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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



|For the Quarter Ended |  | Commission File Number
|--------------------- |  | ----------------------
|March 31, 2003        |  | 0-23431               



MILLER
EXPLORATION COMPANY

(Exact Name of Registrant as Specified in Its Charter)



|Delaware                                                       |  | 38-3379776                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



|3104 Logan Valley Road Traverse City, Michigan |  | 49685-0348
|---------------------------------------------- |  | ----------
|(Address of Principal Executive Offices)       |  | (Zip Code)



Registrants Telephone Number, Including Area Code: (231) 941-0004



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes  x                     No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Act).



Yes ̈No  x



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



|Class                        |  | Outstanding at May 12, 2003
|---------------------------- |  | ---------------------------
|Common stock, $.01 par value |  | 2,061,253 shares           



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##### Table of Contents



MILLER
EXPLORATION COMPANY



TABLE OF CONTENTS



|                                                                                              |  | Page No.
|--------------------------------------------------------------------------------------------- |  | --------
|PART I. FINANCIAL INFORMATION                                                                 |  |         
|                                                                                              |  |         
|Item 1. Financial Statements                                                                  |  | 3       
|                                                                                              |  |         
|Consolidated Statements of Operations Three Months Ended March 31, 2003 and 2002              |  | 3       
|                                                                                              |  |         
|Consolidated Balance Sheets March 31, 2003 and December 31, 2002                              |  | 4       
|                                                                                              |  |         
|Consolidated Statement of Equity Three Months Ended March 31, 2003                            |  | 5       
|                                                                                              |  |         
|Consolidated Statements of Cash Flows Three Months Ended March 31, 2003, and 2002             |  | 6       
|                                                                                              |  |         
|Notes to Consolidated Financial Statements                                                    |  | 7       
|                                                                                              |  |         
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 17      
|                                                                                              |  |         
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 24      
|                                                                                              |  |         
|Item 4. Controls and Procedures                                                               |  | 25      
|                                                                                              |  |         
|                                                                                              |  |         
|PART II. OTHER INFORMATION                                                                    |  |         
|                                                                                              |  |         
|Item 1. Legal Proceedings                                                                     |  | 26      
|                                                                                              |  |         
|Item 2. Changes in Securities and Use of Proceeds                                             |  | 27      
|                                                                                              |  |         
|Item 3. Defaults Upon Senior Securities                                                       |  | 27      
|                                                                                              |  |         
|Item 4. Submission of Matters to a Vote of Security Holders                                   |  | 27      
|                                                                                              |  |         
|Item 5. Other Information                                                                     |  | 27      
|                                                                                              |  |         
|Item 6. Exhibits and Reports on Form 8-K                                                      |  | 28      



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



MILLER EXPLORATION COMPANY



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



|                                                                                            |  | For the Three Months Ended March 31 |      
|------------------------------------------------------------------------------------------- |  | ----------------------------------- | -----
|                                                                                            |  | 2003                                |      
|REVENUE:                                                                                    |  |                                     |      
|Natural gas                                                                                 |  | $                                   | 2,829
|Crude oil and condensate                                                                    |  |                                     | 791  
|Other operating revenue                                                                     |  |                                     | 33   
|                                                                                            |  |                                     |      
|Total operating revenue                                                                     |  |                                     | 3,653
|                                                                                            |  |                                     |      
|OPERATING EXPENSES:                                                                         |  |                                     |      
|Lease operating expenses and production taxes                                               |  |                                     | 564  
|Depreciation, depletion and amortization                                                    |  |                                     | 1,636
|General and administrative                                                                  |  |                                     | 551  
|                                                                                            |  |                                     |      
|Total operating expenses                                                                    |  |                                     | 2,751
|                                                                                            |  |                                     |      
|OPERATING INCOME (LOSS)                                                                     |  |                                     | 902  
|                                                                                            |  |                                     |      
|INTEREST EXPENSE                                                                            |  |                                     | (15  
|                                                                                            |  |                                     |      
|INCOME (LOSS) BEFORE INCOME TAXES                                                           |  |                                     | 887  
|                                                                                            |  |                                     |      
|INCOME TAX PROVISION (CREDIT) (Note 2)                                                      |  |                                     |     
|                                                                                            |  |                                     |      
|NET INCOME (LOSS) BEFORE CUMULATIVE EFFECTOF CHANGE IN ACCOUNTING
PRINCIPLE                 |  |                                     | 887  
|                                                                                            |  |                                     |      
|CUMULATIVE EFFECT OF CHANGE INACCOUNTING PRINCIPLE (Note 1)                                 |  |                                     | (450 
|                                                                                            |  |                                     |      
|NET INCOME (LOSS)                                                                           |  | $                                   | 437  
|                                                                                            |  |                                     |      
|Basic Income (Loss) Per Share   Before Cumulative Effect of Changein
Accounting Principle  |  | $                                   | 0.44 
|Basic Income (Loss) Per Share  Cumulative Effect of Changein Accounting
Principle          |  | $                                   | (0.22
|Basic Income (Loss) Per Share                                                               |  | $                                   | 0.22 
|Diluted Income (Loss) Per Share  Before Cumulative Effect of Changein
Accounting Principle |  | $                                   | 0.43 
|Diluted Income (Loss) Per Share  Cumulative Effect of Changein Accounting
Principle        |  | $                                   | (0.22
|Diluted Income (Loss) Per Share                                                             |  | $                                   | 0.21 
|Weighted Average Shares Outstanding:                                                        |  |                                     |      
|Basic                                                                                       |  |                                     | 2,027
|                                                                                            |  |                                     |      
|Diluted                                                                                     |  |                                     | 2,085
|                                                                                            |  |                                     |      





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



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MILLER EXPLORATION COMPANY



CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)



|                                                                                                                                                                     |  | As of March 31, 2003 |          |   | As of December 31, 2002 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | -------- | - | ----------------------- | -
|                                                                                                                                                                     |  | (Unaudited)          |          |   |                         |  
|ASSETS                                                                                                                                                               |  |                      |          |   |                         |  
|CURRENT ASSETS:                                                                                                                                                      |  |                      |          |   |                         |  
|Cash and cash equivalents                                                                                                                                            |  | $                    | 353      |   |                         | $
|Accounts receivable                                                                                                                                                  |  |                      | 2,156    |   |                         |  
|Inventories, prepaids and advances to other operators                                                                                                                |  |                      | 607      |   |                         |  
|                                                                                                                                                                     |  |                      |          |   |                         |  
|Total current assets                                                                                                                                                 |  |                      | 3,116    |   |                         |  
|                                                                                                                                                                     |  |                      |          |   |                         |  
|OIL AND GAS PROPERTIESat cost (full cost method):                                                                                                                   |  |                      |          |   |                         |  
|Proved oil and gas properties                                                                                                                                        |  |                      | 157,691  |   |                         |  
|Unproved oil and gas properties                                                                                                                                      |  |                      | 693      |   |                         |  
|Less-Accumulated depreciation, depletion and amortization                                                                                                            |  |                      | (140,884 | ) |                         |  
|                                                                                                                                                                     |  |                      |          |   |                         |  
|Net oil and gas properties                                                                                                                                           |  |                      | 17,500   |   |                         |  
|                                                                                                                                                                     |  |                      |          |   |                         |  
|OTHER ASSETS                                                                                                                                                         |  |                      | 151      |   |                         |  
|                                                                                                                                                                     |  |                      |          |   |                         |  
|Total assets                                                                                                                                                         |  | $                    | 20,767   |   |                         | $
|                                                                                                                                                                     |  |                      |          |   |                         |  
|LIABILITIES AND EQUITY                                                                                                                                               |  |                      |          |   |                         |  
|CURRENT LIABILITIES:                                                                                                                                                 |  |                      |          |   |                         |  
|Notes payable (Note 3)                                                                                                                                               |  | $                    | 128      |   |                         | $
|Current maturities of long-term debt                                                                                                                                 |  |                      |         |   |                         |  
|Accounts payable                                                                                                                                                     |  |                      | 398      |   |                         |  
|Accrued expenses and other current liabilities                                                                                                                       |  |                      | 2,677    |   |                         |  
|                                                                                                                                                                     |  |                      |          |   |                         |  
|Total current liabilities                                                                                                                                            |  |                      | 3,203    |   |                         |  
|                                                                                                                                                                     |  |                      |          |   |                         |  
|LONG-TERM DEBT                                                                                                                                                       |  |                      |         |   |                         |  
|COMMITMENTS AND CONTINGENCIES (Note 6)                                                                                                                               |  |                      |          |   |                         |  
|EQUITY:                                                                                                                                                              |  |                      |          |   |                         |  
|Common stock warrants, 960,050 outstanding at March 31, 2003 and December 31,
2002                                                                                   |  |                      | 851      |   |                         |  
|Preferred stock, $0.01 par value; 2,000,000 shares authorized; none
outstanding                                                                                      |  |                      |         |   |                         |  
|Common stock, $0.01 par value; 40,000,000 shares authorized; 2,061,253 shares and
1,992,186 shares outstanding at March 31, 2003 and December 31, 2002, respectively |  |                      | 21       |   |                         |  
|Accumulated other comprehensive loss                                                                                                                                 |  |                      | (143     | ) |                         |  
|Additional paid in capital                                                                                                                                           |  |                      | 77,743   |   |                         |  
|Accumulated deficit                                                                                                                                                  |  |                      | (60,908  | ) |                         |  
|                                                                                                                                                                     |  |                      |          |   |                         |  
|Total equity                                                                                                                                                         |  |                      | 17,564   |   |                         |  
|                                                                                                                                                                     |  |                      |          |   |                         |  
|Total liabilities and equity                                                                                                                                         |  | $                    | 20,767   |   |                         | $
|                                                                                                                                                                     |  |                      |          |   |                         |  





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



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MILLER EXPLORATION COMPANY



CONSOLIDATED STATEMENT OF EQUITY

(In thousands)

(Unaudited)



|                                           |  | Common Stock Warrants |     | Preferred Stock |   | Common Stock |  | Accumulated Other Comprehensive Loss |    |  | Additional Paid In Capital |      | Accumulated Deficit | 
|------------------------------------------ |  | --------------------- | --- | --------------- | - | ------------ |  | ------------------------------------ | -- |  | -------------------------- | ---- | ------------------- | 
|BALANCE-December 31, 2002                  |  | $                     | 851 |                 | $ |             |  | $                                    | 20 |  | $                          | (49  | )                   | 
|Issuance of benefit plan shares            |  |                       |    |                 |   |             |  |                                      |   |  |                            |     |                     | 
|Issuance of non-employee directors shares |  |                       |    |                 |   |             |  |                                      | 1  |  |                            |     |                     | 
|Change in unrealized losses                |  |                       |    |                 |   |             |  |                                      |   |  |                            | (94  | )                   | 
|Net income                                 |  |                       |    |                 |   |             |  |                                      |   |  |                            |     |                     | 
|                                           |  |                       |     |                 |   |              |  |                                      |    |  |                            |      |                     | 
|BALANCE-March 31, 2003                     |  | $                     | 851 |                 | $ |             |  | $                                    | 21 |  | $                          | (143 | )                   | 
|                                           |  |                       |     |                 |   |              |  |                                      |    |  |                            |      |                     | 



Disclosure of Comprehensive Income:



|                                  |  | For the three months ended March 31, |    
|--------------------------------- |  | ------------------------------------ | ---
|                                  |  | 2003                                 |    
|Net income (loss)                 |  | $                                    | 437
|Other comprehensive loss          |  |                                      | (94
|                                  |  |                                      |    
|Total comprehensive income (loss) |  | $                                    | 343
|                                  |  |                                      |    





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



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MILLER EXPLORATION COMPANY



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                 |  | For the Three Months Ended March 31, |       
|-------------------------------------------------------------------------------- |  | ------------------------------------ | ------
|                                                                                 |  | 2003                                 |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                            |  |                                      |       
|Net income (loss)                                                                |  | $                                    | 437   
|Adjustments to reconcile net income (loss) to net cash from operating
activities |  |                                      |       
|Depreciation, depletion and amortization                                         |  |                                      | 1,636 
|Cumulative effect of change in accounting principle                              |  |                                      | 450   
|Deferred income taxes                                                            |  |                                      |      
|Warrants and stock compensation                                                  |  |                                      | 112   
|Loss on sale of non-oil and gas assets                                           |  |                                      | 99    
|Changes in assets and liabilities                                                |  |                                      |       
|Accounts receivable                                                              |  |                                      | (714  
|Other assets                                                                     |  |                                      | (284  
|Accounts payable                                                                 |  |                                      | (241  
|Accrued expenses and other current liabilities                                   |  |                                      | (235  
|                                                                                 |  |                                      |       
|Net cash flows provided by (used in) operating activities                        |  |                                      | 1,260 
|                                                                                 |  |                                      |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                            |  |                                      |       
|Exploration and development expenditures                                         |  |                                      | (303  
|Proceeds from sale of non-oil and gas assets                                     |  |                                      | 22    
|                                                                                 |  |                                      |       
|Net cash flows used in investing activities                                      |  |                                      | (281  
|                                                                                 |  |                                      |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                            |  |                                      |       
|Payments of principal                                                            |  |                                      | (2,375
|Borrowing on notes payable and long-term debt                                    |  |                                      | 1,703 
|                                                                                 |  |                                      |       
|Net cash flows provided by (used in) financing activities                        |  |                                      | (672  
|                                                                                 |  |                                      |       
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                          |  |                                      | 307   
|                                                                                 |  |                                      |       
|CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD                             |  |                                      | 46    
|                                                                                 |  |                                      |       
|CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                                   |  | $                                    | 353   
|                                                                                 |  |                                      |       
|SUPPLEMENTAL CASH FLOW INFORMATION:                                              |  |                                      |       
|Cash paid during the period for interest                                         |  | $                                    | 21    
|                                                                                 |  |                                      |       





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



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MILLER
EXPLORATION COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(Unaudited)



(1)    Organization and Nature of Operations



The consolidated financial statements of Miller Exploration Company (the Company) and its subsidiary, Miller Oil Corporation, included herein have been prepared by management without audit
pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Accordingly, they reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial results for
the interim periods presented. Certain information and notes normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.
However, management believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in
the Companys Annual Report on Form 10-K for the year ended December 31, 2002. The statements of operations for the three month period ended March 31, 2003, cannot necessarily be used to project results for the full year.



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



Change in Accounting Principle



On January 1, 2003, the Company adopted the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations (SFAS 143). SFAS 143 requires entities to record the fair value of retirement obligations associated with tangible long-lived assets in the period in which the obligation is incurred. The respective asset
retirement cost is capitalized as part of the carrying amount of the long-lived asset. The asset retirement cost is allocated to expense using a systematic and rational method over the assets useful lives. At January 1, 2003, the Company
recorded a $517,000 retirement obligation related to processing plants, pipelines, and oil and gas well plugging and abandonment liabilities. The cumulative effect of the change in accounting resulted in a $450,000 charge as reflected in the
Companys Consolidated Statements of Operations for the quarter ended March 31, 2003.



The following pro forma information is provided to give effect to the adoption of SFAS 143 as if it had been adopted on

January 1, 2002.



|                                                                 |  | Quarter ended March 31, 2002            
|---------------------------------------------------------------- |  | ----------------------------------------
|                                                                 |  | (in thousands, except per share amounts)
|Net loss                                                         |  | $  (425)                                
|Pro forma adjustment to reflect retroactive adoption of SFAS 143 |  | (11)                                    
|                                                                 |  |                                         
|Pro forma net loss                                               |  | $  (436)                                
|                                                                 |  |                                         
|Earnings (loss) per share:                                       |  |                                         
|Basicas reported                                                |  | $  (0.22)                               
|Basicpro forma                                                  |  | $  (0.22)                               
|Dilutedas reported                                              |  | $  (0.22)                               
|Dilutedpro forma                                                |  | $  (0.22)                               



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MILLER EXPLORATION COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Unaudited)





Principles of Consolidation



The consolidated financial statements of the Company include the accounts of the Company and its subsidiary after elimination of all intercompany accounts and transactions.



Nature of Operations



The Company is a domestic, independent energy company engaged in the exploration, development and production
of crude oil and natural gas. The Company has established exploration efforts concentrated primarily in the Mississippi Salt Basin of central Mississippi and on the Blackfeet Indian Reservation in Montana.



Oil and Gas Properties



SEC Regulation S-X, Rule 4-10 requires companies reporting on
a full cost basis to apply a ceiling test wherein the capitalized costs, net of deferred income taxes, within the full cost pool may not exceed the net present value of the Companys proven oil and gas reserves plus the lower of the cost or
market value of unproved properties. Any such excess costs should be charged against earnings.



Reclassifications



Certain reclassifications have been made to prior period statements to conform with the March 31, 2003, presentation.



Reverse Stock Split



On October 11, 2002, the Company affected a one-for-ten reverse stock split that has been retroactively reflected in the Companys
Consolidated Financial Statements.



(2)    Income Taxes



In 1998, upon consummation of the Companys initial public offering, the Company recorded a one-time non-cash accounting charge of $5.4 million to record net deferred tax liabilities, due to the use of different methods for tax
and financial reporting purposes in accounting for various transactions and the resultant temporary differences between tax basis and financial reporting basis.



Based on estimates of future anticipated taxable income and also taking into consideration the Companys
current net operating loss and depletion deduction carryforwards of approximately $35.2 million, it has been determined that there should be no accrual of future tax liability. Accordingly, the Company recorded a $5.5 million income tax credit in
2002 to reverse the entire deferred income tax liability balance. The Company does not anticipate the need to record deferred income taxes in the foreseeable future.



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MILLER EXPLORATION COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Unaudited)





(3)    Notes Payable and Long-Term Debt



Notes Payable



During the past few years the Company has financed various insurance policy premiums. The amounts financed each year are less than $200,000, and the notes are fully paid off by each calendar year end. The terms of these
notes require monthly payments of principal and interest, and the notes bear interest at rates competitive with the Companys credit facility. The outstanding balance of these notes payable was approximately $128,000 at March 31, 2003. In May
2003, the Company paid the remaining balance of these notes in full.



Bank Debt



On
July 18, 2000, the Company entered into a senior credit facility with Bank One, Texas, N.A. (Bank One), which replaced the then existing credit facility with Bank of Montreal, Houston Agency. The new credit facility has a 30-month term
with an interest rate of either the Bank One prime rate plus 2% or LIBOR plus 4% at the Companys option. The Companys obligations under the credit facility are secured by a lien on all of its real and personal property. Commencing April
1, 2003, the borrowing base will be reduced by $0.25 million each month until maturity. The Companys borrowing base, as determined by Bank One, was $3.25 million at May 1, 2003. At March 31, 2003, the outstanding balance under the
Companys credit facility with Bank One was zero.



The Bank One credit facility includes certain covenants that impose restrictions on the Company with respect to, among other things, incurrence of additional indebtedness, limitations on financial ratios, making investments and
mergers and consolidation. On March 7, 2003, the Company received a waiver through August 1, 2003, from Bank One for non-compliance with the covenant that requires maintenance of specified levels of commodity hedge contracts.



Other



On April 14, 1999, the Company issued a $4.7 million note
payable (the Veritas Note) to one of its suppliers, Veritas DGC Land, Inc. (Veritas), for the outstanding balance due to Veritas for past services provided in 1998 and 1999. The principal obligation under the Veritas Note was
originally due on April 15, 2001.



On April 14,
1999, the Company also entered into an agreement (the Warrant Agreement) to issue warrants to Veritas that entitle Veritas to purchase shares of common stock in lieu of receiving cash payments for the accrued interest obligations under
the Veritas Note. The Warrant Agreement required the Company to issue warrants to Veritas in conjunction with the signing of the Warrant Agreement, as well as on the six and, at the Companys option, 12 and 18 month anniversaries of the Warrant
Agreement. The warrants issued equal 9% of the then current outstanding principal balance of the Veritas Note. The number of shares issued upon exercise of the warrants on April 14, 1999, and on the six-month anniversary was determined based upon a
five-day weighted average closing price of the Companys Common Stock at April 14, 1999. The exercise price of each warrant is $0.10 per share. On April 14, 1999, warrants exercisable for 32,276 shares of common stock were issued to Veritas in
connection with execution of the Veritas Note. On October 14, 1999 and April 14, 2000, warrants exercisable for another 32,276 and 45,500 shares, respectively, of Common Stock were issued to Veritas. The Company ratably recognized the prepaid
interest into expense over the period to which it related.



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MILLER EXPLORATION COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Unaudited)





On July
19, 2000, the Company entered into the First Amendment to Promissory Note, Warrant and Registration Rights Agreement (First Amendment Agreement). Under the terms of the First Amendment Agreement, the maturity of the Veritas Note was
extended to July 21, 2003 from April 15, 2001 and the expiration date for all warrants issued was extended until June 21, 2004. The annual interest rate was reduced to 9 3⁄4% from 18%, provided the entire Note balance was paid in full by December
31, 2001. The Veritas note was not paid in full by December 31, 2001, and the interest rate was increased to 13 3⁄4% annually. Interest was payable on each October 15 and April 15 until the note is paid in full. The Company has paid additional
interest of approximately $225,000 at the incremental 4% rate for the period of October 15, 2000 through April 14, 2002. Interest was required to be paid in warrants under the terms of the First Amendment Agreement until the Company was in
compliance with the net borrowing base formula as defined in the Bank One credit facility, at which time interest would only be paid in cash. Since October 15, 2000, all required interest payments have been made in cash.



On June 28, 2002, the Company entered into the Second
Amendment to Promissory Note, Warrant and Registration Rights Agreement (Second Amendment Agreement). Concurrently with the execution of the Second Amendment Agreement, the Company made a $600,000 principal payment. Under the terms of
the Second Amendment Agreement, the Veritas Note was amended as follows: (1) The maturity of the Veritas Note was changed to December 31, 2002 from July 21, 2003; (2) the interest rate was changed to 9 3⁄4%; (3) the past due annual interest rate
was changed to 12% from 13 3⁄4%; and (4) six principal payments of $150,000, totaling $900,000 were required, and were payable on or before the last day of each month commencing on July 31, 2002. In the event that all six principal payments
mentioned above were made timely, an interest payment was not due on October 15, 2002, and Veritas agreed to extinguish the remaining principal balance of $2.2 million and any accrued interest outstanding under the Veritas Note. As a result, the
Company would recognize a gain of approximately $2.4 million. In the event that these six principal payments were not timely made, the entire principal balance outstanding under the Veritas Note would be accelerated and become due and payable upon
demand and would accrue interest at the past due rate from the date of the Second Amendment Agreement until the Veritas Note is paid in full. At December 31, 2002, the Company had made all required payments under the Second Amendment Agreement.
Therefore, the remaining principal balance and related accrued interest payable obligations have been extinguished, and the Company recognized a $2.4 million gain as reflected in the Consolidated Statements of Operations for the year ended December
31, 2002.



As an inducement for Veritas to enter
into the Second Amendment Agreement: (1) the Company granted Veritas an overriding royalty interest on the Companys entire leasehold that is not held by production and leases acquired through July 31, 2003 (excluding leases within the
boundaries of the Blackfeet Indian Reservation); (2) the Company transferred its proprietary rights in approximately 140 square miles of 3-D seismic data with respect to certain areas within the Mississippi Salt Basin to Veritas in exchange for a
25-year license allowing the Company the use of such data. The Company has also agreed to an optional transfer fee on its currently licensed data, which in the aggregate totals approximately $1.6 million in the event of a change in control of the
Company; and (3) certain Company Directors who own or control shares of Common Stock of the Company and are considered major stockholders agreed to provide certain tag-along rights in the event one of these major stockholders negotiates a sale of
Company Common Stock with a private party. The Second Amendment Agreement also extended the expiration date of the warrants to July 31, 2004 from

June 21, 2004.



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MILLER EXPLORATION COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Unaudited)



(4)    Capital Transactions and Common Stock Warrants



On July 11, 2000, the Company entered into a Securities
Purchase Agreement (the Securities Purchase Agreement) with Guardian Energy Management Corp. (Guardian). Pursuant to the Securities Purchase Agreement, the Company issued to Guardian a convertible promissory note in the
amount of $5.0 million, and three warrants exercisable for 156,250, 250,000 and 900,000 shares of the Companys Common Stock, respectively. The issuance of the shares of Common Stock on the conversion of the note and exercise of the warrants
was approved by the Companys stockholders at a meeting on December 7, 2000. Until the stockholders approved the conversion of the note, the Company accrued interest at an amount equal to the prime rate plus 10% per annum (or 19.5%). The
accrual of interest was required under Emerging Issues Task Force (EITF) 85-17 even though no interest was owed on this note since the stockholders approved the conversion of the note. Accordingly, the Company incurred approximately $0.4
million of interest expense on this convertible note during the year ended December 31, 2000.



On July 11, 2000, the Company also signed a letter agreement to acquire an interest in certain undeveloped oil and gas properties and $0.5
million in cash from Eagle Investments, Inc. (Eagle) an affiliated entity controlled by C.E. Miller, the Chairman of the Company, in exchange for a total of 185,186 shares of Common Stock. In addition, Eagle was issued warrants
exercisable for a total of 203,125 shares of Common Stock that expired on December 7, 2002. This transaction with Eagle was approved by the Companys stockholders at a meeting on December 7, 2000.



Common Stock Warrants



As of March 31, 2003, the Company has the following Common
Stock warrants outstanding:



|Warrants       |  | Exercise Price |       | Expiration Date
|-------------- |  | -------------- | ----- | ---------------
|60,050 shares  |  | $              | 0.10  |                
|900,000 shares |  | $              | 30.00 |                



(5)    Risk Management Activities and Derivative Transactions



The Company uses a variety of financial derivative instruments (derivatives) to manage exposure to fluctuations in commodity
prices. To qualify for hedge accounting, derivatives must meet the following criteria: (i) the item to be hedged exposes the Company to price risk; and (ii) the derivative reduces that exposure and is designated as a hedge. The Company periodically
enters into certain derivatives for a portion of its oil and natural gas production to achieve a more predictable cash flow, as well as to reduce the exposure to price fluctuations. The Companys hedging arrangements apply only to a portion of
its production, provide only partial price protection against declines in oil and natural gas prices and limit potential gains from future increases in prices. Such hedging arrangements may expose the Company to risk of financial loss in certain
circumstances, including instances where production is less than expected, the Companys customers fail to purchase contracted quantities of oil or natural gas or a sudden unexpected event materially impacts oil or natural gas prices. For
financial reporting purposes, gains and losses related to hedging are recognized as oil and gas revenues during the period the hedge transaction occurs. The Company expects that the amount of hedge contracts that it has in place will vary from time
to time. For the three months ended March 31, 2003 and 2002, the Company realized approximately $(0.2) million and $0.2 million, respectively, of hedging (losses) which are included in oil and natural gas revenues in the Consolidated Statements of
Operations. The fair value of remaining derivative contracts at March 31, 2003, is approximately $(0.1) million. This amount is reflected in other current liabilities in the Consolidated Balance Sheet with a corresponding amount in accumulated other
comprehensive loss. For the three months ended March 31, 2003 and 2002, the Company had hedged 28% and 52%, respectively, of its oil and natural gas production, and as of March 31, 2003, the Company had 0.2 Bcfe of open natural gas contracts for the
months of April 2003 through September 2003. If all these open contracts had been settled as of March 31, 2003, the Company would have paid approximately $0.1 million.



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MILLER EXPLORATION COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Unaudited)





(6)    Commitments and Contingencies



Stock-Based Compensation



During 1997, the Company adopted the Stock Option and Restricted Stock Plan of 1997 (the 1997 Plan). The 1997 Plan has been primarily used to grant stock options.



However, the 1997 Plan permits grants of restricted stock and
tax benefit rights if determined to be desirable to advance the purposes of the 1997 Plan. These stock options, restricted stock and tax benefit rights are collectively referred to as Incentive Awards. Persons eligible to receive
Incentive Awards under the 1997 Plan are directors, corporate officers and full-time employees of the Company and its subsidiary. A maximum of 240,000 shares of Common Stock (subject to certain antidilution adjustments) are available for Incentive
Awards under the 1997 Plan.



On January 1, 2000,
the Company granted 19,150 stock options to certain employees with an exercise price of $0.10 per share. The right to exercise the options vests and the options become exercisable primarily when the average trading price of the Common Stock on the
market remains above the designated target prices for a period of five consecutive trading days as follows:



|Five-Day Daily Average Target |  | PercentageVested |  
|----------------------------- |  | ---------------- | -
|$20.00                        |  | 40               | %
|$27.50                        |  | additional 30    | %
|$35.00                        |  | final 30         | %



When it
is probable that the five-day stock price target will be attained (the measurement date), the Company will recognize compensation expense for the difference between the quoted market price of the Common Stock at this measurement date
less the $0.10 per share grant price times the number of options that will vest. Management does not currently believe it is probable that any of these targets will be attained during 2003; therefore, no compensation expense has been recorded for
these options.



On October 31, 2000, the Company
granted 25,000 stock options to employees with an exercise price of $16.25 per share (the closing market price on the date of grant). The right to exercise the options vests at a rate of one-fifth per year beginning on the first anniversary of the
grant date.



On April 6, 2001, the Company
granted 19,000 stock options to the Chief Executive Officer of the Company. Of these options, 10,000 were issued under the same terms as those issued to certain employees on January 1, 2000, and the remaining 9,000 stock options were issued under
the same terms as those issued to certain employees on October 31, 2000.



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MILLER EXPLORATION COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Unaudited)





On
November 12, 2001, the Company granted 33,700 stock options to employees with an exercise price of $12.50 per share. The right to exercise the options vests at a rate of one-fifth per year beginning on the first anniversary of the grant date.



The Company accounts for all stock options
issued under the provisions and related interpretation of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock-Based Compensation. The Company intends to continue to apply APB No. 25 for purposes of determining net
income.



SFAS 123, Accounting for
Stock-Based Compensation, as amended by SFAS 148, Accounting for Stock-Based CompensationTransition and Disclosure, outlines a fair value based method of accounting for stock options or similar equity instruments. The Company
uses the Black-Scholes option-pricing model to estimate fair value.



The status of stock options granted under the Stock Option and Restricted Stock Plan of 1997 is as follows:



|                                 |  | Options         
|-------------------------------- |  | ----------------
|                                 |  | Number Of Shares
|Outstanding at January 1, 2002   |  | 166,525         
|                                 |  |                 
|Granted                          |  | 0               
|Exercised                        |  | 0               
|Forfeited                        |  | 0               
|                                 |  |                 
|Outstanding at March 31, 2002    |  | 166,525         
|                                 |  |                 
|Granted                          |  | 1,200           
|Exercised                        |  |                 
|Forfeited                        |  | (34,975         
|                                 |  |                 
|Outstanding at December 31, 2002 |  | 132,750         
|                                 |  |                 
|Granted                          |  | 0               
|Exercised                        |  | 0               
|Forfeited                        |  | 0               
|                                 |  |                 
|Outstanding at March 31, 2003    |  | 132,750         
|                                 |  |                 



The
Companys pro forma net income (loss) and earnings (loss) per share of common stock had compensation costs been recorded in accordance with SFAS No. 123, are presented below (in thousands except per share data):



|                                          |  | As Reported             |      |      | Pro Forma               |      
|----------------------------------------- |  | ----------------------- | ---- | ---- | ----------------------- | -----
|                                          |  | Quarter Ended March 31, |      |      | Quarter Ended March 31, |      
|                                          |  | 2003                    |      | 2002 |                         |      
|Net income (loss)                         |  | $                       | 437  |      | $                       | (425 
|Earnings (loss) per share of Common Stock |  |                         |      |      |                         |      
|Basic                                     |  | $                       | 0.22 |      | $                       | (0.22
|Diluted                                   |  | $                       | 0.21 |      | $                       | (0.22



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MILLER EXPLORATION COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Unaudited)





The
effects of applying SFAS No. 123 in this pro forma disclosure should not be interpreted as being indicative of future effects.



The fair value of each option grant is estimated using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for estimating fair value:



|                        |  | Quarter EndedMarch 31,
|----------------------- |  | ----------------------
|Assumption              |  | 2003                  
|Dividend Yield          |  | 0%                    
|Risk-free interest rate |  | 3.875%                
|Expected Life           |  | 10 years              
|Expected volatility     |  | 37.9%                 



The
following table summarizes certain information for the options outstanding at March 31, 2003:



|                      |  | Options Outstanding |  | Options Exercisable            
|--------------------- |  | ------------------- |  | -------------------------------
|Range of Grant Prices |  | Shares              |  | Weighted Average Remaining Life
|$0.10 to $16.25       |  | 74,425              |  | 7.7 years                      
|$21.88 to $77.50      |  | 2,800               |  | 5.5 years                      
|$80.00 to $101.25     |  | 55,525              |  | 4.9 years                      
|                      |  |                     |  |                                
|Total                 |  | 132,750             |  |                                
|                      |  |                     |  |                                



Litigation



On May 1,
2000, the Company filed a lawsuit in the Federal District Court for the District of Montana against K2 America Corporation and K2 Energy Corporation (collectively referred to in this section as K2). The Companys lawsuit includes
certain claims of relief and allegations by the Company against K2, including breach of contract arising from failure by K2 to agree to escrow, repudiation, and rescission; specific performance; declaratory relief; partition of K2 lands that are
subject to the K2 Agreement; negligence; and tortious interference with contract. The lawsuit is on file with the Federal District Court for the District of Montana, Great Falls Division and is not subject to a protective order. In an order dated
September 4, 2001, the Federal District Court dismissed without prejudice the lawsuit against K2 and referred the case to the Blackfeet Tribal Court for determination of whether it has jurisdiction over the claims made by the Company. The Company
has filed a complaint in the Blackfeet Tribal Court in Montana against K2 substantially based on the grounds asserted in the action previously filed in Federal District Court, while arguing to the Tribal Court that proper jurisdiction is with the
Federal District Court. K2 has since filed a counterclaim against the Company alleging that alleged actions by the Company damaged K2 by denying K2 the ability to participate in the Miller/Blackfeet IMDA and damaged K2s goodwill with Tribal
officials so as to impede other development initiatives on the Reservation. The Company answered K2s counterclaim by asserting that any damages K2 may have incurred were caused in whole or in part by its own negligence, conduct, bad faith or
fault. The Company believes K2s counterclaim is without merit and will continue to vigorously contest it.



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MILLER EXPLORATION COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Unaudited)



The Blackfeet Tribal Business Council unanimously voted on May 1, 2002 to reaffirm the
Companys 50% interest in the K2/Blackfeet IMDA covering 150,000 net Tribal mineral acres, over-turning a previous Tribal Business Council decision.



On May 1, 2000, the Company gave notice to the Blackfeet Tribal Business Council demanding arbitration of all disputes as provided for
under the Miller/Blackfeet IMDA dated February 19, 1999, and pursuant to the K2/Blackfeet IMDA dated May 30, 1997. The Bureau of Indian Affairs (BIA) responded to the Companys request for arbitration by stating that it was the
BIAs position that the Miller/Blackfeet IMDA was terminated. The Company filed an appeal brief with the United States Department of Interior Appeals Division.



On January 25, 2002, the Interior Department Appeals Division vacated the BIAs purported termination of
the Miller/Blackfeet IMDA to allow arbitration to proceed. In order to avoid further delay and to avoid the uncertainty and costs of further pursuing the dispute (including arbitration and litigation), and to place the parties on a footing that will
enable them to pursue a productive business relationship, the Company and the Blackfeet Tribal Business Council entered into an amended IMDA agreement.



The Company was a defendant in a lawsuit filed June 1, 1999 by Energy Drilling Company (Energy Drilling), in the Parish of
Catahoula, Louisiana arising from a blowout of the Victor P. Vegas #1 well that was drilled and operated by the Company. Energy Drilling, the drilling rig contractor on the well, was claiming damages related to the destruction of their drilling rig
and related costs amounting to approximately $1.2 million, plus interest, attorneys fees and costs. In January 2001, the Federal District Court judge ruled against the Company on two of the three claims filed in this case with interest and
day-rate charges left undetermined. This ruling was appealed by the Company to the U.S. Fifth Circuit Court of Appeals with the lower court ruling being upheld. This ruling is significant for oil and gas operators in the industry using the
Independent Association of Drilling Contractors (IADC) standard drilling contracts. The Circuit Court of Appeals interpreted the IADC contract to assign responsibility for loss of the drilling contractors equipment to the
operator under a catastrophic event not the fault of the operator and without determining whether there was an unsound location. In September 2002, the judgment amount totaling approximately $780,000 was paid by the Companys insurance carrier.



In August 2002, the District Court of Appeals
ruled in favor of the Company on disputed interest and day-rate charges. Energy Drilling filed an appeal of the Court of Appeals decision. In February 2003, the District Court ruled in favor of Energy Drilling on disputed attorney fees
totaling approximately $117,000. The Company has filed an appeal of this ruling. In April 2003, the Fifth Circuit Court of Appeals reversed the District Court of Appeals findings regarding the interest charges resulting in an additional $205,000
owed by the Company. The interest charges are expected to be paid by the Companys insurance carrier.



The Company was named in a lawsuit brought by Victor P. Vegas, the landowner of the surface location of the blowout well referenced above.
The suit was filed July 20, 1999 in the Parish of Orleans, Louisiana, claiming unspecified damages related to environmental and other matters. Under a Department of Environmental Quality (DEQ) approved plan, site remediation has been
completed and periodic testing is being performed. On December 11, 2001, the plaintiff submitted a remediation plan for more extensive clean-up and a settlement demand. In February 2002, the Company filed a remediation plan with the Louisiana DEQ
for approval. In July 2002, the Civil District Court ruled that the DEQ would not have primary jurisdiction and that a jury trial would be held.



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MILLER EXPLORATION COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Unaudited)



On January 10, 2003, a confidential settlement agreement was signed, which released
the Company from all liability from all present and future claims, subject to certain express reservations associated with this property. On March 27, 2003, the settlement amount was paid by the Companys insurance carrier. The settlement
agreement requires that the Company complete the clean-up of the property in accordance with a final Louisiana DNR Office of Conservation Compliance Order. The Company believes that all defense costs and final clean-up costs will be covered by its
general liability and well control insurance.



The Company believes it has meritorious defenses to the unresolved claims discussed above and intends to vigorously contest them. The Company does not believe that the final outcome of these matters will have a material adverse
effect on the Companys operating results, financial condition or liquidity. Due to the uncertainties inherent in litigation, however, no assurances can be given regarding the final outcome of each action.



(7)    Non-Cash Activities



The Company issued 54,877 and 24,350 shares of the
Companys Common Stock to its non-employee directors during the three months ended March 31, 2003 and 2002, respectively, as compensation, as provided for under the Equity Compensation Plan for Non-Employee Directors. During the three months
ended March 31, 2003 and 2002, the Company issued 14,190 and 7,918 shares, respectively, of the Companys Common Stock to the Companys 401(K) Savings Plan as an employer matching contribution. For the three months ended March 31, 2003 and
2002, the Company recognized $(0.1) million and $(0.3) million, respectively, of other comprehensive loss under the provisions of SFAS No. 133. The Company adopted FAS 143 (as more fully described in Note 1) on January 1, 2003. In connection
therewith, the Company recorded an asset retirement obligation of $517,000 as a current liability and also increased by the same amount the carrying value of specific oil and gas property costs in the Companys Consolidated Balance Sheets.
These non-cash activities have been excluded from the Consolidated Statements of Cash Flows.



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##### Table of Contents

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



Overview



The Company is an independent oil and gas exploration, development and production company that has developed a base of producing
properties and inventory of prospects primarily in Mississippi.



The Company uses the full cost method of accounting for its oil and natural gas properties. Under this method, all acquisition, exploration and development costs, including any general and administrative costs that are directly
attributable to the Companys acquisition, exploration and development activities, are capitalized in a full cost pool as incurred. Additionally, proceeds from the sale of oil and gas properties are applied to reduce the costs in
the full cost pool. The Company records depletion of its full cost pool using the unit-of-production method.



Securities and Exchange Commission (SEC) Regulation S-X, Rule 4-10 requires companies reporting on a full cost basis to apply
a ceiling test wherein the capitalized costs, net of deferred income taxes, within the full cost pool may not exceed the net present value of the Companys proven oil and gas reserves plus the lower of the cost or market value of unproved
properties. Any such excess costs should be charged against earnings.



Results of Operations



The following table summarizes production volumes, average sales prices and average costs for the Companys oil and natural gas operations for the periods presented (in thousands, except per unit amounts):



|                                              |  | Three Months Ended March 31, |      
|--------------------------------------------- |  | ---------------------------- | -----
|                                              |  | 2003                         |      
|Production volumes:                           |  |                              |      
|Crude oil and condensate (MBbls)              |  |                              | 26   
|Natural gas (MMcf)                            |  |                              | 426  
|Natural gas equivalent (MMcfe)                |  |                              | 582  
|Revenues:                                     |  |                              |      
|Crude oil and condensate                      |  | $                            | 791  
|Natural gas                                   |  |                              | 2,829
|Operating expenses:                           |  |                              |      
|Lease operating expenses and production taxes |  | $                            | 564  
|Depletion, depreciation and amortization      |  |                              | 1,636
|General and administrative                    |  |                              | 551  
|Interest expense                              |  | $                            | 15   
|Net income (loss)                             |  | $                            | 437  
|Average sales prices:                         |  |                              |      
|Crude oil and condensate ($ per Bbl)          |  | $                            | 30.42
|Natural gas ($ per Mcf)                       |  |                              | 6.64 
|Natural gas equivalent ($ per Mcfe)           |  |                              | 6.22 
|Average Costs ($ per Mcfe):                   |  |                              |      
|Lease operating expenses and production taxes |  | $                            | 0.97 
|Depletion, depreciation and amortization      |  |                              | 2.81 
|General and administrative                    |  |                              | 0.95 



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Quarter
Ended March 31, 2003 compared to Quarter Ended March 31, 2002



Oil and natural gas revenues for the quarter ended March 31, 2003 increased 35% to $3.6 million from $2.7 million for the comparable period in the prior year. The revenues for the quarter ended March 31, 2003 and 2002
include approximately $(0.2) million and $0.2 million of hedging gains (losses), respectively (see Risk Management Activities and Derivative Transactions below). Production volumes for the quarter ended March 31, 2003, decreased 38% to
582 MMcfe from 943 MMcfe for the comparable period in the prior year. Oil and natural gas production from the Mississippi Salt Basin properties continued a downward trend. The Companys sale of its interest in the Pine Grove Field assets in
Mississippi on August 1, 2002, and normal depletion contributed to a reduction in production volumes. The Company has experienced successes recently on the last four wells drilled in the North Monroeville Field in Alabama, in which the Company has
an approximate 9.3% working interest. The Company does not expect the production from these new wells to arrest the declining production trend. Average realized oil prices, net of hedging transactions, for the quarter ended March 31, 2003, increased
64% to $30.42 per barrel from $18.50 per barrel experienced during the comparable period of 2002. Average realized natural gas prices, net of hedging transactions, for the quarter ended March 31, 2003, increased 141% to $6.64 per Mcf from $2.75 per
Mcf for the comparable period of 2002.



Lease
operating expenses (LOE) and production taxes for the quarter ended March 31, 2003, increased 28% to $0.6 million from $0.4 million for the comparable period in the prior year. The LOE component for the quarter ended March 31, 2003, was
unchanged from the $0.3 million for the same period of the prior year. Production taxes for the quarter ended March 31, 2003, increased 246% to $0.3 million from $0.1 million for the comparable period in the prior year due to increased revenues and
the absence of production tax exemptions as a result of high commodity prices.



Depreciation, depletion and amortization (DD&A) expense for the quarter ended March 31, 2003, decreased 22% to $1.6 million from $2.1 million for the comparable period in the prior
year, due to decreased production volumes and a reduced property cost basis after the $7.0 million cost ceiling writedown recognized at June 30, 2002.



General and administrative expenses for the quarter ended March 31, 2003, decreased 15% to $0.6 million from $0.7 million for the
comparable period of the prior year. Although general and administrative expenses (G&A) decreased by only $0.1 million, there were several significant changes in the components thereof. Salaries and benefits declined 50% in the first
quarter of 2003 compared to the same quarter of 2002 due to a 35% decrease in the number of full-time employees to 15 from 23 and an aggregate 23% salary reduction taken by certain management personnel in July 2002. In February 2003, the Company
closed its office in Houston, Texas, and incurred a $0.1 million loss associated with disposal of office furniture and abandonment of office improvements. Substantially, all other G&A costs decreased due to the reduced staff level and other cost
cutting measures.



Interest expense for the
quarter ended March 31, 2003, decreased to $0.015 million from $0.2 million for the comparable period in the prior year. This decrease is attributable to: (1) a decrease in the average outstanding credit facility balance during the first quarter of
2003 compared to the same quarter of the prior year; (2) full payment of the amount owed pursuant to the note held by Veritas in December 2002; and (3) lower interest rates associated with the Bank One credit facility which are prime rate sensitive.



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##### Table of Contents



Net income
(loss) for the quarter ended March 31, 2003, was $0.4 million compared to $(0.4) million for the same period in the prior year, as a result of the factors described above.



Capital Resources and Liquidity



Operating, Investing, and Financing Activities



The Companys primary source of liquidity is cash
generated from operations and from the Companys use of available borrowing capacity under its credit facility. There was $1.3 million cash provided by operating activities for the quarter ended March 31, 2003, compared to no cash provided for
the same period of the prior year. The increase in cash provided in 2003 compared to 2002 was the primary result of an increased operating income caused by significantly higher realized commodity prices.



The Companys primary use of cash is traditionally for
its exploration and development activities. Net cash used in investing activities was $0.3 million and $0.8 million for the quarters ended March 31, 2003 and 2002, respectively.



The Companys primary uses of capital have been to pay down the Companys bank credit facility. Net
cash provided by (used in) financing activities was $(0.7) million and $0.7 million in 2003 and 2002, respectively. The increase in cash used in 2003 compared to 2002 is attributable to additional net principal payments made in 2003 compared to 2002
in connection with the Companys debt reduction initiative.



Notes Payable



During the past few years the Company has financed various insurance policy premiums. The amounts financed each year are less than $200,000, and the notes are fully paid off by each calendar year end. The terms of these
notes require monthly payments of principal and interest, and the notes bear interest at rates competitive with the Companys credit facility. The outstanding balance of these notes payable was approximately $128,000 at March 31, 2003. In May
2003, the Company paid the remaining balance of these notes in full.



Bank Debt



On
July 18, 2000, the Company entered into a senior credit facility with Bank One, Texas, N.A. (Bank One), which replaced the then existing credit facility with Bank of Montreal, Houston Agency. The new credit facility has a 30-month term
with an interest rate of either the Bank One prime rate plus 2% or LIBOR plus 4% at the Companys option. The Companys obligations under the credit facility are secured by a lien on all of its real and personal property. Commencing April
1, 2003, the borrowing base will be reduced by $0.25 million each month until maturity. The Companys borrowing base as determined by Bank One was $3.25 million at May 1, 2003. At March 31, 2003, the outstanding balance under the Companys
credit facility with Bank One was zero.



The Bank
One credit facility includes certain covenants that impose restrictions on the Company with respect to, among other things, incurrence of additional indebtedness, limitations on financial ratios, making investments and mergers and consolidation. On
March 7, 2003, the Company received a waiver through August 1, 2003, from Bank One for non-compliance with the covenant that requires maintenance of specified levels of commodity hedge contracts.



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##### Table of Contents



Other



On April 14, 1999, the Company issued a
$4.7 million note payable (the Veritas Note) to one of its suppliers, Veritas DGC Land, Inc. (Veritas), for the outstanding balance due to Veritas for past services provided in 1998 and 1999. The principal obligation under
the Veritas Note was originally due on April 15, 2001.



On April 14, 1999, the Company also entered into an agreement (the Warrant Agreement) to issue warrants to Veritas that entitle Veritas to purchase shares of common stock in lieu of receiving cash payments for the accrued
interest obligations under the Veritas Note. The Warrant Agreement required the Company to issue warrants to Veritas in conjunction with the signing of the Warrant Agreement, as well as on the six and, at the Companys option, 12 and 18 month
anniversaries of the Warrant Agreement. The warrants issued equal 9% of the then current outstanding principal balance of the Veritas Note. The number of shares issued upon exercise of the warrants on April 14, 1999, and on the six-month anniversary
was determined based upon a five-day weighted average closing price of the Companys Common Stock at April 14, 1999. The exercise price of each warrant is $0.10 per share. On April 14, 1999, warrants exercisable for 32,276 shares of common
stock were issued to Veritas in connection with execution of the Veritas Note. On October 14, 1999 and April 14, 2000, warrants exercisable for another 32,276 and 45,500 shares, respectively, of Common Stock were issued to Veritas. The Company
ratably recognized the prepaid interest into expense over the period to which it related.



On July 19, 2000, the Company entered into the First Amendment to Promissory Note, Warrant and Registration Rights Agreement (First Amendment Agreement). Under the terms of the First
Amendment Agreement, the maturity of the Veritas Note was extended to July 21, 2003 from April 15, 2001 and the expiration date for all warrants issued was extended until June 21, 2004. The annual interest rate was reduced to 93⁄4% from 18%,
provided the entire Note balance was paid in full by December 31, 2001. The Veritas note was not paid in full by December 31, 2001, and the interest rate was increased to 133⁄4% annually. Interest was payable on each October 15 and April 15 until
the note is paid in full. The Company has paid additional interest of approximately $225,000 at the incremental 4% rate for the period of October 15, 2000 through April 14, 2002. Interest was required to be paid in warrants under the terms of the
First Amendment Agreement until the Company was in compliance with the net borrowing base formula as defined in the Bank One credit facility, at which time interest would only be paid in cash. Since October 15, 2000, all required interest payments
have been made in cash.



On June 28, 2002, the
Company entered into the Second Amendment to Promissory Note, Warrant and Registration Rights Agreement (Second Amendment Agreement). Concurrently with the execution of the Second Amendment Agreement, the Company made a $600,000
principal payment. Under the terms of the Second Amendment Agreement, the Veritas Note was amended as follows: (1) The maturity of the Veritas Note was changed to December 31, 2002 from July 21, 2003; (2) the interest rate was changed to 93⁄4%;
(3) the past due annual interest rate was changed to 12% from 133⁄4%; and (4) six principal payments of $150,000, totaling $900,000 were required, and were payable on or before the last day of each month commencing on July 31, 2002. In the event
that all six principal payments mentioned above were made timely, an interest payment was not due on October 15, 2002, and Veritas agreed to extinguish the remaining principal balance of $2.2 million and any accrued interest outstanding under the
Veritas Note. As a result, the Company would recognize a gain of approximately $2.4 million. In the event that these six principal payments were not timely made, the entire principal balance outstanding under the Veritas Note would be accelerated
and become due and payable upon demand and would accrue interest at the past due rate from the date of the Second Amendment Agreement until the Veritas Note is paid in full. At December 31, 2002, the Company had made all required payments under the
Second Amendment Agreement. Therefore, the remaining principal balance and related accrued interest payable obligations have been extinguished.



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As an
inducement for Veritas to enter into the Second Amendment Agreement: (1) the Company granted Veritas an overriding royalty interest on the Companys entire leasehold that is not held by production and leases acquired through July 31, 2003
(excluding leases within the boundaries of the Blackfeet Indian Reservation); (2) the Company transferred its proprietary rights in approximately 140 square miles of 3-D seismic data with respect to certain areas within the Mississippi Salt Basin to
Veritas in exchange for a 25-year license allowing the Company the use of such data. The Company has also agreed to an optional transfer fee on its currently licensed data, which in the aggregate totals approximately $1.6 million in the event of a
change in control of the Company; and (3) certain Company Directors who own or control shares of Common Stock of the Company and are considered major stockholders agreed to provide certain tag-along rights in the event one of these major
stockholders negotiates a sale of Company Common Stock with a private party. The Second Amendment Agreement also extended the expiration date of the warrants to July 31, 2004 from June 21, 2004.



Liquidity



The Companys primary ongoing source of liquidity is
from cash generated from operations and from the Companys use of available borrowing capacity under its credit facility. During the course of the year, the amount outstanding under the credit facility will vary, as the Companys approach
is to borrow under the facility as needed to fund capital expenditures and pay-down the balance when cash is available in order to reduce interest charges.



As of March 31, 2003, the Company had a working capital deficit of $0.1 million, primarily due to the asset retirement obligation of $0.5
million recorded on January 1, 2003, in connection with adoption of FAS 143 (as more fully described in Note 1). The Company expects that it will utilize its operational cash flows for 2003 to meet its working capital requirements. Capital
expenditures in 2003 for exploration and development activities will be limited to select projects as determined by the Companys Board of Directors until a decision is made regarding the strategic efforts mentioned below.



With higher commodity prices, a solid production base in
Mississippi and Alabama, prospect opportunities, and no bank debt, management believes the Company is an attractive candidate for a merger or asset acquisition. The Companys business plan for 2003 involves pursuing various opportunities to
identify strategic joint venture partners and/or to sell the Company or all or a portion of its assets to maximize shareholder return. The Company has engaged a financial advisor, C. K. Cooper & Co. to assist the Company with execution of the
business plan for 2003.



The Companys
revenues, profitability, future growth and ability to borrow funds or obtain additional capital are highly dependent on prevailing prices of oil and natural gas. The production and sale of oil and natural gas involves many factors that are subject
to numerous uncertainties including reservoir risk, mechanical failure, transportation issues, human error, weather and volatile commodity prices.



The Company has experienced substantial working capital requirements due to the Companys focus on mitigating its declining
production trend and reducing debt. The Company believes that cash flow from operations should allow the Company to implement its present business strategy.



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Future Financing Obligations



The Companys credit facility has been extended to
August 1, 2003. There is no outstanding credit facility balance at March 31, 2003. The Company does not currently anticipate the need to draw down on the credit facility, which has a $3.25 million borrowing base at May 1, 2003. Although the credit
facility expires on August 1, 2003, the Company believes if the need arises, it would be able to either amend, extend, or replace the credit facility (with the same or alternative lender) before it expires. However, these expectations are dependent
on several internal and external factors. If these factors differ from managements expectations, they could have a material adverse effect on the Companys ability to meet future financing obligations and cause the Company to reduce its
exploration and development activities and corporate overhead further.



Off-Balance Sheet Arrangements



The Company does not have any off-balance sheet financing arrangements, except for the operating lease obligations presented below.



Contractual Obligations and Commercial Commitments



Summarized below are the contractual obligations and other commercial commitments of the Company as of March
31, 2003.



|                                   |  | Payments Due by Period (in thousands)
|---------------------------------- |  | -------------------------------------
|                                   |  | Total                                
|Contractual Obligations            |  |                                      
|Long-Term Debt                     |  | $                                    
|Operating Leases                   |  |                                      
|                                   |  |                                      
|Total Contractual Cash Obligations |  | $                                    
|                                   |  |                                      



|                          |  | Commitment Expiration by Period (in thousands)
|------------------------- |  | ----------------------------------------------
|                          |  | Total                                         
|Commercial Commitments    |  |                                               
|Bank One Credit Facility* |  | $                                             

---

|* |  | As of March 31, 2003, there was no outstanding balance under the credit facility. The credit facility matures on August 1, 2003.
|- |  | --------------------------------------------------------------------------------------------------------------------------------



Critical Accounting Policies



The results of operations, as presented above, are based on
the application of accounting principles generally accepted in the United States. The application of these principles often requires management to make certain judgments, assumptions, and estimates that may result in different financial
presentations. The Company believes that certain accounting principles are critical in understanding its financial statements.



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Full Cost Method of Accounting



The Company uses the full cost method of accounting for its
oil and natural gas properties. Under this method, all acquisition, exploration and development costs, including any general and administrative costs that are directly attributable to the Companys acquisition, exploration and development
activities, are capitalized in a full cost pool as incurred. The Company records depletion of its full cost pool using the unit-of-production method. SEC Regulation S-X, Rule 4-10 requires companies reporting on a full cost basis to
apply a ceiling test wherein the capitalized costs within the full cost pool, net of deferred income taxes, may not exceed the net present value of the Companys proved oil and gas reserves plus the lower of cost or market of unproved
properties. Any such excess costs should be charged against earnings.



Use of Estimates



The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting periods. Accordingly, actual results could differ from these estimates. Significant
estimates include depreciation, depletion and amortization of proved oil and natural gas properties. Oil and natural gas reserve estimates, which are the basis for unit-of-production depletion and the cost ceiling test, are inherently imprecise and
are expected to change as future information becomes available.



New Accounting Standards



In addition to the identified critical accounting policies discussed above, future results could be affected by a number of new accounting standards that recently have been issued.



SFAS No. 141, Business Combinations



SFAS No. 141, issued in July 2001, requires that all business
combinations initiated after June 30, 2001, be accounted for under the purchase method and the use of the pooling-of-interests method is no longer permitted. The adoption of SFAS No. 141, effective July 1, 2001, will result in the Company accounting
for any future business combinations under the purchase method of accounting, but will not change the method of accounting used in previous business combinations.



SFAS No. 142, Goodwill and Other Intangible Assets



SFAS No. 142, also issued in July 2001, requires that
goodwill no longer be amortized to earnings, but instead by reviewed for impairment on an annual basis. The Company has no goodwill recorded as of March 31, 2003, so the Company does not expect an impact from the adoption of this standard.



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SFAS No. 143, Accounting for Asset Retirement Obligations



SFAS No. 143, issued in August 2001, was adopted by the
Company on January 1, 2003. The standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which the obligation is incurred. When the liability is initially recorded, the entity capitalizes
a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of
the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement.



SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets



SFAS No. 144, issued in October 2001, supersedes SFAS No.
121. The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30 for the disposal of segments of a business. SFAS No. 144
requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 has been adopted effective January 1, 2002;
however, the Company has not been impacted from this adoption since it follows the full cost method of accounting which requires long-lived oil and gas property costs to be tested for impairment based on its full cost ceiling (refer to previously
referenced Critical Accounting Policies).



Effects of
Inflation and Changes in Price



Crude oil
and natural gas commodity prices have been volatile and unpredictable during 2003 and 2002. The wide fluctuations that have occurred during these periods have had a significant impact on the Companys results of operations, cash flow and
liquidity. Recent rates of inflation have had a minimal effect on the Company.



Environmental and Other Regulatory Matters



The Companys business is subject to certain federal, state and local laws and regulations relating to the exploration for, and the development, production and transportation of, oil and natural gas, as well as
environmental and safety matters. Many of these laws and regulations have become more stringent in recent years, often imposing greater liability on a larger number of potentially responsible parties. Although the Company believes it is in
substantial compliance with all applicable laws and regulations, the requirements imposed by laws and regulations frequently are changed and subject to interpretation, and the Company is unable to predict the ultimate cost of compliance with these
requirements or their effect on its operations. Any suspensions, terminations or inability to meet applicable bonding requirements could materially adversely affect the Companys business, financial condition and results of operations. Although
significant expenditures may be required to comply with governmental laws and regulations applicable to the Company, compliance has not had a material adverse effect on the earnings or competitive position of the Company. Future regulations may add
to the cost of, or significantly limit, drilling activity.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



The Company uses a variety of financial derivative instruments (derivatives) to manage exposure to fluctuations in commodity prices. To qualify for hedge accounting, derivatives must meet
the following criteria: (i) the item to be hedged exposes the Company to price risk; and (ii) the derivative reduces that exposure and is designated as a hedge. The Company periodically enters into certain derivatives for a portion of



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its oil and natural gas production to achieve a more predictable cash flow, as well as to reduce the exposure to price fluctuations. The
Companys hedging arrangements apply only to a portion of its production, provide only partial price protection against declines in oil and natural gas prices and limit potential gains from future increases in prices. Such hedging arrangements
may expose the Company to risk of financial loss in certain circumstances, including instances where production is less than expected, the Companys customers fail to purchase contracted quantities of oil or natural gas or a sudden unexpected
event materially impacts oil or natural gas prices. For financial reporting purposes, gains and losses related to hedging are recognized as oil and gas revenues during the period the hedge transaction occurs. The Company expects that the amount of
hedge contracts that it has in place will vary from time to time. For the quarter ended March 31, 2003 and 2002, the Company realized approximately $(0.2) million and $0.2 million, respectively, of hedging (losses) which are included in oil and
natural gas revenues in the consolidated statements of operations. The fair value of remaining derivative contracts at March 31, 2003, is approximately $(0.1) million. This amount is reflected in other current liabilities in the Consolidated Balance
Sheet with a corresponding amount in accumulated other comprehensive loss. For the quarters ended March 31, 2003 and 2002, the Company had hedged 28% and 52%, respectively, of its oil and natural gas production, and as of March 31, 2003, the Company
had 0.2 Bcfe of open natural gas contracts for the months of April 2003 through September 2003. If all these open contracts had been settled as of March 31, 2003, the Company would have paid approximately $0.1 million.



Market Risk Information



The market risk inherent in the Companys derivatives is
the potential loss arising from adverse changes in commodity prices. The prices of natural gas are subject to fluctuations resulting from changes in supply and demand. To reduce the price risk caused by market fluctuations, the Companys policy
is to hedge (through the use of derivatives) future production. Because commodities covered by these derivatives are substantially the same commodities that the Company sells in the physical market, no special correlation studies other than
monitoring the degree of convergence between the derivative and cash markets are deemed necessary. The changes in market value of these derivatives have a high correlation to the price changes of natural gas.



Item 4. Controls and Procedures



The Companys Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Companys disclosure controls and procedures, as such terms are defined in Rule 13a-14(c) and 15d-14(c)
of the Securities Exchange Act of 1934, as amended, within 90 days of the filing date of this quarterly report. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure
controls and procedures are effective. There were no significant changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.



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PART II. OTHER INFORMATION



Item 1. Legal Proceedings



On May 1, 2000, the Company filed a lawsuit in the Federal District Court for the District of Montana against K2 America Corporation and K2 Energy Corporation (collectively referred to in this section as K2). The
Companys lawsuit includes certain claims of relief and allegations by the Company against K2, including breach of contract arising from failure by K2 to agree to escrow, repudiation, and rescission; specific performance; declaratory relief;
partition of K2 lands that are subject to the K2 Agreement; negligence; and tortious interference with contract. The lawsuit is on file with the Federal District Court for the District of Montana, Great Falls Division and is not subject to a
protective order. In an order dated September 4, 2001, the Federal District Court dismissed without prejudice the lawsuit against K2 and referred the case to the Blackfeet Tribal Court for determination of whether it has jurisdiction over the claims
made by the Company. The Company has filed a complaint in the Blackfeet Tribal Court in Montana against K2 substantially based on the grounds asserted in the action previously filed in Federal District Court, while arguing to the Tribal Court that
proper jurisdiction is with the Federal District Court. K2 has since filed a counterclaim against the Company alleging that alleged actions by the Company damaged K2 by denying K2 the ability to participate in the Miller/Blackfeet IMDA and damaged
K2s goodwill with Tribal officials so as to impede other development initiatives on the Reservation. The Company answered K2s counterclaim by asserting that any damages K2 may have incurred were caused in whole or in part by its own
negligence, conduct, bad faith or fault. The Company believes K2s counterclaim is without merit and will continue to vigorously contest it.



The Blackfeet Tribal Business Council unanimously voted on May 1, 2002 to reaffirm the Companys 50% interest in the K2/Blackfeet
IMDA covering 150,000 net Tribal mineral acres, over-turning a previous Tribal Business Council decision.



On May 1, 2000, the Company gave notice to the Blackfeet Tribal Business Council demanding arbitration of all disputes as provided for
under the Miller/Blackfeet IMDA dated February 19, 1999, and pursuant to the K2/Blackfeet IMDA dated May 30, 1997. The Bureau of Indian Affairs (BIA) responded to the Companys request for arbitration by stating that it was the
BIAs position that the Miller/Blackfeet IMDA was terminated. The Company filed an appeal brief with the United States Department of Interior Appeals Division.



On January 25, 2002, the Interior Department Appeals Division vacated the BIAs purported termination of
the Miller/Blackfeet IMDA to allow arbitration to proceed. In order to avoid further delay and to avoid the uncertainty and costs of further pursuing the dispute (including arbitration and litigation), and to place the parties on a footing that will
enable them to pursue a productive business relationship, the Company and the Blackfeet Tribal Business Council entered into an amended IMDA agreement.



The Company was a defendant in a lawsuit filed June 1, 1999 by Energy Drilling Company (Energy Drilling), in the Parish of
Catahoula, Louisiana arising from a blowout of the Victor P. Vegas #1 well that was drilled and operated by the Company. Energy Drilling, the drilling rig contractor on the well, was claiming damages related to the destruction of their drilling rig
and related costs amounting to approximately $1.2 million, plus interest, attorneys fees and costs. In January 2001, the Federal District Court judge ruled against the Company on two of the three claims filed in this case with interest and
day-rate charges left undetermined. This ruling was appealed by the Company to the U.S. Fifth Circuit Court of Appeals with the lower court ruling being upheld. This ruling is significant for oil and gas operators in the industry using the
Independent Association of Drilling Contractors (IADC) standard drilling contracts. The Circuit Court of Appeals interpreted the IADC contract to assign responsibility for loss of the drilling contractors equipment to the
operator under a catastrophic event not the fault of the operator and without determining whether there was an unsound location. In September 2002, the judgment amount totaling approximately $780,000 was paid by the Companys insurance carrier.



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In August
2002, the District Court of Appeals ruled in favor of the Company on disputed interest and day-rate charges. Energy Drilling filed an appeal of the Court of Appeals decision. In February 2003, the District Court ruled in favor of Energy
Drilling on disputed attorney fees totaling approximately $117,000. The Company has filed an appeal of this ruling. In April 2003, the Fifth Circuit Court of Appeals reversed the District Court of Appeals findings regarding the interest charges
resulting in an additional $205,000 owed by the Company. The interest charges are expected to be paid by the Companys insurance carrier.



The Company was named in a lawsuit brought by Victor P. Vegas, the landowner of the surface location of the blowout well referenced above.
The suit was filed July 20, 1999 in the Parish of Orleans, Louisiana, claiming unspecified damages related to environmental and other matters. Under a Department of Environmental Quality (DEQ) approved plan, site remediation has been
completed and periodic testing is being performed. On December 11, 2001, the plaintiff submitted a remediation plan for more extensive clean-up and a settlement demand. In February 2002, the Company filed a remediation plan with the Louisiana DEQ
for approval. In July 2002, the Civil District Court ruled that the DEQ would not have primary jurisdiction and that a jury trial would be held.



On January 10, 2003, a confidential settlement agreement was signed, which released the Company from all liability from all present and
future claims, subject to certain express reservations associated with this property. On March 27, 2003, the settlement amount was paid by the Companys insurance carrier. The settlement agreement requires that the Company complete the clean-up
of the property in accordance with a final Louisiana DNR Office of Conservation Compliance Order. The Company believes that all defense costs and final clean-up costs will be covered by its general liability and well control insurance.



The Company believes it has meritorious defenses to the
unresolved claims discussed above and intends to vigorously contest them. The Company does not believe that the final outcome of these matters will have a material adverse effect on the Companys operating results, financial condition or
liquidity. Due to the uncertainties inherent in litigation, however, no assurances can be given regarding the final outcome of each action.



Item 2. Changes in Securities and Use of Proceeds



None



Item 3. Defaults Upon Senior Securities



None



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



None



Item 5. Other Information



None



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Item 6. Exhibits and Reports on Form 8-K



(a)  Exhibits. The following documents are filed as exhibits to this report on Form 10-Q:



|Exhibit No. |  | Description                                                                                                                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1(a)      |  | Agreement for Purchase and Sale dated November 25, 1997 between Amerada Hess Corporation and Miller Oil Corporation.
(Incorporated by reference to Exhibit 2.3 to the Companys Amendment No. 1 to Registration Statement on Form S-1 filed on December 5, 1997 (File No. 333-40383).)
|           
|2.1(b)      |  | First Amendment to Agreement for Purchase and Sale dated January 7, 1998. (Incorporated by reference to Exhibit 2.3(b)
to the Companys Amendment No. 3 to Registration Statement on Form S-1 filed on January 9, 1998 (File No. 333-40383).)                                         
|           
|3.1         |  | Certificate of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the Companys
Registration Statement on Form S-1 filed on November 17, 1997 (File No. 333-40383).)                                                                                       
|           
|3.2         |  | Certificate of Amendment to the Certificate of Incorporation of the Registrant. Previously filed as an exhibit to the
Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, and here incorporated by reference.                                           
|           
|3.3         |  | Bylaws of the Registrant. (Incorporated by reference to Exhibit 3.2 to the Companys Quarterly Report on Form
10-Q for the quarter ended June 30, 1998 (File No. 000-23431).)                                                                                                         
|           
|99.1*       |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.                                                                                                                                                                                       
|           
|99.2*       |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.                                                                                                                                                                                       

---

|* |  | Filed herewith
|- |  | --------------



(b)  Reports on Form 8-K. No reports on Form 8-K were filed during the fiscal quarter ended March 31, 2003.



SIGNATURES



Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



MILLER EXPLORATION COMPANYBy:

/s/    DEANNA L.
CANNONDeanna L. Cannon Chief Financial Officer and Secretary




Date: May 14, 2003



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CERTIFICATION



I, Kelly E. Miller, certify
that:



1. I have reviewed this quarterly report
on Form 10-Q of Miller Exploration Company (the registrant);



2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this quarter report;



3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;



4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and procedures to ensure that material information relating to the registrant,
including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls and procedures as
of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and



c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;



5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors:



a) all significant deficiencies in the design
or operation of the internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal
controls; and



b) any fraud,
whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.



Dated: May 14, 2003



|   
|---
|By:
|   



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CERTIFICATION



I, Deanna L. Cannon,
certify that:



1. I have reviewed this quarterly
report on Form 10-Q of Miller Exploration Company (the registrant);



2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this quarter report;



3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;



4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and procedures to ensure that material information relating to the registrant,
including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls and procedures as
of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and



c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;



5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors:



a) all significant deficiencies in the design
or operation of the internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal
controls; and



b) any fraud,
whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.



Dated: May 14, 2003



|   
|---
|By:
|   



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EXHIBIT INDEX



|Exhibit No. |  | Description                                                                                                                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1(a)      |  | Agreement for Purchase and Sale dated November 25, 1997 between Amerada Hess Corporation and Miller Oil Corporation.
(Incorporated by reference to Exhibit 2.3 to the Companys Amendment No. 1 to Registration Statement on Form S-1 filed on December 5, 1997 (File No. 333-40383).)
|           
|2.1(b)      |  | First Amendment to Agreement for Purchase and Sale dated January 7, 1998. (Incorporated by reference to Exhibit 2.3(b)
to the Companys Amendment No. 3 to Registration Statement on Form S-1 filed on January 9, 1998 (File No. 333-40383).)                                         
|           
|3.1         |  | Certificate of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the Companys
Registration Statement on Form S-1 filed on November 17, 1997 (File No. 333-40383).)                                                                                       
|           
|3.2         |  | Certificate of Amendment to the Certificate of Incorporation of the Registrant. Previously filed as an exhibit to the
Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, and here incorporated by reference.                                           
|           
|3.3         |  | Bylaws of the Registrant. (Incorporated by reference to Exhibit 3.2 to the Companys Quarterly Report on Form
10-Q for the quarter ended June 30, 1998 (File No. 000-23431).)                                                                                                         
|           
|99.1*       |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.                                                                                                                                                                                       
|           
|99.2*       |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.                                                                                                                                                                                       

---

|* |  | Filed herewith
|- |  | --------------

|(b) |  | Reports on Form 8-K.
|--- |  | --------------------

| |  | No reports on Form 8-K were filed during the fiscal quarter ended March 31, 2003.
| |  | ---------------------------------------------------------------------------------



31