<PAGE>

                      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 QUARTER ENDED JUNE 30, 1999

                                      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 number 0-9498


                        BELLWETHER EXPLORATION COMPANY
            (Exact name of registrant as specified in its charter)



Delaware                                                              74-0437769
(State of incorporation)                    (IRS Employer Identification Number)
1331 Lamar, Suite 1455  Houston, Texas                                77010-3039
(Address of principal executive offices)                              (ZIP Code)

      Registrant's telephone number, including area code: (713) 650-1025

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.  Yes [X]  No [_]

As of August 2, 1999, 13,853,791 shares of common stock of Bellwether
Exploration Company were outstanding.

                                       1
<PAGE>

                        BELLWETHER EXPLORATION COMPANY


                                     INDEX


PART I.  FINANCIAL INFORMATION                                            Page #


 ITEM 1. Financial Statements

         Condensed Consolidated Balance Sheets:
           June 30, 1999 (Unaudited) and December 31, 1998.................... 3
         Condensed Consolidated Statements of Operations (Unaudited):
           Three months and six months ended June 30, 1999 and June 30, 1998.. 5
         Condensed Consolidated Statements of Cash Flows (Unaudited):
           Six months ended June 30, 1999 and June 30, 1998................... 6
         Notes to Condensed Consolidated Financial Statements (Unaudited)..... 8

 ITEM 2. Management's Discussion and Analysis of Financial
           Condition and Results of Operations................................13

 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk...........24

PART II. OTHER INFORMATION....................................................25

                                       2
<PAGE>

                        PART I.  FINANCIAL INFORMATION

ITEM 1.                      Financial Statements


                        BELLWETHER EXPLORATION COMPANY

                     CONDENSED CONSOLIDATED BALANCE SHEETS

                            (Amounts in thousands)

                                    ASSETS

                                                         June 30,   December 31,
                                                           1999        1998
                                                        ---------    ---------
                                                       (Unaudited)
CURRENT ASSETS:

Cash and cash equivalents.............................. $   1,262    $      10
Accounts receivable and accrued revenues...............    12,837       16,455
Prepaid expenses and other.............................     1,476        1,719
                                                        ---------    ---------
 Total current assets..................................    15,575       18,184
                                                        ---------    ---------

PROPERTY AND EQUIPMENT, AT COST:

Oil and gas properties (full cost method)..............   313,917      289,231
Gas plant facilities...................................    17,529       17,406
                                                        ---------    ---------
                                                          331,446      306,637
Accumulated depreciation, depletion and amortization...  (208,985)    (198,421)
                                                        ---------    ---------
                                                          122,461      108,216
                                                        ---------    ---------

OTHER ASSETS...........................................     4,411        4,796
                                                        ---------    ---------
                                                        $ 142,447    $ 131,196
                                                        =========    =========



     See accompanying notes to condensed consolidated financial statements

                                       3
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

                     CONDENSED CONSOLIDATED BALANCE SHEETS

               (Amounts in thousands, except share information)

                     LIABILITIES AND STOCKHOLDERS' EQUITY


                                                         June 30,   December 31,
                                                           1999        1998
                                                        ---------    ---------
                                                       (Unaudited)
CURRENT LIABILITIES:

Accounts payable and accrued liabilities..............  $  12,361    $  11,982
Due to related parties................................        159          125
                                                        ---------    ---------
 Total current liabilities............................     12,520       12,107
                                                        ---------    ---------

LONG-TERM DEBT........................................    116,400      104,400

OTHER LIABILITIES.....................................        200          200

STOCKHOLDERS' EQUITY:

Preferred stock, $0.01 par value, 1,000,000 shares
 authorized; none issued or outstanding at
 June 30, 1999 and December 31, 1998..................        ---          ---
Common stock, $0.01 par value, 30,000,000 shares
 authorized, 13,853,791 and 13,853,991 shares issued
 at June 30, 1999 and December 31, 1998, respectively.        142          142
Additional paid-in capital............................     80,442       80,442
Retained earnings.....................................    (65,352)     (64,191)
Treasury stock, at cost, 311,000 shares...............     (1,905)      (1,904)
                                                        ---------    ---------
  Total stockholders' equity..........................     13,327       14,489
                                                        ---------    ---------
                                                        $ 142,447    $ 131,196
                                                        =========    =========



     See accompanying notes to condensed consolidated financial statements

                                       4
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

             (Amounts in thousands, except per share information)

<TABLE>
<CAPTION>
                                                             Three Months Ended                       Six Months Ended
                                                                  June 30,                                June 30,
                                                        -----------------------------           ------------------------------
                                                           1999                1998                1999                1998
                                                        --------             --------           -------               --------
<S>                                                    <C>                  <C>                <C>                   <C>
REVENUES:
 Oil and gas revenues..........................         $ 14,024             $ 20,306           $ 26,751              $ 39,730
 Gas plant operations, net.....................              254                  321                475                   547
 Interest and other income.....................              986                  326              1,269                   513
                                                        --------             --------           --------              --------
                                                          15,264               20,953             28,495                40,790
                                                        --------             --------           --------              --------
COST AND EXPENSES:
 Production expenses...........................            5,013                6,760             10,625                12,893
 Depreciation, depletion and amortization......            5,764                8,821             10,444                17,559
 General and administrative expenses...........            1,474                1,997              2,868                 4,608
 Interest expense..............................            2,890                2,976              5,719                 5,955
                                                        --------             --------           --------              --------
                                                          15,141               20,554             29,656                41,015
                                                        --------             --------           --------              --------

Income (loss) before income taxes..............              123                  399             (1,161)                 (225)

Provision (benefit) for income taxes...........              ---                  152                ---                   (80)
                                                        --------             --------           --------              --------

NET INCOME (LOSS)..............................         $    123             $    247           $ (1,161)             $   (145)
                                                        ========             ========           ========              ========

Net income (loss) per share....................        $    0.01             $   0.02           $  (0.08)             $  (0.01)
                                                        ========             ========           ========              ========

Net income (loss) per share-diluted............         $   0.01             $   0.02           $  (0.08)             $  (0.01)
                                                        ========             ========           ========              ========
Weighted average common shares
 outstanding...................................           13,854               14,138             13,854                14,094
                                                        ========             ========           ========              ========
Weighted average common shares outstanding
 -diluted......................................           13,894               14,416             13,854                14,094
                                                        ========             ========           ========              ========
</TABLE>


     See accompanying notes to condensed consolidated financial statements

                                       5
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

                            (Amounts in thousands)

                                                            Six Months Ended
                                                               June 30,
                                                         --------------------
                                                           1999        1998
                                                         --------    --------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS................................................ $ (1,161)   $   (145)
Adjustments to reconcile net loss to net cash
 provided by operating activities:
     Depreciation, depletion and amortization...........   10,854      17,990
     Deferred income taxes..............................      ---        (775)
                                                         --------    --------
                                                            9,693      17,070
Change in assets and liabilities:
 Accounts receivable and accrued revenue................    3,618       4,414
 Accounts payable and other liabilities.................      379       2,092
 Due from (to) related parties..........................       34       7,056
 Other..................................................      115        (839)
                                                         --------    --------
 NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES........   13,839      29,793
                                                         --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:

 Acquisition of oil and gas properties..................  (14,269)       (531)
 Additions to properties and facilities.................  (10,573)    (23,208)
 Proceeds from sales of properties......................      256         663
                                                         --------    --------
 NET CASH FLOWS USED IN INVESTING ACTIVITIES............  (24,586)    (23,076)
                                                         --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from borrowings...............................   12,000         ---
 Exercise of stock options..............................      ---       1,502
 Purchase of treasury shares............................       (1)        ---
                                                         --------    --------
 NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES........   11,999       1,502
                                                         --------    --------

 Net increase in cash and cash equivalents..............    1,252       8,219
 Cash and cash equivalents at beginning of period.......       10       2,699
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $  1,262    $ 10,918
                                                         ========    ========


     See accompanying notes to condensed consolidated financial statements

                                       6
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                  (UNAUDITED)

                            (Amounts in thousands)


                                                         Six Months Ended
                                                              June 30,
                                                       ---------------------
                                                        1999           1998
                                                       ------         ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:
 Interest.........................................     $5,313         $5,592

 Income taxes.....................................     $   28         $1,204



     See accompanying notes to condensed consolidated financial statements

                                       7
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The accompanying unaudited condensed consolidated financial statements have
     been prepared in accordance with instructions to Form 10-Q and, therefore,
     do not include all disclosures required by generally accepted accounting
     principles.  However, in the opinion of management, these statements
     include all adjustments, which are of a normal recurring nature, necessary
     to present fairly the financial position at June 30, 1999 and December 31,
     1998, and the results of operations and changes in cash flows for the
     periods ended June 30, 1999 and 1998.  These financial statements should be
     read in conjunction with the consolidated financial statements and notes to
     the consolidated financial statements in the December 31, 1998 Form 10-K of
     Bellwether Exploration Company (the "Company") that was filed with the
     Securities and Exchange Commission on March 22, 1999.

     Certain reclassifications of prior period statements have been made to
     conform with current reporting practices.

     In order to prepare these financial statements in conformity with generally
     accepted accounting principles, management of the Company has made a number
     of estimates and assumptions relating to the reporting of assets and
     liabilities, the disclosure of contingent assets and liabilities, and
     reserve information.  Actual results could differ from those estimates.

                                       8
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

2.   STOCKHOLDERS' EQUITY

     SFAS No. 128 requires a reconciliation of the numerator and denominator of
     the basic EPS computation to the numerator and denominator of the diluted
     EPS computation.  For the six months ended June 30, 1999 and 1998, diluted
     earnings per common share are not calculated since the issuance or
     conversion of additional securities would have an antidilutive effect.

 SFAS NO. 128 RECONCILIATION  (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS):

<TABLE>
<CAPTION>
                                           For the Six Months Ended                         For the Six Months Ended
                                                June 30, 1999                                    June 30, 1998
                                 -----------------------------------------        -----------------------------------------
                                    Loss            Shares       Per Share           Loss           Shares        Per Share
                                 (Numerator)    (Denominator)      Amount         (Numerator)    (Denominator)      Amount
                                 ----------     -------------    ---------        -----------    -------------    ---------
LOSS PER COMMON SHARE:
<S>                               <C>            <C>              <C>               <C>            <C>             <C>
Loss available to common
 stockholders..................    $ 1,161         13,854          $.08              $  145          14,094          $  .01
                                                                   ====                                              ======

EFFECT OF DILUTIVE SECURITIES:
Options and Warrants...........    $   ---            ---                            $  ---             ---
                                   -------        -------                            ------         -------
LOSS PER COMMON SHARE-DILUTED:
Loss available to common
 stockholders and assumed
 conversions...................    $ 1,161         13,854          $.08              $  145          14,094          $  .01
                                   =======        =======          ====              ======         =======          ======
</TABLE>

     Securities that could potentially dilute basic earnings per share in the
     future, that were not included in the computation of diluted earnings per
     share because to do so would have been antidiluted are as follows:

                                    For the Periods Ended June 30,
                                ------------------------------------
                                  1999 (shares)      1998 (shares)
                                -----------------  -----------------

Options and Warrants                  16,000            312,000
                                      ======            =======

                                       9
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

     In September 1998, the Company's Board of Directors authorized the
     repurchase of up to $5 million of the Company's common stock.  As of June
     30, 1999, 311,000 shares had been acquired at an aggregate price of
     $1,905,000.  These treasury shares are reported at cost as a reduction to
     Stockholders' Equity.

3.   LONG TERM DEBT

     In April 1997, the Company entered into a senior unsecured revolving
     credit facility ("Senior Credit Facility") which currently has a borrowing
     base of $55.0 million and a maturity date of November 5, 2003.  The Company
     may elect an interest rate based either on a margin plus LIBOR or the
     higher of the prime rate or the sum of  1/2 of 1% plus the Federal Funds
     Rate.  For LIBOR borrowings, the interest rate will vary from LIBOR plus
     1.0% to LIBOR plus 1.75% based upon the borrowing base usage. As of
     June 30, 1999 there were $16.4 million borrowings outstanding under the
     Senior Credit Facility.

     The Senior Credit Facility contains various covenants including certain
     required financial measurements for current ratio, consolidated tangible
     net worth and interest coverage ratio.  In addition, the Senior Credit
     Facility includes certain limitations on restricted payments, dividends,
     incurrence of additional funded indebtedness and asset sales.

     In April 1997, the Company issued $100.0 million of 10-7/8% senior
     subordinated notes ("Notes") that mature April 1, 2007.  Interest on the
     Notes is payable semi-annually on April 1 and October 1. The Notes contain
     certain covenants, including limitations on indebtedness, liens, dividends
     and other payment restrictions affecting restricted subsidiaries, issuance
     and sales of restricted subsidiary stock, dispositions of proceeds of asset
     sales and restrictions on mergers and consolidations or sales of assets.

     Effective September 22, 1998, the Company entered into an eight and a half
     year interest rate swap agreement with a notional value of $80 million.
     Under the agreement, the Company receives a fixed interest rate and pays a
     floating interest rate based on the simple average of three foreign LIBOR
     rates.  Floating rates are redetermined for a six month period each April 1
     and October 1.  The floating rate for the period from April 1, 1999 to
     October 1, 1999 is 9.39%.  Through  April 1, 2002 the  floating rate is
     capped at 10.875% and capped at 12.875% thereafter.

                                       10
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

4.   NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
     Instruments and Hedging Activities."  This statement establishes standards
     of accounting for and disclosures of derivative instruments and hedging
     activities.  This statement is effective for fiscal years beginning after
     June 15, 2000.  The Company has not yet determined the impact of this
     statement on the Company's financial condition or results of operations.

5.   NATURAL GAS AND CRUDE OIL HEDGING

     Oil and gas revenues decreased $1,631,000 and $1,643,000 in the three and
     six months ended June 30, 1999, and increased $438,000 and $962,000 in the
     three and six month period ended June 30, 1998, as a result of hedging
     activity.

     Since year end 1998, the Company has entered into two contracts which
     establish a maximum and minimum sales price ("collar").  The first
     establishes a collar for 30,000 MMBTU per day for July 1, 1999 through
     October 31, 1999 with a floor NYMEX quoted price of $2.20 per MMBTU and a
     ceiling NYMEX quoted price of $2.61 per MMBTU, and the second establishes a
     collar for 15,000 MMBTU per day for November 1, 1999 through March 31, 2000
     with a floor NYMEX quoted price of $2.40 per MMBTU and a ceiling NYMEX
     quoted price of $3.10 per MMBTU.  In addition, the Company has current
     contracts to hedge a total of 368 MBBLS of oil during the months of July
     through September 1999 at a weighted average NYMEX quoted price of $15.58
     per barrel.  The fair value at June 30, 1999 of these swap agreements was a
     loss of  $1,171,000.


6.   LEGAL PROCEEDING

     The Company is a defendant in Cause No. C-4417-96-G, A.R. Guerra, et al. v.
     Eastern Exploration, Inc., et al., in the 370th Judicial District Court of
     Hidalgo County, Texas.  On May 11, 1999, the trial court granted
     plaintiffs' Motion for Summary Judgment and denied defendants' Motions for
     Summary Judgment.  The Company was not notified of the trial court's
     judgment until May 18, 1999.  The trial court awarded plaintiffs in excess
     of $5.8 million in damages plus interest.  The Company has a 75% interest
     in the leases made the subject of the lawsuit, but the judgment is joint
     and several against all defendants.

     The majority of the damages awarded to plaintiffs consist of compensatory
     royalties assessed under a compensatory royalty clause in plaintiffs' 648-
     acre oil and gas lease.  Defendants contend that the unambiguous meaning of
     the compensatory royalty clause is that, if a well is drilled within 1,200
     feet of the 648-acre lease, lessee must either commence an offset well
     within 120 days of the offending well, or commence payment of  compensatory
     royalties within 120 days of the offending well calculated on production
     from the well or wells drilled within 1,200 feet.

                                       11
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

     Plaintiffs contend that the unambiguous meaning of the compensatory royalty
     clause is that (1) lessees duties under the clause were expanded to the
     entirety of the gas unit within which plaintiffs' 648-acre lease is
     located; (2) if a well is drilled within 1,200 feet of the gas unit in
     which plaintiffs' 648-acre lease is located, the compensatory royalty
     provisions are merely "triggered"; (3) once the compensatory royalty
     provisions are triggered, lessee has a retroactive duty to commence an
     offset well or commence payment of compensatory royalties within 120 days
     of the first well drilled in the common field or reservoir underlying
     plaintiffs' 648-acre lease, regardless of when that first well was drilled
     and regardless of whether that first well is more than 1,200 feet away from
     either the gas unit or the 648-acre lease.  Plaintiffs claim that the
     compensatory royalty provisions were triggered when a well was allegedly
     drilled within 1,200 feet of the gas unit within which plaintiffs' 648-acre
     lease is located.  Because defendants could not go back in time and
     commence an offset well within 120 days of the first well that was
     allegedly drilled in the common field or reservoir underlying plaintiffs'
     648-acre lease, defendants had to go back in time and commence payment of
     compensatory royalties calculated on all wells allegedly drilled in the
     common field or reservoir.  In granting plaintiffs' Motion for Summary
     Judgement, the trial court adopted this interpretation of the clause.

     The Company believes that the trial court's judgment is in error for the
     following reasons, among others: (1) plaintiffs interpretation is
     unreasonable as a matter of law; (2) the duties under the compensatory
     royalty clause did not expand to the entirety of the unit, and because it
     is undisputed that no well was ever drilled within 1,200 feet of
     plaintiffs' 648-acre lease, lessees' duties under the compensatory royalty
     clause never came into effect as a matter of law; and (3) even if the
     duties under the compensatory royalty clause did expand to the entirety of
     the unit, defendants timely drilled an offset well within 120 days of the
     well that was allegedly drilled within 1,200 feet of the gas unit in which
     plaintiffs' 648-acre lease is located, and therefore no compensatory
     royalties are due as a matter of law.  Because the Company believes that
     the trial court's judgment is in error, the Company perfected an appeal of
     the judgment on August 9, 1999.  The Company intends to  vigorously
     prosecute the appeal, and believes, with its legal counsel, that a reversal
     of the judgment is more likely than not to occur.  Such an appeal could,
     however, require Bellwether to secure a bond in the amount of up to the
     full amount of the judgment, although it is more likely Bellwether's
     bonding obligation will be in the $3.5 million range.

                                       12
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

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

LIQUIDITY AND CAPITAL RESOURCES

The Company strives to maximize long-term shareholder value through aggressive
growth in reserves and cash flow using advanced technologies, implementation of
a low cost structure and maintenance of a capital structure supportive of
growth.  The Company employs an integrated interdisciplinary team approach to a
balanced program of strategic acquisitions of producing oil and gas properties
and technology driven development and exploration activities.  The funding of
these activities has historically been provided by operating cash flows, bank
financing, equity placements and sale of non-core assets.

The Company invested $24.8 million in oil and gas properties for the six months
ended June 30, 1999 versus $23.7 million for the same period in 1998.  The 1999
period included a net expenditure of $13.2 million on June 30, 1999 to acquire
producing oil and gas properties in the Gulf of Mexico.  The results for the
three and six month periods do not include any revenue, production costs or
expenses relative to these properties.  Cash flows from operations before
changes in assets and liabilities were $9.7 million for the six months ended
June 30, 1999 compared to $17.1 million provided by operating activities in the
same period of 1998. At June 30, 1999, the Company had $38.6 million of
available debt capacity under the Senior Credit Facility.

1999 CAPITAL EXPENDITURES

During 1999, the Company anticipates investing approximately $45.0 million,
primarily for development and exploratory drilling activities, leasehold and
seismic acquisitions and the producing property acquisition discussed above.
The Company believes its cash flow provided by operating activities and
borrowings under its  credit facilities will be sufficient to meet these
projected capital investments (See Note 3 of the Notes to Condensed Consolidated
Financial Statements). The Company continues to review acquisition opportunities
and the consummation of such a transaction  will directly impact anticipated
capital expenditures.

GAS BALANCING

It is customary in the industry for working interest partners to sell more or
less than their entitled share of natural gas.  The settlement or disposition of
existing gas balancing positions is not anticipated to materially impact the
financial condition of the Company.

                                       13
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

OIL AND GAS PROPERTY ACCOUNTING

The Company utilizes the full cost method of accounting for its investment in
oil and gas properties.  Under this method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
as incurred.  To the extent that capitalized costs of oil and gas properties,
net of accumulated depreciation, depletion and amortization, exceed the
discounted future net revenues of proved oil and gas reserves net of deferred
taxes, such excess capitalized costs would be charged to operations.  Due to
declines in oil and gas prices at year end, and to a lesser extent, downward
revisions in estimated proved reserves, the Company recorded a $73.9 million
pretax impairment charge in the fiscal year ended December 31, 1998. No such
charges to operations were required during the six month periods ending June 30,
1999 or 1998.

RESULTS OF OPERATIONS

The following table sets forth certain operating information for the Company for
the periods presented:

<TABLE>
<CAPTION>
                                                         Three Months Ended         Six Months Ended
                                                              June 30,                  June 30,
                                                  ----------------------------------------------------
                                                         1999         1998         1999         1998
                                                  ----------------------------------------------------
<S>                                                     <C>          <C>          <C>          <C>
Production:
  Oil and condensate (MBBLs)......................          501          605        1,021        1,177
  Natural gas (MMCF)..............................        4,196        6,025        8,981       11,756

Average sales price: (1)
  Oil and condensate (per BBL)....................       $13.56       $11.29       $11.42      $ 11.93
  Natural gas  (per MCF)..........................       $ 2.11       $ 2.17       $ 1.86      $  2.10

Average costs:
  Production expenses (per MCFE)..................       $  .70       $  .70       $  .70      $   .69
  General and administrative expense
     (per MCFE)...................................       $  .20       $  .21       $  .19      $   .25
  Depreciation, depletion and amortization
     (per MCFE)(2)................................       $  .76       $  .90       $  .65      $   .90
</TABLE>
(1)  Average sales prices exclude the effect of hedges, which decreased revenues
     by $1,631,000 and $1,643,000 in the three and six month periods in 1999,
     and increased revenues by $438,000 and $962,000 in the three and six month
     periods in 1998.
(2)  Excludes depreciation, depletion and amortization on gas plants and other
     assets of $310,000 and $616,000 in the three and six month periods in 1999,
     and of  $102,000 and $561,000 in the three and six month periods ended in
     1998.

                                       14
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

THREE MONTHS ENDED JUNE 30, 1999 AND 1998

Net income for the quarters ended June 30, 1999 and 1998 was $123,000 or $.01
per share, and $247,000 or $.02 per share,  respectively.  While oil and gas
revenues were approximately 31% lower in the quarter ended June 30, 1999,
expenses were, likewise, lower by 26% as compared to the quarter ended June 30,
1998.

Oil and gas revenues for the three months ended June 30, 1999 were $14.0
million, as compared to $20.3 million for the respective period in 1998.  The
31% decrease in oil and gas revenues is primarily due to the decline in oil and
gas production. Production volumes reflect normal declines from primarily the
offshore Gulf of Mexico properties.  Oil production was down 17% compared to the
same quarter of 1998 with 501,000 and 605,000 barrels for the three month
periods ended June 30, 1999 and 1998, respectively.  Gas production was down 30%
compared to the same quarter of 1998 with 4,196 and 6,025 million cubic feet
(MMcf) for the three month periods ended June 30, 1999 and 1998, respectively.

Oil prices averaged $13.56 per barrel in the three month period ended June 30,
1999 as compared to $11.29 per barrel in the comparable period of 1998.   Gas
prices averaged $2.11 per mcf in the three month period ended June 30, 1999 as
compared to $2.17 per mcf in the comparable period of 1998.  This represents a
3% decline in gas prices. Oil and gas hedges in  place in 1998 resulted in
$438,000 of additional oil and gas revenues in the period ended June 30, 1998
while a decrease in oil and gas revenues of $1,631,000 was reflected in the same
period of 1999.

Net gas plant operating profit was $254,000 in the three months ended June 30,
1999 and $321,000 in the same period of 1998.  While throughput volumes were
slightly down in 1999 as compared to 1998, liquid prices were slightly higher in
1999 resulting in gas plant revenues in 1999 comparable to gas plant revenues in
1998.  Gas plant expenses were approximately 22% higher in the three month
period ended June 30, 1999 versus the three month period ended June 30, 1998.
The increase was due to increased chemical and labor costs attributable to the
amine unit.  The amine unit problems have been successfully resolved and
expenses should be lower in  the next quarter.

Interest and other income increased from $326,000 for the three months ended
June 30, 1998 to $986,000 for the three months ended June 30, 1999 primarily as
a result of the receipt of take or pay revenue contract settlements.

Production expenses for the three months ended June 30, 1999 totaled $5.0
million, or 26% below the $6.8 million for the three months June 30, 1998.  The
decrease results from certain uneconomical properties being abandoned and the
declining production in the Gulf of Mexico properties mentioned above.  On an
Mcf equivalency  basis (Mcfe), production expenses of $.70 per Mcfe for the
quarter ended June 30, 1999 were flat as compared to quarter ended June 30,
1998.

                                       15
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Depreciation, depletion and amortization was $5.8 million for the three months
ended June 30, 1999 and $8.8 million for the three month period ended June 30,
1998.  The decline resulted from the $73.9 million impairment charge made at
December 31, 1998 as well as decreased production volumes.  Depreciation,
depletion and amortization  per Mcfe has declined from $.90 per Mcfe in 1998 to
$.76 per Mcfe in 1999.

General and administrative expenses totaled $1.5 million in the three months
ended June 30, 1999 as compared to $2.0 million for the comparable period of
fiscal 1998.   A decrease in outsourcing costs from $1.0 million to $.5 million
was the major contribution to the decline.   The Company is charged a management
fee under its current outsourcing contract which is based upon a specified
percentage of the average book value of the Company's total assets, excluding
cash, plus a percentage of operating cash flows. Due to the $73.9 million
impairment charge described above, the Company's total assets and resulting
percentage of such assets was reduced.  On an Mcfe basis, general and
administrative expenses were $.20 per Mcfe in the period ended June 30, 1999 and
$.21 per Mcfe in the period ended June 30, 1998.

Interest expense remained relatively flat at $2.9 million for the three months
ended June 30, 1999 and $3.0 million in the same period of 1998 even though the
Company had higher average balances outstanding in 1999.  Savings of $301,000
realized as an interest rate swap accounted for the decline.

The provision for federal and state income taxes for the three months ended June
30, 1999 and 1998 are based upon a 0% and 38% effective tax rate, respectively.
No tax has been recorded in 1999 due to the adjustment to the Company's tax
valuation allowance for the current periods' net income from operations.

SIX MONTHS ENDED JUNE 30, 1999 AND 1998

Net loss for the six months ended June 30, 1999 and 1998 was $1.2 million or
$.08 per share, and $.1 million or $.01 per share,  respectively.  The increased
loss is due to lower oil and gas prices in the first quarter of 1999 and lower
oil and gas production as compared to the six months ended June 30, 1998.

Oil and gas revenues for the six months ended June 30, 1999 were $26.8 million,
as compared to $39.7 million for the respective period in 1998.  The 33%
decrease in oil and gas revenues is partially due to the decline in oil and gas
prices in the first quarter.  Oil prices averaged $11.42 per barrel in the six
month period ended June 30, 1999 as compared to $11.93 per barrel in the
comparable period of 1998.  Gas prices averaged $1.86 per mcf in the six month
period ended June 30, 1999 as compared to $2.10 per mcf in the comparable period
of 1998. Oil and gas hedges in place in 1998 resulted in $962,000 of additional
oil and gas revenues in the period ended June 30, 1998 while a decrease in
revenues of $1,643,000 was reflected in the same period of 1999.

Production volumes reflect normal declines from primarily the offshore Gulf of
Mexico properties.  Oil production was down 13% compared to the same quarter of
1998 with 1,021,000 and 1,177,000 barrels for the six month periods ended
June 30, 1999 and 1998, respectively.  Gas production was down 24% compared to
the same period of 1998 with 8,981 MMcf and 11,756 MMcf for the six month
periods ended June 30, 1999 and 1998, respectively.

                                       16
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Net gas plant operating profit was $475,000 in the six months ended June 30,
1999 and $547,000 in the same period of 1998.  Lower average natural gas liquid
prices in 1999 as compared to 1998 was the reason for the decrease in net gas
plant operating profit.

Interest and other income increased from $.5 million at June 30, 1998 to $1.3
million at June 30, 1999 primarily as a result of the receipt of take or pay
revenue contract settlements.

Production expenses for the six months ended June 30, 1999 totaled $10.6
million, or 18% below the $12.9 million for the six months June 30, 1998.  The
decrease results from certain uneconomical properties being abandoned and the
declining production in the Gulf of Mexico properties mentioned above.  On an
Mcfe basis, production expenses of $.70 per Mcfe for the six months ended June
30, 1999 were almost flat as compared to production expenses of $.69 per Mcfe
for the six months ended June 30, 1998.  The decreased oil and gas volumes
mentioned above resulted in the increased production costs on an equivalency
basis.

Depreciation, depletion and amortization was $10.4 million for the six months
ended June 30, 1999 and $17.6 million for the six month period ended June 30,
1998.  The decline resulted from the $73.9 million impairment charge made at
December 31, 1998 as well as decreased production volumes.  Depreciation,
depletion and amortization  per Mcfe has declined from $.90 per Mcfe in 1998 to
$.65 per Mcfe in 1999.

General and administrative expenses totaled $2.9 million in the six months ended
June 30, 1999 as compared to $4.6 million for the comparable period of fiscal
1998.   A decrease in outsourcing costs from $2.3 million to $1.1 million was
the major contribution to the decline.   The Company is charged a management fee
under its current outsourcing contract which is based upon a specified
percentage of the average book value of the Company's total assets, excluding
cash, plus a percentage of operating cash flows. Due to the $73.9 million
impairment charge described above, the Company's total assets and resulting
percentage of such assets was reduced.  Additionally, the 1998 period included
costs related to the closing of the Company's Dallas exploration office in March
1998 and certain transition costs related to the change of the Company's 1997
fiscal year.  On an Mcfe basis, general and administrative expenses were $.19
per Mcfe in the period ended June 30, 1999 and $.25 per Mcfe in the period ended
June 30, 1998.

Interest expense remained relatively flat at $5.7 million for the six months
ended June 30, 1999 and $6.0 million in the same period of 1998 even though the
Company had higher average balances outstanding in 1999.  Savings of $482,000
realized as an interest rate swap accounted for the decline.

The provision for federal and state income taxes for the six months ended June
30, 1999 and 1998 are based upon a 0% and 36% effective tax rate, respectively.
No tax accrual has been made in 1999 because of an increase in the Company's tax
valuation allowance for the benefit for the current period's net loss from
operations.

                                       17
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

SUBSEQUENT EVENTS

In late July, the Board of Directors formed an Office of the Chief Executive to
oversee the day-to-day running of the Company's operations.  Directors J.P.
Bryan and Townes Pressler will constitute the Office of the Chief Executive.
Mr. Bryan will serve as Chairman and CEO and, with Mr. Pressler, will be
actively involved in the daily direction and operations of the Company until a
new CEO can be found.  Mr. J. Darby Sere, previously Chairman and CEO and
William C. Rankin, previously Senior Vice President and Chief Financial Officer
left the Company to pursue other opportunities.  The Company will immediately
commence a search for a new Chief Financial Officer.  Mr. Bryan is Senior
Managing Director of and a holder of Common Stock of the parent corporation of
Torch Energy Advisors, Inc. ("Torch").  The Company is party to an
administrative services agreement with Torch, pursuant to which Torch performs
certain administrative functions for the Company, including financial,
accounting, legal and technical support.

YEAR 2000 ISSUES

The Year 2000 problem ("Y2k") refers to the inability of computer and other
information technology systems to properly process date and time information.
The problem was caused, in part, by the outdated programming practice of using
two digits rather than four to represent the year in a date.  The consequence of
the Y2k problem is that information technology and embedded processing systems
are at risk of malfunction, particularly during the transition between 1999 to
2000.

The effects of Y2k are exacerbated by the interdependence of computer and
telecommunication systems throughout the world.  This interdependence also
exists among the Company and its vendors, customers and business partners, as
well as with government agencies.

The risks of Y2k fall into three general areas:  1) Corporate Systems, 2) Field
Systems and 3) Third Party Exposure.  The Company is addressing each of these
areas through a readiness process that follows the steps below:

  a) Planning and Awareness
  b) Inventory and Assessment
  c) Identify Potential Problems and their Business Impact
  d) Identify/Approve Solutions
  e) Test and Implement Solutions
  f) Contingency Planning

The Company outsources a substantial portion of its information technology and
field operations to Torch.  The Company and Torch have jointly developed a plan
to address the Company's Year 2000 issues.  (As used in the remainder of this
discussion, references to the Company include the Torch employees assisting the
Company in its Year 2000 compliance program.)

                                       18
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The Company has formed a Y2k Team comprised of representatives from senior
management, exploration, exploitation, accounting, legal and internal audit.
The continuing progress of this Y2k Team is reported regularly to the Company's
Board of Directors.

The estimated total costs for Y2k readiness have been nominal.  It is
anticipated that such costs for complete Y2k readiness will continue to be
nominal as much of these costs are borne by Torch under the terms of the
existing outsourcing agreement.  In addition, there have been no material
capital expenditures for Y2k and there is not anticipated to be material capital
expenditures because most major critical field operations do not have date
sensitive equipment.

CORPORATE SYSTEMS

1. Planning and Awareness.  All employees have attended Y2k informational
   programs including a general discussion of what Y2k is and how it could
   affect the business.  Employees of all levels of the organization have been
   asked to participate in the identification of potential Y2k risks.

2. Inventory and Assessment.  The Company has completed an inventory of the
   traditional computing platforms including client/server systems, LAN systems
   and PC systems, as well as an inventory of all systems software and operating
   systems for each computing system.  In addition, third party service
   interfaces, banking/treasury interfaces and telecommunications have been
   cataloged.

   Assessment of component compliance (compliant, not-compliant, expected date
   of compliance, etc.) has been completed and included research of product
   information on the Internet, contacting peer group companies and accessing
   information that peer group companies have already found.

3. Identification.  The failure to identify and correct a material Y2k problem
   in the Corporate Systems could result in inaccurate or untimely financial
   information for management decision-making or financial reporting purposes.
   The severity of such problems may impact the duration during which quality
   information is available to management.  At this time, management believes
   that any Y2k disruptions associated with its financial and administration
   systems will not have a material effect on the Company.

4. Identify/Approve Solutions. Based upon the assessments of components'
   compliance, solutions are determined. These solutions include: 1) fix or
   replace the non-compliant component, 2) buy patches or replacement items, 3)
   develop workarounds, 4) identify alternate automated processes, 5) design
   manual procedures and 6) develop business continuity plans for specific items
   or systems.

                                       19
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

5. Test and Implement Solutions. Since April 1998 Torch has been working on a
   upgrade to its accounting software and is expected to achieve full Y2k
   compliance by August 1999. In addition, all network and desktop applications
   used by the Company have been inventoried and are generally Y2k compliant.
   The costs of all such risk assessments and remediation are borne by Torch
   under the terms of Bellwether's outsourcing agreements.

6. Contingency Planning.  Notwithstanding the foregoing, should there be
   significant unanticipated disruptions in the Company's financial and
   administrative systems, a number of accounting processes that are currently
   automated will need to be performed manually.  The Company is currently
   considering its options with respect to contingency arrangements for
   temporary staffing to accommodate such situations.

FIELD SYSTEMS

1. Planning and Awareness.  The Company's Y2k program has involved all levels of
   management of field and facility assets from production foremen and higher.
   Employees at all levels of the organization have been asked to participate in
   the identification of potential Y2k risk, which might otherwise go unnoticed
   by higher level employees and officers of Bellwether, and as a result, the
   Company believes that awareness of the issue is high.

2. Inventory and Assessment.  This step entailed locating all embedded chip
   technology used in the field operations including safety systems, measurement
   devices, overflow valves, SCADA systems and other field processes that are
   date-or-time-sensitive.  It is estimated that there are less than a hundred
   embedded components residing in the computer systems within Bellwether's
   operated oil and natural gas fields and processing plants.  During the
   assessment stage a list of assets to be tested was assembled.  Consideration
   was given to 1) issues of health and safety, 2) environmental concerns, 3)
   economic factors and 4) other business risks as appropriate.  Vendors and
   manufacturers have been contacted as well as product research through the
   Internet and the use of peer group company shared information.  To date, the
   majority of embedded components researched have been deemed either date-
   insensitive or Y2k compliant.  However, the complexity of embedded systems is
   such that a small minority of non-compliant components, even a single non-
   compliant component, can corrupt an entire system.  Now that the component
   level evaluation is substantially complete, a broader evaluation at the
   system level has commenced.  Bellwether anticipates that the system level
   evaluation will be completed by the end of the third quarter 1999.

3. Identification.  The failure to identify and correct a material Y2k problem
   could result in outcomes ranging from errors in data reporting to
   curtailments or shutdowns in production or discharges of materials onto the
   environment.  The Company prioritized the remediation of embedded components
   and systems which are either known to be Y2k non-compliant or which have
   higher risk of Y2k failures.

                                       20
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

   To assist in this effort, Bellwether and Torch retained consultants
   knowledgeable and experienced in the assessment of Y2k issues impacting field
   operations. Bellwether gave extremely high priority to the remediation of any
   situation that could impact employee health and safety or environmental
   security. The cost of the assessment was not material to Bellwether's
   financial results. Despite these efforts, it is possible that there will be
   production disruptions or other Y2k related problems associated with Y2k non-
   compliance. Depending on the magnitude of any such disruptions or other
   problems, and the time and cost required to correct them, such failures could
   materially and adversely impact the Company's results of operations,
   liquidity and financial condition.

4. Identify/Approve Solutions.  Based upon the assessment of field systems,
   regarding compliance or non-compliance, solutions were determined.  These
   potential solutions included 1) fix or replace non-compliant items, 2) buy
   patches or replacement items, 3) develop workarounds, 4) identify alternative
   automated processes, 5) design manual procedures and 6) develop business
   continuity plans for specific items or systems.

5. Test and Implement Solutions.  Once identified, assessed and prioritized,
   Bellwether is continuing to  test, upgrade and certify those embedded
   components and systems in field process control units deemed to pose the
   greatest risk of significant non-compliance.  It is important to note that in
   some circumstances, the procedures used to test embedded components for Y2k
   compliance themselves pose a risk of damaging the component or corrupting the
   system.  Accordingly, there may be situations in which a decision not to test
   may be deemed the most prudent.

   The Company does not expect the cost of testing and upgrading its embedded
   chips to be material due to the number of components and the low cost of such
   components. If this assumption is incorrect, the Company may incur material
   costs in connection with testing and remedying Year 2000 problems. In
   addition, if the Company is not successful and ultimately experiences Y2k
   related failures, the costs attributable to lost production, damages to
   facilities and environmental damages may be material. The effort to address
   the Y2k situation is dynamic and may likely not be fully completed by
   December 31, 1999.


6. Contingency Planning.  Should material production disruptions occur as a
   result of Y2k failures in the field operations, Bellwether's operating cash
   flow will be impacted.  This contingency is being factored into deliberations
   on capital budgeting, liquidity and capital adequacy.  It is management's
   intention to maintain adequate financial flexibility to sustain the Company
   during any such period of cash flow disruption.

                                       21
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

THIRD PARTY EXPOSURES

1. Planning and Awareness.  The Company has been involved in informational
   programs with its employees and the employees of Torch who have significant
   interaction with outside vendors, customers and business partners of the
   Company. All levels of employees in the organization have been asked to
   participate in the identification of potential third party Y2k risk, which
   might otherwise go unnoticed by higher level employees and officers of
   Bellwether, and as a result, awareness of the issue is considered high.

2. Inventory and Assessment.  Surveys of general Y2k readiness have been sent to
   all vendors, customers and business partners of the Company.  An assessment
   is made regarding the priority of risk associated with each third party, and
   how the third party's level of compliance directly affects day-to-day
   business.  The Company's most critical customers are outside operators of
   wells, gas plants, refineries, natural gas marketers and pipelines.

3. Identification.  Refineries are extremely complex operations containing
   hundreds or thousands of computerized processes.  The failure on the part of
   a Bellwether refinery customer to identify and correct a material Y2k problem
   could result in material disruptions in the sale of Bellwether's production
   to that refinery.  In many cases, affected Bellwether production may not be
   easily shifted to other markets, and markets may have similar effects.
   Although the Company has made inquiries to key third parties on the subject
   of Y2k readiness and will continue to do so, it has no ability to require
   responses to such inquiries or to independently verify their accuracy.
   Accordingly, management is unable to express any view about whether there
   will be material production disruptions associated with third party Y2k non-
   compliance.  Depending on the magnitude of any such disruptions and the time
   required to correct them, such failures could materially and adversely impact
   the Company's results of operations, liquidity and financial condition.

   Other significant concerns include the integrity of global telecommunication
   systems, the readiness of commercial banks to execute electronic fund
   transfers and of the ability of the financial community to maintain an
   orderly market in Bellwether's securities.

4. Identify/Approve Solutions.  By prioritizing the various third party risks
   mentioned above, a list of most critical third party vendors, customers and
   business partners has been determined.  By cross-referencing the results of
   the Y2k readiness survey with the Company's priority list of third parties,
   solutions can be determined.  These may involve field and/or office visits
   and more detailed meetings to access the third party's Y2k compliance.

                                       22
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

5. Test and Implement Solutions.  Where the Company perceives significant risk
   of Y2k non-compliance that may have a material impact on the Company, and
   where the relationship between the Company and a vendor, customer or business
   partner permits, joint testing may be undertaken during 1999.  Joint testing
   would occur following upgrades and other remediation to hardware, software
   and communications links, as applicable, with the intent of determining that
   the remediated system being tested will perform as expected after
   December 31, 1999.

6. Contingency Planning.  Should material production disruptions occur as a
   result of Y2k failures of third parties, Bellwether's operating cash flow
   will be impacted.  This contingency is being factored into deliberations on
   capital budgeting, liquidity and capital adequacy.  It is management's
   intention to maintain adequate financial flexibility to sustain the Company
   during any such period of cash flow disruption.

FORWARD LOOKING STATEMENTS

This Form 10-Q contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended.  All statements other than
statements of historical facts included herein, including without limitation,
statements under "Management's Discussion and Analysis of  Financial Condition
and Results of Operations" and in the notes to the financial statements
regarding the Company's financial position, capital budget, legal proceedings,
intent to acquire oil and gas properties, estimated quantities and net present
values of reserves, business strategy, plans and objectives of management of the
Company for future operations, gas plant operations and the effect of gas
balancing and the Year 2000 problem, are forward-looking statements.  There can
be no assurances that such forward looking statements will prove to have been
correct.  Important factors that could cause actual results to differ materially
from the Company's expectations ("Cautionary Statements") include the volatility
of oil and gas prices, operating hazards, government regulations, exploration
risks and other factors described in the Company's Form 10-K filed with the
Securities and Exchange Commission.  All subsequent written and oral forward-
looking statements attributable to the Company or persons acting on its behalf
are expressly qualified by the Cautionary Statements.

                                       23
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk, including adverse changes in commodity
prices and interest rates.

Since year end 1998, the Company has entered into two contracts which establish
a maximum and minimum sales price ("collar").  The first establishes a collar
for 30,000 MMBTU per day for July 1, 1999 through October 31, 1999 with a floor
NYMEX quoted price of $2.20 per MMBTU and a ceiling NYMEX quoted price of $2.61
per MMBTU, and the second establishes a collar for 15,000 MMBTU per day for
November 1, 1999 through March 31, 2000 with a floor NYMEX quoted price of $2.40
per MMBTU and a ceiling NYMEX quoted price of $3.10 per MMBTU.  In addition, the
Company has current contracts to hedge a total of 368 MBBLS of oil during the
months of July through September 1999 at a weighted average NYMEX quoted price
of $15.58 per barrel.  The fair value at June 30, 1999 of these swap agreements
was a loss of  $1,171,000.  A 10% change in prices would result in approximately
$700,000 change in the loss.

                                       24
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

                          PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

              The Company is a defendant in Cause No. C-4417-96-G, A.R. Guerra,
              et al. v. Eastern Exploration, Inc., et al., in the 370th Judicial
              District Court of Hidalgo County, Texas.  On May 11, 1999, the
              trial court granted plaintiffs' Motion for Summary Judgment and
              denied defendants' Motions for Summary Judgment.  The Company was
              not notified of the trial court's judgment until May 18, 1999.
              The trial court awarded plaintiffs in excess of $5.8 million in
              damages plus interest.  The Company has a 75% interest in the
              leases made the subject of the lawsuit, but the judgment is joint
              and several against all defendants.

              The majority of the damages awarded to plaintiffs consist of
              compensatory royalties assessed under a compensatory royalty
              clause in plaintiffs' 648-acre oil and gas lease.  Defendants
              contend that the unambiguous meaning of the compensatory royalty
              clause is that, if a well is drilled within 1,200 feet of the 648-
              acre lease, lessee must either commence an offset well within 120
              days of the offending well, or commence payment of  compensatory
              royalties within 120 days of the offending well calculated on
              production from the well or wells drilled within 1,200 feet.

              Plaintiffs contend that the unambiguous meaning of the
              compensatory royalty clause is that (1) lessees duties under the
              clause were expanded to the entirety of the gas unit within which
              plaintiffs' 648-acre lease is located; (2) if a well is drilled
              within 1,200 feet of the gas unit in which plaintiffs' 648-acre
              lease is located, the compensatory royalty provisions are merely
              "triggered"; (3) once the compensatory royalty provisions are
              triggered, lessee has a retroactive duty to commence an offset
              well or commence payment of compensatory royalties within 120 days
              of the first well drilled in the common field or reservoir
              underlying plaintiffs' 648-acre lease, regardless of when that
              first well was drilled and regardless of whether that first well
              is more than 1,200 feet away from either the gas unit or the 648-
              acre lease.  Plaintiffs claim that the compensatory royalty
              provisions were triggered when a well was allegedly drilled within
              1,200 feet of the gas unit within which plaintiffs' 648-acre lease
              is located.  Because defendants could not go back in time and
              commence an offset well within 120 days of the first well that was
              allegedly drilled in the common field or reservoir underlying
              plaintiffs' 648-acre lease, defendants had to go back in time and
              commence payment of compensatory royalties calculated on all wells
              allegedly drilled in the common field or reservoir.  In granting
              plaintiffs' Motion for Summary Judgement, the trial court adopted
              this interpretation of the clause.

              The Company believes that the trial court's judgment is in error
              for the following reasons, among others: (1) plaintiffs
              interpretation is unreasonable as a matter of law; (2) the duties
              under the compensatory royalty clause did not expand to the
              entirety of the unit, and because it is undisputed that no well
              was ever drilled within 1,200 feet of

                                       25
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

                    PART II.  OTHER INFORMATION (CONTINUED)

              plaintiffs' 648-acre lease, lessees' duties under the compensatory
              royalty clause never came into effect as a matter of law; and (3)
              even if the duties under the compensatory royalty clause did
              expand to the entirety of the unit, defendants timely drilled an
              offset well within 120 days of the well that was allegedly drilled
              within 1,200 feet of the gas unit in which plaintiffs' 648-acre
              lease is located, and therefore no compensatory royalties are due
              as a matter of law.  Because the Company believes that the trial
              court's judgment is in error, the Company perfected an appeal of
              the judgment on August 9, 1999.  The Company intends to
              vigorously prosecute the appeal, and believes, with its legal
              counsel, that a reversal of the judgment is more likely than not
              to occur.  Such an appeal could, however, require Bellwether to
              secure a bond in the amount of up to the full amount of the
              judgment, although it is more likely Bellwether's bonding
              obligation will be in the $3.5 million range.


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

              None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

              None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

              A Proxy statement was sent to all shareholders of record as of
              April 13, 1999 for the following matters which were voted on at
              the annual meeting of shareholders held on May 28, 1999:

              1.  J.P. Bryan, Habib Kairouz, A.K. McLanahan, Vincent H. Buckley,
              Dr. Jack Birks, and Townes Pressler were elected as directors with
              12,201,094 shares voting in favor, 92,561 shares abstaining and no
              shares voting against.  J. Darby Sere was elected with 12,201,077
              shares voting in favor, 92,578 abstaining and no shares voting
              against.

              No other matters were brought up at the meeting.

              A copy of the Proxy Statement was filed with the Securities and
              Exchange Commission on April 23, 1999 and is incorporated herein
              by reference.

ITEM 5.  OTHER INFORMATION

              None.

                                       26
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

                    PART II. OTHER INFORMATION (CONTINUED)

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         a.  Exhibits.
                  The following exhibits are filed with this Form 10-Q and they
                  are identified by the number indicated.

                    10.15  Purchase and Sale Agreement dated June 11, 1999
                           between Bellwether Exploration Company as Buyer and
                           Energen Resources MAQ, Inc. as Seller - Included
                           herewith
                    10.16  Separation contract dated August 9, 1999 between the
                           Company and J. Darby Sere - Included herewith
                    10.17  Separation contract dated August 9, 1999 between the
                           Company and William C. Rankin - Included herewith
                    21.1   Subsidiaries of Bellwether Exploration Company -
                           Included herewith
                    27     Financial Data Schedule - Included herewith

         b.  Reports on Form 8-K.
                  None.

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<PAGE>

                                  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.

                             BELLWETHER EXPLORATION COMPANY
                             ------------------------------
                                      (Registrant)


Date: August 13, 1999        By: /s/ J.P. Bryan
                                 --------------------------
                                 J.P. Bryan
                                 Chairman and Chief Executive Officer


Date: August 13, 1999        By: /s/ J.P. Bryan
                                 --------------------------
                                 J.P. Bryan
                                 Chief Financial Officer

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