<PAGE>

                       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, 2001                          0-23431


                           MILLER EXPLORATION COMPANY
             (Exact Name of Registrant as Specified in Its Charter)

          Delaware                                 38-3379776
(State or Other Jurisdiction of                 (I.R.S. Employer
Incorporation or Organization)                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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

                                           Outstanding at
               Class                        May 7, 2001
               -----                        -----------

      Common stock, $.01 par value       19,443,241 shares


================================================================================


<PAGE>

                           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, 2001 and 2000.........   3

         Consolidated Balance Sheets--
         March 31, 2001 and December 31, 2000...............   4

         Consolidated Statement of Equity--
         Three Months Ended March 31, 2001..................   5

         Consolidated Statements of Cash Flows--
         Three Months Ended March 31, 2001 and 2000.........   6

         Notes to Consolidated Financial Statements.........   7

Item 2.  Management's Discussion and Analysis of
          Financial Condition and  Results of Operations....  15


PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.................................   21

Item 2.  Changes in Securities..............................  22

Item 3.  Defaults Upon Senior Securities....................  22

Item 4.  Submission of Matters to a Vote of Security Holders  22

Item 5.  Other Information..................................  22

Item 6.  Exhibits and Reports on Form 8-K..................   22

                                       2
<PAGE>

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,
                                                  --------------------
                                                     2001       2000
                                                  ---------   --------

REVENUES:
  Natural gas....................................   $5,577    $4,417
  Crude oil and condensate.......................      915     1,093
  Other operating revenues.......................       97        95
                                                 ---------   --------
     Total operating revenues....................    6,589     5,605
                                                 ---------   --------
OPERATING EXPENSES:
  Lease operating expenses and production taxes..      939       458
  Depreciation, depletion and amortization.......    4,187     4,371
  General and administrative.....................      561       591
                                                 ---------   --------
     Total operating expenses....................    5,687     5,420
                                                 ---------   --------
OPERATING INCOME.................................      902       185
                                                 ---------   --------
INTEREST EXPENSE.................................     (257)     (848)
                                                 ---------   --------
INCOME (LOSS) BEFORE INCOME TAXES................      645      (663)
                                                 ---------   --------
INCOME TAX PROVISION (CREDIT)....................      249      (225)
                                                 ---------   --------
NET INCOME (LOSS)................................   $  396      (438)
                                                 =========   ========
EARNINGS (LOSS) PER SHARE (Note 3)
  Basic..........................................    $0.02    $(0.03)
                                                 =========   ========
  Diluted........................................    $0.02    $(0.03)
                                                 =========   ========


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


                                       3
<PAGE>

                           MILLER EXPLORATION COMPANY
                          CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                  As of March 31,   As of December 31,
                                                       2001             2000
                                                 ---------------    ------------------
                                                   (Unaudited)
<S>                                                  <C>              <C>
                               ASSETS
                               ------
CURRENT ASSETS:
 Cash and cash equivalents ...................       $     774        $   2,292
 Restricted cash (Note 2) ....................             525               69
 Accounts receivable .........................           4,390            4,474
 Inventories, prepaids and
  advances to other
  operators ..................................             571              316
                                                     ---------        ---------
  Total current assets .......................           6,260            7,151
                                                     ---------        ---------
OIL AND GAS PROPERTIES--at
 cost (full cost method):
 Proved oil and gas
  properties .................................         135,081          131,872
 Unproved oil and gas
  properties .................................          16,022           16,109
 Less-Accumulated depreciation,
  depletion and amortization .................        (100,074)         (95,948)
                                                     ---------        ---------
  Net oil and gas
   properties ................................          51,029           52,033
                                                     ---------        ---------
OTHER ASSETS .................................             643              694
                                                     ---------        ---------
  Total assets ...............................       $  57,932        $  59,878
                                                     =========        =========

                       LIABILITIES AND EQUITY
                       ----------------------

CURRENT LIABILITIES:
 Current portion of
  long-term debt .............................       $   1,110        $   1,034
 Accounts payable ............................           2,900            3,572
 Accrued expenses and
  other current liabilities ..................           5,836            3,928
                                                     ---------        ---------
  Total current liabilities ..................           9,846            8,534
                                                     ---------        ---------
LONG-TERM DEBT ...............................           8,696           11,196

DEFERRED INCOME TAXES ........................           6,451            6,202

DEFERRED REVENUE .............................              11               20

COMMITMENTS AND
 CONTINGENCIES (NOTE 7)

EQUITY:
 Other comprehensive
  income (loss) ..............................          (1,377)              --
 Common stock warrants,
  15,694,248 outstanding at
  March 31, 2001 and
   December 31, 2000 .........................           1,555            1,759
 Preferred stock, $0.01
  par value; 2,000,000
  shares authorized;
  none outstanding ...........................              --               --
 Common stock, $0.01 par
  value; 40,000,000 shares
  authorized; 19,443,241
   shares and 19,302,254
   shares
  outstanding at March 31,
   2001 and December 31,
   2000,
  respectively ...............................             195              193
 Additional paid in capital ..................          76,755           76,570
 Retained deficit ............................         (44,200)         (44,596)
                                                     ---------        ---------
  Total equity ...............................          32,928           33,926
                                                     ---------        ---------
  Total liabilities and
   equity ....................................       $  57,932        $  59,878
                                                     =========        =========
</TABLE>


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


                                       4
<PAGE>

                           MILLER EXPLORATION COMPANY
                        CONSOLIDATED STATEMENT OF EQUITY
                                 (In thousands)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                             Other
                                        Comprehensive    Common                        Additional
                                            Income        Stock    Preferred   Common    Paid In    Retained
                                            (Loss)      Warrants     Stock     Stock     Capital     Deficit
                                            ------      --------     -----     -----     -------     -------
<S>                                     <C>            <C>        <C>         <C>     <C>         <C>
BALANCE-December 31, 2000                 $    --       $1,759     $    --      $193     $76,570   $(44,596)

 Issuance of benefit plan shares                            --          --         1          47         --
 Issuance of non-employee
  directors' shares                            --           --          --         1         138         --
 Change in value of warrants issued
  to Veritas, DGC Land, Inc.                   --         (204)         --        --          --         --
 Adoption of new accounting
  standard (Note 1)                        (5,685)          --          --        --          --         --
 Change in unrealized loss                  4,308           --          --        --          --         --
 Net income                                    --           --          --        --          --        396
                                          -------       ------     -------      ----     -------   --------
BALANCE-March 31, 2001                    $(1,377)      $1,555     $    --      $195     $76,755   $(44,200)
                                          =======       ======     =======      ====     =======   ========


 Disclosure of Comprehensive Income (Loss):
                                                                 For the three months ended March 31,
                                                                      2001                 2000
                                                                    -------               -------

 Net income (loss)                                                 $   396              $  (438)
 Other comprehensive income (loss)                                  (1,377)                  --
                                                                   -------              -------
  Total comprehensive income (loss)                                $  (981)             $  (438)
                                                                   =======              =======
</TABLE>

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


                                       5
<PAGE>

                           MILLER EXPLORATION COMPANY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                        For the Three Months Ended
                                                                 March 31,
                                                        --------------------------
                                                              2001       2000
                                                             -------    -------
<S>                                                          <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss) ......................................   $   396    $  (438)
  Adjustments to reconcile net income
   (loss) to net cash from
    operating activities--
      Depreciation, depletion and
       amortization ......................................     4,187      4,371
      Deferred income taxes ..............................       249       (225)
      Warrants and stock compensation ....................       (17)        --
      Deferred revenue ...................................        (9)        (9)
      Changes in assets and liabilities--
        Restricted cash ..................................      (456)       972
        Accounts receivable ..............................        84      1,221
        Other assets .....................................      (259)        95
        Accounts payable .................................      (672)    (1,694)
        Accrued expenses and other current
         liabilities .....................................       531     (2,899)
                                                             -------    -------
          Net cash flows provided by
           operating activities ..........................     4,034      1,394
                                                             -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Exploration and development expenditures ...............    (3,123)    (1,602)
  Proceeds from sale of oil and gas
   properties and purchases of
    equipment, net .......................................        (5)        --
                                                             -------    -------
          Net cash flows used in investing activities ....    (3,128)    (1,602)
                                                             -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments of principal ..................................    (4,588)    (2,556)
  Borrowing on long-term debt ............................     2,164        139
  Common stock proceeds ..................................        --        110
                                                             -------    -------
          Net cash flows used in financing
           activities ....................................    (2,424)    (2,307)
                                                             -------    -------
NET CHANGE IN CASH AND CASH EQUIVALENTS ..................    (1,518)    (2,515)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
 THE PERIOD ..............................................     2,292      3,712
                                                             -------    -------
CASH AND CASH EQUIVALENTS AT END OF THE
 PERIOD ..................................................   $   774    $ 1,197
SUPPLEMENTAL CASH FLOW INFORMATION:
                                                             =======    =======
  Cash paid during the period for interest ...............   $   297    $   637
                                                             =======    =======
</TABLE>

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


                                       6
<PAGE>

                           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 subsidiary 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, 2000.

     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.

     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 the Blackfeet Indian
Reservation of the southern Alberta Basin 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 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.

     New Accounting Standard

     In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", amended
by Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133" and
Statement No. 138, "Accounting for Certain Derivatives and Certain Hedging
Activities" (hereinafter collectively referred to as SFAS No. 133). SFAS No. 133
requires that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS No. 133 requires
that changes in the derivative's fair value be recognized currently in



                                       7
<PAGE>

                           MILLER EXPLORATION COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting.

     SFAS No. 133 was adopted by the Company as of January 1, 2001 and the
Company completed the process of identifying all derivative instruments,
determining fair market values of derivatives designating and documenting hedge
relationships, and evaluating the effectiveness of those hedge relationships.

     Certain financial derivative contracts used to hedge the price risk on
future production qualify under the provisions of SFAS No. 133 as cash flow
hedges. These contracts are required to be recognized at their fair value in the
Consolidated Balance Sheet as an asset or liability. The impact on January 1,
2001, of adopting SFAS No. 133 increased liabilities by approximately $5.7
million with a corresponding decrease in other comprehensive income (loss) in
the Consolidated Statement of Equity since the contracts outstanding on the date
met the specific hedge accounting criteria. Since several of the contracts that
were outstanding on January 1, 2001, have been settled in the first quarter of
2001 (with any hedge gains or losses being realized at the time of production),
the fair value of remaining financial derivative contracts at March 31, 2001 is
$1.4 million. This amount is reflected in other current liabilities in the
Consolidated Balance Sheet with a corresponding amount in other comprehensive
income (loss).

     Reclassifications

     Certain reclassifications have been made to prior period statements to
conform with the March 31, 2001 presentation.

(2)  Restricted Cash

     In 1999, the Company entered into escrow agreements at the request of
certain joint venture partners regarding the drilling of certain wells operated
by the Company. Terms of the escrow agreements require the parties to the
agreements to deposit their proportionate share of the estimated costs of
drilling each subject well into a separate escrow account. The escrow account is
controlled by an independent third party agent and is restricted to the sole
purpose of processing payments to vendors covered by the escrow agreements.

     On February 26, 2001, the Company deposited $525,000 into an escrow account
for the benefit of the Blackfeet Indian Tribe ("Blackfeet"). This sum of money
represented the second anniversary bonus payment owed to the Blackfeet under the
Indian Mineral Development Act ("IMDA") agreement between the Company and the
Blackfeet ("Miller/Blackfeet IMDA"). The Company believes that certain
provisions of the Miller/Blackfeet IMDA agreement have been violated and the
Company has requested arbitration of these matters, as more fully discussed in
Note 7. The term of the escrow was set at 60 days in an effort to encourage
timely resolution of these matters. The term expired on April 26, 2001 and the
funds were returned to the Company as the disputed provisions remain unresolved.


                                       8
<PAGE>

                           MILLER EXPLORATION COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


(3)  Earnings Per Share

     The computation of earnings (loss) per share for the three-month periods
ended March 31, 2001 and 2000 are as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
<S>                                                            <C>      <C>
                                                                 2001     2000
                                                                ------   ------
  Net income (loss) attributable to
     basic and diluted EPS...................................  $   396  $  (438)

  Average common shares outstanding
     applicable to basic EPS.................................   19,364   12,699
  Add:  stock options, treasury shares and restricted stock..      642       --
                                                                ------   ------

  Average common shares outstanding
     applicable to diluted EPS...............................   20,006   12,699

  Earnings (loss) per share:
     Basic...................................................  $  0.02  $ (0.03)
     Diluted.................................................  $  0.02  $ (0.03)
</TABLE>

     Options and restricted stock were not included in the computation of
diluted earnings per share for the three months ended March 31, 2000 because
their effect was antidilutive.

(4)  Long-Term Debt

     Bank Debt

     On July 19, 2000, the Company entered into a senior credit facility with
Bank One, which replaced its 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. Under the new credit facility the Company was required to make monthly
payments of $500,000 from August 1, 2000, until the borrowing base re-
determination that occurred on January 1, 2001. The new borrowing base
determined by Bank One as of December 31, 2000 is $9.0 million, less the amount
due Amerada Hess Corporation ("AHC") in 2001. The next scheduled borrowing base
re-determination with Bank One is in July 2001. The outstanding Bank One credit
facility balance is $5.0 million at March 31, 2001.

     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. The obligations under the new credit facility are
secured by a lien on all of the Company's real and personal property.

     Other

     On April 14, 1999, the Company issued a $4.7 million note payable 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 July
19, 2000, the note was amended as more fully described below.


                                       9
<PAGE>

                           MILLER EXPLORATION COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

     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 issued 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 $0.01 per share. On April 14, 1999, warrants
exercisable for 322,752 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 322,752 and 454,994 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.

     Under the terms of the amended note and Warrant Agreement, the maturity of
the Veritas note was extended from April 15, 2001 to July 21, 2003 and the
expiration date for all warrants issued was extended until June 21, 2004. The
annual interest rate has been reduced from 18% to 9 3/4%, provided the entire
note balance is paid in full by December 31, 2001. If all principal and interest
under the Veritas note is not paid by December 31, 2001, then the note bears
interest at 13 3/4% until paid in full. As of March 31, 2001, the Company has
only recognized interest expense on the outstanding Veritas note at 9 3/4% since
it is believed that the principal balance will be paid in full by December 31,
2001. Interest accrues at the reduced rate from and after October 15, 2000 and
is payable commencing April 15, 2001 and continuing on each October 15 and April
15 until principal is paid in full. Interest is required to be paid in warrants
under the terms of the Warrant Agreement until the Company is in compliance with
the net borrowing base formula as defined in the Bank One credit facility, at
which time interest will only be paid in cash. The April 15, 2001, interest
payment of approximately $187,000 was made in cash.

     Under the amended Veritas note, a principal payment of $500,000 was made on
July 19, 2000, the effective date of the amendment, and another $500,000 payment
was made in December 2000. The balance due Veritas at March 31, 2001, is $3.7
million, with the entire balance classified as long-term debt in the
accompanying financial statements.

     Any additional proceeds derived by the Company from the exercise of
warrants issued or from other debt or equity transactions must be used to pay
interest and principal on the amended Veritas note until paid in full. Effective
November 1, 2000, Veritas exercised 500,000 warrants to receive 496,923 shares
(net of exercise price) of Company Common Stock.

     In connection with the closing of the AHC property acquisition on February
9, 1998, the Company issued a non-interest bearing note payable to AHC. The
Company had obtained a six-month extension of the $1.0 million payment due AHC
from February 2000 to August 2000. This payment was made on August 3, 2000.
Also, the $1.5 million payment due February 2001 has been divided into three
quarterly installments of $500,000 each, payable commencing February 2001.
Principal payments made subsequent to the original February 2001 due date are
subject to a 12% per annum interest charge. At March 31, 2001, the outstanding
AHC note balance was $1.0 million.

                                       10
<PAGE>

                           MILLER EXPLORATION COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


     The Company's long-term debt consisted of the following as of March 31,
2001 (in thousands):


<TABLE>
<CAPTION>
<S>                                            <C>
     Bank One credit facility                  $ 5,000
     Veritas note                                3,696
     AHC note                                    1,000
     Other                                         110
                                              --------
       Total                                     9,806
     Less current portion of long-term debt     (1,110)
                                              --------
                                              $  8,696
                                              ========

(5)  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 1,562,500, 2,500,000 and 9,000,000 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.

     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 1,851,851 shares
of common stock. In addition, Eagle was issued warrants exercisable for a total
of 2,031,250 shares of Common Stock. This transaction with Eagle was approved by
the Company's stockholders at meeting on December 7, 2000.

     Common Stock Warrants

     As of March 31, 2001, the Company has the following Common Stock warrants
outstanding:


Warrants                       Exercise Price  Expiration Date
--------                       --------------  ---------------

    2,343,750 shares.........           $1.35  December 7, 2001
    3,750,000 shares.........            2.50  December 7, 2002
    600,498 shares...........            0.01  July 21, 2004
    9,000,000 shares.........            3.00  December 7, 2004


</TABLE>

                                       11
<PAGE>

                           MILLER EXPLORATION COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


(6)  Risk Management Activities and Derivative Transactions

     The Company uses a variety of derivative instruments ("derivatives") to
manage exposure to fluctuations in commodity prices (see Note 1). 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 volatility 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. 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, 2001 and 2000, the Company realized
approximately $(2.2) million and $0.06 million, respectively, of hedging gains
(losses) which are included in oil and natural gas revenues in the consolidated
statements of operations. For the three months ended March 31, 2001 and 2000,
the Company had hedged 69% and 47%, respectively, of its oil and natural gas
production, and as of March 31, 2001, the Company had 1.1 Bcf of open natural
gas contracts for the months of April 2001 through December 2001.

(7)  Commitments and Contingencies

     Stock-Based Compensation

     During 1997, the Company adopted the Stock Option and Restricted Stock Plan
of 1997 (the "1997 Plan"). The Board of Directors contemplates that the 1997
Plan primarily will be 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 1.9 million shares of Common Stock (subject to
certain antidilution adjustments) are available for Incentive Awards under the
1997 Plan. The Company has proposed that the minimum number of shares of Common
Stock available for Incentive Awards under the 1997 Plan be increased to 2.4
million shares. This proposal will be voted on at the Company's Annual
Stockholders Meeting on May 25, 2001. In February 2000, 43,500 restricted shares
of stock issued pursuant to the 1997 Plan vested and the Company recognized
compensation expense of approximately $60,000.

     On January 1, 2000, the Company granted 191,500 stock options to certain
employees with an exercise price of $0.01 per share. The right to exercise the
options vests and they become exercisable only 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       Percentage Vested
     -----------------------------       -----------------

               $2.00                            40%
               $2.75                            30%
               $3.50                            30%


                                       12
<PAGE>

                           MILLER EXPLORATION COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


     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 stock at this measurement
date less the $0.01 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 2001; therefore, no compensation expense has
been recorded for these options.

     On October 31, 2000, the Company granted 250,000 stock options to employees
with an exercise price of $1.625 per share (the closing market price on the date
of grant). The right to exercise the options shall vest at a rate of one-fifth
per year beginning on the first anniversary of the grant date.

     On April 6, 2001, the Company granted 190,000 stock options to the Chief
Executive Officer of the Company. Of these options, 100,000 were issued under
the same terms as those issued to certain employees on January 1, 2000, and the
remaining 90,000 stock options were issued under the same terms as those issued
on October 31, 2000.

     Other

     On May 1, 2000, the Company filed a lawsuit in the United States District
Court for the District of Montana against K2 America Corporation and K2 Energy
Corporation (hereinafter collectively referred to 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 IMDA Agreement between K2 and the Blackfeet
("K2/Blackfeet IMDA"); negligence; and tortuous interference with contract. The
lawsuit is on file with the United States District Court for the District of
Montana, Great Falls Division and is not subject to protective order. Discovery
is currently underway.

     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 disputes for which the Company demands arbitration include but are not
limited to the unreasonable withholding of a consent to a drilling extension as
provided in the Miller/Blackfeet IMDA, as well as a determination by the
Blackfeet dated March 16, 2000, that certain wells which the Company proposed to
drill "would not satisfy the mandatory drilling obligations" under the
K2/Blackfeet IMDA. The Company contends the K2/Blackfeet IMDA, gives it as
lessee, and not the Blackfeet, the exclusive right to select drill sites and
well depths.

     The Company is 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, is claiming damages related to their destroyed drilling rig and related
costs amounting to approximately $1.2 million, plus interest, attorneys' fees
and costs. In January 2001, the District Court judge ruled against the Company
on two of three claims filed in this case with damages left undetermined. This
ruling is being appealed to the U.S. Fifth Circuit Court of Appeals. In the
event the Company does not prevail in the appeal, legal counsel has advised that
any resulting damages owed would be covered by insurance.



                                       13
<PAGE>

                           MILLER EXPLORATION COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     The Company is a defendant 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.

     The Company was a defendant in a lawsuit brought by Charles Strickland,
employee of BJ Services, Inc., on September 30, 1999. The suit claimed damages
of $1.0 million for personal injuries allegedly suffered at a well site operated
by the Company. The judge ruled in favor of the Company at the trial that was
held March 8, 2001.

     The Company was a defendant among several co-defendants in a lawsuit
brought by Eric Parkinson, husband and personal representative of the Estate of
Kelly Anne Parkinson (deceased). The amended complaint was filed December 13,
1999, in the County of Hillsdale, Michigan, claiming an unspecified amount plus
interest and attorney fees for suffering the loss of the deceased. Kelly Anne
Parkinson was killed in an automobile accident on February 2, 1999, while
traveling on a county road located next to land wherein the Company is lessee of
underground mineral rights. This case was settled and all claims dismissed in
February 2001. All defense costs and the settlement amount were covered by the
Company's insurance.

     The Company is a party to a lawsuit brought by Bill and Joyce Vasilion
against AHC (the Company's joint venture partner). The claim alleges that AHC
(the operator) was negligent in failing to inspect a crane at a well site that
was the subject of an accident which occurred in September 1994. Discovery is
currently underway.

     The Company believes it has meritorious defenses to the claims discussed
above and intends to vigorously defend these lawsuits. 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. The Company currently believes any
costs resulting from the lawsuits mentioned above would be covered by the
Company's insurance.

(8)  Non-Cash Activities

     In February 2000, 43,500 restricted shares of Common Stock issued pursuant
to the 1997 Plan vested. In connection therewith, the Company recognized
compensation expense of approximately $60,000 for the quarter ended March 31,
2000. In February 2001 and 2000, 34,595 and 37,210 shares, respectively, of the
Company's Common Stock were issued to the Company's 401(K) Savings Plan as an
employer matching contribution. For the quarter ended March 31, 2001, the
Company recognized $1.4 million of other current liabilities and other
comprehensive income (loss) under the provisions of SFAS No. 133. These non-cash
activities have been excluded from the Consolidated Statements of Cash Flows.

                                       14
<PAGE>

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 and Montana.

     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 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):


<TABLE>
<CAPTION>
                                                   Three Months Ended March 31,
                                                   ----------------------------
                                                        2001         2000
                                                       -------     -------
<S>                                                       <C>         <C>
Production volumes:
   Crude oil and condensate (MBbls)                       36.3        47.2
   Natural gas (MMcf)                                  1,082.0     1,642.0
   Natural gas equivalent (MMcfe)                      1,300.3     1,925.2

Revenues:
   Crude oil and condensate                        $     915   $   1,093
   Natural gas                                         5,577       4,417

Operating expenses:
   Lease operating expenses and production taxes   $     939   $     458
   Depletion, depreciation and amortization            4,187       4,371
   General and administrative                            561         591

Interest expense                                   $     257   $     848

Net income (loss)                                  $     396   $    (438)

Average sales prices:
   Crude oil and condensate ($ per Bbl)            $   25.21   $   23.16
   Natural gas ($ per Mcf)                              5.15        2.69
   Natural gas equivalent ($ per Mcfe)                  4.99        2.86

Average Costs ($ per Mcfe):
   Lease operating expenses and production taxes   $    0.72    $   0.24
   Depletion, depreciation and amortization             3.22        2.27
   General and administrative                           0.43        0.31
</TABLE>


                                       15
<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                       Results of Operations (Continued)

     Three Months Ended March 31, 2001 compared to Three Months Ended March 31,
2000

     Oil and natural gas revenues for the three months ended March 31, 2001
increased 18% to $6.5 million from $5.5 million for the comparable period in the
prior year. The revenues for the three months ended March 31, 2001 and 2000
include approximately $(2.2) million and $0.06 million of hedging gains
(losses), respectively (see "Risk Management Activities and Derivative
Transactions" below). Production volumes for the three months ended March 31,
2001 decreased 32% to 1,300.3 Mmcfe from 1,925.2 MMcfe for the comparable period
of the prior year. This decrease is attributable to the declining production
curve of the Company's Mississippi Salt Basin properties. The declining
production curve for the Mississippi Salt Basin properties is due to the
combined effect of: 1) the Salt Basin wells tend to be prolific producers, but
have relatively short lives (5-7 years); 2) for 1999 and the first half of 2000,
the Company used a significant portion of its operational cash flow to pay down
bank debt thereby limiting the Company's drilling activities during this period;
3) the length of time to drill a typical Hosston well in the Salt Basin runs 5-7
months from spud date to on-line date; 4) the Company's recent drilling success
rate in the Salt Basin was less than expected; and 5) along with the rapid rise
in commodity prices in 2000 and 2001, the availability of drilling rigs has
hampered the Company's ability to get new wells drilled, add production and
increase reserves. The Company has budgeted $10.0 million of capital spending
from 2001 operational cash flow to work towards reversing its declining
production trend. The Company has taken steps in 2001 to diversify its
exploration activities and reserve base by acquiring approximately 45,000 gross
acres (27,900 net to the Company) in the Illinois Basin to explore for shallow
coal bed methane natural gas reserves. The Company is also pursuing the
acquisition of strategic production packages that would help boost its daily
production rates, proved reserves and operational cash flow. Average realized
oil prices increased 9% to $25.21 per barrel from $23.16 per barrel experienced
during the comparable period of 2000. Realized natural gas prices for the three
months ended March 31, 2001 increased 91% to $5.15 per Mcf from $2.69 per Mcf
for the comparable period of the prior year.

     Lease operating expenses ("LOE") and production taxes for the three months
ended March 31, 2001 increased 105% to $0.9 million from $0.5 million for the
comparable period in the prior year. LOE was unchanged in 2001 compared to 2000
as additional well re-work costs in 2000 were offset by compressor rental
charges in 2001. Production taxes increased $0.4 million in 2001 compared to
2000 due to the phase-out of the Company's exemption from the 6% State of
Mississippi production tax that occurred in June 2000 when the oil and gas
commodity prices exceeded the price ceilings established by the applicable state
statute.

     Depreciation, depletion and amortization ("DD&A") expense for the three
months ended March 31, 2001 decreased 4% to $4.2 million from $4.4 million for
the comparable period in the prior year.

     General and administrative expenses for the three months ended March 31,
2001 were unchanged from $0.6 million for the comparable period in the prior
year. The Company expects general and administrative expenses to continue at or
below the current level for the remaining quarters of 2001.

     Interest expense for the three months ended March 31, 2001 decreased 70% to
$0.3 million from $0.8 million for the comparable period in the prior year. This
decrease is attributable to: 1) a $14.4 million decrease in the outstanding
credit facility balance at March 31, 2001 compared to March 31, 2000; 2) a $1.5
million decrease in the AHC note balance; 3) a $1.0 million decrease in the
Veritas note balance; and 4) lower interest rates associated with the new Bank
One credit facility and the re-negotiated rate on the amended Veritas note.

     Net income for the three months ended March 31, 2001 increased to $0.4
million from a net loss of $(0.4) million for the comparable period in the prior
year, as a result of the factors described above.

                                       16
<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                       Results of Operations (Continued)


Liquidity and Capital Resources

 Liquidity

     The Company's primary source of liquidity is cash generated from
operations. Net cash provided by operating activities was $4.0 million and $1.4
million for the quarters ended March 31, 2001 and 2000, respectively. The
increase in cash provided in 2001 compared to 2000 was primarily attributable to
improved operating results because of the significantly increased commodity
prices and reduced interest charges in 2001.

     Net cash used in investing activities was $3.1 million and $1.6 million for
the quarters ended March 31, 2001 and 2000, respectively. The increase in cash
used in 2001 compared to 2000 was due to a $1.5 million increase in exploration
and development expenditures.

     Net cash used in financing activities was $2.4 million and $2.3 million for
the quarters ended March 31, 2001 and 2000, respectively. Cash used in financing
activities for both years was primarily used to pay down debt.

 Capital Resources

     Historically, the Company's primary sources of capital have been funds
generated by operations, and borrowings under bank credit facilities.

     On July 19, 2000, the Company entered into a new senior credit facility
with Bank One, which replaced its existing credit facility with Bank of
Montreal, Houston Agency. The new credit facility has a 30-month term with an
interest rate of either Bank One prime 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. The new credit
facility required the Company to make monthly principal payments of $500,000
from August 1, 2000 until the borrowing base re-determination that occurred on
January 1, 2001. The new borrowing base determined by Bank One as of December
31, 2000 is $9.0 million, less the amount due AHC in 2001. The next scheduled
borrowing base re-determination with Bank One is in July 2001. At March 31,
2001, the outstanding debt balance under the Company's credit facility with Bank
One was $5.0 million.

     The Bank One credit facility includes certain negative covenants that
impose restrictions on us with respect to, among other things, incurrence of
additional indebtedness, limitations on financial ratios, making investments and
mergers and consolidation.

     On April 14, 1999, the Company issued a $4.7 million note payable to one of
its suppliers, 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 July 19, 2000, the note was
amended as more fully described below.


                                       17
<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                        Results of Operations (Continued)

     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 issued 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 $0.01 per share. On April 14, 1999, warrants
exercisable for 322,752 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 322,752 and 454,994 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.

     Under the terms of the amended note and warrant agreements, the maturity of
the Veritas Note was extended from April 15, 2001 to July 21, 2003 and the
expiration date for all warrants issued was extended until June 21, 2004. The
annual interest rate has been reduced from 18% to 9 3/4%, provided the entire
note balance is paid in full by December 31, 2001. If all principal and interest
under the Veritas note is not paid by December 31, 2001, then the note bears
interest at 13 3/4% until paid in full. As of March 31, 2001, the Company has
only recognized interest expense on the outstanding Veritas note at 9 3/4% since
it is believed that the principal balance will be paid in full by December 31,
2001. Interest accrues at the reduced rate from and after October 15, 2000 and
is payable commencing April 15, 2001 and continuing on each October 15 and April
15 until principal is paid in full. Interest was required to be paid in warrants
under the terms of the Warrant 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 will only be paid in cash. The April 15, 2001 interest
payment of approximately $187,000 was made in cash.

     Under the amended Veritas note, a principal payment of $500,000 was made on
July 19, 2000, the effective date of the amendment, and another $500,000 payment
was made in December 2000. The balance due Veritas was $3.7 million at March 31,
2001 with the entire balance classified as long-term debt in the accompanying
financial statements.

     Any additional proceeds derived by the Company from the exercise of
warrants issued or from other debt or equity transactions must be used to pay
interest and principal on the amended Veritas Note until paid in full. Effective
November 1, 2000, Veritas exercised 500,000 warrants to receive 496,923 shares
(net of exercise price) of Company common stock.

     In connection with the closing of the AHC property acquisition on February
9, 1998, the Company issued a non-interest bearing note payable to AHC (the "AHC
Note"). The Company had obtained a six-month extension of the $1.0 million
payment due AHC from February 2000 to August 2000. This payment was made on
August 3, 2000. Also, the $1.5 million payment due February 2001 has been
divided into three quarterly installments of $500,000 each, payable commencing
February 2001. Principal payments made subsequent to the original February 2001
due date are subject to a 12% per annum interest charge. At March 31, 2001, the
outstanding AHC Note balance was $1.0 million.

     Refer to Note 5 of the Consolidated Financial Statements for further
information regarding capital resources, specifically the Guardian and Eagle
transactions that were completed in 2000.


                                       18
<PAGE>

     Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)

     At March 31, 2001, the Company had a working capital deficit of $2.5
million (excluding the current portion of long-term debt). Approximately $1.4
million of this deficit represents the deferred liability for unrealized hedge
losses assuming all outstanding hedge contracts had settled on March 31, 2001,
see Note 1 of the Consolidated Financial Statements for further discussion.
Management plans to meet these working capital requirements from operational
cash flow.

     The Company anticipates 2001 capital expenditures will be approximately
$10.0 million. Capital expenditures will be used to fund drilling and
development activities, the acquisition of additional seismic data and
processing and leasehold acquisitions and extensions in the Company's project
areas. The actual amounts of capital expenditures and number of wells drilled
may differ significantly from such estimates. Actual capital expenditures for
the quarter ended March 31, 2001 were approximately $3.1 million. The Company
intends to fund its 2001 budgeted capital expenditures through operational cash
flow.

     The Company's revenues, profitability, future growth and ability to borrow
funds or obtain additional capital, and the carrying value of its properties,
substantially are dependent on prevailing prices of oil and natural gas. The
Company cannot predict future oil and natural gas price movements with
certainty. A return to the significantly depressed oil and gas prices
experienced in 1998 and early 1999, as compared to historical averages, would
likely have an adverse effect on the Company's financial condition, liquidity,
ability to finance capital expenditures and results of operations. Lower oil and
natural gas prices also may reduce the amount of reserves that can be produced
economically by the Company.

     The Company has experienced and expects to continue to experience
substantial working capital requirements primarily due to the Company's active
exploration and development program. While the Company believes that cash flow
from operations and improved commodity prices should allow the Company to
implement its present business strategy through 2001, additional debt or equity
financing may be required during the remainder of 2001 and in the future to fund
the Company's growth, development and exploration program, and to satisfy its
existing obligations. The failure to obtain and exploit such capital resources
could have a material adverse effect on the Company, including further
curtailment of its exploration and other activities.

Risk Management Activities and Derivative Transactions

     The Company uses a variety of derivative instruments ("derivatives") to
manage exposure to fluctuations in commodity prices. 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
volatility 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. 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, 2001 and 2000, the Company realized approximately $(2.2) million
and $0.06 million, respectively, of hedging gains (losses) which are included in
oil and natural gas revenues in the consolidated statements of operations. For
the three months ended March 31, 2001 and 2000, the Company had hedged 69% and
47%, respectively, of its oil and natural gas production, and as of March 31,
2001, the Company had 1.1 Bcf of open natural gas contracts for the months of
April 2001 through December 2001.

                                       19
<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                       Results of Operations (Continued)


     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
price risk caused by the 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.

Effects of Inflation and Changes in Price

     Crude oil and natural gas commodity prices have been volatile and
unpredictable during 2001 and 2000. 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.


                                       20
<PAGE>

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

     On May 1, 2000, the Company filed a lawsuit in the United States District
Court for the District of Montana against K2 America Corporation and K2 Energy
Corporation (hereinafter collectively referred to 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 IMDA Agreement between K2 and the Blackfeet
("K2/Blackfeet IMDA"); negligence; and tortuous interference with contract. The
lawsuit is on file with the United States District Court for the District of
Montana, Great Falls Division and is not subject to protective order. Discovery
is currently underway.

     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 disputes for which the Company demands arbitration include but are not
limited to the unreasonable withholding of a consent to a drilling extension as
provided in the Miller/Blackfeet IMDA, as well as a determination by the
Blackfeet dated March 16, 2000, that certain wells which the Company proposed to
drill "would not satisfy the mandatory drilling obligations" under the
K2/Blackfeet IMDA. The Company contends the K2/Blackfeet IMDA, gives it as
lessee, and not the Blackfeet, the exclusive right to select drill sites and
well depths.

     The Company has been named as 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, is claiming damages related to their destroyed drilling rig and related
costs amounting to approximately $1.2 million, plus interest, attorneys' fees
and costs. In January 2001, the District Court judge ruled against the Company
on two of the three claims filed in this case with damages left undetermined.
This ruling is being appealed to the U.S. Fifth Circuit Court of Appeals. In the
event the Company does not prevail in the appeal, legal counsel has advised that
any resulting damages owed would be covered by insurance.

     The Company is a defendant 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.

     The Company was a defendant in a lawsuit brought by Charles Strickland,
employee of BJ Services, Inc., on September 30, 1999. The suit claimed damages
of $1.0 million for personal injuries allegedly suffered at a well site operated
by the Company. The judge ruled in favor of the Company at the trial that was
held March 8, 2001.

     The Company was a defendant among several co-defendants in a lawsuit
brought by Eric Parkinson, husband and personal representative of the Estate of
Kelly Anne Parkinson (deceased). The amended complaint was filed December 13,
1999, in the County of Hillsdale, Michigan, claiming an unspecified amount plus
interest and attorney fees for suffering the loss of the deceased care, comfort,
society and support. Kelly Anne Parkinson was killed in an automobile accident
on February 2, 1999, while traveling on a county road located next to land
wherein the Company is lessee of underground mineral rights. This case was
settled and all claims dismissed in February 2001. All defense costs and the
settlement amount were covered by the Company's insurance.

     The Company is a party to a lawsuit brought by Bill and Joyce Vasilion
against AHC (the Company's joint venture partner). The claim alleges that AHC
(the operator) was negligent in failing to inspect a crane at a well site that
was the subject of an accident which occurred in September 1994. Discovery is
currently underway.

     The Company believes it has meritorious claims or defenses to the items
discussed above and intends to vigorously pursue these lawsuits. 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. The Company
currently believes any costs resulting from each of the lawsuits mentioned above
would be covered by the Company's insurance.

                                       21
<PAGE>

Item 2. Changes in Securities

     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

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. Previously filed as an exhibit to the
                Company's Registration Statement on Form S-1 (333-40383),
                and here incorporated by reference.

     2.1(b)     First Amendment to Agreement for Purchase and Sale dated
                January 7, 1998. Previously filed as an exhibit to the
                Company's Registration Statement on Form S-1 (333-40383),
                and here incorporated by reference.

     3.1        Certificate of Incorporation of the Registrant. Previously
                filed as an exhibit to the Company's Registration
                Statement on Form S-1 (333- 40383), and here incorporated
                by reference.

     3.2        Bylaws of the Registrant. Previously filed as an exhibit
                to the Company's Quarterly Report on Form 10-Q for the
                quarter ended June 30, 1998, and here incorporated by
                reference.

----------
     (b) Reports on Form 8-K. No reports on Form 8-K were filed during the
fiscal quarter ended March 31, 2001.


                                       22
<PAGE>

                                   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 COMPANY



Date: May 11, 2001          By: /s/ Deanna L. Cannon
                                --------------------------
                                    Deanna L. Cannon
                                    Vice President-Finance and Secretary
                                   (Principal Accounting and Financial Officer)


                                       23
<PAGE>

                               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. Previously filed as an exhibit to the
                Company's Registration Statement on Form S-1 (333-40383),
                and here incorporated by reference.

     2.1(b)     First Amendment to Agreement for Purchase and Sale dated
                January 7, 1998. Previously filed as an exhibit to the
                Company's Registration Statement on Form S-1 (333-40383),
                and here incorporated by reference.

     3.1        Certificate of Incorporation of the Registrant. Previously
                filed as an exhibit to the Company's Registration
                Statement on Form S-1 (333- 40383), and here incorporated
                by reference.

     3.2        Bylaws of the Registrant. Previously filed as an exhibit
                to the Company's Quarterly Report on Form 10-Q for the
                quarter ended June 30, 1998, and here incorporated by
                reference.

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