SECURITIES AND EXCHANGE COMMISSION
                          Washington, D. C.  20549

                                  Form 10-Q

(Mark One)
[X]    Quarterly report pursuant to Section 13 or 15(d) of the 
         Securities Exchange Act of 1934 
         for the quarterly period ended June 30, 1998

- or -

[  ]   Transition report pursuant to Section 13 or 15(d) of the
         Securities Exchange Act of 1934 
         for the transition period from __________ to ____________

Commission File No. 0-17267

MALLON RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)

     COLORADO                              84-1095959
(State or other jurisdiction of   (IRS Employer Identification No.)
incorporation or organization)

999 18th Street, Suite 1700
Denver, Colorado  80202
(Address of principal executive offices)

(303) 293-2333
(Registrant's telephone number, including area code)

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

     YES [X]                  NO [  ]

As of July 31, 1998, 7,024,665 shares of registrant's common stock, 
par value $0.01 per share, were outstanding.


PART I - FINANCIAL INFORMATION

Item 1 -- Financial Statements

                         MALLON RESOURCES CORPORATION

                         CONSOLIDATED BALANCE SHEETS
                                (In thousands)


<TABLE>
<CAPTION>
                                                                 June 30,        December 31,
                                                                   1998              1997   
                                                                (Unaudited)

                             ASSETS
<T>                                                             <C>               <C>
Current assets:
    Cash and cash equivalents                                   $    276          $  6,741
    Accounts receivable: 
       Oil and gas sales                                             981             1,464
       Joint interest participants, net of allowance of $8 and
          $8, respectively                                         1,999             2,406
       Related parties                                               134                72
       Other                                                          --                 7
    Inventories                                                      411               327
    Other                                                            148            _   46
          Total current assets                                     3,949            11,063

Property and equipment: 
    Oil and gas properties, full cost method                      78,970            63,148
    Natural gas processing plant                                   3,847             2,760
    Other equipment                                                  899               665
                                                                  83,716            66,573
    Less accumulated depreciation, depletion and amortization    (28,712)          (26,393)
                                                                  55,004            40,180

Notes receivable-related parties                                      19                18

Other, net                                                           152               165

Total Assets                                                    $ 59,124          $ 51,426
                                                                ========          ======== 


                  LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities: 
    Trade accounts payable                                      $  7,530          $  6,797
    Undistributed revenue                                            851               813
    Current portion of installment obligation, less unamortized
       discount of $11 and $22, respectively                         389               378
    Drilling advances                                                 16               135
    Accrued taxes and expenses                                        32                 4
    Current portion of lease obligation                            1,848             1,746
          Total current liabilities                               10,666             9,873

Long-term bank debt                                                6,850                 1
Accrued expenses                                                      39                39
          Total non-current liabilities                            6,889                40

Total liabilities                                                 17,555             9,913

Commitments and contingencies

Series B Mandatorily Redeemable Convertible Preferred Stock, 
    $0.01 par value, 500,000 shares authorized, 135,200 shares
    issued and outstanding, respectively, liquidation preference 
    and mandatory redemption of $1,352,000                         1,323             1,317

Shareholders' equity: 
    Common Stock, $0.01 par value, 25,000,000 
       shares authorized; 7,024,665 and 6,995,264
       shares issued and outstanding, respectively                    70                70
    Additional paid in capital                                    74,106            73,937
    Accumulated deficit                                          (33,930)          (33,811)
          Total shareholders' equity                              40,246            40,196

Total Liabilities and Shareholders' Equity                      $ 59,124          $ 51,426
                                                                ========          ======== 
</TABLE>

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


                        MALLON RESOURCES CORPORATION
                   CONSOLIDATED STATEMENTS OF OPERATIONS
                  (In thousands, except per share amounts)
                               (Unaudited)

<TABLE>
<CAPTION>
                                                  For the Three Months    For the Six Months
                                                     Ended June 30,        Ended June 30,  
                                                    1998       1997         1998       1997  
<T>                                               <C>        <C>          <C>        <C>
Revenues:
    Oil and gas sales                             $ 2,913    $ 1,839      $ 5,982    $ 3,811
    Interest and other                            _    14          3           70         28
                                                    2,927      1,842        6,052      3,839

Costs and expenses: 
    Oil and gas production                          1,196        623        2,359      1,320
    Depreciation, depletion and amortization        1,181        521        2,334      1,076
    Impairment of oil and gas properties               --        (24)          --         55
    General and administrative                        533        657        1,189      1,295
    Interest and other                                174        115          283        206
                                                    3,084      1,892        6,165      3,952

Equity in loss of affiliate                            --       (189)          --       (356)

Net loss                                             (157)      (239)        (113)      (469)

Dividends on preferred stock and accretion            (30)       (30)         (60)      (125)

Preferred stock conversion inducement                  --       (403)          --       (403)

Net loss attributable to common shareholders      $  (187)   $  (672)     $  (173)   $  (997)
                                                  =======    =======      =======    =======

Basic:
    Net loss attributable to common shareholders  $  (.03)   $ (0.14)     $ (0.02)   $ (0.22)
                                                  =======    =======      =======    =======

    Weighted average shares outstanding             7,010      4,642        7,004      4,515
                                                  =======    =======      =======    ======= 
</TABLE>

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

                         MALLON RESOURCES CORPORATION

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (In thousands)
                                (Unaudited)

<TABLE>
<CAPTION>
                                                                         For the Six Months
                                                                           Ended June 30,   
                                                                         1998        1997  
<T>                                                                    <C>         <C>
Cash flows from operating activities:
    Net loss                                                           $   (113)   $   (469)
    Adjustments to reconcile net loss to net cash provided by operating activities:
       Depreciation, depletion and amortization                           2,334       1,076
       Impairment of oil and gas properties                                  --          55
       Amortization of discount on installment obligation                    11          22
       Equity in loss of affiliate                                           --         356
       Stock compensation expense                                           142          44
       Changes in operating assets and liabilities: 
          (Increase) decrease in: 
             Accounts receivable                                            881         (95)
             Inventory and other assets                                    (189)       (110)
          Increase (decrease) in: 
             Trade accounts payable and undistributed revenue               771          41
             Accrued taxes and expenses                                      28          57
             Drilling advances                                             (119)         66
Net cash provided by operating activities                                 3,746       1,043

Cash flows from investing activities: 
    Additions to property and equipment                                 (16,908)     (6,203)
    Purchase of subsidiary stock                                             --         (55)
    Other                                                                    --         (47)
    Increase in notes receivable-related parties                             (1)         (1)
Net cash used in investing activities                                   (16,909)     (6,306)

Cash flows from financing activities: 
    Proceeds from long-term debt                                          6,849       2,800
    Lease obligation payments                                               (97)        (12)
    Payment of preferred dividends                                          (54)       (107)
    Redemption of preferred stock                                            --        (121)
Net cash provided by financing activities                                 6,698       2,560

Net decrease in cash and cash equivalents                                (6,465)     (2,703)

Cash and cash equivalents, beginning of period                            6,741       2,771

Cash and cash equivalents, end of period                               $    276    $     68
                                                                       ========    ========

Supplemental cash flow information: 
    Cash paid for interest                                             $    265    $    141
                                                                       ========    ========       
    Non-cash transactions: 
       Installment obligation (less unamortized discount) in
          exchange for property and equipment                          $     --    $    733
                                                                       ========    ======== 

        Acquisition of equipment under lease obligations               $    199    $     --
                                                                       ========    ========
</TABLE>

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


                         MALLON RESOURCES CORPORATION
 
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                (Unaudited)
                                ___________


Note 1.  GENERAL

    Mallon Resources Corporation (the "Company") engages in oil and 
gas exploration and production through its wholly-owned subsidiary, 
Mallon Oil Company ("Mallon Oil"), whose oil and gas operations are 
conducted primarily in the State of New Mexico.  The Company also 
has an interest in Laguna Gold Company ("Laguna").  All significant 
intercompany balances and transactions have been eliminated from 
the consolidated financial statements.

    At June 30, 1998, the Company owned approximately 49% of Laguna 
and has subsequently reduced its ownership interest to 
approximately 46%.  As discussed in the Company's annual report on 
Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-
K"), the Company's share of Laguna's net losses exceeded the 
carrying value of its investment in and advances to Laguna because 
of Laguna's decision to write-down its mining assets.  Accordingly, 
the Company no longer reflects its share of Laguna's net losses and 
may only reflect its share of Laguna's future earnings to the 
extent that they exceed the Company's share of Laguna's current and 
future net losses not recognized.

    These unaudited consolidated financial statements have been 
prepared in accordance with generally accepted accounting 
principles for interim financial information and with the 
instructions to Form 10-Q and Article 10 of Regulation S-X.  
Accordingly, they do not include all of the information and 
footnotes required by generally accepted accounting principles for 
complete financial statements.  In the opinion of management, such 
interim statements reflect all adjustments (consisting of normal 
recurring adjustments) necessary to present fairly the financial 
position and the results of operations and cash flows for the 
interim periods presented.  The results of operations for these 
interim periods are not necessarily indicative of the results to be 
expected for the full year.  These interim statements should be 
read in conjunction with the consolidated financial statements and 
notes thereto included in the 1997 Form 10-K.

    Certain prior year amounts in the consolidated financial 
statements have been reclassified to conform to the presentation 
used in 1998.

Note 2. LONG-TERM BANK DEBT

    Effective March 1998, the borrowing base under the Company's 
revolving credit facility was increased to $21,250,000, and the 
amount of the monthly reduction to the borrowing base was reduced 
to zero, until redetermined in connection with the next borrowing 
base review.  Previously, the amount of the reduction was $170,000 
per month.  At June 30, 1998, the amount outstanding under the 
facility was $6,850,000, leaving the amount available under the 
facility at $14,400,000.

Note 3. EARNINGS (LOSS) PER SHARE

    In fourth quarter 1997, the Company adopted Statement of 
Financial Accounting Standards ("SFAS") No. 128, "Earnings per 
Share."  Under the provisions of SFAS No. 128, basic earnings per 
share is computed by dividing income available to common 
shareholders by the weighted average number of common shares 
outstanding for the period. Diluted earnings per share reflects the 
potential dilution that could occur if the Company's outstanding 
stock options and warrants were exercised (calculated using the 
treasury stock method) or if the Company's Series B Convertible 
Preferred Stock were converted to common stock.  SFAS No. 128 
requires a restatement of all periods presented.

    The consolidated statement of operations for the three and six 
months ended June 30, 1998 and 1997 reflect only basic earnings per 
share because the Company was in a loss position for all periods 
presented and all common stock equivalents are anti-dilutive.

Note 4. WARRANTS:

    In August 1995, the Company issued warrants to purchase an 
aggregate of 31,824 shares of common stock at an adjusted exercise 
price of $7.86 per share to an affiliate of Midland Bank plc, New 
York Branch, as an "equity kicker" in connection with the 
establishment of a now terminated line of credit with that bank.  
In May 1998, the holder of the warrants opted to convert them into 
shares of common stock through a cashless conversion whereby they 
received 11,415 shares of common stock, which were the equivalent 
in value to the difference between the 31,824 shares of common 
stock at the defined current market price of $12.25 per share and 
the exercise price of $7.86 per share.

Note 5. COMPREHENSIVE INCOME:

    The Company adopted SFAS No. 130, "Comprehensive Income," 
beginning with the first quarter of 1998.  There are no components 
of comprehensive income which have been excluded from net income 
and, therefore no separate statement of comprehensive income has 
been presented.

Note 6. HEDGING ACTIVITIES:

    In June 1998, the Financial Accounting Standards Board issued 
SFAS No. 133, "Accounting for Derivative Instruments and for 
Hedging Activities."  The Statement establishes accounting and 
reporting standards requiring that every derivative instrument 
(including certain derivative instruments embedded in other 
contracts) be recorded in the balance sheet as either an asset or 
liability measured at its fair value.  The Statement requires that 
changes in the  derivative's fair value be recognized currently in 
earnings unless specific hedge accounting criteria are met.  
Special accounting for qualifying hedges allows a derivative's 
gains and losses to offset related results on the hedged item in 
the income statement, and requires that a company must formally 
document, designate, and assess the effectiveness of transactions 
that receive hedge accounting.

    SFAS No. 133 is effective for fiscal years beginning after 
June 15, 1999.  A company may also implement the Statement as of 
the beginning of any fiscal quarter after issuance (that is, fiscal 
quarters beginning June 16, 1998 and thereafter).  SFAS No. 133 
cannot be applied retroactively.  SFAS No. 133 must be applied to 
(a) derivative instruments and (b) certain derivative instruments 
embedded in hybrid contracts that were issued, acquired, or 
substantially modified after December 31, 1997 (and, at the 
company's election, before January 1, 1998).

    The Company has not yet quantified the impact of adopting SFAS 
No. 133 on its financial statements and has not determined the 
timing or method of adoption of SFAS No. 133.  However, SFAS No. 
133 could increase volatility in earnings and other comprehensive 
income.

Note 7. SUBSEQUENT EVENT:

    In August 1998, the Company negotiated a term loan with Bank 
One, Texas, N.A. to finance equipment for the Company's gas 
sweetening plant.  The Company may borrow up to $6,500,000 until 
October 30, 1998, at which time the balance converts to a 5-year 
term loan with principal and interest payments payable monthly.  
Interest on the loan is to be computed based on LIBOR plus 2%.  
However, effective October 30, 1998, the Company entered into a 5-
year interest rate swap agreement which will fix the interest rate 
on the term loan at an effective 8%.  The initial notional amount 
of the interest rate swap is $5,000,000, with the option to 
increase it up to $6,500,000 by October 30, 1998.


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

    The following discussion is intended to assist in understanding 
the Company's consolidated financial position at June 30, 1998 and 
December 31, 1997, results of operations for the three and six 
months ended June 30, 1998 and 1997 and cash flows for the six 
months ended June 30, 1998 and 1997.  The Company's Consolidated 
Financial Statements and notes thereto should be referred to in 
conjunction with the following discussion.

                                 Overview

    The Company's revenues, profitability and future rate of growth 
will be substantially dependent upon its drilling success in the 
San Juan and Delaware Basins, and prevailing prices for oil and 
gas, which are in turn dependent upon numerous factors that are 
beyond the Company's control, such as economic, political and 
regulatory developments and competition from other sources of 
energy.  The energy markets have historically been volatile, and 
there can be no assurance that oil and gas prices will not be 
subject to wide fluctuations in the future.   A substantial or 
extended decline in oil or gas prices could have a material adverse 
effect on the Company's financial position, results of operations 
and access to capital, as well as the quantities of oil and gas 
reserves that the Company may economically produce.

Liquidity and Capital Resources

    The Company has a revolving credit facility (the "Facility") 
with Bank One, Texas, N.A. (the "Bank').  The borrowing base under 
the Facility is subject to redetermination every six months, or at 
such other times as the Bank may determine.  The Company is 
obligated to maintain certain financial and other covenants, 
including a minimum current ratio, minimum net equity, a debt 
coverage ratio and a total bank debt ceiling.  The Facility is 
collateralized by substantially all of the Company's oil and gas 
properties.  Effective March 1998, the borrowing base under the 
Facility was increased to $21,250,000 and the term extended to 
April 30, 2003.  At August 14, 1998, the principal amount 
outstanding was $10,860,000, leaving the amount remaining available 
under the Facility at $10,390,000.  The Company is currently in 
compliance with the covenants of the Facility.

    Capital expenditures related to the Company's drilling and 
development programs totaled $16,489,000 for the six months ended 
June 30, 1998 and $5,645,000 for the six months ended June 30, 
1997.  The Company's current budget for drilling and development 
capital expenditures in 1998 is approximately $36,623,000.  During 
the six months ended June 30, 1998, the Company completed 27 of the 
28 wells drilled and recompleted 18 wells.  Fourteen of the wells 
completed were shut-in awaiting the completion of gas plant 
expansion, which occurred toward the end of the second quarter.  
During the six months ended June 30, 1997, the Company completed 12 
of the 13 development wells it drilled and recompleted 7 wells.  In 
addition, the Company participated in the drilling of an 
exploratory well in first quarter 1997 which was abandoned as a dry 
hole.  The Company currently plans to drill approximately 60 wells 
and recomplete approximately 30 wells during fiscal 1998.

    In August 1998, the Company negotiated a term loan with Bank 
One, Texas, N.A. to finance equipment for the Company's gas 
sweetening plant.  The Company may borrow up to $6,500,000 until 
October 30, 1998, at which time the balance converts to a 5-year 
term loan with principal and interest payments payable monthly.  
Interest on the loan is to be computed based on LIBOR plus 2%.  
However, effective October 30, 1998, the Company entered into a 5-
year interest rate swap agreement which will fix the interest rate 
on the term loan at an effective 8%.  The initial notional amount 
of the interest rate swap is $5,000,000, with the option to 
increase it up to $6,500,000 by October 30, 1998.

    The Company believes that, with the net proceeds of the 
December 1997 common stock sale, borrowings available under the 
Facility and term loan, and the operating cash flows that are 
expected to be generated by the application of such funds to the 
Company's drilling program, the Company will have sufficient 
capital to fund the continued development of its current properties 
and to meet the Company's liquidity requirements through 1998.

                        Results of Operations

<TABLE>
<CAPTION>
                                                  For the Three Months    For the Six Months
                                                     Ended June 30,         Ended June 30,  
(In thousands, except per unit data)                1998        1997        1998       1997  
<T>                                               <C>         <C>         <C>         <C>
Results of Operations from Oil and Gas Producing Activities: 
    Oil and gas sales                             $ 2,913     $ 1,839     $ 5,982     $ 3,811
    Production tax and marketing expense              427         195         906         458
    Lease operating expense                           769         428       1,453         862
    Depletion                                       1,124         500       2,224       1,030
    Depreciation                                       34          --          64          --

Net Production: 
    Oil (MBbl)                                         61          44         129          81
    Natural gas (MMcf)                              1,160         567       2,246         978
    MBOE                                              254         139         503         244
    MMcfe                                           1,526         831       3,020       1,464

Average Sales Price Realized (1): 
    Oil (per Bbl)                                 $ 13.21     $ 19.32     $ 13.77     $ 20.81
    Natural gas (per Mcf)                            1.82        1.74        1.87        2.17
    Per BOE                                         11.47       13.23       11.89       15.62
    Per Mcfe                                         1.91        2.21        1.98        2.60

Average Cost Data (per BOE):
    Production tax and marketing expense          $  1.68     $  1.40     $  1.80     $  1.88
    Lease operating expense                          3.03        3.08        2.89        3.53
    Depletion                                        4.43        3.60        4.42        4.22
    Depreciation                                      .13          --         .13          --

Average Cost Data (per Mcfe):
    Production tax and marketing expense          $  0.28     $  0.23     $  0.30      $ 0.31
    Lease operating expense                          0.50        0.52        0.48        0.59
    Depletion                                        0.74        0.60        0.74        0.70
    Depreciation                                     0.02          --        0.02          --
</TABLE>_________________
1) 

1) Includes effects of hedging.

Three and Six Months Ended June 30, 1998 Compared to June 30, 1997

    Revenues.  Total revenues increased 59% to $2,927,000 for the 
three months ended June 30, 1998 from $1,842,000 for the three 
months ended June 30, 1997 and increased 58% to $6,052,000 for the 
six months ended June 30, 1998 from $3,839,000 for the six months 
ended June 30, 1997.  Oil and gas sales increased 58% to $2,913,000 
for the 1997 quarter from $1,839,000 for the 1997 quarter due to 
higher gas prices realized and higher oil and gas production in the 
1998 quarter.  Oil and gas sales increased 57% to $5,982,000 for 
the six months ended June 30, 1998 from $3,811,000 for the six 
months ended June 30, 1997, due to higher oil and gas production in 
the 1998 period.  Average oil prices realized per barrel decreased 
32% to $13.21 in the fiscal 1998 quarter from $19.32 for the fiscal 
1997 quarter; however, average gas prices realized per Mcf 
increased 5% to $1.82 in the 1998 quarter from $1.74 in the 1997 
quarter.  Average oil prices realized per barrel decreased 34% to 
$13.77 for the six months ended June 30, 1998, from $20.81 for the 
comparable 1997 period, and average gas prices realized per Mcf 
decreased 14% to $1.87 in the 1998 period from $2.17 for the six 
months ended June 30, 1997.  Oil production increased 39% to 61,000 
barrels in the 1998 quarter from 44,000 barrels in the 1997 quarter 
and gas production increased 105% to 1,160,000 Mcf in the 1998 
quarter from 567,000 in the 1997 quarter.   Oil production 
increased 59%, to 129,000 barrels for the six months ended June 30, 
1998 from 81,000 barrels for the six months ended June 30, 1997, 
and gas production increased 130% to 2,246,000 Mcf for the six 
months ended June 30, 1998 from 978,000 Mcf for the same period a 
year ago.  The oil and gas production increases are due to the 
Company's successful drilling program in 1998.

    Oil and Gas Production Expenses.  Oil and gas production 
expenses, including production tax and marketing expenses, 
increased 92% to $1,196,000 for the three months ended June 30, 
1998 from $623,000 for the 1997 quarter, and increased 79% to 
$2,359,000 for the six months ended June 30, 1998 from $1,320,000 
for the comparable 1997 period, due to new wells coming on line as 
a result of the 1998 drilling program.  Per BOE, oil and gas 
production expense, including production tax and marketing expense, 
increased $0.23, or 5%, to $4.71 for the 1998 quarter from $4.48 
for the 1997 quarter.  Production tax and marketing expense per BOE 
increased $0.28 per BOE, or 20%, for the 1998 quarter from the 1997 
quarter because of higher gas prices and a higher proportion of 
production from the East Blanco Field, which has a higher tax rate 
than the Company's other properties.  LOE per BOE decreased 
slightly to $3.03 for the 1998 quarter from $3.08 for the 1997 
quarter.  Oil and gas production expenses per BOE decreased $0.64, 
or 13%, to $4.69 for the six months ended June 30, 1998 from $5.41 
for the six months ended June 30, 1997.  Production tax and 
marketing expense decreased $0.08 per BOE, or 4%, during the six 
months ended June 30, 1998 as a result of lower oil and gas prices.  
LOE decreased $0.64 per BOE, or 18%, during the six months ended 
June 30, 1997 primarily because of more efficient operations and a 
higher proportion of gas production in 1998, which is generally 
less costly to produce than oil.

    Depreciation, Depletion and Amortization.  Depreciation, 
depletion and amortization for the three months ended June 30, 1998 
increased 127% to $1,181,000 from $521,000 in the 1997 quarter, and 
increased 117% to $2,334,000 for the six months ended June 30, 1998 
from $1,076,000 for the six months ended June 30, 1997.  Depletion 
per BOE increased 23% to $4.43 for the fiscal 1998 quarter from 
$3.60 for the fiscal 1997 quarter and increased 5% to $4.42 for the 
six months ended June 30, 1998 from $4.22 for the six months ended 
June 30, 1997, primarily due to a higher ratio of capital 
expenditures to reserve increases in the 1998 periods.

    Impairment of Oil and Gas Properties.  Impairment of oil and 
gas properties of $(24,000) and $55,000 for the three and six 
months ended June 30, 1997, respectively, relate to the Company's 
investment in Belize.  In 1996, the Company acquired a 2.25% 
working interest in an exploration venture to drill one or more 
wells offshore Belize.  The joint venture drilled a dry hole during 
first quarter 1997.  Accordingly, the Company reduced the carrying 
amount of its capitalized costs.  The credit in second quarter 1997 
is due to a refund of a cash advance paid in the first quarter 
which was in excess of the actual amounts spent in the second 
quarter.  During the three and six months ended June 30, 1998, the 
Company's oil and gas activities were conducted entirely in the 
United States.

    Under the full cost accounting rules of the Securities and 
Exchange Commission (SEC), the Company reviews the carrying value 
of its oil and gas properties each quarter on a country-by-country 
basis.  Under full cost accounting rules, capitalized costs of oil 
and gas properties may not exceed the present value of estimated 
future net revenues from proved reserves, discounted at 10 percent, 
plus the lower of cost or fair market value of unproved properties, 
as adjusted for related tax effects and deferred income taxes.  
Application of these rules generally requires pricing future 
production at the unescalated oil and gas prices in effect at the 
end of each fiscal quarter and requires a write-down if the 
"ceiling" is exceeded, even if prices declined for only a short 
period of time.  The Company did not have a write-down due to 
ceiling test limitations as of June 30, 1998.  Under current 
pricing, there is the potential, while not a certainty, that a 
write-down may occur.  If a write-down is required, the one-time 
charge to earnings would not impact cash flow from operating 
activities.

    General and Administrative Expenses.  Total general and 
administrative expenses for the quarter ended June 30, 1998 
decreased 19% to $533,000 from $657,000 in the 1997 quarter, and 
decreased 8% to $1,189,000 for the six months ended June 30, 1998 
from $1,295,000 for the same period in 1997.  During the quarter 
and the six months ended June 30, 1998, the Company capitalized 
$314,000 and $602,000, respectively, more of general and 
administrative expenses directly related to its drilling program 
than was capitalized during the 1997 periods.

    Interest and Other Expenses.  Interest and other expenses for 
the quarter ended June 30, 1998 increased 51% to $174,000 from 
$115,000 for the 1997 quarter and increased 37% to $283,000 for the 
six months ended June 30, 1998 from $206,000 for the six months 
ended June 30, 1997.  The increase was primarily due to interest on 
the Company's equipment lease obligations in the 1998 periods.

    Equity in Loss of Affiliate.  Equity loss of affiliate of 
$189,000 and $356,000 in the three and six months ended June 30, 
1997, respectively, represents the equity in the Laguna loss.

    Income Taxes.  The Company incurred net operating losses 
("NOLs") for U.S. Federal income tax purposes in 1998 and 1997, 
which can be carried forward to offset future taxable income.  
Statement of Financial Accounting Standards No. 109 requires that a 
valuation allowance be provided if it is more likely than not that 
some portion or all of a deferred tax asset will not be realized.  
The Company's ability to realize the benefit of its deferred tax 
asset will depend on the generation of future taxable income 
through profitable operations and the expansion of the Company's 
oil and gas producing activities.  The market and capital risks 
associated with achieving the above requirement are considerable, 
resulting in the Company's decision to provide a valuation 
allowance equal to the net deferred tax asset.  Accordingly, the 
Company did not recognize any tax benefit in the consolidated 
statements of operations for the three and six months ended 
June 30, 1998 and 1997.

    Net Loss.  Net loss for the three months ended June 30, 1998 
decreased 34% to $157,000 from $239,000 for the three months ended 
June 30, 1997, and decreased 76% to $113,000 for the six months 
ended June 30, 1998 from $469,000 for the same period a year ago, 
as a result of the factors discussed above.  The Company paid the 
8% dividend of $27,000 on its Series B Mandatorily Redeemable 
Convertible Preferred Stock ("Series B Preferred Stock") and 
realized accretion of $3,000 in each of the three month periods 
ended June 30, 1998 and 1997.  The Company paid dividends of 
$54,000 and realized accretion of $6,000 during the six months 
ended June 30, 1998 compared to dividends of $107,000 and accretion 
of $18,000 during the six months ended June 30, 1997.  Preferred 
dividend payments were reduced beginning in April 1997 as a result 
of the conversion into common stock and redemption of approximately 
265,000 shares of Series B Preferred Stock.  Approximately 135,000 
shares remain outstanding.  The excess of the fair value of the 
common stock issued at the $9.00 conversion price over the fair 
value of the common stock that would have been issued at the $11.31 
conversion price, totaling $403,000, is reflected on the statements 
of operations for the three and six months ended June 30, 1997 as 
an increase to the net loss attributable to common shareholders.  
As a result, net loss attributable to common shareholders for the 
three months ended June 30, 1998 decreased 72% to $187,000 from 
$672,000 for the three months ended June 30, 1997, and decreased 
83% to $173,000 for the six months ended June 30, 1998 from 
$997,000 for the six months ended June 30, 1997.

                         Miscellaneous

    The Company's oil and gas operations are significantly affected 
by certain provisions of the Internal Revenue Code of 1986, as 
amended, applicable to the oil and gas industry.  Current law 
permits the Company to deduct currently, rather than capitalize, 
intangible drilling and development costs incurred or borne by it.  
The Company, as an independent producer, is also entitled to a 
deduction for percentage depletion with respect to the first 1,000 
barrels per day of domestic crude oil (and/or equivalent units of 
domestic natural gas) produced (if such percentage depletion 
exceeds cost depletion).  Generally, this deduction is 15% of gross 
income from an oil and gas property, without reference to the 
taxpayer's basis in the property.  The percentage depletion 
deduction may not exceed 100% of the taxable income from a given 
property.  Further, percentage depletion is limited in the 
aggregate to 65% of the Company's taxable income.  Any depletion 
disallowed under the 65% limitation, however, may be carried over 
indefinitely.

    The Company uses hedging instruments to manage commodity price 
risks.  The Company has used energy swaps and other financial 
arrangements to hedge against the effects of fluctuations in the 
sales prices for oil and natural gas.  Gains and losses on such 
transactions are matched to product sales and charged or credited 
to oil and gas sales when that product is sold.  Management 
believes that the use of various hedging arrangements can be a 
prudent means of protecting the Company's financial interests from 
the volatility of oil and gas prices by limiting the Company's 
exposure to future oil and gas price declines.  However, such 
hedging arrangements also limit the benefits the Company would 
realize if prices increase.  The Company recognized a hedging gain 
of $32,000 in second quarter 1998 compared to a hedging gain of 
$10,000 in second quarter 1997, and recognized a hedging gain of 
$112,000 for the six months ended June 30, 1998 compared to a 
hedging loss of $99,000 for the six months ended June 30, 1997.  
These amounts are included in oil and gas sales in the Company's 
consolidated statements of operations.

    The Company has initiated a review of its internal information 
systems for Year 2000 transition problems and, although such review 
is still in progress, believes that conversion requirements will 
not result in significant disruption of the Company's business 
operations or have a material adverse impact on its future 
liquidity or results of operations.  The Company has not 
extensively investigated the Year 2000 compliance of its customers, 
suppliers, and other third parties with whom it has business 
relationships, but intends to make selected inquiries.  Compliance 
by such third parties is voluntary and failures could occur, in 
which case there is the possibility of a material adverse impact on 
the Company.  However, the nature of the Company's business and its 
business relationships are not such that the Company considers the 
potential Year 2000 compliance failure of a third party with whom 
it has a direct business relationship likely to have a material 
adverse impact on the Company.

    Inflation has not historically had a material impact on the 
Company's financial statements, and management does not believe 
that the Company will be materially more or less sensitive to the 
effects of inflation than other companies in the oil and gas 
business.

    The preceding information contains forward-looking statements, 
the realization of which cannot be assured.  Actual results may 
differ significantly from those forecast.  When evaluating the 
Company, its operations, or its expectations, the reader should 
bear in mind that the Company and its operations are subject to 
numerous risks and uncertainties.  Among these are risks related to 
the oil and gas business generally (including operating risks and 
hazards and the regulations imposed thereon), risks and 
uncertainties related to the volatility of the prices of oil and 
gas, uncertainties related to the estimation of reserves of oil and 
gas and the value of such reserves, uncertainties relating to 
geologic models and evaluations, the effects of competition and 
extensive environmental regulation, and other factors, many of 
which are necessarily beyond the Company's control.  These and 
other risk factors that affect the Company's business are discussed 
in the Company's 1997 Form 10-K.

PART II - OTHER INFORMATION

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

The Company held its annual meeting on May 28, 1998.  The seven 
individuals listed below were elected as directors. The votes cast 
were as follows:

With respect to the election of directors:

<TABLE>
<CAPTION>
                                                           BROKER
NAME                          FOR     AGAINST   ABSTAIN   NON-VOTES
<T>                        <C>         <C>      <C>        <C>
George O. Mallon, Jr.      5,370,313   4,929     9,129      -0-
Kevin M. Fitzgerald        5,370,313   4,929     9,129      -0-
Roy K. Ross                5,370,963   4,279     9,129      -0-
Roger R. Mitchell          5,366,971   8,271     9,129      -0-
Frank Douglass             5,367,163   8,079     9,129      -0-
Francis J. Reinhardt, Jr.  5,371,963   3,279     9,129      -0-
Peter H. Blum              5,370,053   5,189     9,129      -0-
</TABLE>

Item 6.  Exhibits and Reports on Form 8-K

(a)    Exhibits:

    None.

(b)    Reports on Form 8-K:

During second quarter 1998, the Company filed Periodic Reports of 
Form 8-K dated May 14, 1998, June 15, 1998 and July 8, 1998.  Each 
Report related to an "Item 5. Other Events" matter.


                                    SIGNATURES 

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

                                    MALLON RESOURCES CORPORATION
                                    Registrant


Date:  August 14, 1998              By:  /s/ Roy K. Ross         
                                          Roy K. Ross
                                          Executive Vice President


Date:  August 14, 1998              By:  /s/ Alfonso R. Lopez     
                                          Alfonso R. Lopez
                                          Vice President, Finance/
                                          Corporate Treasurer