<PAGE>   1

   
     As filed with the Securities and Exchange Commission on April 17, 1998
                                                    Registration No.333-47577
    
===============================================================================


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

   
                          PRE-EFFECTIVE AMENDMENT NO. 1
                                       TO
    

                                    FORM S-3
             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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


                           QUEEN SAND RESOURCES, INC.
             (Exact name of registrant as specified in its charter)

         DELAWARE                                             75-2615565
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                              Identification No.)

                                  3500 OAK LAWN
                                    SUITE 380
                            DALLAS, TEXAS 75219-4398
                                 (214) 521-9959
                   (Address, including zip code, and telephone
                         number, including area code, of
                    registrant's principal executive offices)

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

                                ROBERT P. LINDSAY
                             CHIEF OPERATING OFFICER
                                  3500 OAK LAWN
                                    SUITE 380
                            DALLAS, TEXAS 75219-4398
                            TELEPHONE: (214) 521-9959
                               FAX: (214) 521-9960
            (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

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

                                    COPY TO:
                                WILLIAM L. BOEING
                              HAYNES AND BOONE, LLP
                                   SUITE 3100
                                 901 MAIN STREET
                            DALLAS, TEXAS 75202-3789
                            TELEPHONE: (214) 651-5000
                               FAX: (214) 651-5940

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

        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
   From time to time after the effective date of this Registration Statement.

     If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
     If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
   
    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
    
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|


   
    

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

     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
===============================================================================
<PAGE>   2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

   
                   SUBJECT TO COMPLETION DATED APRIL 17, 1998
    


                           QUEEN SAND RESOURCES, INC.

                        3,401,366 SHARES OF COMMON STOCK

   
         This Prospectus relates to 3,401,366 shares of Common Stock, par value
$0.0015 per share (the "Common Stock"), of Queen Sand Resources, Inc. (the
"Company") to be sold by certain stockholders of the Company (each a "Selling
Stockholder" and collectively, the "Selling Stockholders") from time to time.
See "Selling Stockholders." In addition, pursuant to Rule 416 of the Securities
Act of 1933, as amended (the "Securities Act"), this Prospectus also relates to
such additional number of shares of Common Stock as may become issuable upon
conversion of the Company's Series C Preferred Stock, par value $0.01 per share
(the "Series C Preferred Stock"), or exercise of the warrants to purchase shares
of Common Stock (the "Warrants") issued in connection with the sale of the
Series C Preferred Stock as a result of, among other events, stock splits, stock
dividends and anti-dilution adjustment provisions (including by reason of any
change in the conversion price mechanism of the Series C Preferred Stock). Under
the terms of the Certificate of Designation of Series C Convertible Preferred
Stock (the "Series C Certificate of Designation"), through the 180 day period
(ending June 22, 1998) following the issuance of the Series C Preferred Stock,
the Series C Preferred Stock is convertible into Common Stock at a fixed
conversion price. Accordingly, as of the date of this Prospectus, 1,700,683
shares of Common Stock are issuable upon conversion of the Series C Preferred
Stock and exercise of the Warrants held by the Selling Stockholders. Following
June 22, 1998, the Series C Preferred Stock is convertible into Common Stock at
a floating conversion price. In light of this floating conversion price, the
Registration Rights Agreement among the Company and the Selling Stockholders
requires the Company to register for resale at least 200% of the shares issuable
on conversion of the Series C Preferred Stock and exercise of the Warrants held
by the Selling Stockholders. The number of shares covered by this Prospectus
represents approximately 200% of the shares currently issuable. See "Description
of Capital Stock -- Description of Series C Preferred Stock."
    

         All of the shares covered hereby will be sold only by the Selling
Stockholders. This Prospectus does not purport to cover the initial issuance by
the Company of the shares of Common Stock upon conversion of the Series C
Preferred Stock or exercise of the Warrants, but only the reoffer and resale of
such shares by the Selling Stockholders following the conversion, if ever, of
shares of Series C Preferred Stock to Common Stock or the exercise, if ever, of
Warrants to purchase shares of Common Stock. The Company will not receive any of
the proceeds from the sale of the shares of Common Stock by the Selling
Stockholders (other than the exercise price payable upon exercise of any
Warrants).

         The Selling Stockholders may from time to time sell the shares of
Common Stock covered by this Prospectus to or through one or more underwriters,
and may also sell shares of Common Stock directly to other purchasers or through
agents, on the Nasdaq SmallCap Market in ordinary brokerage transactions, in
negotiated transactions, or otherwise, at market prices prevailing at the time
of sale, at prices related to the then prevailing market price or at negotiated
prices. See "Plan of Distribution."

         The Company's Common Stock is traded on the Nasdaq SmallCap Market
under the symbol "QSRI."

   
         SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
    

                              ---------------------
   
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
    
                              ---------------------
   
                   The date of this Prospectus is April , 1998
    
<PAGE>   3

         NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT ITS DATE.

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

                                TABLE OF CONTENTS

   
<TABLE>
<CAPTION>
                                                                                     Page
<S>                                                                                  <C>
Available Information..................................................................2
Incorporation of Certain Documents by Reference........................................3
The Company............................................................................4
Recent Development.....................................................................8
Risk Factors...........................................................................9 
Use of Proceeds.......................................................................19
Selling Stockholders..................................................................19
Description of Capital Stock..........................................................20
Plan of Distribution..................................................................26
Legal Matters.........................................................................27
Experts  .............................................................................27
Disclosure of Commission Position on Indemnification for Securities Act Liabilities...28
Certain Definitions...................................................................29
</TABLE>
    
                                 ---------------

                              AVAILABLE INFORMATION

         The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
with the Exchange Act, the Company files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
reports, proxy statements and other information can be inspected and copied at
the public reference facilities that the Commission maintains at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048,
and Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of
these materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at the principal offices of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission also maintains a Web site
at http: / / www.sec.gov containing reports, proxy and information statements
and other information regarding registrants, including the Company, that file
electronically with the Commission. In addition, the Common Stock of the Company
is traded on the Nasdaq SmallCap Market under the symbol "QSRI" and reports,
proxy statements and other information concerning the Company can be inspected
and copied at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C.
20006.

         The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement") under the Securities Act, with respect
to the Common Stock. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the


                                      2
<PAGE>   4

information set forth in the Registration Statement, certain items of which are
contained in schedules and exhibits to the Registration Statement as permitted
by the rules and regulations of the Commission. Statements made in the
Prospectus concerning the contents of any documents referred to herein are not
necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement,
including exhibits thereto, can be inspected and copied at the Commission's
public reference facilities and regional offices and at the offices of the
National Association of Securities Dealers, Inc. referred to above in
Washington, D.C., at prescribed rates.

                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

   
         The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference in
this Prospectus: (i) Annual Report on Form 10-KSB for the fiscal year ended June
30, 1997, (ii) Quarterly Report on Form 10-QSB for the quarter ended September
30, 1997, (iii) Quarterly Report on Form 10-QSB for the quarter ended December
31, 1997, (iv) Current Report on Form 8-K dated February 20, 1997, as amended by
Current Report on Form 8-K/A-1 dated March 26, 1997, (v) Current Report on Form
8-K dated July 21, 1997, (vi) Current Report on Form 8-K dated August 14, 1997,
(vii) Current Report on Form 8-K dated September 11, 1997, (viii) Current Report
on Form 8-K dated December 24, 1997, (ix) Current Report on Form 8-K dated March
3, 1998, (x) Current Report on Form 8-K dated March 19, 1998, and (xi) the
description of the Common Stock contained in the Company's Registration
Statement on Form 10-SB/ A, filed January 23, 1997, including any amendments or
reports filed hereafter for the purpose of updating such description.
    

         All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of shares of Common Stock made hereby
shall be deemed to be incorporated by reference herein. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed superseded or modified for purposes of this Prospectus to the
extent that a statement contained herein (or in any other subsequently filed
document which also is incorporated by reference herein) modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

         The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the documents incorporated
by reference (other than exhibits to such documents which are not specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the Company, 3500 Oak Lawn, Suite 380, Dallas, Texas
75219-4398, Attention: Corporate Secretary. Telephone requests may be directed
to Robert P. Lindsay, Chief Operating Officer of the Company, at (214) 521-9959.



                                      3
<PAGE>   5

                                   THE COMPANY

   
         The Company is an independent energy company engaged in the
acquisition, development, exploitation and operation of crude oil and natural
gas producing properties in traditional on-shore oil and natural gas regions of
the United States using conventional operating techniques. This niche focus is
complemented by undertaking further development activity to increase reserves
and production and by making operational improvements to enhance productivity
and cash flow. The Company's growth-by-acquisition strategy emphasizes: a
geographic concentration in the southwestern United States; existing production
and cash flow; a mix of proved and undeveloped reserves; conventional recovery
techniques in onshore locations; improved operating results through workovers
and remedial work; and comprehensive recompletion and drilling programs to
achieve full development of recoverable reserves.
    

         The Company is a Delaware corporation. The Company's principal
executive offices and mailing address are 3500 Oak Lawn, Suite 380, Dallas,
Texas 75219-4398 and its telephone number at that address is (214) 521-9959.

                                BUSINESS STRATEGY

   
         The Company's strategy for growth involves: acquiring producing oil and
natural gas properties with identified development and exploitation potential,
or controlled-risk exploration potential, obtaining operational control of its
significant properties where feasible, developing the properties to maximize
production and reserve recovery , achieving a low operating cost per barrel of
oil and/or Mcf of natural gas and maintaining financial flexibility. Through
this strategy the Company strives to increase reserves, production and cash flow
from operations.
    

                     EXPLOITATION AND DEVELOPMENT ACTIVITIES

   
         The Company concentrates on acquiring, developing and exploiting proved
producing properties, including those with development potential, through
workovers, behind the pipe recompletions, secondary recovery operations, the
drilling of development wells or infill wells and other exploitation techniques.
The Company has conducted or intends to conduct significant secondary
recovery/infill drilling programs on many of the properties it has acquired.

         Secondary recovery projects constitute one development strategy.
Generally, "secondary recovery" refers to methods of oil extraction in which
fluid or gas (usually water, natural gas or CO(2)) is injected into a formation
through input (injector) wells, and oil is removed from surrounding wells.
"Waterflooding" is one proven method of secondary recovery in which water is
injected into an oil reservoir for the purpose of forcing the oil out of the
reservoir rock and into the bore of a producing well. Waterflood projects are
engineered to suit the type of reservoir, depth and condition of the field.

         The Company also seeks to exploit its properties through cost reduction
measures, including the reduction of labor, electrical and materials costs. It
seeks to take advantage of volume discounts in the purchase of equipment and
supplies and more effectively utilize field facilities and equipment.
    
         The Company makes only limited investments in exploratory drilling.



                                      4
<PAGE>   6
                                 COMPANY HISTORY

         The Company was incorporated under the laws of the state of Delaware on
May 11, 1989 under the name "Park Avenue Capital Corp." Prior to March 1995, the
Company had no substantive operations other than raising initial capital and
searching for a business to acquire. The Company operates its business through
three subsidiaries, Queen Sand Resources, Inc., a Nevada corporation ("QSRn"),
Northland Operating Co., a Nevada corporation ("Northland"), and Corrida
Resources, Inc., a Nevada corporation ("Corrida"). Unless the context requires
otherwise, the term "the Company" refers to and includes QSRn, Northland,
Corrida and all other subsidiaries and partnerships of which the Company owns a
greater than 50% interest.

         On March 6, 1995, the Company acquired all of the outstanding common
stock of QSRn in exchange for 19,200,000 shares of Common Stock of the Company.
For accounting purposes, the acquisition has been treated as a recapitalization
of QSRn with QSRn as the acquirer. The historical financial statements of the
Company prior to March 6, 1995 are those of QSRn. QSRn and Corrida own the
material assets of the Company.

                           FORWARD-LOOKING STATEMENTS
   
         This Prospectus and any Prospectus Supplement may contain or
incorporate by reference certain forward-looking statements, including, without
limitation, statements containing the words "believes", "anticipates," "expects"
and words of similar import. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, financial condition, performance or achievements of the Company, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: adverse changes
in the oil and gas industry conditions, changing oil and natural gas price
risks, environmental risks, competition, uncertainties about estimates of
reserves, the impact of present or future environmental legislation and
compliance with environmental laws, the ongoing need for capital improvements,
the ability of the Company to meet its stated business goals, drilling risks,
reserves, operational and production risks, regulatory risks and counterparty
risks, and other factors referenced in this Prospectus, any Prospectus
Supplement and filings incorporated by reference herein. Certain of these
factors are discussed in more detail under "Risk Factors." Given these
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such forward-looking statements to reflect future events or developments.
    

                            Series C Preferred Stock
   
<TABLE>
<S>                                          <C>
Designation.............................     10,400 shares of Series C Preferred
                                             Stock are authorized and
                                             outstanding.

Conversion...............................    Convertible, in whole or in part,
                                             at the option of the holder, into
                                             Common Stock at a conversion rate
                                             equivalent to the aggregate stated
                                             value of the shares to be converted
                                             ($1,000 per share) divided by
                                             (i) a fixed conversion price of
                                             $7.35 if the conversion takes place
                                             on or before June 22, 1998 or (ii)
                                             a floating conversion price that is
                                             the lesser of $7.35 or a number
                                             determined by either (A) averaging
                                             the lowest closing bid prices of
                                             the Common Stock or (B) using the
                                             lowest closing bid price of the
                                             Common Stock, over a certain number
                                             of trading days depending on the
                                             average daily trading volume (on an
                                             aggregate dollar basis) of the
                                             Common Stock during the month of
</TABLE>
    


                                       5
<PAGE>   7

   
<TABLE>
<S>                                          <C>
                                             the conversion, if the conversion
                                             takes place on or after June 23,
                                             1998 (the "Floating Rate
                                             Date"). On December 24, 2001, all
                                             shares of Series C Preferred
                                             Stock that are then outstanding
                                             shall be automatically converted
                                             into the number of shares of
                                             Common Stock at    the applicable
                                             conversion rate.
                                             
                                             
                                             As of April 16, 1998, there were             
                                             outstanding 23,572,153 shares of Common             
                                             Stock. By way of example only, if
                                             the date of conversion was as of
                                             the date of this Prospectus, the
                                             Series C Preferred Stock would be
                                             convertible into 1,424,966 shares
                                             of Common Stock (assuming all
                                             outstanding shares of Series C
                                             Preferred Stock are converted). If
                                             the date of conversion is on or
                                             after the Floating Rate Date and
                                             assuming the applicable conversion
                                             price is $6.00, the Series C
                                             Convertible Preferred Stock would
                                             be convertible into 1,733,333
                                             shares of Common Stock (assuming
                                             all outstanding shares of Series C
                                             Preferred Stock are converted). If
                                             the date of conversion is on or
                                             after the Floating Rate Date and
                                             assuming the applicable conversion
                                             price is $4.00, the Series C
                                             Convertible Preferred Stock would
                                             be convertible into 2,600,000
                                             shares of Common Stock (assuming
                                             all outstanding shares of Series C
                                             Preferred Stock are converted). See
                                             "Description of Capital Stock
                                             -- Description of Series C Preferred 
                                             Stock -- Conversion."

Voting Rights............................    Holders are not entitled to vote
                                             with the holders of Common Stock
                                             except as required by law or under
                                             certain limited circumstances set
                                             forth in the Series C Certificate
                                             of Designation. See "Description of
                                             Capital Stock -- Description of
                                             Series C Preferred Stock --
                                             Voting."

Dividends................................    Dividends accrue from December 24,
                                             1997 at an annual rate of 5% of the
                                             stated value ($1,000 per share) of
                                             Series C Preferred Stock, payable
                                             only upon conversion, redemption or
                                             maturity of the Series C Preferred
                                             Stock. Dividends are payable in
                                             shares of Common Stock. See
                                             "Description of Capital Stock --
                                             Description of Series C Preferred
                                             Stock -- Dividends."

Liquidation..............................    Holders would receive an amount
                                             equal to the stated value ($1,000
                                             per share) of the shares (subject
                                             to ratable adjustment in the event
                                             of reclassification or other
                                             similar event) plus any accrued and
                                             unpaid dividends. See "Description
                                             of Capital Stock -- Description of
                                             Series C Preferred Stock --
                                             Liquidation." 
</TABLE>
    






                                       6
<PAGE>   8

   
<TABLE>
<S>                                          <C>

Optional Redemption......................    Redeemable at the option of the
                                             Company at a redemption price equal
                                             to the liquidation preference of
                                             the Series C Preferred Stock then
                                             held by the holder divided by 80%,
                                             provided that (i) the Company has
                                             sufficient cash available, (ii) the
                                             Company provides written notice at
                                             least 30 days prior to the
                                             redemption, and (iii) the Common
                                             Stock is traded on the Nasdaq Stock
                                             Market (which by definition
                                             includes the Nasdaq SmallCap
                                             Market), the New York Stock
                                             Exchange or the American Stock
                                             Exchange. See "Description of
                                             Capital Stock -- Description of
                                             Series C Preferred Stock --
                                             Optional Redemption."
                                             
Mandatory Redemption.....................    Redeemable, in whole or in part, at
                                             the option of the holder upon the
                                             occurrence of a mandatory
                                             redemption event at a redemption
                                             price equal to the greater of (i)
                                             the liquidation preference of the
                                             Series C Preferred Stock being
                                             redeemed multiplied by 125% and
                                             (ii) an amount determined by
                                             dividing the liquidation preference
                                             by the conversion price in effect
                                             on the mandatory redemption date
                                             and multiplying the resulting
                                             quotient by the average closing bid
                                             price for the Common Stock on the 5
                                             trading days prior to the mandatory
                                             redemption date, provided that the
                                             holder gives prior written notice
                                             to the Company, and if the
                                             mandatory redemption price is not
                                             paid within 5 business days of the
                                             mandatory redemption date, the
                                             holder is entitled to interest
                                             thereon, and if the mandatory
                                             redemption price is not paid within
                                             10 business days of the mandatory
                                             redemption date, the holder may
                                             demand shares of Common Stock of
                                             the Company in lieu of the
                                             mandatory redemption price. The
                                             mandatory redemption events include
                                             events such as a material breach of
                                             a covenant or agreement contained
                                             in the transaction documents in
                                             respect of the issuance of the
                                             Series C Preferred Stock or the
                                             Common Stock is not quoted on the
                                             Nasdaq Stock Market (which by
                                             definition included the Nasdaq
                                             SmallCap Market). See "Description
                                             of Capital Stock -- Description of
                                             Series C Preferred Stock --
                                             Mandatory Redemption."
</TABLE>
    


                                       7
<PAGE>   9
   
                               RECENT DEVELOPMENT

         The Company has executed a definitive Purchase and Sale Agreement (the
"Agreement") to acquire certain non-operated royalty and net profits overriding
royalty interests (the "Morgan Properties") from two commingled pension trust
funds for which Morgan Guaranty Trust Company of New York serves as trustee (the
"Morgan Property Acquisition"). The purchase price is $150 million in cash
subject to standard closing adjustments for net production revenues since
October 1, 1997 and capital expenditures incurred since that date. The Company
has made a non-refundable deposit of $15 million under the Agreement. The
effective date of the transaction is October 1, 1997 with an anticipated closing
on or before April 22, 1998. Bank of Montreal and affiliates of Enron Capital &
Trade Resources Corp. ("Enron") have provided a commitment for $156 million in
bridge financing to be funded on closing. The obligation of the lenders to fund
under the commitments is subject to satisfaction of customary conditions
precedent, including, but not limited to, negotiation, execution and delivery of
definitive lending documentation containing customary representations,
covenants, conditions and other terms. There is no assurance this will be
accomplished on terms acceptable to the Company.

         The acquisition encompasses interests in over 530 wells in
approximately 40 different fields located primarily in East Texas, South Texas
and the Mid-continent area. The Company's independent engineers, Ryder Scott
Company, estimate that total proved reserves consist of approximately 127.7
billion cubic feet of natural gas and 3.7 million Bbls of oil. The reserves are
estimated to be approximately 85% natural gas, having an estimated
reserve-to-production ratio of over 10 years, and 80% are classified by Ryder
Scott Company as proved developed producing. The non-operated royalty and net
profits overriding royalty interests in the various properties range from 2% to
80%.

         The Company has purchased an option to enter into a swap, hedging the
natural gas production of the Company over the next 5 years at $2.15 per mmbtu.
The Company expects to replace this option with a comprehensive hedging strategy
prior to the expiration of the option on May 1, 1998.
    


                                       8
<PAGE>   10
                                  RISK FACTORS

         Prospective investors should carefully consider, among other things,
the following factors in evaluating the Company and its business before
purchasing shares of the Common Stock offered hereby.

ACQUISITION RISK

         The Company's current strategy is to increase oil and natural gas
reserves by selectively acquiring and exploiting producing oil and natural gas
properties, rather than engaging in exploratory drilling. The Company's business
strategy assumes that other oil and natural gas companies will continue to
divest of many of their United States oil and natural gas properties. There can
be no assurance, however, that such divestitures will continue or that the
Company will be able to acquire such properties at acceptable prices or develop
additional reserves in the future. If such acquisition opportunities should
significantly decline, the Company may be required to change its business
strategy. Even if the Company identifies oil and natural gas reserves for
possible acquisition, the completion of any transaction would be dependent on
obtaining required funding. Further, there is no assurance that any such
acquisition, if completed, would result in ongoing revenues to the Company in
excess of related operating and financing costs. See "-- Acquisition Financing."

         Although the Company performs a review of acquired properties that it
believes is consistent with industry practices, such reviews are inherently
incomplete. Acquisitions will continue to be investigated and pursued on the
assumption that it is generally not feasible to review in-depth every aspect of
each individual property or well involved in an acquisition and that even an
in-depth review of all properties and records may not necessarily reveal all or
any existing or potential problems, nor will it permit the Company to become
sufficiently familiar with the properties to assess fully their deficiencies and
capabilities. In addition, inspections may not always be performed on every well
prior to acquisition and some problems, including downhole conditions, latent
equipment defects, groundwater contamination and certain environmental problems,
are not necessarily observable even on inspection. Ordinarily, therefore, the
Company's review and due diligence has been and will continue to be focused on
higher value properties with a sample review of the remainder. Reliance will
continue to be made on information provided by the vendors of the properties
with or without independent verification.

   
         The Company believes that the Morgan Property Acquisition represents a
major step in the Company's growth strategy. However, the increased size of the
Company and its scope of operations will present significant challenges to the
Company due to the increased time and resources required in the management
effort. Accordingly, there can be no assurance the operations of the post-Morgan
Property Acquisition Company can be effectively managed to realize the goals
anticipated of the Morgan Property Acquisition. In addition, the management of
the existing asset base and the continued growth and expansion of the Company
will depend, among other factors, on the Company's ability to recruit and retain
skilled and experienced management and technical personnel. There can be no
assurance that the Company will be successful in such efforts.
    

ACQUISITION FINANCING

         The Company's strategy of acquiring and exploiting producing oil and
natural gas properties is dependent on its ability to obtain financing for any
such acquisitions. The Company does not have sufficient liquidity or capital to
undertake all of the acquisition prospects that it generates or to fully fund
the development of any prospect. Therefore, the Company will continue to be
dependent on raising substantial amounts of additional capital through any one
or a combination of institutional or bank debt financing, equity offerings, debt
offerings and internally generated cash flow, or by forming sharing arrangements
with industry participants. Although the Company has been able to obtain such
financing and to enter into such sharing arrangements in certain of its projects
to date, there can be no assurance that additional financings or sharing
arrangements can be obtained, notwithstanding



                                       9
<PAGE>   11

the Company's need for substantial amounts of additional capital. If the Company
is unable to obtain capital that may be necessary or desired for its
acquisition, development or exploitation activities, it may be forced to defer
or abandon specific projects, reduce substantially its overall efforts, dilute
its interest in existing sharing arrangements for specific projects, attempt to
sell all or a portion of specific prospects or leasehold positions, or otherwise
severely curtail its acquisition, development and exploitation activities. See
"-- Indebtedness."

INDEBTEDNESS

   
         On August 1, 1997 the Company arranged a revolving senior secured loan
facility of $75 million with the Bank of Montreal, acting as agent for the
lenders, to, among other things, refinance the indebtedness outstanding under
the Company's prior credit facility, fund working capital and make additional
acquisitions as and if appropriate opportunities are identified. The Company
established a subordinated revolving loan facility of $10 million with Enron ,
acting as agent for the lenders, dated effective December 29, 1997 to pay for
capital costs incurred with future development projects and to fund further
acquisitions. The loan is subordinate to the loan agreement between the Company
and the Bank of Montreal executed as of August 1, 1997. In connection with the
Morgan Property Acquisition, the Company is currently in the process of
negotiating amended terms to its Bank of Montreal credit facility and arranging
additional bridge financing.
    

         In the case of each loan facility, if the agent does not renew its loan
or if the indebtedness is not repaid when due, the agent would have the right to
obtain possession of and sell the pledged properties, including any equipment,
new wells, or other improvements placed on the properties by the Company, with
the Bank of Montreal having priority over Enron under the terms of the
subordination agreement. In the event of a default on either credit facility,
not subsequently waived by the respective agent, it is unlikely, particularly
with the Bank of Montreal loan, that the Company would be able to continue its
business. In addition, with each loan facility, the Company is subject to
certain financial and operating covenants that are usual and customary for
transactions of this nature, including, but not limited to, requirements to
provide annual audited and unaudited interim financial information, prohibitions
on additional debt, restrictions on certain payments and distributions to
affiliates and others, restrictions on changes in the nature of the business,
and maintenance of minimum cash flow and operating ratios. The loan agreements
also contain usual and customary events of default and provides remedies to the
Bank of Montreal and Enron in the event of default. Although the Company
believes that its cash flows and available sources of financing will be
sufficient to satisfy the interest payments on these debts at currently
prevailing interest rates and oil and natural gas prices, the Company's level of
indebtedness may adversely affect the Company's ability: (i) to obtain
additional financing for working capital, capital expenditures or other
purposes, should it need to do so; or (ii) to acquire additional oil and natural
gas properties or to make acquisitions utilizing new borrowings. There can be no
assurances that the Company will be able to obtain additional financing, if
required, or that such financing, if obtained, will be on terms favorable to the
Company.

         In addition, as of February 13, 1998, the Company had outstanding
approximately $2.2 million (DEM 3.95 million) of indebtedness as a result of the
sale of Deutschemark denominated 12% Bonds (the "Bonds"). The Bonds are
unsecured, general obligations of the Company and are subordinated in right of
payment to all existing and future secured indebtedness of the Company.

         The Company's ability to make scheduled payments of principal of, or to
pay interest on, or to refinance its indebtedness depends on its future
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond its
control, as well as to the prevailing market prices for oil and natural gas.
There can be no assurance that the Company's business will generate sufficient
cash flow from operations or that future bank credit will be available in an
amount sufficient to enable the Company to service its indebtedness or make
necessary capital expenditures. In addition, the Company anticipates that it is
likely to find it


                                       10
<PAGE>   12

necessary to refinance a portion of the principal amount of its indebtedness at
or prior to their maturity. However, there can be no assurance that the Company
will be able to obtain financing to complete a refinancing of its indebtedness.

   
         The degree to which the Company's assets will be leveraged could have
important consequences to stockholders, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
will be required to be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional financing in the
future could be limited; (iii) certain of the Company's borrowings are at
variable rates of interest, which could result in higher interest expense in the
event of increases in interest rates; and (iv) the Company will be subject to a
variety of restrictive covenants and the failure of the Company to comply with
such covenants could result in events of default which, if not cured or waived,
could have a material adverse effect on the Company and its ability to make
payments of principal of, and interest on its indebtedness. The Company has
experienced financial covenant defaults under the Bank of Montreal credit
facility, which defaults were waived by its lender. There can be no assurance
that the Company will not default on its financial covenants under the Credit
facility or that the lenders will waive any such defaults. A default under the
credit facility would permit the lenders to accelerate repayments of their loans
and to foreclose on the collateral securing the loans, including the Company's
oil and natural gas properties.
    

CURRENCY RISK

         The Bonds are denominated in Deutschemarks ("DEM"). The Company has the
obligation to make periodic interest payments (January 15 and July 15 of each
year) and to repay the principal when it comes due on July 15, 2000 in DEM. The
funds generated by the Company from operations, which form the primary source of
funds to pay the interest, are denominated U.S. dollars ($US). The source of
funds required to repay the principal outstanding on the Bonds has not yet been
identified, since the Bonds do not mature until July 15, 2000. The Company is
exposed to the risk that, upon repayment, the exchange rate between DEM and $US
may be less favorable than that which existed at the time that the Bonds were
issued. This would result in the Company having to repay a larger number of $US
than it received initially. Changes in the $US equivalent of the DEM Bonds
arising from changes to the DEM:$US exchange rate are recognized monthly. While
the Company has recorded unrealized exchange rate gains in the past, there are
no assurances that the Company will continue to realize gains related to
favorable changes in the DEM:$US exchange rates in the future. Unfavorable
changes to the DEM:$US exchange rate will result in the Company recording
unrealized exchange rate losses related to the changes as they occur.

RESERVE REPLACEMENT

         The Company's future success depends on its ability to find, develop or
acquire additional oil and gas reserves that are economically producing or
recoverable. The proved reserves of the Company will generally decline with
production, except to the extent that the Company conducts successful
exploration or development activities or acquires properties containing proved
reserves, or both. Therefore, in order to increase reserves and production, the
Company must continue its acquisition, development drilling and recompletion
programs or undertake other replacement activities. The Company's current
strategy is to maintain its focus on low-cost operations while increasing its
reserve base, production and cash flow through (i) acquisition of producing oil
and natural gas properties with undeveloped reserves; (ii) investing in other
oil and gas properties with unexploited reserves; and (iii) using available cash
flows to continue to exploit its existing properties. There can be no assurance,
however, that the Company's planned development projects and acquisition
activities will result in significant additional reserves or that the Company
will have success drilling productive wells at low finding and development
costs. Furthermore, if prevailing oil and natural gas prices were to increase
significantly, the Company's finding costs to add reserves could increase.


                                       11
<PAGE>   13
COMPETITION

         The exploration for and the development and production of oil and
natural gas is highly competitive. Major and independent oil and gas companies
and individuals actively bid for desirable oil and natural gas properties and
compete for the equipment, services, and labor required to develop and operate
such properties. The Company competes with numerous firms and other individuals
in its activities, including major oil firms and independent exploration and
producing firms, many of which have substantially greater financial resources,
management and technical staffs and facilities than those of the Company.
Accordingly, many of the Company's competitors may be better positioned to
acquire and exploit prospects, obtain funding, hire personnel and market oil and
natural gas production. In addition, the producing, processing and marketing of
crude oil and natural gas is affected by a number of factors which are beyond
the control of the Company, the effect of which cannot be accurately predicted.
Many of the Company's larger competitors may be more able to respond to factors
that affect the demand for oil and natural gas production such as changes in
worldwide oil and natural gas prices and levels of production, the cost and
availability of alternate fuels and the application of government regulations.

PRICE FLUCTUATIONS

         The Company's revenues are dependent upon prevailing prices for oil and
natural gas. Historically, oil and natural gas prices have been and are likely
to continue to be extremely volatile. Prices for oil and natural gas are subject
to wide fluctuations in response to: (i) relatively minor changes in the supply
of and demand for oil and natural gas; (ii) market uncertainty; and (iii) a
variety of additional factors, all of which are beyond the Company's control.
These factors include domestic and foreign political conditions, the price and
availability of domestic and imported oil and natural gas, the level of consumer
and industrial demand, weather, domestic and foreign government relations, the
price and availability of alternative fuels and overall economic conditions. If
oil or natural gas prices were to decrease significantly, certain of the
Company's wells could become uneconomic, thereby adversely affecting: (i) the
level of proved reserves attributable to the Company's properties; (ii) the
Company's ability to increase its reserves and production; (iii) the borrowing
base under any financing agreement; and (iv) cash flow from operations, revenues
and operating income.

   
Financial Reporting Impact of Full Cost Method of Accounting

         The Company follows the full cost method of accounting for oil and
natural gas properties. Under such method, the net book value of such
properties, less related deferred income taxes, may not exceed a calculated
"ceiling." The ceiling is the estimated after-tax future net revenues from
proved reserves, discounted at 10% per year. In calculating future net revenues,
prices and costs in effect at the time of the calculation are held constant
indefinitely, except for changes which are fixed and determinable by existing
contracts. The net book value above the ceiling is required to be written off as
a non-cash expense.
    

MARKETABILITY OF PRODUCTION

         The marketability of the Company's production depends upon the
availability and capacity of oil and natural gas gathering systems and
pipelines, the effect of federal and state regulations and general economic
conditions. Further, the Company sells a large percentage of its oil and natural
gas production to a few large purchasers. Although the Company does not believe
that the loss of one or all of these customers would have a material adverse
effect in the long term, it could adversely affect cash flows until other
marketing arrangements were made. See "-- Indebtedness."



                                       12
<PAGE>   14
GOVERNMENT LAWS AND REGULATIONS

         The Company's operations are affected from time to time in varying
degrees by political developments and federal and state laws and regulations. In
particular, oil and natural gas production, operations and economics are or have
been affected by price controls, taxes and other laws relating to the oil and
natural gas industry, by changes in such laws and by change in administrative
regulations. The Company cannot predict how existing laws and regulations may be
interpreted by enforcement agencies or court rulings, whether additional lows
and regulations will be adopted, of the effect such changes may have on its
business or financial condition. See "-- Government Regulations."

ENVIRONMENTAL REGULATIONS

         The Company's operations are subject to complex and constantly changing
environmental laws and regulations adopted by federal, state and local
governmental authorities. The Company believes that compliance with such laws
had no material adverse effect on the Company's operations to date, and that the
cost of such compliance has not been material. Nevertheless, the discharge of
oil, natural gas or other pollutants into the air, soil or water may give rise
to liabilities on the part of the Company to the government and third parties
and may require the Company to incur costs of remediation. Additionally, since a
portion of the Company's reserves are dependent on waterflood operations, any
change in produced water disposal requirements or injection well permitting
could have a material adverse effect on the financial condition and operations
of the Company. Moreover, from time to time the Company has agreed to indemnify
both sellers of producing properties from whom the Company acquires reserves and
purchasers of properties from the Company against certain liabilities for
environmental claims associated with the properties being purchased or sold by
the Company. No assurance can be given that existing environmental laws or
regulations, as currently interpreted or reinterpreted in the future, or future
laws or regulations, will not materially adversely affect the Company's
operations and financial condition or that material indemnity claims will not
arise against the Company with respect to properties acquired or sold by the
Company. See "--Government Regulations."

USE AND RISKS OF HEDGING TRANSACTIONS

         The Company has in the past and may in the future enter into oil and
natural gas hedging transactions. While intended to reduce the effects of
volatility of the price of oil and natural gas, such transactions may limit
potential gains by the Company if oil and natural gas prices were to rise
substantially over the price established by the hedge.

SIGNIFICANT NUMBER OF AUTHORIZED BUT UNISSUED SHARES

         The Board of Directors has total discretion in the issuance of any
shares of Common Stock and Preferred Stock which may be issued in the future.
The Company is authorized to issue 100,000,000 shares of its Common Stock
(22,725,502 shares were issued and outstanding as at February 13, 1998). The
Company is authorized to issue 50,000,000 shares of its Preferred Stock
(9,610,400 shares of preferred stock were issued and outstanding as at February
13, 1998).

CONTROL BY CERTAIN STOCKHOLDERS AND MANAGEMENT

   
         EIBOC Investments Ltd. ("EIBOC") owns 6,600,000 shares of the Company's
outstanding Common Stock (as of February 13, 1998: approximately 29% of the
outstanding Common Stock and approximately 20% of the undiluted, voting stock).
Edward Munden and Bruce Benn, executive officers and directors of the Company
and Ronald Benn, executive officer of the Company have beneficial interests in
EIBOC. EIBOC has granted an irrevocable proxy to Edward Munden, Bruce Benn,
Ronald Benn and Robert Lindsay to vote all of its shares of the Company. Joint
Energy Development Investments Limited Partnership ("JEDI") owns 9,600,000
shares of the Company's Series A Participating Convertible Preferred Stock,
which shares entitle the holder thereof to vote
    


                                       13
<PAGE>   15

generally with holders of the Company's Common Stock (as of February 13, 1998:
100% of the outstanding Series A Preferred Stock and approximately 30% of the
undiluted voting stock). At February 13, 1998, JEDI also holds warrants to
purchase an additional 1,514,973 shares of Common Stock at varying prices
ranging from $1.85 to $3.50.

   
         EIBOC is organized in Barbados, West Indies and its principal business
address is Charlton House, White Park Road, Bridgetown, Barbados, West Indies.
Its principal business is finance. EIBOC has had no criminal convictions in the
last five years, nor has it been a party to a civil proceeding of a judicial or
adminstrative body in the last five
years.

         Edward Munden is President and Chief Executive Officer of the Company,
Bruce Benn is Executive Vice-President and Secretary of the Company, Ronald Benn
is Chief Financial Officer and Treasurer of the Company and Robert P. Lindsay is
Chief Operating Officer and Executive Vice-President of the Company. Messrs.
Munden, Benn and Benn all work in the Company's office at 60 Queen Street, 14th
Floor, Ottawa, Canada, K1P 5Y7. Robert Lindsay works in the Company's office at
3500 Oak Lawn, Suite 380, Dallas, Texas 75219-4398. Messrs. Munden, Benn and
Benn are all Canadian citizens and Robert Lindsay is a U.S. citizen. None of
Messrs. Munden, Benn, Benn and Lindsay have had a criminal conviction in the
last five years, nor have any of them been a party to a civil proceeding or a
judicial or adminstrative body in the last five years.

         Along with the irrevocable proxies granted by EIBOC, Edward Munden,
Bruce Benn, Ronald Benn and Robert Lindsay all have employment agreements with
the Company and are all parties to a stockholders agreement with JEDI and EIBOC.
See the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders
for further information.
    

         There is no common ownership, officers or directors between EIBOC and
JEDI. These two stockholders and management are in a position to elect all of
the Company's directors, appoint its officers, and control the Company's affairs
and operations. The Company's Restated Certificate of Incorporation does not
provide for cumulative voting.

RESERVE ESTIMATES AND FUTURE NET REVENUE

         There are numerous uncertainties in estimating quantities of proved
reserves and in projecting future rates of production and the timing of
development expenditures, including many factors beyond the control of the
Company. The reserve data incorporated by reference in this Prospectus from the
Annual Report on Form 10-KSB are only estimates. Reserve estimates are imprecise
and may be expected to change as additional information becomes available.
Furthermore, estimates of oil and natural gas reserves, of necessity, are
projections based on engineering data, and there are uncertainties inherent in
the interpretation of such data as well as the projection of future rates of
production and the timing of development expenditures. Reserve engineering is a
subjective process of estimating underground accumulations of oil and natural
gas that cannot be exactly measured, and the accuracy of any reserve estimate is
a function of the quality of available data and of engineering and geological
interpretation and judgment. Accordingly, estimates of the economically
recoverable quantities of oil and natural gas attributable to any particular
group of properties, classifications of such reserves based on risk of recovery
and estimates of the future net cash flows expected therefrom prepared by
different engineers or by the same engineers at different times may vary
substantially. There also can be no assurance that the reserves set forth herein
will ultimately be produced or that the proved undeveloped reserves will be
developed within the periods anticipated. It is likely that variances from the
estimates will be material. In addition, the estimates of future net revenues
from proved reserves of the Company and the present value thereof are based on
certain assumptions about future production levels, prices and costs that may
not be correct. The Company emphasizes with respect to the estimates prepared by
independent petroleum engineers that the discounted future net cash flows should
not be construed as representative of the fair market value of the proved oil
and



                                       14
<PAGE>   16
natural gas properties belonging to the Company, since discounted future net
cash flows are based on projected cash flows which do not provide for changes in
oil and natural gas prices or for escalation of expenses and capital costs. The
meaningfulness of such estimates is highly dependent on the accuracy of the
assumptions on which they are based. Actual results are likely to differ
materially from the results estimated. Readers are cautioned not to place undue
reliance on the reserve data from the Annual Report on Form 10-KSB incorporated
by reference in this Prospectus.

DEPENDENCE ON KEY OFFICERS AND EMPLOYEES

   
         The Company is dependent upon Edward J. Munden, President and Chief
Executive Officer, Robert P. Lindsay, Chief Operating Officer and Executive
Vice-President, Ronald I. Benn, Chief Financial Officer and Treasurer, Bruce I.
Benn, Executive Vice-President and Secretary, and other key personnel, for its
various activities, the loss of any one of whom for any reason may adversely
affect the Company. The Company holds key man insurance of CDN $200,000
(approximately U.S. $144,000) on the lives of each of Edward J. Munden, Robert
P. Lindsay, Bruce I. Benn and Ronald I. Benn.
    

OPERATIONAL HAZARDS AND INSURABILITY

   
         The Company's oil and natural gas business is also subject to all of
the operating risks associated with the drilling for and production and
secondary recovery of oil and natural gas, including, but not limited to,
uncontrollable flows of oil, natural gas, brine or well fluids (including fluids
used in waterflood activities) into the environment (including groundwater
contamination), fires, explosions, pollution and other risks, any of which could
result in substantial losses to the Company. The natural gas gathering and
processing business is also subject to certain of these risks, including fires,
explosions and environmental contamination. Although the Company carries
insurance at levels it believes are consistent with industry practices, it is
not fully insured against all risks. Losses and liabilities arising from
uninsured and underinsured events could have a material adverse effect on the
financial condition and operations of the Company.
    

         There are certain risks associated with secondary recovery operations,
especially the use of waterflooding techniques, and drilling activities in
general. Waterflooding involves significant capital expenditures and uncertainty
as to the total amount of secondary reserves that can be recovered. In
waterflood operations, there is generally a delay between the initiation of
water injection into a formation containing hydrocarbons and any increase in
production that may result. The unit production costs per BOE of waterflood
projects are generally higher during the initial phases of such projects due to
the purchase of injection water and related costs, as well as during the later
stages of the life of the project. The degree of success, if any, of any
secondary recovery program depends on a large number of factors, including the
porosity of the formation, the technique used and the location of the injector
wells. Drilling activities carry the risk that no commercial production will be
obtained. The cost of drilling, completing and operating wells is often
uncertain, and drilling operations may be curtailed, delayed or canceled as a
result of many factors.

PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS

         The Common Stock is subordinate to all outstanding classes of Preferred
Stock of the Company in the payment of dividends and other distributions made
with respect to the stock, including distributions upon liquidation or
dissolution of the Company. The Board of Directors of the Company is authorized
to issue up to 30,789,600 additional shares of Preferred Stock (excluding
9,610,400 shares currently outstanding and 9,600,000 reserved for issuance in
exchange for shares of Series A Participating Convertible Preferred Stock)
without first obtaining stockholder approval except in limited circumstances.
The designation and issuance of other series of Preferred Stock will create
additional securities that will have dividend and liquidation preferences over
the Common Stock or, in the case of convertible preferred stock, may have the
effect of diluting the current stockholders' interest in the Company upon
conversion.



                                       15
<PAGE>   17

         The Company's Restated Certificate of Incorporation and Amended and
Restated Bylaws include certain provisions that may have the effect of
encouraging persons considering unsolicited tender offers or other unilateral
takeover proposals to negotiate with the Board of Directors rather than pursue
non-negotiated takeover attempts. These provisions include authorized "blank
check" Preferred Stock, and the availability of authorized but unissued Common
Stock. The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company without further stockholder action
and may adversely affect the rights and powers, including voting rights, of the
holders of Common Stock. In certain circumstances the issuance of Preferred
Stock could depress the market price of the Common Stock.

MARKETING

         The Company does not refine or process any of the oil and natural gas
it produces. The Company's oil and natural gas production is sold to various
purchasers typically in the areas where the oil or natural gas is produced. The
Company is currently able to sell, under contract or in the spot market, all of
the oil and most of the natural gas it is capable of producing at current market
prices. Substantially all of the Company's oil and natural gas is sold under
short term contracts or contracts providing for periodic adjustments or in the
spot market; therefore, its revenue streams are highly sensitive to changes in
current market prices. Certain of the Company's oil purchasers have paid in the
past and are currently paying a premium over posted prices and have eliminated
certain quality and marketing deductions for a portion of the Company's oil
production due to the Company's control over a significant volume of oil
production in its core geographic areas. The Company's principal market for
natural gas is pipeline companies as opposed to end users.

         During the year ended June 30, 1997, sales of oil and natural gas to
Big Run Production and EOTT Energy accounted for 32% and 17% respectively, of
the Company's consolidated revenues. Management believes that in the event these
purchasers were to discontinue their purchases, the Company could quickly locate
other buyers and, therefore, the loss of these purchasers would not have a
material impact on the Company's financial condition or results of operations.
However, short term disruptions could occur while the Company sought alternative
buyers.

GOVERNMENT REGULATIONS

         The following discussion of government regulation is necessarily brief
and is not intended to constitute a comprehensive discussion of the various
statutes, rules, regulations, and governmental orders, policies, and practices
which may affect the operations of the Company.

         General. The oil and gas industry is subject to comprehensive federal,
state, and local laws, regulations and policies which control the exploration,
production, marketing and taxation of oil and natural gas. Numerous departments
and agencies, at federal, state and local levels, have issued rules and
regulations, some or all of which have imposed or may impose additional
expenditures, restrictions, and delays on the Company's business activities and
profitability. For example, such regulations can render drilling in certain
locations more expensive or uneconomical due to increased surface owner
compensation and bonding requirements or environmental regulatory constraints.

         Matters subject to regulation include discharge permits for drilling
operations, drilling bonds, reports concerning operations, the spacing of wells,
unitization and pooling of properties, taxation and environmental protection.
From time to time, regulatory agencies have imposed price controls and
limitations on production by restricting the rate of flow of oil and natural gas
wells below actual production capacity in order to conserve supplies of oil and
natural gas. Because the regulatory environment within which it operates is
always changing, the Company is unable to predict the future cost or impact of
continued regulatory compliance.

         Various jurisdictions have laws regarding unitization or forced pooling
which require the working interest owners of a well to participate in the cost
and revenues associated with neighboring


                                       16
<PAGE>   18

wells or require neighboring owners to participate in their own wells. If
acreage included within a lease becomes subject of a unitization or forced
pooling order, drilling operations may have to be undertaken at a time or with
other parties not of the Company's choosing or which may not be in the Company's
best interest.

         In an attempt to promote competition, the Federal Energy Regulatory
Commission ("FERC") has issued a series of orders which have restructured the
interstate natural gas transportation and marketing system. To date, the Company
has not experienced any adverse effect as a result of these FERC orders.
However, there can be no assurance that the Company's production of natural gas
will not be subject to federal regulation in the future and it is not possible
to predict what effect such regulations may have on its future gas marketing.

         State and Local Regulation of Drilling and Production. State regulatory
authorities have established rules and regulations requiring permits for
drilling, drilling bonds and reports concerning drilling and producing
activities. Such regulations also cover the location of wells, the method of
drilling and casing wells, the surface use and restoration of well locations,
the plugging and abandoning of wells, the density of wells (well spacing) within
a given area and other matters. The states in which the Company operates also
have statutes and regulations governing a number of environmental and
conservation matters, including the unitization and pooling of oil and natural
gas properties and establishment of maximum rates of production from oil and
natural gas wells. Local authorities may also chose to exercise regulatory
control.

         Environmental Regulations. The Company's activities are subject to
numerous laws and regulations concerning the storage, use and discharge of
materials into the environment, the remediation of environmental impacts, and
other matters relating to environmental protection, all of which may adversely
affect the Company's operations and the costs of doing business. It is likely
that state and federal environmental laws and regulations will become more
stringent in the future. Current legislative initiatives are focussed on the
disposal of "hazardous" or other waste material associated with oil and natural
gas exploration and production.

         Under the federal Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), the Company may become fully liable for the
cleanup costs associated with the release of "hazardous substances" into the
air, water or ground even though the discharge may have been caused in whole or
in part by a previous owner or third party. Many states have similar provisions.
The imposition of liability under CERLA and similar laws would likely have a
serious adverse effect on the ability of the Company to continue its business.

         Violation of environmental laws and regulations may also result in the
imposition of an order requiring the removal, remediation or abatement of the
conditions which gave rise to the violation.

         The costs of comprehensive environmental investigation or audits prior
to the acquisition of a property can be expensive and there is no guarantee that
all deficiencies or sources of liability will be identified by such audits. In
connection with the acquisition of producing properties in Texas, New Mexico and
Louisiana, the Company performed limited environmental inquiries and found no
material environmental noncompliance or cleanup liabilities. The Company does
not currently believe that it will be required in the near future to expend
material amounts due to environmental laws and regulations.

         Safety and Health Regulations. The Company must also conduct its
operations in accordance with various laws and regulations concerning
occupational safety and health. Currently, the Company does not foresee
expending material amounts to comply with these occupational safety and health
laws and regulations. However, since such laws and regulations are frequently
changed and amended, the Company is unable to predict the future effect of these
laws and regulations.



                                       17
<PAGE>   19
TITLE TO PROPERTIES

         All of the Company's working interests are held under leases from third
parties. The Company evaluates title in a manner which it believes to be
consistent with industry practice. Depending on the history of the property and
the investment required to acquire the interest under consideration, the Company
may or may not obtain third party title opinions prior to acquisition or rely on
the title opinions in the possession of the vendor or such other third party
review as it may deem relevant to verify the occupation or interest of the
vendor. The Company is of the opinion that it has satisfactory title to all such
properties sufficient to meet standards generally accepted in the oil and gas
industry. The Company's properties are currently mortgaged under the loan
agreements with the Bank of Montreal and Enron. They are also subject to common
burdens, including customary royalty interests and liens for current taxes, but
the Company has concluded that such burdens do not materially interfere with the
use of such properties. Further, the Company believes that the economic effect
of such common burdens have been appropriately reflected in the Company's
acquisition costs of such properties.

   
Nature of the Net Profits Overriding Royalty Interests

         As a result of the Morgan Property Acquisition, a substantial portion
of the Company's oil and natural gas property interests are in the form of net
profits overriding royalty interests ("ORIs"). As the owner of ORIs, the Company
is not able to propose the drilling of wells or cause third parties to propose
or drill wells on the properties subject to the ORIs. If an ORI assignor
proposes to drill a well, then each of the assignors is obligated to give the
Company notice of any well proposed by the assignor or by any other working
interest owner, and under the applicable ancillary agreements (the "Ancillary
Agreements"), the Company will have the option to pay the Applicable Percentage
(as defined in the Ancillary Agreement) of the respective assignor's working
interest share of the expenses of any well that is proposed, and thereby become
entitled to an ORI equal to the Applicable Percentage multiplied by the
assignor's net revenue interest in that well. However, if an assignor elects not
to participate in the drilling of a well, the Company will be denied the
opportunity to participate in that well. Moreover, if an assignor owns less than
a 100% working interest in a proposed well, and the other owners of working
interests with respect to such well elect not to participate in the well, the
well will not be drilled unless a means of funding the costs allocable to the
working interest owners who do not elect to participate in the well is
effectuated. The financial strength and the competence of the assignors, and to
a lesser extent the financial strength and the competence of other parties
owning working interests in the properties, may have an effect on when and
whether wells get drilled on the properties subject to the ORIs, and on whether
operations are conducted in a prudent and competent manner. Certain of the
operators and/or assignors on the Morgan Properties have experienced financial
difficulties, including bankruptcy. Further, in at least one instance an
operator has claimed a right to setoff against the Company's revenue stream from
certain properties for unpaid bills arising from the nonpayment by a bankrupt
assignor. Finally, the ORIs were created subsequent and subject to the various
operating agreements that cover and govern operations on the properties.
Possible consequences of the ORIs being subject to the applicable operating
agreements include: (i) if an assignor elects not to participate in a major
operation, the entire original interest of the assignor (including the ORI) will
be relinquished to the consenting parties under the "non-consent penalty"
provisions of the standard form operating agreement; and (ii) if an assignor
fails to pay its share of costs arising under an operating agreement, the entire
original interest of the assignor (including the ORI) will be encumbered by the
operator's lien. Because the ORI may not burden every well covered by an
operating agreement, the ORI could theoretically be encumbered by the Operator's
Lien securing obligations incurred by an assignor on wells in which the Company
does not own an ORI. See "Recent Development."
    


                                       18
<PAGE>   20

                                 USE OF PROCEEDS

         The Company will not receive any proceeds from any sale of shares of
Common Stock by a Selling Stockholder (other than the exercise price payable
upon exercise of any Warrants).

                              SELLING STOCKHOLDERS

         This Prospectus covers offers and sales from time to time by each
Selling Stockholder (after such person becomes a holder of Common Stock) of the
Common Stock to be owned by such person. The Selling Stockholders will hold
shares of Common Stock issued or issuable upon the conversion of the Series C
Preferred Stock and the Warrants. Pursuant to Rule 416 of the Securities Act,
the Selling Stockholders may also offer and sell shares of Common Stock issued
as a result of, among other events, stock splits, stock dividends and
anti-dilution adjustment provisions (including by reason of any change in the
conversion price mechanism of the Series C Preferred Stock). In addition, the
Selling Stockholders may also offer and sell shares of Common Stock issued as
payment of liquidated damages upon certain events of default. The registration
of the shares of Common Stock offered for resale hereby is pursuant to a
Registration Rights Agreement dated December 24, 1997, entered into in
connection with the original issuance of the Series C Preferred Stock and the
Warrants (the "Registration Rights Agreement").

         The Series C Preferred Stock and the Warrants were issued to the
Selling Stockholders pursuant to a Securities Purchase Agreement dated December
22, 1997 among the Company and the Selling Stockholders (the "Purchase
Agreement"). In exchange for aggregate cash consideration of $10 million the
Company issued an aggregate of 10,000 shares of Series C Preferred Stock to the
Selling Stockholders and Warrants to purchase an aggregate of 340,138 shares of
Common Stock.

   
         The following table lists the name of each Selling Stockholder, the
number of shares of Common Stock owned by each Selling Stockholder before this
Offering, the number of shares of Common Stock that may be offered by each
Selling Stockholder pursuant to this Prospectus and the number of shares of
Common Stock to be owned by each Selling Stockholder upon completion of the
Offering if all shares registered hereby are sold. None of the Selling
Stockholders has held any position or office or had any other material
relationship with the Company or any of its predecessors or affiliates in the
last three years. The information below is as of the date of this Prospectus and
has been furnished by the respective Selling Stockholders. Under the terms of
the Registration Rights Agreement the Company is required to register for resale
at least 200% of the number of shares issuable upon conversion of the Series C
Preferred Stock and exercise of the Warrants. The number of shares covered by
this Prospectus represents 200% of the shares currently issuable (there are
currently 1,360,545 shares of Common Stock issuable upon conversion of the
10,000 shares of Series C Preferred Stock held by the Selling Stockholders and
340,138 shares of Common Stock issuable upon exercise of the Warrants held by
the Selling Stockholders).
    

<TABLE>
<CAPTION>
                                                NUMBER OF SHARES          NUMBER OF SHARES     NUMBER OF SHARES
                 NAME OF                         OWNED   BEFORE           BEING REGISTERED       OWNED AFTER
           SELLING STOCKHOLDER                   THIS OFFERING(1)           FOR RESALE(1)      THIS OFFERING(2)
----------------------------------------- ---------------------------------------------------- --------------------
<S>                                               <C>                          <C>                     <C>
Montrose Investments L.P. . . . . . . . . . . .    673,470                      673,470                 -0-

Proprietary Convertible Investment
Group, Inc. . . . . . . . . . . . . . . . . . . .1,156,464.                   1,156,464                 -0-

Shepherd Investments International, Ltd.           561,226                      561,226                 -0-

Stark International . . . . . . . . . . . . . . . .561,226                      561,226                 -0-

Westover Investments L.P. . . . . . . . . . . .    448,980                      448,980                 -0-
                                                   -------                      -------                ----

        TOTAL                                    3,401,366                    3,401,366                 -0-
                                                 =========                    =========                ====
</TABLE>



                                       19
<PAGE>   21

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

(1)     Represents 200% of the shares currently issuable to such holder upon
        conversion of shares of Series C Preferred Stock or exercise of Warrants
        held by such holder.
(2)     Assumes all shares held by such Selling Stockholder acquired upon
        conversion of the Series C Preferred Stock and exercise of the Warrants
        will be offered and sold.

   

                          DESCRIPTION OF CAPITAL STOCK

         The authorized capital of the Company consists of (i) 100,000,000
shares of Common Stock, par value $0.0015 per share (the "Common Stock"), and
50,000,000 shares of Preferred Stock. At April 16, 1998, the Company had (i)
23,572,153 shares of Common Stock outstanding, (ii) 9,600,000 shares of Series A
Preferred Stock outstanding, (iii) no shares of Series B Participating
Convertible Preferred Stock (the "Series B Preferred Stock") and (iv) 10,400
shares of Series C Preferred Stock outstanding.

Common Stock

         The holders of shares of Common Stock possess full voting power for the
election of directors and for all other purposes, each holder of Common Stock
being entitled to one vote for each share of Common Stock held of record by such
holder. The shares of Common Stock do not have cumulative voting rights.

         As described below, the holders of Series A Preferred Stock are
generally entitled to vote (on an as-converted basis) as a single class with the
holders of the Common Stock, together with all other classes and series of stock
of the Company that are entitled to vote as a single class with the Common
Stock, on all matters coming before the Company's stockholders. Holders of a
majority of the shares of Common Stock and Series A Preferred Stock represented
at a meeting may approve most actions submitted to the stockholders except for
certain corporate actions (e.g. mergers, sale of assets and charter amendments)
which require the approval of holders of a majority of the total outstanding
shares of Common Stock and the Series A Preferred Stock or other matters that
require a class vote of the Preferred Stock.

         Subject to the right of holders of any outstanding shares of Preferred
Stock, dividends may be paid on the Common Stock as and when declared by the
Company's Board of Directors out of any funds of the Company legally available
for the payment thereof. Holders of Common Stock have no subscription,
redemption, sinking fund, conversion or preemptive rights. The outstanding
shares of Common Stock are fully paid and nonassessable. After payment is made
in full to the holders of any outstanding shares of Preferred Stock in the event
of any liquidation, dissolution or winding up of the affairs of the Company, the
remaining assets and funds of the Company will be distributed to the holders of
Common Stock according to their respective shares.

Preferred Stock

         General

         The Board of Directors may, without further action by the Company's
stockholders (subject to the terms of the Series A Preferred Stock and the
Series C Preferred Stock described below), from time to time, direct the
issuance of fully authorized shares of Preferred Stock, in classes or series and
may, at the time of issuance, determine the powers, rights, preferences and
limitations of each class or series. Satisfaction of any dividend preferences on
outstanding shares of Preferred Stock would reduce the amount of funds available
for the payment of dividends on Common Stock. Also, holders of preferred Stock
    



                                       20
<PAGE>   22

   
would be entitled to receive a preference payment in the event of any
liquidation, dissolution or winding up of the Company before any payment is made
to the holders of Common Stock. Under certain circumstances, the issuance of
such Preferred Stock may render more difficult or tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a large
block of the Company's securities or the removal of incumbent management.

         Description of Series A Preferred Stock

         General. The Certificate of Designation of the Series A Preferred Stock
authorizes the issuance of up to 9,600,000 shares of Series A Preferred Stock.

         Voting. The holders of shares of Series A Preferred Stock are generally
entitled to vote (on an as-converted basis) as a single class with the holders
of the Common Stock, together with all other classes and series of stock of the
Company that are entitled to vote as a single class with the Common Stock, on
all matters coming before the Company's stockholders. In any vote with respect
to which the Series A Preferred Stock shall vote with the holders of Common
Stock as a single class, each share of Series A Preferred Stock shall entitle
the holder thereof to cast the number of votes equal to the number which could
be cast in such vote by a holder of the number of shares of Common Stock into
which such shares of Series A Preferred Stock is convertible on the date of such
vote. With respect to any matter for which class voting is required by law or
the Company's Restated Certificate of Incorporation, except as otherwise
described herein, the holders of the Series A Preferred Stock will vote as a
class and each holder shall be entitled to one vote for each share held. For so
long as 960,000 shares of Series A Preferred Stock are outstanding, the
following matters will require the approval of the holders of shares of Series A
Preferred Stock, voting together as a separate class:

         (i) the amendment of any provision of the Company's Restated
     Certificate of Incorporation or the bylaws;

         (ii) the creation, authorization or issuance, or the increase in the
     authorized amount of, any class or series of shares ranking on a parity
     with or prior to the Series A Preferred Stock either as to dividends or
     upon liquidation, dissolution or winding up;

         (iii) the merger or consolidation of the Company with or into any other
     corporation or other entity or the sale of all or substantially all of the
     Company's assets; or

         (iv) the reorganization, recapitalization, or restructuring or similar
     transaction that requires the approval of the stockholders of the Company.

     Election of Directors. The holders of shares of Series A Preferred Stock
have the right, acting separately as a class, to elect a number of members to
the Company's Board of Directors. As of the date hereof, JEDI has not elected to
exercise its right to elect directors
to the Company's Board of Directors.

     Conversion. A holder of shares of Series A Preferred Stock has the right,
at the holder's option, to convert all or a portion of its shares into shares of
Common Stock at any time at an initial rate of one share of Series A Preferred
Stock for one share of Common Stock.

     Concurrently with the transfer of any shares of Series A Preferred Stock to
any person (other than a direct or indirect affiliate of JEDI or other entity
managed by Enron Corp. or any of its affiliates), the shares of Series A
Preferred Stock so transferred will automatically convert into a like number of
shares of Series B Preferred Stock.
    



                                       21
<PAGE>   23


   
     Dividends. The holders of the shares of Series A Preferred Stock are
entitled to receive dividends, when, and as if declared by the Board of
Directors, out of funds legally available therefor, any dividend (other than a
dividend or distribution paid in shares of, or warrants, rights or options
exercisable for or convertible into or exchangeable for, Common Stock) payable
on the Common Stock, as and when paid, in an amount equal to the amount each
such holder would have received if such holder's shares of Series A Preferred
Stock had been converted into Common Stock immediately prior to the record date,
or if there is no record date, the date of payment thereof. The holders of
Series A Preferred Stock will also have the right to certain dividends upon and
during the continuance of an event of default.

     Liquidation. Upon the liquidation, dissolution or winding up of the
Company, the holders of the shares of Series A Preferred Stock, before any
distribution to the holders of Common Stock, will be entitled to receive (i) an
amount per share equal to the lesser of (A) $1.50 and (B) the sum of (x) $0.521
and (y) the quotient obtained by dividing (1) the aggregate amount of all
payments made, as of the date of the liquidation, dissolution or winding up, to
the Company by JEDI pursuant to the JEDI Earn Up Agreement by (2) 9,600,000,
plus (ii) all accrued and unpaid dividends thereon ("Series A Liquidation
Preference"). The holders of the shares of Series A Preferred Stock will not be
entitled to participate further in the distribution of the assets of the
Company.

     Events of Default; Remedies. The Series A Certificate of Designation
provides that an Event of Default will be deemed to have occurred if the Company
fails to comply with any of its covenants in the Securities Purchase Agreement
dated as of March 27, 1997 between the Company and JEDI; provided, that the
Company will have a 30-day cure period with
respect to the non-compliance with certain covenants.

     Upon the occurrence but only during the continuance of an Event of Default,
the holders of Series A Preferred Stock will be entitled to receive, in addition
to other dividends payable to holders of Series A Preferred Stock, when, as, and
if declared by the Board of Directors, out of funds legally available therefor,
cumulative preferential cash dividends accruing from the date of the Event of
Default in an amount per share per annum equal to 6% of the Series A Liquidation
Preference in effect at the time of accrual of such dividends, payable quarterly
in arrears on or before the 15th day after the last day of each calendar quarter
during which such dividends are payable. Unless full cumulative dividends
accrued on shares of Series A Preferred Stock have been or contemporaneously are
declared and paid, no dividend may be declared or paid or set aside for payment
on the Common Stock or any other junior securities (other than a dividend or
distribution paid in shares of, or warrants, rights or options exercisable for
or convertible into or exchangeable for, Common Stock or any other junior
securities), nor shall any Common Stock nor any other junior securities be
redeemed, purchased or otherwise acquired for any consideration nor may any
monies be paid to or made available for a sinking fund for the redemption of any
shares of any such securities.

     Upon the occurrence and during the continuance of an Event of Default
resulting from the failure to comply with certain covenants, the holders of
shares of Series A Preferred Stock will have the right, acting separately as a
class, to elect a number of persons to the Board of Directors of the Company,
that along with any members of the Board of Directors who are serving at the
time of such action, will constitute a majority of the Board of Directors.

     Upon the occurrence of an Event of Default resulting from the failure to
comply with certain covenants, each holder of shares of Series A Preferred Stock
will have the right, by written notice to the Company, to require the Company to
repurchase, out of funds legally available therefor, such holder's shares of
Series A Preferred Stock for an amount in cash equal to the Series A Liquidation
Preference in effect at the time of the Event of Default.
    



                                       22
<PAGE>   24

   
     Description of Series B Preferred Stock

     The Series B Certificate of Designation authorizes the issuance of up to
9,600,000 shares of Series B Preferred Stock. The terms of the Series B
Preferred Stock are substantially similar to those of the Series A Preferred
Stock except that the holders of Series B Preferred Stock will not (i) have
class voting rights except as required under Delaware corporate law, (ii) be
entitled to any remedies upon an event of default or (iii) be entitled to elect
any directors of the Company, voting separately as a class.

     Description of Series C Preferred Stock

     General. The Series C Certificate of Designation authorizes the issuance of
up to 10,400 shares of Series C Preferred Stock.

     Voting. The holders of shares of Series C Preferred Stock are not entitled
to vote with the holders of the Common Stock except as required by law or as set
forth below. For so long as any shares of Series C Preferred Stock are
outstanding, the following matters will require the approval of the holders of
at least two-thirds of the then outstanding shares of Series C Preferred Stock,
voting together as a separate class:

         (i) alter or change the rights, preferences or privileges of the Series
     C Preferred Stock or any other capital stock of the Company so as to affect
     adversely the Series C Preferred Stock;

         (ii) create any new class or series of capital stock having a
     preference over or ranking pari passu with the Series C Preferred Stock as
     to redemption, the payment of dividends or distribution of assets upon a
     Liquidation Event (as defined in the Series C Certificate of Designation)
     or any other liquidation, dissolution or winding up of the Company;

         (iii) increase the authorized number of shares of Preferred Stock of
     the Company;

         (iv) re-issue any shares of Series C Preferred Stock which have been
     converted in accordance with the terms hereof;

         (v) issue any Senior Securities (other than the Company's Series B
     Preferred Stock pursuant to the terms of the Company's Series A Preferred
     Stock) or Pari Passu Securities (each, as defined in the Series C
     Certificate of Designation); or

         (vi) declare, pay or make any provision for any dividend or
     distribution with respect to the Common Stock or any other capital stock of
     the Company ranking junior to the Series C Preferred Stock as to dividends
     or as to the distribution of assets upon liquidation, dissolution or
     winding up of the Company.

     In the event that the holders of at least two-thirds of the
then-outstanding shares of Series C Preferred Stock agree to allow the Company
to alter or change the rights, preferences or privileges of the shares of Series
C Preferred Stock pursuant to the terms hereof, or to waive any rights of the
holders hereunder, then the Company will deliver notice of such approved change
to the holders of the Series C Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and the Dissenting Holders shall
have the right for a period of 30 days following such delivery to convert their
Series C Preferred Stock pursuant to the terms hereof as they existed prior to
such alteration or change, or to continue to hold such shares. No such change
shall be effective to the extent that, by its terms, it applies to less than all
of the holders of Series C Preferred Stock then outstanding.
    


                                       23
<PAGE>   25

   
     Conversion. Subject to certain limitations set forth in the Series C
Certificate of Designation, a holder of shares of Series C Preferred Stock has
the right, at the holder's option, to convert all or a portion of its shares
into shares of Common Stock at any time. The number of shares of Common Stock
into which a share of Series C Preferred Stock may be converted will be
determined as of the conversion date according to a formula set forth in the
Series C Certificate of Designation. Generally, if the conversion date is on or
before June 22, 1998, the conversion rate is equal to the aggregate stated value
of the shares to be converted (the stated value is $1,000 per share) divided by
a fixed conversion price of $7.35 (or approximately 136 shares of Common Stock
for each share of Series C Preferred Stock). If the conversion date is after
June 22, 1998, the conversion rate is equal to the aggregate stated value of the
shares to be converted divided by a floating conversion price that is the lesser
of (i) $7.35 and (ii) (A) the average of the three lowest closing bid prices for
the Common Stock during the 10 trading days prior to the conversion date if the
average daily trading volume for the Common Stock on the Nasdaq SmallCap Market
during the calender month of the conversion date is equal to or greater than
$540,000, or (B) the three lowest closing bid prices for the Common Stock during
the 20 days trading days prior to the conversion date if the average daily
trading volume for the Common Stock on the Nasdaq SmallCap Market during the
calender month of the conversion date is equal to or greater than $360,000 but
less than $540,000, or (C) the lowest closing bid price for the Common Stock
during the 15 trading days prior to the conversion date if the average daily
trading volume for the Common Stock on the Nasdaq SmallCap Market during the
calender month of the conversion date is less than $360,000. By way of example
only, if the effective conversion price was $6.00 per share, each share of
Series C Preferred Stock would be convertible into approximately 167 shares of
Common Stock (or 1,733,333 shares if all outstanding shares of Series C
Convertible Preferred Stock were converted). If the effective conversion price
was $4.00 per share, each share of Series C Preferred Stock would be convertible
into approximately 250 shares of Common Stock (or 2,600,000 shares if all
outstanding shares of Series C Preferred Stock were converted). If the Company
fails to deliver shares of Common Stock to a holder following a conversion in
accordance with the Series C Certificate of Designation, then the Company will
be liable to the holder for certain cash default payments set forth in the
Series C Certificate of Designation.

     On December 24, 2001, all shares of Series C Preferred Stock that are then
outstanding shall be automatically converted into the number of shares of Common
Stock determined in accordance with the formula set forth in the Series C
Certificate of Designation.

     The Series C Certificate of Designation provides for customary adjustments
to the number of shares issuable upon conversion in the event of certain
dividends and distributions to holders of Common Stock, certain
reclassifications of the Common Stock, stock splits, combinations and mergers
and similar transactions and certain changes of control.

     Dividends. The holders of the shares of Series C Preferred Stock are
entitled to receive dividends, when, and as if declared by the Board of
Directors, out of funds legally available therefor, subject to the prior payment
of any accumulated and unpaid dividends to holders of Senior Securities, but
before payment of dividends to holders of Junior Securities (as defined in the
Series C Certificate of Designation), cumulative dividends on each of the Series
C Preferred Stock shares in an amount equal to the stated value ($1,000) of such
share multiplied by 5%. Dividends accrue from the date of original issuance of
the Series C Preferred Stock (December 24, 1997) through the earlier to occur of
(a) the Maturity Date (as defined below) and (b) the redemption or conversion of
the Series C Preferred Stock. Such dividends are payable in shares of Common
Stock. The number of shares of Common Stock so issuable is equal to the amount
of the dividend to which a holder is entitled with respect to all of such
holder's Series C Preferred Stock and the applicable conversion price on the
dividend payment date. "Maturity Date" means December 24, 2001.
    


                                       24
<PAGE>   26

   
     Liquidation. Upon the liquidation, dissolution or winding up of the
Company, the holders of the shares of Series C Preferred Stock, before any
distribution to the holders of Junior Securities, and after payment to holders
of Senior Securities, will be entitled to receive an amount equal to the stated
value of the Series C Preferred Stock (subject to ratable adjustment in the
event of reclassification of the Series C Preferred Stock or other similar
event) plus any accrued and unpaid dividends thereon.

     Optional Redemption. The Company has the right to redeem all of the
outstanding Series C Preferred Stock at a price equal to the Liquidation
Preference of the Series C Preferred Stock then held by the holder divided by
80% ("Optional Redemption Price"), to the extent permitted by law and so long as
(i) the Company has sufficient cash available at the time; (ii) the Company
delivers prior written notice at least thirty trading days' prior to the
redemption, specifying both the date of the redemption and the amount payable to
the holder; and (iii) the Common Stock is actively traded on the Nasdaq Stock
Market (which is defined to include the Nasdaq SmallCap Market), the New York
Stock Exchange or the American Stock Exchange.

     Mandatory Redemption. The Series C Certificate of Designation provides for
mandatory redemption by the Company when a Mandatory Redemption Event occurs (as
defined in the Series C Preferred Stock Certificate of Designation).

     Upon the occurrence of a Mandatory Redemption Event, each holder of Series
C Preferred Stock will have the right to require the Company to redeem its
Series C Preferred Stock at a redemption price equal to the greater of (i) the
Liquidation Preference of the Series C Preferred Stock being redeemed multiplied
by 125% and (ii) an amount determined by dividing the Liquidation Preference of
the Series C Preferred Stock being redeemed by the conversion price in effect on
the mandatory redemption dated and multiplying the resulting quotient by the
average closing bid price for the Common Stock on the 5 trading days preceding
the mandatory redemption date ("Mandatory Redemption Price").

     If the Mandatory Redemption Price is not paid within five business days of
the redemption date and the holder has tendered its Series C Preferred Stock to
the Company, the holder is entitled to interest thereon, from the redemption
date until the Mandatory Redemption Price has been paid in full.

     If the Mandatory Redemption Price is not paid within ten business days of
the redemption date, each holder of shares of Series C Preferred Stock will have
the right, by written notice to the Company, to require the Company to issue, in
lieu of the Mandatory Redemption Price, the number of shares of Common Stock of
the Company equal to the Mandatory Redemption Price divided by the conversion
price in effect on such conversion date as specified by the holder, with the
conversion price to be reduced by 1% for each day beyond the 10th business day
in which the Company fails to pay the Mandatory Redemption Price, but with the
maximum reduction of the conversion price to be 50%.

     A "Mandatory Redemption Event" includes (i) a failure by the Company to
issue shares of Common Stock as and when required upon conversion of any shares
of Series C Preferred Stock, (ii) a breach in any material respect of any
covenant or other material term or condition of the Series C Certificate of
Designation, the Securities Purchase Agreement executed in connection with the
issuance of the Series C Preferred Stock, the Registration Rights Agreement or
the Warrant, (iii) any material representation or warranty made by the Company
in any of the above-referenced agreements is inaccurate or misleading in any
material respect, (iv) the Registration Statement (of which this Prospectus is a
part) is not declared effective within 120 days following December 24, 1997, (v)
the Common Stock is not quoted on the Nasdaq Stock Market (which as defined to
    


                                       25
<PAGE>   27
   
include the Nasdaq SmallCap Market) listed on the New York Stock Exchange or the
American Stock Exchange, or (vi) there occurs a change of control in the
transaction including any sale, conveyance or disposition of substantially all
of the assets of the Company or the effectuation of a transaction in which more
than 50% of the voting power of the Company is disposed of, or any merger or
other business combination of the
Company.

Warrants

     As of April 16, 1998, JEDI held warrants to purchase an aggregate of
1,554,974 shares of Common Stock at prices ranging from $1.85 to $3.50. The
warrants held by JEDI expire at various times from May 6, 1998 to December 31,
1998. In addition, certain institutional investors hold warrants to purchase an
aggregate of 2,840,138 shares of Common Stock at prices ranging from $2.50 to
$7.35. The warrants held by the institutional investors expire at various times
from December 31, 1998 to December 24, 2001. All of these warrants were issued
in private placements not registered under the Securities Act, and the shares of
Common Stock underlying such warrants have not been registered under the
Securities Act.
    


                              PLAN OF DISTRIBUTION

     The shares of Common Stock covered hereby may be offered and sold from time
to time by the Selling Stockholders. The Selling Stockholders will act
independently of the Company in making decisions with respect to the timing,
manner and size of each sale. Such sales may be made in the Nasdaq SmallCap
Market (or other market on which the Common Stock is listed or otherwise
qualified for trading), at market prices prevailing at the time of the sale, at
prices related to the then prevailing market price or in negotiated
transactions, including pursuant to an underwritten offering or pursuant to one
or more of the following methods: (i) purchases by a broker-dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(ii) ordinary brokerage transactions and transactions in which a broker solicits
purchasers; and (iii) block trades in which a broker-dealer so engaged will
attempt to sell the shares as agent but may take a position and resell a portion
of the block as principal to facilitate the transaction. In effecting sales,
broker-dealers engaged by the Selling Stockholders may arrange for other
broker-dealers to participate. Broker-dealers may receive commissions or
discounts from the Selling Stockholders in amounts to be negotiated immediately
prior to the sale.

     In connection with the sale of shares of Common Stock covered hereby,
underwriters or agents may receive compensation from the Selling Stockholders or
from purchasers of the shares of Common Stock covered hereby for whom they may
act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell shares of Common Stock to or through dealers and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they act as agents. Underwriters, dealers and agents that participate in
the distribution of shares of Common Stock covered hereby may be deemed to be
underwriters, and any discounts or commissions received by them from the Selling
Stockholders and any profit on the resale of shares of Common Stock by them may
be deemed to be underwriting discounts and commissions under the Securities Act.
Neither the Company nor any Selling Stockholder can presently estimate the
amount of such compensation. The Company knows of no existing arrangements
between any Selling Stockholder, any other stockholder, broker, dealer,
underwriter or agent relating to the sale or distribution of the Shares.

     To the extent required, the Company will file, during any period in which
offers or sales are being made, a supplement to this Prospectus which sets
forth, with respect to a particular offering, the specific number of shares to
be sold, the name of the Selling Stockholder, the sales price, the name



                                       26
<PAGE>   28

of any participating broker, dealer, underwriter or agent, any applicable
commission or discount and any other material information with respect to the
plan of distribution not previously disclosed.

   
     In the event that a Selling Stockholder elects to sell any of its shares of
Common Stock pursuant to an underwritten offering in accordance with the terms
of the Registration Rights Agreement, the Company would thereupon prepare a
post-effective amendment to the Registration Statement containing all required
information, including names of underwriters, underwriting terms and so forth.
    

     The Registration Rights Agreement provides that the Company will pay
substantially all of the expenses incident to the registration, offering and
sale of the shares to the public other than underwriting discounts, commissions
and expenses of counsel to each Selling Stockholder. The Registration Rights
Agreement also provides that the Company will indemnify the Selling Stockholders
against certain liabilities, including liabilities under the Securities Act.

     In order to comply with certain states' securities laws, if applicable, the
shares will be sold in such jurisdictions only through registered or licensed
brokers or dealers. In addition, in certain states the Common Stock may not be
sold unless the Common Stock has been registered or qualified for sale in such
state or an exemption from registration or qualification is available and is
satisfied.

     This Offering will terminate on the earlier of (i) the date on which all
shares offered hereby have been sold by the Selling Stockholders and (ii) the
date on which all of the remaining shares (in the reasonable opinion of counsel
to the Selling Stockholder) may be immediately sold to the public without
registration and without regard to the amount of shares which may be sold by a
holder thereof at a given time .


                                  LEGAL MATTERS

     The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by its counsel, Haynes and Boone, LLP, Dallas, Texas.


                                     EXPERTS

     The consolidated balance sheet of the Company as of June 30, 1997, and the
related statements of operations, stockholders' equity and cash flows for the
year ended June 30, 1997 incorporated in this Prospectus by reference from the
Company's Annual Report on Form 10-KSB for the year ended June 30, 1997 have
been audited by Ernst & Young LLP, independent auditors, as stated in their
report incorporated by reference herein and are included in reliance upon such
report given the authority of such firm as experts in accounting and auditing.

     The consolidated balance sheet of the Company as of June 30, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year ended June 30, 1996 have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference and upon the authority of said firm as experts in accounting and
auditing.

    
    The statements of revenues and direct operating expenses in
respect of oil and natural gas properties (the "Core Properties") acquired from
various sellers in February and March 1997 for the year ended June 30, 1996
incorporated in this Prospectus by reference from the Company's Current Report
on Form 8-K/A-1 dated March 26, 1997/February 20, 1997, have been audited by
Ernst & Young LLP, independent auditors, as stated in their report incorporated
by reference herein and are included in reliance upon such report given the
authority of such firm as experts in accounting and auditing.
    


                                       27
<PAGE>   29

   
     The statements of operating revenues and direct operating expenses of oil
and natural gas properties acquired from Collins & Ware, Inc. in August 1997 for
the years ended June 30, 1996 and 1997 incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-KSB for the year ended
June 30, 1997, have been audited by Ernst & Young LLP, independent auditors, as
stated in their reports incorporated by reference herein and are included in
reliance upon such reports given the authority of such firm as experts in
accounting and auditing.
    

     The estimates as of June 30, 1997 relating to the Company's proved oil and
natural gas reserves and future net revenues of oil and natural gas reserves
incorporated in this prospectus by reference from the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1997, are based upon estimates of such
reserves prepared by H.J. Gruy and Associates, Inc., independent consulting
petroleum engineers, in reliance upon its reports and upon the authority of this
firm as experts in petroleum engineering.

     The estimates relating to the Company's proved oil and natural gas reserves
and future net revenues of oil and natural gas reserves as of June 30, 1995 and
1996 incorporated in this prospectus by reference from the Company's Annual
Report on Form 10-KSB for the year ended June 30, 1997, are based upon estimates
of such reserves prepared by Harper and Associates, Inc., independent consulting
petroleum engineers, in reliance upon its reports and upon the authority of this
firm as experts in petroleum engineering.


            DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
                           SECURITIES ACT LIABILITIES

     Pursuant to the Registration Rights Agreement between the Company and the
Selling Stockholders, the Company has agreed to indemnify each Selling
Stockholder and its officers, directors, employees, agents and representatives
and any person who controls such Selling Stockholder against any losses, claims,
damages, liabilities or reasonable out-of-pocket expenses arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, including any amendments or
supplements thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, except, among other things, to the extent that such
liabilities arise out of or are based upon and in conformity with any
information furnished in writing to the Company by each respective Selling
Stockholder expressly for use in the Registration Statement or an amendment or
supplement thereto. In addition, each Selling Stockholder, acting severally and
not jointly, under the Registration Rights Agreement has agreed to indemnify the
Company and its officers, directors, employees, agents and representatives and
any person who controls the Company against any losses, claims, damages,
liabilities or reasonable out-of-pocket expenses arising out of or based upon
and in conformity with written information furnished by such Selling Stockholder
expressly for use in the Registration Statement or an amendment or supplement
thereto. However, the foregoing indemnity shall not apply to amounts paid in
settlement of any such liability if the settlement is effected without the
consent of such Selling Stockholder.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.



                                       28
<PAGE>   30
                               CERTAIN DEFINITIONS

     The following are certain defined terms used in this Prospectus:

"BBL" One stock tank barrel, or 42 US gallons liquid volume, used herein in
     reference to crude oil or other liquid hydrocarbons.

"BEHIND THE PIPE" Hydrocarbons in a potentially producing horizon penetrated by
     a well bore the production of which has been postponed pending the
     production of hydrocarbons from another formation penetrated by the well
     bore. The hydrocarbons are classified as proved but non-producing reserves.

"BOE" Barrels of oil equivalent (converting six Mcf of natural gas to one Bbf 
     of oil).

   
"BTU" British Thermal Unit, the quantity of heat required to raise one pound 
     of water by one degree Fahrenheit.
    

"DEVELOPMENT WELL" A well drilled within the proved boundaries of an oil and
     natural gas reservoir to the depth of a stratigraphic horizon known to be
     productive.

"MBBL" One thousand Bbl.

"MMBBL" One million Bbl.

   
"MMBTU" One million Btu.
    

"MCF" One thousand cubic feet.

"MMCF" One million cubic feet of natural gas equivalent.

"PRODUCTIVE WELL" A well that is producing oil or natural gas or that is capable
of production.

"PROVED RESERVES" The estimated quantities of crude oil, natural gas and natural
     gas liquids which geological and engineering data demonstrate with
     reasonable certainty to be recoverable in future years from known
     reservoirs under existing economic and operating conditions."

   
"Proved Developed Reserves" Proved developed reserves are those quantities of 
     crude oil, natural gas and natural gas liquids that, upon analysis of
     geological and engineering data, are expected with reasonable certainty to
     be recoverable in the future from known oil and natural gas reservoirs
     under existing economic and operating conditions. This classification
     includes: (a) proved developed producing reserves, which are those
     expected to be recovered from currently producing zones under continuation
     of present operating methods; and (b) proved developed non-producing
     reserves, which consist of (i) reserves from wells that have been
     completed and tested but are not yet producing due to lack of market or
     minor completion problems that are expected to be corrected, and (ii)
     reserves currently behind the pipe in existing wells which are expected to
     be productive due to both the well log characteristics and analogous
     production in the immediate vicinity of the well.
    

"PROVED UNDEVELOPED RESERVES" or "PUD" Reserves that are expected to be
     recovered from new wells or undrilled acreage, or from existing wells where
     a relatively major expenditure is required for completion.




                                       29
<PAGE>   31

"ROYALTY INTEREST" An interest in an oil and natural gas property entitling the
     owner to a share of oil and natural gas production, free of costs of
     production.

"SECONDARY RECOVERY" A method of oil and natural gas extraction in which energy
     sources extrinsic to the reservoir are utilized.

"WORKING INTEREST" The operating interest which gives the owner the right to
     drill, produce and conduct operating activities on the property and a share
     of production, subject to all royalties, overriding royalties and other
     burdens and to all costs of exploration, development and operations and all
     risks in connection therewith.




                                       30
<PAGE>   32

                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14.      OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION


<TABLE>
<S>                                                          <C>   
Securities and Exchange Commission Registration Fee........  $7,324
Nasdaq SmallCap Market Listing Fee.........................   7,500
Printing Expenses..........................................      50
Accounting Fees and Expenses...............................   5,000
Legal Fees and Expenses....................................  12,000
Engineer Fees and Expenses.................................   2,000
Blue Sky Fees and Expenses.................................     500
Miscellaneous Expenses.....................................     626
                                                           --------
   Total...................................................$ 35,000
                                                           ========
</TABLE>


         All of the above expenses except the Securities and Exchange Commission
registration fee and the Nasdaq SmallCap Market listing fee are estimated. All
of such expenses will be borne by the Company.

ITEM 15.      INDEMNIFICATION OF DIRECTORS AND OFFICERS

         In accordance with Section 145 of the DGCL, Article IX of the Company's
Restated Certificate of Incorporation (the "Certificate") provides that the
Company shall indemnify, to the full extent permitted by law, any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director or officer of the corporation or
is or was serving at the request of the corporation, in any capacity, another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.

         Section 145 and the Certificate further provide that indemnification
provided for thereby shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled, and that the corporation is empowered to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145. The Certificate and Section 145 also allow for the indemnification
provisions to continue as to a person who has ceased to be a director, officer,
employee or agent of the Company and to inure to the benefit of the heirs,
executors and administrators of such a person.

         Pursuant to Section 145, the Certificate and the Company's Amended and
Restated Bylaws (the "Bylaws") provide that the expenses (including attorney's
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
Company in advance of the final disposition of the action, suit or proceeding,
as authorized by the Board of Directors upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it is determined that
he is not entitled to such indemnification.

         The Bylaws further provide that no director of the Company shall be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except



                                      II-1
<PAGE>   33

for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. Any repeal or modification of this
provision related to director's liability shall not adversely affect any right
or protection of a director of the Company existing immediately prior to such
repeal or modification. Further, if the DGCL shall be repealed or modified, the
elimination of liability of a director provided in. the Bylaws shall be to the
fullest extent permitted by the DGCL as so amended.

         Pursuant to Registration Rights Agreements with certain stockholders of
the Company, the Company has agreed to indemnify such stockholders (including
the Selling Stockholders) against certain liabilities, including liabilities
under the Securities Act or otherwise. For the undertaking with respect to
indemnification, see Item 17 herein.

ITEM 16.   EXHIBITS

   
<TABLE>
<CAPTION>
   EXHIBIT NO.                    EXHIBIT
     <S>          <C>
       2.1         Purchase and Sale Agreement, among the Company, Morgan
                   Guaranty Trust Company of New York, as Trustee, Investment
                   Royalty Corporation and Milam Royalty Corporation, dated
                   March 19, 1998, filed as Exhibit 10.1 to the Company's Form
                   8-K dated March 19, 1998, which exhibit is incorporated
                   herein by reference.
       4.1         Certificate of Designation of Series C Convertible Preferred
                   Stock, filed as Exhibit 1.1 to the Company's Form 8-K dated
                   December 24, 1997, which exhibit is incorporated herein by
                   reference.
       4.2         Securities Purchase Agreement, filed as Exhibit 1.2 to the
                   Company's Form 8-K dated December 24, 1997, which exhibit is
                   incorporated herein by reference.
       4.3         Registration Rights Agreement, filed as Exhibit 1.3 to the
                   Company's Form 8-K dated December 24, 1997, which exhibit is
                   incorporated herein by reference.
       4.4         Form of Common Stock Purchase Warrant, filed as Exhibit 1.4
                   to the Company's Form 8-K dated December 24, 1997, which
                   exhibit is incorporated herein by reference.
      *4.5         Restated Certificate of Incorporation.
       4.6         Amended and Restated Bylaws, filed as an Exhibit to the
                   Company's Form 8-K dated May 6, 1997, which exhibit is
                   incorporated herein by reference.
      *5.1         Opinion of Haynes and Boone, LLP.
    **23.1         Consent of Ernst & Young LLP.
    **23.2         Consent of KPMG Peat Marwick LLP.
     *23.3         Consent of Haynes and Boone, LLP, contained in the opinion
                   filed as Exhibit 5.1.0
     *23.4         Consent of H.J. Gruy and Associates, Inc.
     *23.5         Consent of Harper and Associates, Inc.
     *24.1         Power of Attorney, included as part of signature page of this
                   Registration Statement.
</TABLE>
    

   
*    Previously filed.
**   Filed herewith.
    


ITEM 17.   UNDERTAKINGS

         The undersigned Registrant hereby undertakes:

         (1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:




                                      II-2
<PAGE>   34

                  (i)      to include any prospectus required by Section
                           10(a)(3) of the Securities Act of 1933;

                  (ii)     to reflect in the prospectus any facts or events
                           arising after the effective date of the registration
                           statement (or the most recent post-effective
                           amendment thereof) which, individually or in the
                           aggregate, represent a fundamental change in the
                           information set forth in the Registration Statement.
                           Notwithstanding the foregoing, any increase or
                           decrease in volume of securities offered (if the
                           total dollar value of securities offered would not
                           exceed that which was registered) and any deviation
                           from the low or high end of the estimated maximum
                           offering range may be reflected in the form of
                           prospectus filed with the Commission pursuant to Rule
                           424(b) if, in the aggregate, the changes in volume
                           and price represent no more than a 20 percent change
                           in the maximum aggregate offering price set forth in
                           the "Calculation of Registration Fee" table in the
                           effective Registration Statement;

                  (iii)    to include any material information with respect to
                           the plan of distribution not previously disclosed in
                           the Registration Statement or any material change to
                           such information in the registration statement;

         provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.

         (2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and

         (3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

         The undersigned Registrant hereby undertakes that:

         (1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.




                                      II-3
<PAGE>   35
         (2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.





                                      II-4
<PAGE>   36

                                   SIGNATURES

   
         Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Pre-Effective Amendment No. 1 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on the 16th day of April, 1998.
    

                                 QUEEN SAND RESOURCES, INC.

                                 By:      /s/ Edward J. Munden
                                          ------------------------------------
                                 Name:    Edward J. Munden
                                 Title:   Chairman of the Board, President and 
                                          Chief Executive Officer

   
         Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to its Registration Statement has been signed by
the following persons on behalf of the Registrant in the capacities on April 16,
1998:
    

   
<TABLE>
<CAPTION>
Signature                              Title
<S>                                    <C>
/s/ Edward J. Munden                   Chairman of the Board, President
----------------------------------     Chief Executive Officer and Director
Edward J. Munden                       (principal executive officer)

Bruce I Benn*                          Executive Vice President, Secretary and 
----------------------------------     Director
Bruce I. Benn                                                         

Ronald I. Benn*                        Chief Financial Officer (principal
----------------------------------     financial officer and accounting officer)
Ronald I. Benn                                       

/s/Robert P. Lindsay                   Chief Operating Officer, Executive Vice
----------------------------------     President and Director
Robert P. Lindsay                      

Ted Collins, Jr.*                      Director
----------------------------------
Ted Collins, Jr.

Eli Rebich*                            Director
----------------------------------
Eli Rebich
</TABLE>
    
    


                                      II-5
<PAGE>   37
   
         Robert P. Lindsay, by signing his name hereto, does sign and execute
this Pre-Effective Amendment No. 1 to its Registration Statement on behalf of
each of the above-named officers and directors of the Registrant on this 16th
day of April, 1998, pursuant to powers of attorneys executed on behalf of each
of such officers and directors, and previously filed with the Securities and
Exchange Commission.


*By:           /s/ ROBERT P. LINDSAY
    --------------------------------------------
                 Robert P. Lindsay
                 Attorney-in-Fact
    




                                      II-6
<PAGE>   38

                                  EXHIBIT INDEX
   
<TABLE>
<CAPTION>
                                                                                  SEQUENTIALLY
                                                                                   NUMBERED
  EXHIBIT NO.                                                                        PAGE
  ----------                                                                      ------------
       <S>         <C>
       2.1         Purchase and Sale Agreement, among the Company, Morgan
                   Guaranty Trust Company of New York, as Trustee, Investment
                   Royalty Corporation and Milam Royalty Corporation, dated
                   March 19, 1998, filed as Exhibit 10.1 to the Company's Form
                   8-K dated March 19, 1998, which exhibit is incorporated
                   herein by reference.
       4.1         Certificate of Designation of Series C Convertible Preferred
                   Stock, filed as Exhibit 1.1 to the Company's Form 8-K dated
                   December 24, 1997, which exhibit is incorporated herein by
                   reference.
       4.2         Securities Purchase Agreement, filed as Exhibit 1.2 to the
                   Company's Form 8-K dated December 24, 1997, which exhibit is
                   incorporated herein by reference.
       4.3         Registration Rights Agreement, filed as Exhibit 1.3 to the
                   Company's Form 8-K dated December 24, 1997, which exhibit is
                   incorporated herein by reference.
       4.4         Form of Common Stock Purchase Warrant, filed as Exhibit 1.4
                   to the Company's Form 8-K dated December 24, 1997, which
                   exhibit is incorporated herein by reference.
      *4.5         Restated Certificate of Incorporation. Amended and Restated
                   Bylaws filed as an exhibit to the Company's
       4.6         Form 8-K dated May 24, 1997, which exhibit is incorporated
                   herein by reference.
      *5.1         Opinion of Haynes and Boone, LLP.
    **23.1         Consent of Ernst & Young LLP.
    **23.2         Consent of KPMG Peat Marwick LLP.
     *23.3         Consent of Haynes and Boone, LLP, contained in the opinion
                   filed as Exhibit 5.1.
     *23.4         Consent of H.J. Gruy and Associates, Inc.
     *23.5         Consent of Harper and Associates, Inc.
     *24.1         Power of Attorney, included as part of signature page of this
                   Registration Statement.
</TABLE>
    

---------------
   
*    Previously filed.
**   Filed herewith.
    


                                      II-7