<PAGE>

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

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

                                    FORM 10-K

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 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 333-31375*

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

                           FORMAN PETROLEUM CORPORATION
             (Exact name of registrant as specified in its charter)


               LOUISIANA                              72-0954774
      (State or other jurisdiction        (I.R.S. Employer Identification No.)
   of incorporation or organization)

    650 POYDRAS STREET - SUITE 2200                      (504) 586-8888
   NEW ORLEANS, LOUISIANA 70130-6101             (Registrant's telephone number
    (Address of principal executive                   including area code)
           offices)(Zip Code)


       Securities registered pursuant to Section 12(b) of the Act: NONE

       Securities registered pursuant to Section 12(g) of the Act: NONE

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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 23, 1998, there were 70,000 shares of the Registrant's Voting Common
Stock, no par value, and 20,000 shares of the Registrant's Non-voting Common
Stock, no par value, outstanding.

* The Commission file number refers to a Form S-4 Registration Statement filed
by the Registrant under the Securities Act of 1933, which became effective
September 26, 1997.
<PAGE>

                           FORMAN PETROLEUM CORPORATION

                  FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>


<S>                                                                                                             <C>
PART I.......................................................................................................     1

ITEM 1. BUSINESS.............................................................................................     1
ITEM 2. PROPERTIES...........................................................................................    13
ITEM 3. LEGAL PROCEEDINGS....................................................................................    15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................................    15

PART II......................................................................................................    15

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................    15
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA................................................................    16
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................    17
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........................................    22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................................................    22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................    23

PART III.....................................................................................................    23

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................................................    23
ITEM 11. EXECUTIVE COMPENSATION..............................................................................    24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................    25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................    26

PART IV......................................................................................................    26

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.....................................    26

INDEX TO FINANCIAL STATEMENTS................................................................................   F-1

</TABLE>

                                       i
<PAGE>

                                     PART I

ITEM 1.    BUSINESS

Overview

     Forman Petroleum Corporation (the "Company") is an independent energy
company engaged in the acquisition, exploration, development, exploitation and
production of crude oil and natural gas.  The Company and its predecesors have
conducted acquisition, exploration, development and production operations in the
Gulf Coast Basin since 1960, which gives the Company extensive geological,
geophysical engineering and operational expertise in this area.  As of December
31, 1997, the Company had estimated proved reserves of approximately 22.1 Bcf of
natural gas and 2.26 MMBbls of oil, or an aggregate of approximately 5.94 MMBOE,
with a present value of estimated pre-tax future net cash flows of $52.3 million
(based upon prices at December 31, 1997).

     Since 1991, the Company has acquired five fields onshore in south
Louisiana. These fields have cumulative production of approximately 153 MMBoe
and contain complex geologic structures that are well suited to 3-D seismic
surveys and interpretation to identify potential reserves. Since 1994, the
Company has acquired and processed over 74 square miles of 3-D seismic data over
four of these fields from which the Company has identified additional
exploitation and development prospects. Using this 3-D seismic data along with
existing well control, the Company's drilling activity during 1997 increased net
production from a daily average of 1,895 Boe/d in December 1996 to 3,258 Boe/d
in December 1997. In 1998, the Company plans aggregate capital expenditures of
approximately $9.4 million to perform an estimated six recompletions and/or
workovers and drill an estimated two new wells based on the Lake Enfermer 3-D
seismic survey, to drill an estimated three additional wells and to perform one
recompletion on other properties.

     Since 1991, the Company has experienced considerable growth with proved
reserves and present value increasing from 1.8 MMBoe and $13.7 million,
respectively, at September 30, 1991 to 5.94 MMBoe and $52.3 million,
respectively, at December 31, 1997. On a Boe basis, 76% of the Company's
reserves are classified as proved developed and the Company's reserve to
production ratio was 7.7 years as of December 31, 1997. The Company operates
each of its fields and owns a weighted average working interest of 91% in its
fields, which enables the Company to control the timing and implementation of
all exploitation and exploration activities.

     The Company believes that it can identify new drilling opportunities in its
fields by combining 3-D seismic survey data with other technologies, including
CAEX technology, as well as other available geological and engineering data. The
Company's advanced visualization and data analysis techniques and sophisticated
computing resources enable its geoscientists to view collectively large volumes
of information contained within the 3-D seismic data. These techniques and
resources also allow the Company's geoscientists to more easily identify
features such as shallow and deep amplitude anomalies, complex channel systems,
sharp structural details and fluid contacts, which might have been overlooked
using less sophisticated 3-D seismic data interpretation techniques. The Company
has made a significant investment in its 3-D seismic data visualization
technology, which is closely linked with the Company's well-log database and
other geoscience application software. The Company uses a series of workstations
from Silicon Graphics, and has licensed Photon Seisx software for interpreting
the geophysical data on the 3-D workstations, Geographix software for analysis,
mapping and interpretation of geological data, and Cogniseis' Voxtel Geo
technology for advanced 3-D geologic interpretation of data.

     The Company's technological success is dependent in part upon hiring and
retaining highly skilled technical personnel. The Company has assembled a
technical team that it believes has the capacity to adapt to the rapidly
changing technological demands in the field of oil and natural gas exploration.
This team consists of six geoscientists and engineers with an average of 22
years industry experience, primarily concentrated in the Gulf Coast region. The
expertise of the Company's team of geoscientists and engineers reduces its
dependence on outside technical consultants and enables the Company to
internally generate substantially all of its prospects.


BUSINESS STRATEGY

     The Company's business strategy is to expand its proved reserves,
production and cash flow through a disciplined technology-based program of
exploitation and exploration for crude oil and natural gas, emphasizing the
following key competitive strengths:

     CONTROL OF CRITICAL EXPLORATION FUNCTIONS - The Company owns substantially
all of the working interests in its fields and is the operator of each field.
Controlling operations is a crucial element in the strategy of the Company,
since it allows the Company to control the critical functions in the exploration
and exploitation process. This has enabled the Company to manage the land
permitting and seismic option process; design the seismic surveys to ensure
optimum results; supervise the data acquisition and processing; integrate and
interpret the 3-D data with existing 2-D and subsurface geological data; select
well sites; and design and drill wells to exploit identified prospective
reserves.


                                       1
<PAGE>
     TECHNOLOGICAL EXPERTISE - Many of the fields in south Louisiana are ideally
suited for the application of 3-D seismic data surveys to interpret the large
structures of the area, using an exploitation technique in which the Company has
extensive experience. The geological complexities in the Lake Enfermer Field
have in the past made conventional interpretation very difficult. The Company
uses 3-D seismic data in this field combined with existing well control and
production information for its interpretations. In addition to enhancing the
interpretations of structures, the Company uses 3-D seismic data to optimize its
well programs.

     INVENTORY OF EXPLORATORY DRILLING PROSPECTS - In addition to the proved
undeveloped reserves scheduled to be drilled during the next two years, the
Company has an inventory of what it believes are significant exploratory
prospects. These exploratory prospects have been identified through the
application of 3-D seismic technology in the Company's Lake Enfermer Field,
Bayou Fer Blanc Field, West Gueydan and Manila Village Fields. The Company
believes that additional exploratory prospects will be identified as soon as a
3-D survey has been completed at the Boutte Field.

     GEOGRAPHIC SPECIALIZATION - The Company focuses its operations in the
environmentally sensitive coastal marshlands of south Louisiana. The Company's
reputation for preserving the integrity of these marshlands and years of
experience have enabled the Company to acquire fields owned by landowners who
restrict and carefully monitor all operations on their property.

     RISK MANAGEMENT - To manage the technical and economic risks inherent in
drilling an exploratory property base with high ownership positions, the Company
has instituted a risk management program to minimize risk through
diversification and maximize prospect participation. In all cases, the Company
will strive to retain operating control but will actively pursue a program
whereby it will acquire farm-in or joint venture partners for its existing
properties and will consider reciprocal participation in other attractive
exploration ventures.


Significant Project Areas

     Set forth below are descriptions of the Company's south Louisiana fields
where it is actively exploring for and developing oil and natural gas reserves
and in many cases currently has production. The 3-D surveys which the Company is
using to analyze its project areas range from regional non-proprietary group
shoots to single field proprietary surveys.

     Although the Company is currently pursuing prospects within the project
areas listed below, there can be no assurance that these prospects will be
drilled at all or within the expected time frame. The final determination with
respect to the drilling of any scheduled or budgeted wells will be dependent on
a number of factors, including (i) results of the exploration efforts and the
acquisition, review and analysis of the seismic data, (ii) the availability of
sufficient capital resources by the Company and the other participants for the
drilling of the prospects, (iii) the approval of the prospects by the other
participants after additional data has been compiled, (iv) economic and industry
conditions at the time of drilling, including prevailing and anticipated prices
for oil and natural gas and the availability of drilling rigs and crews, (v) the
financial resources and operating results of the Company and (vi) the
availability of leases on reasonable terms and permitting for the prospect.
There can be no assurance that these projects can be successfully developed or
that the scheduled or budgeted wells discussed will, if drilled, encounter
reservoirs of commercially productive oil and natural gas.

     Lake Enfermer Field - The Lake Enfermer Field is located on a deep,
complexly faulted, salt structure in Lafourche Parish in a coastal marsh that is
subsiding and grading into an open bay environment. The Company has acquired
3,650 acres in this field since 1992, has an average 98.5% working interest in,
and is the operator of the field. The field was first discovered in 1955 by Olin
Gas. Production through December 1997 for the field has been over 30 MMBoe. The
acquisition of the field included two production facilities and one satellite
location. In 1997, the Company built an additional production facility that cost
approximately $0.5 million. These three processing centers are located
approximately 1.5 miles apart from each other and are adequate to service all of
the Company's anticipated wells.



                                       2
<PAGE>

     Upon the acquisition of the field, the Company used its extensive database
of 2-D seismic data to drill and complete three wells in 1993 and 1994 (two of
which are currently productive) for a cost of $5.3 million. The Company
determined that an extensive 3-D survey of the Lake Enfermer Field area was
necessary to optimally develop the field. In April 1995, the Company commenced a
33 square mile proprietary 3-D survey encompassing the entire Lake Enfermer
Field for the purpose of better identifying additional reserve potential and
more accurately determining drilling locations. The 3-D survey resulted in the
identification of numerous drilling opportunities. The Company utilized this
seismic data to drill and complete three wells in 1996 at a cost of $12.3
million. The first post-3-D survey well, spudded in January 1996, logged over
200 feet of productive sands and was successfully completed as a dually
producing oil well in March 1996. The second and third post-3-D survey wells,
spudded in April and July 1996, together logged over 312 feet of productive
sands. The Company drilled and completed two wells in 1997, and drilled and
temporarily suspended operations on one well pending further evaluation.

     During 1998, the Company plans to drill an estimated two additional wells
and perform six workovers and/or recompletions in the Lake Enfermer Field at an
estimated cost of approximately $4.0 million. In addition, the Company has
identified other exploratory and development locations that it could drill in
the future based upon its 3-D seismic survey and the wells drilled to date.

     MANILA VILLAGE FIELD  - The Manila Village Field is located in Jefferson
Parish in a brackish water marsh environment. The Company acquired 825 acres in
this field in 1991 from Manila Village Production Company, has an average 65%
working interest in and is the operator of the field. The field was first
discovered by Whitestone in 1949 and through December 1997, the field had
produced 35 MMBoe. Recently, the Company undertook a 12 square mile 3-D survey
over the area data from which is currently being interpreted by the Company.
During 1998, the Company plans to drill one additional well at an estimated cost
of approximately $2.0 million.

     BOUTTE FIELD - The Boutte Field is located in a fresh water marsh in St.
Charles Parish. All well locations are accessible by roads. The Company acquired
in 1992 from Texaco and Apache a 100% working interest in 3,250 acres in this
field, which it operates. Discovered by Texaco in 1953, through December 1997
the field had produced a total of 36 MMBoe with a production mix of 80% natural
gas and 20% oil. In 1996, the Company recompleted one well, and during 1997, the
Company recompleted an additional five wells.

     BAYOU FER BLANC FIELD - The Bayou Fer Blanc Field is located in Lafourche
Parish, adjacent to the Lake Enfermer Field. The Company used a portion of the
net proceeds of the Offerings (defined herein) to purchase a 100% working
interest in the Bayou Fer Blanc Field, which it now operates. Although
classified as two distinct fields, the Lake Enfermer Field and the Bayou Fer
Blanc Field have produced from a single geologic structure. The Bayou Fer Blanc
Field was discovered by Texaco in 1959 and through December 1997, the field had
produced 17 MMBoe. The Company completed a 25 square mile proprietary 3-D
seismic survey of the Bayou Fer Blanc Field in 1996, which was integrated with
the 33 square mile 3-D seismic survey of the Lake Enfermer Field for a total of
58 contiguous square miles for the two fields. The Company's initial analysis of
the 3-D survey suggests numerous undrilled amplitude anomalies with exploratory
potential. The Company drilled one unsuccessful exploratory well in this field
in 1997.

     WEST GUEYDAN FIELD  - The West Gueydan Field is located in rice fields in
Vermilion Parish on a deep salt structure. The Company used a portion of the net
proceeds of the Offerings to purchase a 90% working interest in 1,180 acres in
the field, which it now operates. The field includes a wellbore that has been
cleaned out to total depth and is available for re-entry and sidetracking. The
field was discovered by Magnolia Oil Company in 1938 and through December 1997,
the field had produced 36 MMBoe. The Company has an extensive 2-D seismic data
grid of the field and recently acquired additional 3-D seismic data.





                                       3
<PAGE>

ACQUISITION, PRODUCTION AND DRILLING ACTIVITY

     ACQUISITION AND DEVELOPMENT COSTS - The following table sets forth certain
information regarding the costs incurred by the Company in its acquisition and
development activities during the periods indicated.


                                                      Year End December 31,
                                                    ------------------------
                                                    1997     1996     1995
                                                    -------  ------   ------
                                                           (In thousands)

Acquisition costs.................................  $ 6,100  $     0  $    0
Development costs.................................    4,105    3,853   3,589
Exploratory costs.................................   18,464   12,448   4,490
                                                    -------  -------  ------
      Subtotal....................................   28,669   16,301   8,079
Capitalized general and administrative costs......        0        0     500
                                                    -------  -------  ------
Total costs incurred..............................  $28,669  $16,301  $8,579
                                                    =======  =======  ======

     DRILLING ACTIVITY - The following table sets forth the wells drilled and
completed by the Company during the periods indicated.
<TABLE>
<CAPTION>

                                                                     Years Ended December 31,
                                                                -----------------------------------
                                                                   1995        1996         1997
                                                                ----------  ----------  -----------
                                                                Gross  Net  Gross  Net  Gross  Net
                                                                -----  ---  -----  ---  -----  ---
<S>                                                             <C>    <C>  <C>    <C>  <C>    <C>
Development:
    Productive................................................    0.0  0.0    0.0  0.0    0.0  0.0
    Non-productive............................................    1.0  0.5    0.0  0.0    1.0  1.0
                                                                  ---  ---    ---  ---    ---  ---
       Total..................................................    1.0  0.5    0.0  0.0    1.0  1.0
                                                                  ---  ---    ---  ---    ---  ---
Exploratory:
    Productive................................................    0.0  0.0    3.0  3.0    2.0  2.0
    Non-productive............................................    0.0  0.0    0.0  0.0    1.0  1.0
                                                                  ---  ---    ---  ---    ---  ---
       Total..................................................    0.0  0.0    3.0  3.0    3.0  3.0
                                                                  ---  ---    ---  ---    ---  ---
Total:
    Productive................................................    0.0  0.0    3.0  3.0    2.0  2.0
    Non-productive............................................    1.0  0.5    0.0  0.0    2.0  2.0
                                                                  ---  ---    ---  ---    ---  ---
       Total..................................................    1.0  0.5    3.0  3.0    4.0  4.0
                                                                  ---  ---    ---  ---    ---  ---
</TABLE>

     Productive Well Summary - The following table sets forth the Company's
ownership in productive wells at December 31,1997.  Gross oil and gas wells
include one well with multiple completions.  Wells with multiple completions are
counted only once for purposes of the following table.

                                         Productive Wells
                                         ----------------
                                         Gross       Net
                                         -----      -----
Gas...............................        8.0        7.7
Oil...............................       19.0       14.9
                                         ----       ----
        Total.....................       27.0       22.6





                                       4
<PAGE>

OIL AND GAS MARKETING

     All of the Company's natural gas is sold at current market prices, either
under monthly spot price contracts or under longer term contracts that dedicate
the natural gas from a property or a well to a single purchaser for an extended
period of time at a fixed price for the period.  The Company's oil and natural
gas condensate production is sold at current market prices under short term
contracts providing for market sensitive prices.  From time to time, the Company
may enter into transactions hedging the price of oil.  See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."

COMPETITION AND MARKETS

     The Company operates in a highly competitive environment. The Company
competes with major and independent oil and natural gas companies for the
acquisition of desirable oil and natural gas properties, as well as for the
equipment and labor required to develop and operate such properties. The Company
also competes with major and independent oil and natural gas companies in the
marketing and sale of oil and natural gas to marketers and end-users. Many of
these competitors have financial and other resources substantially greater than
those of the Company.

     The marketability of the Company's production depends upon the availability
and capacity of gas gathering systems, pipelines and processing facilities, and
the unavailability or lack of capacity thereof could result in the shut-in of
producing wells or the delay or discontinuance of development plans for
properties. In addition, federal and state regulation of oil and natural gas
production and transportation, general economic conditions and changes in supply
and demand could adversely affect the Company's ability to produce and market
its oil and natural gas on a profitable basis.

REGULATION

     GENERAL - Various aspects of the Company's oil and natural gas operations
are subject to extensive and continually changing regulation, as legislation
affecting the oil and natural gas industry is under constant review for
amendment or expansion. Numerous departments and agencies, both federal and
state, are authorized by statute to issue, and have issued, rules and
regulations binding upon the oil and natural gas industry and its individual
members. The Federal Energy Regulatory Commission ("FERC") regulates the
transportation and sale for resale of natural gas in interstate commerce
pursuant to the Natural Gas Act of 1938 ("NGA") and the Natural Gas Policy Act
of 1978 ("NGPA"). In the past, the Federal government has regulated the prices
at which oil and natural gas could be sold. While sales by producers of natural
gas and all sales of crude oil, condensate and natural gas liquids can currently
be made at uncontrolled market prices, Congress could reenact price controls in
the future. Deregulation of wellhead sales in the natural gas industry began
with the enactment of the NGPA in 1978. In 1989, Congress enacted the Natural
Gas Wellhead Decontrol Act (the "Decontrol Act"). The Decontrol Act removed
all remaining NGA and NGPA price and nonprice controls affecting wellhead sales
of natural gas effective January 1, 1993.

     REGULATION OF OIL AND NATURAL GAS EXPLORATION AND PRODUCTION - Exploration
and production operations of the Company are subject to various types of
regulation at the federal, state and local levels. Such regulations include
requiring permits and drilling bonds for the drilling of wells, regulating the
location of wells, the method of drilling and casing wells, and the surface use
and restoration of properties upon which wells are drilled. Many states also
have statutes or regulations addressing conservation matters, including
provisions for the utilization or pooling of oil and natural gas properties, the
establishment of maximum rates of production from oil and natural gas wells and
the regulation of spacing, plugging and abandonment of such wells. Some state
statutes limit the rate at which oil and natural gas can be produced from the
Company's properties. See "Risk Factors--Compliance with Governmental
Regulations."

     NATURAL GAS MARKETING, GATHERING, PROCESSING AND TRANSPORTATION - Federal
legislation and regulatory controls in the United States have historically
affected the price of natural gas and the manner in which such production is
marketed. Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, 636-B
and 636-C ("Order No. 636"), which require interstate pipelines to provide
transportation separate, or "unbundled," from the pipelines' sales of natural
gas. Also, Order No. 636 requires pipelines to provide open-access
transportation on a

                                       5
<PAGE>

basis that is equal for all natural gas supplies. Although Order No. 636 does
not directly regulate the Company's activities, the FERC has stated that it
intends for Order No. 636 to foster increased competition within all phases of
the natural gas industry. It is unclear what impact, if any, increased
competition within the natural gas industry under Order No. 636 will have on the
Company's activities. Although Order No. 636 could provide the Company with
additional market access and more fairly applied transportation service rates,
Order No. 636 could also subject the Company to more restrictive pipeline
imbalance tolerances and greater penalties for violation of those tolerances.

     In many instances, the result of Order No. 636 and related initiatives have
been to substantially reduce or eliminate the interstate pipelines' traditional
role as wholesalers of natural gas in favor of providing only storage and
transportation services. Order No. 636 has been implemented on all interstate
pipelines. In July 1996, the United States Court of Appeals for the District of
Columbia Circuit largely upheld Order No. 636. The Supreme Court denied
certiorari on May 12, 1997. Certain issues, however, were remanded to the FERC
by the District of Columbia Circuit. On remand, the FERC in Order No. 636-C
reaffirmed some elements of Order No. 636 and modified others. Order No. 636-C
may be the subject of further proceedings at the FERC and is subject to appeal.
Numerous parties also have filed petitions for review of orders in individual
pipeline restructuring proceedings. Upon judicial review, the FERC's orders may
be remanded or reversed in whole or in part. Consequently, it is difficult to
predict Order No. 636's ultimate effects.

     The FERC has announced several important transportation-related policy
statements and proposed rule changes, including the appropriate manner in which
interstate pipelines release capacity under Order No. 636 and, more recently,
the price that shippers can charge for their released capacity. In addition, in
1995, FERC issued a policy statement on how interstate natural gas pipelines can
recover the costs of new pipeline facilities. In January 1996, the FERC issued a
policy statement and a request for comments concerning alternatives to its
traditional cost-of-service ratemaking methodology. A number of pipelines have
obtained FERC authorization to charge negotiated rates as one such alternative.
While any additional FERC action on these matters would affect the Company only
indirectly, these policy statements and proposed rule changes are intended to
further enhance competition in natural gas markets. In February 1997, the FERC
announced a broad inquiry into issues facing the natural gas industry to assist
the FERC in establishing regulatory goals and priorities in the post-Order No.
636 environment. The Company cannot predict what action the FERC will take on
these matters, nor can it predict whether the FERC's actions will achieve its
stated goal of increasing competition in natural gas markets. However, the
Company does not believe that it will be treated materially differently than
other natural gas producers and marketers with which it competes.

     Regulation of onshore natural gas gathering activities is primarily a
matter of state oversight. Regulation of natural gas gathering and
transportation activities, depending upon the state involved, may include
various transportation, safety, rate, environmental and non-discriminatory
purchase and transport requirements.

     OIL SALES AND TRANSPORTATION RATES - Sales prices of crude oil and natural
gas liquids by the Company are not regulated. The price the Company receives
from the sale of these products may be affected by the cost of transporting the
products to market. Effective January 1995, the FERC implemented regulations
establishing an indexing system under which oil pipelines will be able to change
their transportation rates, subject to prescribed ceiling levels. The indexing
system generally indexes such rates to inflation, subject to certain conditions
and limitations. The Company is not able at this time to predict the effects of
these regulations, if any, on the transportation costs associated with oil
production from the Company's oil producing operations.

     Additional proposals and proceedings that might affect the oil and natural
gas industry are pending before the FERC and the courts. The Company cannot
predict when or whether any such proposals may become effective. In the past,
the natural gas industry has been heavily regulated. There is no assurance that
the regulatory approach currently pursued by the FERC will continue
indefinitely.

     OPERATING HAZARDS AND ENVIRONMENTAL MATTERS - The oil and natural gas
business involves a variety of operating risks, including the risk of fire,
explosions, blow-outs, pipe failure, casing collapse, abnormally pressured
formations and hazards such as oil spills, natural gas leaks, ruptures and
discharges of toxic gases. The occurrence of any of these operating risks could
result in substantial losses to the Company due to injury or loss of life,
severe damage to or destruction of property and equipment, pollution or other
environmental damage, including damage to natural resources, clean-up
responsibilities, penalties and suspension of operations. Such hazards may
hinder or delay drilling, development and on-line operations.

                                       6
<PAGE>

     Extensive federal, state and local laws regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment affect the Company's oil and natural gas operations. Numerous
governmental departments issue rules and regulations to implement and enforce
such laws, which are often difficult and costly to comply with and which carry
substantial penalties for failure to comply. Some laws, rules and regulations
relating to protection of the environment may, in certain circumstances, impose
"strict liability" for environmental contamination, rendering a person liable
for environmental damages and cleanup costs without regard to negligence or
fault on the part of such person. Other laws, rules and regulations may restrict
the rate of oil and natural gas production below the rate that would otherwise
exist or even prohibit exploration and production activities in sensitive areas.
In addition, state laws often require various forms of remedial action to
prevent pollution, such as closure of inactive pits and plugging of abandoned
wells. The regulatory burden on the oil and natural gas industry increases its
cost of doing business and consequently affects its profitability. The Company
believes that it is in substantial compliance with current applicable
environmental laws and regulations and that continued compliance with existing
requirements will not have a material adverse impact on the Company's
operations. However, environmental laws and regulations have been subject to
frequent changes over the years, and the imposition of more stringent
requirements could have a material adverse effect upon the capital expenditures,
earnings or competitive position of the Company.

     The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as "Superfund," imposes liability, without regard to
fault or the legality of the original conduct, on certain classes of persons
that are considered to be responsible for the release of a "hazardous
substance" into the environment. These persons include the current or former
owner or operator of the disposal site or sites where the release occurred and
companies that disposed or arranged for the disposal of hazardous substances.
Under CERCLA, such persons may be subject to joint and several liability for the
costs of investigating and cleaning up hazardous substances that have been
released into the environment, for damages to natural resources and for the
costs of certain health studies. In addition, companies that incur Superfund
liability frequently also confront third party claims because it is not uncommon
for neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by hazardous substances or other
pollutants released into the environment from a Superfund site.

     The Federal Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976 ("RCRA"), regulates the generation,
transportation, storage, treatment and disposal of hazardous wastes and can
require cleanup of hazardous waste disposal sites. RCRA currently excludes
drilling fluids, produced waters and other wastes associated with the
exploration, development or production of oil and natural gas from regulation as
"hazardous waste." However, other wastes handled at exploration and
productions sites may not fall within this exclusion. Disposal of non-hazardous
oil and natural gas exploration, development and production wastes usually are
regulated by state law.

     Stricter standards for waste handling and disposal may be imposed on the
oil and natural gas industry in the future. From time to time legislation has
been proposed in Congress that would revoke or alter the current exclusion of
exploration, development and production wastes from the RCRA definition of
"hazardous wastes," thereby potentially subjecting such wastes to more
stringent handling, disposal and cleanup requirements. If such legislation were
enacted, it could have a significant impact on the operating costs of the
Company, as well as the oil and natural gas industry in general. Furthermore,
although petroleum, including crude oil and natural gas, is exempt from CERCLA,
at least two courts have ruled that certain wastes associated with the
production of crude oil may be classified as "hazardous substances" under
CERCLA. The impact of future revisions to environmental laws and regulations
cannot be predicted.

     The Oil Pollution Act of 1990 ("OPA") provides that persons responsible
for facilities and vessels (including the owners and operators of onshore
facilities) are subject to strict joint and several liability for cleanup costs
and certain other public and private damages arising from a spill of oil into
waters of the United States. OPA establishes a liability limit for onshore
facilities of $350.0 million. However, facilities located in coastal waters may
be considered "offshore" facilities subject to greater liability limits under
OPA (all removal costs plus $75.0 million). In addition, a party cannot take
advantage of this liability limit if the spill was caused by gross negligence or
willful misconduct or resulted from a violation of a federal safety,
construction or operating regulation. If a party fails to report a spill or
cooperate in the cleanup, liability limits likewise do not apply. OPA also
imposes other requirements on facility owners and operators, such as the
preparation of an oil spill response plan. Failure to

                                       7
<PAGE>

comply with ongoing requirements or inadequate cooperation in a spill event may
subject the responsible party to civil or criminal enforcement actions.

     The OPA also imposes financial responsibility requirements on the person or
persons statutorily responsible for certain facilities. On March 25, 1997, the
U.S. Minerals Management Service ("MMS") proposed new regulations to implement
these financial responsibility requirements. Under the regulations proposed by
the MMS, oil production and storage facilities that are located in wetlands
adjacent to coastal waters could be required to demonstrate various levels of
financial ability to reimburse governmental entities and private parties for
costs that they could incur in responding to an oil spill, if the MMS determines
that spills from those particular facilities could reach coastal waters.
Although the Company owns and operates oil production and storage facilities in
wetland areas in southern Louisiana, the Company does not believe that an oil
spill from one of its facilities could reach coastal waters, and therefore the
Company does not expect to be subject to the financial responsibility
requirements, if such requirements are implemented in the manner proposed by the
MMS. However, if the financial responsibility requirements apply to the Company,
the amount of financial responsibility that the Company would have to
demonstrate (under the MMS's proposed rules) would be $10.0 million, an amount
that the Company believes it could satisfy without any negative impact on its
financial condition or cost of doing business.

     The Federal Water Pollution Control Act ("FWPCA") imposes restrictions
and strict controls regarding the discharge of produced waters and other oil and
natural gas wastes into navigable waters. Permits must be obtained to discharge
pollutants to waters and to conduct construction activities in waters and
wetlands. The FWPCA and similar state laws provide for civil, criminal and
administrative penalties for any unauthorized discharges of pollutants and
unauthorized discharges of reportable quantities of oil and other hazardous
substances. Many state discharge regulations and the Federal National Pollutant
Discharge Elimination System general permits prohibit the discharge of produced
water and sand, drilling fluids, drill cuttings and certain other substances
related to the oil and natural gas industry to coastal waters. Although the
costs to comply with recently-enacted zero discharge mandates under federal or
state law may be significant, the entire industry is expected to experience
similar costs and the Company believes that these costs will not have a material
adverse impact on the Company's financial conditions and operations. In 1992 the
EPA adopted regulations requiring certain oil and natural gas exploration and
production facilities to obtain permits for storm water discharges. Costs may be
associated with the treatment of wastewater or developing and implementing storm
water pollution prevention plans.

     The Company's operations are also subject to the Clean Air Act ("CAA")
and comparable state and local requirements. Amendments to the CAA were adopted
in 1990 and contain provisions that may result in the gradual imposition of
certain pollution control requirements with respect to air emissions from
operations of the Company. The Company may be required to incur certain capital
expenditures in the next several years for air pollution control equipment in
connection with obtaining and maintaining operating permits and approvals for
air emissions. However, the Company does not believe its operations will be
materially adversely affected by any such requirements, and the requirements are
not expected to be any more burdensome to the Company than to other similarly
situated companies involved in oil and natural gas exploration and production
activities.

OPERATIONAL RISKS AND INSURANCE

     The oil and natural gas business involves a variety of operating risks,
including the risk of fire, explosions, blow-outs, pipe failure, casing
collapse, abnormally pressured formations and hazards such as oil spills,
natural gas leaks, ruptures or discharges of toxic gases. The occurrence of any
of these operating risks could result in substantial losses to the Company due
to injury or loss of life, severe damage to or destruction of property and
equipment, pollution or other environmental damage, including damage to natural
resources, clean-up responsibilities, penalties and suspension of operations. In
accordance with customary industry practice, the Company maintains insurance
against some, but not all, of the risks described above, including insuring the
cost of clean-up operations, public liability and physical damage. There can be
no assurance that any insurance obtained by the Company will be adequate to
cover any losses or liabilities or that such insurance will continue to be
available in the future or that such insurance will be available at premium
levels that justify its purchase. The occurrence of a significant event not
fully insured or indemnified against could have a material adverse effect on the
Company's financial condition and operations.

                                       8
<PAGE>

EMPLOYEES

     On December 31, 1997, the Company employed 33 people, including 15 that
work in the Company's various field offices.   None of the Company's employees
are covered by a collective bargaining agreement, and the Company believes that
its relationships with its employees are satisfactory.  From time to time the
Company utilizes the services of independent contractors to perform various
field and other services.

FORWARD-LOOKING STATEMENTS

     This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements other than statements
of historical facts included in this Report regarding the planned capital
expenditures, increases in oil and gas production, the number of anticipated
wells to be drilled in 1998 and thereafter, the Company's financial position,
business strategy and other plans and objectives for future operations, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the Company's
expectations are disclosed under "Risk Factors" and elsewhere in this Report.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by such factors.


RISK FACTORS

     DEPENDENCE ON EXPLORATORY DRILLING ACTIVITIES - The success of the Company
will be materially dependent upon the success of its exploratory drilling
program.  Exploratory drilling involves numerous risks, including the risk that
no commercially productive oil or gas reservoirs will be encountered.  The cost
of drilling, completing and operating wells is often uncertain, and drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, including unexpected drilling conditions, pressure or irregularities in
formations, equipment failures or accidents, adverse weather conditions,
compliance with governmental requirements and shortages or delays in the
availability of drilling rigs and the delivery of equipment.  The use of 3-D
seismic data and other advanced technologies does not enable the interpreter to
determine whether hydrocarbons are in fact present in subsurface structures that
may be identified.  In addition, the use of 3-D seismic data and other advanced
technologies requires greater pre-drilling expenditures than traditional
drilling strategies, and the Company could incur losses as a result of such
expenditures.  Moreover, the Company may identify prospects through a number of
methods that do not include interpretation of 3-D seismic data or the use of
other advanced technologies.  The Company's future drilling activities may not
be successful, and if unsuccessful, such failure will have a material

                                       9
<PAGE>

adverse effect on the Company's results of operations and financial condition.
There can be no assurance that the Company's overall drilling success rate or
its drilling success rate for activity within a particular project area will not
decline. The Company may choose not to acquire option and lease rights prior to
acquiring seismic data and may identify a prospect or drilling location before
seeking option or lease rights in the prospect or location. Although the Company
has identified or budgeted for numerous drilling prospects, there can be no
assurance that such prospects will ever be drilled (or drilled within the
scheduled time frame) or that oil or natural gas will be produced from any such
prospects or any other prospects.

     VOLATILITY OF OIL AND NATURAL GAS PRICES - Revenues generated from the
Company's operations are highly dependent upon the price of, and demand for, oil
and natural gas.  Historically, the markets for oil and natural gas have been
volatile and are likely to continue to be volatile in the future.  Prices for
oil and natural gas are subject to wide fluctuations in response to relatively
minor changes in the supply of and demand for oil and natural gas, market
uncertainty and a variety of additional factors that are beyond the control of
the Company.  These factors include the level of consumer product demand,
weather conditions, domestic and foreign governmental regulations, the price and
availability of alternative fuels, local and international political conditions,
including Middle East, the foreign supply of oil and natural gas, the price of
foreign imports and overall economic conditions.  It is impossible to predict
future oil and natural gas price movements with any certainty.  Declines in oil
and natural gas prices may materially adversely affect the Company's financial
condition, liquidity and results of operations.  Lower oil and natural gas
prices also may reduce the amount of the Company's oil and natural gas that can
be produced economically.  In order to reduce its exposure to price risks in the
sale of its oil and natural gas, the Company enters into hedging arrangements
from time to time; however, the Company's hedging arrangements apply to only a
portion of its production and provide only limited price protection against
fluctuations in the oil and natural gas markets.

     The Company uses the full cost method of accounting for its investment in
oil and natural gas properties.  Under the full cost method of accounting, all
costs of acquisition, exploration and development of oil and natural gas
reserves are capitalized into a "full cost pool" as incurred, and properties in
the pool are depleted and charged to operations using the future gross revenues
method based on the ratio of current gross revenue to total proved future gross
revenues, computed based on current prices.  To the extent that such capitalized
costs (net of accumulated depreciation, depletion and amortization) less
deferred taxes exceed the present value (using a 10% discount rate) of estimated
future net cash flow from proved oil and natural gas reserves, and the lower of
cost and fair value of unproved properties after income tax effects, excess
costs are charged to operations.  Once incurred, a write down of oil and natural
gas properties is not reversible at a later date even if oil or natural gas
prices increase.  The Company wrote down its oil and gas properties at December
31, 1997 by $10,008,000.  Significant downward revisions of quantity estimates
or declines in oil and natural gas prices that are not offset by other factors
could result in a further write down  of oil and natural gas properties.

     REPLACEMENT OF RESERVES - In general, the volume of production from oil and
natural gas properties declines as reserves are depleted.  Except to the extent
the Company acquires properties containing proved reserves or conducts
successful development and exploration activities, or both, the proved reserves
of the Company will decline as reserves are produced.  The Company's future oil
and natural gas production is, therefore, highly dependent upon its level of
success in finding or acquiring additional reserves.  The business of exploring
for, developing or acquiring reserves is capital intensive.  To the extent cash
flow from operations is reduced and external sources of capital become limited
or unavailable, the Company's ability to make the necessary capital investment
to maintain or expand its asset base of oil and natural gas reserves would be
impaired.  In addition, there can be no assurance that the Company's future
development, acquisition and exploration activities will result in additional
proved reserves or that the Company will be able to drill productive wells at
acceptable costs.

     UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES - There
are numerous uncertainties inherent in estimating oil and natural gas reserves
and their estimated values, including many factors beyond the control of the
producer.  The reserve data set forth in this Report represents only estimates.
Reservoir engineering is a subjective process of estimating underground
accumulations of oil and natural gas that cannot be measured in an exact manner.
Estimates of economically recoverable oil and natural gas reserves and of future
net cash flows necessarily depend upon a number of variable factors and
assumptions, such as historical production from the area compared with
production from other producing areas, the assumed effects of regulations by
governmental agencies and assumptions concerning future oil and natural gas
prices, future operating costs,

                                       10
<PAGE>

severance and excise taxes, development costs and workover and remedial costs,
all of which may in fact vary considerably from actual results. For these
reasons, estimates of the economically recoverable quantities of oil and natural
gas attributable to any particular group of properties, classifications of such
reserves based on risk recovery and estimates of the future net cash flows
expected therefrom prepared by different engineers or by the same engineers at
different times may vary substantially and such reserve estimates may be subject
to downward or upward adjustment based upon such factors. Actual production,
revenues and expenditures with respect to the Company's reserves will likely
vary from estimates, and such variances may be material.

     The present values of estimated future net cash flows referred to in this
Report should not be construed as the current market value of the estimated oil
and natural gas reserves attributable to the Company's properties.  In
accordance with applicable requirements of the Commission, the estimated
discounted future net cash flows from proved reserves are generally based on
prices and costs as of the date of the estimate, whereas actual future prices
and costs may be materially higher or lower.  Actual future net cash flows also
will be affected by factors such as the amount and timing of actual production,
supply and demand for oil and natural gas, curtailments or increases in
consumption by gas purchasers and changes in governmental regulations or
taxation.  The timing of actual future net cash flows from proved reserves, and
their actual present value, will be affected by the timing of both the
production and the incurrence of expenses in connection with development and
production of oil and natural gas properties.  In addition, the calculation of
the present value of the future net revenues using a 10% discount, as required
by the Commission, is not necessarily the most appropriate discount factor based
on interest rates in effect from time to time and risks associated with the
Company's reserves or the oil and natural gas industry in general.

     SUBSTANTIAL LEVERAGE - As of December 31, 1997, the Company's long-term
debt and stockholder's deficit were $68.0 million and $24.2 million,
respectively.  The Company's level of indebtedness has several important effects
on its operations, including (i) the covenants contained in the Indenture for
the 13.5% Senior Secured Notes due 2004 (the "Notes") require the Company to
meet certain financial tests, and other restrictions limit its ability to borrow
additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in business conditions and
(ii) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate purposes
or other purposes may be impaired.  Moreover, future acquisition or development
activities may require the Company to alter its capitalization significantly.
These changes in capitalization may significantly alter the leverage of the
Company.  The Company's ability to meet its debt service obligations and to
reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to general economic conditions and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control.  There can be no assurance that the
Company's future performance will not be adversely affected by such economic
conditions and financial, business and other factors.

     SUBSTANTIAL CAPITAL REQUIREMENTS - The Company makes, and will continue to
make, substantial capital expenditures for the development, exploration,
acquisition and production of oil and natural gas reserves.  The Company plans
to make capital expenditures, not including expenditures for acquisitions, of
approximately $9.4 million in 1998.  The Company believes that its cash on hand
together with its cash flow from operations and available vendor financing will
be sufficient to fund its working capital needs for 1998 although certain
exploratory and development projects may have to be deferred.  The Company will
require additional financing to complete its planned capital expenditures in
1999 and to service its outstanding debt.  Management is reviewing alternative
sources of financing, including an initial public offering, to satisfy these
requirements.   Although management believes that the Company will have
sufficient cash to fund planned capital expenditures in 1998, if revenues
decrease as a result of lower oil and natural gas prices or operating
difficulties, the Company may be limited in its ability to expend the capital
necessary to undertake or complete its drilling program in future years.  There
can be no assurance that additional debt or equity financing or cash generated
by operations will be available to meet these requirements.

     TECHNOLOGICAL CHANGES - The oil and gas industry is characterized by rapid
and significant technological advancements and introductions of new products and
services utilizing new technologies.  As others use or develop new technologies,
the Company may be placed at a competitive disadvantage, and competitive
pressures may force the Company to implement such new technologies at
substantial costs.  In addition, other oil and gas companies may have greater
financial, technical and personnel resources that allow them to enjoy
technological advantages and may in the future allow them to implement new
technologies before the Company.  There can be no assurance that the

                                       11
<PAGE>

Company will be able to respond to such competitive pressures and implement such
technologies on a timely basis or at an acceptable cost. One or more of the
technologies currently utilized by the Company or implemented in the future may
become obsolete. In such cases, the Company's business, financial condition and
results of operations could be materially adversely affected. If the Company is
unable to utilize the most advanced commercially available technology, the
Company's business, financial condition and results of operations could be
materially and adversely affected.

     RISKS OF HEDGING TRANSACTIONS - In order to manage its exposure to price
risks in the marketing of its oil and natural gas, the Company has in the past
and expects to continue to enter into oil and natural gas price hedging
arrangements with respect to a portion of its expected production.  These
arrangements may include futures contracts on the New York Mercantile Exchange
(NYMEX), fixed price delivery contracts and financial swaps.  While intended to
reduce the effects of volatility of the price of oil and natural gas, such
transactions may limit potential gains by the Company if oil and natural gas
prices were to rise substantially over the price established by the hedge.  In
addition, such transactions may expose the Company to the risk of financial loss
in certain circumstances, including instances in which (i) production is less
than expected, (ii) if there is a widening of price differentials between
delivery points for the Company's production and the delivery point assumed in
the hedge arrangement, (iii) the counterparties to the Company's future
contracts fail to perform the contract or (iv) a sudden, unexpected event
materially impacts oil or natural gas prices.

     DEPENDENCE ON KEY PERSONNEL - The Company depends to a large extent on the
services of its founder, McLain J. Forman, and certain other senior management
personnel.  The loss of the services of Mr. Forman and other senior management
personnel could have a material adverse effect on the Company's operations.  The
Company does not currently have an employment contract with any senior
management or key personnel.  The Company believes that its success is also
dependent upon its ability to continue to employ and retain skilled technical
personnel.  The Company does not currently have any key-man insurance coverage
on McLain J. Forman, other senior management or any key personnel.  The
inability of the Company to employ or retain skilled technical personnel could
have a material adverse effect on the Company's operations.

     COMPLIANCE WITH GOVERNMENTAL REGULATIONS - Oil and natural gas operations
are subject to various federal, state and local government regulations that may
be changed from time to time in response to economic or political conditions.
Matters subject to regulation include discharge permits for drilling operations,
drilling and abandonment bonds or other financial responsibility requirements,
reports concerning operations, the spacing of wells, utilization and pooling of
properties and taxation.  From time to time, regulatory agencies have imposed
price controls and limitations on production by restricting the rate of flow of
oil and natural gas wells below actual production capacity to conserve supplies
of oil and natural gas.  In addition, the production, handling, storage,
transportation and disposal of oil and natural gas, by-products thereof and
other substances and materials produced or used in connection with oil and
natural gas operations are subject to regulation under federal, state and local
laws and regulations primarily relating to protection of human health and the
environment. These laws and regulations have continuously imposed increasingly
strict requirements for water and air pollution control and solid waste
management.

     ENVIRONMENTAL RISKS - The Company is subject to a variety of federal, state
and local governmental laws and regulations related to the storage, use,
discharge and disposal of toxic, volatile or otherwise hazardous materials.
These regulations subject the Company to increased operating costs and potential
liability associated with the use and disposal of hazardous materials.  Although
these laws and regulations have not had a material adverse effect on the
Company's financial condition or results of operations, there can be no
assurance that the Company will not be required to make material expenditures in
the future.  Moreover, the Company anticipates that such laws and regulations
will become increasingly stringent in the future, which could lead to material
costs for environmental compliance and remediation by the Company.

     Any failure by the Company to obtain required permits for, control the use
of, or adequately restrict the discharge of hazardous substances under present
or future regulations could subject the Company to substantial liability or
could cause its operations to be suspended.  Such liability or suspension of
operations could have a material adverse effect on the Company's financial
condition and results of operations.

                                       12
<PAGE>

     MARKETABILITY OF PRODUCTION - The marketability of the Company's production
depends upon the availability and capacity of gas gathering systems, pipelines
and processing facilities, and the unavailability or lack of capacity thereof
could result in the shut-in of producing wells or the delay or discontinuance of
development plans for properties.  In addition, federal and state regulation of
oil and natural gas production and transportation, general economic conditions
and changes in supply and demand could adversely affect the Company's ability to
produce and market its oil and natural gas on a profitable basis.

     SUBSTANTIAL COMPETITION - The Company operates in a highly competitive
environment.  The Company competes with major and independent oil and natural
gas companies for the acquisition of desirable oil and natural gas properties,
as well as for the equipment and labor required to develop and operate such
properties.  The Company also competes with major and independent oil and
natural gas companies in the marketing and sale of oil and natural gas to
marketers and end-users.  Many of these competitors have financial and other
resources substantially greater than those of the Company.

     OPERATING RISKS OF OIL AND NATURAL GAS OPERATIONS - The oil and natural gas
business involves a variety of operating risks, including the risk of fire,
explosions, blow-outs, pipe failure, casing collapse, abnormally pressured
formations and hazards such as oil spills, natural gas leaks, ruptures or
discharges of toxic gases.  The occurrence of any of these operating risks could
result in substantial losses to the Company due to injury or loss of life,
severe damage to or destruction of property and equipment, pollution or other
environmental damage, including damage to natural resources, clean-up
responsibilities, penalties and suspension of operations.  In accordance with
customary industry practice, the Company maintains insurance against some, but
not all, of the risks described above.  There can be no assurance that any
insurance obtained by the Company will be adequate to cover any losses or
liabilities.  The Company cannot predict the continued availability of insurance
or the availability of insurance at premium levels that justify its purchase.

     NO INTENTION TO PAY DIVIDENDS - The Company currently intends to retain any
earnings for the future operation and development of its business and does not
currently intend to declare or pay any dividends on its Common Stock in the
foreseeable future.  In addition, the payment of dividends by the Company is
restricted by the Indenture.

ITEM 2.   PROPERTIES

     The Company has grown principally through the acquisition and subsequent
development and exploitation of properties purchased since 1991.  The Company's
proved oil and gas reserves at December 31, 1997 were attributable to three
properties, all of which are located in South Louisiana.  The Company operates
all of its properties and owns a significant (average 91%) working interest in
each property.

OIL AND NATURAL GAS RESERVES

     The following table summarizes the estimates of the Company's proved
producing, proved non-producing and proved undeveloped reserves as of December
31, 1997, and the related present value of estimated future net revenues before
income taxes at such date, as estimated by independent petroleum engineers,
Ryder Scott Company, Petroleum Engineers.

<TABLE>
<CAPTION>
                                                       Producing         Non-Producing     Undeveloped        Total
                                                       -----------       -------------     -----------       --------
<S>                                                    <C>               <C>               <C>                <C>
Natural gas (MMcf)....................................      10,158            6,079            5,868           22,105
Oil and NGLs (MBbls)..................................         854              988              417            2,259
Natural gas equivalents (MMcfe).......................      15,284           12,010            8,368           35,662
Oil equivalents (Mboe)................................       2,547            2,002            1,395            5,944
Present value of estimated future net revenues
 before income taxes (discounted at 10%)..............     $29,991          $13,953           $8,312          $52,256

</TABLE>

                                       13
<PAGE>

     Oil and natural gas prices have declined subsequent to December 31, 1997.
Accordingly, the discounted future net cash flows would be reduced if the
standardized measure was calculated at a later date.  These estimates of the
Company's proved reserves have not been filed with or included in reports to any
federal agency.

     In accordance with applicable requirements of the Commission, estimates of
the Company's proved reserves and future net revenues are made using oil and
natural gas sales prices estimated to be in effect as of the date of such
reserve estimates and are held constant throughout the life of the properties
(except to the extent a contract specifically provides for escalation).
Estimated quantities of proved reserves and future net revenues therefrom are
affected by oil and natural gas prices, which have fluctuated widely in recent
years. There are numerous uncertainties inherent in estimating oil and natural
gas reserves and their estimated values, including many factors beyond the
control of the producer. The reserve data set forth herein represents only
estimates. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and natural gas that cannot be measured in an
exact manner. The accuracy of any reserve estimate is a function of the quality
of available data and engineering and geological interpretation and judgment. As
a result, estimates of different engineers may vary. In addition, estimates of
reserves are subject to revision based upon actual production, results of future
development and exploration activities, prevailing oil and natural gas prices,
operating costs and other factors, which revisions may be material. Accordingly,
reserve estimates are often different from the quantities of oil and natural gas
that are ultimately recovered. The meaningfulness of such estimates is highly
dependent upon the accuracy of the assumptions upon which they are based.

     In general, the volume of production from oil and natural gas properties
declines as reserves are depleted. Except to the extent the Company acquires
properties containing proved reserves or conducts successful exploration and
development activities, or both, the proved reserves of the Company will decline
as reserves are produced. The Company's future oil and natural gas production
is, therefore, highly dependent upon its level of success in finding or
acquiring additional reserves.

     As operator of domestic oil and gas properties, the Company has filed
Department of Energy Form EIA-23, "Annual Survey of Oil and Gas Reserves," as
required by Public Law 93-275.  There are differences between the reserves as
reported on Form EIA-23 and as reported herein.  The differences are
attributable to the fact that Form EIA-23 requires that an operator report on
the total reserves attributable to wells which are operated by it, without
regard to ownership (i.e. reserves are reported on a gross operated basis,
rather than on a net interest basis).

LEASEHOLD ACREAGE

     The table below describes the Company's developed and undeveloped leasehold
acreage as of December 31, 1997:
<TABLE>
<CAPTION>
                                                                Developed              Undeveloped
                                                                 Acreage                  Acreage                 Total
                                                            ------------------      ------------------      ------------------
Field                                                       Gross        Net        Gross        Net        Gross        Net
-----                                                       -----       ------      ------       -----      -----      -------
<S>                                                        <C>         <C>         <C>         <C>         <C>         <C>
Lake Enfermer...........................................     3,650       3,595           0           0       3,650       3,595
Manila Village..........................................       825         536           0           0         825         536
Boutte...................................................    3,250       3,250           0           0       3,250       3,250
Bayou Fer Blanc..........................................        0           0         320         320         320         320
West Gueydan............................................         0           0       1,180       1,062       1,180       1,062
                                                           -------      ------      ------      ------      ------      ------
                                                             7,725       7,381       1,500       1,382       9,225       8,763
                                                           =======      ======      ======      ======      ======      ======
</TABLE>

     No possible or probable reserves have been assigned to the Company's
undeveloped acreage. As is customary in the oil and natural gas industry, the
Company can retain its interests in undeveloped acreage by drilling activity
that establishes commercial production sufficient to maintain the leases, or by
payment of delay rentals during the remaining primary term of such a lease.
Delay rentals paid in 1997 and those projected for 1998 are insignificant. The
oil and natural gas leases in which the Company has an interest are for varying
primary terms.

TITLE TO PROPERTIES

     As is customary in the oil and natural gas industry, the Company makes only
a cursory review of title to farmout acreage and to undeveloped oil and natural
gas leases upon execution of any contracts. Prior to the

                                       14
<PAGE>

commencement of drilling operations, a thorough title examination is conducted
and curative work is performed with respect to significant defects. To the
extent title opinions or other investigations reflect title defects, the
Company, rather than the seller of the undeveloped property, is typically
responsible to cure any such title defects at its expense. If the Company were
unable to remedy or cure any title defect of a nature such that it would not be
prudent to commence drilling operations on the property, the Company could
suffer a loss of its entire investment in the property. The Company has obtained
title opinions on substantially all of its producing properties and believes
that it has satisfactory title to such properties in accordance with standards
generally accepted in the oil and natural gas industry. Prior to completing an
acquisition of producing oil and natural gas leases, the Company obtains title
opinions on all leases. The Company's oil and natural gas properties are subject
to customary royalty interests, liens for current taxes and other burdens that
the Company believes do not materially interfere with the use of or affect the
value of such properties.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business that management
believes would not have a material adverse effect on its financial condition or
results of operations

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     During the quarter ended December 31, 1997, no matters were submitted by
the Company to a vote of its security holders.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

     As of March 30, 1998, there were 70,000 shares of the Registrant's Voting
Common Stock, no par value, owned by McLain J. Forman, the Company's Chairman of
the Board, President and Chief Executive Officer, and 20,000 shares of the
Registrant's Non-voting Common Stock, no par value, owned by four (4) beneficial
holders, outstanding.

     The Company has retained its earnings for future growth, and therefore,
does not anticipate paying cash dividends with respect to the Common Stock in
the foreseeable future.  In addition, the payment of dividends by the Company is
restricted by the Indenture governing the Company's outstanding 13.5% Senior
Secured Notes due 2004, Series B.


                                       15
<PAGE>

ITEM 6.   SELECTED FINANCIAL AND OPERATING DATA

     The following table sets forth a summary of selected historical financial
information of the Company for the periods set forth below.  This information is
derived from the financial statements of the Company and the notes thereto.  See
"Item 7.  Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Item 8.  Financial Statements and Supplementary
Data."  In 1994, the Company changed its fiscal year end from September 30 to
December 31.  As such, the financial information for the years ended September
30, 1994 and December 31, 1994 overlaps for January 1, 1994 to September 30,
1994.

                   SELECTED HISTORICAL FINANCIAL INFORMATION
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                                                YEAR ENDED
                                                                        YEAR ENDED DECEMBER 31,                SEPTEMBER 30,
                                                                ------------------------------------------  -------------------
                                                                   1997       1996        1995      1994      1994      1993
                                                                ----------  ---------   --------- --------  --------- ---------
                                                                        (Dollars in thousands, except per share amounts)
<S>                                                             <C>          <C>        <C>       <C>        <C>       <C>
STATEMENT OF OPERATIONS DATA:
   Oil and natural gas revenue..............................     $  14,235   $ 10,892    $  6,919  $  9,532   $ 8,718  $  7,868
   Cost and expenses:
     Oil and natural gas operating expenses.................         2,709      2,526       2,196     2,775     2,741     1,608
     Production taxes.......................................           699        585         661       791       678       684
     Depreciation, depletion and amortization...............         9,391      4,259       3,558     2,391     2,207     2,167
     Impairment expense.....................................        10,008          -           -         -         -         -
     General and administrative expense.....................         2,007      1,539         921     1,204     1,151       706
                                                                ----------  ---------   --------- --------- --------- ---------
         Total operating expenses..........................         24,814      8,909       7,336     7,161     6,777     5,165
                                                                ----------  ---------   --------- --------- --------- ---------
   Operating income (loss)..................................       (10,579)     1,983        (417)    2,371     1,941     2,703
     Interest expense.......................................         7,724      3,983       3,522     2,121     1,897     1,354
     Other income:
     Interest income........................................           371         37         194        14        12         9
     Overhead reimbursements................................            61         95         131        74        77        58
     Other..................................................            42         93          61       119       163       143
                                                                ----------  ---------   --------- --------- --------- ---------
          Net income (loss).................................       (17,829)    (1,775)     (3,553)      457       296     1,559
     Preferred stock dividends..............................          (923)         -           -         -         -         -
                                                                ----------  ---------   --------- --------- --------- ---------
          Net income (loss) attributed to
           common shares....................................     $ (18,752)  $ (1,775)   $ (3,553) $    457   $   296  $  1,559
                                                                ==========  =========   ========= ========= ========= =========
   Net income (loss) per common share.......................     $ (208.36)  $ (19.72)   $ (39.48) $   5.08   $  3.29  $  17.32
                                                                ==========  =========   ========= ========= ========= =========
   Weighted average shares outstanding......................        90,000     90,000      90,000    90,000    90,000    90,000
                                                                ==========  =========   ========= ========= ========= =========
Unaudited Pro Forma Data:

   Operating income (loss) before income taxes..............    $  (17,829)  $ (1,775)     (3,553) $    457       296     1,559
   Pro forma benefit (expense) for income
    taxes related to operations as an
    S Corporation (1)........................................        6,106        657       1,314      (169)     (110)     (577)
   Preferred stock dividends.................................         (923)         -           -         -         -         -
                                                                ----------  ---------   --------- --------- --------- ---------
   Pro forma net income (loss) attributed to
    common shares............................................   $  (12,646) $  (1,118)   $ (2,239) $    288 $     186 $    982
                                                                ==========  =========   ========= ========= ========= =========
   Pro forma net income (loss) per common share..............   $  (140.52) $   12.42)   $ (24.88) $   3.20 $    2.07 $   10.91
                                                                ==========  =========   ========= ========= ========= =========
   Weighted average shares outstanding.......................       90,000     90,000      90,000    90,000    90,000    90,000
                                                                ==========  =========   ========= ========= ========= =========
</TABLE>
                                       16
<PAGE>
             SELECTED HISTORICAL FINANCIAL INFORMATION (CONTINUED)
                   (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                                                 YEAR ENDED
                                                                        YEAR ENDED DECEMBER 31,                 SEPTEMBER 30,
                                                                -------------------------------------------   ------------------
                                                                   1997         1996       1995      1994      1994       1993
                                                                ----------    --------   --------  --------   --------   -------
<S>                                                             <C>          <C>        <C>       <C>        <C>        <C>
CASH FLOW DATA:
 Operating cash flows.......................................    $    7,851    $  9,083   $  1,237  $  2,217   $  3,697   $ 4,481
 Investing cash flows.......................................    $  (28,527)   $(15,394)  $ (1,468) $(17,387)  $(17,387)  $(7,258)
 Financing cash flows.......................................    $   21,003    $  6,128   $ (1,130) $ 14,812   $ 14,812   $ 3,748

BALANCE SHEET DATA (AT END OF PERIOD):
 Oil and gas properties, net................................    $   54,846    $ 37,052   $ 25,368  $ 20,339   $ 21,189   $11,515
 Total assets...............................................    $   69,631    $ 42,377   $ 29,160  $ 32,962   $ 25,746   $14,389
 Long-term debt, less current portion.......................    $   67,985    $ 39,021   $ 28,541  $ 27,049   $ 18,395   $ 8,677
 Stockholders' Equity.......................................    $  (18,861)   $ (5,033)  $ (3,258) $    295   $    569   $    80

</TABLE>

(1) For all periods presented herein, the Company has operated as an S
    Corporation for Federal and state income tax purposes. Upon the issuance of
    its preferred stock on June 3, 1997, the Company terminated its S
    Corporation election and will subsequently be treated as a C Corporation for
    tax purposes (See Note 1 to the Financial Statements). The unaudited pro
    forma data includes the effect of income taxes as if the Company were a C
    Corporation.


ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

GENERAL

     The following discussion is intended to assist in an understanding of the
Company's historical financial position and the results of operations for each
year of the three-year period ended December 31, 1997.  The Company's financial
statements and notes thereto contain detailed information that should be
referred to in conjunction with the following discussion.  See "Item 8.
Financial Statements and Supplementary Data."


OPERATING ENVIRONMENT

     The Company's revenues, profitability and future growth and the carrying
value of its oil and natural gas properties are substantially dependent on
prevailing prices of oil and natural gas.  The Company's ability to increase its
borrowing capacity and to obtain additional capital on attractive terms is also
influenced by oil and natural gas prices.  Prices for oil and natural gas are
subject to large fluctuation in response to relatively minor changes in the
supply of or demand for oil and natural gas, market uncertainty and a variety of
additional factors beyond the control of the Company.  While natural gas prices
seem most dependent on weather in North America and corresponding usage, oil
prices are more subject to global economic forces and supply.  Because all of
these factors are beyond the control of the Company, its marketing efforts have
been devoted to achieving the best price available with a limited amount of
fixed price sales and hedging transactions to take advantage of short-term
prices it believes to be attractive.

     Any substantial and extended decline in the price of oil or natural gas
would have an adverse effect on the Company's carrying value of its proved
reserves, borrowing capacity, revenues, profitability and cash flows from
operations.  Price volatility also makes it difficult to budget for and project
the return on either acquisitions or development and exploitation projects.

                                       17
<PAGE>

     The Company uses the full cost method of accounting for its investment in
oil and natural gas properties. Under the full cost method of accounting, all
costs of acquisition, exploration and development of oil and natural gas
reserves are capitalized into a "full cost pool" as incurred, and properties
in the pool are depleted and charged to operations using the future gross
revenue method based on the ratio of current gross revenue to total proved
future gross revenues, computed based on current prices. To the extent that such
capitalized costs (net of accumulated depreciation, depletion and amortization)
less deferred taxes exceed the present value (using a 10% discount rate) of
estimated future net cash flow from proved oil and natural gas reserves, and the
lower of cost and fair value of unproved properties after income tax effects,
excess costs are charged to operations. Once incurred, a write-down of oil and
natural gas properties is not reversible at a later date even if oil or natural
gas prices increase. The Company was required to write down its asset base at
the end of 1997 due to a downward revision of quantity estimates attributable to
a single fault block in the Lake Enfermer Field, combined with significant
declines in oil and natural gas prices from the end of 1996.

     On June 3, 1997, the Company issued preferred stock as further described
under "Long Term Financing." Prior to the issuance of this preferred stock,
the Company was taxed as an S Corporation.  See Note 1 to the financial
statements of the Company. The issuance of preferred stock terminated the S
Corporation status effective June 3, 1997. For the short year beginning June 4,
1997 and subsequent years, the Company is subject to Federal and state income
tax.

RESULTS OF OPERATIONS

     The following table sets forth certain operating information with respect
to the oil and natural gas operations of the Company and summary information
with respect to the Company's estimated proved oil and natural gas reserves.
See "Item 2. Properties-Oil and Gas Reserves."


<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                                    ------------------------------------------------
                                                                    1997                  1996                  1995
                                                                    ------------------------------------------------
<S>                                                                  <C>                   <C>                   <C>
Production:
   Oil (MBbls)...........................................              335                   330                   252
   Gas (MMcf)............................................            2,613                 1,325                 1,505
   Oil and gas (MBOE)....................................              770                   551                   503

Sales data (in thousands):
   Total oil sales.......................................          $ 6,600               $ 6,964               $ 4,327
   Total gas sales.......................................            7,636                 3,928                 2,592

Average sales prices:
   Oil (per Bbl).........................................          $ 19.72               $ 21.10               $ 17.19
   Gas (per Mcf).........................................             2.92                  2.96                  1.72
   Per BOE...............................................            18.48                 19.78                 13.77

Average costs (per BOE):
   Lease operating expenses..............................          $  3.52               $  4.59               $  4.37
   General and administrative............................             2.61                  2.79                  1.83
   Depreciation, depletion and amortization..............            12.20                  7.73                  7.08

Reserves at December 31:
   Oil (MBbls)...........................................            2,260                 2,512                 2,000
   Gas (MMcf)............................................           22,105                23,223                 9,593
   Oil and gas (MBOE)....................................            5,944                 6,382                 3,599
   Present value of estimated pre-tax future
      net cash flows  (in thousands).....................          $52,256               $87,381               $30,596

</TABLE>


                                       18
<PAGE>

     YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

     The Company's oil and gas revenues increased approximately $3.3 million, or
31% during 1997 to $14.2 million compared to $10.9 million in 1996.  Production
levels for 1997 increased 40% to 770 thousand barrels of oil equivalent
("MBOE") from 551 MBOE for 1996. Gas production volumes increased 97%, while
oil volumes increased 2%. The Company's average sales prices (including hedging
activities) for oil and natural gas for 1997 were $19.72 per Bbl and $2.92 per
Mcf versus $21.10 per Bbl and $2.96 per Mcf in 1996. Revenues increased $3.9
million due to the aforementioned production increases, offset by a $575,000
decrease in revenues due to lower oil and gas prices during 1997.

     On a BOE basis, lease operating expenses experienced a 23% decrease, to
$3.52 per BOE for 1997 from $4.59 per BOE in 1996. For 1997, lease operating
expenses were up 7%, from $2.5 million in 1996 to $2.7 million in 1997. This
increase was due to an increased number of wells operated and the higher
production rates in 1997.

     For 1997, depreciation, depletion and amortization ("DD&A") expense
increased 120% over 1996. The increase for the year is attributable to (i) the
Company's increased production and related future capital costs in 1997, (ii)
the downward revision of reserves attributable to a specific fault block in the
Lake Enfermer Field, and (iii) the write-off of deferred financing costs related
to the loans that were repaid in June, 1997. The accelerated write-off of
deferred financing costs during 1997 resulted from the December, 1996, change in
the maturity dates of the Endowment Energy Partners ("EEP") and Endowment
Energy Co-Investment Partnership ("EECIP") loans from December 31, 1999, and
September 30, 1998, respectively, to June 30, 1997 for each loan.

     Excluding the one-time write-off of deferred financing costs in 1997, the
DD&A expense for 1997 increased 107% over the comparable 1996 period. On a BOE
basis, which reflects the increases in production, the DD&A rate for 1997 was
$12.19 per BOE compared to $7.73 per BOE for 1996, an increase of 58%.

     For 1997, general and administrative ("G&A") expenses increased 33%, from
$1.5 million in 1996 to $2.0 million in 1997.  However, on a BOE basis, G&A
expenses declined 7%, from $2.79 per BOE in 1996 to $2.61 in 1997.

     The discounted present value of the Company reserves decreased 40%, from
$87.3 million at the end of 1996 to $52.2 million at the end of 1997, primarily
as a result of the negative revisions to reserves attributable specifically to
the single fault block in the Company's Lake Enfermer Field, combined with the
significant decline in both oil and gas prices between December 1996 and
December, 1997.  Oil prices declined 33%, from $25.32 in December, 1996 to
$16.98 in December, 1997, while gas prices declined 30% during the same period,
from $3.78 in 1996 to $2.65 in 1997. Based upon its ceiling test using the year-
end 1997 discounted present value of the Company reserves, the Company
experienced an impairment of its full cost pool in the amount of $1.8 million.
Additionally, due to a decline in oil and gas prices subsequent to December 31,
1997, the Company recalculated its ceiling test using March, 1998 prices and
recorded an additional $8.2 million writedown of its full cost pool.  The write-
down of the full cost pool in 1997 to recognize this impairment is reflected as
a separate expense item on the Company's financial statements (see "Item 8.
Financial Statements and Supplementary Data").

     Interest expense for 1997 increased to $7.7 million from $4.0 million for
1996. This increase of $3.7 million in interest expense is due primarily to (i)
$275,000 of interest on a term loan from Joint Energy Development Investments
Limited Partnership ("JEDI") made in December 1996 which was repaid in June
1997, and (ii) $3.5 million of additional interest in 1997 relating to the
issuance of $70 million principal amount of 13.5% Senior Secured Notes due 2004,
Series A (the "Series A Notes"), on June 3, 1997 (see "-Liquidity and Capital
Resources"). For the quarter ended December 31, 1997, interest expense increased
$1.48 million over the comparable fourth quarter of 1996. This increase was also
the result of the additional interest due on the Series A Notes as previously
discussed.

     Due to the factors described above, the net loss from operations increased
to $9.7 million for 1997, from a loss of $1.8 million for 1996.

                                       19
<PAGE>

     The Company issued a second class of stock on June 3, 1997, effectively
terminating its S Corporation election. As a result, the Company will be subject
to Federal and state income taxes for the results of operations subsequent to
June 2, 1997. In addition, due to the termination of the Company's status as an
S Corporation for federal income tax purposes, the Company was also required to
establish a net deferred tax liability calculated at the applicable Federal and
state tax rates resulting primarily from financial reporting and income tax
reporting basis differences in oil and gas properties. Accordingly, a net
deferred tax liability of $6,105,850 was accrued at June 3, 1997 and is included
in income tax expense for the year ended December 31, 1997. The Company recorded
a tax benefit for its current net operating loss for the period from June 1,
1997 to December 31, 1997 of $6,105,850, which is net of a valuation allowance
of $13,259 for that portion of deferred tax assets which management believes
will not be realized.  The net result of these two accruals was no tax effect
for the Company for the year ended December 31, 1997.


     YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

     During 1996, the Company reported increases in total production, operating
income and cash flow from operations, compared to 1995. Oil and natural gas
revenues increased 57% from $6.9 million in 1995 to $10.9 million in 1996.
Production volumes for oil increased 31% from 252 MBbls in 1995 to 330 MBbls in
1996. The increase in oil production increased revenues $2.6 million. Production
volumes for natural gas decreased 12% from 1,505 MMcf in 1995 to 1,325 MMcf in
1996. Although volumes decreased by 12%, revenues for natural gas increased $1.3
million due to a 72% increase in average natural gas prices in 1996. The overall
increase in oil and natural gas production was due to three new wells being
drilled and completed during 1996, which was partially offset by normal
production declines from existing wells. Increases in average oil and natural
gas prices were directly attributable to the general improved market conditions.

     Oil and natural gas operating expenses increased 14% from $2.2 million in
1995 to $2.5 million in 1996. This increase was due to the overall increase in
production generated from new oil and natural gas wells drilled and completed.

     DD&A expense increased 19% from $3.6 million in 1995 to $4.3 million in
1996. This increase was due to the overall increase in oil and natural gas
production, offset by a 27% decrease in the depletion rate.

     G&A increased 67% from $0.9 million in 1995 to $1.5 million in 1996. This
increase was due to the capitalization of $0.5 million of G&A in 1995
attributable to the conduct of the 3-D seismic survey. Excluding this
capitalization, G&A increased 7% during 1996.

     Interest expense increased 14% from $3.5 million in 1995 to $4.0 million in
1996. This increase was due to the imposition of interest on interest that was
accrued and not paid to the lender during all of 1996.

     Net income (loss) was $(1.8 million) in 1996 as compared to $(3.6 million)
in 1995, as a result of the factors described above.

                                       20
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Working Capital and Cash Flow - The Company had a working capital deficit
at December 31, 1997 of $852,000. The Company believes that its cash on hand
together with its cash flow from operations and available vendor financing will
be sufficient to fund its working capital needs for 1998 although certain
exploratory and development projects may have to be deferred. The Company will
require additional financing to complete its planned capital expenditures in
1999 and to service its outstanding debt. Management is reviewing alternative
sources of financing, including an initial public offering, to satisfy these
requirements. There can be no assurance that the Company will be able to obtain
this additional financing. The following summary table reflects comparative cash
flows for the Company for 1997 and 1996:

                                                     Year Ended December 31,
                                                     ----------------------
                                                      1997             1996
                                                     ----------    --------
                                                          (In thousands)

Net cash provided by operating activities..........    $  7,851     $ 9,083
Net cash used by investing activities..............     (28,527)    (15,394)
Net cash provided by financing activities..........      21,003       6,128



     For the year 1997, net cash provided by operating activities decreased to
$7.8 million from $9.1 million in 1996.  This decrease was primarily due to the
Company's increased interest expense from $4.0 million in 1996 to $7.7 million
in 1997, offset by a $3.3 million increase in oil and gas revenues during 1997
over 1996.

     Cash used in investing activities increased by $13.1 million, from $15.4
million in 1996 to $28.5 million in 1997.  This increase was a result of  (i)
the Company's acquisition of the Bayou Fer Blanc Field and the West Gueydan
Field for $3.5 million, (ii) the Company's acquisition of the overriding royalty
interest of EEP and EECIP in the Company's producing properties for $2.6
million, and increased drilling and workover activity in the Lake Enfermer and
Boutte Fields.

     During 1997, financing activities generated cash flow of $21.0 million, as
compared to $6.1 million of cash flow from financing activities during 1996.
The increase in cash during 1997 was primarily due to the $47.0 million increase
in net borrowings through the issuance of  $70 million principal amount of the
Notes and $10 million of Series A Cumulative Preferred Stock during June 1997,
as described below.

     LONG-TERM FINANCING - On June 3, 1997 the Company completed the private
sale to Jefferies & Company, Inc.  ("Jefferies") of 70,000 units ("Note Units")
consisting of $70 million principal amount of the Series A Notes and warrants to
purchase 29,067 shares of Common Stock, no par value (the "Common Stock"), of
the Company at a price of $65,667,000 in a transaction not registered under the
Securities Act (the "Act") in reliance upon Section 4(2) of the Act and Rule 506
of Regulation D under the Act.  Jefferies thereupon offered and resold the Note
Units only to qualified institutional buyers and a limited number of
institutional accredited investors at an initial price to such purchasers of
$68,467,000.  Concurrently with the offering of the Note Units, the Company
completed a private sale to Jefferies of 200,000 units ("Equity Units")
consisting of 200,000 shares of Series A Cumulative Preferred Stock and warrants
to purchase 14,533 shares of Common Stock.  The Equity Units were sold to
Jefferies for $9,200,000 in a transaction not registered under the Securities
Act in reliance upon Section 4 (2) of the Act and Rule 506 of Regulation D under
the Act.  Jefferies thereupon offered and resold the Equity Units only to
qualified institutional buyers and a limited number of institutional accredited
investors at an initial price to such purchasers of $10,000,000.The offerings
and sale of the Note Units and the Equity Units are referred to herein as the
"Offerings".  On November 5, 1997, the Company completed an exchange offer of
its 13.5% Senior Secured Notes due 2004, Series B (the "Series B Notes") that
were registered under the Securities Act of 1933, for the Series A Notes.  The
Series A Notes and the Series B Notes are collectively referred to as the
"Notes".

     The net proceeds to the Company from these Offerings were approximately
$74.9 million.  A portion of the net proceeds (approximately $9.5 million) was
segregated into a capitalized interest account to pay interest on the Notes
through June 1, 1998.  The Company used the remaining net proceeds of the
Offerings as follows: (i)

                                       21
<PAGE>

approximately $35.2 million was used to repay all of the outstanding
indebtedness (including accrued interest and associated fees) due under the EEP
and EECIP loans; (ii) approximately $10.5 million was used to repay all of the
outstanding indebtedness (including accrued interest and associated fees) due
under the JEDI loan; (iii) $2.6 million was used to purchase from EEP and EECIP
a 7.5% overriding royalty interest in the Company's Lake Enfermer Field, Manila
Village Field and Boutte Field; (iv) $5.0 million was used in connection with
the Company's acquisition from Forman Petroleum Corporation II ("FPCII"), a
company whose sole stockholder is McLain J. Forman (the Company's Chairman and
principal stockholder), all of FPCII's interest in the Bayou Fer Blanc Field and
the West Gueydan Field, of which $1.5 million was paid to FPCII, $1.0 million
was used to pay bank debt and $2.5 million was used to pay trade payables to
third parties; (v) Jefferies received a fee of $1.9 million for financial
advisory services provided to the Company and also received a warrant to
purchase 4,844 shares of Common Stock at the initial exercise price of $1.00 per
share; and (vi) $0.9 million was used to pay expenses of the Offerings. The
remaining net proceeds from the Offerings of $9.4 million are being used for
capital expenditures, working capital and other general corporate purposes.

     HEDGING ACTIVITIES - With the objective of achieving more predictable
revenues and cash flows and reducing the exposure to fluctuations in oil and
natural gas prices, the Company has entered into hedging transactions of various
kinds with respect to both oil and natural gas.  While the use of these hedging
arrangements limits the downside risk of reverse price movements, it may also
limit future revenues from favorable price movements.  In January 1997, the
Company entered into forward sales arrangements with respect to approximately
40% of its estimated net natural gas production in the Lake Enfermer Field
through April 1997, at a weighted average price of approximately $3.18 per Mcf.
At the same time, the Company hedged approximately 30% of its estimated net oil
production through June 1997 at a weighted average price of $23.75 per Bbl. In
October 1997, the Company entered into forward sales arrangements with respect
to approximately 25% of its estimated net natural gas production in the Lake
Enfermer Field through March 1998, at a weighted average price of approximately
$3.19 per Mcf. The Company continuously reevaluates its hedging program in light
of market conditions, commodity price forecasts, capital spending and debt
service requirements.  The Company may hedge additional volumes through 1998 or
it may determine from time to time to terminate its then existing hedging
positions.

     RECENT ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial Accounting
Standards Board issued Statement no. 130 ("FAS 130"), Reporting Comprehensive
Income.  FAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements.  FAS 130 is effective for fiscal years beginning after
December 15, 1997.  The Company intends to comply with the provisions of FAS
130.

     Also in 1997, the Financial Accounting Standards Board issued Statement No.
131 ("FAS 131"), Disclosures about Segments of an Enterprise and Related
Information.  FAS 131 establishes standards for the way that public business
enterprises report information about segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders.  It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers.  This Statement is effective for
financial statements for periods beginning after December 15, 1997.  The Company
intends to comply with the provisions of FAS 131.

     During early 1997, the Financial Accounting Standards Board issued
Statement No. 129 ("FAS 129"),  Disclosure of Information about Capital
Structure.  FAS 129 is effective for financial statements issued for periods
ending after December 15, 1997.  The Company believes it is in compliance with
the provisions of this Statement.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Information concerning this Item begins on Page F-1

                                       22
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

     The following table provides information concerning the directors and
executive officers of the Company. All directors hold office until the next
annual meeting of stockholders of the Company and until their successors have
been duly elected and qualified. All officers serve at the discretion of the
Board of Directors.
<TABLE>
<CAPTION>
                                                                                              Director
          Name             Age                            Position                             Since
          ----             ---                            --------                            --------
<S>                        <C>  <C>                                                           <C>
McLain J. Forman, Ph.D.     68  Chairman of the Board, Chief Executive Officer and President      1982
Harold C. Block             66  Vice President of Land and Acquisitions Director                  1997
Marvin J. Gay               54  Vice President of Finance and Administration and Director         1997
Michael A. Habetz           48  Vice President, Manager of Operations and Director                1997
Michael H. Price            50  Chief Financial Officer                                            N/A
Randolph R. Birkman         42  Director                                                          1997
John W. Sinders             43  Director                                                          1997
</TABLE>

     A brief biography of each director and executive officer follows:

     McLain J. Forman, Ph.D. founded the Company in 1982 and has served as the
Chairman of the Board, President and Chief Executive Officer of the Company
since inception. Dr. Forman began his career in 1955 as a consulting geologist
as a member of the predecessor firm of Atwater Consultants Ltd. Since 1960, Dr.
Forman has directed and supervised exploration and production activities for
clients and for his own account in the Gulf Coast Region. From 1972 to 1982, Dr.
Forman concentrated his efforts on originating and developing wildcat
exploration prospects with various industry and financial partners. With the
formation of the Company in 1982, his focus shifted to exploratory and
development prospects, and in 1991 the Company began to selectively acquire and
exploit producing properties. Dr. Forman earned a B.S. degree in Geology from
Tulane University and an M.A. degree and a Ph.D. in geology from Harvard
University.

     Harold C. Block is the Vice President of Land and Acquisitions and a
director of the Company. Mr. Block joined Forman Exploration Company, the
predecessor of the Company, in 1973 as Manager of the Land Department, and in
1982 he moved to his current position with the Company. Mr. Block began his
career with F.A. Callery, Inc. in 1957, where he became Land Manager in 1959.
Upon leaving Callery in 1971 until he joined the Company, Mr. Block was a
consultant and organized and conducted an oil and gas exploration program. Mr.
Block has a B.B.A. degree in Management from the University of Houston.

     Marvin J. Gay is the Vice President of Finance and Administration and a
director of the Company. Mr. Gay has been a Vice President of the Company since
he joined the Company at its inception in 1982. Mr. Gay was the Controller and
Treasurer of Forman Exploration Company, the predecessor of the Company, from
1974 to 1982. Before joining the Company, Mr. Gay was a consultant with Arthur
Andersen & Co. Mr. Gay holds a B.B.A. in Accounting from the University of
Mississippi. He is a Certified Public Accountant and a member of the American
Institute of Certified Public Accountants.

     Michael A. Habetz is Vice President, Manager of Operations and a director
of the Company. Mr. Habetz has been a Vice President and the Manager of
Operations since he joined the Company in 1993. From 1970 to 1987, he held
various supervisory and management positions with Texaco and Edwin L. Cox, where
he was responsible for all phases of drilling, completion, workover and
production operations. From 1987 until 1991, Mr. Habetz provided consulting
engineering services through Energy Research and Development Corporation, and in
1991, he

                                       23
<PAGE>

began to provide those services on a consulting basis for the Company. Mr.
Habetz holds a B.S. degree in Mechanical Engineering from Louisiana State
University.

     Michael H. Price is the Chief Financial Officer of the Company.  Before
joining the Company in December, 1997, Mr. Price was Vice President of the Chase
Manhattan Bank for twelve years, and was earlier employed by Atwater Consultants
and Amoco International Oil Company.  Mr. Price holds an MBA from the University
of Chicago and earned an M.Sc. from the London School of Economics and Political
Science.

     Randolph R. Birkman currently serves as Senior Vice President for the High
Yield Bond Research Department of Trust Company of the West ("TCW") and has been
with TCW or its predecessor-in-interest, Crescent Capital Corporation, since May
1995. From June 1993 to May 1995, Mr. Birkman was the Portfolio Manager of The
Pilgrim High Yield Trust, an open-end mutual fund which invested primarily in
fixed income corporate securities. Mr. Birkman also held the positions of Senior
Credit Analyst for Pilgrim Prime Rate Trust and an Equity Analyst for Pilgrim
Regional Bankshares, from October 1989 to June 1993. Mr. Birkman received his
B.A. degree in Psychology from the University of California, Davis and earned
his M.B.A. from Texas Tech University.

     John W. Sinders is currently an Executive Vice President in the Energy
Group of Jefferies & Company, Inc. and is a member of the Board of Directors of
Jefferies & Co., Inc. Prior to joining Jefferies in January 1993, Mr. Sinders
was a Managing Director and Manager of the Corporate Finance Department at
Howard, Weil, Labouisse, Friedrichs Incorporated where he had primary
responsibility for the oil service, refining and transportation industries.
Prior to joining Howard Weil in 1987, Mr. Sinders was a Partner at McGlinchey,
Stafford, Cellini and Lang, a New Orleans law firm. Mr. Sinders is also a member
of the Board of Directors of The Shaw Group, Inc. Mr. Sinders is a graduate of
the University of Virginia and received his law degree from the University of
Virginia School of Law. Mr. Sinders is admitted to the Louisiana and Tennessee
Bars.

     Pursuant to an understanding with McLain J. Forman, upon the completion of
the Offerings, Mr. Birkman and Mr. Sinders were elected directors.


ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     The following table sets forth certain information for the year ended
December 31, 1996 with respect to the compensation paid to Mr. Forman, the
Chairman, President and Chief Executive Officer, and the three other most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers"). No other executive officers of the Company received
annual compensation (including salary and bonuses earned) that exceeded $100,000
for the year ended December 31, 1997.
<TABLE>
<CAPTION>


                                                                   December 31, 1997
                                                                  Annual Compensation
                                                                  -------------------
                  Name and Principal Position                     Salary($)  Bonus($)
                  ---------------------------                     --------- ---------
<S>                                                               <C>       <C>
McLain J. Forman Ph.D.                                            $214,500    $16,875
  Chairman of the Board, Chief Executive Officer and President
Harold C. Block                                                    125,000      9,825
  Vice President of Land and Acquisitions
Marvin J. Gay                                                       99,750      7,838
  Vice President of Finance and Administration
Michael A. Habetz                                                  119,500      9,750
  Vice President, Manager of Operations
</TABLE>

                                       24
<PAGE>

1997 STOCK OPTION PLAN

     The 1997 Stock Option Plan (the "Stock Option Plan") was adopted by the
Board of Directors and approved by the sole stockholder of the Company in April
1997. A total of 36,333 shares of Common Stock have been reserved for issuance
pursuant to the Stock Option Plan. The Stock Option Plan provides for the grant
to employees, including officers of the Company, of "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and non-statutory stock options (collectively, the
"Awards"). In addition, nonemployee directors (the "Outside Directors") are
eligible to receive non-statutory stock options. The Company has granted
incentive stock options to certain employees, including directors and executive
officers, of the Company entitling such persons to purchase approximately 25% of
the Common Stock (on a fully diluted basis) at an exercise price equal to the
fair market value of the Common Stock as of the date of issuance, as established
by an independent appraiser selected by the Company.

     The Stock Option Plan provides that Awards may be granted to employees
(including officers) and directors of the Company. The Stock Option Plan is
administered by a committee designated by the Board. Subject to special
provisions relating to Outside Directors, the Board's designated committee
selects the employees to which Awards may be granted and the type of Award to be
granted and determines, as applicable, the number of shares to be subject to
each Award, the exercise price and the vesting of each Award. In making such
determination, the Board's designated committee takes into account the
employee's present and potential contributions to the success of the Company and
other relevant factors.


401(K) PLAN

     The Company has adopted a defined contribution retirement plan that
complies with Section 401(k) of the Code (the "401(k) Plan"). Pursuant to the
terms of the 401(k) Plan, all employees with at least one year of continuous
service are eligible to participate and may contribute up to 15% of their annual
compensation (subject to certain limitations imposed under the Code). The 401(k)
Plan provides that a discretionary match of employee contributions may be made
by the Company in cash. The Company has not made any matching contributions to
the 401(k) Plan in the past and does not anticipate making any such
contributions in 1997. The amounts held under the 401(k) Plan are invested among
various investment funds maintained under the 401(k) Plan in accordance with the
directions of each participant. Employee contributions under the 401(k) Plan are
100% vested and participants are entitled to payment of vested benefits upon
termination of employment.


COMPENSATION OF DIRECTORS

     Directors of the Company do not presently receive compensation for their
services as directors. Directors of the Company are entitled to reimbursement of
their reasonable out-of-pocket expenses in connection with their travel to and
attendance at meetings of the Board of Directors or committees thereof. In
addition, the Board or its designated committee may from time to time grant
Awards to directors pursuant to the terms of the Stock Option Plan. See
"--1997 Stock Option Plan."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     As of December 31, 1997, the beneficial ownership of the voting Common
Stock was as follows: (i) 70,000 shares of Common Stock (representing 100% of
the issued and outstanding voting shares of Common Stock) was owned by McLain J.
Forman and (ii) 67,444 shares of Common Stock were issuable upon exercise of
certain warrants (see "Description of Capital Stock--Warrants"). Certain
employees, including directors and executive officers, of the Company have
options to purchase approximately 25% of the Common Stock (on a fully diluted
basis). See "Description of Capital Stock--Common Stock."

                                       25
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     SEPTEMBER 1996 COMPANY LOAN - In September 1996, McLain J. Forman, the
Chairman of the Board, President, Chief Executive Officer and sole stockholder
of the Company, loaned $1.0 million to the Company on an unsecured basis for the
purpose of paying certain trade payables. As of April 10, 1997, the outstanding
balance of this loan was $140,000, the Company having repaid $500,000 from the
proceeds of the loan from JEDI and repaid $120,000 per month in February, March
and April 1997. The Company used a portion of the net proceeds from the
Offerings to pay the outstanding balance of such loan.

     SALE OF BAYOU FER BLANC FIELD AND WEST GUEYDAN FIELD - In August 1996, the
Company sold its interests in the Bayou Fer Blanc Field and the West Gueydan
Field to FPC II, a company whose sole shareholder is Mr. Forman, for a purchase
price of $950,000. In connection with such sale, FPC II assumed certain
liabilities of the Company relating to the completion of the 3-D seismic survey
conducted on those fields and other related matters. The Company used $5.0
million of the net proceeds from the Offerings in connection with FPC II's sale
back to the Company of its interests in the fields, of which $1.5 million was
paid to FPC II, $1.0 million was used to pay bank debt incurred by Mr. Forman in
connection with FPC II's purchase of the fields and $2.5 million was used to pay
trade payables to third parties. As a consequence of this sale, the Company now
owns 100% of the working interest in the Bayou Fer Blanc Field and 90% of the
working interest in the West Gueydan Field. See "Private Placement" and
"Business and Properties--Significant Project Areas."

     REPURCHASE OF LOAN WARRANTS - The Company, Mr. Forman and the certain
holders of warrants are parties to an agreement pursuant to which such holders
granted to Mr. Forman the right to purchase all of such warrants. See
"Description of Capital Stock--Warrants."

     PURCHASE OF OVERRIDING ROYALTY INTERESTS FROM EEP AND EECIP - Pursuant to
the Repayment Agreement dated December 16, 1996, among the Company, Mr. Forman,
EEP and EECIP, upon the Company's repayment of the outstanding balance of the
loans from EEP and EECIP on a date prior to June 16, 1997, the Company purchased
for $2.6 million overriding royalty interests in the Lake Enfermer Field, the
Manila Village Field and the Boutte Field equal to 7.5% of the Company's
interests in those fields. The effective date of the Company's acquisition of
such overriding royalty interests is the date on which the Company repaid such
loans and pays the purchase price of $2.6 million. The Company used $2.6 million
of the net proceeds from the Offerings to purchase such interests on June 3,
1997.

                                    PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)   1.  Financial Statements

   The following financial statements of the Company and the Report of the
Company's Independent Public Accountants thereon are included on pages F-1
through F-18 of this Form 10-K.

   Report of Independent Public Accountants

   Balance Sheet as of the years ended December 31, 1997 and 1996

   Statement of Operations for the three years in the period ended December 31,
   1997

   Statement of Stockholders' Equity for the three years in the period ended
   December 31, 1997

   Statement of Cash Flows for the three years in the period ended December 31,
   1997

   Notes to the Financial Statements

                                       26
<PAGE>

  2.  Financial Statement Schedules

  All schedules are omitted because the required information is inapplicable or
the information is presented in the Financial Statements or the notes thereto.

   3. Exhibits

     The following instruments and documents are included as Exhibits to this
Registration Statement.  Exhibits incorporated by reference are so indicated by
parenthetical information.


<TABLE>
<CAPTION>


 Exhibit No.                                       Exhibit
<C>            <S>

         3(i)  Restated Articles of Incorporation dated July 2, 1997 (filed as Exhibit 3(i) to
               the Registration Statement on Form S-4 filed on July 16, 1997 and incorporated
               by reference (File No. 333-31375)).

        3(ii)  Bylaws (filed as Exhibit 3(ii) to the Registration Statement on Form S-4 filed
               on July 16, 1997 and incorporated by reference (File No. 333-31375)).

          4.1  Indenture dated as of June 3, 1997 by and among the Forman Petroleum
               Corporation, as issuer and U.S. Trust Company of Texas, N.A., as trustee (filed
               as Exhibit 4.1 to the Registration Statement on Form S-4 filed on July 16, 1997
               and incorporated by reference (File No. 333-31375)).

          4.2  Act of Mortgage, Security Agreement, Assignment of Production and Financing
               Statement date November 21, 1996, by Forman Petroleum Corporation for the
               benefit of Joint Energy Development Investments Limited Partnership (filed as
               Exhibit 4.2 to the Registration Statement on Form S-4 filed on July 16, 1997
               and incorporated by reference (File No. 333-31375)).

          4.3  Act of First Amendment to Mortgage, Security Agreement, Assignment of
               Production and Financing Statement dated December 23, 1996, by and among Forman
               Petroleum Corporation and Joint Energy Development Investments Limited
               Partnership (filed as Exhibit 4.3) to the Registration Statement on Form S-4
               filed on July 16, 1997 and incorporated by reference (File No. 333-31375)).

          4.4  Act of Second Amendment to Mortgage, Security Agreement, Assignment of
               Production and Financing Statement dated June 3, 1997, by and among Forman
               Petroleum Corporation and U.S. Trust Company of Texas, N.A. (filed as Exhibit
               4.4 to the Registration Statement on Form S-4 filed on July 16, 1997 and
               incorporated by reference (File No. 333-31375)).

          4.5  Act of Assignment of Note and Liens dated June 3, 1997, by and among Joint
               Energy Development Investments Limited Partnership, as assignor, and U.S. Trust
               Company of Texas, N.A., as assignee (filed as Exhibit 4.5 to the Registration
               Statement on Form S-4 filed on July 16, 1997 and incorporated by reference
               (File No. 333-31375)).

          4.6  Act of Mortgage, Security Agreement, Assignment of Production and Financing
               Statement dated July 30, 1997, by Forman Petroleum Corporation for the benefit
               of U.S. Trust Company of Texas, N.A. as Trustee under the Indenture (filed as
               Exhibit 4.6 to the Registration Statement on Form S-4 filed on July 16, 1997
               and incorporated by reference (File No. 333-31375)).

         10.1  Registration Rights Agreement dated June 3, 1997 by and between Forman
               Petroleum Corporation and Jefferies & Company, Inc. regarding Notes and
               warrants to purchase Common Stock (filed as Exhibit 10.1 to the Registration
               Statement on Form S-4 filed on July 16, 1997 and incorporated by reference
               (File No. 333-31375)).

         10.2  Registration Rights Agreement dated June 3, 1997 by and between Forman

</TABLE>

                                       27
<PAGE>

<TABLE>
<CAPTION>

<C>            <S>


               Petroleum Corporation and Jefferies & Company, Inc. regarding Series A
               Cumulative Preferred Stock and warrants to purchase Common Stock (filed as
               Exhibit 10.2 to the Registration Statement on Form S-4 filed on July 16, 1997
               and incorporated by reference (File No. 333-31375)).

         10.3  Warrant Agreement dated June 3, 1997 by and between Forman Petroleum
               Corporation and U.S. Trust Company of Texas, N.A. regarding warrants issued in
               connection with issuance of Series A Cumulative Preferred Stock (filed as
               Exhibit 10.3 to the Registration Statement on Form S-4 filed on July 16, 1997
               and incorporated by reference (File No. 333-31375)).

         10.4  Warrant Agreement dated June 3, 1997 by and between Forman Petroleum
               Corporation and U.S. Trust Company of Texas, N.A. regarding warrants issued in
               connection with issuance of Old Notes (filed as Exhibit 10.4 to the
               Registration Statement on Form S-4 filed on July 16, 1997 and incorporated by
               reference (File No. 333-31375)).

          27*  Financial Data Schedule.
</TABLE>

*   Filed herewith.

                                       28
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New
Orleans, the State of Louisiana on March 30, 1998.

                              FORMAN PETROLEUM CORPORATION



                              By: /s/ McLain J. Forman
                                 -----------------------------------
                                 McLain J. Forman
                                 Chairman of the Board, Chief
                                 Executive Officer and President

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Form 10-K has been signed by the following persons in the
capacities and on the dates indicated.


             Name                       Title                        Date
             ----                       -----                        ----


/s/ McLain J. Forman            Chairman of the Board Chief     March 30, 1998
----------------------------    Executive Officer and President
McLain J. Forman                (Principal Executive Officer)


/s/ Harold C. Block             Vice President of Land and      March 30, 1998
----------------------------    Acquisitions and Director
Harold C. Block



/s/ Marvin J. Gay               Vice President of Finance and   March 30, 1998
----------------------------    Administration and Director
Marvin J. Gay                   (Principal Financial and
                                Accounting Officer)


/s/ Michael A. Habetz           Vice President, Manager of      March 30, 1998
----------------------------    Operations and Director
Michael A. Habetz



/s/ Michael H. Price            Chief Financial Officer         March 30, 1998
----------------------------
Michael H. Price


                                Director
----------------------------
Randolph R. Birkman


                                Director
----------------------------
John W. Sinders



                                       29
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                             Page
                                                             ----
<S>                                                          <C>
Report of Independent Public
 Accountants...........................................      F-2

Balance Sheets as of the Years Ended
 December 31, 1997 and  1996...........................      F-3

Statements of Operations for the Three Years
 in the Period Ended December 31, 1997.................      F-4

Statements of Stockholders' Equity for the
 Three Years in the Period Ended December 31, 1997.....      F-5

Statements of Cash Flows for the Three Years
 In the Period Ended December 31, 1997.................      F-6

Notes to Financial Statements..........................      F-7
</TABLE>

                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Stockholder of Forman Petroleum Corporation:

We have audited the accompanying balance sheets of Forman Petroleum Corporation
(a Louisiana corporation) as of December 31, 1997 and 1996, and the related
statements of operations and accumulated deficit and cash flows for each of the
three years in the period ended December 31, 1997.  These financial statements
are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Forman Petroleum Corporation as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.



New Orleans, Louisiana,
March 16, 1998

                                      F-2
<PAGE>

                         FORMAN PETROLEUM CORPORATION

                                BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                   ------------------------------
                                                                        1997            1996
                                                                   --------------  --------------
<S>                                                                <C>             <C>
                                   ASSETS
                                   ------
CURRENT ASSETS:
 Cash and cash equivalents                                          $    457,869     $    130,551
 Accounts receivable                                                     597,991          500,602
 Oil and gas revenue receivable                                        2,407,315        2,503,478
 Unbilled well costs                                                      48,806           60,188
 Restricted cash                                                       3,937,500                -
 Due from related parties (Note 8)                                             -           12,457
                                                                    ------------     ------------
      Total current assets                                             7,449,481        3,207,276
                                                                    ------------     ------------

PROPERTY AND EQUIPMENT, at cost (Notes 1, 2 and 8):
  Oil and gas properties, full cost method                            77,029,339       48,359,890
  Other property and equipment                                         1,650,793        1,425,451
                                                                    ------------     ------------
                                                                      78,680,132       49,785,341
 Less- accumulated depreciation, depletion and
  amortization (Note 1)                                              (30,451,675)     (12,433,801)
                                                                    ------------     ------------
      Net property and equipment                                      48,228,457       37,351,540
                                                                    ------------     ------------

OTHER ASSETS:
 Due from affiliate (Note 8)                                                   -          327,828
 Escrowed and restricted funds (Note 6)                                  515,096          881,970
 Deferred financing costs (net of accumulated amortization of
  $564,933 and $1,772,026 respectively) (Note 1)                       6,366,367          460,954
 Deferred charges (Note 1)                                               170,529          147,097
                                                                    ------------     ------------
      Total assets                                                  $ 62,729,930     $ 42,376,665
                                                                    ============     ============

         LIABILITIES AND STOCKHOLDERS' DEFICIT
         -------------------------------------

CURRENT LIABILITIES:
 Accounts payable and accrued liabilities                           $  6,438,278     $  6,241,069
 Undistributed oil and gas revenues                                    1,848,497        1,625,517
 Current portion of long-term debt (Note 2)                               13,992           21,160
 Note payable to stockholder (Note 8)                                          -          500,000
                                                                    ------------     ------------
      Total current liabilities                                        8,300,767        8,387,746
                                                                    ------------     ------------

Notes payable (Note 2)                                                68,013,552       39,021,487
Mandatorily redeemable Preferred Stock, no par value,
 1,000,000 authorized shares, 200,000 shares outstanding              10,589,588                -

STOCKHOLDERS' DEFICIT:
 Common stock, no par value, authorized 1,000,000
  shares; issued and outstanding 90,000 shares                             1,000            1,000
 Treasury stock                                                              (10)             (10)
 Accumulated deficit                                                 (24,174,967)      (5,033,558)
                                                                    ------------     ------------
      Total stockholder's deficit                                    (24,173,977)      (5,032,568)
                                                                    ------------     ------------
                                                                    $ 62,729,930     $ 42,376,665
                                                                    ============     ============
</TABLE>

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

                                      F-3
<PAGE>

                          FORMAN PETROLEUM CORPORATION

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                    -------------------------------------------------------
                                                                          1997               1996               1995
                                                                    -----------------  -----------------  -----------------
<S>                                                                 <C>                <C>                <C>
Revenues:
 Oil and gas sales                                                      $ 14,235,272        $10,891,640        $ 6,918,727
 Interest income                                                             370,569             36,740            193,594
 Overhead reimbursements                                                      60,838             95,672            131,308
 Other income                                                                 42,178             94,051             60,615
                                                                        ------------        -----------        -----------
         Total revenues                                                   14,708,857         11,118,103          7,304,244
                                                                        ------------        -----------        -----------

Costs and expenses:
 Production taxes                                                            699,638            584,710            660,132
 Lease operating expenses                                                  2,708,570          2,526,488          2,196,420
 General and administrative expenses                                       2,006,768          1,539,245            919,837
 Interest expense                                                          7,723,717          3,982,797          3,522,285
 Full cost ceiling writedown                                              10,008,121                  -                  -
 Depreciation, depletion and amortization                                  9,391,640          4,259,412          3,558,215
                                                                        ------------        -----------        -----------
         Total expenses                                                   32,538,454         12,892,652         10,856,889
                                                                        ------------        -----------        -----------

Net loss from operations                                                 (17,829,597)        (1,774,549)        (3,552,645)

Provision for income taxes                                                         -                  -                  -
                                                                        ------------        -----------        -----------

Net loss                                                                 (17,829,597)        (1,774,549)        (3,552,645)

Preferred stock dividends                                                   (922,912)                 -                  -
                                                                        ------------        -----------        -----------

Net loss attributable to common shares                                  $(18,752,509)       $(1,774,549)       $(3,552,645)
                                                                        ============        ===========        ===========

Net loss per share                                                          $(208.36)           $(19.72)           $(39.47)
                                                                            ========            =======            =======

Weighted average shares outstanding                                           90,000             90,000             90,000
                                                                            ========            =======            =======

UNAUDITED PRO FORMA DATA (Note 1):
  Net loss from operations reported above                               $(17,829,597)       $(1,774,549)       $(3,552,645)
  Pro forma benefit for income taxes related to
   operations as an S Corp                                                 6,105,850            656,583          1,314,478
       Preferred stock dividends                                            (922,912)                 -                  -
                                                                        ------------        -----------        -----------
      Pro forma net loss                                                $(12,646,659)       $(1,117,966)       $(2,238,167)
                                                                        ============        ===========        ===========
      Pro forma net loss per share                                          $(140.52)           $(12.42)           $(24.87)
                                                                            ========            =======            =======

  Weighted average shares outstanding                                         90,000             90,000             90,000
                                                                            ========            =======            =======
</TABLE>

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

                                      F-4
<PAGE>

                          FORMAN PETROLEUM CORPORATION

                       STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                        Additional
                                           Common       Treasury         Paid-In         Accumulated
                                            Stock         Stock           Capital          Deficit            Total
                                           ------       -----------      -----------      -----------     -------------
<S>                                        <C>         <C>               <C>              <C>             <C>
BALANCE, December 31, 1994                 $1,000      $        (10)     $   785,823      $   (492,187)   $    294,626
 Net loss                                      --                --               --        (3,552,645)     (3,552,645)
                                           ------      ------------      -----------      ------------    ------------
BALANCE, December 31, 1995                  1,000               (10)         785,823        (4,044,832)     (3,258,019)
 Net loss                                      --                --               --        (1,774,549)     (1,774,549)
                                           ------      ------------      -----------      ------------    ------------
BALANCE, December 31, 1996                  1,000               (10)         785,823        (5,819,381)     (5,032,568)
 Net loss                                      --                --               --       (17,829,597)    (17,829,597)
                                           ------      ------------      -----------      ------------    ------------
ISSUANCE OF WARRANTS
   TO PURCHASE COMMON
   STOCK (Note 4)                              --                --        1,111,100                --       1,111,100

RECLASS ACCUMULATED
   DEFICIT TO ADDITIONAL
   PAID IN CAPITAL                             --                --       (1,896,923)        1,896,923              --

DISTRIBUTION TO SOLE
   STOCKHOLDER (Note 8)                        --                --               --        (1,500,000)     (1,500,000)

ACCRUE DIVIDENDS ON
   MANDATORILY REDEEMABLE
   PREFERRED STOCK                             --                --               --          (898,605)       (898,605)

ACCRETION OF DISCOUNT
   ON MANDATORILY
   REDEEMABLE PREFERRED
   STOCK                                       --                --               --           (24,307)        (24,307)
                                           ------      ------------      -----------      ------------    ------------
BALANCE, December 31, 1997                 $1,000              $(10)     $        --      $(24,174,967)   $(24,173,977)
                                           ======      ============      ===========      ============    ============
</TABLE>


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

                                      F-5
<PAGE>

                          FORMAN PETROLEUM CORPORATION

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                 1997          1996          1995
                                                            ------------   ------------   -----------
<S>                                                         <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                   $(17,829,597)  $ (1,774,549)  $(3,552,645)
 Adjustments to reconcile net loss to net cash provided
  by operating activities-
   Depreciation and amortization                              19,399,761      4,259,412     3,558,215
   Gain on sale of assets                                             --             --       (11,189)
   Interest expense refinanced                                        --      3,627,948            --
     Withdrawal from interest escrow account                   5,471,852             --            --
 Change in assets and liabilities-
  (Increase) Decrease in oil and gas revenue receivable           96,163     (1,303,465)       39,033
  (Increase) Decrease in accounts receivable                     (97,389)      (370,025)      321,120
  (Increase) Decrease in unbilled well costs and prepaids         52,030         43,124        87,821
  Increase (Decrease) in accounts payable                        197,209      4,260,163     1,201,047
  Increase (Decrease) in undistributed oil and gas revenues      222,980        669,095      (287,570)
  Increase in deferred charges                                        --         (1,350)      (22,405)
  Increase (Decrease) in due from related parties                 12,457       (327,828)      (12,457)
  Decrease in due to stockholder                                 327,828             --       (47,935)
                                                            ------------   ------------   -----------
      Net cash provided by operating activities                7,853,294      9,082,525     1,273,035
                                                            ------------   ------------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Additions to oil and gas properties                         (28,669,449)   (16,300,593)   (8,078,633)
 Reduction of (deposit into) escrow account                      366,874         15,692     6,715,008
 Purchase of other property and equipment                       (224,868)       (59,334)     (179,346)
 Proceeds from sale of oil and gas property                           --        950,000            --
 Proceeds from sale of non-oil & gas property                         --             --        75,000
                                                            ------------   ------------   -----------
      Net cash used in investing activities                  (28,527,443)   (15,394,235)   (1,467,971)
                                                            ------------   ------------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from notes payable                                  71,800,333      7,000,000        39,139
 Repayment of notes payable                                  (43,542,096)      (566,442)   (1,152,216)
   Deposit into interest escrow account                       (9,450,000)
   Proceeds from preferred stock                               9,666,667
   Proceeds from issuance of warrants                          1,000,000
   Distribution to stockholder                                (1,500,000)
 Deferred financing costs                                     (6,973,437)      (305,367)      (17,224)
                                                            ------------   ------------   -----------
      Net cash (used) provided by financing activities        21,001,467      6,128,191    (1,130,301)
                                                            ------------   ------------   -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             327,318       (183,519)   (1,325,237)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                  130,551        314,070     1,639,307
                                                            ------------   ------------   -----------

CASH AND CASH EQUIVALENTS - END OF PERIOD                   $    457,869   $    130,551   $   314,070
                                                            ============   ============   ===========
SUPPLEMENTAL DISCLOSURES:
 Cash paid for-
  Interest                                                  $  7,723,717   $     21,721   $ 2,258,565
                                                            ============   ============   ===========
  Income taxes                                              $         --   $         --   $        --
                                                            ============   ============   ===========
</TABLE>

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

                                      F-6

<PAGE>

                         FORMAN PETROLEUM CORPORATION

                         NOTES TO FINANCIAL STATEMENTS


                           DECEMBER 31, 1997 AND 1996


1.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
    -------------------------------------------------

Organization
------------

Forman Petroleum Corporation ("Forman" or the "Company"), a Louisiana
corporation, is an independent energy company engaged in the exploration,
development, acquisition and production of crude oil and natural gas, with
operations primarily in the onshore Gulf Coast area of Louisiana.  Forman was
incorporated in Louisiana in 1982 and began operations in that year.

Liquidity
---------

The Company is substantially leveraged.  As such, a significant portion of the
Company's cash flow from operations will be dedicated to debt service.  As with
other independent oil and gas producers, the Company is subject to numerous
uncertainties and commitments associated with its operations.  For example, the
Company's results of operations are highly dependent upon the prices received
for oil and gas.  In addition, the Company will be required to make substantial
future capital expenditures for the acquisition, exploration, development,
production and abandonment of its oil and gas properties.

The Company believes that its cash on hand together with its cash flow from
operations and available vendor financing will be sufficient to fund its working
capital needs for 1998, although certain planned exploratory and development
projects may have to be deferred.  The Company will require additional financing
to complete its planned capital expenditures in 1999 and to service its
outstanding debt.  Management is reviewing alternative sources of financing,
including an initial public offering, to satisfy these requirements.  There can
be no assurance that the Company will be able to obtain this additional
financing.

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

Forman utilizes the full-cost method of accounting, which involves capitalizing
all exploration and development costs incurred for the purpose of finding oil
and gas reserves, including the costs of drilling and equipping productive
wells, dry hole costs, lease acquisition costs and delay rentals.  The Company
also capitalizes certain related employee costs and general and administrative
costs which can be directly identified with significant acquisition, exploration
and development projects undertaken.  Such costs are amortized on the future
gross revenue method whereby amortization is computed using the ratio of gross
revenues generated during the period to total estimated future gross revenues
from proved oil and gas reserves.  Additionally, the capitalized costs of oil
and gas properties cannot exceed the present value of the estimated net cash
flow from its proved reserves, together with the lower of cost or estimated fair
value of its undeveloped properties (the full cost ceiling).  Transactions
involving sales of reserves in place, unless extraordinarily large portions of
reserves are involved, are recorded as adjustments to accumulated depreciation,
depletion and amortization.

Cash and Cash Equivalents
-------------------------

The Company considers all highly liquid investments with an original maturity of
three months or less to be cash and cash equivalents.

                                      F-7
<PAGE>

Depreciation of Other Property and Equipment
--------------------------------------------

Depreciation of property and equipment other than oil and gas properties is
provided on the straight-line method over the estimated useful lives of the
assets.

Deferred Financing Costs
------------------------

For oil and gas property acquisitions which were burdened by an overriding
royalty interest assigned to its lenders (see Note 3), the Company allocated a
portion of the purchase price of such acquisitions to deferred financing costs.
The amount allocated is proportional to the discounted future net cash flows
associated with the interest assigned as compared to the total discounted future
net cash flows for the acquisition (before carve-out of the overriding royalty
interest) as of the date of the acquisition. These allocated costs, along with
other costs of obtaining financing, were deferred and amortized using the
effective interest method over the term of the related debt.

Fair Value of Financial Instruments
-----------------------------------

Fair value of cash, cash equivalents, accounts receivable and accounts payable
approximates book value at December 31, 1997.  Fair value of long term debt was
based on the quoted market price for the debt as of the date of the last trade
concluded in calendar 1997. At December 31, 1997, given existing market
conditions, the book value approximates fair value of the outstanding long-term
debt.

Income Taxes
------------

Through its fiscal year ended December 31, 1996, Forman elected to file as an S
Corporation for income tax reporting purposes.  Under this election, income from
the corporation is treated as taxable federal and state income of the individual
stockholder.  Accordingly, no provision for income taxes has been included in
the accompanying financial statements for years ended prior to January 1, 1997.

As discussed in Note 2, the Company issued a second class of stock on June 3,
1997, effectively terminating its S Corporation election.  As a result, the
Company is subject to federal and state taxes.  The Company was also required to
establish a net deferred tax liability calculated at the applicable federal and
state tax rates resulting primarily from financial reporting and income tax
reporting basis differences in oil and gas properties and other basis
differences between cash and accrual basis accounting.  (See Note 3)

For purposes of the unaudited pro forma income tax benefit and net loss per
share, the accompanying financial statements include income tax benefits for the
portion of the losses which would have been offset against the deferred tax
liability created as a result of the termination of the S Corporation election.

Pervasiveness of Estimates
--------------------------

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Deferred Charges
----------------

The Company has capitalized $170,429 of legal and professional costs as of
December 31, 1997, related to the preparation of documents for an initial public
offering.  These costs will be deducted from proceeds of the offering or charged
to expense if an initial public offering is not consummated.

Derivatives
-----------

The Company uses derivative financial instruments such as swap agreement
contracts for price protection purposes on a limited amount of its future
production and does not use them for trading purposes.  Such derivatives are

                                      F-8
<PAGE>

accounted for on an accrual basis and amounts paid or received under the
agreements are recognized as oil and gas sales in the period in which they
accrue. For the year ended December 31, 1997, the Company recorded revenue of
$189,300 under these swap agreements.  At December 31, 1997, the Company had no
such open swap contracts.

Certain Concentrations
----------------------

During 1997, 100% of the Company's oil and gas production was sold to four
customers.  Based on the current demand for oil and gas, the Company does not
believe the loss of any of these customers would have a significant financially
disruptive effect on its business or financial condition.

Per Share Amounts
-----------------

In February 1997, the Financial Accounting Standards Board issued SFAS 128,
"Earnings Per Share", which simplifies the computation of earnings per share
(EPS).  The Company adopted SFAS 128 in the fourth quarter of 1997, and restated
prior years EPS data.  Net loss per share and pro forma net loss per share of
common stock were calculated by dividing net loss applicable to common stock by
the weighted-average number of common shares outstanding during the year.  Due
to the net losses reported in all periods presented, options (Note 7) and
warrants (Note 4) outstanding have not been considered because their exercise
would be antidilutive

Recent Accounting Pronouncements
--------------------------------

During early 1997, the Financial Accounting Standards Board issued Statement No.
129 ("FAS 129"), Disclosure of Information about Capital Structure.  FAS 129 is
effective for financial statements issued for periods ending after December 15,
1997.  The Company believes it is in compliance with the provisions of this
Statement.

In June 1997, the Financial Accounting Standards Board issued Statement No. 130
("FAS 130"), Reporting Comprehensive Income.  FAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements.  FAS 130 is effective for fiscal years
beginning after December 15, 1997.  The Company intends to comply with the
provisions of FAS 130.

Also in 1997, the Financial Accounting Standards Board issued Statement No. 131
("FAS 131"), Disclosures about Segments of an Enterprise and Related
Information.  FAS 131 establishes standards for the way that public business
enterprises report information about segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders.  It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers.  This Statement is effective for
financial statements for periods beginning after December 15, 1997.  The Company
intends to comply with the provisions of FAS 131.

                                      F-9
<PAGE>

2.    NOTES PAYABLE:
      --------------

Notes payable was composed of the following at:


<TABLE>
<CAPTION>
                                                                        December 31,
                                                                --------------------------
                                                                    1997           1996
                                                                -----------    -----------
        <S>                                                     <C>
<C>
        70,000 units of $1,000 principal amount Senior
        Secured Notes  due 2004, Series B, and bearing
        interest at 13.5% per annum payable semi-annually in
        cash in arrears on June 1 and December 1, with
        warrants to purchase common stock                       $67,984,814

        Whitney National Bank, due November 9, 1997, and
        bearing interest at 8.75% in 1996; interest due
        monthly, unsecured.                                                         10,000

        Endowment Energy Partners, L.P. ("EEP"), principal and
        Interest due June 23, 1997, and bearing interest at
        12%.                                                                    13,607,469

        Endowment Energy Co. - Investment Partnership
        ("EECIP"), principal and interest due June 23, 1997,
        and bearing interest at 12%.                                            19,410,259



        Joint Energy Development Investments Ltd Partnership
        ("JEDI"), principal and interest due June 16, 1997,
        and bearing interest at 10%.                                             6,000,000


        Other                                                        42,730         14,919
                                                                -----------    -----------

                                                                 68,027,544     39,042,647
        Less:  current portion                                      (13,992)       (21,160)
                                                                -----------    -----------

                                                                $68,013,552    $39,021,487
                                                                ===========    ===========
</TABLE>

The EEP note was originally secured 1) by a first priority lien against 100% of
Forman's right, title and interest in the Manila Village and Bayou Dularge
Fields, and 2) second priority lien against 100% of Forman's right, title and
interest in the Lake Enfermer, Boutte and Lafourche Crossing Fields.  The EECIP
note was originally secured 1) by a first priority lien against 100% of Forman's
right, title and interest in the Lake Enfermer, Boutte and Lafourche Crossing
Fields, and 2) second priority lien against 100% of Forman's right, title and
interest in the Manila Village and Bayou Dularge Fields.  During 1996, both
lenders' liens were subordinated to the new JEDI term loan.  Additionally, as
discussed in Note 1, Forman had assigned a 10% overriding royalty interest on
its interests acquired in the Manila Village Field to EEP, an 8% overriding
royalty interest on its interest acquired in the Bayou Dularge Field and a 10%
overriding royalty interest on its interests acquired in the Boutte and Lake
Enfermer Fields to EECIP.  Both the EEP and EECIP agreements contained covenants
which required, among other things, that Forman maintain a certain working
capital level and debt service ratio.  In connection with the Repayment
Agreement with EEP and EECIP (discussed below), the Company received certain
waivers to these covenants which were to remain in effect until maturity of the
EEP and EECIP loans on June 16, 1997.

The JEDI note was issued December 16, 1996, and had a maximum commitment of
$10,000,000.  Proceeds from the note were used to repay a prior bridge note and
outstanding accounts payables.  As mentioned above, EEP and EECIP had
subordinated their respective liens to the liens of JEDI.  The JEDI note
agreement contained convenants with which Forman complied.  Under the JEDI loan
agreement, the Company agreed to auction off its oil and gas properties if it
was unable to satisfy the principal indebtedness in full before the maturity
date (June 16, 1997).

Concurrent with the issuance of the JEDI note, the Company, EEP, and EECIP
entered into a repayment agreement concerning the current principal and accrued
interest balances outstanding under the EEP and EECIP loans.  Unpaid

                                     F-10
<PAGE>

accrued interest of $4,502,000 at December 16, 1996, was added to the
outstanding principal balance and a forbearance of loan covenants was granted.
The terms of the repayment agreement called for the full repayment of all
amounts due EEP and EECIP no later than the maturity date of the JEDI note (June
16, 1997). In the event the Company was unable to secure alternate financing
sufficient to repay the JEDI note and the EEP and EECIP loans, the Company had
agreed to promptly auction off its oil and gas properties in order to generate
sufficient funds to fully repay the EEP and EECIP loans.

Also, concurrent with the above transactions, EEP and EECIP granted certain
options to JEDI and the Company to purchase a portion of the respective lenders'
overriding royalty interest discussed above for a predetermined amount,
exerciseable upon the full satisfaction of all outstanding indebtedness to EEP
and EECIP.

On June 3, 1997, the Company closed offerings for 70,000 units consisting of
$70,000,000 of 13.5% Senior Secured Notes due 2004 with warrants to purchase
common stock and 200,000 units consisting of $10,000,000 of Series A Cumulative
Preferred Stock with warrants to purchase common stock (see Note 4). A portion
of the proceeds from the offerings were used to repay the EEP, EECIP, and JEDI
notes, purchase 75% of the overriding royalty interests held by EEP and EECIP,
and buy back its interests in Bayou Fer Blanc and West Gueydan Fields (see Note
8). In addition, the Company was required to escrow from the proceeds the first
year's interest obligation on the 13.5% Senior Notes ($9,450,000). As part of
the offerings, the Company has publicly registered the 13.5% Senior Notes and
has agreed to publicly register the Preferred Stock and bear all costs related
thereto.

At December 31, 1996, the EEP, EECIP, and JEDI notes were classified as long-
term in the accompanying balance sheets as a result of the refinancing discussed
above.

The aggregate principal payments required for each of the next five years are as
follows:

<TABLE>
<CAPTION>
                        December 31,
                        ------------
                        <S>                         <C>
                           1998                           $    13,992
                           1999                                12,798
                           2000                                13,426
                           2001                                 2,514
                           2002                                     -
                        Thereafter                         67,984,814
                                                          -----------
                                                          $68,027,544
                                                          ===========
</TABLE>


3.  INCOME TAXES:
    -------------

The company follows the asset and liability method of accounting for deferred
income taxes prescribed by the Financial Accounting Standards Board Statement
No. 109 (FAS 109) "Accounting for Income Taxes".  During 1997, as a result of
the termination of its S Corporation election, the Company was required to
provide a net deferred tax liability of $6,105,850 which was charged to income
tax expense.  At December 31, 1997, the Company has the following deferred tax
assets and liabilities recorded:

<TABLE>
<CAPTION>
                                                          ASSET
                                                       (LIABILITY)
                                                    -----------------
<S>                                                 <C>
Federal net operating loss carryforward                   $ 6,426,093
Temporary differences:
    Oil and gas properties                                 (9,920,135)
    Section 481(a) adjustment                               3,507,301
    Valuation allowance                                       (13,259)
                                                          -----------
Net tax liability                                         $        --
                                                          ===========
</TABLE>

                                     F-11
<PAGE>

At December 31, 1997, the Company had, for tax reporting purposes, operating
loss carryforwards ("NOL") of $17,400,000 which expire in 2012.

The provision for income taxes at the Company's effective tax rate differed from
the provision for income taxes at the statutory rate as follows:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                                   1997
                                                               ------------
<S>                                                            <C>
Computed benefit at the expected
statutory rate....................................             $(6,240,358)
Provision upon termination of
S Corporation election............................               6,105,850
Tax effect of losses attributable to
Operations as an S Corporation....................                 703,594

Other.............................................                (569,086)
                                                               -----------
Income tax expense................................             $         -
                                                               ===========
</TABLE>


4.  STOCK WARRANTS ISSUED:
    ----------------------

As a condition precedent to the loan from EEP, Forman executed and delivered to
EEP a warrant assigning and conveying to EEP the right to purchase nine shares
of Forman's common stock, no par value per share, at an exercise price of
$25,000 per share.  No value was assigned to this warrant because its exercise
price was substantially in excess of the estimated market value of Forman's
stock at the date of grant and the Company believed its value to be immaterial.
The exercise date of the warrant is the earliest of a) the date on which Forman
agrees to sell all or substantially all of the outstanding common stock or
assets of the Company; b) the date on which the Company files a registration for
public sale of the Company's stock; or c) thirty days prior to the expiration
date of the warrants, which is December 31, 2025.  As a result of a stock split
during 1993, the number of common shares available for purchase under this
warrant increased from 9 to 9,000, with a corresponding reduction of the
exercise price from $25,000 per share to $25 per share.

In connection with the EECIP financing, Forman executed and delivered to EECIP a
warrant assigning and conveying the right to purchase ten shares of Forman's
common stock.  The exercise price was based on a calculated value of the
Company, and was subsequently established at $44,567 per share.  No value was
assigned to this warrant because its exercise price was substantially in excess
of the estimated market value of Forman's stock, at the date of grant and the
Company believed its value to be immaterial.  The exercise date for this warrant
is the earliest of (a) the date Forman agrees to sell all or substantially all
of the outstanding shares of common stock or assets of the Company for cash or
securities in a publicly traded company; (b) the date Forman files a
registration for the public sale of its common stock; or (c) thirty days prior
to the expiration date, which is December 31, 2025.  As a result of a stock
split during 1993, the number of common shares available for purchase under this
warrant increased from 10 to 10,000, with a corresponding reduction of the
exercise price from $44,567 per share to $44.57 per share.

In connection with the offerings discussed in Note 2, the Company issued
warrants to purchase 43,600 shares of common stock at an initial exercise price
of $1.00 per share, subject to adjustment in certain defined cases.  The
warrants are immediately exerciseable and will automatically expire on June 1,
2004.  The Company has allocated $666,667 and $333,333 of the proceeds received
from the sale of the note units and equity units, respectively, to the warrants
issued, which has been recorded as additional paid in capital at December 31,
1997.  In addition, the Company also issued warrants to purchase 4,844 shares of
common stock under the same conditions as discussed above.  The Company has
recorded $111,100 of additional paid-in capital for these warrants, to be
amortized as deferred financing costs over the term of the note units.

                                     F-12
<PAGE>

5.  COMMITMENTS UNDER OPERATING LEASES:
    -----------------------------------

Forman has two noncancellable operating leases for the rental of office space,
which expire on July 31, 1999 and January 14, 2000.  Future commitments under
these leases are as follows:

<TABLE>
<CAPTION>
                       December 31,
                       ------------
                       <S>           <C>
                         1998           $208,677
                         1999            185,647
                         2000                  -
                         2001                  -
                         2002                  -
</TABLE>

Rental expense under operating leases during 1997, 1996 and 1995 was $204,046,
$192,633, and $192,847 respectively.


6.  ESCROWED AND RESTRICTED FUNDS:
    ------------------------------

Cash restricted for payment of abandonment costs for the Boutte and Bayou
Dularge Fields is classified as a long-term asset.  Such amounts are invested in
short-term interest-bearing investments.  The cash is escrowed under an
agreement which required Forman to make additional specified monthly
contributions through November 1995.  As of December 31, 1997, the escrow
accounts are fully funded.

7.  EMPLOYEE BENEFITS:
    ------------------

The Company has adopted a series of incentive compensation plans designed to
align the interests of executives and employees with those of its stockholders.
The following is a brief description of each plan.

1997 STOCK OPTION PLAN

The 1997 Stock Option Plan (the "Stock Option Plan") was adopted by the Board
of Directors and approved by the sole stockholder of the Company in April 1997.
A total of 36,333 shares of Common Stock have been reserved for issuance
pursuant to the Stock Option Plan. The Stock Option Plan provides for the grant
to employees, including officers of the Company, of "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and non-statutory stock options (collectively, the
"Awards"). In addition, nonemployee directors (the "Outside Directors") are
eligible to receive non-statutory stock options. The Company has granted
incentive stock options to certain employees, including directors and executive
officers, of the Company entitling such persons to purchase approximately 36,333
shares of the Common Stock at an exercise price equal to the fair market value
of the Common Stock as of the date of issuance, as established by an independent
appraiser selected by the Company ($31.74 per share).

The Company accounts for the options issued pursuant to the stock incentive plan
under APB Opinion No. 25, under which no compensation cost has been recognized.
Had compensation cost for this plan been determined consistent with FAS 123, the
Company's net loss and loss per common share would have been increased to the
following pro forma amounts:

<TABLE>
<CAPTION>
                                                                            1997
                                                                      ----------------
<S>                                        <C>                        <C>
Net loss attributed to common shares:      As Reported                     $18,752,509

                                           Pro Forma                       $18,858,767

Loss per common share:                     As Reported                     $    208.36

                                           Pro Forma                       $    209.54
</TABLE>

                                     F-13
<PAGE>

A summary of the status of the Company's stock option plan at December 31, 1997
and changes during the year then ended is presented in the table and narrative
below:

<TABLE>
<CAPTION>

                                                           Wtd Avg Ex
                                      Shares                 Price
                                     -------              -----------
<S>                                  <C>                  <C>
Outstanding, beginning of year
      Granted                         36,333                  $31.74
      Exercised                           --                      --
      Forfeited                        1,223                   31.74
      Expired                             --                      --
                                     -------                  ------
Outstanding, end of year              35,110                  $31.74
                                     =======                  ======
Exercisable, end of year              23,597                  $31.74
                                     =======                  ======
Weighted average fair value of
      Options granted                $ 14.75
                                     =======
</TABLE>

The options outstanding at December 31, 1997 all have an exercise price of
$31.74 with a remaining contractual life of 9.3 years.

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option model with the following assumptions used for options
granted during 1997:

<TABLE>
<CAPTION>
                                      Assumption
                                   ----------------
<S>                                <C>
Risk free interest rate                 6.35%
Expected life (years)                 10 Years
Expected volatility                       -
Expected dividends                        -
</TABLE>

401(K) PLAN

The Company has adopted a defined contribution retirement plan that complies
with Section 401(k) of the Code (the "401(k) Plan"). Pursuant to the terms of
the 401(k) Plan, all employees with at least one year of continuous service are
eligible to participate and may contribute up to 15% of their annual
compensation (subject to certain limitations imposed under the Code). The 401(k)
Plan provides that a discretionary match of employee contributions may be made
by the Company in cash. The Company has not made any matching contributions to
the 401(k) Plan during 1997. The amounts held under the 401(k) Plan are invested
among various investment funds maintained under the 401(k) Plan in accordance
with the directions of each participant. Employee contributions under the 401(k)
Plan are 100% vested and participants are entitled to payment of vested benefits
upon termination of employment.


8.  RELATED PARTY TRANSACTIONS:
    ---------------------------

In August 1996, the Company sold all of its interests in the Bayou Fer Blanc
Field and the West Gueydan Field to a company (the "Purchaser") that is owned by
the sole stockholder.  The purchase price was $950,000, which was paid at the
closing.  The Company did not realize any gain or loss on the sale of these
properties.  In connection with the sale, the Purchaser also agreed to assume
certain liabilities of the Company relating to the completion of the 3-D seismic
survey and other related matters.  As of December 31, 1996, the Company had
incurred aggregate costs of $327,828 subsequent to the closing on behalf of the
Purchaser, which are recorded as due from affiliate.  On June 3, 1997, the
Company repurchased its interests in these fields for $5,000,000 with the
proceeds from the offerings discussed in Note 2.  At that time, the Purchaser's
cost basis in these fields was $3,500,000, which the Company has

                                     F-14
<PAGE>

recorded as unevaluated properties at December 31, 1997. The balance of the
purchase price of $1,500,000 was recorded as a distribution to the sole
stockholder.

During 1996, the sole stockholder loaned the Company $1,000,000, of which
$500,000 had been repaid as of December 31, 1996.  The remaining $500,000 was
repaid in 1997.  The Company recorded interest expense of $27,361 during 1996
and $14,301 during 1997 related to this loan.

At December 31, 1996, the Company had $12,457 receivable from the sole
stockholder for advances.  This advance was repaid in full in 1997.

9.  WRITEDOWN OF OIL AND GAS PROPERTIES:
    ------------------------------------

During 1997, the Company wrote down its oil and gas property investments (full
cost pool) by $10,008,121.  The amount of the writedown represents the excess
capitalized costs over estimated future net revenues attributable to oil and gas
reserves discounted at 10%, less estimated future income taxes.  The estimated
future net revenues used in the calculation were based on year-end reserve
volumes (as determined by an independent petroleum engineer), utilizing March,
1998 oil prices of $14.47 per barrel and March, 1998 gas prices of $2.40 per
thousand cubic feet, with no provision for future escalation.  The utilization
of these prices resulted in an increase in the amount charged to operations
during 1997 of $8,167,879 over the amount that would have been recorded using
year-end prices.


10.    OIL AND GAS ACTIVITIES:
       -----------------------

This footnote provides unaudited information required by SFAS No. 69
"Disclosures About Oil and Gas Producing Activities."

CAPITALIZED COSTS - Capitalized costs and accumulated depreciation, depletion
and amortization relating to the Company's oil and gas producing activities, all
of which are conducted within the continental United States, are summarized
below:

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                ----------------------------------------------
                                                     1997            1996            1995
                                                --------------  --------------  --------------
<S>     <C>                                     <C>             <C>             <C>
        Proved producing oil and gas
        properties                                 $73,172,144     $48,359,890     $33,009,297

        Unevaluated properties                       3,857,195               -               -
        Accumulated depreciation, depletion
        and amortization                            29,083,935      11,307,719       7,641,102
                                                   -----------     -----------     -----------
        Net capitalized costs                      $47,945,404     $37,052,171     $25,368,195
                                                   ===========     ===========     ===========
</TABLE>

The unevaluated properties consist of $3.5 million of acquisition costs for the
interests in the Bayou Fer Blanc Field and the West Gueydan Field, as discussed
in Note 6 above, and $357,000 of subsequent 3-D seismic costs related to the
Bayou Fer Blanc Field.

                                     F-15
<PAGE>

COSTS INCURRED - Costs incurred in oil and gas property acquisition, exploration
and development activities are summarized below:

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                ----------------------------------------------
                                                     1997            1996            1995
                                                --------------  --------------  --------------
<S>                                             <C>             <C>             <C>
        Acquisition costs                          $ 6,100,000  $           --  $           --
        Exploration costs                           18,463,989      12,448,239       4,490,045
        Development costs                            4,105,460       3,852,354       3,588,588
                                                   -----------     -----------      ----------

                Gross costs incurred                28,669,449      16,300,593       8,078,633
        Less proceeds from sales of prospects               --         950,000              --
                                                   -----------     -----------      ----------

                Net cost incurred                  $28,669,449     $15,350,593      $8,078,633
                                                   ===========     ===========      ==========
</TABLE>

Included in exploration costs for 1995 is $518,000 of capitalized general and
administrative costs.  No such costs were capitalized in either 1996 or 1997.
Gross cost incurred excludes sales of proved and unproved properties which are
accounted for as adjustments of capitalized costs with no gain or loss
recognized, unless such adjustments would significantly alter the relationship
between capitalized costs and proved reserves.

RESERVES - (UNAUDITED) - Proved reserves are estimated quantities of oil and
natural gas which geological and engineering data demonstrate, with reasonable
certainty, to be recoverable in future years from known reservoirs under
existing economic and operating conditions.  Proved developed reserves are
proved reserves that can reasonably be expected to be recovered through existing
wells with existing equipment and operating methods.

Proved oil and natural gas reserve quantities and the related discounted future
net cash flows before income taxes for the periods presented are based on
estimates prepared by Ryder Scott Company, independent petroleum engineers.
Such estimates have been prepared in accordance with guidelines established by
the Securities and Exchange Commission.

The Company's net ownership interests in estimated quantities of proved oil and
natural gas reserves and changes in net proved reserves, all of which are
located in the continental United States, are summarized below.

<TABLE>
<CAPTION>
                                                        Oil, Condensate and Natural Gas Liquids
                                                                        (Bbls)
                                                   -------------------------------------------------
                                                                Year Ended December 31,
                                                   -------------------------------------------------
                                                        1997             1996             1995
                                                   ---------------  ---------------  ---------------
<S>                                                <C>              <C>              <C>
Proved developed and undeveloped reserves:
 Beginning of year                                    2,511,562            1,999,859            1,718,480
 Revisions of previous estimates                       (254,540)              87,871               42,099
 Purchases of oil and gas properties                    188,739                   --                   --
 Extensions and discoveries                             148,168              753,776              482,970
 Production                                            (334,662)            (329,944)            (243,690)
                                                      ---------            ---------            ---------
 End of year                                          2,259,567            2,511,562            1,999,859
                                                      =========            =========            =========
Proved developed reserves at end of year              1,842,849            1,898,978                   --
                                                      =========            =========            =========
</TABLE>

                                     F-16
<PAGE>

<TABLE>
<CAPTION>
                                                                              Natural Gas (Mcf)
                                                             -------------------------------------------------
                                                                            Year Ended December 31,
                                                              -------------------------------------------------
                                                                    1997             1996             1995
                                                              ---------------  ---------------  ---------------
<S>                                                           <C>              <C>              <C>
Proved developed and undeveloped reserves:
 Beginning of year                                                23,223,000            9,593,000           10,624,000
 Revisions of previous estimates                                  (8,071,398)             619,282              622,115
 Purchases of oil and gas properties                               1,867,721                    -                    -
 Extensions and discoveries                                        7,699,000           14,335,783              138,235
 Production                                                       (2,613,323)          (1,325,065)          (1,791,350)
                                                                  ----------           ----------           ----------
 End of year                                                      22,105,000           23,223,000            9,593,000
                                                                  ==========           ==========           ==========
Proved developed reserves at end of year                          16,237,000            8,485,000                   --
                                                                  ==========           ==========           ==========
</TABLE>


STANDARDIZED MEASURE (UNAUDITED) - The table of the Standardized Measure of
Discounted Future Net Cash Flows related to the Company's ownership interests in
proved oil and gas reserves as of period end is shown below:

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                  -------------------------------------------------
                                                       1997              1996             1995
                                                  ---------------  -----------------  -------------
                                                                   (In Thousands)
<S>                                               <C>               <C>                 <C>
   Future cash inflows                                   $ 96,925          $143,652         $ 57,650
   Future oil and natural gas operating expenses          (21,116)          (12,598)          (9,993)
   Future development costs                               (10,372)          (14,059)          (5,573)
                                                         --------          --------         --------
   Future net cash flows before income taxes               65,437           116,995           42,084
   Future income taxes                                      9,328                 -                -
                                                         --------          --------         --------
   Future net cash flows                                   56,109           116,995           42,084
   10% annual discount for estimating timing of
   cash flows                                              (8,567)          (29,614)         (11,488)
                                                         --------          --------         --------
   Standardized measure of discounted future net
   cash flows                                            $ 47,542          $ 87,381         $ 30,596
                                                         ========          ========         ========
</TABLE>

Future cash flows are computed by applying year end prices of oil and natural
gas to year end quantities of proved oil and natural gas reserves.  Future
operating expenses and development costs are computed primarily by the Company's
petroleum engineers by estimating the expenditures to be incurred in developing
and producing the Company's proved oil and natural gas reserves at the end of
the year, based on year end costs and assuming the continuation of existing
economic conditions.  Future income taxes are computed using the Company's tax
basis in evaluated oil and gas properties and other related tax carryforwards.
Prior to 1997, the Company was not a taxable entity (See Note 3) and therefore
future income taxes have not been reflected in those years.  The standardized
measure of discounted future net cash flows does not purport, nor should it be
interpreted, to present the fair value of the Company's oil and natural gas
reserves.  An estimate of fair value would also take into account, among other
things, the recovery of reserves not presently classified as proved, anticipated
future changes in prices and costs, a discount factor more representative of the
time value of money and the risks inherent in reserve estimates.

Oil and natural gas prices have declined subsequent to December 31, 1997.
Accordingly, the discounted future net cash flows would be reduced if the
standardized measure was calculated at a later date.

                                     F-17
<PAGE>

Changes in Standardized Measure (Unaudited) - Changes in standardized measure of
future net cash flows relating to proved oil and gas reserves are summarized
below:

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                   --------------------------------------
                                                       1997          1996         1995
                                                   ------------  -----------  -----------
                                                               (In Thousands)
<S>                                                <C>           <C>          <C>
Changes due to current year operations:
   Sales of oil and natural gas, net of oil and
    natural gas operating expenses                     $(10,827)       $(7,781)      $(4,063)
   Extensions and discoveries                            16,915         42,983         5,557
   Purchases of oil and gas properties                    4,691             --            --
Changes due to revisions in standardized
 variables:
   Prices and operating expenses                        (33,229)        28,682         7,113
   Revisions of previous quantity estimates             (16,109)         3,633         1,336
   Estimated future development costs                     5,835         (7,784)         (901)
   Accretion of discount                                  8,738          3,060         1,923
   Net change in income taxes                            (4,715)            --            --
   Production rates (timing) and other                  (11,138)        (6,008)          403
                                                       --------        -------       -------
   Net Change                                           (38,839)        56,785        11,368

   Beginning of year                                     87,381         30,596        19,228
                                                       --------        -------       -------
   End of year                                         $ 47,542        $87,381       $30,596
                                                       ========        =======       =======
</TABLE>

                                     F-18