
tested have performed adequately,  and therefore,  the Company believes that the
potential impact, if any, of such disruption will, at most, require employees to
manually complete  otherwise  automated tasks of calculations.  The Company does
not expect that any additional training would be required to perform these tasks
on a manual basis. The Company does not believe that such event would materially
affect  the  Company's  ability  to  continue  business   activities,   although
performing such tasks may require additional time or personnel.  In addition, if
needed, the Company will identify and arrange for other vendors,  purchasers and
third party  contractors  to provide such  services in order to maintain  normal
business operations.

                                       13
<PAGE>

The Company  has,  and will  continue  to,  utilize  both  internal and external
resources to complete  tasks and perform  testing  necessary to address the Year
2000 issue.  The Company has not incurred,  and does not anticipate that it will
incur, any significant  costs relating to the assessment and remediation of Year
2000 issues.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
-----------------------------------------------

The  statements  contained  in this  Quarterly  Report on Form 10-Q  ("Quarterly
Report")  that  are  not  historical  facts,  including,  but  not  limited  to,
statements  found in this  Management's  Discussion  and  Analysis of  Financial
Condition and Results of Operations,  are  forward-looking  statements,  as that
term is defined in Section 21E of the  Securities  and Exchange Act of 1934,  as
amended, that involve a number of risks and uncertainties.  Such forward-looking
statements  may be or may concern,  among other  things,  capital  expenditures,
drilling activity, acquisition plans and proposals and dispositions, development
activities, cost savings, production efforts and volumes,  hydrocarbon reserves,
hydrocarbon  prices,  liquidity,   regulatory  matters  and  competition.   Such
forward-looking  statements  generally are  accompanied by words such as "plan,"
"estimate," "expect," "predict," "anticipate,"  "projected," "should," "assume,"
"believe,"  or other  words that  convey  the  uncertainty  of future  events or
outcomes.  Such  forward-looking  information is based upon management's current
plans,  expectations,  estimates and  assumptions  and is subject to a number of
risks  and  uncertainties  that  could   significantly   affect  current  plans,
anticipated  actions,  the timing of such  actions and the  Company's  financial
condition and results of operations. As a consequence, actual results may differ
materially from expectations,  estimates or assumptions  expressed in or implied
by any forward-looking statements made by or on behalf of the Company. Among the
factors that could cause actual results to differ  materially are:  fluctuations
of the prices  received or demand for the  Company's  oil and natural  gas,  the
uncertainty  of  drilling  results  and reserve  estimates,  operating  hazards,
acquisition  risks,  requirements  for  capital,  general  economic  conditions,
competition and government  regulations,  as well as the risks and uncertainties
discussed in this Quarterly Report, including,  without limitation, the portions
referenced  above,  and the  uncertainties  set  forth  from time to time in the
Company's other public reports, filings and public statements.

                                       14
<PAGE>


                           PART II - OTHER INFORMATION


Item 1.  Legal Proceedings - None

Item 2.  Changes in Securities - None

Item 3.  Defaults Upon Senior Securities - N/A

Item 4.  Submission of Matters to a Vote of Security Holders - None

Item 5.  Other Information - N/A

Item 6.  Exhibits and Reports on Form 8-K During the Third Quarter of 1999

         Exhibits:

                  99.1     Press Release - Dated September 27, 1999

         Reports on Form 8-K:

                  On September 27, 1999, the Company reported the acquisition of
                  an  additional  8.2%  interest  in  Block  04/36  due  to  the
                  withdrawal from the block of the other non-operating  partner.
                  There was no monetary consideration  associated with acquiring
                  the increased interest.

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.

                                                        PENDARIES PETROLEUM LTD.



Date:   October 27, 1999                 By:   /s/Bobby J. Fogle
                                         ---------------------------------------
                                                  Bobby J. Fogle
                                                  Vice President, Finance and
                                                  Chief Financial Officer



                                       15
<PAGE>