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
                  FOR THE QUARTER ENDED MARCH 31, 1997
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                               EXCHANGE ACT OF 1934

                          Commission File Number 0-6580
                            PEASE OIL AND GAS COMPANY
           (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)                     (Zip code)

                                   (970) 245-5917
                 (Issuer's telephone number, including area code)

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

           Securities registered pursuant to Section 12(g) of the Act:
           Common Stock (Par Value $.10 Per Share) Series A Cumulative
             Convertible Preferred Stock (Par Value $0.01 Per Share)
             Common Stock Purchase Warrants (Expire August 13, 1998)
                                 Title of Class

         Indicate by check mark  whether  the issuer:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Exchange Act 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 May 12,  1997 the issuer had  12,617,886  shares of its $0.10 par
value Common Stock and 122,922 shares of its $0.01 par value Series A Cumulative
Convertible Preferred Stock issued and outstanding.

Transitional Small Business Issuer Disclosure Format               Yes[ ]No[X]



                                        1

<PAGE>






TABLE OF CONTENTS


                                                                  PAGE
                                                                 NUMBER


PART I - Financial Information

         Item 1. Financial Statements

            Consolidated Balance Sheets                            3-4
                  March 31, 1997 (unaudited)
                  and December 31, 1996

            Consolidated Statements of Operations                   5
                  For the Three Months
                  Ended March 31, 1997
                  (unaudited) and 1996 (unaudited)

            Consolidated Statements of Cash Flows                  6-7
                  For the Three Months Ended March 31, 1997
                  (unaudited) and 1996 (unaudited)

            Notes to Consolidated Financial Statements             8-9

         Item 2. Management's Discussion and Analysis of          10-19
                           Financial Condition and
                           Results of Operations

Part II - Other Information                                       19-21

Part III - Signatures                                               22



                                        2

<PAGE>



PART 1 - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                   PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                March 31,        December 31,
                                                                   1997              1996
                                                               ------------        --------
                                                               (unaudited)
CURRENT ASSETS:
<S>                                                            <C>             <C>         
 Cash and equivalents ......................................   $  2,901,908    $  1,995,860
 Trade receivables .........................................        591,335         599,648
 Inventory .................................................        459,304         408,787
 Prepaid expenses and other ................................         88,636          56,327
                                                               ------------    ------------
   Total current assets ....................................      4,041,183       3,060,622
                                                               ------------    ------------

OIL AND GAS PROPERTIES, at cost (successful efforts method):
 Exploratory wells in progress .............................        527,439         181,312
 Undeveloped properties ....................................      2,101,727         351,727
 Developed properties ......................................     12,697,554       9,505,408
                                                               ------------    ------------
   Total oil and gas properties ............................     15,326,720      10,038,447
 Less accumulated depreciation
 and depletion .............................................     (4,086,845)     (3,946,974)
   Net oil and gas properties ..............................     11,239,875       6,091,473

PROPERTY, PLANT AND EQUIPMENT, at cost:
 Gas plant .................................................      4,099,285       4,099,285
 Service equipment and vehicles ............................        891,512         879,313
 Land, buildings and office equipment ......................        459,228         459,228
                                                               ------------    ------------
   Total property, plant and equipment .....................      5,450,025       5,437,826
 Less accumulated depreciation .............................     (1,454,796)     (1,376,154)
                                                               ------------    ------------
   Net property, plant and equipment .......................      3,995,229       4,061,672
                                                               ------------    ------------

OTHER ASSETS:
 Non-compete agreements, net ...............................        295,179         306,678
 Other .....................................................        272,493         274,830
 Deferred debt issuance costs ..............................      1,042,074       1,105,874
                                                               ------------    ------------
   Total other assets ......................................      1,609,746       1,687,382
                                                               ------------    ------------

TOTAL ASSETS ...............................................   $ 20,886,033    $ 14,901,149
                                                               ============    ============
</TABLE>


                                        3

<PAGE>



                   PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (continued)


<TABLE>
<CAPTION>

                                                            March 31,     December 31,
                                                              1997            1996
                                                         ------------       ---------
<S>                                                       <C>             <C>  
                                                         (unaudited)
CURRENT LIABILITIES:
 Current maturities of long-term debt:
    
      Related parties .................................   $       --      $    285,895
      Other ...........................................         32,610          45,944
 Accounts payable, trade ..............................        605,412         267,540
 Accrued production taxes .............................        288,122         288,122
 Other accrued expenses ...............................        199,869         265,427
                                                          ------------    ------------
    Total current liabilities .........................      1,126,013       1,152,928
                                                          ------------    ------------

LONG-TERM LIABILITIES:
 Long-term debt, less current maturities:
        Convertible debentures ........................      4,650,000       5,000,000
        Other .........................................         29,855          19,945
 Accrued production taxes .............................        309,284         256,088
                                                          ------------    ------------
 Total long-term liabilities ..........................      4,989,139       5,276,033
                                                          ------------    ------------

STOCKHOLDERS' EQUITY:
 Preferred  Stock,  par  value $ .01 per  share, 
   2,000,000 shares authorized, 122,922 and 179,938 
      shares of Series A Cumulative
      Convertible Preferred Stock issued and
      outstanding, respectfully (liquidation
      preference of $1,536,525 at March 31, 1997) .....          1,229           1,799
 Common Stock, par value $.10 per share,
   25,000,000 shares authorized, 11,510,819
   and 7,526,817 shares issued and
   outstanding, respectively ..........................      1,151,082         752,682
 Additional paid-in capital ...........................     23,807,265      17,392,329
 Accumulated deficit ..................................    (10,188,695)     (9,674,622)
                                                          ------------    ------------
   Total stockholders' equity .........................     14,770,881       8,472,188
                                                          ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $ 20,886,033    $ 14,901,149
                                                          ============    ============
</TABLE>








                                        4

<PAGE>



                   PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)
<TABLE>
<CAPTION>

                                                 For The Three Months
                                                    Ended March 31,
                                                1997            1996
                                             ----------     --------
<S>                                         <C>            <C>
                                                  
REVENUE:
    
 Oil and gas sales ......................   $   789,206    $   613,099
 Natural gas marketing and trading ......          --        1,345,955
 Gas plant processing ...................       209,510        187,843
 Oil field services and supply ..........       198,319        201,602
 Well administration and other income ...        21,805         30,749
                                            -----------    -----------
    Total revenue .......................     1,218,840      2,379,248
OPERATING COSTS AND EXPENSES:
 Oil and gas production .................       327,799        293,916
 Exploration costs ......................       307,280           --
 Natural gas marketing and trading ......          --        1,130,663
 Gas plant processing ...................       104,838        125,241
 Oil field services and supply ..........       153,658        147,275
 General and administrative .............       325,449        225,538
 Consulting agreement-related party .....        83,383         15,048
 Depreciation, depletion and amortization       261,232        274,148
                                            -----------    -----------
    Total operating costs and expenses ..     1,563,639      2,211,829
                                            -----------    -----------
INCOME (LOSS) FROM OPERATIONS ...........      (344,799)       167,419
OTHER INCOME (EXPENSES):
 Interest income ........................        18,059          1,408
 Interest expense:
   Amortization of debt issuance costs ..       (63,800)          --
   Interest paid or accrued .............      (125,889)       (58,119)
 Gain (Loss) on sale of assets ..........         2,356         (1,539)
                                            -----------    -----------
    Total other expenses, net ...........      (169,274)       (58,250)
                                            -----------    -----------
INCOME (LOSS) BEFORE INCOME TAXES .......      (514,073)       109,169
INCOME TAXES:
  Federal income tax refund .............          --           41,509
                                            -----------    -----------
NET INCOME (LOSS) .......................      (514,073)       150,678
Preferred stock dividends:
  In arrears ............................       (30,731)       (50,672)
  Converted into common stock ...........       (14,254)          --
                                            -----------    -----------
NET INCOME (LOSS) APPLICABLE TO COMMON
 STOCKHOLDERS ...........................   $  (559,058)   $   100,006
                                            ===========    ===========
NET INCOME (LOSS) PER COMMON SHARE ......   $      (.06)   $       .01
                                            ===========    ===========
WEIGHTED AVERAGE NUMBER OF COMMON
 SHARES OUTSTANDING .....................     8,923,500      7,316,500
                                            ===========    ===========
</TABLE>


                                        5

<PAGE>



                   PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
<TABLE>
<CAPTION>

                                                       For The Three Months
                                                         Ended March 31,
                                                         1997          1996
                                                     ------------  -----------
<S>                                                <C>            <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:

      
Net income (loss) ..............................   $  (514,073)   $   150,678
Adjustments to reconcile net loss to net cash
provided by operating activities:
provided by operating activities:
   Provision for depreciation and depletion ....       249,733        262,649
   Amortization of intangible assets ...........        75,299         14,624
   Loss (Gain) on sale of property and equipment        (2,356)         1,539
   Exploration costs ...........................       307,280           --
   Issuance of common stock for services .......         8,000           --
   Changes in operating assets and liabilities:
   (Increase) decrease in:
   Trade receivables ...........................         8,313       (115,625)
   Inventory ...................................       (50,517)        28,181
   Prepaid expenses and other assets ...........       (29,972)       (17,005)
   Increase (decrease) in:
   Accounts payable ............................       108,769        (53,193)
   Accrued expenses ............................       (12,362)         1,906
                                                   -----------    -----------
         Net cash provided by (used in) ........       148,114        273,754
         operating activities                      -----------    -----------
         
        
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property plant and ....    (1,184,492)      (144,575)
equipment
equipment, including dry hole costs
Acquisitions of oil and gas properties .........    (3,375,000)          --
Proceeds from redemption of certificate of .....          --           13,001
deposit
Proceeds from sale of property and equipment ...        56,559          8,047
                                                   -----------    -----------
      Net cash provided by (used in) ...........     4,502,933       (123,527)
      investing activities                         -----------    -----------
 
  
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt ....................       (33,006)      (267,813)
Repayment of long-term debt to related parties .      (285,895)          --
Proceeds from sale of common stock .............     3,880,000         68,750
Proceeds from exercise of common stock warrants      2,264,650           --
Offering costs .................................      (564,882)          --
                                                   -----------    -----------
       Net cash provided by (used in) ..........     5,260,867       (199,063)
         financing activities                      -----------    -----------
          
INCREASE (DECREASE) IN CASH AND EQUIVALENTS ....       906,048        (48,836)
CASH AND EQUIVALENTS, beginning of period ......     1,995,860        677,275
                                                   -----------    -----------
CASH AND EQUIVALENTS, end of period ............   $ 2,901,908    $   628,439
</TABLE>
                                                   ===========    ===========



                                        6

<PAGE>


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


<TABLE>
<CAPTION>

                                                  For The Three
                                                 Ended March 31,
                                                 1997        1996
                                               --------    --------

<S>                                            <C>        <C>   
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
   INFORMATION:
   Cash paid for interest:
         Related parties ...................   $ 42,417   $   --
     Other .................................    118,597     50,700
                                               --------   --------
       Total ...............................   $161,014   $ 50,700
                                               ========   ========
   Cash paid for income taxes ..............   $   --     $   --
                                               ========   ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
   INVESTING AND FINANCING ACTIVITIES:
Long-term debt incurred for purchase of
    vehicles ...............................   $ 29,582   $   --
                                               ========   ========
Conversion of debenture into common stock ..   $350,000   $   --
                                               ========   ========
Acquisition of oil and gas property
    for common stock .......................   $875,000   $   --
                                               ========   ========
Estimated fair value of warrants granted for
    debt issuance costs ....................   $   --     $200,000
                                               ========   ========
</TABLE>


                                        7

<PAGE>


                   PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (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 the Annual  Report on Form 10-KSB of Pease Oil and Gas Company (the  Company)
for the year  ended  December  31,  1996.  In the  opinion  of  Management,  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  followed by the Company are set forth in Note 1 to the
Company's  financial  statements in Form 10-KSB for the year ended  December 31,
1996. It is suggested  that these  financial  statements be read in  conjunction
with the financial statements and notes included in the Form 10-KSB.

Note 2 - Income Taxes:

The total  income tax expense or benefit  differs  from the amount that would be
provided by applying the  statutory  U.S.  Federal  income tax rate to income or
loss before taxes  primarily due to the  utilization of net operating loss carry
forwards, tax credit carry forwards, and percentage depletion carry forwards.

The income tax refund of $41,509  recorded  during the first  quarter of 1996 is
related to a net  operating  loss  carry  back that was filed with the  Internal
Revenue Service in March 1996.

Note 3 - Net Income (Loss) Per Common Share:

The net income per common  share for the first  quarter of 1996 was  computed by
dividing net income applicable to common  stockholders (which includes preferred
stock dividends in arrears during the period  presented) by the weighted average
number of shares of common stock and common stock equivalents outstanding during
the period. All the outstanding  options and warrants that had an exercise price
below  the  market  value  at  March  31,  1996  were  considered  common  stock
equivalents  and were included in the earnings per share  computation  using the
treasury stock method.



                                        8

<PAGE>



                   PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The net loss per  common  share for the first  quarter of 1997 was  computed  by
dividing  the  net  loss  applicable  to  common  stockholders  (which  includes
preferred  stock  dividends  in  arrears  during the  period  presented)  by the
weighted  average  number of common shares  outstanding  during the period.  All
common stock  equivalents  were  excluded  from the  computations  because their
effect would be anti-dilutive.

Note 4 - Reclassifications:

Certain  reclassifications  have been made to the 1996  financial  statements to
conform to the presentation in 1997. The  reclassifications had no effect on the
1996 net income.

                                        9

<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS

Disclosure Regarding Forward-Looking Statements
This  report on Form 10-QSB  includes  "forward-looking  statements"  within the
meaning  of  Section  27A of  the  Securities  Act  of  1933,  as  amended  (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 under "Management's Discussion and Analysis",  including, without
limitation, those regarding the Company's financial position, reserve quantities
and net present values, business strategy, plans and objectives of management of
the  Company for future  operations  and  capital  expenditures,  and the future
results from oil and gas drilling operations, are forward-looking statements and
the  assumptions  upon  which  such  forward-looking  statements  are  based are
believed  to be  reasonable.  The  Company  can  give  no  assurance  that  such
expectations and assumptions will prove to have been correct.  Reserve estimates
of oil and gas properties are generally different form the quantities of oil and
natural gas that are ultimately  recovered or found.  This is particularly  true
for estimates  applied to exploratory  prospects.  Additionally,  any statements
contained in this report  regarding  forward-looking  statements  are subject to
various known and unknown risks, uncertainties and contingencies,  many of which
are beyond the control of the  Company.  Such things may cause  actual  results,
performance,   achievements  or  expectations  to  differ  materially  from  the
anticipated results, performance, achievements or expectations. Factors that may
affect  such  forward-looking  statements  include,  but are not limited to, the
Company's ability to generate additional capital,  risks inherent in oil and gas
acquisitions,   exploration,   drilling,   development  and  production,   price
volatility of oil and gas,  competition,  shortages of  equipment,  services and
supplies,  government regulation,  environmental matters, financial condition of
the other companies participating in the exploration, development and production
of oil and gas programs and other matters.  All written and oral forward-looking
statements  attributable  to  the  Company  or  persons  acting  on  its  behalf
subsequent to the date of this report are expressly  qualified in their entirety
by this disclosure.

Liquidity and Capital Resources
At March 31, 1997,  the Company's  cash balance was  $2,901,908  with a positive
working capital position of $2,915,170, compared to a cash balance of $1,995,860
and a positive  working capital position of $1,907,694 at December 31, 1996. The
change in the Company's cash balance is summarized as follows:

<TABLE>
<CAPTION>

<S>                                                                   <C>       
Cash Balance at December 31, 1996 ...............................     $1,995,860
Sources of Cash:
     Proceeds from the sale of common stock .....................      3,880,000
     Proceeds from the exercise of common stock warrants ........      2,264,650
     Cash provided by operating activities ......................        148,114
     Proceeds from the sale of property and equipment ...........         56,559
                                                                      ----------
            Total Sources of Cash ...............................      6,349,323


                                       10

<PAGE>

<CAPTION>

<S>                                                                   <C>       

 Uses of Cash:
     Acquisition of oil and gas interest in
        East Bayou Sorrel .....................................      (3,375,000)
  Other Capital Expenditures ..................................      (1,184,492)
     Costs associated with the sale of common stock and
        exercise of common stock warrants .....................        (564,882)
     Payments on long term debt ...............................        (318,901)
                                                                     ----------
            Total uses of cash ................................      (5,443,275)
                                                                     ----------
Cash balance at March 31, 1997 ................................     $ 2,901,908
                                                                     ===========
</TABLE>
Although most of the Company's  sources of cash during the first quarter of 1997
were derived from equity transactions (which are discussed more thoroughly later
in this report in Part II below) under Item 2(c), it is important to note that a
portion  of the funds were used to acquire a  significant  interest  in the East
Bayou Sorrel Field, located in Iberville Parish,  Louisiana. This field includes
a discovery well, the Schwing #1 that accounted for 20% of the Company's oil and
gas production (on a BOE basis),  23% of the Company's oil and gas revenue,  and
34% of the Company's  operating  income from oil and gas  activities  during the
first quarter of 1997. The operating  statistics  for this well,  along with all
the other  oil and gas  properties,  are more  fully  illustrated  later in this
report under the Results of Operations  section under the caption "Oil and Gas".
The exploratory offset to the C.E. Schwing #1, known as the C.E. Schwing #2, was
drilled to a total depth of 13,600 feet during the second  quarter of this year.
The Company  anticipates  it will be completed by the end of May and is awaiting
the  results.  Should the Schwing #2  ultimately  produce at a similar or higher
rate as the rate  currently  being  produced by the  Schwing  #1, the  Company's
future production and cash flow could be enhanced considerably.

The  acquisition  of the  interest  in East Bayou  Sorrel is  indicative  of the
Company's  commitment to maintain its charted  course of action to cultivate its
existing asset base in the Rocky Mountain  region and expand into the Gulf Coast
region of Alabama,  Southern Louisiana and Texas. However, this course of action
will require the Company to seek a significant  amount of additional  capital to
fully fund and continue to implement this plan.

On February 4, 1997,  the Company  signed a definitive  agreement  with National
Energy Group, Inc. ("NEGX"),  a publicly held Company,  headquartered in Dallas,
Texas.  The  agreement   provides  the  Company  the  right  and  obligation  to
participate  with NEGX in  various  oil and gas  exploration  projects  over the
course of next two years.  Essentially,  the  agreement  consists  of three main
elements.  First,  the Company has the right and  obligation to participate as a
12.5% working  interest  owner in NEGX's  outlined  program which consists of 10
identified projects in Alabama,  Southern Louisiana,  and Texas. Second, subject
to certain  conditions  defined in the agreement,  the Company has the right and
obligation  to  participate  in  any  future  projects  generated  under  NEGX's
exclusive  arrangement  with  Sandefer Oil and Gas Company,  Inc.  ("Sandefer").
Sandefer is a private  corporation  owned and operated by a group of  geologists
and geophysicists who generate Gulf Coast,  Southern Louisiana and other wildcat
prospects.  Third,  the Company is entitled  to  participate  in any other third
party  generated   prospects  that  NEGX  participates  in  subject  to  certain
conditions as defined in the agreement.

                                       11

<PAGE>


Pursuant  to the  terms  of the  agreement  with  NEGX,  the  Company's  minimum
obligation  is at least $5.0 million per year in dry hole,  or drilling,  costs.
Additional  costs will be incurred for completion and  development of successful
projects.  Accordingly,  the Company  anticipates the actual  obligation will be
higher  assuming  that a  reasonable  amount of  success  is  achieved  with the
underlying  prospects.  If all the prospects  prove to be productive  (which the
Company  believes is unlikely as the drilling  program is a wildcat  exploration
program),  the total  obligation  to the  Company for 1997 could be in excess of
$20.0 million.

If all the contemplated  exploratory prospects are successful and the properties
are eventually fully developed,  the net reserves  attributable to the Company's
interest would be several times the Company's  present  reserves.  The Company's
current  reserves are  approximately 2 million  barrels of oil (or  equivalent).
Accordingly,  the agreement  with NEGX provides the Company with an  exploration
program that has the potential to significantly  increase its existing  reserves
and future cash flow.

The Company's  current cash position should cover the Company's  working capital
needs,  including the anticipated  exploration  costs associated with the letter
agreement  with NEGX, at least through the second  quarter of 1997.  After that,
the Company will need to seek additional  financing.  Anticipating  the need for
additional  financing,  in February 1997 the Company signed a non-binding letter
of intent with a brokerage  firm setting  forth the terms and  conditions  under
which the  broker  will  attempt  to assist the  Company  with a future  private
placement.  The letter  agreement with the brokerage firm  contemplates a future
placement  of at least $6.0  million  dollars  in common  stock in the second or
third  quarter of 1997.  The  agreement  is  subject  to  several  contingencies
including,  but not  limited  to,  due  diligence  and the  execution  of formal
agreement.

If the  Company is  unsuccessful  in  completing  the private  placement,  or if
additional funds are necessary either before or after such a transaction,  it is
uncertain at this time what actions the Company will take. Possibilities include
other debt or equity financings or the sale of certain existing assets.

In March 1996 the  Company  retained  Beta  Capital  Group,  Inc.  ("Beta") as a
consultant  to the Company.  Beta is located in Newport  Beach,  California  and
specializes in emerging oil and gas companies that have capital  resources needs
and market  support  requirements.  Beta has worked  closely with the Company to
structure  its  financings  and meet the  Company's  expected  cash and  capital
resources requirements.  Beta's President, Steve Antry, was an officer of Benton
Oil and Gas  Company  between  1989 and 1992.  During that time,  Mr.  Antry was
instrumental  in  obtaining  various  sources of capital that Benton Oil and Gas
required  during  a  very  significant  growth  period.  Based  on  Mr.  Antry's
background,  the  Company  believes  that  Beta adds a  tremendous  value to the
Company because of their network of financial resources.  Therefore, the Company
will attempt to utilize Beta's syndication of financial resources to fund future
capital requirements.

                                       12

<PAGE>



Capital Expenditures

During the first quarter of 1997, the Company capitalized or invested $4,559,492
in property and equipment as follows:

<TABLE>
<CAPTION>

<S>                                                                   <C>       
Acquisition of oil and gas interest in East Bayou Sorrel ........     $3,375,000
Drilling Costs -
    Exploratory wells in progress ...............................        346,127
    Exploratory Dry Hole ........................................        307,280
                                                                      ----------
         Total Drilling Costs ...................................        653,407
Workovers or Recompletions of existing properties ...............        525,974
                                                                      ----------
      Total Oil and Gas properties ..............................      4,554,381
Service Equipment and Rolling Stock .............................          4,620
Office Equipment ................................................            491
                                                                      ----------
                                                                      $4,559,492
                                                                      ==========
</TABLE>

The  acquisition  of the oil and gas  interest in East Bayou Sorrel is discussed
above. It is anticipated this field will ultimately be one of the Company's core
properties. NEGX, the operator of the property, has planned a 33-square mile 3-D
seismic program covering the East Bayou Sorrel field and surrounding areas later
this  year.  The 3-D data will  complement  an  already  extensive  database  of
reprocessed 2-D seismic and a number of existing well logs.

At March 31, 1997, the well in progress and corresponding costs incurred through
the first quarter were as follows:
                                             Costs
                                            Incurred      12/31/96     Total WIP
                                          1st Qtr 1997     Balance    at 3/31/97
C.E. Schwing #2 (Bayou Sorrel) .......      $302,391      $   --        $302,391
E. Winn #1 (South Lake Arthur) .......        43,736       181,312       225,048
                                            --------      --------      --------
      Totals .........................      $346,127      $181,312      $527,439
                                            ========      ========      ========

As discussed  above,  the C.E.  Schwing #2 is a exploratory well located in East
Bayou Sorrel Field, Iberville Parish, Louisiana, and is expected to be completed
by the end of May 1997.  The E. Winn #1, an  exploratory  well in the South Lake
Arthur Prospect,  located in Jefferson Devis Parish, Louisiana, was drilled to a
total depth of 17,800  feet in April  1997.  Although  the deep  objective  of a
Miogyp Sand test was dry, a potentially  productive  zone uphole was found.  The
Company expects this upper zone to be completed and tested by June 1997. All the
costs  incurred  to acquire and drill this well have been  capitalized  and will
remain that way, along with the future completion costs expected to be incurred,
until the outcome of the completion procedures are known.

Brazos Block 480, an offshore prospect in Texas, was drilled to a total depth of
13,500 feet in May 1997 and found to be dry. The  Company's  portion of the cost
of this exploratory dry hole was $307,280.

In the  first  quarter  of 1997,  the  Company  spent  $525,974  for  workovers,
recompletions and equipment acquisitions related to maintaining or

                                       13

<PAGE>



enhancing the current production of its producing oil and gas properties
in the Rocky Mountain region.

RESULTS OF OPERATIONS

Overview

The Company's  largest source of operating  revenue is from the sale of produced
oil, natural gas, and natural gas liquids. Therefore, the level of the Company's
revenues  and  earnings  are  affected by prices at which  natural  gas, oil and
natural gas liquids are sold. As a result,  the Company's  operating results for
any prior period are not  necessarily  indicative  of future  operating  results
because of the  fluctuations  in natural gas, oil and natural gas liquid  prices
and the lack of  predictability  of those  fluctuations  as well as  changes  in
production levels.

Total Revenue
Total Revenue from all operations was as follows:
<TABLE>
<CAPTION>

                                      For the Three Months Ended March 31,
                                               1997                      1996
                                          -------------                 ----------
                                       Amount             %       Amount              %
<S>                                 <C>                  <C>   <C>                   <C>
Oil and gas sales ...............   $  789,206           65%   $  613,099            26%
Natural gas marketing and trading         --                    1,345,955            56%
Gas plant processing ............      209,510           17%      187,843             8%
Oil field services and supply ...      198,319           16%      201,602             9%
Well administration and other ...       21,805            2%       32,157             1%
                                    ----------   ----------    ----------       ----------
   Total revenue ................   $1,218,840          100%   $2,380,656           100%
                                    ==========   ==========    ==========       ==========
</TABLE>

The  decrease in total  revenue is primarily a result of the  expiration  of the
Company's natural gas marketing and trading contract with Public Service Company
of Colorado effective July 1, 1996. The Company has not been able to conduct any
natural gas trading  activities  subsequent to June 30, 1996. As illustrated for
the first three  months of 1996,  revenues  generated  from that  contract  were
$1,345,955,  or 56% of the total  revenue.  The loss of this  contract has had a
material  negative  effect  on  the  Company's   results  of  operations.   This
circumstance,  along with any known trends or changes  that effect  revenue on a
line-by-line  basis,  are  discussed  in the  following  paragraphs  under their
respective captions.

Oil and Gas
Operating statistics for oil and gas production for the periods presented are as
follows:
               
                                       14

<PAGE>
<TABLE>
<CAPTION>
                                                                                                  For the Three Months
                                                                                                     Ended March 31,
                                                                                                   1997           1996
                                                                                                 ----------      ------

 <S>                                                                                                 <C>           <C>
Production:
      Oil (Bbls)

             Rocky Mtns ......................................................................      19,969        26,608
             East Bayou Sorrel ...............................................................       7,829          --
                                                                                                 ---------     ---------
                    Combined Total ...........................................................      27,798        26,608
                                                                                                 =========     =========
      Gas (Mcf)
             Rocky Mtns ......................................................................      95,443       111,925
             East Bayou Sorrel ...............................................................       6,864          --
                                                                                                 ---------     ---------
                    Combined Total ...........................................................     102,307       111,925
                                                                                                 =========     =========
      BOE (6:1)
             Rocky Mtns ......................................................................      35,876        45,262
             East Bayou Sorrel ...............................................................       8,973          --
                                                                                                 ---------     ---------
                    Combined Total ...........................................................      44,849        45,262
                                                                                                 =========     =========
Average Collected Price:
      Oil (per Bbl)
             Rocky Mtns ......................................................................   $   21.35     $   17.74
             East Bayou Sorrel ...............................................................   $   20.87     $    --
                                                                                                 ---------     ---------
                    Combined Average .........................................................   $   21.22     $   17.74
                                                                                                 =========     =========
                                                                       
             Rocky Mtns ......................................................................   $    1.86     $    1.26
             East Bayou Sorrel ...............................................................   $    3.17     $    --
                                                                                                 ---------     ---------
                    Combined Average .........................................................   $    1.95     $    1.26
                                                                                                 =========     =========
      Per BOE (6:1)
             Rocky Mtns ......................................................................   $   16.84     $   13.55
             East Bayou Sorrel ...............................................................   $   20.63     $    --
                                                                                                 ---------     ---------
                    Combined Average .........................................................   $   17.60     $   13.55
                                                                                                 =========     =========
Operating Margins:
      Rocky Mtns:
             Revenue .........................................................................   $ 604,056     $ 613,099
             Costs ...........................................................................   $(299,336)    $(293,916)
                                                                                                 ---------     ---------
                    Operating Margin .........................................................   $ 304,720     $ 319,183
                                                                                                 =========     =========
                    Operating Margin Percent .................................................          50%           52%
      East Bayou Sorrel:
             Revenue .........................................................................   $ 185,150     $    --
             Costs ...........................................................................   $ (28,463)    $    --
                                                                                                 ---------     ---------
                    Operating Margin .........................................................   $ 156,687     $    --
                                                                                                 =========     =========
                    Operating Margin Percent .................................................          85%         --
      Combined Totals:
             Revenue .........................................................................   $ 789,206     $ 613,099
             Costs ...........................................................................   $(327,799)    $(293,916)
                                                                                                 ---------     ---------
                    Operating Margin .........................................................   $ 461,407     $ 319,183
                                                                                                 =========     =========
                    Operating Margin Percent .................................................          58%           52%
Production Costs per BOE before DD&A:
      Rocky Mtn Region .......................................................................   $    8.37     $    6.49
      Gulf Coast Region ......................................................................   $    3.17     $    --
                                                                                                 ---------     ---------
      Combined Average .......................................................................   $    7.33     $    6.49
                                                                                                 =========     =========
Change in Revenue Attributable to:
      Production .............................................................................   $   8,972
      Price ..................................................................................   $ 167,135
                                                                                                 ---------
      Total Increase in Revenue ..............................................................   $ 176,107
                                                                                                =========
</TABLE>

Most  of the  decrease  in oil  and  gas  production  can be  attributed  to the
following: 1) the sale of several marginal,  uneconomic, or nonstrategic oil and
gas  properties in the second quarter 1996 that accounted for 3,900 bbls. of oil
and 4,500 Mcf of gas during the first quarter of 1996; and

                                       15

<PAGE>



2) to a much lesser extent the natural decline in production that is inherent in
oil and gas wells. Both these  circumstances  were largely offset by an increase
in  commodity  prices and new  production  from the East Bayou  Sorrel  Field in
Louisiana.

Natural Gas Marketing and Trading
Operating  statistics for the Company's Marketing and Trading Activities for the
periods presented are as follows:
<TABLE>
<CAPTION>
                                     For the Three Months Ended
                                              March 31,
                                         1997            1996
                                       ----------     --------
<S>                                       <C>        <C>    
Total Volume Sold (Mcf)..............      --         725,479
Average Price .......................   $  --     $      1.86
                                        -------   -----------
      Total Revenue .................   $  --     $ 1,345,955
Costs ...............................      --      (1,130,663)
                                        -------   -----------
      Gross Margin ..................   $  --     $   215,292
                                        =======   ===========
</TABLE>

The Company had a "take-or-pay" contract with Public Service Company of Colorado
("PSCo")  which  called for PSCo to purchase  from the Company a minimum of 2.92
billion cubic feet ("BCF") of natural gas  annually.  The price paid the Company
by PSCo was based on the Colorado Interstate Gas Commission's "spot" price, plus
a fixed price bonus. The natural gas marketing and trading activities  represent
natural  gas that was  purchased  from third  parties and sold to PSCo under the
terms of the contract.

The contract with PSCo expired on June 30, 1996. Historically, the price paid by
PSCo under that contract was at a premium above the market and therefore allowed
for the  marketing  and  trading  activities.  Although  the  Company  has  been
negotiating  with  PSCo to renew the  contract,  no  formal  agreement  has been
reached as of the date of this report.  Consequently,  no marketing  and trading
revenues have been  generated  subsequent to June 30, 1996.  With the increasing
competition  fostering  within all phases of the  natural  gas  industry,  it is
unlikely  that the contract  will be renewed at an above market  premium,  if at
all,  and the Company is unlikely to resume  marketing  and trading  activities.
Since the gross margin  represents  the net cash flow and income  generated from
this  activity,  the loss of this  premium  contract  price  has and will have a
material and negative impact on the Company's current and future operations.

Gas Plant Processing Revenues
This category accounts for the natural gas processed and the natural gas liquids
extracted  and sold by the Gas  Plant  facility.  Operating  statistics  for the
periods presented are as follows:



                                       16

<PAGE>

<TABLE>
<CAPTION>


                                 For the Three Months Ended March 31,
                                         1997            1996
                                        -------         ------
   Production:
<S>                                        <C>           <C>   
     Natural Gas Processed (Mcf) ....      78,930        91,590
     Liquids Produced -
            B-G Mix (gallons) .......     192,100       226,300
            Propane (gallons) .......     159,100       173,700
                                        ---------     ---------
                 Total ..............     351,200       400,000
                                        =========     =========
Average Sales Price of Liquids
    (per gallon) ....................   $    0.48     $    0.42
                                        =========     =========

   Gross Margin: ....................      Amount        Amount
                                        ---------     ---------
            Revenue .................   $ 209,510     $ 187,843
            Costs ...................    (104,838)     (125,241)
                                        ---------     ---------
                 Gross Margin .......   $ 104,672     $  62,602
                                        =========     =========
                 Gross Margin Percent          50%           33%
</TABLE>


The decrease in processing  volumes during 1997 when compared to the same period
in 1996,  can be  substantially  attributed to the normal  decline in production
from the two fields  owned and operated by the Company that supply the gas plant
with the natural gas. The increase in revenue and gross margin generated in 1997
when  compared  to the same period in 1996 is a direct  result of higher  liquid
prices in 1997.

Costs  associated with the Gas Plant  operations  consist of both semi-fixed and
variable  costs.  The  semi-fixed  costs consist of direct  payroll,  utilities,
operating supplies,  general and administrative costs, and other items necessary
in the day-to-day  operations.  The semi-fixed  costs are not expected to change
significantly  regardless of the volume processed by the Gas Plant. The variable
costs consist  primarily of purchased  gas,  plant fuel and shrink,  lubricants,
repair and maintenance,  and costs of gas marketing and buying.  These costs are
generally  a direct  function of the volume  processed  by the Gas Plant and are
expected to either increase or decrease  proportionately  with the corresponding
plant production. When compared to 1997, the costs in 1996 were higher in amount
and as a percentage of revenue as a result of processing  higher  volumes of gas
in 1996.

Oil Field Services and Oil Field Supply
Operating  statistics for the Company's oil field service and supply  operations
for the periods presented are as follows:
<TABLE>
<CAPTION>

                                      Service Operations
                                      For the Three Months
                                        Ended March 31,
                                        1997         1996
<S>                                  <C>          <C>      
Revenue ............................ $ 198,319    $ 201,602
Costs .............................   (153,658)    (147,275)
                                     ---------    ---------
Net Operating Income                 $  44,661    $  54,327
                                     =========    =========
</TABLE>

As expected,  there has been no material change in the results of operations for
the periods presented and the Company does not expect any significant changes in
the future.

                                       17

<PAGE>



Well Administration and Other Income
This  revenue  primarily  represents  the revenue  generated  by the Company for
operating oil and gas  properties.  There has been no significant  change in the
average  monthly  revenue  between 1997 and 1996 and the Company does not expect
any significant change in the future.

General and Administrative
General and administrative  expenses increased approximately $100,000 during the
first  quarter  of 1997  when  compared  to the  same  period  in 1996  which is
summarized as follows:

 $ 25,000    -      For consulting services (legal, land and other) associated
                    with the Company's expansion into the Gulf Coast.
   17,000    -      Travel costs associated with the Company's expansion into
                    the Gulf Coast.
   17,000    -      Payroll costs associated with an increase in base pay and
                    insurance benefits for virtually all the Company's
                    officers and employees.
   13,000    -      A Directors and Officers Liability Insurance Policy
                    purchased on July 1, 1996.
   28,000    -      All other, net.
  --------
 $100,000

Consulting Arrangement - Related Party
In March 1996 the Company  entered into a three-year  consulting  agreement with
Beta Capital Group, Inc.  ("Beta").  Beta's  president,  Steve Antry, has been a
director of the Company since August 1996.  The  consulting  agreement with Beta
provides for minimum  monthly cash  payments of $17,500 plus  reimbursement  for
out-of-pocket expenses.

Depreciation, Depletion and Amortization
Depreciation,  Depletion and  Amortization  ("DD&A") for the periods  presented,
excluding the amortization of debt issuance costs, consisted of the following:
<TABLE>
<CAPTION>

                             For the Three Months Ended
                                     March 31,
                                  1997         1996
<S>                             <C>        <C>     
Oil and Gas Properties ......   $139,872   $157,901
Gas Plant and Other Buildings     60,929     62,072
Rolling Stock ...............     27,104     23,048
Other Field Equipment .......      9,458      7,945
Furniture and Fixtures ......     12,370     11,682
Non-Compete Agreement .......     11,499     11,500
                                --------   --------
       Total ................   $261,232   $274,148
                                ========   ========
</TABLE>

DD&A per BOE for oil and gas  properties  decreased in t e first quarter of 1997
when compared to the same period in 1996  primarily as a result of a decrease in
production from the Rocky Mountain region.  However, DD&A per BOE was relatively
constant  at $3.11  for the first  quarter  of 1997  compared  to $3.48 for same
period in 1996.



                                       18

<PAGE>



Interest Expense
The higher  interest  expense  incurred in 1996 is reflective of the increase in
the average  long-term debt  outstanding and  amortization of the  corresponding
debt issuance costs.  Both of these  circumstances  are directly  related to the
convertible  debentures  sold by the Company  pursuant to the private  placement
completed in November 1996.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The  Company  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.  The Company is
not currently involved in any such incidental litigation which it believes could
have a  materially  adverse  effect on its  financial  condition  or  results of
operations.

Item 2. Changes in Securities

(a)and (b): not applicable

(c)          Recent sales of  unregistered  securities.  The Company  issued and
             sold  the  following  securities  without  registration  under  the
             Securities Act of 1933, as amended  ("Securities  Act"), during the
             quarter ended March 31, 1997 and through the date of this Report.

          1.   Effective  January 10, 1997 the Company  issued 315,000 shares of
               its common stock to three unrelated entities, Atocha Exploration,
               Inc., Potosky Oil and Gas, Inc., and Browning Oil Company,  Inc.,
               in exchange for an undivided  interest in a producing oil and gas
               prospect   designated  as  the  East  Bayou  Sorrel  Prospect  in
               Iberville Parish, Louisiana.

          2.   Between  February 1, 1997 and March 10, 1997,  the Company issued
               1,500,000 shares of its common stock for $3,750,000 to a group of
               private  investors  each  of  whom  qualified  as  an  accredited
               investor as such term is defined in  Regulation  D adopted by the
               Securities  and  Exchange  Commission.  The Company  paid selling
               commissions of $300,000.  The Company relied upon Section 4(2) of
               the  Securities  Act and Rule  506 of  Regulation  D in  claiming
               exemption from the  registration  requirements  of the Securities
               Act for the securities sold.

          3.   Between  March 14,  1997 and April 15,  1997,  the  Company  sold
               52,000  shares of its  common  stock for  $130,000  to a group of
               private  investors  each  of  whom  qualified  as  an  accredited
               investor as such term is defined in  Regulation  D adopted by the
               Securities  and  Exchange  Commission.  The Company  paid selling
               commissions  of $10,400.  The Company relied upon Section 4(2) of
               the  Securities  Act and Rule  506 of  Regulation  D in  claiming
               exemption from the  registration  requirements  of the Securities
               Act for the securities sold.


                                       19

<PAGE>



          4.   Through  May  12,  1997  holders  of  $420,000  of the  Company's
               outstanding    collateralized    convertible    10%    debentures
               ("Debentures")  surrendered  such  Debentures  to the Company for
               conversion  into  139,999  shares of the  Company's  common stock
               ($350,000 in Debentures were converted through March 31, 1997) in
               accordance with conversion  provisions of the Debentures.  Shares
               of common stock issued upon  conversion  have been registered for
               resale by the holders on Registration No. 333- 19589. The Company
               relied upon Rule 506 of  Regulation D in claiming  exemption  for
               the registration  requirements of the Securities Act for issuance
               of the securities upon conversion of the Debentures.

          5.   On March 31, 1997,  the Company issued 4,000 shares of its common
               stock  to two  consultants  of the  Company  in lieu of cash  for
               consulting  services rendered to the Company valued at $8,000 for
               financial reporting purposes.

          6.   Between  March 1,  1997 and  April 15,  1997 the  Company  issued
               2,482,500  shares of its  common  stock upon  exercise  of a like
               number of warrants  upon  exercise of such  warrants at $1.25 per
               warrant  for a total  proceeds  of  $3,103,125.  Holders  of such
               warrants  acquired  the  warrants in the  Company's  1996 private
               placement of  Debentures  and warrants.  The warrants  would have
               expired if not  previously  exercised on April 15,  1997.  Shares
               issued upon exercise of warrants  were  registered by the Company
               for resale by the holders in  Registration  No.  333- 19589.  The
               Company  relied  upon  Rule  506  of  Regulation  D  in  claiming
               exemption for the registration requirements of the Securities Act
               for issuance of the securities upon exercise of the warrants.

          7.   Between  March  1,  1997 and May 12,  1997,  the  Company  issued
               110,000  shares of its common stock upon exercise of  outstanding
               stock purchase  warrants at $0.75 per share for total proceeds of
               $82,500  to  the  Company.  The  holder  of  the  warrants  is an
               affiliate of Beta Capital Group, Inc. with whom the Company has a
               consulting  agreement  and to whom the  warrants  were  issued in
               February 1996. Shares of common stock issued upon exercise of the
               warrants were registered for resale by the holder in Registration
               No. 333-19589.

          8.   Between January 1997 and May 12, 1997, the Company issued 275,625
               shares of its common  stock upon  exercise of  outstanding  stock
               purchase  warrants issued by the Company between 1994 and 1996 to
               certain  broker/dealers in connection with private  placements of
               Company   securities  during  such  time.  The  Company  received
               $363,350 of proceeds  upon  exercise of the  warrants.  Shares of
               common stock issued upon exercise were  registered by the Company
               for resale by the holders under  Registration Nos.  333-19589 and
               33-94536.



                                       20

<PAGE>



      As to each issuance of  securities  identified in paragraphs 1, 5, 7 and 8
above,  the Company  relied upon Section 4(2) of the  Securities Act in claiming
exemption for the  registration  requirement of the  Securities  Act. All of the
persons to whom the securities were issued had full  information  concerning the
business  and  affairs of the  Company and  acquired  the shares for  investment
purposes.  Certificates  representing  the securities  issued bear a restrictive
legend and stop transfer  instructions have been entered prohibiting transfer of
the securities except in compliance with applicable securities law.

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)  In December 1994, the Board of Directors  elected to forego the declaration
     of the regular  quarterly  dividend for the  Company's  Series A Cumulative
     Convertible  Preferred Stock for the fourth quarter of 1994. In March 1995,
     the Board of  Directors  elected to suspend the  Preferred  Stock  dividend
     indefinitely.  However,  the  dividends  continue  to accrue on a quarterly
     basis and are cumulative.  Accordingly,  as of March 31, 1997, dividends in
     arrears aggregate $307,305 or $2.50 per share.

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

No matter was  submitted  to a vote of  Company's  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".

(b)          The  following  reports on Form 8-K were filed  during the  quarter
             ended March 31, 1997:

         Item Reported                 Date                Financial Statement
         -------------                 ----                -------------------
        (1)    Item 2,7           January 10, 1997                 None
        (2)    Item 5,7           February 4, 1997                 None
        (3)    Item 2,7           March 13, 1997                   None

There were no financial statements filed during the quarter ended March 31, 1997
other  than the  Company's  Annual  Report  on Form  10-KSB  for the year  ended
December 31, 1996.

                                       21

<PAGE>




                                   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:  May 12, 1997        By:/s/ Willard H. Pease, Jr.
                           ---------------------------
                           Willard H. Pease, Jr.
                           President and Chief Executive Officer

Date:  May 12, 1997        By: /s/ Patrick J. Duncan
                           -------------------------
                           Patrick J. Duncan
                           Chief Financial Officer, Treasurer,
                           and Principal Accounting Officer



                                       22