<PAGE>
                                  UNITED STATES
                       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 SEPTEMBER 30, 2003

                                       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



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



Delaware                                                             76-0437769
(State or other jurisdiction of            (IRS Employer Identification Number)
incorporation or organization)
1331 Lamar, Suite 1455, Houston, Texas                               77010-3039
(Address of principal executive offices)                             (ZIP Code)

       Registrant's telephone number, including area code: (713) 495-3000

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).  Yes    No X
                                                ---   ---
As of November 10, 2003, 23,517,636 shares of common stock of Mission Resources
Corporation were outstanding.


<PAGE>

                          MISSION RESOURCES CORPORATION


                                      INDEX

<Table>
<Caption>
                                                                                                                  Page #
                                                                                                                  ------
<S>                                                                                                               <C>
PART I.   FINANCIAL INFORMATION

     ITEM 1.  Financial Statements

              Condensed Consolidated Balance Sheets:
                         September 30, 2003 (Unaudited) and December 31, 2002....................................   1
              Condensed Consolidated Statements of Operations (Unaudited):
                         Three months and nine months ended September 30, 2003 and 2002..........................   3
              Condensed Consolidated Statements of Cash Flows (Unaudited):
                         Nine months ended September 30, 2003 and 2002...........................................   4
              Notes to Condensed Consolidated Financial Statements (Unaudited)...................................   6

     ITEM 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations............................................................  20

     ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk ........................................  33

     ITEM 4.  Controls and Procedures        ....................................................................  34

PART II.  OTHER INFORMATION......................................................................................  36

     ITEM 1.  Legal Proceedings..................................................................................  36

     ITEM 2.  Change in Securities and Use of Proceeds ..........................................................  36

     ITEM 3.  Defaults Upon Senior Securities ...................................................................  36

     ITEM 4.  Submission of Matters to a Vote of Security Holders ...............................................  36

     ITEM 5.  Other Information .................................................................................  36

     ITEM 6.  Exhibits and Reports on Form 8-K ..................................................................  37
</Table>


<PAGE>



                          PART I. FINANCIAL INFORMATION


                          MISSION RESOURCES CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                             (Amounts in thousands)

ITEM I. FINANCIAL STATEMENTS

                                     ASSETS
<Table>
<Caption>
                                                                                          September 30,     December 31,
                                                                                              2003              2002
                                                                                         --------------    --------------
                                                                                          (Unaudited)
<S>                                                                                      <C>               <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................................   $       14,346    $       11,347
Accounts receivable and accrued revenues .............................................           10,694            18,931
Prepaid expenses and other ...........................................................            4,392             2,148
                                                                                         --------------    --------------
    Total current assets .............................................................           29,432            32,426
                                                                                         --------------    --------------

PROPERTY AND EQUIPMENT, AT COST:
Oil and gas properties (full cost):
    Unproved properties of  $8,037 and $8,369 excluded from depletion as of
       September 30, 2003 and December 31, 2002, respectively
                                                                                                799,307           775,344
Asset retirement cost ................................................................           14,632                --
Accumulated depreciation, depletion and amortization--oil and gas ....................         (477,940)         (474,625)
                                                                                         --------------    --------------
Net property, plant and equipment ....................................................          335,999           300,719

Leasehold, furniture and equipment ...................................................            4,420             3,545
Accumulated depreciation .............................................................           (1,895)           (1,449)
                                                                                         --------------    --------------
Net leasehold, furniture and equipment ...............................................            2,525             2,096
                                                                                         --------------    --------------

OTHER ASSETS .........................................................................            6,147             7,163
                                                                                         --------------    --------------
                                                                                         $      374,103    $      342,404
                                                                                         ==============    ==============
</Table>

      See accompanying notes to condensed consolidated financial statements


<PAGE>




                          MISSION RESOURCES CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                (Amounts in thousands, except share information)

<Table>
<Caption>
                                                                                                   September 30,       December 31,
                                                                                                       2003              2002
                                                                                                   --------------    --------------
                                                                                                    (Unaudited)
<S>                                                                                                <C>               <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities .......................................................   $       28,621    $       24,498
Commodity derivative liabilities ...............................................................            5,345             6,973
Asset retirement obligation ....................................................................            2,726                --
Interest rate swap .............................................................................               --                 3
                                                                                                   --------------    --------------
    Total current liabilities ..................................................................           36,692            31,474
                                                                                                   --------------    --------------


LONG-TERM DEBT:
Term loan facility .............................................................................           80,000                --
Subordinated notes due 2007 ....................................................................          127,426           225,000
Unamortized premium on $125 million subordinated notes .........................................            1,214             1,431
                                                                                                   --------------    --------------
    Total long-term debt .......................................................................          208,640           226,431
                                                                                                   --------------    --------------

LONG-TERM LIABILITIES:
Interest rate swap, excluding current portion ..................................................               --             1,817
Commodity derivative liabilities, excluding current portion ....................................              771               359
Deferred income taxes ..........................................................................           18,973            16,946
Asset retirement obligation, excluding current portion .........................................           39,257                --
Other ..........................................................................................              146                --
                                                                                                   --------------    --------------
    Total long-term liabilities ................................................................           59,147            19,122
                                                                                                   --------------    --------------

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued
    or outstanding at September 30, 2003 and December 31, 2002 .................................               --                --
Common stock, $0.01 par value, 60,000,000 shares authorized, 23,517,636 and
     23,585,959 shares issued at September 30, 2003 and
    December 31, 2002, respectively ............................................................              239               239
Additional paid-in capital .....................................................................          163,847           163,837
Retained deficit ...............................................................................          (88,729)          (92,599)
Treasury stock, at cost, 389,323 shares at September 30, 2003 and
    311,000 shares at December 31, 2002 ........................................................           (1,937)           (1,905)
                                                                                                           (3,796)           (4,195)
Other comprehensive income (loss), net of taxes
                                                                                                   --------------    --------------
     Total stockholders' equity ................................................................           69,624            65,377
                                                                                                   --------------    --------------

                                                                                                   $      374,103    $      342,404
                                                                                                   ==============    ==============
</Table>


      See accompanying notes to condensed consolidated financial statements



                                      -2-
<PAGE>


                          MISSION RESOURCES CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

              (Amounts in thousands, except per share information)


<Table>
<Caption>
                                                                         Three Months Ended                 Nine Months Ended
                                                                            September 30                      September 30
                                                                     ----------------------------    ----------------------------
                                                                         2003            2002           2003             2002
                                                                     ------------    ------------    ------------    ------------
<S>                                                                  <C>             <C>             <C>             <C>
REVENUES:
  Oil and gas revenues ...........................................   $     24,071    $     25,848    $     74,246    $     86,096
  Gain on extinguishments of debt ................................            --               --          22,375              --
  Interest and other income (expense) ............................            170           1,723             892          (7,959)
                                                                     ------------    ------------    ------------    ------------
                                                                           24,241          27,571          97,513          78,137
                                                                     ------------    ------------    ------------    ------------

COST AND EXPENSES:
   Lease operating expenses ......................................          8,309           8,769          25,563          33,118
   Transportation costs ..........................................            130              73             322             211
   Taxes other than income .......................................          2,106           2,365           6,951           7,094
   Asset retirement obligation accretion expense .................            350              --           1,038              --
   Loss of sale of assets ........................................             --              --              --           2,719
   Depreciation, depletion and amortization ......................         10,037           9,718          27,963          31,917
   General and administrative expenses ...........................          2,581           5,016           8,013          10,018
   Interest expense ..............................................          6,569           5,365          19,028          20,420
                                                                     ------------    ------------    ------------    ------------
                                                                           30,082          31,306          88,878         105,497
                                                                     ------------    ------------    ------------    ------------
Income (loss) before income taxes and cumulative effect of a .....         (5,841)         (3,735)          8,635         (27,360)
   change in accounting method
Provision (benefit) for income taxes .............................         (2,038)         (1,307)          3,029          (9,576)
                                                                     ------------    ------------    ------------    ------------

Income (loss) before income taxes and cumulative effect of a
   change in accounting method ...................................         (3,803)         (2,428)          5,606         (17,784)
Cumulative effect of a change in accounting method, net of
   deferred tax of $935 ..........................................             --              --          (1,736)             --
                                                                     ------------    ------------    ------------    ------------

Net income (loss) ................................................   $     (3,803)   $     (2,428)   $      3,870    $    (17,784)
                                                                     ============    ============    ============    ============

Income (loss) before cumulative effect of a change in accounting
   method per share ..............................................   $      (0.16)   $      (0.10)   $       0.24    $      (0.75)
                                                                     ============    ============    ============    ============
Income (loss) before cumulative effect of a change in accounting
   method per share-diluted ......................................   $      (0.16)   $      (0.10)   $       0.23    $      (0.75)
                                                                     ============    ============    ============    ============

Net income (loss) per share ......................................   $      (0.16)   $      (0.10)   $       0.16    $      (0.75)
                                                                     ============    ============    ============    ============
Net income (loss) per share - diluted ............................   $      (0.16)   $      (0.10)   $       0.16    $      (0.75)
                                                                     ============    ============    ============    ============

Weighted average common shares outstanding .......................         23,515          23,586          23,508          23,586
                                                                     ============    ============    ============    ============

Weighted average common shares outstanding - diluted .............         23,515          23,586          24,291          23,586
                                                                     ============    ============    ============    ============
</Table>

      See accompanying notes to condensed consolidated financial statements




                                      -3-
<PAGE>

                          MISSION RESOURCES CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                             (Amounts in thousands)

<Table>
<Caption>
                                                                                                     Nine Months Ended
                                                                                                       September 30,
                                                                                             --------------------------------
                                                                                                 2003               2002
                                                                                             --------------    --------------
<S>                                                                                          <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................................................   $        3,870    $      (17,784)

    Adjustments to reconcile net income (loss) to net cash provided by
    operating activities:
        Depreciation, depletion and amortization .........................................           27,963            31,917
        (Gain) loss on interest rate swap ................................................             (520)           (1,567)
        (Gain) loss due to commodity hedge ineffectiveness ...............................             (603)            9,308
        Gain on extinguishment of debt ...................................................          (22,375)               --
        Cumulative effect of a change in accounting method, net of deferred tax ..........            1,736                --

        Asset retirement obligation accretion expense ....................................            1,038                --
        Stock option expense .............................................................               --               102
        Amortization of deferred financing costs and  bond premium .......................            1,536             1,949

        Bad debt expense .................................................................               --               763
        Deferred income taxes ............................................................            2,754            (9,576)


Changes in assets and liabilities:
    Accounts receivable and accrued revenue ..............................................            8,237             8,435
    Accounts payable and other liabilities ...............................................            2,973           (10,186)
    Abandonment costs ....................................................................           (3,542)           (2,505)
    Other ................................................................................           (1,726)            1,631
                                                                                             --------------    --------------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES ..........................................           21,341            12,487
                                                                                             --------------    --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of oil and gas properties ................................................             (953)             (419)
    Additions to properties and facilities ...............................................          (23,010)          (16,607)
    Additions to leasehold, furniture and equipment ......................................             (875)             (147)
    Proceeds on sale of oil and gas properties, net of costs .............................            2,983            49,095
                                                                                             --------------    --------------
NET CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES ................................          (21,855)           31,922
                                                                                             --------------    --------------
</Table>

      See accompanying notes to condensed consolidated financial statements


                                      -4-
<PAGE>



                          MISSION RESOURCES CORPORATION

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

                             (Amounts in thousands)

<Table>
<Caption>
                                                                            Nine Months Ended
                                                                              September 30,
                                                                     --------------------------------
                                                                          2003              2002
                                                                     --------------    --------------
<S>                                                                  <C>               <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from borrowings .....................................           80,000            21,000
    Payments of long term debt ...................................               --           (49,000)
    Repurchase of notes ..........................................          (71,700)               --
    Credit facility costs ........................................           (4,787)              (65)
                                                                     --------------    --------------
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES ........            3,513           (28,065)
                                                                     --------------    --------------

Net increase  in cash and cash equivalents .......................            2,999            16,344
Cash and cash equivalents at beginning of period .................           11,347               603
                                                                     --------------    --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................   $       14,346    $       16,947
                                                                     --------------    --------------
</Table>


<Table>
<Caption>
                                                                             Nine Months Ended
                                                                               September 30,
                                                                       --------------------------------
                                                                           2003               2002
                                                                       --------------    --------------
<S>                                                                    <C>               <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid (received) during the period:
    Interest .......................................................   $       16,495    $       14,003
    Income tax (refunds) ...........................................   $         (550)   $       (4,972)
</Table>



      See accompanying notes to condensed consolidated financial statements



                                      -5-
<PAGE>



                          MISSION RESOURCES CORPORATION
                          NOTES TO 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
         accounting principles generally accepted in the United States of
         America. However, in the opinion of management, these statements
         include all adjustments, which are of a normal recurring nature,
         necessary to present fairly the Company's financial position at
         September 30, 2003, and the results of operations and changes in cash
         flows for the periods ended September 30, 2003 and 2002. Interim period
         results are not necessarily indicative of results of operations or cash
         flows for a full year. These financial statements should be read in
         conjunction with the consolidated financial statements and notes to the
         consolidated financial statements in the Mission Resources Corporation
         (the "Company" or "Mission") Annual Report on Form 10-K for the year
         ended December 31, 2002.

         Principles of Consolidation

                  The consolidated financial statements include the accounts of
         Mission Resources Corporation and its wholly owned subsidiaries.
         Mission owns a 26.6% interest in the White Shoal Pipeline Corporation
         that is accounted for using the equity method. Mission's investment of
         approximately $341,000 at September 30, 2003 is included in the other
         assets line of the Balance Sheet. The Company has a 10.1% ownership in
         the East Texas Salt Water Disposal Company that is accounted for using
         the cost method. The sale of this interest was under negotiation at
         September 30, 2003, in connection with the sale of several oil and gas
         properties in the East Texas area; therefore, the Company's investment
         of $861,000 is reported as a current asset in the September 30, 2003
         Balance Sheet in the prepaid expenses and other line.

         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 (including such costs as leasehold acquisition
         costs, geological expenditures, dry hole costs, tangible and intangible
         development costs, and direct internal costs) are capitalized as the
         cost of oil and gas properties when 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 will be charged to operations. No such charges
         to operations were required during the three and nine-month periods
         ending September 30, 2003 or 2002.

                  Over the past several months, a reporting issue has arisen
         regarding the application of certain provisions of SFAS No. 141 and 142
         to companies in the extractive industries, including oil and gas
         companies. The issue is whether SFAS No. 141 requires registrants to
         classify the costs of mineral rights associated with extracting oil and
         gas as intangible assets in the balance sheet, apart from other
         capitalized oil and gas property costs, and provide specific footnote
         disclosures. Historically, the Company has included the costs of
         mineral rights associated with extracting oil and gas as a component of
         oil and gas properties. If it is ultimately determined that SFAS No.
         141 requires oil and gas companies to classify costs of mineral rights
         associated with extracting oil and gas as a separate intangible assets
         line item on the balance sheet, the Company would be required to
         reclassify less than $1.0 million out of oil and gas properties and
         into a separate intangible assets line item. These costs include those
         to acquire contract based drilling and mineral use rights such as delay
         rentals, lease bonuses, commissions and brokerage fees, and other
         leasehold costs. The Company's cash flows and results of operations
         would not



                                      -6-
<PAGE>

                         MISSION RESOURCES CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                                  (UNAUDITED)

         be affected since such intangible assets would continue to be depleted
         and assessed for impairment in accordance with full cost accounting
         rules, as allowed by SFAS No. 142. Further, the Company does not
         believe the classification of the costs of mineral rights associated
         with extracting oil and gas as intangible assets would have any impact
         on the Company's compliance with covenants under its debt agreements.
         The Company will continue to classify its oil and gas leasehold costs
         as tangible oil and gas properties until further guidance is provided.

         Receivables

                Joint interest billing receivables represent those amounts owed
         to the Company as operator of an oil and gas property by the other
         working interest partners. These trade accounts receivable are recorded
         at the invoiced amount and typically do not bear interest. The Company
         reviews collectibility of trade accounts receivable monthly. Balances
         over ninety days past due and exceeding $30,000 are reviewed
         individually for collectibility. Account balances are charged off
         against earnings when the Company determines potential for recovery is
         remote. The Company does not have any off-Balance Sheet credit exposure
         related to its customers.

                From time to time, certain other receivables are created and may
         be significant. At September 30, 2003, the Company has recorded a
         receivable of approximately $1.2 million from its insurance carrier,
         representing repair costs incurred as a direct result of hurricane Lili
         in 2002.

         Deferred Compensation Plan

                     In June 2003, the Company terminated the Mission Deferred
         Compensation Plan that had been established in late 1997. The Fund
         Manager made final distributions of all funds held in the plan to the
         plan participants. Both the current asset and the current liability of
         approximately $111,000 related to the plan at the termination date were
         removed from the Balance Sheet.

         Comprehensive Income

                  Comprehensive income includes all changes in a company's
         equity except those resulting from investments by owners and
         distributions to owners. The Company's total comprehensive income for
         the three months and nine months ended September 30, 2003 and 2002 was
         as follows (in thousands):

<Table>
<Caption>
                                                         Three Months Ended              Nine Months Ended
                                                            September 30,                  September 30,
                                                     ----------------------------    ---------------------------
                                                         2003            2002            2003            2002
                                                     ------------    ------------    ------------   ------------
<S>                                                  <C>             <C>             <C>            <C>
Net income (loss) ................................   $     (3,803)   $     (2,428)   $      3,870   $    (17,784)
Hedge accounting for derivative instruments,
net of tax .......................................          3,245          (2,739)            399         (5,492)
                                                     ------------    ------------    ------------   ------------
Comprehensive income (loss) ......................   $       (558)   $     (5,167)   $      4,269   $    (23,276)
                                                     ============    ============    ============   ============
</Table>



                                      -7-
<PAGE>
                         MISSION RESOURCES CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                                  (UNAUDITED)

                The accumulated balance of other comprehensive income (loss)
         related to commodity hedges, net of taxes, is as follows (in
         thousands):

<Table>
<Caption>
<S>                                                     <C>
         Balance at December 31, 2002 ...............   $   (4,195)
         Net losses on hedges .......................      (13,185)
         Reclassification adjustments ...............       13,369
         Tax effect on hedging activity .............          215
                                                        ----------
         Balance at September 30, 2003 ..............   $   (3,796)
                                                        ==========
</Table>


         Stock-Based Employee Compensation Plans

                 In December 2002, the FASB issued SFAS No. 148, Accounting for
         Stock-Based Compensation - Transition and Disclosure, an amendment of
         SFAS No. 123, that provides alternative methods of transition for a
         voluntary change to the fair value method of accounting for stock-based
         employee compensation. In addition, this statement amends the
         disclosure requirements of SFAS No. 123 to require prominent
         disclosures in both annual and interim financial statements.

                 At September 30, 2003, the Company has two stock-based employee
         compensation plans. The Company accounts for those plans under the
         recognition and measurement principles of APB Opinion No. 25,
         Accounting for Stock Issued to Employees, and related Interpretations.
         No stock-based employee compensation cost is reflected in net income
         for options granted under those plans when the exercise price of the
         option is equal to the market value of the underlying common stock on
         the date of the grant.

                 The following table illustrates the effect on net income and
         earnings per share if the Company had applied the fair value
         recognition provisions of FASB Statement No. 123, Accounting for
         Stock-Based Compensation, to stock-based employee compensation.

<Table>
<Caption>
                                                           Three Months Ended                  Nine Months Ended
                                                              September 30,                      September 30,
                                                     --------------------------------    -------------------------------
                                                           2003             2002              2003              2002
                                                     --------------    --------------    --------------   --------------
<S>                                                  <C>               <C>               <C>              <C>
         Net income (loss) (in thousands)
                        As reported ..............   $       (3,803)   $       (2,428)   $        3,870   $      (17,784)
                        Pro forma ................   $       (3,943)   $       (4,961)   $        2,587   $      (20,387)
         Earnings (loss) per share
                        As reported ..............   $        (0.16)   $        (0.10)   $         0.16   $        (0.75)
                        Pro forma ................   $        (0.17)   $        (0.21)   $         0.11   $        (0.86)
         Diluted earnings (loss) per share
                        As reported ..............   $        (0.16)   $        (0.10)   $         0.16   $        (0.75)
                        Pro forma ................   $        (0.17)   $        (0.21)   $         0.11   $        (0.86)
</Table>

         Goodwill

                The FASB issued SFAS No. 142, Goodwill and Other Intangible
         Assets in June 2001. This pronouncement requires that intangible assets
         with indefinite lives, including goodwill, cease being amortized and be
         evaluated on an annual basis for impairment. The Company adopted SFAS
         No. 142 on January 1, 2002 at which time the Company had unamortized
         goodwill in the amount of $15.1 million and unamortized identifiable
         intangible assets in the amount of $374,300, all subject to the
         transition



                                      -8-
<PAGE>


                         MISSION RESOURCES CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                                  (UNAUDITED)

         provisions. Upon adoption of SFAS No. 142, $277,000 of workforce
         intangible assets recorded as unamortized identifiable assets was
         subsumed into goodwill and was not amortized as it no longer qualified
         as a recognizable intangible asset.

                The transition and impairment test for goodwill, effective
         January 1, 2002, was performed in the second quarter of 2002. As of
         January 1, 2002, the Company's fair value exceeded the carrying amount;
         therefore goodwill was not impaired. Mission designated December 31st
         as the date for its annual test. Based upon the results of such test at
         December 31, 2002, goodwill was fully impaired and a write-down of
         $16.7 million was recorded.

         Recently Adopted Pronouncements

                  SFAS No. 150, Accounting for Certain Financial Instruments
         with Characteristics of both Liabilities and Equity was issued in May
         2003. SFAS No. 150 provides guidance on how to classify and measure
         certain financial instruments with characteristics of both liabilities
         and equity. Many of these instruments were previously classified as
         equity. This statement is effective for financial instruments entered
         into or modified after May 31, 2003, and otherwise is effective at the
         beginning of the first interim period beginning after June 15, 2003.
         The statement requires cumulative effect transition for financial
         instruments existing at adoption date. None of the Company's financial
         instruments were impacted by this statement.

                  SFAS No. 149, Amendment of Statement 133 on Derivative
          Instruments and Hedging Activities Summary was issued in April 2003.
          This statement amends and clarifies the accounting and reporting for
          derivative instruments, including embedded derivatives, and for
          hedging activities under SFAS No. 133. Statement 149 amends Statement
          133 to reflect the decisions made as part of the Derivatives
          Implementation Group (DIG) and in other FASB projects or
          deliberations. Statement 149 is effective for contracts entered into
          or modified after June 30, 2003, and for hedging relationships
          designated after June 30, 2003. The Company has applied the pertinent
          DIG interpretations as they were issued and does not expect SFAS No.
          149 will have a material impact on the Company's financial statements.

                  SFAS No. 146, Accounting for Exit or Disposal Activities, was
         issued in June 2002. SFAS No. 146 addresses significant issues
         regarding the recognition, measurement, and reporting of costs that are
         associated with exit and disposal activities, including restructuring
         activities that are currently accounted for pursuant to the guidance
         set forth in EITF Issue No. 94-3, Liability Recognition of Certain
         Employee Termination Benefits and Other Costs to Exit an Activity. SFAS
         No. 146 is effective for the exit and disposal activities initiated
         after December 31, 2002. The Company will apply SFAS No. 146 as
         appropriate to future activities.

                  SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64,
         Amendment of FASB Statements No. 13 and Technical Corrections, was
         issued in April 2002. SFAS No. 145 amends existing guidance on
         reporting gains and losses on the extinguishments of debt to prohibit
         the classification of the gain or loss as extraordinary, as the use of
         such extinguishments have become part of the risk management strategy
         of many companies. SFAS No. 145 also amends SFAS No. 13 to require
         sale-leaseback accounting for certain lease modifications that have
         economic effects similar to sale-leaseback transactions. The provision
         of the statement related to the rescission of SFAS No. 4 is applied in
         fiscal years beginning after May 15, 2002. Earlier application of these
         provisions was encouraged. The provisions of the statement related to
         SFAS No. 13 were effective for transactions occurring after May 15,
         2002, with early application encouraged. Mission applied the provisions
         of SFAS No. 145 as they relate to the extinguishment of debt in
         accounting for the March 28, 2003 senior subordinated note repurchase
         discussed in Note 3.



                                      -9-
<PAGE>

                         MISSION RESOURCES CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                                  (UNAUDITED)

                  In November 2002, the FASB issued Interpretation No. 45,
         Guarantor's Accounting and Disclosure Requirements for Guarantees,
         Including Indirect Guarantees of Indebtedness to Others, an
         interpretation of FASB Statements No. 5, 57 and 107 and a rescission of
         FASB Interpretation No. 34. This interpretation elaborates on the
         disclosures to be made by a guarantor in its interim and annual
         financial statements about its obligations under guarantees issued. The
         interpretation also clarifies that a guarantor is required to
         recognize, at inception of a guarantee, a liability for the fair value
         of the obligation undertaken. The initial recognition and measurement
         provisions of the interpretation were applicable to guarantees issued
         or modified after December 31, 2002 and had no effect on Mission's
         financial statements. The disclosure requirements are effective for
         financial statements of interim and annual periods ending after
         December 15, 2002. Mission's disclosures are contained in Note 7.

                  The FASB issued Interpretation No. 46, Consolidation of
         Variable Interest Entities, an interpretation of APB No. 51, in January
         2003. This interpretation addresses the consolidation by business
         enterprises of variable interest entities as defined in the
         interpretation. The interpretation applied immediately to variable
         interest entities created after January 31, 2003, and to variable
         interests in variable interest entities obtained after January 31,
         2003. Significant changes to this interpretation were proposed by FASB
         in October 2003, including delaying the effective date to the beginning
         of the first reporting period ending after December 15, 2003. The
         Company does not currently own an interest in any variable interest
         entities; therefore, this interpretation is not expected to have a
         material effect on its financial statements.

                  In July 2001, the FASB issued SFAS No. 143, Accounting for
         Asset Retirement Obligations, which provided accounting requirements
         for retirement obligations associated with tangible long-lived assets.
         SFAS No. 143 requires that the Company record a liability for the fair
         value of its asset retirement obligation, primarily comprised of its
         plugging and abandonment liabilities, in the period in which it is
         incurred if a reasonable estimate of fair value can be made. The
         liability is accreted at the end of each period through charges to
         operating expense. The amount of the asset retirement obligation is
         added to the carrying amount of the oil and gas properties and this
         additional carrying amount is depreciated over the life of the
         properties.

                  The Company adopted the provisions of SFAS No. 143 with a
         calculation effective January 1, 2003. The Company's assets are
         primarily working interests in producing oil and gas properties and
         related support facilities. The life of these assets is generally
         determined by the estimation of the quantity of oil or gas reserves
         available for production and the amount of time such production should
         require. The cost of retiring such assets, the asset retirement
         obligation, is typically referred to as abandonment costs. The Company
         hired independent engineers to provide estimates of current abandonment
         costs on all its properties, applied valuation techniques appropriate
         under SFAS No. 143, and recorded a net initial asset retirement
         obligation of $44.3 million on its Balance Sheet. An asset retirement
         cost of $14.4 million was simultaneously capitalized in the oil and gas
         properties section of the Balance Sheet. The adoption of SFAS No. 143
         was accounted for as a change in accounting principle. A $2.7 million
         charge, net of a $935,000 deferred tax, was recorded to income as a
         cumulative effect of the change in accounting principle.


                                      -10-
<PAGE>

                         MISSION RESOURCES CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                                  (UNAUDITED)


         The following table shows changes in the asset retirement obligation
that have occurred in 2003.

<Table>
<Caption>
                                                                                         Nine Months Ended
        Asset Retirement Obligation                                                      September 30, 2003
                                                                                         ------------------
                                                                                           (in thousands)
<S>                                                                                      <C>
        Initial implementation .......................................................   $           44,266
        Liabilities incurred .........................................................                  221
        Liabilities settled ..........................................................               (3,542)
        Accretion expense ............................................................                1,038
                                                                                         ------------------
        Ending balance ...............................................................               41,983
        Less:  current portion .......................................................                2,726
                                                                                         ------------------
        Long-term portion ............................................................   $           39,257
                                                                                         ==================
</Table>

                Had the provisions of SFAS No. 143 been applied on January 1,
         2002, the pro forma asset retirement obligation as of September 30,
         2002 would have been $43.7 million. The following table summarizes pro
         forma net income (loss) and net income (loss) per common share as if
         the Company had applied the provisions of SFAS No. 143 on January 1,
         2002.

<Table>
<Caption>
                                                     Three Months Ended     Nine Months Ended
                                                     September 30, 2002     September 30,2002
                                                     ------------------    ------------------
<S>                                                  <C>                   <C>
         Net income (loss) (in thousands)
                        As reported ..............   $           (2,428)   $          (19,237)
                        Pro forma ................   $           (2,621)   $          (17,977)
         Earnings (loss) per share
                        As reported ..............   $            (0.10)   $            (0.75)
                        Pro forma ................   $            (0.11)   $            (0.82)
         Diluted earnings (loss) per share
                        As reported ..............   $            (0.10)   $            (0.75)
                        Pro forma ................   $            (0.11)   $            (0.82)
</Table>


         Reclassifications

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

         Use of Estimates

                In order to prepare these financial statements in conformity
         with accounting principles generally accepted in the United States of
         America, management of the Company has made 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.

2.       STOCKHOLDERS' EQUITY

                  Potentially dilutive options and warrants that are not in the
         money are excluded from the computation of diluted earnings per share
         ("EPS") because to do so would be antidilutive. In the three and
         nine-month periods ended September 30, 2003, the potentially dilutive
         options and warrants



                                      -11-
<PAGE>

                         MISSION RESOURCES CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                                  (UNAUDITED)

         excluded represented 969,500 shares and 1,051,500 shares, respectively.
         In the three and nine-month periods ended September 30, 2002 the
         potentially dilutive options and warrants excluded represented
         2,910,168 shares.

                  In periods of loss, the effect of potentially dilutive options
         and warrants that are in the money is excluded from the calculation of
         diluted EPS. For the three and nine month periods ended September 30,
         2002, potential incremental shares of 275,197 and 479,052, respectively
         were excluded. For the three- month period ended September 30, 2003,
         potential incremental shares of 1,385,947 were excluded.

                  The following represents a reconciliation of the numerator and
         denominator of the basic earnings per share computation to the
         numerator and denominator of the diluted earnings per share computation
          (amounts in thousands except per share amounts):

<Table>
<Caption>
                                            For the Three Months Ended              For the Three Months Ended
                                                September 30, 2003                      September 30, 2002
                                      ---------------------------------------  --------------------------------------
                                         Income        Shares      Per Share      Income        Shares      Per Share
                                       (Numerator)  (Denominator)   Amount     (Numerator)   (Denominator)   Amount
                                      ------------  -------------  ----------  -----------   -------------  ---------
<S>                                   <C>           <C>            <C>         <C>           <C>            <C>
         INCOME (LOSS) PER COMMON
         SHARE:
         Income (loss) available to
         common stockholders........  $   (3,803)       23,515    $    (0.16) $      (2,428)      23,586  $   (0.10)
                                                                  ----------                              ---------
         EFFECT OF DILUTIVE
         SECURITIES:
         Options and warrants........         --            --                           --           --
                                      ----------        ------                -------------       ------

         INCOME (LOSS) PER COMMON
         SHARE-DILUTED:
         Income (loss) available to
         common stockholders and
         assumed conversions......... $   (3,803)       23,515    $    (0.16) $      (2,428)      23,586  $   (0.10)
                                      ==========        ======    ==========  =============       ======  =========
</Table>



<Table>
<Caption>
                                             For the Nine Months Ended                         For the Nine Months Ended
                                                September 30, 2003                                September 30, 2002
                                      --------------------------------------------   ----------------------------------------------
                                        Income          Shares         Per Share        Income             Shares       Per Share
                                      (Numerator)    (Denominator)      Amount        (Numerator)      (Denominator)      Amount
                                      ------------   --------------   ------------   --------------    --------------   -----------
<S>                                   <C>            <C>              <C>            <C>               <C>              <C>
         INCOME (LOSS) PER COMMON
         SHARE:
         Income (loss) available to
         common stockholders ......   $      3,870           23,508   $       0.16   $      (17,784)           23,586   $     (0.75)
                                                                      ------------                                      -----------
         EFFECT OF DILUTIVE
         SECURITIES:
         Options and warrants .....             --              783                              --                --
                                      ------------   --------------                  --------------    --------------
         INCOME (LOSS) PER COMMON
         SHARE-DILUTED:
         Income (loss) available to
         common stockholders and
         assumed conversions ......   $      3,870           24,291   $       0.16   $      (17,784)           23,586   $     (0.75)
                                      ============   ==============   ============   ==============    ==============   ============
</Table>

                  In the second quarter of 2003, the number of treasury shares
         increased to 389,323 because 78,323 shares were taken into treasury in
         lieu of collecting a note receivable valued at approximately



                                      -12-
<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

         $32,000. Treasury shares are valued at the price at which they are
         acquired, resulting in approximately $1.9 million being reported as a
         reduction to Stockholders' Equity as of September 30, 2003.

                  Concurrent with the Bargo merger in 2001, all Bellwether
         employees who held stock options were immediately vested in those
         options upon closing of the merger. An additional $95,000 compensation
         expense, on those employee options that would have expired
         unexercisable pursuant to their original terms, was recognized in the
         first quarter of 2002 as a result of staff reductions. The expense was
         calculated as the excess of the price on the merger date over the
         exercise price of the option.

                  In September 1997, the Company adopted a shareholder rights
         plan to protect its shareholders from coercive or unfair takeover
         tactics. Under the plan, each outstanding share of the Company's common
         stock and each share of subsequently issued common stock has attached
         to it one right. The rights become exercisable if a person or group
         acquires or announces an intention to acquire beneficial ownership of
         15% or more of the outstanding shares of common stock without the prior
         consent of the Company. When the rights become exercisable, each holder
         of a right (except those held by the acquiring party) will have the
         right to receive, upon exercise, a number of shares of the Company's
         common stock having a market price of two times the exercise price of
         the right. The Company may redeem the rights for $0.01 per right at any
         time before they become exercisable without shareholder approval. The
         rights will expire on September 26, 2007, subject to earlier redemption
         by the Board of Directors of the Company.

3.       LONG TERM DEBT

         Senior Subordinated Notes

                  In April 1997, the Company issued $100.0 million of 10 7/8%
         senior subordinated notes due 2007. On May 29, 2001, the Company issued
         an additional $125.0 million of senior subordinated notes due 2007 with
         identical terms to the notes issued in April 1997 (collectively the
         "Notes") at a premium of $1.9 million. The premium is amortized as a
         reduction of interest expense over the life of the Notes so that the
         effective interest rate on these additional Notes is 10.5%. The premium
         is shown separately on the Balance Sheet. Interest on the Notes is
         payable semi-annually on April 1 and October 1. The Notes are
         redeemable, in whole or in part, at the option of the Company beginning
         April 1, 2002 at 105.44%, and decreasing annually to 100.00% on April
         1, 2005 and thereafter, plus accrued and unpaid interest. In the event
         of a change of control of the Company, as defined in the indenture,
         each holder of the Notes will have the right to require the Company to
         repurchase all or part of such holder's Notes at an offer price in cash
         equal to 101.0% of the aggregate principal amount thereof, plus accrued
         and unpaid interest to the date of purchase. The Notes contain certain
         covenants, including limitations on indebtedness, liens, compliance
         with requirements of existing indebtedness, dividends, repurchases of
         capital stock 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. As of September 30, 2003, the
         Company was in compliance with its covenants under the Notes.

                  On March 28, 2003, the Company acquired, in a private
         transaction with various funds affiliated with Farallon Capital
         Management, LLC, pursuant to the terms of a purchase and sale
         agreement, approximately $97.6 million in principal amount of the Notes
         for approximately $71.7 million, plus accrued interest. Immediately
         after the consummation of the purchase and sale agreement, Mission had
         $127.4 million in principal amount of Notes outstanding. Including
         costs of the transaction and the removal of $2.2 million of previously
         deferred financing costs related to the acquired Notes, the Company
         recognized a $22.4 million gain on the extinguishment of the Notes.



                                      -13-
<PAGE>


                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

         Credit Facility

                  The Company was party to a $150.0 million credit facility with
         a syndicate of lenders. The credit facility was a revolving facility,
         expiring May 16, 2004, which allowed Mission to borrow, repay and
         re-borrow under the facility from time to time. The total amount which
         might be borrowed under the facility was limited by the borrowing base
         periodically set by the lenders based on Mission's oil and gas reserves
         and other factors deemed relevant by the lenders. The facility was
         re-paid in full on March 28, 2003.

                  On March 28, 2003, simultaneously with the acquisition of the
         Notes, the Company amended and restated its credit facility with new
         lenders, led by Farallon Energy Lending, LLC. The entire $947,000 of
         deferred financing costs relating to this facility was charged to
         earnings as a reduction in the gain on extinguishment of debt. Under
         the amended and restated secured credit agreement (the "Facility"), the
         Company borrowed $80.0 million pursuant to term loans (the "Term Loan
         Facility"), the proceeds of which were used to acquire approximately
         $97.6 million face amount of Notes, to pay accrued interest on the
         Notes purchased, and to pay closing costs associated therewith. On June
         16, 2003, the Company amended the Facility to add a revolving credit
         facility of up to $12.5 million (the "Revolver Facility"), including a
         letter of credit sub-facility (the "Sub-Facility") of up to $3.0
         million. The Facility, which includes the Term Loan Facility and the
         Revolver Facility, is secured by a lien on substantially all of the
         Company's property and the property of all of the Company's
         subsidiaries, including a lien on at least 90% of their respective oil
         and gas properties and a pledge of the capital stock of all the
         subsidiaries.

                  The Term Loan Facility expires on January 6, 2005, and the
         Revolver Facility expires on June 6, 2006 (each, a "Maturity Date").
         If, however, the Maturity Date of the Term Loan Facility is not
         extended to at least 30 days after the Maturity Date of the Revolver
         Facility, or if the Term Loan Facility is not otherwise refinanced on
         terms satisfactory to the lenders under the Revolver Credit Facility,
         the Maturity Date of the Revolver Facility will be the later of (i)
         December 6, 2004 and (ii) 30 days prior to the Maturity Date of the
         Term Loan Facility. In addition, if the Maturity Date of the Term Loan
         Facility is changed to a date earlier than January 6, 2005, the
         Maturity Date of the Revolver Facility will be 30 days prior to the
         Maturity Date of the Term Loan Facility.

                  As of September 30, 2003, the Company had no amounts
         outstanding under the Revolver Facility, but has issued $100,000 of
         letters of credit under the Sub-Facility. The proceeds of the Revolver
         Facility are to be used to finance the Company's ongoing working
         capital and general corporate needs. Subject to the terms and
         conditions of the Revolver Facility, the lenders under the Revolver
         Facility have agreed to make advances to the Company, from time to
         time, prior to the Maturity Date of the Revolver Facility, in an amount
         equal to the least of the following (in whole multiples of $1,000,000):

         (i)      $12.5 million minus outstanding letters of credit, and

         (ii)     the Borrowing Base (as hereinafter defined) minus outstanding
                  letters of credit, and

         (iii)    during a Cleanup Period (as hereinafter defined), $3.0 million
                  minus outstanding letters of credit in excess of $1.0 million.

         For the purposes hereof, "Borrowing Base" means an amount equal to 10%
         of the PV-10 Value (as defined in the Facility) of the Company's proved
         developed producing reserves minus the sum of the Bank Product Reserves
         and Agent Reserves (each as defined in the Facility). The Borrowing
         Base was $16.2 million at September 30, 2003. A "Cleanup Period" shall
         be either of the following periods if principal amounts under the Term
         Loan Facility are outstanding:


                                      -14-
<PAGE>


                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

         x)       the 30-day period immediately following any 90-day period in
                  which the total of advances and letters of credit outstanding
                  under the Revolver Facility exceeded $3.0 million for each
                  day, or

         y)       the one-day period immediately following any required payment
                  on any indebtedness subordinate to the Facility.

                  The interest rate on amounts outstanding under the Term Loan
         Facility is 12% until February 16, 2004, when it increases to 13% until
         the Maturity Date. The interest rate on amounts outstanding under the
         Revolver Facility will be equal to the prime rate plus 0.5% per annum,
         provided that the minimum interest rate will be 4.75% per annum.
         Outstanding letters of credit under the Sub-Facility will be charged a
         letter of credit fee equal to 3.0% per annum.

                  The terms of the Term Loan Facility were not materially
         changed in connection with the addition of the Revolver Facility and
         the Sub-Facility, except that the Company is required to have Excess
         Availability (as hereinafter defined) of $5.0 million before certain
         prepayments may be made on the Term Loan Facility and except for minor
         modifications to the Company's negative covenants relating to capital
         expenditures and consolidated fixed charge coverage ratio. For the
         purposes hereof, "Excess Availability" is the amount equal to (i) the
         lesser of (x) $3.0 million and (y) the Borrowing Base, plus the
         Company's cash and cash equivalents subject to a Cash Management
         Agreement or a Control Agreement (each as defined in the Facility)
         minus (ii) advances under the Revolver Facility plus outstanding
         letters of credit plus the Company's trade payable 45 days past due
         plus the amount of interest payable on the Term Loan Facility and any
         indebtedness subordinate to the Facility.

                  The Facility contains covenants that prevent the Company from
         making or committing to make any capital expenditures, except for
         capital expenditures in the ordinary course of business which:

          o   do not exceed the sum of $35.0 million plus excess free cash
              (one-half of the amount by which discretionary cash flow for
              fiscal year 2003 exceeds $35.0 million) for fiscal year 2003;
              provided that expenditures for exploration during such fiscal
              year shall not exceed $15.0 million;

          o   do not exceed the amount approved by the majority lenders for
              fiscal year 2004; or

          o   are financed out of the net cash proceeds of issuances of
              capital stock (effected during a 30 day period) in excess of
              $20.0 million or out of the net cash proceeds of asset sales,
              with an aggregate limit of $50.0 million during the term of
              the loans outstanding under the Facility (the "Loans"), (i) of
              up to $5.0 million during the term of the Loans, and (ii) that
              are paid for the acquisition of replacement assets either 90
              days before or 90 days after the asset sale or recovery event.

                  Capital expenditures that are not spent in fiscal 2003 may be
         carried forward to fiscal 2004. For fiscal years 2005 and thereafter,
         the Company cannot make or commit to make any capital expenditures in
         excess of the amounts approved by the administrative agent and the
         majority lenders.

                  In addition, the Facility requires that the following
         financial covenants be maintained:

          o    minimum consolidated EBITDA, as of the last day of any fiscal
               quarter, for the period of two fiscal quarters that end on such
               day, of $17.5 million;

          o    maximum leverage ratio as at the last day of any fiscal
               quarter beginning with the fiscal quarter ending June 30,
               2003, of 2.75 to 1; and


                                      -15-
<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

          o    minimum consolidated fixed charge coverage ratio, must be 1.00
               to 1.00 at each fiscal quarter's end on a cumulative basis for
               the first eight fiscal quarters. Thereafter the ratio must be
               1.25 to 1.00 at quarter's end for the total of the four
               preceding fiscal quarters.

                  Leverage ratio is defined on the last day of any fiscal
        quarter as the ratio of (a) the principal amount of the Loans plus the
        principal amount of all indebtedness that is equal to or senior in right
        of payment to the Loans to (b) consolidated EBITDA for the period of
        four quarters ending on such day. Consolidated fixed charge coverage
        ratio for any period, is the ratio of: (a) the consolidated EBITDA
        during such period plus, for each applicable test period ended on March
        31, June 30, September 30, and December 31, of calendar years 2003 and
        2004, $12,000,000 to (b) the sum of (i) the Company's capital
        expenditures during such period plus (ii) the Company's cash income tax
        expense for such period plus (iii) the Company's cash consolidated
        interest expense for such period to the extent paid or required to be
        paid during such period.

                  The Facility contains additional covenants that limit
         Mission's ability, among other things, to incur additional indebtedness
         or to create or incur liens; to merge, consolidate, liquidate, wind-up
         or dissolve; to dispose of property; and to pay dividends on or redeem
         stock. As of September 30, 2003, the Company was in compliance with the
         covenants in the Facility.

4.       DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

                Effective January 1, 2001, the Company adopted SFAS No. 133,
         Accounting for Derivative Instruments and Hedging Activities. This
         statement establishes accounting and reporting standards requiring that
         derivative instruments (including certain derivative instruments
         embedded in other contracts) be recorded at fair value and included in
         the Balance Sheet as assets or liabilities. The accounting for changes
         in the fair value of a derivative instrument depends on the intended
         use of the derivative and the resulting designation, which is
         established at the inception of a derivative. Accounting for qualified
         hedges allows a derivative's gains and losses to offset related results
         on the hedged item in the Statement of Operations. For derivative
         instruments designated as cash flow hedges, changes in fair value, to
         the extent the hedge is effective, are recorded in Other Comprehensive
         Income ("OCI") until the hedged item is recognized in earnings. Hedge
         effectiveness is measured at least quarterly based upon the relative
         changes in fair value between the derivative contract and the hedged
         item over time. Any change in the fair value resulting from
         ineffectiveness, as defined by SFAS No. 133, is recognized immediately
         in earnings.

                The Company produces and sells crude oil, natural gas and
         natural gas liquids. As a result, its operating results can be
         significantly affected by fluctuations in commodity prices caused by
         changing market forces. The Company periodically seeks to reduce its
         exposure to price volatility by hedging a portion of its production
         through swaps, options and other commodity derivative instruments. A
         combination of options, structured as a collar, is the Company's
         preferred hedge instrument because there are no up-front costs and
         protection is given against low prices. Such hedges assure that Mission
         receives NYMEX prices no lower than the price floor and no higher than
         the price ceiling. The Company has also entered into some commodity
         swaps that fix the price to be received.

                In October 2002, the Company elected to de-designate all
         existing hedges and to re-designate them by applying the
         interpretations from the FASB's Derivative Implementation Group issue
         G-20 ("DIG G-20"). The Company's previous approach to assessing
         ineffectiveness required that changes in time value be recorded to
         income quarterly. By using the DIG G-20 approach, because the Company's
         collars and swaps meet specific criteria, the time value component is
         included in OCI and earnings variability is reduced. The hedges are
         considered perfectly effective. In the quarter and nine-month period
         ended



                                      -16-
<PAGE>


                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

         September 30, 2003, gains of $187,000 and $603,000, respectively,
         related to these hedges were reported in the interest and other income
         line of the Statement of Operations. The gains relate to the
         amortization, from October 15, 2002 for a 15-month period, of both the
         realized and unrealized gains or losses related to the de-designated
         hedges. The amount remaining in OCI, or the unrealized loss, related to
         the de-designated hedges will be completely amortized by December 2003.
         At September 30, 2003 the remaining amount in OCI was approximately
         $864,000.

                  The following tables detail all hedges of future production
         outstanding at September 30, 2003:

         OIL HEDGES

<Table>
<Caption>
                                                                                        NYMEX           NYMEX
                                                                                        PRICE           PRICE
                                      BBLS                                            FLOOR/SWAP       CEILING
                 PERIOD             PER DAY         TOTAL BBLS         TYPE              AVG.            AVG.
        -----------------------  --------------   --------------   --------------   --------------   --------------
<S>                              <C>              <C>              <C>              <C>              <C>
        Fourth Qtr. 2003 .....            3,500          322,000             Swap   $        23.59              n/a
        First Qtr. 2004 ......            2,500          227,500             Swap   $        25.24              n/a
        Second Qtr. 2004 .....            2,500          227,500             Swap   $        24.67              n/a
        Third Qtr. 2004 ......            2,500          230,000             Swap   $        24.30              n/a
        Fourth Qtr. 2004 .....            2,500          230,000             Swap   $        23.97              n/a
</Table>

         GAS HEDGES

<Table>
<Caption>
                                                                                                     NYMEX
                                                                                   NYMEX             PRICE
                                  MMBTU           TOTAL                          PRICE FLOOR        CEILING
          PERIOD                 PER DAY          MMBTU              TYPE           AVG.              AVG.
--------------------------   --------------   --------------   --------------   --------------   --------------
<S>                          <C>              <C>              <C>              <C>              <C>
Fourth Qtr. 2003 .........           15,000        1,380,000           Collar   $         3.24   $         4.54
First Qtr. 2004 ..........            8,000          728,000           Collar   $         4.13   $         5.39
Second Qtr. 2004 .........            5,000          455,000           Collar   $         3.70   $         4.08
Third Qtr.  2004 .........            5,000          460,000           Collar   $         3.70   $         4.04
Fourth Qtr. 2004 .........            5,000          460,000           Collar   $         3.85   $         4.23
First Qtr. 2005 ..........            1,000           90,000           Collar   $         4.25   $         6.32
Second Qtr. 2005 .........            1,000           91,000           Collar   $         4.25   $         4.92
Third Qtr. 2005 ..........            1,000           92,000           Collar   $         4.25   $         4.72
Fourth Qtr. 2005 .........            1,000           92,000           Collar   $         4.25   $         5.14

</Table>

                By removing the price volatility from these volumes of oil and
         natural gas production, the Company has mitigated, but not eliminated,
         the potential negative effect of declining prices on its operating cash
         flow. The potential for increased operating cash flow from increasing
         prices has also been reduced.

                  Excluding the impact of hedges, the Company's realized price
         for natural gas per MCF has averaged $0.21 less than the NYMEX MMBTU
         price over the past twelve months. Excluding the impact of hedges, the
         Company's realized price for oil has averaged $0.68 per barrel less
         than the NYMEX per barrel price over the past twelve months. Realized
         prices differ from NYMEX due to factors such as the location of the
         property, the heating content of natural gas and the quality of oil.
         The gas differential excludes the impact of gas sold from the Mist
         field in Oregon under an annually adjusted fixed price contract. The
         oil differential excludes the impact of Point Pedernales field
         production for which the



                                      -17-
<PAGE>


                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)


         Company's selling price was capped at $9.00 per BBL. The Point
         Pedernales field was sold in March 2003.

                Effective September 22, 1998, the Company entered into an eight
         and one-half year interest rate swap agreement with a notional value of
         $80.0 million. Under the agreement, Mission received a fixed interest
         rate and paid a floating interest rate. In February 2003, the interest
         rate swap was cancelled. Mission paid the counterparty $1.3 million,
         the then current market value of the swap. The increase in the swap's
         fair value of $520,000 from January 1, 2003 to the date of the
         cancellation has been reported as a reduction of interest expense.

5.       INCOME TAXES

                   The provision for federal and state income taxes for the
         three months and nine months ended September 30, 2003 was based upon a
         35% effective tax rate. The $5.3 million valuation allowance on
         deferred taxes applicable at December 31, 2002 has been decreased to
         $4.9 million at September 30, 2003, due to the decrease in the deferred
         tax asset relating to state taxes. In assessing the realizability of
         the deferred tax assets, management considers whether it is more likely
         than not that some portion or all of the deferred tax assets will not
         be realized. The ultimate realization of deferred tax assets is
         dependent upon the generation of future taxable income during the
         periods in which those temporary differences become deductible. Based
         upon the projection for future state taxable income, management
         believes it is more likely than not that the Company will not realize
         its deferred tax asset related to state income taxes.

                  The Company issued 9.5 million shares of its common stock on
         May 16, 2001 in its acquisition of Bargo Energy Company. Management
         believes that the merger with Bargo was not an ownership change as
         defined in Section 382 of the Internal Revenue Code. Therefore, the
         Company last had an ownership change in 1994 with the issuance of 3.4
         million shares of its common stock. A change of stock ownership in the
         future by a significant shareholder of the Company may cause an
         ownership change, which would affect the Company's ability to utilize
         its net operating loss ("NOL") carryforwards in the future. Section 382
         of the Internal Revenue Code significantly limits the amount of the NOL
         and investment tax credit carryforwards that are available to offset
         future taxable income and related tax liability when a change in
         ownership occurs.

6.       RELATED PARTY TRANSACTIONS

                  Milam Energy, LP ("Milam") is a 51% working interest owner
         with the Company in several south Louisiana and Texas properties. Torch
         Energy Advisors Incorporated ("Torch") is a majority owner of Milam.
         J.P. Bryan, a managing director and stockholder of Torch, was a
         director of Mission until October 2002; therefore, Milam is no longer
         affiliated with Mission. As of September 30, 2003, Milam owed the
         Company approximately $108,308 in joint interest billings related to
         these properties. On October 8, 2003, $50,625 was received and applied
         against the outstanding balance. The receivable is reflected on the
         accounts receivable and accrued revenues line of the consolidated
         Balance Sheet. Currently, Milam is paying estimated operating expenses
         one month in advance. The $57,683 balance remaining after the October
         8th payment represents cash calls for capital projects.

7.       GUARANTEES

                  The Company routinely obtains bonds to cover its obligations
         to plug and abandon oil and gas wells. In instances where the Company
         purchases or sells oil and gas properties, the parties to the
         transaction routinely include an agreement as to who will be
         responsible for plugging and abandoning any wells on the property and
         restoring the surface. In those cases, the Company will obtain new
         bonds



                                      -18-
<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)


         or release old bonds regarding its plugging and abandonment exposure
         based on the terms of the purchase and sale agreement. However, if a
         party to the purchase and sale agreement defaults on its obligations to
         obtain a bond or otherwise plug and abandon a well or restore the
         surface or if that party becomes bankrupt, the landowner, and in some
         cases the state or federal regulatory authority, may assert that the
         Company is obligated to plug the well since it is in the "chain of
         title". The Company has been notified of such claims from landowners
         and the State of Louisiana and is vigorously asserting its rights under
         the applicable purchase and sale agreements to avoid this liability. At
         this time, the Company has accrued a liability for approximately
         $239,500 for the abandonment and cleanup of the Bayou fer Blanc field
         that is currently in process and a liability for approximately
         $379,000, its proposal to settle abandonment issues at the West Lake
         Ponchartrain field.

                 In 1993 and 1996 the Company entered into agreements with
         surety companies and with Torch and Nuevo Energy Company ("Nuevo")
         whereby the surety companies agreed to issue such bonds to the Company,
         Torch and/or Nuevo. However, Torch, Nuevo and the Company agreed to be
         jointly and severally liable to the surety company for any liabilities
         arising under any bonds issued to the Company, Torch and/or Nuevo. The
         amount of bonds presently issued to Torch and Nuevo pursuant to these
         agreements is approximately $35.2 million. The Company has notified the
         sureties that it will not be responsible for any new bonds issued to
         Torch or Nuevo. However, the sureties are permitted under these
         agreements to seek reimbursement from the Company, as well as from
         Torch and Nuevo, if the surety makes any payments under the bonds
         issued to Torch and Nuevo.

8.       SUBSEQUENT EVENTS

                  Mission's interests in East Cameron Block 17 were sold for
         approximately $1.9 million in a transaction that closed on October 9,
         2003. All of Mission's oil and gas property interests in East Texas,
         plus its 10.1% interest in the East Texas Salt Water Disposal Company
         were sold for approximately $19 million in a transaction that closed on
         October 30, 2003. In addition, a purchase and sale agreement covering
         all of Mission's interests in the Raccoon Bend field in Texas was
         signed on November 7, 2003. Although the sale is subject to certain
         conditions, the Raccoon Bend divestiture is anticipated to close in
         mid-December 2003 for proceeds of approximately $5 million. Management
         of the Company intends to use the proceeds of these sales for the
         future acquisition of gas properties in the Gulf Coast or South Texas
         areas. Proved reserves of approximately 35 Bcfe were divested in these
         three sales.



                                      -19-
<PAGE>

                          MISSION RESOURCES CORPORATION


ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS


GENERAL

CRITICAL ACCOUNTING POLICIES

       In response to SEC Release No. 33-8040, Cautionary Advice Regarding
Disclosure About Critical Accounting Policies, we identified those policies of
particular importance to the portrayal of our financial position and results of
operations and those policies that require our management to apply significant
judgment. We believe these critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

FULL COST METHOD OF ACCOUNTING FOR OIL AND GAS ASSETS

         We use the full cost method of accounting for investments in oil and
gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
as incurred into a "full cost pool". Under the full cost method, a portion of
employee-related costs may be capitalized in the full cost pool if they are
directly identified with acquisition, exploration and development activities.
Generally, salaries and benefits are allocated based upon time spent on
projects. Amounts capitalized can be significant when exploration and major
development activities increase.

         We deplete the capitalized costs in the full cost pool, plus estimated
future expenditures to develop reserves, using the units of production method
based upon the ratio of current production to total proved reserves. Depletion
is a significant component of our net income. Proportionally, it represented 37%
of our total oil and gas revenues in both the nine-month periods ended September
30, 2003 and 2002. Any reduction in proved reserves without a corresponding
reduction in capitalized costs will increase the depletion rate. Should our
reserves increase by 10%, our depletion per barrel equivalent would decrease
approximately $0.93, or 9%; however a 10% decrease in reserves will have an 11%
impact, increasing depletion per barrel equivalent by approximately $1.14.

         Both the volume of proved reserves and the estimated future
expenditures used for the depletion calculation are obtained from the reserve
estimates prepared by independent reservoir engineers. These reserve estimates
are inherently imprecise as they rely upon both the engineers' quantitative and
subjective analysis of various data, such as engineering data, production trends
and forecasts, estimated future spending and the timing of spending. Different
reserve engineers may make different estimates of reserves based on the same
data. Finally, estimated production costs and commodity prices are added to the
assessment in order to determine whether the estimated reserves have any value.
Reserves that cannot be produced and sold at a profit are not included in the
estimated total proved reserves; therefore the quantity of reserves can increase
or decrease as oil and gas prices change. See "Risk Factors: Risks Related to
Our Business, Industry and Strategy" in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2002 for general cautions concerning the
reliability of reserve and future net revenue estimates by reservoir engineers.


                                      -20-
<PAGE>

                          MISSION RESOURCES CORPORATION


         The full cost method requires a quarterly calculation of a limitation
on capitalized costs, often referred to as a full cost ceiling calculation. The
ceiling is the discounted present value of our estimated total proved reserves
adjusted for taxes, using a 10% discount rate. To the extent that our
capitalized costs (net of depreciation, depletion, amortization, and deferred
taxes) exceed the ceiling, the excess must be written off to expense. Once
incurred, this impairment of oil and gas properties is not reversible at a later
date even if oil and gas prices increase. No such impairment was required in the
quarter or year-to-date periods ended September 30, 2003 and 2002,
respectively.

         While the difficulty in estimating proved reserves could cause the
likelihood of a ceiling impairment to be difficult to predict, the impact of
changes in oil and gas prices is most significant. In general, the ceiling is
lower when prices are lower. Oil and gas prices at the end of the period are
applied to the estimated reserves, then costs are deducted to arrive at future
net revenues, which are then discounted at 10% to arrive at the discounted
present value of proved reserves. Additionally, we adjust the estimated future
revenues for the impact of our existing cash flow commodity hedges. The ceiling
calculation dictates that prices and costs in effect as of the last day of the
period are generally held constant indefinitely. Therefore, the future net
revenues associated with the estimated proved reserves are not based on
Mission's assessment of future prices or costs, but rather are based on prices
and costs in effect as of the end the period.

         Because the ceiling calculation dictates that prices in effect as of
the last day of the period be held constant, the resulting value is rarely
indicative of the true fair value of our reserves. Oil and natural gas prices
have historically been variable and, on any particular day at the end of a
period, can be either substantially higher or lower than our long-term price
forecast, which we feel is more indicative of our reserve value. You should not
view full cost ceiling impairments caused by fluctuating prices, as opposed to
reductions in reserve volumes, as an absolute indicator of a reduction in the
ultimate value of our reserves.

         Oil and gas prices used in the ceiling calculation at September 30,
2003 were $29.11 per barrel and $4.58 per MMBTU. A significant reduction in
these prices at a future measurement date could trigger a full cost ceiling
impairment. Our hedging program would serve to mitigate some of the impact of
any price decline. Each $0.10 decline in gas prices would bring us 14% closer to
a ceiling impairment, whereas, each $0.50 decline in oil prices would bring us
16% closer to a ceiling impairment.

DERIVATIVE INSTRUMENTS ACCOUNTING

         All of our commodity derivative instruments represent hedges of the
price of future oil and natural gas production. We estimate the fair values of
our hedges at the end of each reporting period. The estimated fair values of our
commodity derivative instruments are recorded in the consolidated Balance Sheet
as assets or liabilities as appropriate. At September 30, 2003, they represented
a $5.3 million current liability and a $771,000 long-term liability.

        For effective hedges, we record the change in the fair value of the
hedge instruments to other comprehensive income, a component of stockholders'
equity, until the hedged oil or natural gas quantities are produced. Any
ineffectiveness of our hedges, which could represent either gains or losses,
would be reported when calculated as an adjustment of interest and other income.

         Estimating the fair values of commodity hedge derivatives requires
complex calculations, including the use of a discounted cash flow technique and
our subjective judgment in selecting an appropriate discount rate. In addition,
the calculation uses future NYMEX prices, which although posted for trading
purposes, are the market consensus of forecast price trends and may differ from
the prices in



                                      -21-
<PAGE>

                          MISSION RESOURCES CORPORATION


place when the hedges actually settle. The results of our fair value calculation
cannot be expected to represent exactly the fair value of our commodity hedges.
In the past we have chosen to obtain the fair value of commodity derivatives
from the counter parties to those contracts. Since the counter parties were
market makers, they were able to provide us with a literal market value, or what
they would be willing to settle such contracts for as of the given date. We
currently use a software product from an outside vendor to calculate the fair
value of our hedges. This vendor provides the necessary NYMEX futures prices and
the calculated volatility in those prices to us daily. The software is
programmed to apply a consistent discounted cash flow technique, using these
variables and a discount rate derived from prevailing interest rates. This
software is successfully used by several of our peers. Its methods are in
compliance with the requirements of SFAS No. 133 and have been reviewed by a
national accounting firm.

         Our existing commodity hedges are perfectly effective. Should
circumstances change, all or part of the hedges could become ineffective. We
would be required to record an income impact at that time. For example, should
we fail to produce oil and gas in amounts adequate to cover the hedges, the
derivative would immediately be considered speculative and its entire change in
value would be recorded as either a gain or loss in interest and other income.
Thereafter, the derivative would be marked to market each quarter, substantially
increasing the volatility of our earnings.

REVENUE RECOGNITION

         Mission records revenues from sales of crude oil and natural gas when
delivery to the customer has occurred and title has transferred. This occurs
when production has been delivered to a pipeline or a tanker lifting has
occurred. We may share ownership with other producers in certain properties. In
this case, we use the sales method to account for sales of production. It is
customary in the industry for various working interest partners to sell more or
less than their entitled share of natural gas production, creating gas
imbalances. Under the sales method, gas sales are recorded when revenue checks
are received or are receivable on the accrual basis. Typically no provision is
made on the Balance Sheet to account for potential amounts due to or from
Mission related to gas imbalances. If the gas reserves attributable to a
property have depleted to the point that there are insufficient reserves to
satisfy existing imbalance positions, a liability or a receivable, as
appropriate, should be recorded equal to the net value of the imbalance. As of
September 30, 2003, we have recorded a net liability of approximately $1.1
million, which is included in the accounts payable and accrued liabilities line
of the Balance Sheet, representing approximately 411,527 Mcf at an average price
of $2.69 per Mcf, related to imbalances on properties at or nearing depletion.
We value gas imbalances using the price at which the imbalance originated, if
required by the gas balancing agreement, or we use the current price where there
is no gas balancing agreement available. Reserve changes on any fields that have
imbalances could change this liability. We do not anticipate the settlement of
gas imbalances to adversely impact our financial condition in the future.
Settlements are typically negotiated, so the per Mcf price for which imbalances
are settled could differ among wells and even among owners in one well.

ASSET RETIREMENT

         We adopted SFAS No. 143, "Accounting for Asset Retirement Obligations"
effective January 1, 2003. Previously our estimate of future plugging and
abandonment and dismantlement costs was charged to income by being included in
the capitalized costs that we depleted using the unit of production method. SFAS
No. 143 requires us to record a liability for the fair value of our estimated
asset retirement obligation, primarily comprised of our plugging and abandonment
liabilities, in the period in which it is incurred. Upon initial implementation,
we estimate asset retirement costs for all of our assets as of today, inflation
adjust today's costs to the forecast abandonment date, discount that amount back
to the date we acquired the asset and record an asset retirement liability in
that amount with a corresponding addition to our asset value. Then we must
compute all depletion previously taken on future plugging and



                                      -22-
<PAGE>

                          MISSION RESOURCES CORPORATION


abandonment costs, and reverse that depletion. Finally, we must accrete the
liability to present day. Any income effect of this initial implementation is
reflected as a change in accounting method on our Statement of Operations. After
initial implementation, we will reduce the liability as abandonment costs are
incurred. Should actual costs differ from the estimate, the difference will be
reflected as an abandonment gain or loss in the Statement of Operations when the
abandonment occurs. We have developed a process through which to track and
monitor the obligations for each asset following implementation of SFAS No. 143.

         As with previously discussed estimates, the estimation of our asset
retirement obligation is dependent upon many variables. We attempt to limit the
impact of management's judgment on these variables by using the input of
qualified third parties when possible. We engaged an independent engineering
firm to evaluate our properties and to provide us with estimates of abandonment
costs. We used the remaining estimated useful life from the 2002 year-end
Netherland, Sewell & Associates, Inc. reserve report in estimating when
abandonment could be expected. The resulting estimate, after application of a
discount factor and some significant calculations, could differ from actual
results, despite all our efforts to make the most accurate estimation possible.


LIQUIDITY AND CAPITAL RESOURCES

         We require substantial capital in order to fund our exploration and
development programs. Our current primary sources of liquidity are internally
generated cash flow, borrowings under our credit facility and the sale of
non-core oil and gas properties. We have also used utilized public debt and
equity offerings in the past to fund capital requirements.

CASH FLOWS

         Net cash flow provided by operations was $21.3 million for the
nine-month period ending September 30, 2003 whereas in the nine-month period
ending September 30, 2002 cash flow used in operations was $12.5 million. Higher
oil and gas prices in 2003 have contributed to the period-to-period improvement.

         Net cash flow used in investing activities for the nine-month period
ending September 30, 2003 was $21.9 million while $31.9 million was provided by
investing activities in the nine-month period ending September 30, 2002. We
invested $23.0 million in oil and gas properties for the nine-month period ended
September 30, 2003 compared to $16.6 million for the same period of 2002.
Proceeds from property sales, primarily related to 2002 sales, were $3.0 million
for the nine-month period ended September 30, 2003 compared to $49.1 million for
the same period of 2002.

         Net cash flow provided by financing activities was $3.5 million in the
nine-month period ended September 30, 2003, whereas $28.1 million was used in
the same period of 2002. In 2002, our focus was on paying down our credit
facility, while in 2003 we repurchased and retired almost $97.6 million of our
Notes. See Long Term Debt below for more details.

CAPITAL BUDGET AND DRILLING ACTIVITIES

         A capital budget of $32.0 million was adopted for the year 2003, with
$20.8 million for development, $5.8 million for exploration and $5.4 million for
seismic data, land and other related items. We design and continually adjust our
capital spending plan to make optimal use of, but not to exceed, operating cash
flow after debt service and administrative expenses plus proceeds from asset
sales. Natural gas and oil prices, the timing of our drilling program and
drilling results have a significant impact on the cash flows available for
capital expenditures and our ability to borrow and raise additional capital.


                                      -23-
<PAGE>
                          MISSION RESOURCES CORPORATION


Lower prices may also reduce the amount of natural gas and oil that we can
economically produce. Lower prices and/or lower production may decrease revenues
and cash flows, thus reducing the amount of financial resources available to
meet our capital requirements.

         Capital expenditures, excluding $875,000 spent on office
re-configuration, furniture and software, totaled approximately $24 million for
the nine months ended September 30, 2003. Development costs comprised about 67%
of the total, exploratory costs about 15% and the remaining costs were for
seismic data, prospect data or prospect acquisition costs. Developmental costs
have been focused in the Gulf Coast and the Permian Basin, specifically in the
Brahaney Unit, Waddell Ranch and TXL fields in the Permian Basin and the West
Lake Verret, Backridge and North Leroy fields in South Louisiana. Exploratory
costs have been incurred in the Unit Petroleum Bluntzer #1 and the Black Stone
No. 1 in Goliad and Hidalgo Counties, Texas, and in the J.P. Coleman in St. Mary
Parish, Louisiana. Exploratory costs have also been incurred at the Eugene
Island Block 284 D-1 field in the federal waters of the Gulf of Mexico.

LONG TERM DEBT

         SENIOR SUBORDINATED NOTES

          In April 1997, Mission issued $100.0 million of 10 7/8% senior
subordinated notes due 2007. On May 29, 2001, we issued an additional $125.0
million of senior subordinated notes due 2007 with identical terms to the notes
issued in April 1997 (collectively the "Notes") at a premium of $1.9 million.
The premium is amortized as a reduction of interest expense over the life of the
Notes so that the effective interest rate on these additional Notes is 10.5%.
The premium is shown separately on the balance sheet. Interest on the Notes is
payable semi-annually on April 1 and October 1. The Notes may be redeemed, in
whole or in part, at our option any time after April 1, 2002 at 105.44%, and
decreasing annually to 100.00% on April 1, 2005 and thereafter, plus accrued and
unpaid interest. In the event of a change of control, as defined in the
indenture, each holder of the Notes will have the right to require us to
repurchase all or part of such holder's Notes at an offer price in cash equal to
101.0% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of purchase. The Notes contain certain covenants, including
limitations on indebtedness, liens, compliance with requirements of existing
indebtedness, dividends, repurchases of capital stock 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. As of September 30, 2003, we were
in compliance with our covenants under the Notes.

         On March 28, 2003, we acquired, in a private transaction with various
funds affiliated with Farallon Capital Management, LLC, approximately $97.6
million in principal amount of the Notes for approximately $71.7 million, plus
accrued interest. Immediately after the consummation of the purchase and sale
agreement, Mission had $127.4 million in principal amount of Notes outstanding.

         In the past, we received debt ratings from two major rating agencies in
the United States. Beginning in April 2003, Mission terminated the ratings
service with Standard & Poor's because two major rating agencies are not
required for our debt instruments. In June 2003, Moody's downgraded Mission's
subordinated note rating to "Ca". In determining Mission's debt rating, Moody's
considers a number of items including, but not limited to, debt levels, planned
asset sales, near-term and long-term production growth opportunities, capital
allocation challenges and commodity price levels. A decline in our ratings would
not create a default under our current credit facility or other unfavorable
change.


                                      -24-
<PAGE>
                         MISSION RESOURCES CORPORATION


         CREDIT FACILITY

         On March 28, 2003, simultaneously with the acquisition of the Notes,
the Company amended and restated its credit facility with new lenders, led by
Farallon Energy Lending, LLC. The entire $947,000 of deferred financing costs
relating to the facility with its previous lenders was charged to earnings as a
reduction in the gain on extinguishment of debt. Under the amended and restated
secured credit agreement ("the Facility"), the Company borrowed $80.0 million
pursuant to term loans (the "Term Loan Facility"), the proceeds of which were
used to acquire approximately $97.6 million face amount of Notes, to pay accrued
interest on the Notes purchased, and to pay closing costs associated therewith.
The Facility provides that an additional $10.0 million could be made available
solely for the purpose of acquiring additional Notes. The additional $10.0
million will be advanced at the discretion of the lenders, and we cannot assure
you that the lenders will consent to this additional advance. The interest rate
on the Term Loan Facility is 12% until February 16, 2004, when it increases to
13% until the maturity date.

         Subject to certain conditions, we have the option to prepay and also
may be required to prepay the loans outstanding under the Term Loan Facility
(the "Loans"), upon the occurrence of certain payments, including, but not
limited to, the issuance of capital stock or indebtedness, asset sales or
recovery events, subject to certain limitations. Mission is also required, by
not later than February 4, 2004, to prepay the Loans in an amount equal to
one-half of the amount by which Mission's discretionary cash flow for fiscal
2003 exceeds $35.0 million, provided that no prepayment need be made in an
amount less than $1.0 million. The facility requires Mission to use any
divestiture proceeds to acquire oil and gas properties or to make a prepayment
on the Loans.

         Upon the closing of the Facility, the lenders were entitled to a fee of
3% of the initial amounts drawn or $2.4 million. The fee is due, in full or in
part, if certain events occur. Those events include certain material events of
default, acceleration of the Loans or the prepayment or repayment of the Loans
in full. Any additional loans made under the Facility would also be subject to
the 3% fee, which will also be deferred as described above. Optional and
mandatory prepayments of the initial loans outstanding and of any additional
loans that become outstanding under the Facility can reduce the deferred fee in
varying amounts based upon when the prepayment is made.

         On June 16, 2003, we again amended and restated the Facility to add a
revolving credit facility (the "Revolver Facility") of up to $12.5 million,
including a letter of credit sub-facility (the "Sub-Facility") of up to $3.0
million. As of September 30, 2003, we had no amounts outstanding under the
Revolver Facility, but have issued $100,000 of letters of credit under the
Sub-Facility. The proceeds of the Revolver Facility are to be used to finance
our ongoing working capital and general corporate needs. The interest rate on
amounts outstanding under the Revolver Facility will be equal to the prime rate
plus 0.5% per annum, provided that the minimum interest rate will be 4.75% per
annum. Outstanding letters of credit under the Sub-Facility will be charged a
3.0% per annum letter of credit fee.

         The Facility, which includes the Term Loan Facility, the Revolver
Facility, and the Sub-Facility, is governed by various covenants including, but
not limited to, covenants preventing us from making or committing to make
certain capital expenditures and requiring that certain financial covenants be
maintained. For a more complete discussion of the terms of the Facility, see
Note 3 to the condensed consolidated financial statements. At September 30,
2003, we were in compliance with all of the Facility's covenants.

         The minimum consolidated fixed charge coverage ratio is calculated
quarterly. Our ability to meet this requirement in future quarters will
primarily be dependent upon the timing and the success of our drilling program.
If we fail to meet this requirement, we would attempt to negotiate a more
lenient calculation or would request a waiver of the requirement from the
lenders.



                                      -25-
<PAGE>

                          MISSION RESOURCES CORPORATION


CAPITAL STRUCTURE

         We have a highly leveraged capital structure, limiting our financial
flexibility. In particular, we must pay approximately $23.6 million of interest
annually on the remaining Notes and the Facility combined, which limits the
amount of cash provided by operations that is available for exploration and
development of oil and gas properties. The Notes also contain various covenants
that limit our ability to, among other things, incur additional indebtedness,
pay dividends, purchase capital stock and sell assets. Although, our common
stock price has rebounded in recent months, we have a limited ability to
complete offerings of equity securities.

         At September 30, 2003, we had a working capital deficit of
approximately $7.3 million, compared to positive working capital of $0.9 million
at December 31, 2002. The addition of a current obligation for asset retirement
as a result of the implementation of SFAS No. 143 and the unfavorable impact of
increased commodity prices on our hedges' fair value contributed most
significantly to this deficit. The hedge liability represents the extent to
which actual commodity prices exceed the price caps set by our hedges. Should
commodity prices decrease, the liability will decline and the premium over the
hedge prices that we will realize on unhedged production will also reduce. Since
hedges are settled out of the receipts from the sale of production, we
anticipate having adequate cash inflows to settle any hedge payments when they
come due while maintaining revenue near the hedge price. We believe the cash
flows from operating activities combined with our ability to control the timing
of substantially all of our future development and acquisition requirements will
provide us with the flexibility and liquidity to meet our future planned capital
requirements for the remainder of 2003 and into next year. Our 2003 planned
development and acquisition programs are projected to be funded substantially by
available cash flow from our 2003 operations and our Revolver Facility is
available for short-term borrowings.

         Because of these issues, our management team has reviewed various
restructuring alternatives and has retained the investment-banking firm of
Petrie Parkman & Co. to assist in this evaluation. The repurchase of
approximately $97.6 million of the Notes was the first step in this effort to
restructure the Balance Sheet. The addition of the $12.5 million Revolver
Facility was a second step. Among the additional alternatives being considered
are

         o        a refinancing of the remaining Notes;

         o        a new credit facility;

         o        a merger with or an acquisition by another company;

         o        the sale of certain oil and gas properties;

         o        the acquisition by the Company of another company or assets;

         o        other secured and unsecured debt financings; and

         o        the issuance of equity securities or other debt securities for
                  cash or properties or in exchange for the Notes.

Some of these alternatives would require approval of our stockholders, and all
of them will require the approval of other parties to the transaction. We cannot
assure you that we will be successful in completing any of these possible
transactions.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

         Mission is required to make future payments under contractual
obligations. Mission has also made various commitments in the future should
certain events occur or conditions exist. As a result of the repurchase of the
Notes and the amendment of our credit facility, our contractual obligations
changed significantly on March 28, 2003, but have not changed significantly
after June 30, 2003.



                                      -26-
<PAGE>


                          MISSION RESOURCES CORPORATION


RELATED PARTIES

         Milam Energy, LP ("Milam") is a 51% working interest owner with the
Company in several south Louisiana and Texas properties. Torch Energy Advisors
Incorporated ("Torch") is a majority owner of Milam. J.P. Bryan, a managing
director and stockholder of Torch, was a director of Mission until October 2002;
therefore, Milam is no longer affiliated with Mission. As of September 30, 2003,
Milam owed the Company approximately $108,308 in joint interest billings related
to these properties. On October 8, 2003, $50,625 was received and applied
against the outstanding balance. The receivable is reflected on the accounts
receivable and accrued revenues line of the consolidated balance sheet.
Currently, Milam is paying estimated operating expenses one month in advance.
The $57,683 balance remaining after the October 8th payment represents cash
calls for capital projects.


RESULTS OF OPERATIONS

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

<Table>
<Caption>
                                                                 Three Months Ended          Nine Months Ended
                                                                    September 30,              September 30,
                                                           ---------------------------   ---------------------------
                                                              2003           2002            2003           2002
                                                           ------------   ------------   ------------   ------------
Production:
<S>                                                        <C>            <C>            <C>            <C>
   Oil and condensate (MBbls) ..........................            571            729          1,710          2,623
   Natural gas (MMcf) ..................................          2,350          3,061          6,845         10,225
   Equivalent barrels (MBOE) ...........................            963          1,239          2,851          4,327

Average sales price including the effect of hedges:
   Oil and condensate ($ per Bbl) ......................          25.01          22.78          25.29          21.20
   Natural gas  ($ per Mcf) ............................           4.17           3.02           4.53           2.98

Average sales price excluding the effect of hedges:
   Oil and condensate ($ per Bbl) ......................          28.54          23.86          29.34          21.35
   Natural gas ($ per Mcf) .............................           4.79           3.01           5.44           2.86

Average costs:
   Lease operating expenses ($ per Boe) ................           8.63           7.08           8.97           7.65
   Taxes other than income ($ per Boe) .................           2.19           1.91           2.44           1.64
   General & administrative expense ($ per Boe) ........           2.68           4.05           2.81           2.32
   Depreciation, depletion and amortization
        ($ per Boe)(1) .................................          10.25           7.75           9.65           7.26
</Table>

(1)      Excludes depreciation, depletion and amortization on gas plants,
         furniture and fixtures and other assets.



                                      -27-
<PAGE>


                          MISSION RESOURCES CORPORATION


THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

NET INCOME (LOSS)

         Net loss for the three months ended September 30, 2003 was $3.8 million
or $0.16 per share. Net loss for the three months ended September 30, 2002 was
$2.4 million or $0.10 per share. Although production has declined substantially
between the periods as a result of the sale of oil and gas properties in 2002,
higher oil and gas prices have mitigated the impact of the production decline.

OIL AND GAS REVENUES

         Oil revenues decreased 14% from $16.6 million for the three months
ended September 30, 2002 to $14.3 million for the three months ended September
30, 2003. Oil production decreased 22% from 729 thousand barrels ("MBbls") in
the three months ended September 30, 2002 to 571 MBbls in the same period of
2003. The sales of oil and gas properties in the latter half of 2002, and the
sale of Pt. Pedernales in March 2003 account for most of the production
decrease. Oil prices averaged $25.01 per barrel in the three months ended
September 30, 2003, as compared to $22.78 per barrel in the three months ended
September 30, 2002.

        Gas revenues increased 7% from $9.2 million reported for the quarter
ended September 30, 2002 to $9.8 million for the quarter ended September 30,
2003. Gas production decreased 23% from 3,061 MMcf in the three months ended
September 30, 2002 to 2,350 MMcf for the three months ended September 30, 2003.
The sales of oil and gas properties in the latter half of 2002 account for most
of the production decrease. Gas prices averaged $4.17 per Mcf, or 38% higher, in
the three months ended September 30, 2003 as compared to $3.02 per Mcf in the
comparable period of 2002.

         The volumes and revenues discussed above include a 23 MMcf reduction in
gas balancing liability that may require settlement in cash upon depletion of
the properties. This decrease in the liability during the third quarter of 2003
was valued at approximately $128,000 using prices in effect at the origination
of the imbalances. The realized prices discussed above include the impact of oil
and gas hedges. A decrease of $3.5 million related to hedging activity was
reflected in oil and gas revenues for the three months ended September 30, 2003,
while a decrease in oil and gas revenues of $767,000 was reflected for the same
period of 2002.

INTEREST AND OTHER INCOME (LOSS)

         Interest and other income (loss) was a net gain of $170,000 and $1.7
million for the three-month periods ended September 30, 2003 and 2002,
respectively. The gain in 2002 was primarily a $1.7 million gain resulting from
the settlement of a royalty calculation dispute with the MMS. In the three
months ended September 30, 2003, there was a $187,000 gain from the amortization
of OCI related to cancelled hedges. The hedges were cancelled in 2002 and
re-designated in order to eliminate the volatility due to hedge ineffectiveness.

LEASE OPERATING EXPENSES

         Lease operating expenses decreased from $8.8 million in the three
months ended September 30, 2002 to $8.3 million for the same period of 2002.
This decline of approximately 6% is primarily related to sales of oil and gas
properties in 2002, partially offset by increases in operating costs in East
Texas and the offshore Gulf of Mexico properties. Third quarter savings of
approximately $1.7 million are attributable to the 2002 property sales.
Increased costs for offshore MMS compliance work and expense workovers caused a
periodic increase in lease operating expenses.




                                      -28-
<PAGE>

                          MISSION RESOURCES CORPORATION


TAXES OTHER THAN INCOME

         Taxes other than income decreased from $2.4 million in the three months
ended September 30, 2002 to $2.1 million for the same period of 2003. Production
tax is included in this total. Production taxes are generally based upon volumes
or revenues. They increase or decrease with changes in volumes and revenue.
Decreased volumes as a result of the property sales and increased revenues a
result of higher gas prices had offsetting impacts on production taxes. Ad
valorem taxes are lower in 2003 than in 2002.

TRANSPORTATION COSTS

         Transportation costs were not significant in either presented period.

ASSET RETIREMENT OBLIGATION ACCRETION EXPENSE

         Asset retirement obligation accretion expense is a new category of
expense for 2003 that resulted from the implementation of SFAS No. 143. The
liability which we have recorded for our asset retirement obligation represents
the estimate of such costs as of today. Each quarter, we must increase that
liability to account for the passage of time, resulting in this accretion
expense.

DEPRECIATION, DEPLETION AND AMORTIZATION

         Depreciation, depletion and amortization ("DD&A") was $10.0 million for
the three months ended September 30, 2003 and $9.7 million for the three months
ended September 30, 2002. The DD&A rate has increased from $7.75 per BOE in the
third quarter of 2002 to $10.25 per BOE in the third quarter of 2003. A
reduction in reserves, primarily due to revisions calculated by reservoir
engineers and to a lesser degree due to property sales, caused the increased
DD&A rate.

GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses ("G&A") decreased 48% from $5.0
million in the three months ended September 30, 2002 to $2.6 million for the
same period in 2003. The third quarter of 2002 included approximately $2.5
million of severance costs. At September 30, 2002, most of Mission's accounting,
operating and marketing functions were performed by employees of Torch. Mission
paid Torch a management fee for these outsourced services. By the end of April
2003 all outsourcing contracts with Torch had been terminated and Mission's
staff had increased. Comparing the three months ended September 30, 2002 and
2003, Mission's management fees decreased by approximately $672,000 but there
was a partially offsetting increase in employee costs.

INTEREST EXPENSE

         Interest expense increased 22% to $6.6 million for the three months
ended September 30, 2003 from $5.4 million in the same period of 2002. A $1.8
million gain on the mark-to-market of the interest rate swap caused 2002
interest expense to be significantly lower than usual. If the gain is ignored,
the interest expense savings resulting from our recent activities is evident.
Interest expense in 2002 included approximately $309,000 of interest paid on
borrowings under Mission's previous revolving credit facility. In 2003, there
were no borrowings under Mission's current revolving credit facility.
Additionally, the March 2003 repurchase of $97.6 million of our 10-7/8%
subordinated notes and their replacement with an $80.0 million term loan
facility currently bearing interest at 12% has generated interest savings of
approximately $95,000 per month.



                                      -29-
<PAGE>


                          MISSION RESOURCES CORPORATION


INCOME TAXES

         The provision for federal and state income taxes for the three months
ended September 30, 2003 was based upon a 35% effective tax rate. The $5.3
million valuation allowance on deferred taxes applicable at December 31, 2002
has been decreased to $4.9 million at September 30, 2003, due to the decrease in
the deferred tax asset relating to state taxes. In assessing the realizability
of the deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences
become deductible. Based upon the projection for future state taxable income,
management believes it is more likely than not that the Company will not realize
its deferred tax asset related to state income taxes.


NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

NET INCOME (LOSS)

         Net income for the nine months ended September 30, 2003 was $3.9
million or $0.16 per share. Net loss for the nine months ended September 30,
2002 was $17.8 million or $0.75 per share. The $22.4 million gain ($14.5 million
net of tax) from the repurchase and retirement of the Notes in March 2003,
combined with higher oil and gas prices in 2003, contributed to the increase in
net income.

OIL AND GAS REVENUES

         Oil revenues decreased 22% from $55.6 million for the nine months ended
September 30, 2002 to $43.2 million for the nine months ended September 30,
2003. Oil production decreased 35% from 2,623 MBbls in the nine months ended
September 30, 2002 to 1,710 MBbls in the same period of 2003. The sale of oil
and gas properties during the year 2002 accounts for most of the production
decrease. Oil prices averaged $25.29 per barrel in the nine months ended
September 30, 2003, as compared to $21.20 per barrel in the nine months ended
September 30, 2002.

        Gas revenues remained almost flat at $30.5 million for the nine months
ended September 30, 2002 compared to $31.0 million for the nine months ended
September 30, 2003. Gas production decreased 33% from 10,225 MMcf for the nine
months ended September 30, 2002 to 6,845 MMcf for nine months ended September
30, 2003. The sale of oil and gas properties during the year 2002, accounts for
most of the production decrease. Gas prices averaged $4.53 per Mcf, or 52%
higher, in the nine months ended September 30, 2003 as compared to $2.98 per Mcf
in the comparable period of 2002.

         The volumes and revenues discussed above include the provision for a
146 MMcf gas balancing liability that may require settlement in cash upon
depletion of the properties. This reserve was valued at approximately $655,000
using prices in effect at the origination of the imbalances. The realized prices
discussed above include the impact of oil and gas hedges. A decrease of $13.2
million related to hedging activity was reflected in oil and gas revenues for
the nine months ended September 30, 2003, while an increase in oil and gas
revenues of $868,000 was reflected for the same period of 2002.

EXTINGUISHMENT OF DEBT

         On March 28, 2003, Mission acquired approximately $97.6 million in
principal amount of its Notes for approximately $71.7 million, plus accrued
interest. The Notes were retired. The difference between the principal amount
retired and the amount paid to purchase the Notes is recorded as a gain on the
extinguishment of debt. The costs of the purchase transaction and the removal of
the amount of



                                      -30-
<PAGE>


                          MISSION RESOURCES CORPORATION


previously deferred subordinated debt financing costs related to the retired
Notes were netted against the gain to arrive at the $22.4 million gain ($14.5
million net of tax) on extinguishment of debt.

INTEREST AND OTHER INCOME (LOSS)

         Interest and other income (loss) was a net gain of $892,000 for the
nine months ended September 30, 2003 and a loss of $8.0 million for the nine
months ended September 30, 2002. A $9.3 million loss on hedge ineffectiveness of
derivatives is included as a component of other income in the first nine months
of 2002 whereas a gain of $603,000 from the amortization of OCI related to
cancelled hedges is recorded for the same period of 2003. The hedges were
cancelled in 2002 and re-designated in order to eliminate the volatility due to
hedge ineffectiveness. Approximately $404,000 in bad debt expense and note
receivable write-offs burdened 2002, with no comparably large write-offs in
2003. Activity for 2003 includes approximately $341,000 of equity in the
earnings of White Shoal Pipeline Corporation. Mission owns a 26.6% interest in
this corporation, which operates in the Gulf of Mexico.

LEASE OPERATING EXPENSES

         Lease operating expenses decreased from $33.1 million in the nine
months ended September 30, 2002 to $25.6 million for the same period of 2003.
This decline of approximately 23% is primarily related to 2002 property sales.

TAXES OTHER THAN INCOME

         Taxes other than income decreased from $7.1 million in the nine months
ended September 30, 2002 to $7.0 million for the same period of 2003. Ad valorem
taxes are included in this total and these property taxes have been increasing
as local jurisdictions search for ways to balance their budgets, however,
Mission's property taxes have decreased overall due to the sales of properties.
Production taxes are included in this total. In many states, production tax is a
function of revenue rather than production, so production taxes tend to be
higher in times of higher revenues.

TRANSPORTATION COSTS

         Transportation costs were not significant in either period presented.

ASSET RETIREMENT OBLIGATION ACCRETION EXPENSE

         Asset retirement obligation accretion expense is a new category of
expense for 2003 that resulted from the implementation of SFAS No. 143. The
liability which we have recorded for our asset retirement obligation represents
the estimate of such costs as of today. Each quarter, we must increase that
liability to account for the passage of time, resulting in this accretion
expense.

DEPRECIATION, DEPLETION AND AMORTIZATION

         DD&A was $28.0 million for nine months ended September 30, 2003 and
$31.9 million for nine months ended September 30, 2002. Although this represents
an overall cost decrease, DD&A per BOE has increased from $7.26 per BOE in the
nine-month period of 2002 to $9.65 per BOE in the nine-month period of 2003. A
reduction in year end reserves, primarily due to revisions calculated by
reservoir engineers and to a lesser degree to property sales, caused the
increased DD&A rate in 2003.



                                      -31-
<PAGE>


                          MISSION RESOURCES CORPORATION


GENERAL AND ADMINISTRATIVE EXPENSES

         G&A totaled approximately $8.0 million in the nine months ended
September 30, 2003 and $10.0 million in the nine months ended September 30,
2002. At September 30, 2002, most of Mission's accounting, operating and
marketing functions were performed by employees of Torch. Mission paid Torch a
management fee for these outsourced services. By the end of April 2003 all
outsourcing contracts with Torch had been terminated and Mission's staff had
increased; therefore, Mission's management fee costs decreased but a
corresponding employee costs increase combined with severance costs related to
the reorganization partially offset the management fee savings. The first half
of 2003 included increased expenses that will not be required in future quarters
as evidenced by the $280,000 decrease in G&A from the second quarter of 2003 to
the third quarter of 2003. We incurred additional audit fees related to the
first time audit of functions that were previously outsourced. Legal costs were
higher as a result of several settled lawsuits and the implementation of the new
corporate governance requirements. We also performed an extensive review of our
land records in preparation of implementing a new land system.

INTEREST EXPENSE

         Interest expense decreased 22% to $19.0 million for the nine months
ended September 30, 2003 from $20.4 million in the same period of 2002. The
change in fair value of the interest rate swap was recorded as a reduction to
interest expense of $520,000 in the nine months ended September 30, 2003 and as
additional interest expense of $1.6 million in the nine months ended September
30, 2002. Also, there were no borrowings outstanding under the revolving credit
facility in the first half of 2003, but approximately $993,000 of interest on
borrowings under the revolving credit facility was reported for the first half
of 2002. Additionally, the March 2003 repurchase of $97.6 million of our 10-7/8%
subordinated notes and their replacement with an $80.0 million term loan
facility currently bearing interest at 12% has generated interest savings of
approximately $95,000 per month beginning in the second quarter of 2003.

INCOME TAXES

        The provision for federal and state income taxes for the nine months
ended September 30, 2003 was based upon a 35% effective tax rate. The $5.3
million valuation allowance on deferred taxes applicable at December 31, 2002
has been decreased to $4.9 million at September 30, 2003, due to the decrease in
the deferred tax asset relating to state taxes. In assessing the realizability
of the deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences
become deductible. Based upon the projection for future state taxable income,
management believes it is more likely than not that the Mission will not realize
its deferred tax asset related to state income taxes.


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, 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,



                                      -32-
<PAGE>


                          MISSION RESOURCES CORPORATION


and the effect of gas balancing, 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 Annual Report on Form 10-K for the year
ended December 31, 2002 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.


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Mission is exposed to market risk, including adverse changes in commodity prices
and interest rate.

COMMODITY PRICE RISK

         Mission produces and sells crude oil, natural gas and natural gas
liquids. As a result, its operating results can be significantly affected by
fluctuations in commodity prices caused by changing market forces. Mission
periodically seeks to reduce its exposure to price volatility by hedging a
portion of its production through swaps, options and other commodity derivative
instruments. A combination of options, structured as a collar, is our preferred
hedge instrument because there are no up-front costs and protection is given
against low prices. Such hedges assure that Mission receives NYMEX prices no
lower than the price floor and no higher than the price ceiling. As shown on the
following tables, we have also entered into some commodity swaps that fix the
NYMEX price to be received. During the three months ended September 30, 2003 and
2002, we recognized losses of $3.5 million and $66,073, respectively, related to
hedges that were settled. Hedge settlements were a loss of $13.2 million in the
nine months ended September 30, 2003, and a gain of $1.6 million in the nine
months ended September 30, 2002.

As of November 10, 2003, Mission had the following hedges in place:

OIL HEDGES

<Table>
<Caption>
                                                                                    NYMEX            NYMEX
                                   BBLS                                             PRICE            PRICE
            PERIOD                PER DAY       TOTAL BBLS           TYPE       FLOOR/SWAP AVG.    CEILING AVG.
--------------------------   --------------   --------------   --------------   ---------------  --------------
<S>                          <C>              <C>              <C>              <C>              <C>
Fourth Qtr. 2003 .........            3,500          322,000             Swap   $        23.59              n/a
First Qtr. 2004 ..........            2,500          227,500             Swap   $        25.24              n/a
Second Qtr. 2004 .........            2,500          227,500             Swap   $        24.67              n/a
Third Qtr. 2004 ..........            2,500          230,000             Swap   $        24.30              n/a
Fourth Qtr. 2004 .........            2,500          230,000             Swap   $        23.97              n/a
</Table>



                                      -33-
<PAGE>



                          MISSION RESOURCES CORPORATION


GAS HEDGES

<Table>
<Caption>
                                                                                    NYMEX             NYMEX
                                 MMBTU            TOTAL                          PRICE FLOOR      PRICE CEILING
          PERIOD                PER DAY           MMBTU             TYPE             AVG.             AVG.
--------------------------   --------------   --------------   --------------   --------------   --------------
<S>                          <C>              <C>              <C>              <C>              <C>
Fourth Qtr. 2003 .........           15,000        1,380,000           Collar   $         3.24   $         4.54
First Qtr.  2004 .........            8,000          728,000           Collar   $         4.13   $         5.39
Second Qtr. 2004 .........            5,000          455,000           Collar   $         3.70   $         4.08
Third Qtr.  2004 .........            5,000          460,000           Collar   $         3.70   $         4.04
Fourth Qtr. 2004 .........            5,000          460,000           Collar   $         3.85   $         4.23
First Qtr.  2005 .........            1,000           90,000           Collar   $         4.25   $         6.32
Second Qtr. 2005 .........            1,000           91,000           Collar   $         4.25   $         4.92
Third Qtr.  2005 .........            1,000           92,000           Collar   $         4.25   $         4.72
Fourth Qtr. 2005 .........            1,000           92,000           Collar   $         4.25   $         5.14
</Table>

         These commodity swap agreements expose Mission to counterparty credit
risk to the extent the counterparty is unable to meet its monthly settlement
commitment to Mission. Mission believes it selects creditworthy counterparties
to its hedge transactions. Each of Mission's counterparties have long term
senior unsecured debt ratings of at least A/A2 by Standard & Poor's or Moody's.


INTEREST RATE RISK

         Effective September 22, 1998, Mission entered into an eight and
one-half year interest rate swap agreement with a notional value of $80.0
million. Under the agreement, Mission receives a fixed interest rate and pays a
floating interest rate, subject to a cap, based on the simple average of three
foreign LIBOR rates. Mission paid $1.3 million to the counterparty in February
2003 to cancel the swap. A $520,000 gain related to the change in the fair
market value of the swap from January 1, 2002 to the date of cancellation was
recognized as a reduction in interest expense.


ITEM 4.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         As of the end of the period covered by this report, Mission's principal
executive officer ("CEO") and principal financial officer ("CFO") carried out an
evaluation of the effectiveness of Mission's disclosure controls and procedures
pursuant to Rule 13a-15 of the Securities and Exchange Act of 1934. Based on
those evaluations, the CEO and CFO believe:

         i.  that Mission's disclosure controls and procedures are designed to
             ensure that information required to be disclosed by Mission in the
             reports it files under the Securities Exchange Act of 1934 is
             recorded, processed, summarized and reported within the time
             periods specified in the SEC's rules and forms, and that such
             information is accumulated and communicated to Mission's
             management, including the CEO and CFO, as appropriate to allow
             timely decisions regarding required disclosure; and

         ii.  that Mission's disclosure controls and procedures are effective.



                                      -34-
<PAGE>

                          MISSION RESOURCES CORPORATION


CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

       There have been no significant changes in Mission's internal controls
over financial reporting during the period covered by this report that has
materially affected, or are reasonably likely to materially affect, Mission's
control over financial reporting.




                                      -35-
<PAGE>

                          MISSION RESOURCES CORPORATION


                           PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

          The Company is involved in litigation relating to claims arising out
of its operations in the normal course of business, including workmen's
compensation claims, tort claims and contractual disputes. Some of the existing
known claims against the Company are covered by insurance subject to the limits
of such policies and the payment of deductible amounts by the Company.
Management believes that the ultimate disposition of all uninsured or
unindemnified matters resulting from existing litigation will not have a
material adverse effect on the Company's business or financial position.


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

                         None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

                         None.

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

                         None.

ITEM 5.   OTHER INFORMATION

          On November 4, 2003, the Company entered into an employment agreement
with Marshall L. Munsell, its Senior Vice President - Land and Land
Administration, providing for an initial annual salary of $200,000 and an option
to purchase 125,000 shares of Mission common stock. The option has an exercise
price of $2.61 per share, a term of 10 years and vests as to one-third of the
shares on the grant date and as to one-third of the shares on the first and
second anniversary of the grant date. The agreement provides for an initial term
of three years with automatic extensions that continually set the term at three
years. The agreement also provides for two years of salary continuation in the
event of termination without "cause" or for "good reason," and contains
confidential information and non-solicitation provisions. In addition, the
agreement provides for two years of salary continuance and, if applicable, an
additional cash payment to make the executive whole for certain tax liabilities,
upon the occurrence of a "change in control" and the termination of Mr.
Munsell's employment without cause or for good reason within one year of the
"change in control."

          In addition, on November 5, 2003, the Compensation Committee of the
Board of Directors awarded Robert L. Cavnar, our Chairman of the Board,
President and Chief Executive Officer, 800,000 share appreciation rights. The
rights have an initial value of $0.55 for each right granted, have a term of ten
years and fully vest only upon the occurrence of a "change of control" or the
termination of Mr. Cavnar's employment by the Company without "cause" or by Mr.
Cavnar for "good reason." Upon the occurrence of any of the foregoing vesting
events, the Company will pay to Mr. Cavnar, for each right, cash in the amount
of the difference between the initial value of the right and the then current
price of the Company's common stock as determined by the share appreciation
rights agreement.



                                      -36-
<PAGE>


                          MISSION RESOURCES CORPORATION


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     a.  Exhibits.

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

         10.1     Second Amended and Restated Credit Agreement among Mission
                  Resources Corporation, as Borrower, the Several Lenders from
                  Time to Time Parties Hereto, Farallon Energy Lending, L.L.C.,
                  as Arranger Jefferies & Company, Inc., as Syndication Agent
                  and Wells Fargo Foothill, Inc., as Administrative Agent dated
                  as of June 5, 2003 (incorporated by reference to Exhibit 99.2
                  to the Current Report on Form 8-K filed on June 17, 2003).

         10.2     Third Amended, Restated And Consolidated Guaranty And
                  Collateral Agreement, dated as of June 5, 2003, made by
                  Mission Resources Corporation and certain of its Subsidiaries,
                  in favor of Wells Fargo Foothill, Inc., as Administrative
                  Agent (incorporated by reference to Exhibit 99.3 to the
                  Current Report on Form 8-K filed on June 17, 2003).

         10.3     First Amendment to and Waiver of Second Amended and Restated
                  Credit Agreement, dated as of June 25, 2003, among Mission
                  Resources Corporation, the several banks and other financial
                  institutions or entities from time to time parties to the
                  Amendment, Farallon Energy Lending, L.L.C., as sole advisor,
                  sole lead arranger and sole bookrunner, and Wells Fargo
                  Foothill, Inc, as administrative agent (filed herewith).

         10.4     Second Amendment, dated October 22, 2003, to the Second
                  Amended and Restated Credit Agreement, dated as of June 5,
                  2003, by and among Mission Resources Corporation, the several
                  banks and other financial institutions or entities from time
                  to time parties thereto, Farallon Energy Lending, L.L.C., as
                  sole advisor, sole lead arranger and sole bookrunner,
                  Jefferies & Company, Inc., as the syndication agent, and Wells
                  Fargo Foothill, Inc, formerly known as Foothill Capital
                  Corporation, as administrative agent (filed herewith).

         10.5     Employment Agreement effective November 4, 2003 between the
                  Company and Marshall L. Munsell (filed herewith)

         31.1     Certification of Chief Executive Officer pursuant to Rule
                  13a-14(a) / Rule 15d-14(a), promulgated under the Securities
                  Exchange Act of 1934, as amended (filed herewith).

         31.2     Certification of Chief Financial Officer pursuant to Rule
                  13a-14(a) / Rule 15d-14(a), promulgated under the Securities
                  Exchange Act of 1934, as amended (filed herewith).

         32.1     Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of
                  Chief Executive Officer of the Company (filed herewith).


                                      -37-
<PAGE>


                          MISSION RESOURCES CORPORATION


         32.2     Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of
                  Chief Financial Officer of the Company (filed herewith).

    b.   Reports on Form 8-K

         (i)      The Company filed a Current Report on Form 8-K on July 1, 2003
                  regarding its press release announcing 2003 drilling
                  successes.

         (ii)     The Company filed a Current Report on Form 8-K on August 12,
                  2003 regarding the resignation of Mr. James L. Bowles from the
                  Company's Board of Directors and also to furnish information
                  included in its earnings press release for the quarter ended
                  June 30, 2003.



                                      -38-
<PAGE>


                          MISSION RESOURCES CORPORATION


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.






                                         MISSION RESOURCES CORPORATION
                                         -----------------------------
                                                 (Registrant)




Date:     November 13, 2003              By:  /s/ Robert L. Cavnar
          -----------------                 -----------------------------------
                                            Robert L. Cavnar
                                            Chairman, President and Chief
                                            Executive Officer



Date:     November 13, 2003              By:  /s/  Richard W. Piacenti
          -----------------                  ----------------------------------
                                             Richard W. Piacenti
                                             Executive Vice President and Chief
                                             Financial Officer




                                      -39-
<PAGE>




                                 EXHIBIT INDEX


         10.1     Second Amended and Restated Credit Agreement among Mission
                  Resources Corporation, as Borrower, the Several Lenders from
                  Time to Time Parties Hereto, Farallon Energy Lending, L.L.C.,
                  as Arranger Jefferies & Company, Inc., as Syndication Agent
                  and Wells Fargo Foothill, Inc., as Administrative Agent dated
                  as of June 5, 2003 (incorporated by reference to Exhibit 99.2
                  to the Current Report on Form 8-K filed on June 17, 2003).

         10.2     Third Amended, Restated And Consolidated Guaranty And
                  Collateral Agreement, dated as of June 5, 2003, made by
                  Mission Resources Corporation and certain of its Subsidiaries,
                  in favor of Wells Fargo Foothill, Inc., as Administrative
                  Agent (incorporated by reference to Exhibit 99.3 to the
                  Current Report on Form 8-K filed on June 17, 2003).

         10.3     First Amendment to and Waiver of Second Amended and Restated
                  Credit Agreement, dated as of June 25, 2003, among Mission
                  Resources Corporation, the several banks and other financial
                  institutions or entities from time to time parties to the
                  Amendment, Farallon Energy Lending, L.L.C., as sole advisor,
                  sole lead arranger and sole bookrunner, and Wells Fargo
                  Foothill, Inc, as administrative agent (filed herewith).

         10.4     Second Amendment, dated October 22, 2003, to the Second
                  Amended and Restated Credit Agreement, dated as of June 5,
                  2003, by and among Mission Resources Corporation, the several
                  banks and other financial institutions or entities from time
                  to time parties thereto, Farallon Energy Lending, L.L.C., as
                  sole advisor, sole lead arranger and sole bookrunner,
                  Jefferies & Company, Inc., as the syndication agent, and Wells
                  Fargo Foothill, Inc, formerly known as Foothill Capital
                  Corporation, as administrative agent (filed herewith).

         10.5     Employment Agreement effective November 4, 2003 between the
                  Company and Marshall L. Munsell (filed herewith)

         31.1     Certification of Chief Executive Officer pursuant to Rule
                  13a-14(a) / Rule 15d-14(a), promulgated under the Securities
                  Exchange Act of 1934, as amended (filed herewith).

         31.2     Certification of Chief Financial Officer pursuant to Rule
                  13a-14(a) / Rule 15d-14(a), promulgated under the Securities
                  Exchange Act of 1934, as amended (filed herewith).

         32.1     Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of
                  Chief Executive Officer of the Company (filed herewith).

         32.2     Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of
                  Chief Financial Officer of the Company (filed herewith).