<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 JUNE 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 August 6, 2003, 23,507,636 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:
                         June 30, 2003 (Unaudited) and December 31, 2002...........................................     1
              Condensed Consolidated Statements of Operations (Unaudited):
                         Three months and six months ended June 30, 2003 and 2002..................................     3
              Condensed Consolidated Statements of Cash Flows (Unaudited):
                         Six months ended June 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........................................................................................    35

     ITEM 1.  Legal Proceedings....................................................................................    35

     ITEM 2.  Change in Securities and Use of Proceeds.............................................................    35

     ITEM 3.  Defaults Upon Senior Securities......................................................................    35

     ITEM 4.  Submission of Matters to a Vote of Security Holders..................................................    35

     ITEM 5.  Other Information....................................................................................    35

     ITEM 6.  Exhibits and Reports on Form 8-K.....................................................................    36

</TABLE>

<PAGE>

                          PART I. FINANCIAL INFORMATION

                          MISSION RESOURCES CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                             (Amounts in thousands)

ITEM I. FINANCIAL STATEMENTS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                     June 30,             December 31,
                                                                                       2003                   2002
                                                                                  --------------         ---------------
                                                                                     (Unaudited)
<S>                                                                               <C>                    <C>
CURRENT ASSETS:
Cash and cash equivalents....................................................     $       12,415         $     11,347
Accounts receivable and accrued revenues.....................................             16,386               18,931
Prepaid expenses and other...................................................              4,393                2,148
                                                                                  --------------         ------------
    Total current assets.....................................................             33,194         $     32,426
                                                                                  --------------         ------------

PROPERTY AND EQUIPMENT, AT COST:
Oil and gas properties (full cost):
    Unproved properties of $8,608 and $8,369 excluded from depletion as of
       June 30, 2003 and December 31, 2002, respectively.....................            790,655              775,344
Asset retirement cost........................................................             14,410                    -
Accumulated depreciation, depletion and amortization--oil and gas............           (468,256)            (474,625)
                                                                                  --------------         ------------
Net property, plant and equipment............................................            336,809              300,719

Leasehold, furniture and equipment...........................................              4,328                3,545
Accumulated depreciation.....................................................             (1,729)              (1,449)
                                                                                  --------------         ------------
Net leasehold, furniture and equipment.......................................              2,599                2,096
                                                                                  --------------         ------------

OTHER ASSETS.................................................................              7,503                7,163
                                                                                  --------------         ------------
                                                                                  $      380,105         $    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>
                                                                                  June 30,         December 31,
                                                                                   2003                2002
                                                                              ---------------      ------------
                                                                                (Unaudited)
<S>                                                                           <C>                  <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................................     $        28,316      $     24,498
Commodity derivative liabilities.........................................              10,023             6,973
Asset retirement obligation..............................................               3,001               ---
Interest rate swap.......................................................                 ---                 3
                                                                              ---------------      ------------
    Total current liabilities............................................              41,340            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...................               1,289             1,431
                                                                              ---------------      ------------
    Total long-term debt.................................................             208,715           226,431
                                                                              ---------------      ------------

LONG-TERM LIABILITIES:
Interest rate swap, excluding current portion............................                 ---             1,817
Commodity derivative liabilities, excluding current portion..............               1,271               359
Deferred income taxes....................................................              19,471            16,946
Asset retirement obligation, excluding current potion....................              38,969               ---
Other....................................................................                 167               ---
                                                                              ---------------      ------------
    Total long-term liabilities..........................................              59,878            19,122
                                                                              ---------------      ------------

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued
    or outstanding at June 30, 2003 and December 31, 2002................                 ---               ---
Common stock, $0.01 par value, 60,000,000 shares authorized,
     23,896,959 shares issued at June 30, 2003 and December 31, 2002,
    respectively.........................................................                 239               239
Additional paid-in capital...............................................             163,837           163,837
Retained deficit.........................................................             (84,926)          (92,599)
Treasury stock, at cost, 389,323 shares at June 30, 2003 and
    311,000 shares at December 31, 2002..................................              (1,937)           (1,905)
Other comprehensive income (loss), net of taxes..........................              (7,041)           (4,195)
                                                                              ---------------      ------------
     Total stockholders' equity..........................................              70,172            65,377
                                                                              ---------------      ------------

                                                                              $       380,105      $    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         Six Months Ended
                                                                              June 30                 June 30
                                                                      ----------------------   ----------------------
                                                                         2003        2002         2003        2002
                                                                      ----------   ---------   ---------   ----------
<S>                                                                   <C>          <C>         <C>         <C>
REVENUES:
   Oil and gas revenues........................................       $  24,438    $ 31,909    $ 50,175    $  60,248
   Gain on extinguishments of debt.............................             ---         ---      22,375          ---
   Interest and other income (expense).........................             187     (3,643)         722       (9,682)
                                                                      ---------    --------    --------    ---------
                                                                         24,625      28,266      73,272       50,566
                                                                      ---------    --------    --------    ---------
COST AND EXPENSES:
   Lease operating expenses....................................           8,364      11,185      17,254       24,349
   Transportation costs........................................             102          61         192          138
   Taxes other than income.....................................           2,152       2,796       4,845        4,729
   Asset retirement obligation accretion expense...............             343         ---         688          ---
   Loss of sale of assets......................................             ---       2,719         ---        2,719
   Depreciation, depletion and amortization....................           8,904      10,924      17,926       22,199
   General and administrative expenses.........................           2,860       2,433       5,432        5,002
   Interest expense............................................           6,432       7,369      12,459       15,055
                                                                      ---------    --------    --------    ---------
                                                                         29,157      37,487      58,796       74,191
                                                                      ---------    --------    --------    ---------
Income (loss) before income taxes and cumulative effect of a
   change in accounting method.................................          (4,532)     (9,221)     14,476      (23,625)
Provision (benefit) for income taxes...........................          (1,586)     (3,228)      5,067       (8,269)
                                                                      ---------    --------    --------    ---------
Income (loss) before income taxes and cumulative effect of a
   change in accounting method.................................          (2,946)     (5,993)      9,409      (15,356)
Cumulative effect of a change in accounting method, net of
   deferred tax of $935........................................             ---         ---      (1,736)         ---
                                                                      ---------    --------    --------    ---------

Net income (loss)..............................................       $  (2,946)   $ (5,993)   $  7,673    $ (15,356)
                                                                      =========    ========    ========    =========
Income (loss) before cumulative effect of a change in accounting
   method per share............................................       $   (0.13)   $  (0.25)   $   0.40    $   (0.65)
                                                                      =========    ========    ========    =========
Income (loss) before cumulative effect of a change in accounting
   method per share-diluted....................................       $   (0.13)   $  (0.25)   $   0.40    $   (0.65)
                                                                      =========    ========    ========    =========

Net income (loss) per share....................................       $   (0.13)   $  (0.25)   $   0.33    $   (0.65)
                                                                      =========    ========    ========    =========
Net income (loss) per share-diluted............................       $   (0.13)   $  (0.25)   $   0.33    $   (0.65)
                                                                      =========    ========    ========    =========

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

Weighted average common shares outstanding-diluted.............          23,508      23,586      23,594       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>
                                                                                          Six Months Ended
                                                                                               June 30,
                                                                                   ------------------------------
                                                                                      2003                2002
                                                                                   ----------          ----------
<S>                                                                                <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................................              $    7,673          $  (15,356)
    Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
       Depreciation, depletion and amortization......................                  17,926              22,199
       (Gain) loss on interest rate swap.............................                    (520)                255
       (Gain) loss due to commodity hedge ineffectiveness............                    (416)              9,151
       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.................                     688                 ---
       Stock option expense..........................................                     ---                 102
       Amortization of deferred financing costs and bond premium.....                     916               1,348
       Bad debt expense..............................................                     ---                 851
       Deferred income taxes.........................................                   4,992              (8,269)

Changes in assets and liabilities:
    Accounts receivable and accrued revenue..........................                   2,545               5,735
    Accounts payable and other liabilities...........................                   2,685             (16,901)
    Abandonment costs...............................................                   (2,984)             (2,301)
    Other............................................................                  (2,754)              1,203
                                                                                   ----------          ----------
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES............                  10,112              (1,983)
                                                                                   ----------          ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of oil and gas properties............................                    (453)               (209)
    Additions to properties and facilities...........................                 (14,858)            (11,535)
    Additions to leasehold, furniture and equipment..................                    (783)                (92)
    Proceeds on sale of oil and gas properties, net of costs.........                   3,170              10,563
                                                                                   ----------          ----------
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES............                 (12,924)             (1,273)
                                                                                   ----------          ----------
</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>
                                                                         Six Months Ended
                                                                             June 30,
                                                                     -----------------------------
                                                                        2003               2002
                                                                     ----------         ----------
<S>                                                                  <C>                <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from borrowings......................................       80,000             21,000
    Payments of long term debt....................................          ---            (16,500)
    Repurchase of notes...........................................      (71,700)               ---
    Credit facility costs.........................................       (4,420)               (62)
                                                                     ----------         ----------
NET CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES.........        3,880              4,438
                                                                     ----------         ----------
Net increase (decrease) in cash and cash equivalents..............        1,068              1,182
Cash and cash equivalents at beginning of period..................       11,347                603
                                                                     ----------         ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................   $   12,415         $    1,785
                                                                     ==========         ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                          Six Months Ended
                                                                               June 30,
                                                                     -----------------------------
                                                                        2003                2002
                                                                     ----------         ----------
<S>                                                                  <C>                <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid (received) during the period:
    Interest....................................................     $   14,024         $   13,667
    Income tax (refunds)........................................     $     (581)        $   (4,991)
</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 June
         30, 2003, and the results of operations and changes in cash flows for
         the periods ended June 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
         $315,000 at June 30, 2003 is included in the other assets line of the
         Balance Sheet. The Company owns a 10.1% ownership in the East Texas
         Salt Water Disposal Company that is accounted for using the cost
         method. The Company's investment of $861,000 at June 30, 2003 is
         included in the other assets line of the Balance Sheet.

         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 six month periods
         ending June 30, 2003 or 2002.

                  Over the past several months, certain oil and gas registrants
         have received comment letters from the SEC staff questioning the
         accounting and presentation of oil and gas related assets, specifically
         the presentation of drilling and production rights. Although the
         Company has been informed that the SEC staff agrees that current
         accounting principles for oil and gas producers are unaffected by
         Financial Accounting Standards Board's ("FASB") Statement of Financial
         Accounting Standards ("SFAS") No. 141, Business Combinations, and SFAS
         No. 142, Goodwill and Other Intangible Assets with respect to
         measurement issues, we understand that the SEC staff has expressed a
         view that oil and gas producers should present oil and gas intangible
         assets separately pursuant to the guidance in SFAS No. 142 with the
         attendant disclosures. Current practice for Mission and the industry is
         to present all oil and gas related assets in property and equipment on
         the balance sheet. If the SEC staff's view prevails, after additional
         consideration by accounting rule makers, amounts related to our oil and
         gas intangible assets will be reclassified from property and equipment
         to separate intangible asset classifications on the Company's
         consolidated balance sheet and disclosures will be provided regarding
         the intangible assets. The Company's equity, operations and cash flows
         would not be affected.

                                      -6-

<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

         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 June 30, 2003, the Company has recorded a
         receivable of approximately $4.0 million from its insurance carrier.
         This amount represents repair costs incurred as a direct result of
         hurricanes Lili and Isidore in 2002.

         Deferred Compensation Plan

                  In June 2003, the Company terminated the Mission Deferred
         Compensation Plan that had been established in late 1997. Final
         distribution of all funds held in the plan was made to the plan
         participants by the Fund Manager. Both the current asset and the
         current liability of approximately $111,000 related to the plan have
         been 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 six months ended June 30, 2003 and 2002 was as
         follows (in thousands):

<TABLE>
<CAPTION>
                                                         Three Months Ended           Six Months Ended
                                                              June 30,                    June 30,
                                                       ---------------------------------------------------
                                                          2003         2002          2003          2002
                                                       ----------   ----------    ----------    ----------
<S>                                                    <C>          <C>            <C>          <C>
Net income (loss)..................................    $  (2,946)   $  (5,993)     $   7,673    $  (15,356)
Hedge accounting for derivative instruments,
   net of tax......................................         (957)        (608)        (2,846)       (2,754)
                                                      ----------    ---------      ---------    ----------
Comprehensive income (loss)........................    $  (3,903)   $  (6,601)     $   4,827    $  (18,110)
                                                      ==========    =========      =========    ==========
</TABLE>

                  The accumulated balance of other comprehensive income (loss)
         related to commodity hedges, net of taxes, is as follows (in
         thousands):
<TABLE>
<S>                                                                         <C>
Balance at December 31, 2002...........................................     $ (4,195)
Net losses on hedges...................................................       (3,675)
Reclassification adjustments...........................................        2,361
Tax effect on hedging activity.........................................       (1,532)
                                                                            --------
Balance at June 30, 2003...............................................     $ (7,041)
                                                                            ========
</TABLE>

                                      -7-

<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

         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 June 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            Six Months Ended
                                                       June 30,                    June 30,
                                               ------------------------    -------------------------
                                                  2003          2002          2003           2002
                                               ----------    ----------    -----------    ----------
<S>                                            <C>           <C>           <C>            <C>
Net income (loss) (in thousands)
               As reported................     $ (2,946)     $   (5,993)     $  7,673     $ (15,356)
               Pro forma..................     $ (4,705)     $   (6,045)     $  5,877     $ (15,408)
Earnings (loss) per share
               As reported................     $  (0.13)     $    (0.25)     $   0.33     $   (0.65)
               Pro forma..................     $  (0.20)     $    (0.26)     $   0.25     $   (0.65)
Diluted earnings (loss) per share
               As reported................     $  (0.13)     $    (0.25)     $   0.33     $   (0.65)
               Pro forma..................     $  (0.20)     $    (0.26)     $   0.25     $   (0.65)
</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 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.

                                      -8-

<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

         Recently Issued 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. The Company is evaluating the
         impact of this statement and does not expect it to have a material
         impact on the Company's financial statements.

                  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 reviewed the provisions of this statement and does not
         expect it to have a material impact on the Company's financial
         statements.

         Recently Adopted Pronouncements

                  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 is 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 Note repurchase as discussed in
         Footnote 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 and Mission's disclosures are contained in Footnote
         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 applies immediately to variable
         interest entities created after January 31, 2003, and to variable
         interests in variable interest entities obtained after January 31,
         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. If the obligation is settled for an amount other than the
         carrying amount of the liability, the Company will recognize a gain or
         loss on settlement.

                  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 reserve 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>
                                                         Six Months Ended
         Asset Retirement Obligation                       June 30, 2003
---------------------------------------------------      ----------------
                                                          (in thousands)
<S>                                                      <C>
Initial implementation.........................             $   44,266
Liabilities incurred...........................                    ---
Liabilities settled............................                 (2,984)
Accretion expense..............................                    688
                                                            ----------
Ending balance.................................                 41,970
                                                            ----------
Less: current portion..........................                  3,001
                                                            ----------
Long-term portion..............................             $   38,969
                                                            ==========
</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
         because to do so would be antidilutive. In the three and six month
         periods ended June 30, 2003, the potentially dilutive options and
         warrants excluded represented 969,500 shares and 2,519,500 shares,
         respectively. In the three and six month periods ended June 30, 2002
         the potentially dilutive options and warrants excluded represented
         3,485,998 shares.

                                      -11-

<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

                  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
                                           June 30, 2003                          June 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.........   $  (2,946)      23,508      $  (0.13)    $ (5,993)        23,586      $(0.25)
                                                           ========                                  ======

EFFECT OF DILUTIVE
SECURITIES:
Options and warrants........         ---          ---                        ---            ---
                               ---------       ------                  ---------         ------

INCOME (LOSS) PER COMMON
SHARE-DILUTED:
Income (loss) available to
common stockholders and
assumed conversions.........   $  (2,946)      23,508      $  (0.13)    $ (5,993)        23,586      $(0.25)
                               =========       ======      ========     ========         ======      ======
</TABLE>

<TABLE>
<CAPTION>
                                       For the Six Months Ended                For the Six Months Ended
                                             June 30, 2003                          June 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.........     $  7,673        23,508       $  0.33    $ (15,356)       23,586      $  (0.65)
                                                              =======                                 ========

EFFECT OF DILUTIVE
SECURITIES:
Options and warrants........          ---            86                        ---           ---
                                 --------        ------                  ---------        ------

INCOME (LOSS) PER COMMON
SHARE-DILUTED:
Income (loss) available to
common stockholders and
assumed conversions.........     $  7,673        23,594       $  0.33    $ (15,356)       23,586      $  (0.65)
                                 ========        ======       =======    =========        ======      ========
</TABLE>

                  As of June 30, 2003, the number of treasury shares had
         increased to 389,323 because 78,323 shares were taken into treasury in
         lieu of collecting a note receivable valued at approximately $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.

                  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.

                                      -12-

<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

                  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 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 June 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.

         Credit Facility

                  The Company was party to a $150.0 million credit facility with
         a syndicate of lenders through March 28, 2003. 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.

                                      -13-

<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

                  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 June 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 $14.1 million at June 30, 2003. A "Cleanup Period" shall be
         either of the following periods if principal amounts under the Term
         Loan Facility are outstanding:

         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.

                                      -14-

<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

                  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:

           -   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;

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

           -   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:

         -  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;

         -  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

         -  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

                                      -15-

<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

         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 June 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 six month period
         ended June 30, 2003, gains of $208,000 and $416,000, respectively,
         related to these hedges was 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 June 30, 2003 the remaining amount in OCI was approximately $1.7
         million.

                                      -16-

<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

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

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>
Third Qtr. 2003                    3,500         322,000            Swap             $23.95           n/a
--------------------------------------------------------------------------------------------------------------
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
                                  MMBTU                                           PRICE FLOOR    PRICE CEILING
            PERIOD               PER DAY      TOTAL MMBTU          TYPE               AVG.            AVG.
--------------------------------------------------------------------------------------------------------------
<S>                              <C>           <C>                 <C>             <C>           <C>
Third Qtr. 2003                   15,000        1,380,000          Collar             $3.19          $4.10
--------------------------------------------------------------------------------------------------------------
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          400,000          Collar             $3.70          $4.04
--------------------------------------------------------------------------------------------------------------
Fourth Qtr. 2004                   5,000          400,000          Collar             $3.85          $4.23
--------------------------------------------------------------------------------------------------------------
</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.

                  The Company's realized price for natural gas per MCF has
         averaged $0.15 less than the NYMEX MMBTU price over the past twelve
         months. The Company's realized price for oil has averaged $0.61 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 oil differential excludes the impact of Point
         Pedernales field production for which the 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.

                                      -17-

<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

5.       INCOME TAXES

                  The provision for federal and state income taxes for the three
         months and six months ended June 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 $5.0
         million at June 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 June 30, 2003, Milam owed the Company
         approximately $387,000 in joint interest billings related to these
         properties. The receivable is reflected on the accounts receivable and
         accrued revenues line of the consolidated Balance Sheet. In a March 1,
         2003 agreement between the parties, terms were established that provide
         for Milam to pay its joint interest billings and cash calls in a timely
         manner through July 2003. The agreement has been extended through
         August 2003. Mission has received approximately $324,000 in July 2003
         to be applied to the outstanding receivable balance.

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 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

                                      -18-

<PAGE>

                          MISSION RESOURCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

         under the applicable purchase and sale agreements to avoid this
         liability. At this time, the Company has accrued a liability for
         approximately $239,500 that it has agreed to contribute toward the
         proper abandonment and cleanup of the Bayou fer Blanc field 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.

                                      -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
over 35% of our total oil and gas revenues in the six-month period ended June
30, 2003 and approximately 37% of total oil and gas revenues in the six-month
period ended June 30, 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 $0.85, or 9%; however a 10% decrease in reserves will
have an 11% impact, increasing depletion per barrel equivalent by approximately
$1.03.

         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.

         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

                                      -20-

<PAGE>

                          MISSION RESOURCES CORPORATION

later date even if oil and gas prices increase. No such impairment was required
in the quarters or year to date periods ended June 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 June 30, 2003
were $30.01 per barrel and $5.18 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.

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 June 30, 2003, they represented a
$10.0 million current liability and a $1.3 million 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 merely the market consensus of forecast price trends. 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

                                      -21-

<PAGE>

                          MISSION RESOURCES CORPORATION

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
June 30, 2003, we have recorded a net liability of approximately $1,236,000,
which is included in the accounts payable and accrued liabilities line of the
balance sheet, representing approximately 434,525 Mcf at an average price of
$2.84 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, IMPAIRMENT OR DISPOSAL

         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 must 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
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.

                                      -22-

<PAGE>

                          MISSION RESOURCES CORPORATION

         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 $10.1 million for the
six-month period ending June 30, 2003 whereas in the six-month period ending
June 30, 2002 cash flow used in operations was $2.0 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 six-month period
ending June 30, 2003 was $12.9 million while $1.3 was used in investing
activities in the six-month period ending June 30, 2002. We invested $15.3
million in oil and gas properties for the six-month period ended June 30, 2003
compared to $11.5 million for the same period of 2002. Proceeds from property
sales, primarily related to 2002 sales and reducing our net investment, were
$3.2 million for the six-month period ended June 30, 2003 compared to $10.6
million for the same period of 2002.

         Net cash flow provided by financing activities was $3.9 million and
$4.4 million in the six-month periods ending June 30, 2003 and 2002,
respectively; however financing activities differed greatly between the periods.
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.
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.

         The majority of the $6.3 million spent in the first quarter was for
development projects in the Brahaney Unit, Waddell and TXL fields of West Texas,
the West Lake Verret field in St. Martin Parish, Louisiana and the Carpenter
field in Beckham, Custer and Roger Mills counties of Oklahoma. This development
program has been successful with the production from development wells more than
offsetting our natural declines.

                                      -23-

<PAGE>

                          MISSION RESOURCES CORPORATION

         Of the $8.8 million spent in the second quarter, $1.9 million was spent
on exploratory drilling, $5.4 million on development activities, and $1.5
million was spent on seismic data, prospect data or acquisitions. The
exploratory costs were primarily incurred on the J.P. Coleman in St. Mary
Parish, Louisiana and the Unit Petroleum Bluntzer #1 well in Goliad County,
Texas. The Bluntzer #1 is currently drilling and the J.P. Coleman was not
successful. The development costs were incurred in the West Lake Verret field in
St. Martin Parish, Louisiana, the Reddell field in Evangeline Parish, Louisiana,
and the TXL North Unit in Ector County, Texas. In addition, costs were incurred
for the drilling and dual zone completion to the Camerina 2 and Marg Howei sands
in South Louisiana and for the successful drilling of the Eugene Island 284 D-1
located in federal waters in 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 June 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.

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 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

                                      -24-

<PAGE>

                          MISSION RESOURCES CORPORATION

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.

         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 June 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
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 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 June 30, 2003, we were in
compliance with all the of 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. We plan substantial drilling in the third and fourth quarters of 2003,
which could impact this covenant, so we may have to defer some drilling into the
first quarter of 2004 in order to maintain compliance.

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,

                                      -25-

<PAGE>

                          MISSION RESOURCES CORPORATION

among other things, incur additional indebtedness, pay dividends, purchase
capital stock and sell assets. Although, our common stock price has rebounded in
recent months, the low price limits our ability to complete offerings of equity
securities.

         At June 30, 2003, we had a working capital deficit of approximately
$8.4 million, compared to positive working capital of $0.9 million at December
31, 2002. This decrease is due to the addition of a current P&A liability
related to the implementation of SFAS No. 143 as well as the unfavorable impact
of increased commodity prices on our hedges' fair value. Unless commodity prices
decrease, we expect this trend to continue. 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. 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
alternatives to restructure the Company 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

         -  a refinancing of the remaining Notes;

         -  a new credit facility;

         -  a merger with or an acquisition by another company;

         -  the sale of certain oil and gas properties;

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

         -  other secured and unsecured debt financings; and

         -  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. The tables below show the estimated
payments related to those obligations and commitments as they exist at June 30,
2003 (amounts in thousands):

<TABLE>
<CAPTION>
                                                  Second
                                                   Half
Contractual Cash Obligations:         Total        2003        2004       2005        2006        2007       Thereafter
-----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>         <C>         <C>         <C>         <C>          <C>
Long Term Debt*..............       $ 179,355   $   6,927   $  13,858   $ 13,858    $ 13,858    $ 130,890    $      ---
Operating Leases & Other
  Financings.................           4,760       2,066       1,418        631         623           22           ---
                                    -----------------------------------------------------------------------------------
Total Contractual
   Obligations...............       $ 184,115   $   8,993   $  15,276   $ 14,489    $ 14,481    $ 130,912    $      ---
                                    ===================================================================================
</TABLE>

-----------------
*   Includes bond principal of $127.4 million scheduled for repayment in 2007
    and bond interest accrued monthly and payable April 1st and October 1st of
    each year at 10 7/8%.

                                      -26-

<PAGE>

                          MISSION RESOURCES CORPORATION

<TABLE>
<CAPTION>
Commercial Commitments:               Total        2003        2004       2005        2006         2007      Thereafter
-----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>         <C>         <C>         <C>         <C>          <C>
Credit Facility...........          $  96,800   $   7,200   $   9,600   $ 80,000    $    ---    $     ---    $      ---
Other Commercial
      Commitments........               4,333       3,445         399        190         157          142           ---
                                    -----------------------------------------------------------------------------------
Total Commercial
      Commitments..........         $ 101,133   $  10,645   $   9,999   $ 80,190    $    157    $     142    $      ---
                                    ===================================================================================
</TABLE>

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 June 30, 2003,
Milam owed Mission approximately $387,000 in joint interest billings and cash
calls related to these properties. The receivable is reflected on the accounts
receivable and accrued revenues line of the consolidated Balance Sheet. In a
March 1, 2003 agreement between the parties, terms were established that provide
for Milam to pay its joint interest billings and cash calls timely through July
2003. The agreement has been extended through August 2003. Mission has received
approximately $324,000 in July 2003 to be applied to the outstanding receivable
balance.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                              Three Months Ended          Six Months Ended
                                                                   June 30,                    June 30,
                                                             -----------------------------------------------
                                                               2003         2002         2003         2002
                                                             -----------------------------------------------
<S>                                                            <C>          <C>          <C>          <C>
Production:
   Oil and condensate (MBbls)...........................          568          905        1,139        1,895
   Natural gas (MMcf)...................................        2,211        3,530        4,495        7,164
   Equivalent barrels (MBOE)............................          937        1,493        1,888        3,089

Average sales price including the effect of hedges:
   Oil and condensate ($ per Bbl).......................        25.81        22.60        25.43        20.58
   Natural gas ($ per Mcf)..............................         4.42         3.25         4.72         2.96

Average sales price excluding the effect of hedges:
   Oil and condensate ($ per Bbl).......................        28.60        22.67        29.74        20.38
   Natural gas ($ per Mcf)..............................         5.33         3.25         5.78         2.79

Average costs:
   Lease operating expenses ($ per Boe).................         8.93         7.49         9.14         7.88
   Taxes other than income ($ per Boe)..................         2.30         1.87         2.57         1.53
   General & administrative expense ($ per Boe).........         3.05         1.63         2.88         1.62
   Depreciation, depletion and amortization
        ($ per Boe)(1)..................................         9.35         7.21         9.35         7.06
</TABLE>

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

                                      -27-

<PAGE>

                          MISSION RESOURCES CORPORATION

THREE MONTHS ENDED JUNE 30, 2003 AND 2002

NET INCOME (LOSS)

         Net loss for the three months ended June 30, 2003 was $2.9 million or
$0.12 per share. Net loss for the three months ended June 30, 2002 was $6.0
million or $0.25 per share. Although production has declined substantially
between the periods as a result of the sale of oil and gas properties in 2002,
high oil and gas prices have mitigated the impact of the production decline.

OIL AND GAS REVENUES

         Oil revenues decreased 28% from $20.4 million for the three months
ended June 30, 2002 to $14.7 million for the three months ended June 30, 2003.
Oil production decreased 37% from 905 thousand barrels ("MBbls") in the three
months ended June 30, 2002 to 568 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 $25.81 per barrel in the three months ended June 30, 2003, as compared
to $22.60 per barrel in the three months ended June 30, 2002.

         Gas revenues decreased 15% from $11.5 million reported for the quarter
ended June 30, 2002 to $9.8 million for the quarter ended June 30, 2003. Gas
production decreased 37% from 3,530 MMcf in the three months ended June 30, 2002
to 2,211 MMcf for the three months ended June 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 $4.42 per Mcf, or 36% higher, in the three months
ended June 30, 2003 as compared to $3.25 per Mcf in the comparable period of
2002.

         The volumes and revenues discussed above include the provision for a
169 MMcf gas balancing liability that may require settlement in cash upon
depletion of the properties. This reserve increase in the second quarter of 2003
was valued at approximately $782,000 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 $3.7 million related to hedging activity was
reflected in oil and gas revenues for the three months ended June 30, 2003,
while a decrease in oil and gas revenues of $66,000 was reflected for the same
period of 2002.

INTEREST AND OTHER INCOME (LOSS)

         Interest and other income (loss) was a net gain of $187,000 for the
three months ended June 30, 2003 and was a loss of $3.6 million for the three
months ended June 30, 2002. The loss in 2002 included a $2.9 million loss on
hedge ineffectiveness of derivatives, a $292,000 valuation adjustment on a note
receivable, and approximately $492,000 in bad debt expense. In the three months
ended June 30, 2003, there was a $208,000 gain from the amortization of OCI
related to cancelled hedges and $36,000 was collected on previously written off
receivables.

LEASE OPERATING EXPENSES

         Lease operating expenses decreased from $11.2 million in the three
months ended June 30, 2002 to $8.4 million for the same period of 2003. This
decline of approximately 25% is primarily related to sales of oil and gas
properties in 2002.

                                      -28-

<PAGE>

                          MISSION RESOURCES CORPORATION

TAXES OTHER THAN INCOME

         Taxes other than income decreased from $2.8 million in the three months
ended June 30, 2002 to $2.2 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 revenue; therefore, the
sales of oil and gas properties in 2002 also contributed to the decline in this
category of costs.

TRANSPORTATION COSTS

         Transportation costs were not significant in either presented period.

DEPRECIATION, DEPLETION AND AMORTIZATION

         Depreciation, depletion and amortization ("DD&A") was $8.9 million for
the three months ended June 30, 2003 and $10.9 million for the three months
ended June 30, 2002. Although this represents an overall cost decrease, DD&A per
BOE has increased from $7.21 per BOE in the second quarter of 2002 to $9.35 per
BOE in the second 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") increased 21% from $2.4
million in the three months ended June 30, 2002 to $2.9 million for the same
period in 2003. At June 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 June 30, 2002 and 2003, Mission's
management fees decreased by approximately $1.1 million but there was a
corresponding increase in employee costs. The second quarter of 2003 included
increased expenses that we believe will not be required in future quarters, such
as $162,000 of severance payments and approximately $124,000 of conversion costs
related to a new land system. In addition, we have incurred costs in connection
with our search for two independent directors and the cost for directors and
officers insurance has increased significantly.

INTEREST EXPENSE

         Interest expense decreased 13% to $6.4 million for the three months
ended June 30, 2003 from $7.4 million in the same period of 2002. Interest
expense in 2002 included approximately $467,000 of interest 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.

INCOME TAXES

         The provision for federal and state income taxes for the three months
ended June 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 $5.0 million at June 30, 2003, due to the decrease in the

                                      -29-

<PAGE>

                          MISSION RESOURCES CORPORATION

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.

SIX MONTHS ENDED JUNE 30, 2003 AND 2002

NET INCOME (LOSS)

         Net income for the six months ended June 30, 2003 was $7.7 million or
$0.32 per share. Net loss for the six months ended June 30, 2002 was $15.4
million or $0.65 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 26% from $39.0 million for the six months ended
June 30, 2002 to $29.0 million for the six months ended June 30, 2003. Oil
production decreased 40% from 1,895 MBbls in the six months ended June 30, 2002
to 1,139 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 $25.43 per barrel in the six months ended June 30, 2003, as compared to
$20.58 per barrel in the six months ended June 30, 2002.

         Gas revenues remained almost flat at $21.2 million for the six months
ended June 30, 2002 compared to $21.2 million for the six months ended June 30,
2003. Gas production decreased 37% from 7,164 MMcf for the six months ended June
30, 2002 to 4,495 MMcf for six months ended June 30, 2003. The sale of oil and
gas properties during the year 2002, accounts for most of the production
decrease. Gas prices averaged $4.72 per Mcf, or 59% higher, in the six months
ended June 30, 2003 as compared to $2.96 per Mcf in the comparable period of
2002.

         The volumes and revenues discussed above include the provision for a
169 MMcf gas balancing liability that may require settlement in cash upon
depletion of the properties. This reserve increase in the second quarter of 2003
was valued at approximately $782,000 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 $9.7 million related to hedging activity was
reflected in oil and gas revenues for the six months ended June 30, 2003, while
an increase in oil and gas revenues of $1.6 million 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 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.

                                      -30-

<PAGE>

                          MISSION RESOURCES CORPORATION

INTEREST AND OTHER INCOME (LOSS)

         Interest and other income (loss) was a net gain of $722,000 for the six
months ended June 30, 2003 and a loss of $9.7 million for the six months ended
June 30, 2002. A $9.1 million loss on hedge ineffectiveness of derivatives is
included as a component of other income in the first six months of 2002 whereas
a gain of $416,000 from the amortization of OCI related to cancelled hedges is
recorded for the same period of 2003. Approximately $784,000 in bad debt expense
and note receivable write-offs burdened 2002, with no comparable write-offs in
2003. Activity for 2003 includes approximately $315,000 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 $24.3 million in the six months
ended June 30, 2002 to $17.3 million for the same period of 2003. This decline
of approximately 29% is primarily related to 2002 property sales.

TAXES OTHER THAN INCOME

         Taxes other than income increased from $4.7 million in the six months
ended June 30, 2002 to $4.8 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.

DEPRECIATION, DEPLETION AND AMORTIZATION

         DD&A was $17.9 million for six months ended June 30, 2003 and $22.2
million for six months ended June 30, 2002. Although this represents an overall
cost decrease, DD&A per BOE has increased from $7.06 per BOE in the first
quarter of 2002 to $9.35 per BOE in the first quarter 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.

GENERAL AND ADMINISTRATIVE EXPENSES

         G&A totaled approximately $5.4 million in the six months ended June 30,
2003 and $5.0 million in the six months ended June 30, 2002. At June 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 March 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 we believe
will not be required in future quarters. 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

                                      -31-

<PAGE>

                          MISSION RESOURCES CORPORATION

extensive review of our land records in preparation of implementing a new land
system. We expect our G&A for the remainder of 2003 to average approximately
$2.5 million per quarter.

INTEREST EXPENSE

         Interest expense decreased 22% to $12.5 million for the six months
ended June 30, 2003 from $15.0 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 six months ended June 30, 2003 and as additional
interest expense of $255,000 in the six months ended June 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 in the second quarter of 2003.

INCOME TAXES

         The provision for federal and state income taxes for the six months
ended June 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 $5.0 million at June 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, 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.

                                      -32-

<PAGE>

                          MISSION RESOURCES CORPORATION

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 June 30, 2003 and
2002, we recognized losses of $3.7 million and $66,073, respectively, related to
hedges that were settled. Hedge settlements were a loss of $9.7 million in the
six months ended June 30, 2003, and a gain of $1.6 million in the six months
ended June 30, 2002.

As of August 12, 2003, the Mission had the following hedges in place:

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>
Third Qtr. 2003                    3,500         322,000             Swap            $23.95           n/a
-------------------------------------------------------------------------------------------------------------
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>
Third Qtr. 2003                   15,000        1,380,000           Collar            $3.19          $4.10
-------------------------------------------------------------------------------------------------------------
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          400,000           Collar            $3.70          $4.04
-------------------------------------------------------------------------------------------------------------
Fourth Qtr. 2004                   5,000          400,000           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>

                                      -33-

<PAGE>

                          MISSION RESOURCES CORPORATION

         These commodity swap agreements expose Mission to counterparty credit
risk to the extent the counterparty is unable to met 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 counter party 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

         Within 90 days prior to the filing date of this Form 10-Q, 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. 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.

CHANGES IN INTERNAL CONTROLS

         There have been no significant changes in Mission's internal controls
or in other factors that could significantly affect Mission's internal controls
subsequent to the evaluation referred to above, nor have there been any
corrective actions with regard to significant deficiencies or material
weaknesses.

                                      -34-

<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

         On May 20, 2003, the 2003 Annual Meeting of Stockholders was held in
Houston, Texas. At the meeting, the stockholders elected the following person to
serve as directors of the Company until the 2004 Annual Meeting of Stockholders,
or until their successors are duly elected and qualified:

<TABLE>
<CAPTION>
         Director                    For           Withheld
         --------                    ---           --------
<S>                              <C>               <C>
Robert L. Cavnar                 18,230,597        498,946
James L. Bowles                  18,341,642        387,901
David A.B. Brown                 18,333,985        395,559
Robert R. Rooney                 18,340,784        388,759
Herbert C. Williamson, III       18,348,045        381,498
</TABLE>

ITEM 5.  OTHER INFORMATION

         On June 25, 2003, Mission announced that a Nasdaq Listing
Qualifications Panel (the "Panel") had determined to continue to list Mission's
common stock on The Nasdaq National Market and the hearing file on the matter
had been closed. The Panel reviewed the entire record of information in making
their decision. As of June 24, 2003, the Company evidenced a closing bid price
of at least $1.00 per share for 10 consecutive trading days.

         This brings to a close the events that began on January 28, 2003, when
Mission received a Nasdaq Staff Determination indicating that it had failed to
comply with Nasdaq's minimum bid price requirement of $1.00 per share. As
previously disclosed, Mission attended an oral hearing before the Panel on June
5, 2003 in which Mr. Robert L. Cavnar, chairman, president and chief executive
officer, and Mr. Richard W. Piacenti, executive vice president and chief
financial officer, detailed Mission's business plan for achieving and sustaining
compliance with the Nasdaq MarketPlace Rules.

                                      -35-

<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).

                  31.1     Certification of Chief Executive Officer pursuant to
                           Rule 13a-14(a) and 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) and 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).

         b.       Reports on Form 8-K

                  (i)   The Company filed a Current Report on Form 8-K on
                        April 1, 2003 regarding its purchase of $97.6 million
                        of the 10 7/8% subordinated notes due 2007 and the
                        establishment of an $80.0 million amended and
                        restated credit facility.

                  (ii)  The Company filed a Current Report on Form 8-K on May
                        14, 2003 in order to furnish the information included
                        in its earnings press release for the quarter ended
                        March 31, 2003.

                  (iii) The Company filed a Current Report on Form 8-K on
                        June 17, 2003 regarding the second amendment and
                        restatement of the Company's credit facility,
                        including the addition of a $12.5 million revolving
                        credit facility.

                  (iv)  The Company filed a Current Report on Form 8-K on
                        June 26, 2003 regarding continuation of its common
                        stock listing on The Nasdaq National Market.

                                      -36-

<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: August 12, 2003                        By: /s/ Robert L. Cavnar
                                                 --------------------
                                                 Robert L. Cavnar
                                                 Chairman, President and Chief
                                                 Executive Officer

Date: August 12, 2003                        By: /s/ Richard W. Piacenti
                                                 -----------------------
                                                 Richard W. Piacenti
                                                 Executive Vice President and
                                                 Chief Financial Officer

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<PAGE>

                               INDEX TO EXHIBITS

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).

31.1     Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and
         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) and
         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).

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