<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                 ______________

                                   FORM 10-Q

(Mark One)
    X       Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
__________                    Exchange Act of 1934
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1999

                                      or

___________ Transition Report Pursuant to Section 13 or 15 (d) of the Securities
                             Exchange Act of 1934

            For the Transition Period From __________ to __________

                         Commission file number 0-9498


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


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

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

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

As of November 6, 1999, 13,853,791 shares of common stock of Bellwether
Exploration Company were outstanding.

                                       1
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

                                     INDEX


<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION                                                       Page
<S>                                                                                  <C>
  ITEM 1.  Financial Statements

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

  ITEM 2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations................................      14

  ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk..........      25

PART II.  OTHER INFORMATION....................................................      26
</TABLE>

                                       2
<PAGE>

                        PART I.  FINANCIAL INFORMATION

ITEM 1.                       FINANCIAL STATEMENTS


                        BELLWETHER EXPLORATION COMPANY

                     CONDENSED CONSOLIDATED BALANCE SHEETS

                             (Amounts in thousands)

                                     ASSETS
                                     ------

<TABLE>
<CAPTION>
                                                           September 30,    December 31,
                                                               1999             1998
                                                           ------------     ------------
                                                            (Unaudited)
<S>                                                        <C>              <C>
CURRENT ASSETS:
Cash and cash equivalents..............................       $   2,234        $      10
Accounts receivable and accrued revenues...............          18,865           16,455
Prepaid expenses and other.............................           1,410            1,719
                                                              ---------        ---------
 Total current assets..................................          22,509           18,184
                                                              ---------        ---------
PROPERTY AND EQUIPMENT, AT COST:

Oil and gas properties (full cost method)..............         322,426          289,231
Gas plant facilities...................................          17,549           17,406
                                                              ---------        ---------
                                                                339,975          306,637
Accumulated depreciation, depletion and amortization...        (218,406)        (198,421)
                                                              ---------        ---------
                                                                121,569          108,216
                                                              ---------        ---------
OTHER ASSETS...........................................           4,605            4,796
                                                              ---------        ---------
                                                              $ 148,683        $ 131,196
                                                              =========        =========
</TABLE>



     See accompanying notes to condensed consolidated financial statements

                                       3
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

                     CONDENSED CONSOLIDATED BALANCE SHEETS

               (Amounts in thousands, except share information)

                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------

<TABLE>
<CAPTION>
                                                                     September 30,      December 31,
                                                                          1999              1998
                                                                     -------------     -------------
                                                                      (Unaudited)
<S>                                                                  <C>               <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.......................          $ 17,128          $ 11,982
Due to related parties.........................................               126               125
                                                                         --------          --------
 Total current liabilities.....................................            17,254            12,107
                                                                         --------          --------

LONG-TERM DEBT.................................................           117,900           104,400

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

STOCKHOLDERS' EQUITY:

Preferred stock, $0.01 par value, 1,000,000 shares authorized;
 none issued or outstanding at September 30, 1999 and
 December 31, 1998.............................................               ---               ---
Common stock, $0.01 par value, 30,000,000 shares authorized,
 13,853,791 and 13,853,991 shares issued at
 September 30, 1999 and December 31, 1998, respectively........               142               142
Additional paid-in capital.....................................            80,442            80,442
Accumulated deficit............................................           (65,350)          (64,191)
Treasury stock, at cost, 311,000 shares........................            (1,905)           (1,904)
                                                                         --------          --------
  Total stockholders' equity...................................            13,329            14,489
                                                                         --------          --------
                                                                         $148,683          $131,196
                                                                         ========          ========
</TABLE>



     See accompanying notes to condensed consolidated financial statements

                                       4
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

              (Amounts in thousands, except per share information)

<TABLE>
<CAPTION>
                                                       Three Months Ended           Nine Months Ended
                                                         September 30,                September 30,
                                                    -----------------------       ---------------------
                                                      1999           1998          1999           1998
                                                    --------        -------       -------       -------
<S>                                                  <C>            <C>           <C>           <C>
REVENUES:
 Oil and gas revenues..........................      $17,089        $18,299       $43,840       $58,029
 Gas plant operations, net.....................          432            371           907           918
 Interest and other income.....................          175            364         1,444           877
                                                     -------        -------       -------       -------
                                                      17,696         19,034        46,191        59,824
                                                     -------        -------       -------       -------
COST AND EXPENSES:
 Production expenses...........................        5,426          6,277        16,051        19,170
 Depreciation, depletion and amortization......        6,412          8,057        16,856        25,616
 General and administrative expenses...........        3,320          2,032         6,188         6,640
 Interest expense..............................        3,001          2,951         8,720         8,906
                                                     -------        -------       -------       -------
                                                      18,159         19,317        47,815        60,332
                                                     -------        -------       -------       -------

Income (loss) before income taxes..............         (463)          (283)       (1,624)         (508)

Provision (benefit) for income taxes...........         (465)           (96)         (465)         (176)
                                                     -------        -------       -------       -------
NET INCOME (LOSS)..............................      $     2        $  (187)      $(1,159)      $  (332)
                                                     =======        =======       =======       =======
Net income (loss) per share....................      $   ---        $ (0.01)      $ (0.08)      $ (0.02)
                                                     =======        =======       =======       =======
Net income (loss) per share-diluted............      $   ---        $ (0.01)      $ (0.08)      $ (0.02)
                                                     =======        =======       =======       =======
Weighted average common shares
 outstanding...................................      13,854          14,121        13,854        14,103
                                                     =======        =======       =======       =======
Weighted average common shares outstanding
 -diluted......................................      13,923          14,121        13,854        14,103
                                                     =======        =======       =======       =======
</TABLE>


     See accompanying notes to condensed consolidated financial statements

                                       5
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                             Nine Months Ended
                                                                               September 30,
                                                                          -----------------------
                                                                            1999           1998
                                                                          --------       --------
<S>                                                                       <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS.............................................................     $ (1,159)      $   (332)
Adjustments to reconcile net loss to net cash
 provided by operating activities:
     Depreciation, depletion and amortization........................       17,471         26,256
     Deferred income taxes...........................................          ---           (787)
                                                                          --------       --------
                                                                            16,312         25,137
Change in assets and liabilities:
 Accounts receivable and accrued revenue.............................       (2,410)         7,390
 Accounts payable and other liabilities..............................        5,146          1,454
 Due from related parties............................................            1          4,963
 Other...............................................................          (93)        (1,724)
                                                                          --------       --------
 NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES.....................       18,956         37,220
                                                                          --------       --------

CASH FLOWS FROM INVESTING ACTIVITIES:

 Acquisition of oil and gas properties...............................      (14,739)        (1,136)
 Additions to properties and facilities..............................      (18,714)       (31,738)
 Proceeds from sales of properties...................................        3,222            578
                                                                          --------       --------
 NET CASH FLOWS USED IN INVESTING ACTIVITIES.........................      (30,231)       (32,296)
                                                                          --------       --------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from borrowings............................................       13,500            ---
 Exercise of stock options...........................................          ---          1,502
 Purchase of treasury shares.........................................           (1)        (1,358)
                                                                          --------       --------
 NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES.....................       13,499            144
                                                                          --------       --------

 Net increase in cash and cash equivalents...........................        2,224          5,068
 Cash and cash equivalents at beginning of period....................           10          2,699
                                                                          --------       --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...........................     $  2,234       $  7,767
                                                                          ========       ========
</TABLE>



     See accompanying notes to condensed consolidated financial statements

                                       6
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

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

                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                         Nine Months Ended
                                                                           September 30,
                                                                    ----------------------------
                                                                     1999                  1998
                                                                    -------               ------
<S>                                                                 <C>                    <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW  INFORMATION:

Cash paid (received) during the period for:
 Interest....................................................        $5,844                $5,639

 Income taxes................................................        $ (437)               $1,412
</TABLE>



     See accompanying notes to condensed consolidated financial statements

                                       7
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

             Notes to Condensed Consolidated Financial Statements
                                  (Unaudited)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

                                       8
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

        Notes to Condensed Consolidated Financial Statements (Continued)
                                  (Unaudited)

2.   STOCKHOLDERS' EQUITY

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

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

<TABLE>
<CAPTION>
                                             For the Nine Months Ended                        For the Nine Months Ended
                                                 September 30, 1999                               September 30, 1998
                                   --------------------------------------------      ----------------------------------------------
                                       Loss          Shares           Per Share         Loss            Shares          Per Share
                                   (Numerator)    (Denominator)        Amount        (Numerator)    (Denominator)         Amount
                                   -----------    ------------       ----------      -----------    -------------       ---------
<S>                                  <C>              <C>             <C>               <C>             <C>              <C>
LOSS PER COMMON SHARE:
Loss available to common
 stockholders...................     $1,159           13,854            $.00            $332             14,103           $ .02
                                                                        ====                                              =====

EFFECT OF DILUTIVE SECURITIES:
Options and Warrants............    $  ---               ---                            $---                ---
                                    ------            ------                            ----             ------

LOSS PER COMMON SHARE-DILUTED:
Loss available to common
 stockholders and assumed
 conversions....................     $1,159           13,854            $.00            $332             14,103           $ .02
                                     ======           ======            ====            ====             ======           =====
</TABLE>

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

<TABLE>
<CAPTION>
                                     For the Periods Ended September 30,
                                 ------------------------------------------
                                   1999 (shares)            1998 (shares)
                                 -----------------       ------------------
<S>                              <C>                      <C>
Options and Warrants                  31,000                  254,000
                                      ======                  =======
</TABLE>

                                       9
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

        Notes to Condensed Consolidated Financial Statements (Continued)
                                  (Unaudited)

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

3.   LONG TERM DEBT

     In April 1997, the Company entered into a senior unsecured revolving credit
     facility ("Senior Credit Facility") which currently has a borrowing base of
     $55.0 million and a maturity date of November 5, 2003.  The Company may
     elect an interest rate based either on a margin plus LIBOR or the higher of
     the prime rate or the sum of  1/2 of 1% plus the Federal Funds Rate.  For
     LIBOR borrowings, the interest rate will vary from LIBOR plus 1.0% to LIBOR
     plus 1.75% based upon the borrowing base usage. As of September 30, 1999
     there were $17.9 million borrowings outstanding under the Senior Credit
     Facility.

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

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

     Effective September 22, 1998, the Company entered into an eight and a half
     year interest rate swap agreement with a notional value of $80 million.
     Under the agreement, the Company receives a fixed interest rate and pays a
     floating interest rate based on the simple average of three foreign LIBOR
     rates.  Floating rates are redetermined for a six month period each April 1
     and October 1.  The floating rate for the period from October 1, 1999 to
     April 1, 2000 is 9.64%.  Through  April 1, 2002 the  floating rate is
     capped at 10.875% and capped at 12.875% thereafter.

                                       10
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

        Notes to Condensed Consolidated Financial Statements (Continued)
                                  (Unaudited)

4.   NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
     Instruments and Hedging Activities. "  This statement establishes standards
     of accounting for and disclosures of derivative instruments and hedging
     activities.  As amended, this statement is effective for fiscal quarters
     beginning after January 1, 2001.  The Company has not yet determined the
     impact of this statement on the Company's financial condition or results of
     operations.

5.   NATURAL GAS AND CRUDE OIL HEDGING

     Oil and gas revenues decreased $2,576,000 and $4,220,000 in the three and
     nine months ended September 30, 1999, respectively, and increased
     $1,877,000 and $2,840,000 in the three and nine months ended September 30,
     1998, respectively, as a result of hedging activity.

     The following tables detail the Company's hedges of future production which
     were in place at September 30, 1999.

Oil Hedges
----------

<TABLE>
<CAPTION>
                                                                                       NYMEX         NYMEX
                                            BBLS                                       Price         Price
                Period                    per Day        Total BBLS       Type         Floor        Ceiling
                ------                  ------------   --------------   ---------   -----------   -----------
<S>                                   <C>            <C>              <C>         <C>           <C>
October 1999 to December 1999                2,000          184,000      Collar        $19.00        $23.70
January 2000 to March 2000                   2,000          182,000      Collar        $19.00        $21.75

Gas Hedges
----------
                                                                                       NYMEX         NYMEX
                                           MMBTU           Total                       Price         Price
                Period                    per Day          MMBTU          Type         Floor        Ceiling
                ------                  ------------   --------------   ---------   -----------   -----------
October 1999                                30,000          930,000      Collar        $ 2.20        $ 2.61
November 1999 to March 2000                 15,000        2,280,000      Collar        $ 2.40        $ 3.10
November 1999 to March 2000                 15,000        2,280,000      Collar*       $ 3.00        $ 3.55
April 2000 to October 2000                  15,000        3,210,000      Collar        $ 2.30        $ 2.87
November 2000 to December 2000              20,000        1,220,000      Collar        $ 2.40        $ 3.40
April 2001 to October 2001                  20,000        4,280,000      Collar        $ 2.40        $ 2.95
</TABLE>

  The fair value at September 30, 1999 of these swap agreements was a gain of
$13,100.

---------
* This agreement includes a put at $2.40 per mcf.



                                       11
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

        Notes to Condensed Consolidated Financial Statements (Continued)
                                  (Unaudited)

6.   LEGAL PROCEEDING

     The Company is a defendant in Cause No. C-4417-96-G, A.R. Guerra, et al. v.
     Eastern Exploration, Inc., et al., in the 370th Judicial District Court of
     Hidalgo County, Texas.  On May 11, 1999, the trial court granted
     plaintiffs' Motion for Summary Judgment and denied defendants' Motions for
     Summary Judgment.  The Company was notified of the trial court's judgment
     May 18, 1999.  The trial court awarded plaintiffs in excess of $5.8 million
     in damages plus interest.  The Company has a 75% interest in the leases
     made the subject of the lawsuit, but the judgment is joint and several
     against all defendants.

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

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

     The Company believes that the trial court's judgment is in error for the
     following reasons, among others: (1) plaintiffs interpretation is
     unreasonable as a matter of law; (2) the duties under the compensatory
     royalty clause did not expand to the entirety of the unit, and because it
     is undisputed that no well was ever drilled within 1,200 feet of
     plaintiffs' 648-acre lease, lessees' duties under the compensatory royalty
     clause never came into effect as a matter of law; and (3) even if the
     duties under the compensatory royalty clause did expand to the entirety of
     the unit, defendants timely drilled an offset well within 120 days of the
     well that was allegedly drilled within 1,200 feet of the gas unit in which
     plaintiffs' 648-acre lease is located, and therefore no compensatory
     royalties are

                                       12
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

        Notes to Condensed Consolidated Financial Statements (Continued)
                                  (Unaudited)

     due as a matter of law. Because the Company believes that the trial court's
     judgment is in error, the Company perfected an appeal of the judgment on
     August 9, 1999. The Company intends to vigorously prosecute the appeal, and
     believes, with its legal counsel, that a reversal of the judgment is more
     likely than not to occur. Such an appeal could, however, require Bellwether
     to secure a bond in the amount of up to the full amount of the judgment,
     although it is more likely Bellwether's bonding obligation will be in the
     $3.5 million range. The parties attempted to mediate the dispute in October
     1999. Following day-long negotiations, the parties temporarily ceased
     negotiations. Bellwether will vigorously prosecute the appeal, and
     believes, with its legal counsel, that a reversal of the judgment is more
     likely than not to occur. Bellwether has accrued for the anticipated costs
     associated with the matter.

7.   RELATED PARTY TRANSACTIONS

     Director Mr. J.P. Bryan was elected Chairman and Chief Executive Officer
     effective August 2, 1999.  Mr. Bryan is Senior Managing Director of and a
     holder of Common Stock of the parent corporation of Torch Energy Advisors,
     Inc. ("Torch").  Mr. Bryan has no involvement in the day to day operations
     of Torch.  The Company is party to an administrative services agreement
     with Torch, pursuant to which Torch performs certain administrative
     functions for the Company, including financial, accounting, legal and
     technical support.  During the nine months ended September 30, 1999 and
     1998, the Company incurred $1.7 million and $3.2 million, respectively.

     During 1998, in connection with a possible transaction by the Company with
     Carpatsky Petroleum Company ("Carpatsky"), the Company agreed to guarantee
     $500,000 of indebtedness of Carpatsky to Torch.  The Carpatsky note to
     Torch went into default in June 1998.  Under an agreement effective October
     31, 1999, Bellwether paid Torch $565,700 for the guaranty.  The Company
     received in exchange 4.5 million shares of Carpatsky, with a current market
     value of $550,000 and a warrant to acquire an additional 967,296 common
     shares.  Carpatsky is currently traded on the Alberta Stock Exchange and is
     subject to normal market fluctuations.

                                       13
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

Upon the change in management, Bellwether has refocused it's corporate strategy
regarding growth in reserves and cash flow from primarily exploration activities
to growth through acquisitions and exploitation.  The Company will continue to
focus on opportunities in West Texas, onshore and offshore Texas/Louisiana Gulf
Coast and Latin America.  Latin America is a new area of focus where Bellwether
will strive to acquire and exploit producing fields.  Utilizing an acquisitions
approach to growth, Bellwether will expand the number of fields it operates,
strive to extend the Company's reserve life and will regularly divest mature
properties to enhance financial results.  Bellwether's funding of its drilling
and acquisition opportunities will be provided by operating cash flows, the sale
of non-core assets, bank financing and public sales of debt and equity
securities.

The Company invested $33.5 million in oil and gas properties for the nine months
ended September 30, 1999 versus $32.9 million for the same period in 1998.  The
1999 period included a net expenditure of $13.2 million on June 30, 1999 to
acquire producing oil and gas properties in the Gulf of Mexico.  The results for
the three and nine month periods include revenue, production costs and expenses
relative to these properties beginning July 1999.  Cash flows from operations
before changes in assets and liabilities were $16.3 million for the nine months
ended September 30, 1999 compared to $25.1 million in the same period of 1998.
At September 30, 1999, the Company had $37.1 million of available debt capacity
under the Senior Credit Facility.

1999 CAPITAL EXPENDITURES

During 1999, the Company anticipates investing approximately $54.0 million,
primarily for development and exploratory drilling activities, leasehold and
seismic acquisitions and the producing property acquisition discussed above.
The Company believes its cash flow provided by operating activities and
borrowings under its  credit facilities will be sufficient to meet these
projected capital investments (See Note 3 of the Notes to Condensed Consolidated
Financial Statements). The Company continues to review acquisition opportunities
and the consummation of such a transaction  will directly impact anticipated
capital expenditures.

GAS BALANCING

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

                                       14
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

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

OIL AND GAS PROPERTY ACCOUNTING

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

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                         Three Months Ended        Nine Months Ended
                                                           September 30,             September 30,
                                                  ----------------------------------------------------
                                                         1999         1998         1999         1998
                                                  ----------------------------------------------------
<S>                                                     <C>          <C>          <C>          <C>
Production:
  Oil and condensate (MBBLs)......................          510          583        1,531        1,760
  Natural gas (MMCF)..............................        4,630        5,109       13,611       16,865

Average sales price:/(1)/
  Oil and condensate (per BBL)....................       $15.80       $11.52      $ 12.88      $ 11.80
  Natural gas  (per MCF)..........................       $ 2.51       $ 1.90      $  2.08      $  2.04

Average costs:
  Production expenses (per BOE)...................       $ 4.23       $ 4.38      $  4.22      $  4.19
  General and administrative expense
     (per BOE)....................................       $ 2.59       $ 1.42      $  1.63      $  1.45
  Depreciation, depletion and amortization
     (per BOE)/(2)/...............................       $ 4.75       $ 5.42      $  4.19      $  5.42
</TABLE>
(1)  Average sales prices exclude the effect of hedges, which decreased revenues
     by $2,576,000 and $4,220,000 in the three and nine month periods in 1999,
     respectively, and increased revenues by $1,877,000 and $2,840,000 in the
     three and nine month periods in 1998, respectively.
(2)  Excludes depreciation, depletion and amortization on gas plants and other
     assets of $318,000 and $934,000 in the three and nine month periods in
     1999, respectively, and of  $221,000 and $663,000 in the three and nine
     month periods ended in 1998, respectively.

                                       15
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

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

THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

Net income for the quarter ended September 30, 1999 was $2,000 or $0.00 per
share, while the quarter ended September 30, 1998 reflected a loss of $187,000
or $.01 per share, respectively.  While oil and gas revenues were approximately
7% lower in the quarter ended September 30, 1999, expenses were, likewise, lower
by 6% as compared to the quarter ended September 30, 1998.

Oil and gas revenues for the three months ended September 30, 1999 were $17.1
million, as compared to $18.3 million for the 1998 period.  The 7% decrease in
oil and gas revenues is primarily due to the decline in oil and gas production.
Production volumes reflect a 5.9 million cubic feet per day (MMcf/d) decrease in
production from the Cove field caused by weather and maintenance delays from
mid-August through the end of September.  In addition, the Company experienced
production declines in the Ship Shoal complex, located in the Gulf of Mexico;
however, the Company believes that through an aggressive workover and
development program, production declines can be improved significantly.  Oil
production was down 12% compared to the same quarter of 1998 with 510,000 and
583,000 barrels for the three month periods ended September 30, 1999 and 1998,
respectively.  Gas production was down 9% compared to the same quarter of 1998
with 4,630 and 5,109 million cubic feet (MMcf) for the three month periods ended
September 30, 1999 and 1998, respectively.

Oil prices averaged $15.80 per barrel in the three month period ended September
30, 1999 as compared to $11.52 per barrel in the comparable period of 1998.
Gas prices averaged $2.51 per mcf in the three month period ended September 30,
1999 as compared to $1.90 per mcf in the comparable period of 1998.  This
represents a 32% increase in gas prices and a 37% increase in oil prices. Oil
and gas hedges in place in 1998 resulted in $1.9 million of additional oil and
gas revenues in the period ended September 30, 1998 while a decrease in oil and
gas revenues of $2.6 million was reflected in the same period of 1999.

Net gas plant operating profit was $432,000 in the three months ended September
30, 1999 and $371,000 in the same period of 1998.  While throughput volumes were
down moderately in 1999 as compared to 1998, liquid prices were significantly
higher in 1999 resulting in higher gas plant revenues in 1999 as compared to
1998.

Interest and other income decreased from $364,000 for the three months ended
September 30, 1998 to $175,000 for the three months ended September 30, 1999 as
a result of lower interest income.

Production expenses for the three months ended September 30, 1999 totaled $5.4
million, or 14% below the $6.3 million for the three months September 30, 1998.
The decrease results from certain uneconomical properties being abandoned and
the declining production in the Gulf of Mexico properties mentioned above.  On a
barrel equivalency basis (Boe), production expenses of $4.23 per Boe for the
quarter ended September 30, 1999 were 3% lower as compared to $4.38 per Boe for
the quarter ended September 30, 1998.

                                       16
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

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

Depreciation, depletion and amortization was $6.4 million for the three months
ended September 30, 1999 and $8.1 million for the three month period ended
September 30, 1998.  The decline resulted from the $73.9 million impairment
charge made at December 31, 1998 as well as decreased production volumes.
Depreciation, depletion and amortization per Boe has declined from $5.42 per Boe
in 1998 to $4.75 per Boe in 1999.

General and administrative expenses totaled $3.3 million in the three months
ended September 30, 1999 as compared to $2.0 million for the comparable period
of fiscal 1998.  Approximately $1.7 million in severance costs due to the
Company's recent management change, offset partially by a decrease in
outsourcing costs from $903 million to $616 million, was the major cause of the
increase.   The Company is charged a management fee under its current
outsourcing contract which is based upon a specified percentage of the average
book value of the Company's total assets, excluding cash, plus a percentage of
operating cash flows. Due to the $73.9 million impairment charge described
above, the Company's total assets and resulting percentage of such assets was
reduced.  On a Boe basis, general and administrative expenses were $2.59 per Boe
in the period ended September 30, 1999 and $1.42 per Boe in the period ended
September 30, 1998.

Interest expense remained relatively flat at $3.0 million for the three months
ended September 30, 1999 and 1998 even though the Company had higher average
balances outstanding in 1999.  Savings of $256,000 realized as an interest rate
swap accounted for the comparable result.

A refund of $465,000 on 1998 taxes was received in the third quarter of 1999.
The refund resulted from higher than anticipated dry hole and expired lease
charges in 1998.  No tax has been recorded in 1999 due to the adjustment to the
Company's tax valuation allowance for the current period's net income from
operations.

NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

Net loss for the nine months ended September 30, 1999 and 1998 was $1.2 million
or $0.08 per share, and $.3 million or $.02 per share,  respectively.  The
increased loss is due to lower oil and gas prices in the first quarter of 1999
and lower oil and gas production as compared to the nine months ended September
30, 1998.

Oil and gas revenues for the nine months ended September 30, 1999 were $43.8
million, as compared to $58.0 million for the respective period in 1998.  The
24% decrease in oil and gas revenues is partially due to lower oil and gas
prices in the first quarter.  Oil prices averaged $12.88 per barrel in the nine
month period ended September 30, 1999 as compared to $11.80 per barrel in the
comparable period of 1998.  Gas prices averaged $2.08 per mcf in the nine month
period ended September 30, 1999 as compared to $2.04 per mcf in the comparable
period of 1998. Oil and gas hedges in place in 1998 resulted in $2.8 million of
additional oil and gas revenues in the period ended September 30, 1998 while a
decrease in revenues of $4.2 million was reflected in the same period of 1999.

                                       17
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

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

Production volumes reflect weather and maintenance delays of six weeks in the
third quarter at the Company's Cove field.  In addition, the Company has
experienced production declines in the Ship Shoal complex, located in the Gulf
of Mexico.  The Company believes this decline can be improved significantly
going forward through an aggressive workover and drilling program in Ship Shoal
and in the Company's overall drilling portfolio.  Oil production was down 13%
compared to the same period of 1998 with 1,531,000 and 1,760,000 barrels for the
nine month periods ended September 30, 1999 and 1998, respectively.  Gas
production was down 19% compared to the same period of 1998 with 13,611 MMcf and
16,865 MMcf for the nine month periods ended September 30, 1999 and 1998,
respectively.

Net gas plant operating profit was $907,000 in the nine months ended September
30, 1999 and $918,000 in the same period of 1998.

Interest and other income increased from $.9 million at September 30, 1998 to
$1.4 million at September 30, 1999 primarily as a result of the receipt of take
or pay revenue contract settlements.

Production expenses for the nine months ended September 30, 1999 totaled $16.1
million, or 16% below the $19.2 million for the nine months September 30, 1998.
The decrease results from certain uneconomical properties being abandoned and
the declining production in the Gulf of Mexico properties mentioned above.  On a
Boe basis, production expenses of $4.22 per Boe for the nine months ended
September 30, 1999 were almost flat as compared to production expenses of $4.19
per Boe for the nine months ended September 30, 1998.  The decreased oil and gas
volumes mentioned above resulted in the increased production costs on an
equivalency basis.

Depreciation, depletion and amortization was $16.9 million for the nine months
ended September 30, 1999 and $25.6 million for the nine month period ended
September 30, 1998.  The decline resulted from the $73.9 million impairment
charge made at December 31, 1998 as well as decreased production volumes.
Depreciation, depletion and amortization  per Boe has declined from $5.42 per
Boe in 1998 to $4.19 per Boe in 1999.

General and administrative expenses totaled $6.2 million in the nine months
ended September 30, 1999 as compared to $6.6 million for the comparable period
of fiscal 1998.   A decrease in outsourcing costs from $3.2 million to $1.7
million, partially offset by approximately $1.7 million in severance costs due
to the Company's recent management change, was the major contribution to the
decline.   The Company is charged a management fee under its current outsourcing
contract which is based upon a specified percentage of the average book value of
the Company's total assets, excluding cash, plus a percentage of operating cash
flows. Due to the $73.9 million impairment charge described above, the Company's
total assets and resulting percentage of such assets was reduced.  Additionally,
the 1998 period included costs related to the closing of the Company's Dallas
exploration office in March 1998 and certain transition costs related to the
change of the Company's 1997 fiscal year.  On a Boe basis, general and
administrative expenses were $1.63 per Boe in the period ended September 30,
1999 and $1.45 per Boe in the period ended September 30, 1998.

                                       18
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

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

Interest expense remained relatively flat at $8.7 million for the nine months
ended September 30, 1999 and $8.9 million in the same period of 1998 even though
the Company had higher average balances outstanding in 1999.  Savings of
$713,000 realized as an interest rate swap partially accounted for the decline.

A refund of $465,000 on 1998 taxes was received in the third quarter of 1999.
The refund resulted from higher than anticipated dry hole and expired lease
charges in 1998.  No tax accrual has been made in 1999 because of an increase in
the Company's tax valuation allowance for the benefit for the current period's
net loss from operations.

MANAGEMENT CHANGES

On August 2, 1999, Mr. J. Darby Sere, previously Chairman and CEO, and Mr.
William C. Rankin, previously Senior Vice President and Chief Financial Officer,
left the Company to pursue other opportunities.  Director Mr. J.P. Bryan was
elected Chairman and CEO effective August 2, 1999.  Mr. Bryan is Senior Managing
Director of and a holder of Common Stock of the parent corporation of Torch
Energy Advisors, Inc. ("Torch").  Mr. Bryan has no involvement in the day to day
operations of Torch.  The Company is party to an administrative services
agreement with Torch, pursuant to which Torch performs certain administrative
functions for the Company, including financial, accounting, legal and technical
support.  In addition to electing J.P. Bryan Chairman and CEO, the Board of
Directors promoted Cliff M. West, Jr. and Robert J. Bensh to Senior Vice
President - Exploitation & Exploration and Senior Vice President - Finance,
respectively.

YEAR 2000 ISSUES

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

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

                                       19
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

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

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

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

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

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

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

CORPORATE SYSTEMS

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

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

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

                                       20
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

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

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

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

5. Test and Implement Solutions.  Torch has upgraded its accounting software and
   has achieved full Y2k compliance.  In addition, all network and desktop
   applications used by the Company have been inventoried and are generally Y2k
   compliant.  The costs of all such risk assessments and remediation are borne
   by Torch under the terms of Bellwether's outsourcing agreements.

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

FIELD SYSTEMS

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

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

                                       21
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

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

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

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

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

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


   The Company's cost of testing and upgrading its embedded chips was not
   material due to the number of components and the low cost of such components.
   In addition, if the Company is not successful and ultimately experiences Y2k
   related failures, the costs attributable to lost production, damages to
   facilities and environmental damages may be material. The effort to address
   the Y2k situation is dynamic and may likely not be fully completed by
   December 31, 1999.

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

                                       22
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

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

THIRD PARTY EXPOSURES

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

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

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

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

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

                                       23
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

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

5. Test and Implement Solutions.  Bellwether is continuing to contact third
   parties directly and research public documents to ascertain the level of Y2k
   compliance.

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

SUBSEQUENT EVENTS

During 1998, in connection with a possible transaction by the Company with
Carpatsky Petroleum Company ("Carpatsky"), the Company agreed to guarantee
$500,000 of indebtedness of Carpatsky to Torch.  The Carpatsky note to Torch
went into default in June 1998.  Under an agreement effective October 31, 1999,
Bellwether paid Torch $565,700 for the guaranty.  The Company received in
exchange 4.5 million shares of Carpatsky, with a current market value of
$550,000 and a warrant to acquire an additional 967,296 common shares.
Carpatsky is currently traded on the Alberta Stock Exchange and is subject to
normal market fluctuations.

FORWARD LOOKING STATEMENTS

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

                                       24
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The following tables detail the Company's hedges of future production which were
in place at September 30, 1999.

Oil Hedges
----------

<TABLE>
<CAPTION>
                                                                                        NYMEX          NYMEX
                                            BBLS                                        Price          Price
              Period                      per Day        Total BBLS        Type         Floor         Ceiling
              ------                    ------------   --------------   ----------   -----------   -------------
<S>                                     <C>            <C>              <C>          <C>           <C>
October 1999 to December 1999               2,000          184,000       Collar        $19.00          $23.70
January 2000 to March 2000                  2,000          182,000       Collar        $19.00          $21.75

Gas Hedges
----------
                                                                                        NYMEX          NYMEX
                                           MMBTU           Total                        Price          Price
              Period                      per Day          MMBTU           Type         Floor         Ceiling
              ------                    ------------   --------------   ----------   -----------   -------------
October 1999                               30,000          930,000       Collar        $ 2.20          $ 2.61
November 1999 to March 2000                15,000        2,280,000       Collar        $ 2.40          $ 3.10
November 1999 to March 2000                15,000        2,280,000       Collar*       $ 3.00          $ 3.55
April 2000 to October 2000                 15,000        3,210,000       Collar        $ 2.30          $ 2.87
November 2000 to December 2000             20,000        1,220,000       Collar        $ 2.40          $ 3.40
April 2001 to October 2001                 20,000        4,280,000       Collar        $ 2.40          $ 2.95

</TABLE>

  The fair value at September 30, 1999 of these agreements was a gain of
$13,000. A 10% increase in prices would result in a change in fair value of
approximately $1.2 million while a decrease in prices would result in a change
in fair value of approximately $1 million.

-------------
* This agreement includes a put at $2.40 per mcf.



                                       25
<PAGE>

                         BELLWETHER EXPLORATION COMPANY

                          PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

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

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

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

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

                                       26
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

                    PART II.  OTHER INFORMATION (CONTINUED)

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


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

              None.

                                       27
<PAGE>

                        BELLWETHER EXPLORATION COMPANY

                    PART II.  OTHER INFORMATION (CONTINUED)


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

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

                    10.18  Employment Contract dated August 1, 1999 between the
                           Company and J.P. Bryan - Included herewith
                    21.1   Subsidiaries of Bellwether Exploration Company -
                           Included herewith
                    27     Financial Data Schedule - Included herewith

          b.  Reports on Form 8-K.

                  On September 30, 1999 an 8-K was filed announcing the election
                  of J.P. Bryan as Chairman of the Board and CEO, as well as
                  announcing the promotion of Cliff M. West, Jr. to Senior Vice
                  President - Exploitation and Exploration and Robert J. Bensh
                  to Senior Vice President - Finance.

                                       28
<PAGE>

                                   SIGNATURES

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

                                     BELLWETHER EXPLORATION COMPANY
                                             (Registrant)


Date:    November 12, 1999           By:   /s/ J.P. Bryan
      ------------------------             ------------------------------------
                                           J.P. Bryan
                                           Chairman and Chief Executive Officer


Date:    November 12, 1999           By:   /s/ Robert J. Bensh
      ------------------------             ------------------------------------
                                           Robert J. Bensh
                                           Chief Financial Officer

                                       29