-------------------------------------------------------------------------------
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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

     |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                                       or
     |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2000

                          Commission File Number 0-6580

                                [GRAPHIC OMITTED]






                            PEASE OIL AND GAS COMPANY
       (Exact name of small business issuer as specified in its charter)

                  Nevada                         87-0285520
     (State or other jurisdiction of          (I.R.S. Employer
      incorporation or organization)        Identification Number)
                          751 Horizon Court, Suite 203
                         Grand Junction, Colorado 81506
                    (Address of Principal executive offices)
                                 (970) 245-5917
              (Registrant's telephone number, including area code)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the past 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

         As of November  14, 2000 the  registrant  had  1,731,398  shares of its
$0.10 par value Common Stock issued and outstanding.

         Transitional Small Business Issuer Disclosure Format (check one):
Yes        No   X


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<PAGE>


<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
                                                                           PAGE
                                                                          NUMBER

<S>                                                                         <C>
PART I - Financial Information                                               3
     Item 1.  Unaudited Financial Statements                                 3
          Consolidated Balance Sheets as of September 30, 2000
          and December 31, 1999                                              3
          Consolidated Statements of Operations For the Three
          and Nine Months Ended September 30, 2000 and 1999                  4
          Consolidated Statements of Cash Flows for the Three
          and Nine Months Ended September 30, 2000 and 1999                  5
          Notes to Consolidated Financial Statements                       6-8
     Item 2.  Management's Discussion and Analysis                           9
          Liquidity, Capital Expenditures and Capital Resources           9-10
               Results of Operations                                        11
                    Overview                                                11
                    Oil and Gas                                          11-13
                    Consulting Arrangement - Related Party                  14
                    General and Administrative                              14
                    Depreciation Depletion and Amortization                 15
                    Interest Expense                                        15
PART II - Other Information                                                 15
          Item 1.  Legal Proceedings                                        15
          Item 2.  Changes in Securities                                    16
          Item 3.  Defaults Upon Senior Securities                          16
          Item 4.  Submission of Matters to a Vote of Security Holders      16
          Item 5.  Other Information                                        16
          Item 6.  Exhibits and Reports on Form 8-K                         16
PART III - Signatures                                                       16
</TABLE>



<PAGE>

PART 1- FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                   PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                    September 30,  December 31,
                                                        2000           1999
                                                    ------------   ------------
                                     ASSETS          (unaudited)
CURRENT ASSETS:
<S>                                                 <C>            <C>
     Cash and equivalents ......................... $  1,603,780   $    724,354
     Trade receivables, net .......................      391,003        402,847
     Prepaid expenses and other ...................       61,590         76,349
                                                    ------------   ------------
          Total current assets ....................    2,056,373      1,203,550
                                                    ------------   ------------
OIL AND GAS PROPERTIES, at cost (full cost method):
     Unevaluated properties .......................    2,436,005      2,281,732
     Costs being amortized ........................   19,124,079     18,278,461
                                                    ------------   ------------
          Total oil and gas properties ............   21,560,084     20,560,193
     Less accumulated amortization ................  (15,616,936)   (14,868,287)
                                                    ------------   ------------
          Net oil and gas properties ..............    5,943,148      5,691,906
                                                    ------------   ------------
OTHER ASSETS:
     Office equipment and vehicle .................      230,624        230,211
     Less accumulated depreciation ................     (190,744)      (176,013)
                                                    ------------   ------------
          Net office equipment and vehicle ........       39,880         54,198
     Debt issuance costs, net .....................       80,638        184,315
     Deposits and other ...........................        4,995          7,493
                                                    ------------   ------------
          Total other assets ......................      125,513        246,006
                                                    ------------   ------------
TOTAL ASSETS ...................................... $  8,125,034   $  7,141,462
                                                    ============   ============
</TABLE>
<TABLE>
<CAPTION>
                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Current maturities of long-term debt:
          Convertible Debenture, net of
<S>                                                 <C>            <C>
          unamortized discount..................... $  2,654,554   $       --
          Other ...................................        7,285          6,352
     Accounts payable, trade ......................      235,075        140,554
     Accrued expenses .............................       98,266        134,539
                                                    ------------   ------------
               Total current liabilities ..........    2,995,180        281,445
                                                    ------------   ------------
LONG-TERM DEBT, less current maturities: ..........       10,752      2,506,218
                                                    ------------   ------------
STOCKHOLDERS' EQUITY:
     Preferred Stock, par value $0.01 per share,
       2,000,000  shares  authorized,
       105,828 shares of Series B 5% PIK Cumulative
       Convertible Preferred Stock issued and
       outstanding (liquidation preference of
       $5,577,715 atSeptember 30, 2000) ...........        1,058          1,058
     Common Stock, par value $0.10 per share,
       4,000,000 shares authorized, 1,731,398
       shares issued and outstanding ..............      173,140        173,140
     Additional paid-in capital ...................   37,636,191     37,636,191
     Accumulated deficit ..........................  (32,691,287)   (33,456,590)
                                                    ------------   ------------
               Total Stockholders' equity .........    5,119,102      4,353,799
                                                    ------------   ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $  8,125,034   $  7,141,462
                                                    ============   ============
</TABLE>


                                       -3-
<PAGE>
                   PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)



<TABLE>
<CAPTION>
                                       For the Three Months        For the Nine Months
                                       Ended September 30,         Ended September 30,
                                     ------------------------   ------------------------
                                        2000          1999         2000         1999
                                     ----------    ----------   ------------  ----------
REVENUE:
<S>                                  <C>           <C>          <C>           <C>
     Oil and gas sales ..............$1,005,474    $ 541,206    $2,633,412    $1,504,065
                                     ----------    ----------   ----------    ----------
OPERATING COSTS AND EXPENSES:
     Oil and gas production costs ...    79,050      104,580       397,949       276,014
     Consulting arrangement-related
       party ........................      --           --            --          37,750
     General and administrative .....   130,950      305,587       476,421       691,605
     Depreciation, depletion and
       amortization .................   255,592      250,289       763,380       798,278
                                     ----------    ---------    ----------    ----------
          Total operating costs and
            expenses ................   465,592      660,456     1,637,750     1,803,647
                                     ----------    ---------    ----------    ----------
INCOME (LOSS) FROM OPERATIONS .......   539,882     (119,250)      995,662      (299,582)
OTHER INCOME (EXPENSES):
     Interest and other income ......    18,592        8,661        39,359        33,670
     Interest expense ...............   (89,788)     (89,948)     (269,718)   $ (269,859)
                                     ----------    ---------    ----------    ----------
NET INCOME (LOSS) ...................$  468,686    $(200,537)   $  765,303    $ (535,771)
                                     ==========    =========    ==========    ==========
NET INCOME (LOSS) AVAILABLE TO
     COMMON STOCKHOLDERS ............$  402,182    $(245,846)   $  567,237    $ (713,588)
                                     ==========    =========    ==========    ==========
BASIC:
     Earnings (Loss) Per Share ......      0.23    $   (0.15)   $     0.33    $    (0.43)
     Weighted Average Shares
       Outstanding .................. 1,731,398    1,689,600     1,731,398     1,668,400
DILUTED:
     Earnings (Loss) Per Share ......$     0.03    $   (0.15)   $     0.04    $    (0.43)
     Weighted Average Shares
     Outstanding ....................17,264,316    1,689,600    17,264,316     1,668,400
</TABLE>


                                       -4-

<PAGE>


                   PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)



<TABLE>
<CAPTION>
                                                                    For the Nine Months
                                                                    Ended September 30,
                                                                 -------------------------
                                                                    2000           1999
                                                                 ----------    -----------
<S>                                                              <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES: ...........................$  765,303    $  (535,771)
     Net Income (Loss)
     Adjustments  to  reconcile  net loss to net  cash  provided  by  (Used  in)
         operating activities:
               Depreciation, depletion and amortization .........   763,380        798,278
               Amortization of debt discount and issuance costs..   268,181        268,180
               Changes in operating assets and liabilities:
                    (Increase) decrease in:
                         Trade receivables ......................    11,844         78,494
                         Prepaid expenses and other assets ......     2,257         19,143
                    Increase (decrease) in:
                         Accounts payable .......................   (19,974)       (93,928)
                         Accrued expenses .......................   (36,273)      (104,323)
                                                                 ----------    -----------
 Net cash provided by (used in) operating activities ............ 1,754,718        430,073
                                                                 ----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures for property, plant and equipment .....  (885,809)      (638,597)
     Proceeds from redemption of Certificate of Deposit .........    15,000        100,000
     Proceeds from sale of property and equipment ...............      --           70,000
                                                                 ----------    -----------
          Net cash provided by (used in) investing
            activities ..........................................  (870,809)      (468,597)
                                                                 ----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayment of long-term debt ................................    (4,483)        (4,342)
     Payment of Series B Preferred Stock Dividends ..............      --         (177,817)
     Purchase and retirement of Series B Preferred Stock ........      --          (51,064)
                                                                 ----------    -----------
          Net cash provided by (used in) financing
            activities ..........................................    (4,483)      (233,223)
                                                                 ----------    -----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS .....................   879,426       (271,747)
CASH AND EQUIVALENTS, beginning of period .......................   724,354      1,049,582
                                                                 ----------    -----------
CASH AND EQUIVALENTS, end of period .............................$1,603,780    $   777,835
                                                                 ==========    ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid for interest .....................................$  209,846    $   209,795
                                                                 ==========    ===========
     Cash paid for income taxes .................................$     --      $      --
                                                                 ==========    ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
     FINANCING ACTIVITIES:
     Increase (decrease) in payables for oil & gas
       exploration activities ...................................$  114,497    $   (10,342)
                                                                 ==========    ===========
</TABLE>


                                       -5-

<PAGE>


                   PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

Note 1 - Basis of Presentation:

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. They do not include all information and notes required by
generally  accepted  accounting  principles for complete  financial  statements.
However,  except as disclosed  herein,  there has been no material change in the
information disclosed in the notes to consolidated financial statements included
in our Annual Report on Form 10-KSB for the year ended December 31, 1999. In our
opinion,  all adjustments  (consisting of normal recurring accruals)  considered
necessary for a fair presentation have been included.  Operating results for the
periods  presented  are not  necessarily  indicative  of the results that may be
expected for the full year.

The  accounting  policies we followed  are set forth in Note 1 to our  financial
statements in Form 10-KSB for the year ended  December 31, 1999. We suggest that
these financial  statements be read in conjunction with the financial statements
and notes included in the Form 10-KSB.

Note 2 - Recent Developments

On November 8, 2000 Pease Oil and Gas Company announced that its proposed merger
with Carpatsky Petroleum, Inc. ("Carpatsky") had been terminated.  Concurrently,
the Company also exchanged its outstanding Series B Convertible  Preferred Stock
for a new series of Preferred to eliminate the Series B's hyper-dilutive  "death
spiral" conversion feature.

Under terms of the Termination Agreement,  Carpatsky paid the Company $80,000 in
cash for certain accounting and administrative services provided to Carpatsky by
the Company  since October 1, 1999;  will issue 1.5 million  shares of Carpatsky
restricted  common  stock on or before  January  31,  2001;  and both  companies
exchanged broad general releases.

The Company  agreed to terminate the proposed  merger with Carpatsky for several
reasons, including but not limited to:

   o    it did not appear that the  transaction  could be  completed in the near
        future without unreasonable effort and expense;
   o    several of the issues that are key to Carpatsky's ultimate value remain
        uncertain; and
   o    recent  successful  drilling in Jackson  County,  Texas  (combined  with
        further  processing of the seismic data)  indicate that the value of our
        12.5% working  interest in the 130,000 acre 3-D seismic  prospect may be
        worth  significantly  more  than the  value  attributed  to Pease in the
        proposed Carpatsky merger.

These  circumstances,  combined with the  willingness  of the Series B Preferred
Stockholders  to  restructure  their  investment,  led the Board of Directors to
believe that it was in the best  interest of the Company to terminate the merger
at that time.

Under its original  terms,  the Series B Preferred  Stock was  convertible  into
common stock at a 25% discount to the market price. This discount market feature
became  hyper-dilutive  when the common stock price decreased  beginning shortly
after its issuance in December  1997.  Based on the price of the common stock on
September 30, 2000 ($.4844 per share) the  outstanding  Series B could have been
converted into  approximately  15.5 million shares of common, or over 95% of the
common equity after a conversion.  Under the terms associated with the Carpatsky
merger, the Series B Preferred Stockholders were to receive approximately 10% of
the merged entity. In either case, the Pease common stockholders would have been
left with very little ownership in the Company. In addition, it became difficult
to value the common stock because the capital structure was so uncertain.  Given
these  circumstances,  the  Board of  Directors  determined  that  the  Series B
Preferred stock would have to be replaced or  restructured  in conjunction  with
terminating the merger.






                                       -6-

<PAGE>
                   PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


Therefore,  six  institutional  holders  of  approximately  94% of the  Series B
Preferred  stock,  representing a stated value of over $4.97 million,  exchanged
the Series B for a new class of  non-voting,  non-convertible,  preferred  stock
known as the "Series C"  Preferred  stock.  The new Series C  Preferred  must be
redeemed,  at its stated value, on December 31, 2005. However,  the Company may,
at its  election,  redeem the Series C at a 331/3%  discount  (or  approximately
$3.13  million if all of it is  redeemed),  either in whole or in part,  through
December  31,  2003.  We redeemed  the  remaining 6% of the Series B at a 331/3%
discount,  or $210,833.  Therefore,  as of the date of this report,  there is no
outstanding hyper-dilutive Series B Preferred Stock.

The Series C will pay dividends at 5% per annum  starting in the second  quarter
of 2001. The Company has not paid any dividends on the Series B Preferred  stock
since September 1, 1999 (when the Plan of Merger was signed with Carpatsky).  In
connection  with this  restructuring,  all the holders of the Series B Preferred
stock have waived all the dividends in arrears.

As an inducement for the Series B Preferred  stockholders  to restructure  their
investment  and  grant a  discounted  redemption  feature,  the  Company  issued
warrants to acquire up to 1,763,800 shares of common stock  exercisable at $0.50
per share. These warrants will expire on December 31, 2003. The Company does not
expect the non-cash  charge  associated with the fair value of these warrants to
have a significant  impact on the results of operations in the fourth quarter of
2000 since it will be offset by the  dividends  waived,  and the discount on the
Series B preferred  stock that was  redeemed.  These items will be  reflected as
adjustments  to net income to determine  the net income  available to the common
stockholders.

In conjunction with the restructuring of the outstanding preferred stock and the
termination  of the merger with  Carpatsky,  the Board of Directors  approved an
amended employment  agreement for Patrick J. Duncan, the Company's President and
CFO. The amended  terms of the  agreement,  which became  effective  November 2,
2000,  include  provisions  for:  1) a $50,000  cash bonus;  2) the  issuance of
150,000  shares of  restricted  common  stock;  and a warrant to  purchase up to
600,000 shares of the Company's common stock at $0.50 per share,  exercisable at
the earlier of: (a) December 31, 2004;  or (b)(i) as to 300,000  shares,  if the
Company's  reported  closing  sales price for its common stock is at least $1.50
for at least 80% of the trading days in a one month period, and (ii) as to other
300,000  shares,  if the Company's  reported  closing sales price for its common
stock is at least  $2.00 for at least 80% of the  trading  days in a three month
period. In addition, the warrants would become exercisable if the Company enters
into a reorganization or merger  transaction in which the deemed or actual value
received  by the  Company  was equal to or  greater  than  $1.50 per  share.  In
consideration  for the cash  bonus,  Mr.  Duncan  agreed  to  reduce  his  total
severance due upon change of control from $197,500 to $150,000.

For financial statement  reporting purposes,  in addition to the cash bonus, the
Company will recognize a non-cash  charge in the fourth quarter of $60,900 which
represents  the fair value of the 150,000 common shares on the date of grant (or
$.40625 per share). There will be no financial statement impact for the warrants
issued since the exercise  price was 18.75%  higher than the market price on the
date of grant.

Note 3 - Net Income (Loss) Available to Common Stockholders

The net income  available to common  stockholders is determined by including any
dividends  accruing  to the  benefit of the  preferred  stockholders  to the net
income.  Accordingly,  a  reconciliation  of  net  income  available  to  common
stockholders is as follows:
<TABLE>
<CAPTION>
                                            For the Three Months      For the Nine Months
                                             Ended September 30,      Ended September 30,
                                          ----------------------    ----------------------
                                             2000         1999         2000         1999
                                          ---------    ---------    ---------    ---------
<S>                                       <C>          <C>          <C>          <C>
Net Income (Loss) ....................... $ 468,686    $(200,537)   $ 765,303    $(535,771)
Dividends declared and paid
     for the Series B Preferred Stock ...      --        (45,309)        --       (177,817)
Dividends in Arrears for the Series

     B Preferred Stock ..................   (66,504)        --       (198,066)        --
                                          ---------    ---------    ---------    ---------
Net Income (Loss) available to
     common stockholders                  $ 402,182    $(245,846)   $ 567,237    $(713,588)
                                          =========    =========    =========    =========
</TABLE>
                                      -7-
<PAGE>
The  dividends in arrears at September  30, 2000 have been included for purposes
of determining the net income  available to common  stockholders for the periods
presented,  even though they were  subsequently  waived in  connection  with the
preferred stock restructuring discussed in Note 2.

Note 4 - Earnings Per Common Share

The Company  follows SFAS No. 128  "Earnings  Per Share".  Accordingly,  "basic"
earnings  per common  share is computed by dividing  income  available to common
stockholders (the "numerator") by the  weighted-average  number of common shares
outstanding (the "denominator") during the periods presented. "Diluted" earnings
per common share reflects the potential  dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock.  A  reconciliation  of the components of basic and diluted net income per
common share for the periods presented is as follows:
<TABLE>
<CAPTION>
                                                   For the Three Months Ended September 30,
                                        ---------------------------------------------------------------
                                                   2000                               1999
                                        ---------------------------      ------------------------------
                                                               Per                                 Per
BASIC                                    Income     Shares    Share       Income      Shares      Share
                                        --------   ---------  -----      ---------   ---------   ------
    Income (Loss) available to common
<S>                                     <C>        <C>        <C>        <C>         <C>         <C>
         stockholders                   $402,182   1,731,398  $0.23      $(245,846)  1,689,600   $(0.15)
EFFECT OF DILUTIVE SECURITIES
    Assumes the Series B Preferred
          stock was converted under
          its original terms              66,504  15,532,918  (0.20)         -            -         -
                                        --------  ----------  -----      ---------   ---------   ------
DILUTED
    Income (Loss) available to common
          stock including assumed
          conversions                   $468,686  17,264,316  $0.03      $(245,846)  1,689,600   $(0.15)
                                        ========  ==========  =====      =========   =========   ======
</TABLE>
<TABLE>
<CAPTION>
                                                    For the Nine Months Ended September 30,
                                        ----------------------------------------------------------------
                                                    2000                               1999
                                        ---------------------------      -------------------------------
                                                               Per                                Per
BASIC                                    Income     Shares    Share       Income      Shares     Share
                                        --------   ---------  -----      ---------   ---------   ------
    Income (Loss) available to common
<S>                                     <C>        <C>        <C>        <C>         <C>         <C>
         stockholders                   $567,237   1,731,398  $0.33      $(713,588)  1,668,400   $(0.43)
EFFECT OF DILUTIVE SECURITIES
    Assumes the Series B Preferred
          stock was converted under
          its original terms             198,066  15,532,918  (0.29)          -           -         -
                                        --------  ----------  -----      ---------   ---------   ------
DILUTED
    Income (Loss) available to common
          stock including assumed
          conversions of Series B       $765,303  17,264,316  $0.04      $(713,588)  1,668,400   $(0.43)
                                        ========  ==========  =====      =========   =========   ======
</TABLE>
For the three and nine months ending September 30, 2000, the "diluted"  earnings
per  common  share  assumes  that  the  Series  B  preferred  stock,  which  was
restructured  in November 2000,  was converted  under its original terms using a
conversion  price of $0.3633 per share (this  represents  the price the Series B
preferred  stock could have  converted into using the market price of the common
stock on September 30, 2000).  "Diluted"  earnings per share for all the periods
presented in 1999,  is identical to the "basic"  earnings per share for the same
period since the affects of including  any  potential  common  shares would have
been antidilutive.

     Although  management  believes that the above  presentation of earnings per
share adheres to the authoritative accounting and reporting guidelines,  they do
not believe that it is  representative  of the results that would have  occurred
using the capital  structure as it exists today.  As of the date of this report,
the  total  number of fully  diluted  potential  common  shares,  including  the
1,763,800 shares underlying the warrants issued to the preferred stockholders in
connection with the  restructuring,  is  approximately  4.0 million shares.  The
earnings per share, as presented,  illustrates the hyper-dilutive potential that
the Series B  Preferred  stock had before it was  restructured  but does not, in
managements  opinion,  accurately  reflect the economic  results  benefiting the
common stock as a result of the restructured capital.
                                       -8-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------
Liquidity, Capital Expenditures and Capital Resources
At September 30, 2000, our cash balance was $1,603,780  with a negative  working
capital  position  of  $938,807,  compared to a cash  balance of $724,354  and a
positive  working capital  position of $922,105 at December 31, 1999. The change
in our working capital position can be attributed to the reclassification of our
convertible  debentures,  with a  balance  of  $2.8  million,  from a  long-term
liability to a current  liability  during the second  quarter of 2000 since they
become due on April 15, 2001.  The change in our cash balance is  summarized  as
follows:
<TABLE>
<CAPTION>
<S>                                                                 <C>
Cash balance at December 31, 1999 ..............................    $   724,354
                                                                    -----------
Sources of Cash:
    Cash provided by operating activities ......................      1,754,718
    Proceeds from the redemption of certificate of deposit .....         15,000
                                                                    -----------
         Total sources of cash .................................      1,769,718
Uses of Cash:
    Capital expenditures for exploration activities ............       (885,395)

    Repayment of long term debt ................................         (4,483)
    Other capital expenditures .................................           (414)
                                                                    -----------
         Total uses of cash ....................................       (890,292)
                                                                    -----------
Cash balance at September 30, 2000 .............................    $ 1,603,780
                                                                    ===========
</TABLE>
We were  able to  generate  positive  cash  flow from  operating  activities  of
$1,754,718 during the first nine months of 2000 principally due to the favorable
oil and gas prices being  enjoyed this year.  For the first nine months of 2000,
the average  prices  received by the Company have been $28.70 per bbl of oil and
$3.84 per Mcf of gas.  In  addition,  we have been  able to reduce  our  overall
operating costs and expenses,  including  substantial  reductions in general and
administrative  costs,  when  compared  to prior  periods.  Our  operations  are
discussed more  thoroughly  later in this section under the caption  "Results of
Operations".  However,  assuming the price of oil and gas as of the date of this
report and our current  production  levels remain  unchanged or improve,  we can
expect  to  continue  generating  positive  cash flow  from  operations  for the
foreseeable future.

As far as our uses of cash, the following  table presents the costs incurred for
our  exploration  activities  for the first  nine  months of 2000 (the  $114,497
difference  between the total cash paid for exploration  activities in the above
table and the amount  presented  below,  represents the net increase in accounts
payable for the exploration  activities  between December 31, 1999 and September
30, 2000):
<TABLE>
<CAPTION>
                                              PROGRAM OPERATOR
                                      --------------------------------    Internal
                                         NEG      Parallel       AHC        Costs       Total        %
Category:                             --------    --------    --------    --------    --------    ---------
     Evaluated Costs -
<S>                                   <C>         <C>         <C>         <C>         <C>               <C>
          Productive Efforts ......   $ 66,325    $220,313    $117,864    $   --      $404,502          40%
          Exploratory Dry Holes ...       --        56,079        --          --        56,079           6%
          Other Exploration Costs .       --          --          --        10,699      10,699           1%
                                      --------    --------    --------    --------
               Subtotal ...........     66,325     276,392     117,864      10,699     471,280          47%
     Unevaluated Costs -
          Land, G&G and Seismic ...      6,583     310,495       3,227        --       320,305          32%
          Capitalized Interest ....       --          --          --       208,307     208,307          21%
                                      --------    --------    --------    --------    --------    ---------
               Total ..............   $ 72,908    $586,887    $121,091    $219,006    $999,892         100%
                                      ========    ========    ========    ========    ========    =========
               Percent ............         7%         59%         12%         22%        100%
</TABLE>
                                      -9-
<PAGE>
A  description  of the  areas  we  have  an oil and  gas  interest  in are  more
thoroughly  discussed in our 1999 Annual Report on Form 10-KSB.  There have been
no significant changes in our areas of operation since the date of that report.

Since we are a non-operator  in all of the areas in which we hold an oil and gas
interest,  we do not  necessarily  control  the  timing  of any  development  or
exploration  activities and therefore have little control over the corresponding
required cash outlays.  However,  we currently expect the expenditures that will
be  proposed  by the  respective  operators  of our core  areas to be within the
following ranges through the second quarter of 2001:
<TABLE>
<CAPTION>
                                                           Estimated Investment
           Area                     Operator              Minimum       Maximum
---------------------------  --------------------------- ---------    ----------
East Bayou Sorrel            National Energy Group, Inc.
<S>                          <C>                         <C>         <C>
                             ("NEG")                     $ 100,000    $  150,000
Formosa, Texana, and Ganado  Parallel Petroleum, Inc.
                             ("Parallel")                  500,000     1,500,000
Maurice Prospect             Amerada Hess Corporation
                             ("AHC")                       350,000       500,000
                                                          --------    ----------
                 Total                                    $950,000    $2,150,000
                                                          ========    ==========
</TABLE>
Therefore,  based on the  potential  capital that may be required for our future
exploration   activities,   compounded   with  the  fact  that  our  convertible
debentures,  with a current outstanding  balance of $2,782,500,  will become due
and payable on April 15, 2001, we do not believe, as of the date of this report,
that our current and  anticipated  cash position will be sufficient to cover all
of the  future  working  capital,  debt  service  and  exploration  obligations.
Accordingly,  we will have to attempt to restructure our outstanding convertible
debentures  and  possibly  seek  additional   financing.   Regarding  additional
financing,  our common stock is now listed on the over-the-counter market on the
NASD Bulletin  Board (OTC BB). It is believed that being a Bulletin Board listed
company will impair our ability to raise additional  equity capital.  Therefore,
it is unclear at this time what  alternatives for future working capital will be
available,  whether or not an amicable restructuring of the convertible debt can
or will be  accomplished,  or to  what  extent  the  potential  dilution  to the
existing  shareholders  may be under either scenario.  If additional  sources of
financing  are  not  ultimately   available  and/or  we  cannot   satisfactorily
restructure  our  convertible  debentures,   we  will  have  to  consider  other
alternatives,   including  the  sale  of  existing  assets,  canceling  existing
exploration  agreements,  farming  out  part or all of our  prospect  inventory,
pursuing joint  ventures,  or formal  restructuring  under the protection of the
Federal Bankruptcy Laws.

                                      -10-

<PAGE>

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

Overview
Our  largest  source of  operating  revenue  is from the sale of  produced  oil,
natural gas, and natural gas liquids.  Therefore,  the level of our revenues and
earnings  are  affected  by prices at which  natural  gas,  oil and  natural gas
liquids are sold. Therefore,  our operating results for any prior period are not
necessarily  indicative of future operating  results because of the fluctuations
in price and production levels.

Oil and Gas
Operating statistics for oil and gas production for the periods presented are as
follows:
<TABLE>
<CAPTION>
                              For the Three Months        For the Nine Months
                               Ended September 30,        Ended September 30,
                              ---------------------     -----------------------
                                 2000        1999          2000         1999
Production:                   ---------   ---------     ----------   ----------
<S>                              <C>         <C>           <C>          <C>
  Oil (bbl) ..................   21,200      16,900         67,100       53,800
  Gas (Mcf) ..................   81,800      68,500        183,800      281,500
  BOE (6:1) ..................   34,900      28,300         97,800      100,700

Average Collected Price:
  Oil (per bbl) ..............$   30.36   $   20.30     $    28.70   $    15.54
  Gas (per Mcf) ..............     4.42        2.89           3.84         2.37
  Per BOE (6:1) ..............    28.81       19.11          26.93        14.93

Operating Margins;
  Revenue -
    Oil ......................$ 643,788   $ 343,201     $1,927,011   $  836,569
    Gas ......................  361,686     198,005        706,401      667,496
                              ---------   ---------     ----------   ----------
      Total Revenue ..........1,005,474     541,206      2,633,412    1,504,065

  Costs
    Lifting Costs ............  (67,309)    (50,378)      (208,086)    (134,761)
    Production taxes .........  (11,741)    (54,202)      (189,863)    (141,253)
                              ---------   ---------     ----------   ----------
       Total Costs ...........  (79,050)   (104,580)      (397,949)    (276,014)
                              ---------   ---------     ----------   ----------
    Operating Margin .........$ 926,424   $ 436,626     $2,235,463   $1,228,051
                              =========   =========     ===========  ==========
    Operating Margin Percent        92%         81%             85%         82%

Production Costs per BOE
  before DD&A ................$    2.27   $    3.70     $      4.07  $     2.74

Change in Revenue Attributable
  to:
    Production ...............$ 126,528                 $   (24,254)
    Price ....................  337,740                   1,153,601
                              ---------                 -----------
Total Increase in Revenue ....$ 464,268                 $ 1,129,347
                              =========                 ===========
</TABLE>
Discoveries in 2000

        This year through  September 30, we have participated in the drilling of
        four exploratory wells, all located in or around Jackson County,  Texas,
        within the prospect  areas  operated by  Parallel.  Of these four wells,
        three were  productive and one was dry. All three of the wells completed
        this  year  didn't  begin   producing  until  mid-  September  2000  and
        contributed approximately 7,000 Mcf of the third quarters production. As
        of October  31,  2000,  these three  wells were  producing,  on an 8/8's
        basis, approximately 6,040 Mcf of gas per day and 145 bbls of condensate
        per day  (representing  approximately 566 Mcf of gas per day and 14 bbls
        of condensate per day net to the Company).  We own approximately a 12.5%
        working interest in all of these wells.


                                      -11-

<PAGE>
        Another well located in the Ganado  prospect area was drilled to a total
        depth  of  7,460ft  in  November  2000  and the log  indicated  probable
        production  from 34ft of sand in three  separate zones and 8ft of oil in
        one zone.  Although  it is unknown at this time whether or not this well
        will be  commercially  productive,  and if so at what rates,  it will be
        dual  completed  during the 4th quarter of 2000.  We own a 12.6% working
        interest in this well.

Comparison of Oil and Gas  Production  for the Three Months Ended  September 30,
2000 & 1999:

        Oil - The 4,300 bbl  increase  in oil  production  for the three  months
        ended  September 30, 2000,  when compared to the same period in 1999, is
        primarily  attributable to increased  production realized by the Company
        in 2000 from the wells located in the East Bayou Sorrel field,  operated
        by NEG.  The  increase  in  production  realized  by the  Company is not
        attributable  to an overall  increase in the 8/8's  production  from the
        wells,  but rather an increased  interest in the  respective  wells.  On
        November 15, 1999,  the prospect "paid out" and pursuant to the terms of
        our after prospect payout agreement, our working interest in these wells
        increased  from  8.9% to  15.6%  giving  us more  of the  overall  8/8's
        production subsequent to that date.

        Gas - The 13,300 Mcf increase in gas production  realized by the Company
        for the three months ended September 30, 2000, when compared to the same
        period in 1999, is primarily attributable to the fact that we recorded a
        one time "catch-up" credit of approximately  25,000 Mcf during the third
        quarter of 2000 for  production  from the wells  located in the  Maurice
        field,  operated by AHC. This production adjustment reflects an increase
        in our net revenue  interest  resulting from an amended  Division Order,
        the document  that  itemizes all the owners  interest in producing  well
        units. Prior to September 2000, the revenue and production had been paid
        and accrued based on a preliminary Division Order provided to us by AHC.
        Because  of several  unresolved  issues  related  to certain  farm-outs,
        unitizations  and other matters that could have affected the  interests,
        the  original  Division  Order was prepared on a  "worst-case"  scenario
        pending the  resolution  of the  outstanding  issues.  AHC  resolved the
        outstanding  issues and informed us in the third  quarter of 2000 of our
        new net revenue  interests.  Accordingly,  this adjustment  reflects the
        incremental  production  from prior  periods  based on the new  Division
        Order.   The  increase  in  the  net  revenue   interests  varied  on  a
        well-by-well basis and ranged from .02% to .09%. Our working interest in
        the various wells in the Maurice field ranges from 6.0% to 8.4%.

Comparison of Oil and Gas Revenue for the Three Months Ended  September 30, 2000
& 1999:

        Oil and gas revenue for the three months ended  September 30, 2000, when
        compared  to the  same  period  in 1999,  increased  by  $489,798.  This
        increase is attributed to: a) the  substantially  higher prices received
        for the oil and gas in 2000.  We received an average price of $30.32 per
        bbl of oil during the third  quarter of 2000  compared to $20.30 per bbl
        for the same  period in 1999 -  representing  a $10.02  per bbl,  or 49%
        increase,  in 2000. We received an average price of $4.42 per Mcf of gas
        during the third  quarter of 2000  compared to $2.89 for the same period
        in 1999 -  representing  a $1.53,  or 53% increase,  in 2000;  and b) in
        connection with the one time "catch-up"  production adjustment discussed
        in the previous paragraph for the wells located in the Maurice field, we
        recorded  incremental  revenue totaling $100,533  (consisting of $17,692
        for oil and $82,841 for gas).

Comparison of Oil and Gas Costs for the Three Months Ended  September 30, 2000 &
1999:

        Lifting Costs - The lifting  costs  increased  $16,931  during the third
        quarter of 2000,  when  compared to the same  period in 1999,  primarily
        because of: a) increased  water  production from the three wells at East
        Bayou Sorrel. Water disposal fees on an 8/8's basis are charge at a rate
        of $0.57 per bbl.  The  average  8/8's water  produced  from these wells
        during  the third  quarter of 2000 was 3,776  bbls per day  compared  to
        2,473 bbls per day during the same period in 1999;  and b) the increased
        lifting costs from three  additional  discovery wells located in Jackson
        County, Texas that were put on line during the third quarter 2000.

        Production  Taxes - The production  taxes  decreased  $42,461 during the
        third quarter of 2000 when compared to the same period in 1999 primarily
        because of a one time  credit on accrued but unpaid  taxes was  received
        from the State of Louisiana (through AHC, the operator) in the amount of
        $59,848 for  severance tax relief  associated  with the wells located in
        the  Maurice  field.  Without  this one time  credit to offset the third
        quarters production taxes in 2000, the overall costs incurred would have
        been  higher  when  compared  to the  same  period  in  1999  because  a
        substantial  portion of the  production  taxes are based on the  revenue
        generated and not on the volume produced.
                                      -12-

<PAGE>
Comparison  of Oil and Gas  Production  for the Nine Months Ended  September 30,
2000 & 1999:

        Oil - The 13,300 bbl  increase  in oil  production  for the nine  months
        ended  September 30, 2000,  when compared to the same period in 1999, is
        primarily  attributable to increased  production realized by the Company
        from the wells located in the East Bayou Sorrel field,  operated by NEG.
        The increase in production  realized by the Company, is not attributable
        to an overall  increase  in the 8/8's  production  from the  wells,  but
        rather an increased  interest in the respective  wells.  On November 15,
        1999,  the  prospect  "paid out" and  pursuant to the terms of our after
        prospect payout agreement, our working interest in these wells increased
        from  8.9% to  15.6%  giving  us more of the  overall  8/8's  production
        subsequent to that date.

        Gas - The 97,700 Mcf  decrease  in gas  production  for the nine  months
        ended  September 30, 2000,  when compared to the same period in 1999, is
        primarily  attributable  to  the  Maurice  field  operations,  which  is
        operated by AHC,  where:  a) we have  experienced the natural decline of
        production  inherent in oil and gas  operations;  and b) the loss of one
        well in September 1999 due to down-hole mechanical problems.

Comparison of Oil and Gas Revenue for the Nine Months Ended September 30, 2000 &
1999:

        Oil and gas revenue for the nine months ended  September 30, 2000,  when
        compared to the same period in 1999, increased over $1.1 million. As the
        data in the above table  illustrates,  this  increase  is  substantially
        attributed to the  substantially  higher prices received for the oil and
        gas in 2000.  We  received  an  average  price of $28.70  per bbl of oil
        during the first nine months of 2000  compared to $15.54 per bbl for the
        same period in 1999 - representing a $13.16 per bbl, or 85% increase, in
        2000.  We received  an average  price of $3.84 per Mcf of gas during the
        first nine months of 2000  compared to $2.37 for the same period in 1999
        representing a $1.47, or 62% increase, in 2000.

Comparison  of Oil and Gas Costs for the Nine Months Ended  September 30, 2000 &
1999:

        Lifting Costs - The lifting  costs  increased  $73,325  during the first
        nine months of 2000 when  compared to the same period in 1999  primarily
        because of: a) increased  water  production from the three wells at East
        Bayou Sorrel. Water disposal fees on an 8/8's basis are charge at a rate
        of $0.57 per bbl.  The  average  8/8's water  produced  from these wells
        during the first nine months of 2000 was 3,508 bbls per day  compared to
        2,107 bbls per day during the same period in 1999;  and b) the increased
        lifting costs from three  additional  discovery wells located in Jackson
        County, Texas that were put on line during the third quarter 2000.

        Production  Taxes - The production  taxes  increased  $48,610 during the
        first  nine  months of 2000  when  compared  to the same  period in 1999
        primarily  because a  substantial  portion of the  production  taxes are
        based  on  the  revenue  generated  and  not  on  the  volume  produced.
        Accordingly,  the higher  prices  received  for oil and gas in 2000 have
        increased the production taxes.

Exploration Outlook:

        An exploratory well in the Maurice prospect located in Lafayette Parish,
        Louisiana,  operated by AHC,  commenced  drilling  operations in October
        2000  targeting the Lower Bol Mex at a planned  measured depth of 17,500
        ft. It is  anticipated  that this well,  in which we own a 8.2%  working
        interest, will reach its total depth near the end of this year.

        In addition,  we will  continue to exploit our assets within the Jackson
        County, Texas area where we expect as many as twelve (12) Frio and Yegua
        prospects may be proposed over the next six to nine months, depending on
        weather and rig availability.

        Parallel has also  announced  that a Regional  Study of the Wilcox trend
        (examining  depths between  10,000' and 14,000' below the surface),  has
        recently  been  completed,  where at least twelve (12) Wilcox  prospects
        covering  approximately 25,000 acres have been identified.  Although the
        8/8's  costs  to  drill a  Wilcox  objective  is  between  $3.0 and $4.0
        million,  and there is a higher degree of risk associated with depth and
        reservoir   quality,   Parallel   believes  the  reserve   potential  is
        considerable. Within the Regional Wilcox Study, at least four (4) of the
        identified prospects are covered, either in whole or in part, within the
        Texana Area of Mutual  Interest (the "Texana AMI") where we have a 12.5%
        working interest. The total acreage within the Texana

                                      -13-

<PAGE>
        AMI for the identified  Wilcox prospects is over 6,000 acres and we have
        recently acquired  substantially  all of our proportionate  share of the
        corresponding  leases (with terms of two or three years).  This Regional
        Wilcox  study,  as it  relates  to the  Texana  AMI,  appears  extremely
        attractive based on the preliminary  studies and may provide our Company
        with new opportunities in the future.

Cautionary Outlook:

        Approximately  80% of our  production for the first nine months of 2000,
        on a BOE basis,  was produced from the three wells located at East Bayou
        Sorrel.  Of that, 57% of the  production,  on a BOE basis,  was produced
        from the Schwing # 1 which  averaged,  on an 8/8's basis,  1,260 bbls of
        oil per day and 1,270 Mcf per day for the first nine months of 2000.  In
        September  2000,  sand began showing up in the production  fluids in the
        Schwing  # 1.  NEG,  the  operator  of the  well,  believes  this may be
        formation  sand and that the situation  could possibly be corrected with
        remedial  procedures  (eg.  with a gravel pack or similar  operation) as
        soon as a work-over rig becomes available.  However, NEG has informed us
        that a work-over rig may not be available until January 2001. Therefore,
        in order to  mitigate  the  sand,  NEG cut the  production  rate back in
        October 2000 to  approximately  500 bbls per day and 550 Mcf per day. At
        this level, the sand in the production fluids, has been at an acceptable
        level through the date of this report. However, it can not be determined
        at this time  whether  or not this  will be the case for the  indefinite
        future.  If not, the already  reduced  production  levels may have to be
        lowered  even  further or the well may have to be  shut-in  alltogether.
        Once a work-over rig is available, NEG is confident that the well can be
        restored  to full  production.  However,  at this  time  there can be no
        assurance when the remedial procedures will be performed or if they will
        ultimately be successful.

        Most of the  average  daily  production  lost  from  Schwing  # 1, on an
        equivalent units basis,  has been replaced by the recent  discoveries in
        Jackson County, Texas that were previously discussed.  Therefore, absent
        any  unforeseen  circumstances,  we do  not  expect  our  average  daily
        production for the fourth quarter,  on an equivalent  units basis, to be
        lower than the  average  daily  production  reported  for the first nine
        months of 2000  (excluding the one time  adjustment for the wells in the
        Maurice field).  However,  any unexpected loss of production from one of
        the new  discoveries,  further  reductions of the production from any of
        the  wells  in  East  Bayou  Sorrel,  and/or  if  the  planned  remedial
        procedures on the Schwing # 1 are not ultimately successful,  could have
        a material negative impact on our estimated reserves,  future production
        and future cash flows.

Consulting Arrangement - Related Party
In March 1996 the Company  entered into a three-year  consulting  agreement with
Beta Capital Group,  Inc.  ("BCG") located in Newport Beach,  California.  BCG's
chairman,  Steve  Antry,  has been a director of Pease since  August  1996.  The
Consulting  agreement provided for minimum monthly cash payments of $17,500 plus
reimbursement  for  out-of-pocket  expenses.  Stephen  Fischer,  an  independent
contractor  for BCG, is also a member of our Board of directors.  Messrs.  Antry
and Fischer are also principals of Beta Oil & Gas, Inc., a publicly held oil and
gas  company  located  in  Tulsa,  Oklahoma.  We have  not  incurred  any  costs
associated with this consulting agreement since its expiration in February 1999.

General and Administrative
General and administrative  ("G&A") expenses  decreased:  i) $174,638 during the
third quarter of 2000 when compared to the same period in 1999; and ii) $215,184
during the first nine  months of 2000 when  compared to the same period in 1999.
These decreases are  attributable  to an overall effort  initiated in the fourth
quarter  of 1998 to  substantially  reduce  G&A costs.  Actions  taken  included
reducing  personnel,  limiting travel,  eliminating  unnecessary  administrative
services and only utilizing consultants on an as needed basis. In addition,  the
costs  incurred in  connection  with the efforts to  consummate  the merger with
Carpatsky  were:  i) $88,237 less for the three months ended  September 30, 2000
when  compared  to the same period in 1999;  and ii)  $33,695  less for the nine
months ended  September 30, 2000 when  compared to the same period in 1999.  The
following  table  presents  the merger costs that are included in our G&A during
the periods presented:
<TABLE>
<CAPTION>
        For the Three Months                   For the Nine Months
         Ended September 30,                   Ended September 30,
    ----------------------------         -----------------------------
       2000               1999               2000               1999
    ---------          ---------         ----------         ----------
<S> <C>                <C>               <C>                <C>
    $  14,489          $ 102,726         $   89,444         $  123,139
</TABLE>
We expect "core" G&A expenses for the  foreseeable  future to be between $40,000
to $50,000 per month.
                                      -14-

<PAGE>
Depreciation, Depletion and Amortization
Depreciation,  Depletion and Amortization  ("DD&A") for the periods presented by
cost center consisted of the following:
<TABLE>
<CAPTION>
                                             For the Three Months   For the Nine Months
                                              Ended September 30,   Ended September 30,
                                             --------------------   -------------------
                                                2000       1999       2000       1999
                                             ---------  ---------   --------   --------
<S>                                          <C>        <C>         <C>        <C>
       Oil and Gas Properties .............. $ 250,695  $ 245,007   $748,649   $780,899
       Furniture, Fixtures and Equipment ...     4,898      5,283     14,732     17,380
                                             ---------  ---------   --------   --------
            Total .......................... $ 255,593   $250,290   $763,381   $798,279
                                             =========  =========   ========   ========
DD&A for the oil and gas properties,
  per BOE: ................................. $    7.19   $   8.66   $   7.66   $   7.75
                                             =========  =========   ========   ========
</TABLE>

The DD&A for oil and gas  properties is computed  using the  units-of-production
method utilizing only proved reserves at the end of the respective period.  Even
though there hasn't been a  significant  difference  in the total amount of DD&A
for oil and gas properties between the periods presented,  the DD&A rate per BOE
decreased  $.09  per BOE for the nine  months  ended  September  30,  2000  when
compared to the same period in 1999,  and decreased  $1.47 per BOE for the three
months ended  September 30, 2000 when compared to the same period in 1999.  This
decrease in the DD&A rate per BOE can be substantially  attributed to an overall
increase in reserves  attributable to: a) our recent well discoveries in Jackson
County,  Texas (these  discoveries  were previously  discussed under the caption
"oil and gas"); and b) higher oil and gas prices between the periods  presented.
Higher oil and gas prices  will  generally  extend the  economic  life of a well
which in turn increases the total recoverable reserves.

Interest Expense
Total interest  incurred,  and its allocation,  for the periods  presented is as
follows:
<TABLE>
<CAPTION>
                                                  For the Three Months       For the Nine Months
                                                   Ended September 30,       Ended September 30,
                                                 ----------------------    ----------------------
                                                    2000         1999         2000         1999
                                                 ---------    ---------    ---------    ---------
<S>                                              <C>          <C>          <C>          <C>
Interest paid or accrued ........................$  70,337    $  70,690    $ 209,845    $ 209,795
Amortization of debt discount ...................   54,834       54,834      164,503      164,503
Amortization of debt issuance costs .............   34,559       34,559      103,677      103,677
                                                 ---------    ---------    ---------    ---------
    Total interest incurred .....................  159,730      160,083      478,025      477,975
Interest capitalized for exploration activities .  (69,942)     (70,135)    (208,307)    (208,116)
                                                 ---------    ---------    ---------    ---------
    Interest expense ............................$  89,788    $  89,948    $ 269,718    $ 269,859
                                                 =========    =========    =========    =========
</TABLE>
There has been very little change in the total interest  incurred when comparing
the periods  presented  because the majority of our debt is  represented  by the
$2.8 million in convertible debentures.  The principal balance of that debenture
has not changed during the periods presented.

The  total  interest   capitalized  for  exploration   activities  has  remained
relatively constant when comparing the periods presented since we have, and will
continue to, incur costs on our unevaluated oil and gas properties.  Interest is
being properly capitalized in accordance with FAS 34 and FASB Interpretation No.
33,  on the  unevaluated  oil  and gas  costs.  Interest  capitalization  on the
unevaluated  oil and gas costs  ceases when the  corresponding  asset has become
evaluated and is ready for its intended use.

PART II - OTHER INFORMATION
Item 1. Legal Proceedings

We may from time to time be involved in various claims,  lawsuits  disputes with
third parties,  actions involving  allegations of  discrimination,  or breach of
contract incidental to the operation of its business.  At September 30, 2000 and
as of the date of this report,  we were not involved in any litigation  which we
believe could have a materially  adverse  effect on our  financial  condition or
results of operations.




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<PAGE>

Item 2. Recent Sales of Unregistered Securities

We have not issued or sold any unregistered securities during the period covered
by this report.

Item 3. Defaults Upon Senior Securities

(a)      There  has  been no  material  default  in the  payment  of  principal,
         interest,   or  any  other  material  default,   with  respect  to  any
         indebtedness  of the small business issuer during the period covered by
         this report.

(b)      There has been no material  default in the payment of dividends for any
         class of preferred stock during the period covered by this report.

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

No matter was  submitted  to a vote of our  security  holders  during the period
covered by this report.

Item 5. Other Information

There is no  information  reportable  under this item for the period  covered by
this report.

Item 6. Exhibits and Reports on Form 8-K

(a)      The following exhibits are filed with this report:

           (1) Exhibit 27,  "Financial  Data  Schedule" - for the quarter  ended
September 30, 2000.

(b)         Reports on Form 8-K:  We filed a report on Form 8-K on  November  8,
            2000 related to the  restructuring  of the Series B Preferred  Stock
            and the Termination Agreement with Carpatsky Petroleum, Inc.



                                   SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                   PEASE OIL AND GAS COMPANY
Date: November 20, 2000            By: /s/ Patrick J. Duncan
                                   ------------------------------------------
                                   Patrick J. Duncan
                                   President and Principal Accounting Officer

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