<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 March 31, 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)

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

                                 Not Applicable
      (Former name, former address and former fiscal year, if changed since
                                  last report)

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 May 9, 2003, 23,585,959 shares of common stock of Mission Resources
Corporation were outstanding.

<PAGE>


                          MISSION RESOURCES CORPORATION

                                      INDEX

<TABLE>
<CAPTION>
                                                                                       Page #
                                                                                       ------
<S>                                                                                    <C>
PART I.  FINANCIAL INFORMATION .....................................................      1

  ITEM  1. Financial Statements ....................................................      1

           Condensed Consolidated Balance Sheets:
                 March 31, 2003 (Unaudited) and December 31, 2002 ..................      1
           Condensed Consolidated Statements of Operations (Unaudited):
                 Three months ended March 31, 2003 and 2002 ........................      3
           Condensed Consolidated Statements of Cash Flows (Unaudited):
                 Three months ended March 31, 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 ...............................     18

  ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk ..............     29

  ITEM 4.  Controls and Procedures .................................................     30

PART II. OTHER INFORMATION .........................................................     31

  ITEM 1.  Legal Proceedings .......................................................     31

  ITEM 2.  Change in Securities and Use of Proceeds ................................     31

  ITEM 3.  Defaults Upon Senior Securities .........................................     31

  ITEM 4.  Submission of Matters to a Vote of Security Holders .....................     31

  ITEM 5.  Other Information .......................................................     31

  ITEM 6.  Exhibits and Reports on Form 8-K ........................................     32
</TABLE>

                                       -i-

<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

                          MISSION RESOURCES CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                             (Amounts in thousands)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                March 31,      December 31,
                                                                                  2003             2002
                                                                              -------------   --------------
                                                                               (Unaudited)
<S>                                                                            <C>              <C>
CURRENT ASSETS:
Cash and cash equivalents ..................................................   $    18,007      $   11,347
Accounts receivable and accrued revenues ...................................        21,298          18,931
Prepaid expenses and other .................................................         2,093           2,148
                                                                               -----------      ----------
    Total current assets ...................................................        41,398          32,426
                                                                               -----------      ----------

PROPERTY AND EQUIPMENT, at cost:
Oiland gas properties (full cost), including unproved properties of
   $8,067 and $8,369 excluded from amortization as of March 31, 2003
   and December 31, 2002, respectively .....................................       781,877         775,344
Asset retirement cost ......................................................        14,410             ---
Accumulated depreciation, depletion and amortization .......................      (459,892)       (474,625)
                                                                               -----------      ----------
    Net property, plant and equipment ......................................       336,395         300,719
                                                                               -----------      ----------

Leasehold, furniture and equipment .........................................         3,800           3,545
Accumulated depreciation ...................................................        (1,582)         (1,449)
                                                                               -----------      ----------
    Net leasehold, furniture and equipment .................................         2,218           2,096
                                                                               -----------      ----------


OTHER ASSETS ...............................................................         7,639           7,163
                                                                               -----------      ----------
                                                                               $   387,650      $  342,404
                                                                               ===========      ==========
</TABLE>


      See accompanying notes to condensed consolidated financial statements

                                      -1-

<PAGE>

                          MISSION RESOURCES CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                (Amounts in thousands, except share information)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                       March 31,           December 31,
                                                                                         2003                  2002
                                                                                  ------------------     ----------------
                                                                                     (Unaudited)
<S>                                                                                <C>                    <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ....................................      $       30,215         $     24,498
Commodity derivative liabilities ............................................               9,288                6,973
Asset retirement obligation .................................................               1,000                  ---
Interest rate swap ..........................................................                 ---                    3
                                                                                  ------------------     ----------------
    Total current liabilities ...............................................              40,503               31,474

LONG-TERM DEBT:
Credit facility .............................................................              80,000                  ---
Subordinated notes due 2007 .................................................             127,426              225,000
Unamortized premium on issuance of $125 million subordinated notes ..........               1,361                1,431
                                                                                  ------------------     ----------------
    Total long-term debt ....................................................             208,787              226,431

LONG-TERM LIABILITIES:
Commodity derivative liabilities, excluding current portion .................                 741                  359
Interest rate swap, excluding current portion ...............................                 ---                1,817
Deferred income taxes .......................................................              21,572               16,946
Asset retirement obligation, excluding current portion ......................              41,939                  ---
                                                                                  ------------------     ----------------
    Total long-term liabilities .............................................              64,252               19,122

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares authorized none issued or
    outstanding at March 31, 2003 and December 31, 2002 .....................                 ---                  ---
Common stock, $0.01 par value, 60,000,000 shares authorized, 23,896,959
    shares issued at March 31, 2003 and December 31, 2002 ...................                 239                  239
Additional paid-in capital ..................................................             163,837              163,837
Retained deficit ............................................................             (81,980)             (92,599)
Treasury stock, at cost, 311,000 shares .....................................              (1,905)              (1,905)
Other comprehensive income (loss), net of taxes .............................              (6,083)              (4,195)
                                                                                  ------------------     ----------------
    Total stockholders' equity ..............................................              74,108               65,377
                                                                                  ------------------     ----------------

                                                                                   $      387,650         $    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 March 31,
                                                            ----------------------------
                                                                2003            2002
                                                            -------------   ------------
<S>                                                         <C>             <C>
REVENUES:
  Oil and gas revenues ...................................   $   25,737      $  28,339
  Gain on extinguishment of debt .........................       22,375            ---
  Interest and other income (expense) ....................          535         (6,039)
                                                             ----------      ---------
                                                                 48,647         22,300

COST AND EXPENSES:
  Lease operating expenses ...............................        8,890         13,164
  Transportation costs ...................................           90             77
  Taxes other than income ................................        2,693          1,933
  Asset retirement obligation accretion expense ..........          345            ---
  Depreciation, depletion and amortization ...............        9,022         11,275
  General and administrative expenses ....................        2,572          2,569
  Interest expense .......................................        6,027          7,686
                                                             ----------      ---------
                                                                 29,639         36,704

Income (loss) before income taxes and cumulative effect
  of a change in accounting method .......................       19,008        (14,404)

Provision (benefit) for income taxes .....................        6,653         (5,041)
                                                             ----------      ---------

Income (loss) before cumulative effect of a change in
  accounting method ......................................       12,355         (9,363)

Cumulative effect of a change in accounting method,
  net of deferred tax of $935 ............................       (1,736)           ---
                                                             ----------      ---------

Net income (loss) ........................................   $   10,619      $  (9,363)
                                                             ==========      =========
Income (loss) before cumulative effect of a change in
  accounting method per share ............................   $     0.52      $   (0.40)
                                                             ==========      =========
Income (loss) before cumulative effect of a change in
  accounting method per share-diluted ....................   $     0.52      $   (0.40)
                                                             ==========      =========

Net income (loss) per share ..............................   $     0.45      $   (0.40)
                                                             ==========      =========
Net income (loss) per share-diluted ......................   $     0.45      $   (0.40)
                                                             ==========      =========

Weighted average common shares outstanding ...............       23,586         23,586
Weighted average common shares outstanding-diluted .......       23,590         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>
                                                                              Three Months Ended March 31,
                                                                            -------------------------------
                                                                                2003                2002
                                                                            ------------        -----------
<S>                                                                         <C>                 <C>
Cash flows from operating activities:
Net income (loss) ...........................................               $     10,619        $    (9,363)
Adjustments to reconcile net income to net cash
    provided by operating activities:
       Depreciation, depletion and amortization .............                      9,431             11,948
       Loss (gain) on interest rate swap ....................                       (520)               550
       Loss (gain) due to commodity hedge ineffectiveness ...                       (208)             6,208
       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 ........                        345                ---
       Stock option expense .................................                        ---                 95
       Deferred income taxes ................................                      6,578             (5,041)

Change in assets and liabilities:
    Accounts receivable and accrued revenue .................                     (2,367)               419
    Accounts payable and accrued liabilities ................                      4,587             (9,269)
    Other ...................................................                     (2,330)               317
                                                                            ------------        -----------
    Net cash flows provided by (used in) operating activities                      5,496             (4,136)

Cash flows from investing activities:
    Acquisition of oil and gas properties ...................                       (258)              (316)
    Additions to oil and gas properties .....................                     (6,275)            (6,937)
    Additions to leasehold, furniture and equipment .........                       (255)               (35)
    Proceeds on sale of oil and gas properties, net .........                      3,564              7,677
                                                                            ------------        -----------
    Net cash flows provided by (used in) investing activities                     (3,224)               389

Cash flows from financing activities:
    Proceeds from borrowings ................................                     80,000             10,500
    Repurchase of notes .....................................                    (71,700)               ---
    Payments of long term debt ..............................                        ---             (6,000)
    Credit facility costs ...................................                     (3,912)               (48)
                                                                            ------------        -----------
    Net cash flows provided by financing activities .........                      4,388              4,452

Net increase in cash and cash equivalents ...................                      6,660                705
Cash and cash equivalents at beginning of period ............                     11,347                603
                                                                            ------------        -----------
Cash and cash equivalents at end of period ..................               $     18,007        $     1,308
                                                                            ============        ===========
</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>
                                                                     Three Months Ended March 31,
                                                                    ------------------------------
                                                                       2003               2002
                                                                    ----------        ------------
<S>                                                                 <C>               <C>
Supplemental disclosures of cash flow information:

Cash paid during the period for:
    Interest ..................................................      $  5,354           $    615

    Income taxes paid (received) ..............................      $   (525)          $      5
</TABLE>

      See accompanying notes to condensed consolidated financial statements

                                       -5-

<PAGE>

                         MISSION RESOURCES CORPORATION

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 March 31, 2003, and the results of operations and
     changes in cash flows for the periods ended March 31, 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 $289,000 at March 31,
     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 March 31, 2003 is also 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
     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 would be charged to operations. No such charges to
     operations were required during the three-month periods ending March 31,
     2003 or 2002.

     Trade Accounts Receivable

          Trade accounts receivable are recorded at the invoiced amount and
     typically do not bear interest. The Company reviews collectibility of trade
     accounts receivable monthly. Past due 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 considered remote. The Company does not have any
     off-balance sheet credit exposure related to its customers.

                                       -6-

<PAGE>

                         MISSION RESOURCES CORPORATION

     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 ended March 31,
     2003 and 2002 was as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                  Three Months Ended March 31,
                                                                                 ------------------------------
                                                                                     2003             2002
                                                                                     ----             ----
       <S>                                                                       <C>                <C>
       Net income (loss) ...................................................     $    10,619        $  (9,363)
       Hedge accounting for derivative instruments, net of tax .............          (1,888)          (2,426)
                                                                                 -------------     ------------
       Comprehensive income (loss) .........................................     $     8,731        $ (11,789)
                                                                                 =============     ============
</TABLE>

          The accumulated balance of other comprehensive loss related to hedge
     accounting is as follows (in thousands):

       Balance at December 31, 2002 ..................     $   (4,195)
       Net gains on cash flow hedges .................          6,113
       Reclassification adjustments ..................         (9,018)
       Tax effect on hedging activity ................          1,017
                                                         ----------------
       Balance at March 31, 2003 .....................     $   (6,083)
                                                         ================

     Stock-Based Employee Compensation Plans

          In December 2002, the Financial Accounting Standards Board ("FASB")
     issued Statement of Financial Accounting Standards ("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 March 31, 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 or
     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.

                                       -7-

<PAGE>

                          MISSION RESOURCES CORPORATION

<TABLE>
<CAPTION>
                                                        Quarter Ended        Quarter Ended
                                                        March 31, 2003       March 31, 2002
                                                       ----------------     ----------------
<S>                                                    <C>                  <C>
       Net income (loss) (in thousands)
               As reported .......................       $    10,619          $  (9,363)
               Pro forma .........................       $    10,582                /(1)/
       Earnings (loss) per share
               As reported .......................       $      0.45          $   (0.40)
               Pro forma .........................       $      0.45                /(1)/
       Diluted earnings (loss) per share
               As reported .......................       $      0.45          $   (0.40)
               Pro forma .........................       $      0.45                /(1)/
</TABLE>

     _____________

     /(1)/ No stock options were issued in this quarter, therefore a proforma
           calculation is not possible.

     Goodwill

          The FASB approved SFAS No. 142, Goodwill and Other Intangible Assets
     in June 2001. This pronouncement required 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 of which were subject to the
     transition provisions. Upon adoption of SFAS No. 142, $277,000 of workforce
     intangible currently recorded as unamortized identifiable assets was
     subsumed into goodwill and was not amortized as it no longer qualified as a
     recognizable intangible asset.

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

     Recently Adopted Pronouncements

          SFAS No. 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
     Statement 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.

                                       -8-

<PAGE>

                         MISSION RESOURCES CORPORATION

                  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.

                  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.

                  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 other than the carrying
         amount of the liability, the Company will recognize a gain or loss on
         settlement.

                                      -9-

<PAGE>

                         MISSION RESOURCES CORPORATION

                  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.

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

                                                          Quarter Ended
         Asset Retirement Obligation                      March 31, 2003
         ------------------------------------             --------------
                                                          (in thousands)
         Initial implementation ..................        $      44,266
         Liabilities incurred ....................                  ---
         Liabilities settled .....................               (1,672)
         Accretion expense .......................                  345
                                                          --------------
         Ending balance ..........................               42,939
                                                          --------------
         Less:  current portion ..................                1,000
                                                          --------------
         Long-term portion .......................        $      41,939
                                                          ==============

         Reclassifications

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

         Use of Estimates

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

                                      -10-

<PAGE>

                          MISSION RESOURCES CORPORATION

2.       Stockholders' Equity

                  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. Options and warrants representing approximately 3.2
         million unissued common shares in the first quarter of 2003 and
         approximately 3.9 million unissued common shares in the first quarter
         of 2002 that could potentially dilute basic earnings per share in the
         future were not included in the computation of diluted earnings per
         share because to do so would have been antidilutive.

         SFAS No. 128 reconciliation  (amounts in thousands except per share
         amounts):

<TABLE>
<CAPTION>
                                            For the Three Months Ended              For the Three Months Ended
                                                  March 31, 2003                          March 31, 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 ........ $   10,619        23,586   $     0.45  $    (9,363)        23,586  $   (0.40)
                                                                 ===========                             ==========

         Effect of dilutive
         securities:
         Options and warrants .......        ---             4                       ---            ---
                                      ------------ -------------             ------------ --------------

         Income (loss) per common
         share-diluted:
         Income (loss) available to
         common stockholders and
         assumed conversions ........ $   10,619        23,590   $     0.45  $    (9,363)        23,586  $   (0.40)
                                      ============ ============= =========== ============ ============== ==========
</TABLE>

                  As of March 31, 2003 and 2002, Mission held in treasury
         311,000 shares that had been acquired at an aggregate price of $1.9
         million. These treasury shares are reported at cost 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.

                  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

                                      -11-

<PAGE>

                          MISSION RESOURCES CORPORATION

         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 decreases 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 March 31, 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, a Delaware limited liability company ("Farallon"),
         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 and retired on March 28, 2003. 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.

                  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 amended and restated senior secured
         credit facility (the "Facility") expires January 6, 2005 (the "Maturity
         Date"), and has initial availability of $80.0 million. The Facility is
         secured by a lien on all of the Company's property and the property of
         certain of its subsidiaries, including a lien on all of their
         respective oil and gas properties and a pledge of the capital stock of
         certain of the subsidiaries.

                                      -12-

<PAGE>

                         MISSION RESOURCES CORPORATION

         The Company has drawn the full $80.0 million under the Facility. The
         proceeds of the Facility 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 interest
         rate on the Facility is 12% until February 16, 2004, when it increases
         to 13% until the Maturity Date.

              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 ("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.

              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, as of the last day of
            (i) March 31, 2003, for the fiscal quarter then ended, of $0, (ii)
            June 30, 2003, for the two fiscal quarters then ended, of $0, (iii)
            September 30, 2003, for the three fiscal quarters then ended, of $0,
            and (iv) any fiscal quarter ending after September 30, 2003, for the
            four fiscal quarters then ended, of $0.

              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 for any
         period, is the sum of (i) the consolidated EBITDA during such period
         minus (ii) the Company's capital expenditures during such period minus
         (iii) the Company's cash income tax expense for such period minus (iv)
         the Company's cash consolidated interest expense plus (v) $7.0 million.

              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 March 31, 2003, the Company was in compliance with the
         covenants in the Facility.

                                      -13-

<PAGE>

                         MISSION RESOURCES CORPORATION

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. For the quarter ended March 31, 2002, a
     $6.2 million loss was reported in the interest and other income line of the
     Statement of Operations.

          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 ended March 31, 2003, a $208,000 gain related to these hedges
     was reported in the interest and other income line of the Statement of
     Operations. This gain relates to the amortization, from October 15, 2002
     for a 15 month period, of both the realized and unrealized gains or losses
     related to these 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 March 31, 2003 the remaining OCI was
     approximately $2.7 million.

          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 counter-party $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. The decrease in the swap's fair value of
     $550,000 during the three months ended March 31, 2002 was reported as a
     charge to interest expense.

                                      -14-

<PAGE>

                         MISSION RESOURCES CORPORATION

     Those hedges of future production outstanding at March 31, 2003 are as
follows:

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>
     Second Qtr. 2003                   4,000         364,000            Swap             $24.31           n/a
     -------------------------------------------------------------------------------------------------------------
     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>
     Second Qtr. 2003                  15,000        1,365,000          Collar             $3.18          $4.02
     --------------------------------------------------------------------------------------------------------------
     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>

     The Company's realized price for natural gas per MCF in the past year was
approximately $0.11 less than the NYMEX MMBTU price. The Company's realized
price for oil in the past year was approximately $0.95 per BBL less than NYMEX.
Realized prices differ from NYMEX as a result of factors such as the location of
the property, the heating content of natural gas and the quality of oil. The oil
differential stated above 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.

                                      -15-

<PAGE>

                         MISSION RESOURCES CORPORATION

5.   Income Taxes

          The provision for federal and state income taxes for the three months
     ended March 31, 2003 was based upon a 35% effective tax rate. The $5.3
     million valuation allowance on deferred taxes applicable at December 31,
     2002 has been decreased to $4.8 million at March 31, 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 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 March
     31, 2003, Milam owed the Company approximately $1.3 million 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 which provide for Milam to pay its joint interest billings and
     cash calls in a timely manner through July 2003. Mission received
     approximately $752,000 in April 2003 and $553,000 in May 2003 from Milam 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 under the applicable purchase and sale agreements to avoid this
     liability. At this time, the Company has accrued a liability for
     approximately $161,000 that it has agreed to contribute toward the proper
     abandonment and cleanup of the Bayou fer Blanc field.

                                      -16-

<PAGE>

                         MISSION RESOURCES CORPORATION

     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 and from Torch and Nuevo, if the surety
makes any payments under the bonds issued to Torch and Nuevo.

                                      -17-

<PAGE>

                         MISSION RESOURCES CORPORATION

ITEM 2. Managements' Discussion & Analysis and Results of Operations

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 and abandon 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
year quarter ended March 31, 2003 and approximately 40% of total oil and gas
revenues in the quarter ended March 31, 2002. Any reduction in proved reserves
without a corresponding reduction in capitalized costs will increase the
depletion rate.

     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 filed
March 31, 2003 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, the impairment of oil and gas properties is not reversible at a later
date even if oil and gas prices increase. No such impairment was required in the
quarters ended March 31, 2003 and 2002, respectively.

                                      -18-

<PAGE>

                         MISSION RESOURCES CORPORATION

         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 March 31, 2003
were $31.12 per barrel and $5.06 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 March 31, 2003, they represented a
$9.3 million current liability and a $741,000 long-term liability.

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

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

                                      -19-

<PAGE>

                         MISSION RESOURCES CORPORATION

         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
March 31, 2003, we have recorded a net liability of approximately $454,000,
which is included in the accounts payable and accrued liabilities line of the
Balance Sheet, representing approximately 266,000 MCF at an average price of
$1.71 per MCF, related to imbalances on properties at or nearing depletion. We
value gas imbalances using the price at which the imbalance originated, if
stated in 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 will
be reflected as a change in accounting method on our statement of operations.
After initial implementation, we will reduce the liability as abandonment costs
are incurred. Should actual costs differ from the estimate, the difference will
be reflected as an abandonment gain or loss in the statement of operations when
the abandonment occurs. We have developed a process through which to track and
monitor the obligations for each asset following implementation of SFAS No. 143.

         As with previously discussed estimates, the estimation of our asset
retirement obligation is dependent upon many variables. We attempt to limit the
impact of management's subjective 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 year-end Netherland,
Sewell & Associates, Inc. reserve

                                      -20-

<PAGE>

                         MISSION RESOURCES CORPORATION

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 new 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 from operations was $5.5 million for the three month
period ending March 2003 and net cash flow used in operations was $4.1 million
for the three month period ending March 31, 2002. The period-to-period increase
in cash flow is primarily caused by significantly higher oil and gas prices.

         Net cash used in investing activities for the three month period ending
March 31, 2003 was $3.2 million while $389,000 was provided by investing
activities in the three month period ending March 31, 2002. We invested $6.3
million in exploration and development of oil and gas properties for the three
month period ended March 31, 2003 compared to $6.9 million for the same period
of 2002. Proceeds from property sales were $3.6 million and $7.7 million for the
three month periods ending March 31, 2003 and 2002, respectively.

         Net cash provided by financing activities was $4.4 million and $4.5
million in the first quarters of 2003 and 2002, respectively, however financing
activities differed greatly between the periods. In 2002, our focus was on
paying down the our credit facility, while we repurchased and retired almost
$97.6 million of our Notes in 2003. See Long Term Debt below for more details.

         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 designed 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 W. Lake Verret field in South Louisiana and the
Carpenter field in Oklahoma. This development program has been successful with
the production from development wells more than offsetting our natural declines.
Although the drilling program is subject to further evaluation, our current plan
is to pursue our growth strategy of finding and developing primarily on-shore
Gulf Coast gas reserves in established trends. In addition to continuing the
aforementioned development projects, we currently expect to drill about thirteen
wells during the remainder of 2003. Of these, six are located in the gas prone
Miocene trend of southern Louisiana and are evenly split between exploratory and
development prospects. The remaining seven include two Wilcox exploratory wells
in south central Texas, a high potential prospect in the South Texas Vicksburg
trend, a development well in our Raccoon Bend field and three in the offshore
Louisiana shelf (two of which we have only a very minor interest). The two minor
interest wells and one of the southern Louisiana wells are drilling now, another
south Louisiana well will spud later this month; and we expect all the remaining
wells to spud before the end of the third quarter.

                                      -21-

<PAGE>

                         MISSION RESOURCES CORPORATION

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
decreases 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 March 31, 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 approximately $127.4 million in principal amount of Notes
outstanding.

         We received debt ratings from two major rating agencies in the United
States. In determining Mission's debt rating, the agencies consider 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. Mission's subordinated notes ratings are "CCC-" by
Standard & Poor's and "CAA3" by Moody's. Standard & Poor's and Moody's have put
us on Credit Watch - negative and on review for downgrade, respectively. A
decline in our ratings would not create a default or other unfavorable change.
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.

                                      -22-

<PAGE>

                         MISSION RESOURCES CORPORATION

Credit Facility

         Simultaneously with the acquisition of the Notes, Mission amended and
restated its credit facility with new lenders, led by Farallon Energy Lending,
LLC. The amended and restated senior secured credit facility (the "Facility")
expires January 6, 2005 (the "Maturity Date"), and has initial availability of
$80.0 million. The Facility is secured by a lien on all of our property and the
property of certain of our subsidiaries, including a lien on all of their
respective oil and gas properties and a pledge of the capital stock of certain
of the subsidiaries. We drew the full $80.0 million under the Facility. The
proceeds of the Facility 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 Facility is 12%
until February 16, 2004, when it increases to 13% until the Maturity Date. The
Facility allows the Company to put in place a revolving credit facility of up to
$12.5 million with a third party. Such facility will be required to contain
provisions requiring the reduction of the loans outstanding under such facility
to not more than $3.0 million in principal amount (i) for a 30-day period in the
event the loans outstanding under such facility exceed $3.0 million in principal
amount for any 90-day period and (ii) on the day following any required payment
on subordinated indebtedness, unless Mission has consummated an acquisition of
oil and gas properties for consideration valued at $8.0 million or more during
the immediately prior 90 days.

         We have the option to prepay and also may be required to prepay the
loans outstanding under the 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 March 31, 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 million, provided that no prepayment need
be made in an amount less than $1 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. The 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.

         The 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 March 31, 2003, we
were in compliance with all the Facility's covenants. The minimum consolidated
fixed charge coverage requirement 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 second
and third quarters of 2003, which could impact this covenant, so we may have to
defer some drilling into the fourth quarter of 2003 in order to maintain
compliance.

         The Facility also allows for us to obtain a revolving credit facility
of up to $12.5 million for working capital purposes. We are currently
negotiating such a facility and expect to have it in place during the second
quarter of 2003.

                                      -23-

<PAGE>
                         MISSION RESOURCES CORPORATION

Capital Structure

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

         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. 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 estimated
payments related to those obligations and commitments as they exist at March 31,
2003 (amounts in thousands):

<TABLE>
<CAPTION>
Contractual Cash Obligations:            Total        2003        2004        2005        2006        2007     Thereafter
---------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>         <C>         <C>       <C>         <C>           <C>        <C>
    Long Term Debt* ..................  $188,937    $16,474     $13,858   $ 13,858    $ 13,858      $130,890       $ ---
    Operating Leases .................     2,852        800         735        664         630            22         ---
                                       ------------------------------------------------------------------------------------
    Total Contractual Obligations ....  $191,789    $17,274     $14,593   $ 14,522    $ 14,488      $130,912       $ ---
                                       ====================================================================================
</TABLE>

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

                                      -24-

<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 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 March 31, 2003, Milam owed
Mission approximately $1.3 million 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 which
provide for Milam to pay its joint interest billings and cash calls timely
through July 2003. Mission received approximately $752,000 in April 2003 and
$553,000 in May 2003 from Milam to be applied to the outstanding receivable
balance.

Results of Operations

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

<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                                                                March 31,
                                                                       --------------------------
                                                                          2003            2002
                                                                       ---------       ----------
    <S>                                                                <C>             <C>
     Production:
        Oil and condensate (MBBLs) ................................           570             989
        Natural gas (MMCF) ........................................         2,284           3,635
        BOE .......................................................           951           1,595

     Average sales price including the effect of hedges:
        Oil and condensate (per BBL) ..............................    $    25.09     $     18.76
        Natural gas (per MCF) .....................................    $     5.01     $      2.69

     Average sales price excluding the effect of hedges:
        Oil and condensate (per BBL) ..............................    $    30.92     $     18.30
        Natural gas (per MCF) .....................................    $     6.23     $      2.35

     Average costs:
        Lease operating expenses (per BOE) ........................    $     9.35     $      8.25
        Taxes other than income (per BOE) .........................    $     2.83     $      1.21
        General and administrative expense (per BOE) ..............    $     2.70     $      1.61
        Depreciation, depletion and amortization (per BOE) ........    $     9.35     $      6.93
</TABLE>

                                      -25-

<PAGE>

                         MISSION RESOURCES CORPORATION

Three Months Ended March 31, 2003 and 2002

Net Income (Loss)

     Net income for the three months ended March 31, 2003 was $10.6 million or
$0.45 per share. Net loss for the three months ended March 31, 2002 was $9.4
million or $0.40 per share. The $22.4 million gain ($14.5 million net of tax)
from the repurchase and retirement of the Notes was the primary reason for the
increase in net income.

Oil and Gas Revenues

     Oil revenues for the three months ended March 31, 2003 were $ 14.3 million,
as compared to $18.6 million for the respective period in 2002. Oil production
decreased 42% from 989,000 barrels in the three month period ended March 31,
2002 to 570,000 barrels for the first quarter of this year. The sale of oil and
gas properties during the year 2002 accounts for most of the production
decrease. Oil prices averaged $25.09 per barrel in the three month period ended
March 31, 2003, as compared to $18.76 per barrel in the three month period ended
March 31, 2002.

     Gas revenues increased 17% from $9.8 million reported for the quarter ended
March 31, 2002 to $11.4 million for the quarter ended March 31, 2003. Gas
production was down 37% compared to the same quarter of 2002 with 2,284 Mmcf and
3,635 Mmcf for the three month periods ended March 31, 2003 and 2002,
respectively. The sale of oil and gas properties during the year 2002, accounts
for most of the production decrease. Gas prices averaged $5.01 per mcf, or 86%
higher, in the three month period ended March 31, 2003 as compared to $2.69 per
mcf in the comparable period of 2002.

     The realized prices discussed above include the impact of oil and gas
hedges. A decrease of $6.1 million related to hedging activity was reflected in
oil and gas revenues for the three months ended March 31, 2003, while a decrease
in oil and gas revenues of $1.7 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.

Interest and Other Income (Loss)

     Interest and other income (loss) was a gain of $535,000 for the three
months ended March 31, 2003 and was a loss of $6.0 million for the three months
ended March 31, 2002. A $6.2 million loss on ineffectiveness of derivatives is
also included as a component of other income in the first quarter of 2002
whereas a gain of $208,000 is recorded for the same period of 2003. Activity for
2003 also includes approximately $289,000 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.

                                      -26-

<PAGE>

                          MISSION RESOURCES CORPORATION

Lease Operating Expenses

     Lease operating expense decreased from $13.2 million in the three months
ended March 31, 2002 to $8.9 million for the same period of 2003. This decline
of approximately 33% is primarily related to 2002 property sales.

Taxes Other Than Income

     Taxes other than income increased from $1.9 million in the three months
ended March 31, 2002 to $2.7 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. Also 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 prices.

Transportation Costs

     Transportation costs were not significant in either period presented.

Depreciation, Depletion and Amortization

     Depreciation, depletion and amortization ("DD&A") was $9.0 million for the
three months ended March 31, 2003 and $11.3 million for the three months ended
March 31, 2002. Although this represents an overall cost decrease, DD&A per BOE
has increased from $6.93 per BOE in the first quarter of 2002 to $9.35 per BOE
in the first quarter of 2003. A reduction in reserves, primarily due to
revisions calculated by reservoir engineers and to a lesser degree to property
sales, caused the increased DD&A rate.

General and Administrative Expenses

     General and administrative expenses ("G&A") totaled approximately $2.6
million in both the three month periods ended March 31, 2003 and 2002. At March
31, 2002, most of Mission's accounting, operating, marketing and human resources
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 had terminated and Mission's staff had increased to 92; therefore,
Mission's management fee costs decreased by approximately $1.2 million between
the quarters. The corresponding salary increase in the first quarter of 2003 was
approximately $550,000, partially offsetting the management fee savings. The
first quarter 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 extensive review of our
land records in preparation of implementing a new land system. We expect our G&A
for future quarters in 2003 to average approximately $2.2 million per quarter.

Interest Expense

     Interest expense decreased 22% to $6.0 million for the three months ended
March 31, 2003 from $7.7 million in the same period of 2002. The change in fair
value of the interest rate swap was recorded a reduction to interest expense of
$520,000 in the quarter ended March 31, 2003 and as additional interest expense
of $550,000 in the quarter ended March 31, 2002. Also, there were no borrowings
outstanding under the revolving credit facility in the first quarter of 2003,
but approximately $410,000 of interest on borrowings under the revolving credit
facility was reported for the first quarter of 2002.

                                      -27-

<PAGE>

                         MISSION RESOURCES CORPORATION

Income Taxes

     The provision for federal and state income taxes for the three months ended
March 31, 2003 was based upon a 35% effective tax rate. The $5.3 million
valuation allowance on deferred taxes applicable at December 31, 2002 has been
decreased to $4.8 million at March 31, 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.

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.

                                      -28-

<PAGE>

                          MSSION 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 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. As shown on the following
tables, the Company has also entered into some commodity swaps that fix the
NYMEX price to be received. During the quarters ended March 31, 2003 and 2002,
the Company recognized a loss of $6.1 million and a gain of $1.7 million,
respectively, related to hedges that were settled.

As of May 9, 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>
Second Qtr. 2003                   4,000         364,000             Swap            $24.31           n/a
-------------------------------------------------------------------------------------------------------------
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>
Second Qtr. 2003                  15,000        1,365,000           Collar            $3.18          $4.02
-------------------------------------------------------------------------------------------------------------
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>

                                      -29-

<PAGE>

                          MSSION 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.

                                      -30-

<PAGE>

                          MISSION RESOURCES CORPORATION

                           PART II. OTHER INFORMATION

ITEM 1.   Legal Proceedings

                None.

ITEM 2.   Changes in Securities and Use of Proceeds

                None.

ITEM 3.   Defaults Upon Senior Securities

                None.

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

                None.

ITEM 5.   Other Information

               A hearing will be held June 5, 2003 before a Nasdaq Listing
          Qualifications Panel to review the Company's appeal of a Nasdaq Staff
          Determination to delist the Company's common stock from The Nasdaq
          National Market. The Company believes it has a business plan in place
          to achieve and sustain compliance with the Nasdaq Marketplace Rules
          and will present that plan during the hearing. Further, if Mission's
          request for continued listing on The Nasdaq National Market is
          ultimately denied, the Company will request that its common stock be
          transferred for trading on The Nasdaq SmallCap Market. Mission
          believes it will qualify for transfer to The Nasdaq SmallCap Market
          and will be eligible for an additional 180-calender day grace period
          to further implement its business strategy.

               Mission previously received a Nasdaq Staff Determination on
          January 28, 2003, indicating that the Company had failed to comply
          with Nasdaq's minimum bid price requirement of $1.00 per share for
          continued listing of the Company's common stock on The Nasdaq National
          Market as set forth in Nasdaq Marketplace Rule 4450(a)(5). As a
          result, the Company's common stock was subject to delisting from The
          Nasdaq National Market at the opening of business on February 6, 2003.
          Following procedures set forth in the Nasdaq Marketplace Rule 4800
          Series, the Company requested an oral hearing before a Nasdaq Listing
          Qualifications Panel to review the Nasdaq Staff Determination. Prior
          to the hearing date, however, the Company was granted an additional 90
          days or until April 28, 2003, to come into compliance with the minimum
          bid price requirement in accordance with SEC Release SR-NASD-2003-34,
          and the hearing was therefore postponed.

               On May 2, 2003, Mission received a subsequent Nasdaq Staff
          Determination indicating that the Company had failed to regain
          compliance with Nasdaq's minimum bid price requirement during the
          aforementioned 90-day extension period. Accordingly, Nasdaq has
          rescheduled the hearing before the Nasdaq Listing Qualifications Panel
          for Thursday, June 5, 2003. The delisting of the Company's common
          stock will be stayed pending the Panel's decision, allowing it to
          continue to trade on The Nasdaq National Market under the symbol
          "MSSN." The Company intends to present a comprehensive plan to the
          Panel for achieving and sustaining compliance with the Nasdaq
          Marketplace Rules; however, the Company can make no assurance that the
          Panel will grant the Company's request for continued listing on The
          Nasdaq National Market or for transfer of its common stock for trading
          on The Nasdaq SmallCap Market

                                      -31-

<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
                    they are identified by the number indicated.

                10.1   Amended and Restated Credit Agreement, dated as of March
                       28, 2003, among Mission Resources Corporation, Farallon
                       Energy Funding, LLC, as Arranger and Lender, Jefferies &
                       Company, Inc., as Syndication Agent and Foothill Capital
                       Corporation, as Administrative Agent (incorporated by
                       reference to Exhibit 99.2 to the Company's Current Report
                       on Form 8-K, filed April 1, 2003).

                10.2   Second Amended, Restated and Consolidated Guaranty and
                       Collateral Agreement, dated as of march 28, 2003, made by
                       Mission Resources Corporation and certain of its
                       Subsidiaries, in favor of Foothill Capital Corporation,
                       as Administrative Agent (incorporated by reference to
                       Exhibit 99.3 to the Company's Current Report on Form 8-K,
                       filed April 1, 2003).

                10.3   Purchase and Sale Agreement, dated as of March 28, 2003,
                       by and between Farallon Capital Management, LLC and
                       Mission Resources Corporation, as Administrative Agent
                       (incorporated by reference to Exhibit 99.3 to the
                       Company's Current Report on Form 8-K, filed April 1,
                       2003).

                99.1   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).

                99.2   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 March
                       31, 2003, regarding fourth quarter and yearend 2002
                       results.

                (ii)   The Company filed a Current Report on Form 8-K on
                       February 3, 2003 regarding the appeal of a Nasdaq
                       delisting notice.

                                      -32-

<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:        May 14, 2003        By: /s/ Robert L. Cavnar
          ------------------         ------------------------
                                     Robert L. Cavnar
                                     Chairman and Chief Executive Officer

Date:        May 14, 2003        By: /s/ Richard W. Piacenti
          ------------------         ------------------------
                                     Richard W. Piacenti
                                     Executive Vice President and Chief
                                     Financial Officer

                                      -33-

<PAGE>

I, Robert L. Cavnar, certify that:

     1.   I have reviewed this quarterly report on Form 10-Q of Mission
          Resources Corporation;

     2.   Based on my knowledge, this quarterly report does not contain any
          untrue statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this quarterly report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this quarterly report, fairly present in all
          material respects the financial condition, results of operations and
          cash flows of the registrant as of, and for, the periods presented in
          this quarterly report;

     4.   The registrant's other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
          and we have:

          a)   designed such disclosure controls and procedures to ensure that
               material information relating to the registrant, including its
               consolidated subsidiaries, is made known to us by others within
               those entities, particularly during the period in which this
               quarterly report is being prepared;

          b)   evaluated the effectiveness of the registrant's disclosure
               controls and procedures as of a date within 90 days prior to the
               filing date of this quarterly report (the "Evaluation Date"); and

          c)   presented in this quarterly report our conclusions about the
               effectiveness of the disclosure controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent evaluation, to the registrant's auditors and the
          audit committee of registrant's board of directors (or persons
          performing the equivalent functions):

          a)   all significant deficiencies in the design or operation of
               internal controls which could adversely affect the registrant's
               ability to record, process, summarize and report financial data
               and have identified for the registrant's auditors any material
               weaknesses in internal controls; and

          b)   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal controls; and

     6.   The registrant's other certifying officers and I have indicated in
          this quarterly report whether there were significant changes in
          internal controls or in other factors that could significantly affect
          internal controls subsequent to the date of our most recent
          evaluation, including any corrective actions with regard to
          significant deficiencies and material weaknesses.

Date:  May 14, 2003                     /s/ ROBERT L. CAVNAR
                                        ------------------------------------
                                        Robert L. Cavnar
                                        Chairman and Chief Executive Officer

                                      -34-

<PAGE>

                         MISSION RESOURCES CORPORATION

     I, Richard W. Piacenti, certify that:

     1.   I have reviewed this quarterly report on Form 10-Q of Mission
     Resources Corporation;

     2.   Based on my knowledge, this quarterly report does not contain any
     untrue statement of a material fact or omit to state a material fact
     necessary to make the statements made, in light of the circumstances under
     which such statements were made, not misleading with respect to the period
     covered by this quarterly report;

     3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this quarterly
     report;

     4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this quarterly
          report is being prepared;

     b)   evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented in this quarterly report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
     on our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent functions):

     a)   all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     b)   any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

     6.   The registrant's other certifying officers and I have indicated in
     this quarterly report whether there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: May 14, 2003                /s/ RICHARD W. PIACENTI
                                  ----------------------------------
                                  Richard W. Piacenti
                                  Executive Vice-President and Chief
                                  Financial Officer

                                      -35-