PATINA OIL & GAS CORP, 424B1, 1997-10-17

PATINA OIL & GAS CORP
424B1, 1997-10-17
CRUDE PETROLEUM & NATURAL GAS

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<PAGE> 1
As Filed Pursuant to Rule 424(b)(1)
Registration No. 333-32671

PROSPECTUS
10,000,000 SHARES
PATINA OIL & GAS CORPORATION
COMMON STOCK
------------------

All of the shares of Common Stock, $.01 par value (the "Common Stock"), of
Patina Oil & Gas Corporation (the "Company" or "Patina") offered hereby are
being sold by Snyder Oil Corporation ("SOCO"). Accordingly, the Company will not
receive any proceeds from the sale of the shares offered hereby. See "Selling
Stockholder."

Concurrently with the sale of the shares of Common Stock offered hereby
(the "Offering"), the Company intends to (i) sell in private transactions
1,600,000 shares of its 8.5% Convertible Preferred Stock (the "New Preferred
Stock") to a limited number of investors for an aggregate purchase price of
$40.0 million, (ii) sell shares of Common Stock having an aggregate purchase
price of $3.0 million, at a price per share equal to the per share "Price to
Public" set forth below (the "Public Offering Price"), to certain members of
management of the Company and (iii) use the proceeds from such sales to purchase
the balance of the Common Stock owned by SOCO at a price equal to the per share
"Proceeds to SOCO" set forth below (the "Net Offering Price"). Such transactions
are herein collectively referred to as the "Concurrent Transactions" and,
together with the Offering, as the "Transactions." The consummation of the
Offering is contingent upon the consummation of certain of the Concurrent
Transactions. See "Concurrent Transactions."

The Common Stock is traded on the New York Stock Exchange under the symbol
"POG." The last reported sale price of the Common Stock on the New York Stock
Exchange on October 15, 1997 was $10.25 per share. See "Price Range of Common
Stock."

SEE "RISK FACTORS", BEGINNING ON PAGE 10, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------

<TABLE>
<CAPTION>
======================================================================================================
underwriting
discounts proceeds to
price to public and commissions(1) soco(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $9.875 $0.543 $9.332
- ------------------------------------------------------------------------------------------------------
Total(3) $98,750,000 $5,430,000 $93,320,000
======================================================================================================
</TABLE>

(1) For information regarding indemnification of the Underwriters, see
"Underwriting."

(2) Before deducting expenses estimated to be approximately $1.4 million payable
by the Company.

(3) SOCO has granted the Underwriters a 30-day option to purchase up to
1,500,000 additional shares of Common Stock solely to cover overallotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to SOCO will be
$113,562,500, $6,244,500 and $107,318,000, respectively. See "Underwriting."
------------------

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
October 21, 1997, at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
------------------

SMITH BARNEY INC. MORGAN STANLEY DEAN WITTER
A.G. EDWARDS & SONS, INC.
JEFFERIES & COMPANY, INC.
PAINEWEBBER INCORPORATED

October 15, 1997
<PAGE> 2

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE> 3

PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified
by, the more detailed information appearing elsewhere in this Prospectus or
incorporated herein by reference. Unless the context suggests otherwise, (i)
Patina or the Company refers to Patina Oil & Gas Corporation and its
subsidiaries and (ii) Predecessors refers to Snyder Oil Corporation's Wattenberg
field operations and Gerrity Oil & Gas Corporation. The terms defined in the
Glossary have the meanings provided therein. Unless otherwise indicated, the
information in this Prospectus assumes no exercise of the Underwriters'
overallotment option.

THE COMPANY

GENERAL

Patina Oil & Gas Corporation (the "Company" or "Patina") is an independent
energy company engaged in the acquisition, development, exploitation and
production of oil and natural gas in the Wattenberg field ("Wattenberg") of
Colorado's Denver-Julesburg Basin (the "D-J Basin"). The Company was formed in
early 1996 to hold the Wattenberg assets of Snyder Oil Corporation ("SOCO") and
to facilitate the acquisition of Gerrity Oil & Gas Corporation (the "Gerrity
Acquisition"). Thomas J. Edelman structured and negotiated the Gerrity
Acquisition and has served as the Company's chief executive from its inception.
Since the Gerrity Acquisition in May 1996, the Company has focused its efforts
on consolidating its properties, developing a focused and efficient
organization, reducing costs and improving operations. From May 1996 through
June 30, 1997, the Company used operating cash flow to reduce indebtedness by
over $40 million and repurchase $14.4 million of its equity securities, while
investing $15.5 million in the further development of its properties.

SOCO has been the Company's major stockholder since its formation and
currently owns 74% of Patina's Common Stock. For strategic reasons, SOCO has
decided to liquidate its stake in Patina and redeploy the proceeds in its core
business. Pursuant to the Transactions described in this Prospectus, SOCO's
ownership in the Company will be eliminated and the Company will be positioned
to pursue an independent growth strategy.

At December 31, 1996, the Company had total assets of $430.2 million and
431.5 Bcfe of proved reserves. The reserves had an estimated pretax present
value of $649 million based on unescalated prices and costs in effect on that
date. Approximately 70% of the reserves by volume were natural gas and over 90%
of the pretax present value was attributable to proved developed reserves.
Average oil and natural gas prices for the six months ended June 30, 1997 have
declined 19% and 36%, respectively, from 1996 year-end prices. Equivalent
reserves and pretax present value would have been approximately 397 Bcfe and
$343 million, respectively, at 1996 year-end, assuming constant wellhead prices
of $20.00 per barrel of oil and $2.00 per Mcf of gas. The Company operates
almost 90% of the roughly 3,550 producing wells in which it holds an interest,
representing 98% of its producing reserves. In the year ended December 31, 1996,
the Company generated revenues of $83.2 million, net income of $3.6 million and
net cash provided by operations of $53.0 million. During that period, production
averaged 93.1 MMcfe per day. During the six months ended June 30, 1997, the
Company generated revenues of $52.3 million, net income of $7.1 million and net
cash provided by operations of $33.5 million, with average production of 108.3
MMcfe per day. Based on pro forma production for 1996 and year-end 1996
reserves, the Company has a reserve life index of 10.3 years.

Since 1986, the Company and its Predecessors have grown through a series of
acquisitions in combination with the further exploitation and development of its
properties. Mr. Edelman and certain other members of Patina's management have
extensive experience in structuring and negotiating acquisitions as well as
managing large scale and cost efficient operations. During the past ten years,
the Company and its Predecessors have completed more than 65 acquisitions having
an aggregate purchase price of over $450 million and during the past five years,
have expended more than $400 million on development projects including the
drilling of over 1,500 wells and the recompletion of more than 400 wells.
Management believes that the Company's sizable asset base and cash flow, along
with its low production costs and efficient operating structure, provide it with
a competitive advantage in Wattenberg and in certain analogous basins. Given
management's expertise in acquisitions and the advantages set forth above, the
Company believes it will be in

3
<PAGE> 4

an excellent position after the Transactions described herein to pursue further
consolidation in Wattenberg and to acquire positions in other basins where it
has or can develop a competitive advantage.

To ensure that management has a significant stake in the Company's success,
all of the Company's executive officers and certain of its key employees have
collectively committed to purchase $3.0 million of the Company's Common Stock at
the Public Offering Price. In addition, these same individuals (other than Mr.
Edelman) will be awarded 150,000 shares of restricted Common Stock in order to
induce these individuals to invest in the Company through their purchase of $1.0
million of Common Stock and to enhance their interest in the Company's future
success. The Company has also agreed to grant to Mr. Edelman 350,000 shares of
restricted Common Stock in consideration for his efforts in structuring and
arranging the private placement of the New Preferred Stock. The ownership of
these shares will vest in equal increments over a period of five years.
Simultaneously, several sizable institutional investors possessing substantial
experience and an ongoing interest in investing in the energy business, as well
as several individuals, have committed to invest up to $63.0 million in the
Company's New Preferred Stock. Immediately following the Offering, the Company
anticipates using the proceeds from management's stock purchase, together with
proceeds from the sale of the New Preferred Stock and bank borrowings, if
necessary, to repurchase the balance of the Company's Common Stock owned by SOCO
after the Offering.

BUSINESS STRATEGY

The Company plans to increase its reserves, production and cash flow in a
cost-efficient manner, primarily through: (i) selectively pursuing consolidation
and acquisition opportunities in existing and future core areas; (ii)
efficiently controlling operating and overhead expenses; (iii) operating its
properties in order to enhance production through well workovers, development
activity and operational improvements; (iv) utilizing improved exploitation and
development techniques to maximize the value of its properties; and (v)
developing a strong financial position that affords the Company the financial
flexibility to execute its business strategy.

The Company intends to pursue further consolidation and exploitation
opportunities in Wattenberg where it is currently the largest producer,
accounting for over 30% of total annual production from the field. In addition,
management intends to simultaneously pursue low-risk acquisitions of producing
reserves in other Western U.S. basins where the Company can leverage its
operating efficiencies and pursue consolidation opportunities. Management
believes that the Company's economies of scale, focused operations and operating
expertise give it a competitive advantage in pursuing further consolidation and
acquisition opportunities. See "Business -- Business Strategy."

4
<PAGE> 5

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by SOCO.......................... 10,000,000 shares
Common Stock to be outstanding after the Offering
without giving effect to the Concurrent
Transactions........................................ 18,820,248 shares(a)
Common Stock to be outstanding after the
Transactions........................................ 15,854,045 shares(b)
Use of Proceeds....................................... The Company will not receive any of
the proceeds from the Offering. See
"Use of Proceeds" and "Concurrent
Transactions."
Conditions to the Offering............................ The consummation of the Offering is
conditioned upon the concurrent
consummation of certain of the
Concurrent Transactions.
New York Stock Exchange symbol........................ POG
</TABLE>

- ---------------
(a) Excludes: (i) 4,262,271 shares issuable upon the conversion of outstanding
shares of the Company's presently outstanding shares of 7.125% Preferred
Stock (the "Old Preferred Stock") (having a conversion price of $8.61 per
share); (ii) 2,919,451 shares issuable upon exercise of outstanding warrants
(having an exercise price of $12.50 per share); and (iii) 788,960 shares
issuable upon exercise of outstanding stock options (having a weighted
average exercise price of $8.30 per share). See "Description of Capital
Stock -- Preferred Stock" and " -- Warrants" and "Management -- Stock Option
Plan."

(b) Reflects the shares of Common Stock to be outstanding after the Offering,
adjusted for the Concurrent Transactions, including: (i) 3,930,000 shares
purchased by the Company in the Repurchase (as defined below); (ii) 303,797
shares purchased by the Management Investors (as defined below) (at a price
of $9.875 per share); (iii) 500,000 shares awarded to the Management
Investors; and (iv) 160,000 shares issued by the Company to the New
Preferred Stock Investors (as defined below). Excludes 4,210,526 shares
issuable upon conversion of the New Preferred Stock (in conjunction with the
issuance of 1,600,000 shares of New Preferred Stock having a conversion
price of $9.50 per share). See "Description of Capital Stock -- Preferred
Stock" and "Management -- Management Equity Participation Program".

THE CONCURRENT TRANSACTIONS

SOCO currently owns 14,000,000 shares (or approximately 74%) of the
Company's Common Stock. Concurrently with the sale of shares of Common Stock
offered hereby, the Company will repurchase the remaining shares of Common Stock
held by SOCO after the Offering at a price per share equal to the Net Offering
Price (the "Repurchase"). The Transactions are intended to establish the Company
as an independent entity and to provide it with the financial and operational
flexibility necessary to execute its business strategy. The Concurrent
Transactions consist of: (a) the sale by the Company of $40.0 million of its New
Preferred Stock, which will have an annual dividend of 8.5% and a liquidation
preference of $25.00 per share, to a limited number of investors (none of whom
is presently an affiliate of the Company), including First Reserve Fund VII,
Limited Partnership, Chase Venture Capital Associates, L.P. and Highbridge
International LDC (collectively, the "New Preferred Stock Investors"); (b) the
sale by the Company to Mr. Edelman and other members of management
(collectively, the "Management Investors") of $3.0 million of Common Stock at a
purchase price per share equal to the Public Offering Price; and (c) the
Repurchase, using the proceeds from the sales of the New Preferred Stock and
Common Stock described above. The Repurchase will cost approximately $36.7
million. Consummation of the Offering is contingent upon, among other things,
the consummation of the sale of shares of Common Stock to the Management
Investors and the Repurchase.

5
<PAGE> 6

At the time of the sale of the shares of New Preferred Stock, the Company
will also issue 160,000 shares of Common Stock to the New Preferred Stock
Investors as a part of the purchase of the New Preferred Stock and SOCO will
transfer 70,000 shares of Common Stock to the New Preferred Stock Investors or
their designated affiliates. The Company has also agreed to award the Management
Investors (other than Mr. Edelman) 150,000 shares of restricted Common Stock in
order to induce these individuals to invest in the Company through their
purchase of $1.0 million of Common Stock and to enhance their interest in the
Company's future success. The Company has also agreed to grant to Mr. Edelman
350,000 shares of restricted Common Stock in consideration for his efforts in
structuring and arranging the private placement of the New Preferred Stock. The
ownership of these shares will vest in equal increments over a period of five
years. For a description of the financial accounting for the 160,000 shares of
Common Stock to be issued to the New Preferred Stock Investors and the 500,000
shares of Common Stock to be issued to the Management Investors, see clauses (a)
and (d) under "Balance Sheet" in the Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements.

For more information regarding these transactions, see "Concurrent
Transactions," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition and Capital Resources,"
"Description of Capital Stock -- Preferred Stock -- New Preferred Stock,"
"Management -- Management Equity Participation Program."

The following table sets forth the anticipated sources and uses of funds
applicable to the Company in connection with the consummation of the Concurrent
Transactions:

<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
SOURCES OF FUNDS:
Sale of New Preferred Stock........................... $40.0(a)
Sale of Common Stock to the Management Investors...... 3.0(b)
-----------
Total......................................... $43.0
========
USES OF FUNDS:
Repurchase the balance of Common Stock held by SOCO... $36.7
Reduction of bank debt................................ 4.0
Expenses payable by the Company....................... 1.4
Loans to the Management Investors..................... 0.9(b)
-----------
Total......................................... $43.0
========
</TABLE>

- ---------------

(a) Reflects 1,600,000 shares of New Preferred Stock sold to the New Preferred
Stock Investors at a price per share of $25.00.

(b) The Management Investors will purchase $3.0 million of Common Stock at the
Public Offering Price, of which $850,000 will be funded with loans from the
Company. See "Management -- Management Equity Participation Program."

RISK FACTORS

There are a number of risks associated with an investment in the Company's
Common Stock, including: (i) risks related to the Company (such as acquisition
risks, dependence on key personnel and the replacement of reserves and
production decline); (ii) risks related to the oil and gas industry generally
(such as the volatility of oil and natural gas prices, operating risks of oil
and natural gas operations and the uncertainty of reserve estimates); and (iii)
risks associated with the Transactions (such as the shares eligible for future
sale, the absence of dividends, the consummation of the Repurchase and the
preferences of the New Preferred Stock). See "Risk Factors."

6
<PAGE> 7

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(In thousands except per share data)

The following tables present summary historical and pro forma financial and
operating data of the Company and have been derived from the Consolidated
Financial Statements and Unaudited Pro Forma Condensed Consolidated Financial
Statements included elsewhere within this Prospectus and should be read in
conjunction with those statements and the notes thereto. The amounts and results
of operations of the Company for periods prior to the Gerrity Acquisition
include the historical amounts and results of SOCO's Wattenberg operations.
Neither the historical data nor the pro forma data is necessarily indicative of
the results to be expected after the Transactions. This information should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------- SIX MONTHS ENDED JUNE 30,
PRO FORMA --------------------------------
AS ADJUSTED AS ADJUSTED
1994 1995 1996 1996(a)(b) 1996 1997 1997(b)
-------- -------- -------- ----------- ------- -------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.......................... $ 67,822 $ 50,102 $ 83,188 $ 100,138 $30,110 $ 52,340 $52,340
Expenses
Direct operating................ 8,110 8,867 14,519 17,718 5,401 9,322 9,322
Exploration..................... 784 416 224 658 149 62 62
General and administrative...... 7,484 5,974 6,151 8,782 3,113 2,611 3,783
Interest and other.............. 3,869 5,476 14,304 18,916 4,979 8,485 8,344
Depletion, depreciation and
amortization.................. 43,036 32,591 44,822 51,663 18,723 24,776 24,776
-------- -------- -------- -------- ------- -------- -------
Total expenses........... 63,283 53,324 80,020 97,737 32,365 45,256 46,287
-------- -------- -------- -------- ------- -------- -------
Income (loss) before taxes........ 4,539 (3,222) 3,168 2,401 (2,255) 7,084 6,053
Provision (benefit) for income
taxes........................... 1,589 (1,128) (394) -- (394) -- --
-------- -------- -------- -------- ------- -------- -------
Net income (loss)................. $ 2,950 $ (2,094) $ 3,562 $ 2,401 $(1,861) $ 7,084 $ 6,053
======== ======== ======== ======== ======= ======== =======
Net income (loss) per common
share........................... $ 0.21 $ (0.15) $ 0.08 $ (0.31) $ (0.16) $ 0.30 $ 0.15
======== ======== ======== ======== ======= ======== =======
Weighted average shares
outstanding..................... 14,000 14,000 17,796 16,821 15,959 18,921 15,955
======== ======== ======== ======== ======= ======== =======

CASH FLOW DATA
Net cash provided by operations... $ 47,690 $ 18,407 $ 52,996 N/A $14,968 $ 33,481 N/A
Net cash used by investing........ (96,378) (21,060) (9,796) N/A (2,415) (8,348) N/A
Net cash realized (used) by
financing....................... 46,688 2,653 (38,047) N/A (340) (20,718) N/A

OTHER FINANCIAL DATA
EBITDA(c)......................... $ 51,444 $ 34,778 $ 62,265 $ 74,382 $21,390 $ 40,266 $39,499
Capital expenditures(d)........... (95,596) (21,842) (8,532) (12,821) (1,375) (8,348) (8,348)
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
AS OF DECEMBER 31, ------------------------
---------------------------------- AS
1994 1995 1996 ACTUAL ADJUSTED(b)
-------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital.......................... $(12,755) $ -- $ 1,015 $ 1,881 $ 1,881
Oil and natural gas properties, net...... 234,821 214,594 398,640 381,016 381,016
Total assets............................. 246,686 224,521 430,233 413,517 413,517
Long-term debt........................... 79,333 75,000 197,594 182,685 178,647
Stockholders' equity..................... 115,846 113,663 196,236 197,542 201,580
</TABLE>

- ---------------
(a) Pro forma to give effect to the Gerrity Acquisition as if it had occurred on
the first day of the period presented.

7
<PAGE> 8

(b) As adjusted to give effect to the Transactions (assuming the purchase by the
Management Investors of 303,797 shares of Common Stock at the Public
Offering Price, the issuance by the Company of $40.0 million of New
Preferred Stock and the repurchase by the Company of 3,930,000 shares of
Common Stock from SOCO at a Net Offering Price of $9.332 per share), as if
each had occurred on the first day of the period presented, in the case of
Statement of Operations Data and Other Financial Data, or as if each had
occurred on the date presented, in the case of Balance Sheet Data.

(c) EBITDA represents net income (loss) plus income taxes, interest expense and
depletion, depreciation and amortization expense. EBITDA does not represent,
and should not be considered as, an alternative to net income or cash flows
from operating activities, each as determined in accordance with generally
accepted accounting principles ("GAAP"). Moreover, EBITDA does not
necessarily indicate whether cash flow will be sufficient for such items as
working capital or capital expenditures, or to react to changes to the
Company's industry or to the economy generally. The Company believes that
EBITDA is a measure commonly used by lenders and certain investors to
evaluate oil and gas companies. The Company also believes that EBITDA data
may help to understand the Company's performance because such data may
reflect the Company's ability to generate cash flows, which is an indicator
of its ability to satisfy its debt service, capital expenditure and working
capital requirements. In evaluating EBITDA, historical net cash provided
from operations, capital expenditures and debt service requirements should
be considered. EBITDA may not be comparable to other similarly titled
measures of other companies. The Company's Credit Agreement requires the
maintenance of certain EBITDA ratios. See "Description of Certain
Indebtedness -- Credit Agreement."

(d) Capital expenditures do not include $218.4 million of non-cash acquisitions
in 1996.

8
<PAGE> 9

SUMMARY OPERATING DATA

The following table sets forth certain summary operating data for the
Company.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------------------------- JUNE 30,
PRO FORMA -------------------
1994 1995 1996 1996 1996 1997
------ ------ ------- ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
AVERAGE DAILY PRODUCTION
Oil (Bbl).................... 5,011 3,677 4,612 5,786 3,809 5,442
Natural gas (Mcf)............ 65,460 57,482 65,429 79,241 56,640 75,624
Total Mcfe................... 95,526 79,544 93,101 113,957 79,494 108,275
AVERAGE PRICES
Oil (Bbl).................... $14.84 $16.43 $20.47 $20.21 $19.55 $20.29
Natural gas (Mcf)............ 1.70 1.34 1.99 1.93 1.58 2.35
Mcfe......................... 1.94 1.73 2.41 2.37 2.06 2.66
PER MCFE DATA
Revenues..................... $ 1.94 $ 1.73 $ 2.41 $ 2.37 $ 2.06 $ 2.66
Lease operating expenses..... 0.10 0.19 0.26 0.26 0.23 0.30
Production taxes............. 0.13 0.12 0.17 0.17 0.14 0.18
General and administrative
expenses.................. 0.22 0.21 0.18 0.21 0.22 0.13
------ ------ ------ ------ ------ ------
Operating margin............. $1.49 $1.21 $1.80 $1.73 $1.47 $2.05
====== ====== ====== ====== ====== ======
RESERVE LIFE INDEX(years)(a)... 7.2 6.3 12.7 10.3 N/A N/A
</TABLE>

- ---------------
(a) The reserve life index is calculated as proved reserves divided by annual or
pro forma production for the relevant period.

SUMMARY RESERVE DATA

The following table summarizes the Company's net proved developed and
undeveloped reserves as of December 31, 1996, based upon a report prepared by
Netherland, Sewell & Associates, Inc. The quantities and values are based on
wellhead prices at December 31, 1996, which averaged $25.20 per barrel of oil
and $3.70 per Mcf of gas.

<TABLE>
<CAPTION>
PROVED RESERVES(a)
--------------------------------------
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- ----------
<S> <C> <C> <C>
Oil (MBbl)................................................. 15,799 6,676 22,475
Natural gas (MMcf)......................................... 242,777 53,882 296,659
Total Proved Reserves (MMcfe).............................. 337,572 93,938 431,509
Future net cash flow before income taxes (in thousands).... $ 980,264 $ 188,603 $1,168,867
Pretax present value (in thousands)........................ $ 582,408 $ 66,389 $ 648,797
</TABLE>

- ---------------
(a) Oil and natural gas prices in effect at December 31, 1996 were significantly
higher than current prices. Equivalent reserves and pretax present value
would be approximately 397,000 MMcfe and $343 million, respectively,
assuming constant wellhead prices of $20.00 per barrel of oil and $2.00 per
Mcf of gas.

9
<PAGE> 10

RISK FACTORS

COMPANY RISKS

Acquisition Risks

The Company's growth has been attributable in significant part to
acquisitions. The Company expects to continue to evaluate and, where
appropriate, pursue acquisition opportunities on terms management considers
satisfactory. There can be no assurance that suitable acquisitions will be
identified in the future or that the Company will be able to finance such
acquisitions on favorable terms. In connection with consummating any significant
future acquisitions, the Company will require additional debt or equity
financing, which may not be available or, if available, may not be on terms that
are acceptable to the Company. In addition, the Company competes against other
companies for acquisitions, and there can be no assurance that the Company will
be successful in the acquisition of any material property interests.
Furthermore, there can be no assurance that any future acquisitions made by the
Company will be integrated successfully into the Company's operations or will
achieve desired rates of return.

Successful acquisitions require an assessment of recoverable reserves,
exploration potential, future oil and natural gas prices, operating costs, as
well as environmental and other risks beyond the Company's control. In
connection with such assessments, the Company performs a review of the subject
properties that it believes to be generally consistent with industry practices.
Nonetheless, the resulting assessments are necessarily inexact and their
accuracy inherently uncertain, and such a review may not reveal all existing or
potential problems, nor will it necessarily permit the Company to become
sufficiently familiar with the properties to fully assess their merits and
efficiencies. Inspections may not always be performed on every well, and
structural and environmental problems are not necessarily observable even when
an inspection is undertaken.

Significant acquisitions can change the nature of the operations and
business of the Company depending upon the character of the acquired properties,
which may be substantially different in operating and geologic characteristics
or geographic location from existing properties.

Dependence on Key Personnel

The continued growth of the Company depends, and will continue to depend in
the foreseeable future, on the services of its officers and key employees who
have extensive experience and expertise in evaluating and analyzing potential
acquisitions and managing the Company's oil and natural gas properties,
including Mr. Edelman, the Company's Chairman, President and Chief Executive
Officer. The Company has a three-year employment agreement with Mr. Edelman,
pursuant to which Mr. Edelman will commit a substantial portion of his working
time to the Company and the business of the Company will represent his primary
responsibility. Under the terms of this employment agreement, however, he may
continue to engage in outside business activities at substantially current
levels. The Company does not have employment agreements with any of its officers
or key employees, other than Mr. Edelman. The ability of the Company to retain
its officers and key employees is important to the continued success and growth
of the Company. The loss of Mr. Edelman would, and the loss of other key
personnel could, have a material adverse effect on the Company's future growth
prospects. The Company does not maintain key man life insurance on any of its
employees. See "Management."

Replacement of Reserves and Production Decline

In general, the volume of production from oil and natural gas properties
declines as reserves are depleted. A typical Wattenberg Codell/Niobrara well
produces at the highest rates in the first six to twelve months, during which
production declines significantly from initial rates. More than half of a
typical well's reserves are recovered in the first three-to-five years of
production. Absent the Gerrity Acquisition, production from the Company's
properties would have declined in 1996 and, in view of the limited drilling and
development activity expected in 1997, production is expected to decline further
in 1997. Management believes that production will continue to decline thereafter
unless capital expenditures are increased above currently projected levels.
Except to the extent the Company acquires properties containing proved reserves
or conducts

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<PAGE> 11

successful development activities, its proved reserves will decline as reserves
are produced. The Company's future oil and natural gas production is, therefore,
highly dependent upon its level of success in finding or acquiring additional
reserves. The business of acquiring or developing reserves is capital intensive.
To the extent cash flow from operations is reduced and external sources of
capital become limited or unavailable, the Company's ability to make the
necessary capital investment to maintain or expand its asset base of oil and
natural gas reserves would be impaired. In addition, there can be no assurance
that its future development, acquisition and exploration activities will result
in additional proved reserves or that the Company will be able to drill
productive wells at acceptable costs.

Geographic Concentration of Operations

All of the Company's operations are currently located in Wattenberg.
Because of this geographic concentration, any regional events that increase
costs, reduce availability of equipment or supplies, reduce demand or limit
production, including weather and natural disasters, may impact it more than if
its operations were more geographically diversified. The Company's natural gas
production is transported on local pipeline systems for processing at several
local processing plants. While the Company expects to have flexibility to
mitigate the effects of pipeline curtailments or plant shut-downs, curtailment
of a significant portion of a pipeline or a prolonged shut-down at a major
processing plant could adversely affect its operations, perhaps materially.

Effects of Leverage

Giving effect to the Transactions as if they had occurred on June 30, 1997,
the Company's outstanding indebtedness on that date would have been $178.6
million and its ratio of total debt-to-total capitalization would have been 47%.
Such indebtedness does not include the Company's dividend obligations with
respect to the New Preferred Stock or the Old Preferred Stock. As a result of,
and after giving effect to, the Transactions (assuming that 10,000,000 shares of
Common Stock are sold in the Offering and that $40.0 million of New Preferred
Stock is issued), (i) the Company will have reduced outstanding indebtedness by
$4.0 million and (ii) following the expiration of the two-year pay-in-kind
period for the New Preferred Stock, cash dividends in the amount of $4.0 million
per year in the aggregate (which will have increased from an initial dividend
rate of $3.4 million per year as a result of the pay-in-kind feature of the New
Preferred Stock) will accrue on the New Preferred Stock ($6.3 million per year
if all $63.0 million of New Preferred Stock is issued). The Company's level of
indebtedness will have several important effects on its future operations.
First, a significant portion of the Company's cash flow from operations must be
dedicated to the payment of interest on its indebtedness and will not be
available for other purposes. The Company expects that its 1997 interest expense
will approximate $16.0 million, which amount is expected to gradually decrease
for the next two years thereafter, subject to the Company's future acquisition
activity. Second, covenants contained in the Company's debt obligations (which
covenants are described herein under "Description of Certain Indebtedness") will
require the Company to meet certain financial tests and may limit its ability to
borrow additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in its businesses,
including possible acquisition activities. The Company is not currently
restricted in its ability to borrow funds as a result of these restrictive
covenants, but the Company's ability to pay dividends is restricted by such
restrictive covenants (subject to certain exceptions). Third, the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes
may be impaired. The Company's ability to meet its debt service obligations and
to reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to oil and natural gas prices, the Company's
level of production, general economic conditions and financial, business and
other factors affecting the operations of the Company, many of which are beyond
its control. There can be no assurance that the Company's future performance
will not be adversely affected by some or all of these factors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

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<PAGE> 12

Hedging Risks

From time to time, the Company hedges a portion of its physical oil and
natural gas production utilizing a variety of instruments, including fixed price
swaps and options and exchange-traded futures contracts and options thereon. The
Company's hedging activities, while intended to reduce the Company's sensitivity
to changes in market prices of oil and natural gas, are subject to a number of
risks including instances in which: (i) production is less than expected; (ii)
there is a widening of price differentials between delivery points required by
fixed price delivery contracts, to the extent they differ from those of the
Company's production; or (iii) the Company's customers or the counterparties
fail to purchase or deliver the contracted quantities of oil or natural gas.
Additionally, fixed price sales and hedging contracts limit the benefits the
Company will realize if actual prices rise above the hedging contract prices.
The Company currently has approximately 40% of its projected natural gas
production and approximately 67% of its projected oil production hedged in
September 1997 and approximately 15% of its projected gas production hedged in
October and November 1997. In the future, the Company may increase the
percentage of its production covered by hedging arrangements. Pursuant to the
terms of the Company's Credit Agreement, dated as of April 1, 1997 (the "Credit
Agreement"), the Company is permitted to hedge up to 75% of its anticipated oil
and natural gas production for the duration of the relevant hedge contracts.

Influence of New Preferred Stock Investors

Subject to the terms and conditions of the Preferred Stock Purchase
Agreement, the nine New Preferred Stock Investors have severally, but not
jointly, committed to purchase in the aggregate a minimum of $40.0 million and a
maximum of $63.0 million of New Preferred Stock, with First Reserve Fund VII,
Limited Partnership, Chase Venture Capital Associates, L.P. and Highbridge
International LDC having commitments of up to $32.5 million, $22.5 million and
$4.75 million, respectively. None of the other New Preferred Stock Investors'
commitments exceeds $2.5 million. Holders of the New Preferred Stock will have
(assuming that 2,520,000 shares of New Preferred Stock are issued and are
convertible at $9.50 per share and that no currently outstanding warrants or
options have been exercised) up to approximately 31% of the votes entitled to be
cast on most matters submitted to shareholders for a vote. In addition, the two
holders of the New Preferred Stock holding the most shares of New Preferred
Stock will each be entitled to designate one member of the Board of Directors.
As a result, the holders of the New Preferred Stock will have significant
influence over the business, policies and affairs of the Company and will have a
significant effect on the outcome of any corporate transaction or other matters
submitted to the stockholders for approval such as: (i) any amendment to the
Company's Certificate of Incorporation (the "Certificate of Incorporation"),
including the authorization of additional shares of capital stock; (ii) any
merger, consolidation or sale of all or substantially all of the assets of the
Company; and (iii) any "going private" transaction, and prevent or cause a
change of control of the Company, all of which may adversely affect the Company
and the interests of its other stockholders.

Continued Reliance on SOCO

At the time of the sale of the shares of Common Stock offered hereby, the
Company will enter into an agreement (the "Transition Agreement") with SOCO
whereby SOCO will agree to provide the Company with certain computer and
administrative services for a period of up to one year. The breach or
termination of the Transition Agreement by SOCO could have an adverse effect on
the Company's business, operations or financial condition. There can be no
assurance that the Company would be able to arrange an alternative source of
such services provided under the Transition Agreement upon comparable terms.

Conflicting Business Interests of Chief Executive Officer

Mr. Edelman, the Chief Executive Officer of the Company, has served since
1988 and expects to continue to serve as Chairman of Lomak Petroleum, Inc.
("Lomak"), a publicly traded oil and gas company whose principal areas of
operation are the Midcontinent, Appalachian and Gulf Coast regions of the United
States. The Company currently has no business relationships with Lomak, and
Lomak does not own any of the Company's securities. In addition, the Company has
not and currently does not compete, and, although no

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<PAGE> 13

assurances can be given, in the future does not expect to compete with Lomak,
including any competition in respect of acquisition opportunities. Although the
Company does not believe that any conflicts have arisen, or are likely to arise,
as a result of Mr. Edelman's position with Lomak, because of Mr. Edelman's
position with Lomak, or other positions or business interests that he may now or
hereafter have or acquire, conflicts of interests may arise between them. See
"Management -- Edelman Employment Agreement and Related Matters." In the past,
with respect to new business proposals, including acquisitions, the Company and
Mr. Edelman have employed the following procedures to resolve any conflicts: (i)
if such proposals were directed to or originated by Lomak or its employees, such
proposals were deemed to be for Lomak's benefit; and (ii) if such proposals were
directed to or originated by the Company or its employees, or if such proposals
were not specifically identified for either company or its employees, such
proposals were deemed to be for the Company's benefit. Mr. Edelman and the
Company plan to continue the foregoing procedures to resolve any future
conflicts that may arise.

INDUSTRY RISKS

Volatility of Oil and Natural Gas Prices

Historically, the markets for oil and natural gas have been volatile,
particularly in the Rocky Mountain region, and are likely to continue to be
volatile in the future. During the past five years, average oil and natural gas
prices have ranged from $14.84 per barrel to $20.47 per barrel for oil, and from
$1.34 per Mcf to $2.08 per Mcf for natural gas. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Inflation and
Changes in Prices." Prices for oil and natural gas are subject to wide
fluctuation in response to relatively minor changes in the supply of and demand
for oil and natural gas, market uncertainty and a variety of additional factors
that will be beyond the control of the Company. These factors include the level
of consumer product demand, weather conditions, proximity and capacity of
natural gas pipelines and other transportation facilities, domestic and foreign
governmental regulations, the price and availability of alternative fuels,
political conditions in the Middle East, the foreign supply of oil and natural
gas, the price of foreign imports and overall economic conditions. It is
impossible to predict future oil and natural gas price movements with any
certainty. Declines in oil and natural gas prices may adversely affect the
Company's financial condition, liquidity and results of operations. Lower oil
and natural gas prices also may reduce the amount of oil and natural gas
reserves that can be produced economically.

Operating Risks of Oil and Natural Gas Operations

The oil and natural gas business involves certain operating hazards such as
well blowouts, cratering, explosions, uncontrollable flows of oil, natural gas
or well fluids, fires, formations with abnormal pressures, pollution, releases
of toxic gas and other environmental hazards and risks, any of which could
result in substantial losses to the Company. In addition, the Company may be
liable for environmental damages caused by previous owners of property held by
the Company. As a result, substantial liabilities to third parties or
governmental entities may be incurred, the payment of which could reduce or
eliminate the funds available for development, acquisitions or exploration, or
result in the loss of the Company's properties. In accordance with customary
industry practices, the Company will maintain insurance against some, but not
all, of such risks and losses. The occurrence of such an event not fully covered
by insurance could have a material adverse effect on the financial condition and
results of operations.

Uncertainty of Reserve Estimates

There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their estimated values, including many factors beyond the control
of the producer. The reserve data set forth in this Prospectus represents
estimates only. Reserve engineering is a subjective process of estimating
underground accumulations of oil and natural gas that cannot be measured in an
exact manner. The accuracy of any reserve estimate is a function of the quality
of available data and of engineering and developed geological interpretation and
judgment. As a result, estimates of different engineers may vary.

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<PAGE> 14

In addition, estimates of reserves and future net revenues from such
reserves and the present value thereof are based on assumptions regarding
production levels, future oil and natural gas prices, operating costs and other
factors that may not prove to be correct over time. Any significant variance in
these assumptions could materially affect the estimated quantity and value of
reserves set forth in this Prospectus.

Title to Properties

Title to the Company's oil and natural gas properties is subject to
royalty, overriding royalty, carried and other similar interests and contractual
arrangements customary in the oil and natural gas industry, to liens incident to
operating agreements and for current taxes not yet due and other comparatively
minor encumbrances.

As is customary in the oil and natural gas industry, only a perfunctory
investigation as to ownership is conducted at the time undeveloped properties
believed to be suitable for drilling are acquired. Prior to the commencement of
drilling on a tract, a detailed title examination is conducted and curative work
is performed with respect to known significant title defects.

Competition

The oil and natural gas industry is highly competitive in all its phases.
Competition is particularly intense with respect to the acquisition of producing
properties. There is also competition for the acquisition of oil and natural gas
leases, in the hiring of experienced personnel and from other industries in
supplying alternative sources of energy.

Competitors in acquisitions, exploration, development and production
include the major oil companies in addition to numerous independent oil
companies, individual proprietors, drilling and acquisition programs and others.
Many of these competitors possess financial and personnel resources
substantially in excess of those available to the Company. Such competitors may
be able to pay more for desirable leases and to evaluate, bid for and purchase a
greater number of properties than the financial or personnel resources of the
Company permit. The ability of the Company to increase reserves in the future
will be dependent on its ability to select and acquire suitable producing
properties and prospects for future exploration and development.

Regulation

Oil and natural gas operations are subject to extensive governmental
regulation, which may change in response to economic or political conditions and
other factors. The Company believes that the trend of more expansive and
stricter environmental laws and regulations will continue. The implementation of
new, or the modification of existing, environmental laws or regulations could
reduce demand for oil and natural gas or natural gas liquids ("NGLs"), increase
the Company's costs or have a material adverse impact on the Company. See
"Business -- Regulation."

OFFERING RISKS

Shares Eligible for Future Sale; Registration Rights

Future sales, or the availability for sale, of a substantial number of
additional shares of Common Stock in the public market following the Offering
(as well as any sale of shares of New Preferred Stock) could adversely affect
the market price of the Common Stock. For a description of Common Stock
available for resale after the Offering, see "Shares Eligible for Future Sale."
After giving effect to the Transactions (reflecting the sale of $40.0 million of
New Preferred Stock with a conversion price of $9.50 per share), there will be
5.2 million restricted shares of Common Stock (including 4.2 million shares of
Common Stock that may be issued upon conversion of the New Preferred Stock). In
addition, the New Preferred Stock Investors have been granted certain demand
registration rights, which may be exercised after the second anniversary of the
initial sale of the New Preferred Stock, for the future registration of the New
Preferred Stock, the Common Stock into which the New Preferred Stock may be
converted and the 160,000 shares of

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<PAGE> 15

Common Stock to be issued at the initial sale date to the New Preferred Stock
Investors. The Management Investors have also been granted certain limited
registration rights. See "Shares Eligible For Future Sale."

No Dividends

The Company does not currently intend to pay cash dividends on its Common
Stock. The Company currently intends to retain its cash for the continued
expansion of its business, including development and acquisition activities and
to reduce debt levels. No cash dividends may be paid unless all accrued and
unpaid dividends on the Company's Preferred Stock have been paid. In addition,
the Company's Credit Agreement currently prohibits the payment of dividends on
the Common Stock.

Consummation of the Repurchase

The repurchase by the Company of the remaining shares of Common Stock which
would be held by SOCO after the sale of the Common Stock offered hereby is a
condition to the closing of the Offering. Under certain circumstances, the
Company may not be able to issue the New Preferred Stock and, pursuant to the
terms of its current Credit Agreement, the Company may not have sufficient
proceeds available to repurchase the balance of such shares, and, accordingly,
would require additional debt or equity financing. There can be no assurance
that the Company will be able to obtain such financing, or that such financing,
if available, would be on terms that are acceptable to the Company.

Preferences of New Preferred Stock

By its terms (giving effect to the issuance by the Company of 1,600,000
shares of New Preferred Stock), the New Preferred Stock will have (i) a
liquidation preference of $25.00 per share (or $40.0 million in the aggregate)
and (ii) a dividend preference based on the 8.5% annual dividend rate in each
case over the rights of the holders of the Company's Common Stock. For a
description of the material terms of the New Preferred Stock, including dividend
rights and redemption, conversion and voting provisions, see "Description of
Capital Stock -- New Preferred Stock."

Benefits to Affiliates and Management of the Company

Certain directors and officers of the Company and SOCO and certain of their
respective affiliates, as well as certain nominees of the New Preferred Stock
Investors, have interests described herein that present them with conflicts of
interest in connection with the Transactions. In particular, (i) the Management
Investors will be participating in the Transactions by means of the stock
issuances to management (and the Management Investors will receive 500,000
shares of restricted Common Stock with an aggregate value of $4.9 million
(assuming a value of $9.875 per share) and assuming that management's rights in
such granted shares have vested in full), (ii) Mr. Edelman has received from
SOCO the Edelman Option (which, as described herein, is only exercisable in
certain circumstances, but in such circumstances will have a minimum value of $1
million and any amounts to be received in respect of such option in excess of
$2.5 million are to be shared equally between Mr. Edelman and SOCO), (iii) Mr.
Edelman will receive fully vested options to purchase, at the Public Offering
Price, 250,000 shares of Common Stock, and (iv) Mr. Edelman has entered into a
new three-year employment agreement with the Company (which provides for a base
salary of $350,000 and a maximum targeted bonus of 100% of Mr. Edelman's new
base salary). In addition, two of the Company's current directors, John C.
Snyder and William J. Johnson, are directors of SOCO. The Company's Board of
Directors and the Independent Committee were aware of such conflicts and
considered them in connection with the approval of the Transactions.

FORWARD LOOKING INFORMATION

Prospective purchasers of the Common Stock should consider carefully the
risk factors described above, in addition to the other information relating to
the Company and the Common Stock set forth in this Prospectus, before purchasing
any Common Stock. This Prospectus contains certain forward-looking statements,
including statements containing the words "believes," "anticipates," "expects,"
and words of similar

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<PAGE> 16

import. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: adverse changes in national or local economic conditions; increased
competition; changes in availability, cost and terms of financing; changes in
operating expenses and other factors referenced in this Prospectus. Certain of
these factors are discussed in more detail elsewhere in this Prospectus,
including without limitation, under the captions "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business."
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements.

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<PAGE> 17

CONCURRENT TRANSACTIONS

Concurrently with the sale of the shares of Common Stock offered hereby,
the Company will: (a) sell an aggregate of 1,600,000 shares of the New Preferred
Stock for a purchase price of $25.00 per share to the New Preferred Stock
Investors; (b) sell $3,000,000 of Common Stock for a purchase price per share
equal to the Public Offering Price (303,797 shares) to the Management Investors;
and (c) use the proceeds from the sale of the New Preferred Stock and such
shares of Common Stock to purchase the balance of the shares of Common Stock
owned by SOCO. Certain other events are also expected to occur at or about the
time the shares of Common Stock offered hereby are sold.

Issuance of New Preferred Stock

Pursuant to a Stock Purchase Agreement, dated as of July 31, 1997, the
Company has agreed to sell an aggregate of between 1,600,000 and 2,520,000
shares of the New Preferred Stock to the New Preferred Stock Investors (none of
whom is presently an affiliate of the Company) at a purchase price of $25.00 per
share, or an aggregate purchase price of between $40.0 million and $63.0
million, respectively. The Company has elected to sell $40.0 million of New
Preferred Stock to the New Preferred Stock Investors concurrently with the sale
of the shares of Common Stock offered hereby. As a result, the Company retains
the right to sell, in a subsequent sale, up to $23.0 million of New Preferred
Stock to the New Preferred Stock Investors at any time prior to December 31,
1997 for a purchase price of $25.00 per share (subject to the satisfaction of
certain conditions). See "Description of Capital Stock -- Preferred
Stock -- Future Issuances of Preferred Stock." It is anticipated that shares of
New Preferred Stock will be initially sold to the New Preferred Stock Investors
concurrently with the sale of the shares of Common Stock being offered hereby;
provided, however, that under certain circumstances a portion of the proceeds
from the sale of New Preferred Stock will be paid up to seven business days
following the sale of shares of Common Stock offered hereby. For a description
of the terms of the New Preferred Stock, see "Description of Capital
Stock -- Preferred Stock -- New Preferred Stock."

As a part of the issuance of the New Preferred Stock, the Company will
issue to the New Preferred Stock Investors, on a pro rata basis, at the time of
the initial sale of the shares of New Preferred Stock, an aggregate of 160,000
shares of Common Stock. In connection with the Transactions, SOCO has also
agreed to transfer 70,000 shares of Common Stock to the New Preferred Stock
Investors or their designated affiliates at the time of the initial sale of
shares of New Preferred Stock.

Each of the New Preferred Stock Investors has agreed not to sell, transfer
or otherwise dispose of any shares of New Preferred Stock or Common Stock for a
period of one year following the sale of the shares of Common Stock offered
hereby. See "Shares Eligible for Future Sale." The New Preferred Stock Investors
have further agreed that: (i) for the period from the first anniversary until
the second anniversary of the sale of the shares of Common Stock offered hereby,
they will not sell, transfer or otherwise dispose of any shares of New Preferred
Stock or Common Stock, without the prior consent of the Company's Board of
Directors or pursuant to Rule 144 under the Securities Act; and (ii) thereafter,
the New Preferred Stock Investors will be free to sell such shares but any such
sale, transfer or disposition must be in compliance with the requirements of the
Securities Act and any other applicable laws. In addition to the foregoing
restrictions, the New Preferred Stock Investors and their affiliates and
permitted transferees have also agreed: (i) not to sell short any of the
Company's securities for a period of two years following the sale of the shares
of Common Stock offered hereby; and (ii) to certain standstill provisions with
respect to the Company's voting securities, including, among other provisions, a
five-year restriction on the Preferred Stock Investors' ability to transfer any
shares of New Preferred Stock or Common Stock to any person who, after giving
effect to such transfers, would be the beneficial owner of 7.5% or more of the
aggregate voting power of all of the Company's securities, except for transfers
permitted under the Securities Act, in connection with an underwritten offering
or certain qualifying tender or exchange offers and transfers to persons who
agree to substantially similar restrictions as those agreed to by the New
Preferred Stock Investors.

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<PAGE> 18

The Company has agreed to register with the Commission, following the
second anniversary of the sale of the shares of Common Stock offered hereby, for
sale to the public the shares of New Preferred Stock, the shares of Common Stock
issuable upon conversion of shares of New Preferred Stock, the 160,000 shares of
Common Stock issued to the New Preferred Stock Investors in consideration for
their prior commitment to purchase shares of New Preferred Stock, as described
under "Description of Capital Stock -- Registration Rights" and the 70,000
shares of Common Stock transferred to the New Preferred Stock Investors or their
designated affiliates by SOCO in connection with the Transactions.

Issuance of Common Stock to Management Investors

Pursuant to a Management Stock Purchase Agreement, dated as of September 4,
1997, the Company has agreed to sell shares of Common Stock having an aggregate
purchase price of $3.0 million, at a per share purchase price equal to the
Public Offering Price, to the Management Investors, including Mr. Edelman, the
Chief Executive Officer of the Company. Mr. Edelman has committed to purchase an
aggregate of $2.0 million of Common Stock (or, at the Public Offering Price of
$9.875 per share, 202,532 shares) and the other Management Investors have
committed to purchase an aggregate of $1.0 million of Common Stock (or, at the
Public Offering Price of $9.875 per share, 101,265 shares). The Company will
lend each Management Investor (other than Mr. Edelman) up to 85% of such
purchase price pursuant to five-year 8.5% loan arrangements. It is anticipated
that such shares of Common Stock will be sold to the Management Investors
concurrently with the shares of Common Stock being offered hereby and the
issuance of such shares of Common Stock is conditioned upon the concurrent sale
of the shares of Common Stock offered hereby and the issuance of such shares is
a condition to the sale of the shares of Common Stock offered hereby. In
addition, to induce the Management Investors (other than Mr. Edelman) to invest
in the Company through their purchase of $1.0 million of Common Stock and to
enhance their interest in the Company's future success, the Company will also
award to these individuals an aggregate of 150,000 shares of restricted Common
Stock. The Company has also agreed to grant to Mr. Edelman 350,000 shares of
restricted Common Stock in consideration for his efforts in structuring and
arranging the private placement of the New Preferred Stock. The ownership of
these 500,000 shares will vest in equal increments over a period of five years.
These awarded shares have an aggregate value of $4.9 million (assuming a value
of $9.875 per share) and assuming that the Management Investors' rights in such
granted shares have vested in full. See "Management -- Management Equity
Participation Program."

Each of the Management Investors has agreed not to sell, transfer or
otherwise dispose of any shares of Common Stock for a period of 180 days
following the sale of the shares of Common Stock offered hereby. See "Shares
Eligible for Future Sale." Thereafter the Management Investors will be free to
sell the shares of Common Stock that they have purchased, subject to compliance
with the requirements of the Securities Act and any other applicable laws. The
restricted shares of Common Stock that have been awarded them may not be sold
until ownership in such shares has vested, as described in "Management --
Management Equity Participation Program." The Company has agreed to register
with the Commission for sale to the public the shares of Common Stock purchased
by, or awarded to, the Management Investors, as described under "Description of
Capital Stock -- Registration Rights."

Repurchase of Common Stock

Pursuant to a Share Repurchase Agreement, dated as of July 31, 1997, the
Company has agreed to purchase the balance of the shares of Common Stock owned
by SOCO, other than the 70,000 shares to be transferred by SOCO to the New
Preferred Stock Investors or their designated affiliates (3,930,000 shares,
assuming no exercise of the Underwriters' overallotment option and the sale of
10,000,000 shares in the Offering; 2,430,000 shares, assuming exercise of such
option in full), at a per share purchase price equal to the Net Offering Price.
The Company will repurchase such shares of Common Stock concurrently with the
sale of the New Preferred Stock and shares of Common Stock offered hereby and
the concurrent repurchase of such shares of Common Stock is a condition to the
sale of the shares of Common Stock offered hereby; provided, however, to the
extent that the Underwriters' overallotment option is not exercised, the Company
will purchase such shares from SOCO upon expiration of the option. After the
consummation of the Offering and the Share Repurchase, SOCO will no longer own
any shares of Common Stock.

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<PAGE> 19

Pursuant to the Share Repurchase Agreement, SOCO has agreed that, for a
period of 30 days following the date a preliminary prospectus relating to the
Offering is broadly distributed, it will not take any action with respect to the
acquisition or disposition of assets or securities of the Company by any third
party.

The Company will use the proceeds from the sale of the New Preferred Stock
and the shares of Common Stock sold to the Management Investors to pay for the
shares of Common Stock being repurchased from SOCO.

Approval of the Transactions

The Board of Directors of the Company has established a committee of
independent directors not affiliated with either the Company or SOCO (the
"Independent Committee") and such committee has recommended to the Board of
Directors that the Board approve, and the Board of Directors by unanimous vote
has approved, the Transactions, including the Offering, as being fair, from a
financial point of view, to the Company's stockholders (other than SOCO). In
reaching its conclusion as to the fairness of the Transactions, the Independent
Committee considered the advice of A.G. Edwards & Sons, Inc. ("Edwards")
concerning the fairness, from a financial point of view, of: (i) the
consideration to be paid to the Company for the New Preferred Stock; and (ii)
the Repurchase. Edwards' fairness opinion does not address the fairness of all
of the components of the Transactions; in particular, the issuance of Common
Stock to the Management Investors and the Offering are not, and will not be,
addressed in such opinion. Edwards is one of the Underwriters of the Offering
and, in such capacity, will receive compensation in connection with the sales of
Common Stock thereunder. See "Underwriting."

Certain Other Events

In addition to the Concurrent Transactions described above, at or about the
time of the Offering, certain other events are anticipated to occur:

Employment Arrangements with Mr. Edelman. The Company and Mr. Edelman, the
Chief Executive Officer of the Company, have entered into a three-year
employment agreement which will become effective concurrently with the Offering.
For a description of the terms of this agreement, see "Management -- Edelman
Employment Agreement and Related Matters."

Certain Changes in the Company's Board of Directors. It is anticipated
that, concurrently with the consummation of the Transactions, the members of the
Company's Board of Directors affiliated with SOCO, Mr. John C. Snyder and Mr.
William J. Johnson, will resign from the Board and will be replaced by persons
designated by First Reserve Fund VII, Limited Partnership and Chase Venture
Capital Associates, L.P., the two largest holders of shares of the New Preferred
Stock. First Reserve Fund VII, Limited Partnership has designated Mr. William E.
Macaulay and Chase Venture Capital Associates, L.P. has designated Mr. Arnold L.
Chavkin. See "Management -- Directors and Executive Officers."

Termination of Certain Arrangements with SOCO; Transition Agreement. At
the time the shares of Common Stock offered hereby are sold, the Company will
terminate certain arrangements it has with SOCO relating to the treatment of
certain business opportunities and the provision of certain corporate services
to the Company by SOCO. In lieu thereof, the Company and SOCO will enter into
the Transition Agreement. The Transition Agreement provides that, for a period
of up to one year, SOCO will provide the Company with certain computer and
administrative services.

Grant of Options by SOCO. SOCO has granted the New Preferred Stock
Investors, in connection with and in consideration of, their commitment to
purchase the New Preferred Stock, options to acquire an aggregate of 2,000,000
shares of the Company's Common Stock owned by SOCO at a price of $8.00 per share
(the "Investors' SOCO Options"). SOCO has also granted Mr. Edelman, the Chief
Executive Officer, in consideration for Mr. Edelman's efforts to arrange and
structure the Concurrent Transactions, options to acquire 2,000,000 shares of
the Company's Common Stock owned by SOCO at a price of $8.00 per share (the
"Edelman SOCO Options" and, together with the "Investors' SOCO Options, the
"SOCO Options"). In

19
<PAGE> 20

general, the SOCO Options represent a "break-up" fee to be paid by SOCO to each
of the New Preferred Stock Investors or their affiliates and Mr. Edelman under
certain limited circumstances described below.

The SOCO Options may generally be either physically settled or cash
settled, as the holder elects. To the extent that the value of a SOCO Option (as
described below) at the time that the SOCO Option is exercised or deemed
exercised (the "Option Exercise Value") is less than $1.00 (in the case of an
Investors' SOCO Option) or $0.50 (in the case of an Edelman SOCO Option), SOCO
will pay an amount equal to such difference to the holder of the SOCO Option; to
the extent that the Option Exercise Value equals or exceeds $1.25, the holder of
the SOCO Option will pay an amount equal to one-half of such excess to SOCO. As
used herein, the value of any SOCO Option means the amount, if any, by which the
value of the consideration to be received upon the exercise of the SOCO Option
(as determined pursuant the terms thereof) exceeds $8.00. The SOCO Options can
be exercised only upon the cancellation of the Offering by SOCO or the
termination of the Repurchase by SOCO other than because (a) the Net Offering
Price would be less than $7.0875 per share; (b) the Offering is not consummated
by October 29, 1997; (c) less than 5,000,000 shares of Common Stock can be sold
in the Offering; or (d) the Company materially breaches the Share Repurchase
Agreement (each an "Option Trigger Event").

Any physical exercise of the SOCO Options will be satisfied with shares of
Common Stock owned by SOCO and any cash settlement of the SOCO Options will be
paid by SOCO. However, the Company's obligations to repurchase shares of Common
Stock under the Share Repurchase Agreement will not be reduced as a result of
any exercise of the SOCO Options (except to the extent that an Option Trigger
Event results from SOCO's termination of the Share Repurchase Agreement, in
which case the Company will not have any obligation to purchase any shares of
its Common Stock from SOCO). The SOCO Options will terminate upon the earliest
to occur of: (i) the consummation of the Offering and the Share Repurchase; (ii)
the withdrawal of the shares of Common Stock from the Offering or the
termination of the Share Repurchase Agreement, except following an Option
Trigger Event; (iii) five days following the consummation of a transaction in
which a third party acquires a majority of the Company's Common Stock or assets;
and (iv) the expiration of 12 months (or, under certain circumstances, six
months) after the termination of the Share Repurchase Agreement or withdrawal of
the shares of Common Stock from the Offering.

Transfer of Shares by SOCO

In connection with the Transactions, SOCO has agreed to transfer 70,000
shares of Common Stock to the New Preferred Stock Investors or their designated
affiliates at the date of the initial sale of shares of New Preferred Stock to
such investors.

20
<PAGE> 21

CAPITALIZATION

The following table sets forth as of June 30, 1997 (i) the capitalization
of the Company and (ii) the capitalization of the Company as adjusted to give
effect to the Transactions. This table should be read in conjunction with the
Consolidated Financial Statements and Notes included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
ACTUAL AS ADJUSTED(a)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash............................................................... $ 10,568 $ 10,568
======== ========
Long-term debt:
Senior debt........................................................ $ 85,000 $ 80,962
Subordinated debt.................................................. 97,685 97,685
-------- --------
Total long-term debt.......................................... 182,685 178,647
-------- --------
Stockholders' equity:
Preferred stock, par value $.01 per share; 5,000,000 shares
authorized:
Old Preferred Stock; 1,467,926 shares issued and outstanding..... 15 15
New Preferred Stock; -0- shares issued and outstanding, 1,600,000
shares issued and outstanding as adjusted..................... -- 16
Common Stock, par value $.01 per share; 40,000,000 shares
authorized: 18,820,248 shares issued and outstanding; 15,854,045
shares issued and outstanding as adjusted(b)..................... 188 159
Additional paid-in capital......................................... 189,620 193,671
Retained earnings.................................................. 7,719 7,719
-------- --------
Total stockholders' equity.................................... 197,542 201,580
-------- --------
Total capitalization............................................... $380,227 $380,227
======== ========
</TABLE>

- ---------------

(a) At a Public Offering Price of $9.875 per share reflecting the purchase by
the Management Investors of 303,797 shares of Common Stock at the Public
Offering Price, a Net Offering Price of $9.332 per share, the issuance by
the Company of $40.0 million of New Preferred Stock, the repurchase by the
Company of 3,930,000 shares of Common Stock from SOCO at a price per share
equal to the Net Offering Price and the repayment by the Company of $4.0
million under the Credit Agreement.

(b) At a Public Offering Price of $9.875 per share and includes: (i) 303,797
shares of Common Stock to be purchased by the Management Investors; (ii)
500,000 shares of restricted Common Stock awarded to the Management
Investors; and (iii) 160,000 shares of Common Stock issued to the New
Preferred Stock Investors. Excludes: (i) 4,262,271 shares and 4,210,526
shares (in conjunction with the issuance of 1,600,000 shares of New
Preferred Stock) of Common Stock issuable upon the conversion of outstanding
shares of the Old Preferred Stock (at a conversion price of $8.61 per share)
and shares of New Preferred Stock (at a conversion price of $9.50 per
share), respectively; (ii) 2,919,451 shares of Common Stock issuable upon
exercise of outstanding warrants (having an exercise price of $12.50 per
share) (the "Warrants"); and (iii) 788,960 shares of Common Stock issuable
upon exercise of outstanding stock options (having a weighted average
exercise price of $8.30 per share). See "Description of Capital
Stock -- Preferred Stock" and "-- Warrants" and "Management -- Management
Equity Participation Program."

USE OF PROCEEDS

All of the shares of Common Stock offered hereby are being sold by SOCO.
The Company will not receive any of the proceeds from the sale of such shares.
The Company will pay certain expenses relating to the Offering, estimated to be
approximately $1.4 million.

21
<PAGE> 22

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "POG." The Common Stock began trading on the New York Stock Exchange
on May 3, 1996, following the consummation of the Gerrity Acquisition. The
following table sets forth, for the periods indicated, the range of high and low
per share closing prices for the Common Stock, as reported on the New York Stock
Exchange.

<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1996
Second Quarter (from May 3, 1996)............................... $ 8.25 $6.13
Third Quarter................................................... 7.38 6.75
Fourth Quarter.................................................. 9.50 7.00
1997
First Quarter................................................... 10.50 8.63
Second Quarter.................................................. 9.50 8.00
Third Quarter................................................... 10.00 8.00
Fourth Quarter (through October 15, 1997)....................... 10.25 9.81
</TABLE>

On October 15, 1997, the last reported sales price of the Common Stock on
the New York Stock Exchange was $10.25. As of that same date, there were
approximately 110 stockholders of record of Common Stock and approximately 18.8
million shares of Common Stock outstanding.

DIVIDEND POLICY

No dividends were declared or paid on the Common Stock during the periods
reported in the table above. The Company intends to retain future cash flow for
use in its business and has no current intention of paying cash dividends on its
Common Stock in the foreseeable future. Any payment of future dividends and the
amounts thereof will depend upon the Company's earnings, financial condition,
capital requirements and other factors deemed relevant by the Company's Board of
Directors. In addition, the Company's Credit Agreement currently prohibits the
payment of any dividends on the Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial Condition
and Capital Resources" and "Description of Certain Indebtedness -- Credit
Agreement."

22
<PAGE> 23

SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)

The following table presents selected historical and pro forma financial
data of the Company. The selected historical financial data as of or for each of
the years in the three-year period ended December 31, 1996 are derived from the
audited Consolidated Financial Statements of the Company. The pro forma
financial data of the Company have been derived from the Unaudited Pro Forma
Condensed Consolidated Financial Statements included elsewhere within this
Prospectus and should be read in conjunction with those statements and the notes
thereto. The amounts and results of operations of the Company for periods prior
to the Gerrity Acquisition reflected in these financial statements include the
historical amounts and results of SOCO's Wattenberg operations. The selected
historical financial data for the six month periods ended June 30, 1996 and 1997
are derived from, and are qualified by reference to, unaudited interim financial
statements appearing elsewhere in this Prospectus. In the opinion of management,
such unaudited interim financial statements include all adjustments (consisting
only of normal recurring accruals) necessary for a fair and, except as noted
below, consistent presentation, in accordance with generally accepted accounting
principles, of such information. Future results may differ substantially from
historical results because of changes in oil and natural gas prices, normal
production declines and other factors. This information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, presented elsewhere in this Prospectus. This data reflects the
Gerrity Acquisition in May 1996.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------- SIX MONTHS ENDED JUNE 30,
PRO FORMA -----------------------------------
AS ADJUSTED AS ADJUSTED
1994 1995 1996 1996(a)(b) 1996 1997 1997(b)
-------- -------- -------- ----------- -------- -------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues............................. $ 67,822 $ 50,102 $ 83,188 $ 100,138 $ 30,110 $ 52,340 $ 52,340
Expenses
Direct operating................... 8,110 8,867 14,519 17,718 5,401 9,322 9,322
Exploration........................ 784 416 224 658 149 62 62
General and administrative......... 7,484 5,974 6,151 8,782 3,113 2,611 3,783
Interest and other................. 3,869 5,476 14,304 18,916 4,979 8,485 8,344
Depletion, depreciation and
amortization..................... 43,036 32,591 44,822 51,663 18,723 24,776 24,776
-------- -------- -------- -------- -------- -------- --------
Total expenses................... 63,283 53,324 80,020 97,737 32,365 45,256 46,287
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes........... 4,539 (3,222) 3,168 2,401 (2,255) 7,084 6,053
Provision (benefit) for income
taxes.............................. 1,589 (1,128) (394) -- (394) -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................... $ 2,950 $ (2,094) $ 3,562 $ 2,401 $ (1,861) $ 7,084 $ 6,053
======== ======== ======== ======== ======== ======== ========
Net income (loss) per common share... $ 0.21 $ (0.15) $ 0.08 $ (0.31) $ (0.16) $ 0.30 $ 0.15
======== ======== ======== ======== ======== ======== ========
Weighted average shares
outstanding........................ 14,000 14,000 17,796 16,821 15,959 18,921 15,955
======== ======== ======== ======== ======== ======== ========
CASH FLOW DATA
Net cash provided by operations...... $ 47,690 $ 18,407 $ 52,996 N/A $ 14,968 $ 33,481 N/A
Net cash used by investing........... (96,378) (21,060) (9,796) N/A (2,415) (8,348) N/A
Net cash realized (used) by
financing.......................... 46,688 2,653 (38,047) N/A (340) (20,718) N/A
OTHER FINANCIAL DATA
EBITDA(c)............................ $ 51,444 $ 34,778 $ 62,265 $ 74,382 $ 21,390 $ 40,266 $ 39,499
Capital expenditures(d).............. (95,596) (21,842) (8,532) (12,821) (1,375) (8,348) (8,348)
</TABLE>

23
<PAGE> 24

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
AS OF DECEMBER 31, ------------------------
---------------------------------- AS
1994 1995 1996 ACTUAL ADJUSTED(b)
-------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital..................................... $(12,755) $ -- $ 1,015 $ 1,881 $ 1,881
Oil and natural gas properties, net................. 234,821 214,594 398,640 381,016 381,016
Total assets........................................ 246,686 224,521 430,233 413,517 413,517
Long-term debt...................................... 79,333 75,000 197,594 182,685 178,647
Stockholders' equity................................ 115,846 113,663 196,236 197,542 201,580
</TABLE>

- ---------------
(a) Pro forma to give effect to the Gerrity Acquisition as if it had occurred on
the first day of the period presented.

(d) Capital expenditures do not include $218.4 million of non-cash acquisitions
in 1996.

24
<PAGE> 25

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

On May 2, 1996 Gerrity Oil & Gas Corporation ("Gerrity") was merged into a
wholly-owned subsidiary of the Company. The Gerrity Acquisition was accounted
for as a purchase of Gerrity. Accordingly, the results of operations since the
Gerrity Acquisition reflect the impact of the purchase.

Six months ended June 30, 1997 compared to six months ended June 30,
1996. Total revenues for the six month period ended June 30, 1997 increased to
$52.3 million from $30.1 million, representing an increase of 74% from the prior
year period. The revenue increase was due to the higher production associated
with the Gerrity Acquisition and improved oil and natural gas prices. Exclusive
of the Gerrity Acquisition, revenues would have increased by $1.8 million or 8%.
Net income for the six months ended June 30, 1997 was $7.1 million compared to a
net loss of ($1.9 million) for the same period in 1996. The increase in net
income is primarily attributed to the increased revenue, partially offset by
increased interest expense and higher depletion, depreciation and amortization
expense.

Oil and natural gas sales less direct operating expenses for the six months
ended June 30, 1997 were $42.8 million, a 75% increase from the prior year
period. Average daily production for the six months ended June 30, 1997 was
5,442 barrels and 75.6 MMcf (108.3 MMcfe), increases of 42% and 33%,
respectively. The production increases resulted solely from the Gerrity
Acquisition. Exclusive of the Gerrity Acquisition, average daily production
would have declined by 453 barrels and 8.0 MMcf due to the Company's limited
development schedule and expected initial declines on the large number of wells
drilled and completed in 1994 and early 1995. There was one well placed on
production in the first six months of 1996 compared to 19 wells in the first six
months of 1997. In the future, while production has increased from the first
quarter of 1997, a decrease is expected unless development activity is
substantially increased or acquisitions are consummated. The decision to
increase development activity is heavily dependent on the prices being received
for production.

Average oil prices increased from $19.55 per barrel for the six months
ended June 30, 1996 to $20.29 in 1997. Natural gas prices increased from $1.58
per Mcf for the six months ended June 30, 1996 to $2.35 in 1997. The increase in
natural gas prices was primarily the result of the 86% increase in the average
CIG index for the six month period. Direct operating expenses increased to $0.48
per Mcfe compared to $0.37 in the prior year period. The increase is primarily
attributed to focusing more attention on enhancing production through increased
well workovers, additional field staff overtime and the overall increase in
production taxes as a result of higher oil and gas prices.

General and administrative expenses, net of reimbursements, for the six
months ended June 30, 1997 totalled $2.6 million, a 16% decrease from the same
period in 1996. Prior to the Gerrity Acquisition, the Company did not have its
own employees. Employees and certain office space and furniture, fixtures and
equipment were provided by SOCO. SOCO allocated general and administrative
expenses based on estimates of expenditures incurred on behalf of the Company.

Interest and other expenses was $8.5 million compared to $5.0 million for
the six months ended June 30, 1996. Interest expense increased as a result of
higher average outstanding debt levels due to additional debt recorded as a
result of the Gerrity Acquisition as well as debt incurred to finance certain
costs related to the Gerrity Acquisition. The Company's average interest rate
was 9.5% compared to 7.5% in the prior year period. This increase is due
primarily to the Company's 11.75% Senior Subordinated Notes due July 15, 2004
(the "Notes") which the Company assumed as part of the Gerrity Acquisition.

Depletion, depreciation and amortization expense for the six months ended
June 30, 1997 totalled $24.8 million, an increase of $6.1 million or 32% from
the same period in 1996. The increase resulted from higher oil and natural gas
production as a result of the Gerrity Acquisition, partially offset by a
decreased depletion, depreciation and amortization rate of $1.27 per Mcfe
compared to $1.29 in 1996. The decreased rate was attributed to a decrease in
the depletion rate from $1.23 per Mcfe in 1996 to $1.20 in 1997, partially
offset by $1,167,000 of amortization, or $0.06 per Mcfe, related to a noncompete
agreement entered into as part of the

25
<PAGE> 26

Gerrity Acquisition during the six months ended June 30, 1997 as compared to
$640,000, or $0.04 per Mcfe in 1996.

Comparison of 1996 results to 1995. Total revenues for 1996 were $83.2
million, an increase of $33.1 million from 1995. The amount represents an
increase of 66% as compared to the prior year period. The revenue increase is
due to the effect of the Gerrity Acquisition, improved product prices in 1996
and includes other revenue of $1.0 million attributable to oil marketing income
associated with arrangements whereby the Company sold barrels at Cushing,
Oklahoma. Exclusive of the Gerrity Acquisition, revenues would have decreased by
$3.5 million or 7%. Net income for 1996 was $3.6 million compared to a net loss
of $2.1 million in 1995. The increase in net income is primarily attributed to a
significant increase in average oil and natural gas prices received, offset by
an increase in interest expense and depletion, depreciation and amortization.

Oil and natural gas sales less direct operating expenses for 1996 were
$67.7 million, a 64% increase from the prior year period. Average daily
production in 1996 was 4,612 barrels and 65.4 MMcf (or 93.1 MMcfe), increases of
26% and 14%, respectively. The production increases resulted solely from the
Gerrity Acquisition. Exclusive of the Gerrity Acquisition, average daily
production would have declined by 1,165 barrels and 18.3 MMcf due to the
Company's reduced capital expenditures and expected production declines on the
large number of wells drilled and completed in 1994 and early 1995. There were
88 wells placed on production in 1995 compared to 12 wells in 1996. In the
future, while production is not expected to continue to decline at the current
rate, a decrease is expected unless development drilling activity is
substantially increased or additional acquisitions are consummated. The decision
to increase development drilling is heavily dependent on the commodity prices
being received for production.

Average oil prices increased to $20.47 per barrel compared to $16.43
received in 1995. Average natural gas prices increased from $1.34 per Mcf in
1995 to $1.99 in 1996. The increase in natural gas prices was primarily the
result of prior year production being marketed under term arrangements which
were based on Rocky Mountain region pricing (which was depressed) whereas the
1996 production benefitted from several factors. A portion of these term
arrangements expired during 1996 which allowed the production to be sold at
local spot prices which had increased as a result of higher demand and declining
production in the D-J Basin. In addition, enhanced marketing efforts combined
with higher natural gas liquids("NGLs") prices contributed to the overall price
increase. Direct operating expenses increased to $0.43 per Mcfe compared to $.31
in 1995. The increase is primarily attributed to the Company's focus on
enhancing production through performing well workovers on existing properties
and the overall increase in production taxes as a result of the higher average
oil and natural gas prices.

General and administrative expenses, net of third party reimbursements, for
1996 were $6.2 million, a 3% increase over 1995. The increase is the result of
the Gerrity Acquisition partially offset by reductions in allocated costs from
SOCO during the first four months of 1996. Prior to the Gerrity Acquisition, the
Company did not have its own employees. Employees and certain office space and
furniture, fixtures and equipment were provided by SOCO. SOCO allocated general
and administrative expenses based on estimates of expenditures incurred on
behalf of the Company.

Interest and other expense was $14.3 million compared to $5.5 million in
1995. Interest expense increased as a result of higher average outstanding debt
levels as a result of the Gerrity Acquisition. The Company's average interest
rate climbed to 9.3% compared to 7.0% in 1995. This increase is due primarily to
the Notes which were assumed as part of the Gerrity Acquisition.

Depletion, depreciation and amortization expense for 1996 totaled $44.8
million, an increase of $12.2 million, or 38% over 1995. The increase resulted
from the higher production and an increased depletion, depreciation and
amortization rate of $1.32 per Mcfe compared to $1.12 in 1995. The primary cause
for the increased rate was a downward revision in reserve quantities due to
proved undeveloped reserves being classified as uneconomic at year-end 1995
prices and the inclusion of the amortization of a noncompete agreement entered
into in conjunction with the Gerrity Acquisition. The amortization of a
noncompete agreement of $2.6 million in 1996 resulted in an increase of $0.08 in
the depletion, depreciation and amortization rate per Mcfe.

26
<PAGE> 27

Comparison of 1995 results to 1994. Total revenues in 1995 were $50.1
million as compared to $67.8 million in 1994. The 26% decrease was due to both a
drop in production (17%) and in average prices received (11%). The net loss for
1995 was $2.1 million compared to net income of $3.0 million in 1994. The
decrease was primarily due to the drop in production and average prices
received, higher direct operating expenses and increased interest expense due to
increased average debt payable to parent offset somewhat by a lower depletion
rate.

Average daily production during 1995 was 3,677 barrels and 57.5 MMcf (79.5
MMcfe), a decrease of 27% for oil and 12% for gas, as compared to 1994. The
production declines resulted primarily from the Company's decision to reduce
drilling in 1995 due to the continued decline in gas prices subsequent to year
end 1994. During 1995, the Company placed an additional 88 wells on production
compared to 360 wells during 1994. The direct operating margin (revenues less
direct operating costs) for 1995 was $41.2 million, a 31% decrease from 1994.
Average oil prices increased 11% to $16.43 per barrel. However, that modest
increase was more than offset by the continued sharp decline in natural gas
prices. The average natural gas price for 1995 was only $1.34 per Mcf, a 21%
decrease from 1994. Direct operating expenses per Mcfe also increased to $0.31
from $0.23 in 1994 due to decreasing total production with a higher number of
wells and higher well servicing costs in 1995.

General and administrative expenses, net of reimbursements, were $6.0
million in 1995 as compared to $7.5 million in 1994. The Company did not have
its own employees. Employees and certain office space and furniture, fixtures
and equipment have been provided by SOCO. SOCO has allocated general and
administrative expenses based on estimates of actual expenditures incurred on
behalf of Patina. The general and administrative expenses in 1995 were $1.5
million lower than 1994, reflecting the lower overhead associated with the
reduced drilling activity.

Interest paid to parent and other expenses were $5.5 million in 1995 as
compared to $3.9 million in 1994. Interest expense represents interest on debt
payable to SOCO. Prior to the Gerrity Acquisition, SOCO financed all of the
Company's activities. A portion of such financing was considered to be an
investment by SOCO in the Company and, accordingly, no interest was charged by
SOCO to Patina for this capital. The remaining portion of such financing was
considered to be debt payable to SOCO with interest charged to the Company at a
rate which approximated the average interest rate being paid by SOCO under its
revolving credit facility. The increase in interest expense was primarily due to
an increase in interest rates from 5.5% to 7%.

Depletion, depreciation and amortization expense for 1995 decreased 24%
from 1994. The decrease was primarily attributable to the decreases in
production and a $2.1 million greater impairment in 1994.

DEVELOPMENT, ACQUISITION AND EXPLORATION

During the six months ended June 30, 1997, the Company incurred $8.1
million in capital expenditures. The Company anticipates incurring development
capital expenditures of approximately $7.0 million during the remaining six
months of 1997. The Company's capital budget has been set at a conservative
level for 1997. The Company has a significant inventory of projects that are
price sensitive and could increase capital spending significantly under certain
circumstances. During 1996, the Company incurred $226.9 million in capital
expenditures. Of this amount, $218.4 million related to the Gerrity Acquisition
by the issuance of stock and assumption of debt by the Company. Thus, for 1996,
capital expenditures, exclusive of acquisitions, totaled only $8.5 million.

FINANCIAL CONDITION AND CAPITAL RESOURCES

At June 30, 1997, the Company had total assets of $413.5 million. Total
capitalization was $380.2 million, of which 52% was represented by stockholders'
equity, 22% by senior debt and 26% by subordinated debt. During the six months
ended June 30, 1997, net cash provided by operations was $33.5 million, as
compared to $15.0 million for the same period in 1996. As of June 30, 1997, the
Company had no significant commitments for capital expenditures. The Company
anticipates that 1997 capital expenditures for development drilling and
recompletion activity will be approximately $15.0 million, which will allow for
a reduction of

27
<PAGE> 28

indebtedness and provide funds to pursue acquisitions. The level of these and
other future expenditures is largely discretionary, and the amount of funds
devoted to any particular activity may increase or decrease significantly,
depending on available opportunities and market conditions. See "Business." The
Company plans to finance its ongoing development, acquisition and exploration
expenditures using internal cash flow, proceeds from asset sales and borrowings
under its Credit Agreement. In addition, joint ventures or future public and
private offerings of debt or equity securities may be utilized.

Prior to the Gerrity Acquisition, SOCO financed all of the Company's
activities. A portion of such financing was considered to be an investment by
SOCO in the Company with the remaining portion being considered debt payable to
SOCO. In conjunction with the Gerrity Acquisition, the $75.0 million debt
payable to SOCO was paid in full. The Company does not have any outstanding debt
with SOCO and does not expect SOCO to provide any additional funding.

The Company entered into the Credit Agreement in April 1997. The Credit
Agreement consists of a revolving credit facility in an aggregate amount up to
$140.0 million. The amount available under the revolving credit facility is
adjusted semiannually and equaled $110.0 million at June 30, 1997, with $85.0
million outstanding under the facility.

Giving effect to the Transactions, as of June 30, 1997, the Company would
have had approximately $29.0 million of availability under the Credit Agreement.
The Credit Agreement will permit the Company to fund up to $14.9 million of
additional borrowings for the Repurchase of shares of Common Stock from SOCO.

As of September 5, 1997, the Company had approximately $166.7 million of
debt outstanding, consisting of $69.0 million of senior debt and $97.7 million
of Notes.

The Credit Agreement contains certain financial covenants, including but
not limited to, a maximum total debt to capitalization ratio, a maximum total
debt to EBITDA ratio, a minimum current ratio and various other negative
covenants that could limit the Company's ability to incur other debt, consummate
acquisitions, dispose of assets, pay dividends or repurchase securities.
Borrowings under the Credit Agreement mature in 2000, but may be prepaid at
anytime. The Company has periodically negotiated extensions of the Credit
Agreement; however, there is no assurance the Company will be able to do so in
the future.

The Company from time to time enters into arrangements to monetize its
Section 29 tax credits. These arrangements result in revenue increases of
approximately $0.40 per Mcf on production volumes from qualified Section 29
properties. As a result of such arrangements, the Company recognized additional
natural gas revenues of $646,000 and $942,000 during the six months ended June
30, 1996 and 1997, respectively. These arrangements are expected to increase
revenues through 2002.

The Company's primary cash requirements following the Transactions will be
to finance additional acquisitions, capital expenditures in connection with the
development of proved reserves, refracing of existing wells, repayment of
indebtedness and general working capital needs. However, future cash flows are
subject to a number of variables, including the level of production and oil and
natural gas prices, and there can be no assurance that operations and other
capital resources will provide cash in sufficient amounts to maintain planned
levels of capital expenditures or that increased capital expenditures will not
be undertaken.

The Company believes that available borrowings under the Credit Agreement
and the Company's cash on hand will be sufficient to cover its working capital,
capital expenditures, planned development activities and debt service
requirements for the next 18 months. In connection with consummating any
significant future acquisitions, the Company will require additional debt or
equity financing, which may not be available or, if available, may not be on
terms that are acceptable to the Company.

28
<PAGE> 29

INFLATION AND CHANGES IN PRICES

While certain of its costs are affected by the general level of inflation,
factors unique to the oil and natural gas industry result in independent price
fluctuations. Over the past five years, significant fluctuations have occurred
in oil and natural gas prices. Although it is particularly difficult to estimate
future prices of oil and natural gas, price fluctuations have had, and will
continue to have, a material effect on the Company.

The following table indicates the average oil and natural gas prices
received over the last five years and highlights the price fluctuations by
quarter for 1996 and 1997. Average price computations exclude hedging gains or
losses and other nonrecurring items to provide comparability. Average prices per
equivalent Mcf indicate the composite impact of changes in oil and natural gas
prices. Oil production is converted to natural gas equivalents at the rate of
one barrel per six Mcf.

<TABLE>
<CAPTION>
NATURAL EQUIVALENT
OIL GAS Mcf
----------- --------- ----------
(PER Bbl) (PER Mcf) (McFe)
<S> <C> <C> <C>
ANNUAL
1992...................................... $ 19.06 $1.82 $ 2.19
1993...................................... 15.87 2.08 2.22
1994...................................... 14.84 1.70 1.94
1995...................................... 16.43 1.34 1.73
1996...................................... 20.47 1.99 2.41

QUARTERLY
1996
First................................... $ 18.31 $1.55 $ 1.96
Second.................................. 20.24 1.60 2.13
Third................................... 19.92 1.83 2.29
Fourth.................................. 22.35 2.78 3.07
1997
First................................... 21.79 2.63 2.93
Second.................................. 19.09 1.85 2.26
</TABLE>

29
<PAGE> 30

BUSINESS

GENERAL

The Company is an independent energy company engaged in the acquisition,
development, exploitation and production of oil and natural gas in the
Wattenberg field of Colorado's D-J Basin. The Company was formed in early 1996
to hold the Wattenberg assets of SOCO and to facilitate the Gerrity Acquisition.
Mr. Edelman structured and negotiated the Gerrity Acquisition and has served as
the Company's chief executive from its inception. Since the Gerrity Acquisition
in May 1996, the Company has focused its efforts on consolidating its
properties, developing a focused and efficient organization, reducing costs and
improving operations. From May 1996 through June 30, 1997, the Company used
operating cash flow to reduce indebtedness by over $40 million and repurchase
$14.4 million of its equity securities, while investing $15.5 million in the
further development of its properties.

At December 31, 1996, the Company had total assets of $430.2 million and
431.5 Bcfe of proved reserves. The reserves had an estimated pretax present
value of $649 million based on unescalated prices and costs in effect on that
date. Approximately 70% of the reserves by volume were natural gas and over 90%
of the pretax present value was attributable to proved developed reserves. The
Company operates almost 90% of the roughly 3,550 producing wells in which it
holds an interest, representing 98% of its producing reserves. In the year ended
December 31, 1996, the Company generated revenues of $83.2 million, net income
of $3.6 million and net cash provided by operations of $53.0 million. During
that period, production averaged 93.1 MMcfe per day. During the six months ended
June 30, 1997, the Company generated revenues of $52.3 million, net income of
$7.1 million and net cash provided by operations of $33.5 million, with average
production of 108.3 MMcfe per day. Based on pro forma production for 1996 and
year-end 1996 reserves, the Company has a reserve life index of 10.3 years.

The Company, a Delaware corporation, maintains its principal executive
offices at 1625 Broadway, Suite 2000, Denver, Colorado 80202, and its telephone
number is (303) 389-3600.

WATTENBERG

Patina is currently the largest oil and natural gas producer in Wattenberg.
The Company has interests in approximately 3,550 wells which generate over 30%
of the total annual production from the field. Wattenberg, discovered in 1970,
is located approximately 35 miles northeast of Denver and stretches over Adams,
Boulder and Weld Counties in Colorado. One of the most attractive features of
Wattenberg is that there are at least eight potentially productive formations
throughout the field ranging in depths from 2,000 to 8,000 feet. Three of the
formations, the Codell, the Niobrara and the J-sand, are "blanket" zones in the
area of the Company's

30
<PAGE> 31

holdings, while other formations, such as the Sussex and the Shannon are more
localized. The existence of several pay sands within the geological structure
allows for multiple completions within a single wellbore, keeping drilling and
operating costs low. In recent years, the Codell and Niobrara formations have
been the primary drilling objective in Wattenberg, although the Company has also
successfully recompleted shallower formations such as the Sussex.

BUSINESS STRATEGY

Pursue Consolidation and Acquisition Opportunities

Control Operating and Overhead Costs

As a result of its extensive operating experience and concentrated reserve
base, the Company believes that it is an efficient producer of oil and natural
gas. The Company's lease operating expenses during 1996 and for the six months
ended June 30, 1997 were $0.26 and $0.30 per Mcfe, respectively. In addition,
the Company's G&A expenses have been reduced to less than half those incurred by
its Predecessors, resulting in G&A expenses during 1996 and for the six months
ended June 30, 1997 of $0.18 and $0.13 per Mcfe, respectively. The Company's low
operating costs increase its operating margin, extend the economic life of its
wells and enhance its reserve value.

Operate Properties

The Company prefers to operate its properties in order to exercise greater
control over the timing and plans for future development, well workovers,
production enhancements and lease operating expenses, as well as the marketing
of oil and natural gas production. The Company currently operates approximately
3,175 (or 90%) of the 3,550 producing wells in which it owns an interest and
these operated properties account for approximately 98% of the pretax present
value of its year-end 1996 producing reserves.

Exploit Existing Reserves

The Company seeks to maximize the value of its properties by increasing
production and recoverable reserves through the active development, recompletion
and exploitation of its properties. At December 31, 1996, the Company had 728
proved undeveloped drilling locations and 605 recompletion opportunities. A
recompletion can increase per well producing reserves by up to 100% at less than
half the cost of drilling a new well. During the past 12 months, the Company has
focused extensively on frac design and stimulation techniques. Early results
have shown an increase in productivity on newly drilled wells and recompletions.
The Company initiated a refrac program in 1996 and, to date, the Company has
successfully performed seven refracs and identified approximately 100 wells
suitable for refrac. The Company's year-end reserve report does not include any
reserves attributable to the refrac program. During 1996, the Company
successfully drilled 12 development wells and recompleted an additional 61 wells
at a total capital cost of $8.5 million. The Company's existing 1997 capital
expenditure budget provides $15 million for the drilling of 35 new

31
<PAGE> 32

development wells, the recompletion of an additional 75 wells and the expansion
of the refrac program. Through June 30, 1997, the Company had drilled 10
development wells, recompleted 40 wells (including seven refracs) and completed
the drilling of nine wells in progress at year-end 1996 for a total capital cost
of $8.0 million.

Develop Financial Flexibility

The Company is committed to maintaining its financial flexibility. Since
the Gerrity Acquisition, the Company has reduced its indebtedness by over $40
million and has repurchased $14.4 million of its equity securities. At June 30,
1997, assuming the consummation of the Transactions, the Company would have had
a debt-to-book capitalization ratio of approximately 47%. Management expects
future capital expenditures, excluding acquisitions, to be funded by operating
cash flow. The New Preferred Stock Investors have committed to purchase up to
$63.0 million of New Preferred Stock, and the Company has elected to issue $40.0
million of New Preferred Stock to complete the Repurchase. The balance of this
commitment will remain available through December 31, 1997 for acquisition
financing or for general corporate purposes.

PRODUCTION, REVENUE AND PRICE HISTORY

The following table sets forth information regarding net production of oil
and natural gas, revenues and expenses attributable to such production and
certain price and cost information for each of the years in the three-year
period ended December 31, 1996 and the six month periods ended June 30, 1996 and
1997. This financial and operating information reflects the Gerrity Acquisition
in May 1996.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PRICES AND PER Mcf EQUIVALENT
INFORMATION) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Production
Oil (MBbl)........................... 1,829 1,342 1,688 693 985
Natural gas (MMcf)................... 23,893 20,981 23,947 10,308 13,688
Total MMcfe(a)....................... 34,872 29,034 34,074 14,466 19,598
Revenues
Oil.................................. $27,151 $22,049 $34,541 $13,556 $ 19,986
Natural gas(b)....................... 40,598 28,024 47,644 16,260 32,127
------- ------- ------- ------- --------
Subtotal.......................... 67,749 50,073 82,185 29,816 52,113
Other................................ 73 29 1,003 294 227
------- ------- ------- ------- --------
Total............................. 67,822 50,102 83,188 30,110 52,340
------- ------- ------- ------- --------
Operating expenses
Lease operating expenses............. 3,662 5,387 8,866 3,378 5,865
Production taxes..................... 4,448 3,480 5,653 2,023 3,457
------- ------- ------- ------- --------
Total............................. 8,110 8,867 14,519 5,401 9,322
------- ------- ------- ------- --------
Direct operating margin................ $59,712 $41,235 $68,669 $24,709 $ 43,018
======= ======= ======= ======= ========
Average sales price
Oil (Bbl)............................ $ 14.84 $ 16.43 $ 20.47 $ 19.55 $ 20.29
Natural gas (Mcf)(b)................. 1.70 1.34 1.99 1.58 2.35
Mcfe(a).............................. 1.94 1.73 2.41 2.06 2.66
Average production expense/Mcfe........ 0.23 0.31 0.43 0.37 0.48
Average operating margin/Mcfe.......... 1.71 1.42 1.99 1.69 2.18
</TABLE>

- ---------------
(a) Oil production is converted to natural gas equivalents at the rate of one
barrel per six Mcf.
(b) Sales of NGLs are included in natural gas revenues.

32
<PAGE> 33

OIL AND NATURAL GAS RESERVES

The following table sets forth estimated year-end net proved reserves for
each of the years in the three-year period ended December 31, 1996.

<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Oil (MBbl)
Developed....................................... 8,832 6,955 15,799
Undeveloped..................................... 3,386 466 6,676
------ ------- -------
Total................................... 12,218 7,421 22,475
====== ======= =======
Natural gas (MMcf)
Developed....................................... 147,869 133,088 242,777
Undeveloped..................................... 30,834 5,769 53,882
------ ------- -------
Total................................... 178,703 138,857 296,659
====== ======= =======
Total MMcfe....................................... 252,012 183,384 431,509
====== ======= =======
</TABLE>

The following table sets forth for the year ended December 31, 1996 pretax
future net revenues from the production of proved reserves and the pretax
present value of such revenues, net of estimated future capital costs, including
estimated costs of $14.0 million in 1997.

<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1997................................................. $ 117,410 $ (2,154) $ 115,256
1998................................................. 101,637 (2,455) 99,182
1999................................................. 92,397 4,235 96,632
Remainder............................................ 668,820 188,977 857,797
-------- -------- ----------
Total...................................... $ 980,264 $ 188,603 $1,168,867
======== ======== ==========
Pretax present value(a).............................. $ 582,408 $ 66,389 $ 648,797
======== ======== ==========
</TABLE>

- ---------------
(a) The aftertax present value of the proved reserves totaled $499.9 million at
year-end 1996.

The quantities and values in the preceding tables are based on prices in
effect at December 31, 1996 which averaged $25.20 per barrel of oil and $3.70
per Mcf of gas. Price declines decrease reserve values by lowering the future
net revenues attributable to the reserves and reducing the quantities of
reserves that are recoverable on an economic basis. Price increases have the
opposite effect. A significant decline in the prices of oil or natural gas could
have a material adverse effect on the Company's financial condition and results
of operations.

The present values shown should not be construed as the current market
value of the reserves. The quantities and values shown in the preceding tables
are based on oil and natural gas prices in effect on December 31, 1996. Those
prices were significantly higher than the prices that prevailed throughout most
of 1996 and since year-end, prices have fallen from year-end levels. The value
of the Company's assets is in part dependent on the prices the Company receives
for oil and natural gas and a significant decline in the price of oil or natural
gas could have a material adverse effect on the Company's financial condition
and results of operations.

All of the proved reserves at year-end were estimated by Netherland, Sewell
& Associates, Inc. No estimates of the Company's reserves comparable to those
included herein have been included in reports to any federal agency other than
the Commission.

33
<PAGE> 34

DRILLING ACTIVITY SUMMARY

The following table sets forth information with respect to wells drilled by
the Company during each of the past three years and during the six months ended
June 30, 1997. All the wells were development wells. The information should not
be considered indicative of future performance, nor should it be assumed that
there is necessarily any correlation between the number of productive wells
drilled, quantities of reserves found or economic value. Productive wells are
those that produce commercial quantities of hydrocarbons whether or not they
produce a reasonable rate of return.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------- SIX MONTHS ENDED
1994 1995 1996 JUNE 30, 1997
----- ---- ---- -----------------
<S> <C> <C> <C> <C>
Productive
Gross...................................... 350.0 25.0 12.0 19.0
Net........................................ 305.6 24.1 12.0 17.9
Dry
Gross...................................... 8.0 0.0 0.0 0.0
Net........................................ 7.9 0.0 0.0 0.0
</TABLE>

At June 30, 1997, no development wells were in progress.

PRODUCING WELL SUMMARY

The following table sets forth certain information at June 30, 1997
relating to the producing wells in which the Company owned a working interest.
The Company also held royalty interests in 195 producing wells at such date. The
Company's average working interest in all wells was 90%. Wells are classified as
oil or natural gas wells according to their predominant production stream.

<TABLE>
<CAPTION>
GROSS NET
WELLS WELLS
----- -----
<S> <C> <C>
Oil.......................................................... 2,735 2,513
Natural gas.................................................. 613 513
----- -----
Total.............................................. 3,348 3,026
===== =====
</TABLE>

ACREAGE

The following table sets forth certain information at June 30, 1997
relating to Wattenberg acreage held by the Company. Undeveloped acreage is
acreage held under lease, permit, contract or option that is not in a spacing
unit for a producing well, including leasehold interests identified for
development or exploratory drilling. Developed acreage is acreage assigned to
producing wells.

<TABLE>
<CAPTION>
GROSS NET
------- -------
<S> <C> <C>
Developed................................................ 176,118 136,814
Undeveloped.............................................. 142,430 126,358
------- -------
Total.......................................... 318,548 263,172
======= =======
</TABLE>

MARKETS AND CUSTOMERS

The Company's oil and natural gas production is principally sold to end
users, marketers, refiners and other purchasers having access to natural gas
pipeline facilities near its properties and the ability to truck oil to local
refineries or oil pipelines. The marketing of oil and natural gas can be
affected by a number of factors that are beyond the Company's control and whose
future effect cannot be accurately predicted. The Company does not believe,
however, that the loss of any of its customers would have a long-term material
adverse effect on its operations.

34
<PAGE> 35

Natural Gas. Wattenberg natural gas is high in heating content (BTUs) and
must be processed in order to strip NGLs before residue gas is sold to
utilities, independent marketers and end users through both intrastate and
interstate pipelines. The Company utilizes two separate arrangements to gather,
process and market its natural gas production. Approximately 30% of the
Company's natural gas production is sold to Duke Energy Field Services ("Duke
Energy") at the wellhead under percentage of proceeds contracts. Pursuant to
this type of contract, the Company receives a fixed percentage of the proceeds
from the sale of its residue gas and NGLs by Duke Energy. Substantially all of
the Company's remaining natural gas production is dedicated for gathering to
either Duke Energy or KN Front Range Gathering Company ("KN") and is then
processed at plants owned by Duke Energy, or Amoco Production Company ("AMOCO")
or North American Resources Company. Under this arrangement, the Company retains
the right to market its share of residue gas at the tailgate of the plant and
sells it under seasonal spot market arrangements along the front range of
Colorado or transports the gas to midwest markets under transportation
agreements. NGLs are sold by the processor and the Company receives payment net
of applicable processing fees.

A portion of natural gas gathered by KN is processed by Amoco at the
Wattenberg Processing Plant under a favorable contract that not only provides
payment for a percentage of the NGLs stripped from the natural gas, but also
redelivers to the tailgate the same amount of MMBtu's as was delivered to the
plant under a "keepwhole" arrangement. This agreement remains in effect until
December 2012.

Oil. Oil production is principally sold to refiners, marketers and other
purchasers who truck oil to local refineries or pipelines. The price is
generally based on a local market posting for oil and is adjusted for
transportation costs and quality. Amoco has the right to purchase oil produced
from certain properties owned by the Company.

COMPETITION

The oil and natural gas industry is highly competitive. The Company
encounters competition from other oil and natural gas companies in all of its
operations, including the acquisition of exploratory prospects and proven
properties. Patina competes for the acquisition of oil and natural gas
properties, with numerous entities, including major oil companies, other
independent oil and gas concerns and individual producers and operators. Many
competitors have financial and other resources substantially greater than those
of the Company. Management believes that the Company has a competitive advantage
over most other energy companies active in Wattenberg because of its significant
operations and its technical and geological experience in the area.

REGULATION

Regulation of Drilling and Production. The Company's operations are
affected by political developments, and by federal, state and local laws and
regulations. Oil and gas industry legislation and administrative regulations are
periodically changed for a variety of political, economic and other reasons.
Numerous federal, state and local departments and agencies issue rules and
regulations binding on the oil and gas industry, some of which carry substantial
penalties for failure to comply. The regulatory burden on the oil and gas
industry increases the Company's cost of doing business, decreases flexibility
in the timing of operations and may adversely affect the economics of capital
projects.

In the past, the federal government has regulated the prices at which oil
and natural gas could be sold. Prices of oil and natural gas sold by the Company
are not currently regulated. In recent years, the Federal Energy Regulatory
Commission ("FERC") has taken significant steps to increase competition in the
sale, purchase, storage and transportation of natural gas. FERC's regulatory
programs allow more accurate and timely price signals from the consumer to the
producer and, on the whole, have helped natural gas become more responsive to
changing market conditions. To date, the Company believes it has not experienced
any material adverse effect as the result of these initiatives. Nonetheless,
increased competition in natural gas markets can and does add to price
volatility and inter-fuel competition, which increases the pressure on the
Company to manage its exposure to changing conditions and position itself to
take advantage of changing market forces.

35
<PAGE> 36

State statutes govern exploration and production operations, conservation
of oil and natural gas resources, protection of the correlative rights of oil
and natural gas owners and environmental standards. State Commissions implement
their authority by establishing rules and regulations requiring permits for
drilling, reclamation of production sites, plugging bonds, reports and other
matters. Colorado, where the Company's properties are located, amended its
statute concerning oil and natural gas development in 1994 to provide the
state's Oil and Gas Conservation Commission (the "Colorado OGC Commission") with
enhanced authority to regulate oil and gas activities to protect public health,
safety and welfare, including the environment. Several rule makings pursuant to
these statutory changes have been undertaken by the Colorado OGC Commission
concerning groundwater protection, soil conservation and site reclamation,
setbacks in urban areas and other safety concerns, and financial assurance for
industry obligations in these areas. To date, these rule changes have not
adversely affected operations of the Company, as the Colorado OGC Commission is
required to enact cost-effective and technically feasible regulations, and the
Company has been an active participant in their development. However, there can
be no assurance that, in the aggregate, these and other regulatory developments
will not increase the cost of conducting operations in the future.

In Colorado, a number of city and county governments have enacted oil and
natural gas regulations. These ordinances increase the involvement of local
governments in the permitting of oil and natural gas operations, and require
additional restrictions or conditions on the conduct of operations so as to
reduce their impact on the surrounding community. Accordingly, these local
ordinances have the potential to delay, and increase the cost of, drilling and
recompletion operations.

Environmental Regulation. Operations of the Company are subject to
numerous laws and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. The Company
currently owns or leases numerous properties that have been used for many years
for natural gas and oil production. Although the Company believes that it and
previous owners have utilized operating and disposal practices that were
standard in the industry at the time, hydrocarbons or other wastes may have been
disposed of or released on or under the properties owned or leased by the
Company. In connection with its most significant acquisitions, the Company has
performed environmental assessments and found no material environmental
noncompliance or clean-up liabilities requiring action in the near or
intermediate future. Such environmental assessments have not, however, been
performed on all of the Company's properties.

The Company operates its own exploration and production waste management
facilities, which enable it to treat, bioremediate and otherwise dispose of tank
sludges, contaminated soil and produced water generated from the Company's
operations. There can be no assurance, that these facilities, or other
commercial disposal facilities utilized by the Company from time-to-time, will
not give rise to environmental liability in the future. To date, expenditures
for the Company's environmental control facilities and for remediation of
production sites have not been significant to Patina. The Company believes,
however, that the trend toward stricter standards in environmental legislation
and regulations will continue and could have a significant adverse impact on the
Company's operating costs, as well as on the oil and natural gas industry in
general.

OFFICE AND OPERATIONS FACILITIES

The Company leases its headquarters office in Denver, Colorado. The lease
covers approximately 28,600 square feet and has a remaining term of four years,
expiring in November 2001. The monthly rent is approximately $37,800. The
Company also owns a 6,000 square foot production facility in Platteville,
Colorado and 6,000 square feet of office and shop space in Brighton, Colorado.
These facilities are used to support the Company's drilling and production
efforts in Wattenberg.

EMPLOYEES

On June 30, 1997, the Company employed 167 people, including 106 that work
in the Company's various field offices, none of whom are represented by a labor
union. The Company believes its relationship with its employees is satisfactory.

36
<PAGE> 37

INSURANCE

The Company currently maintains a $5.0 million oil and natural gas lease
operator policy that insures the Company against certain risks associated with
drilling and completing its wells, as well as a $3.0 million policy for
producing wells. There can be no assurance that this insurance will be adequate
to cover any losses or exposure to liability. The Company also carries
comprehensive general liability and workers' compensation policies, and a $10.0
million umbrella policy. The Company does not maintain key man life insurance on
any employees.

LEGAL PROCEEDINGS

The Company is not a party to any pending legal proceedings other than
routine litigation incidental to its business. While the ultimate results of
these proceedings cannot be predicted with certainty, the Company does not
believe that the outcome of these matters will have a material adverse effect on
the Company.

37
<PAGE> 38

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information about the executive
officers and directors of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- ----------------------------------------------
<S> <C> <C>
Thomas J. Edelman........ 46 Chairman of the Board, President and Chief
Executive Officer
Brian J. Cree............ 34 Executive Vice President and Chief Operating
Officer, Director
Keith M. Crouch.......... 50 Senior Vice President and General Counsel
Ronald E. Dashner........ 45 Senior Vice President, Operations
David J. Kornder......... 36 Vice President and Chief Financial Officer
David R. Macosko......... 36 Vice President
Terry L. Ruby............ 38 Vice President
David W. Siple........... 38 Vice President
*Arnold L. Chavkin........ 46 Director
Robert J. Clark.......... 52 Director
Jay W. Decker............ 44 Director
*William J. Johnson....... 63 Director
Alexander P. Lynch....... 45 Director
*William E. Macaulay...... 51 Director
*John C. Snyder........... 55 Director
</TABLE>

- ---------------

* Mr. Johnson and Mr. Snyder will resign as Directors of the Company following
the completion of the Transactions and will be replaced by Mr. Chavkin and Mr.
Macaulay.

THOMAS J. EDELMAN has served as Chairman of the Board, President and Chief
Executive Officer of the Company since its formation. He co-founded SOCO and was
the President and a director of SOCO from 1981 through February 1997. During
1992 and 1993, Mr. Edelman provided consulting services to First Reserve
Corporation (the managing general partner of one of the New Preferred Stock
Investors) and its affiliates and has served on the boards of directors of
companies controlled by First Reserve. Prior to 1981, he was a Vice President of
The First Boston Corporation. From 1975 through 1980, Mr. Edelman was with
Lehman Brothers Kuhn Loeb Incorporated. Mr. Edelman received his Bachelor of
Arts Degree from Princeton University and his Masters Degree in Finance from
Harvard University's Graduate School of Business Administration. Mr. Edelman
serves as Chairman of Lomak Petroleum, Inc., and is a Director of Petroleum Heat
& Power Co., Star Gas Corporation, Weatherford Enterra, Inc. and Paradise Music
& Entertainment, Inc. Mr. Edelman is also a Trustee of The Hotchkiss School.

BRIAN J. CREE has served as Executive Vice President, Chief Operating
Officer and Director of the Company since May 1996. Prior to the Gerrity
Acquisition, he served as Chief Operating Officer and Director of Gerrity since
1993. From 1992 to 1993, Mr. Cree served as Senior Vice President -- Operations
and Chief Accounting Officer of Gerrity. Prior to that, Mr. Cree served as Vice
President and Treasurer of Gerrity since its inception in 1990. Mr. Cree served
as Vice President and Treasurer of The Robert Gerrity Company from 1989 to 1990
and served in various accounting capacities with that company from 1987 to 1990.
Prior to that, Mr. Cree was employed as an accountant at the public accounting
firm of Deloitte, Haskins & Sells. Mr. Cree received his Bachelor of Arts Degree
in Accounting from the University of Northern Iowa.

KEITH M. CROUCH has served as Senior Vice President and General Counsel of
the Company since May 1996. Prior to the Gerrity Acquisition, he was a Vice
President of Gerrity commencing in 1993 and was appointed a Director in 1994.
From 1992 to 1993, Mr. Crouch served as Corporate Counsel to Gerrity. Prior to
joining Gerrity, Mr. Crouch was in private practice with the law firms of
Gorsuch, Kirgis, Campbell Walker

38
<PAGE> 39

and Grover; Kirkland & Ellis and Pendleton, Friedberg, Wilson and Hennessey. Mr.
Crouch received a Bachelor of Arts and Juris Doctor Degrees from the University
of Colorado.

RONALD E. DASHNER has served as Senior Vice President, Operations of the
Company since its formation. He joined SOCO in 1994 and served as Operations
Manager of SOCO's D-J Basin/Greater Green River Unit. In late 1995 he was
appointed Vice President -- Rocky Mountain Division. From 1991 to 1994, Mr.
Dashner was Onshore Gulf Coast Operations Manager for Enron Oil & Gas Company.
From 1980 through 1990, Mr. Dashner held various positions with TXO Production
Corp., including Drilling & Production Manager -- Rocky Mountain District and
Assistant District Manager -- East Texas District. From 1978 to 1980, he was
employed by Davis Oil Company in Engineering and Operations. From 1975 to 1978,
he was employed by Chevron in the Drilling, Production and Construction
Department. Mr. Dashner received his Bachelor of Science Degree in Civil
Engineering from Colorado State University.

DAVID J. KORNDER has served as Vice President and Chief Financial Officer
of the Company since May 1996. Prior to the Gerrity Acquisition, he served as a
Vice President -- Finance of Gerrity beginning in early 1993. From 1989 through
1992, Mr. Kornder was an Assistant Vice President for Gillett Group Management,
Inc. Prior to that, Mr. Kornder was an accountant with the independent
accounting firm of Deloitte & Touche for five years. Mr. Kornder received his
Bachelor of Arts Degree in Accounting from Montana State University.

DAVID R. MACOSKO has served as a Vice President of the Company since May
1996. Prior to the Gerrity Acquisition, he served as a Vice President of Gerrity
from 1994. From 1992 to 1994, Mr. Macosko served as Operations Coordinator and
Manager of Accounts Payable with Gerrity. Mr. Macosko has eleven years of
experience in the oil and gas industry. Mr. Macosko received a Bachelor of
Science Degree in Accounting from West Virginia University.

TERRY L. RUBY has served as a Vice President of the Company since May 1996.
Prior to the Gerrity Acquisition, Mr. Ruby was a senior landman of Gerrity
beginning in 1992 and was appointed a Vice President -- Land of Gerrity in 1995.
His current responsibilities include management and administration of land
assets, acquisitions and divestitures. Prior to his employment with Gerrity, Mr.
Ruby worked with Apache Corporation from 1990 to 1992, and with Baker
Exploration Company from 1982 to 1989. Mr. Ruby holds a Bachelor of Science
Degree in Minerals Land Management from the University of Colorado and an M.B.A.
from the University of Denver.

DAVID W. SIPLE has served as a Vice President of the Company since May
1996. He joined SOCO's land department in 1994 and was appointed a Land Manager
with SOCO in 1995. His current responsibilities include the accomplishment of
all land related aspects of the Company's drilling recompletion and refrac
programs. From 1990 through May 1994, Mr. Siple was the Land Manager of Gerrity.
From 1981 through 1989, Mr. Siple was employed by PanCanadian Petroleum Company
in the Land Department. Mr. Siple received his Bachelor of Science Degree in
Mineral Land Management from the University of Colorado.

ARNOLD L. CHAVKIN will be appointed a Director of the Company following the
completion of the Transactions. Mr. Chavkin is a General Partner at Chase
Capital Partners. Chase Capital Partners is a General Partner of Chase Venture
Capital Associates, L.P. Before assuming such position, Mr. Chavkin was a member
of Chemical Bank's merchant banking group and, prior to that, a generalist in
its corporate finance group specializing in mergers and acquisitions and private
placements for the energy industry. Prior to that, Mr. Chavkin worked in
corporate development for Freeport McMoRan, and held various positions with Gulf
and Western Industries. Mr. Chavkin is a Certified Public Accountant. He
received his Bachelor of Arts and M.B.A. degrees from Columbia University. Mr.
Chavkin is also a director of American Radio Systems, Inc., Bell Sports, Reading
& Bates Corporation and Wireless One, Inc.

ROBERT J. CLARK has served as a Director of the Company since May 1996. Mr.
Clark is the President of Bear Paw Energy Inc., a wholly owned subsidiary of
TransMontaigne Oil Company. Mr. Clark formed a predecessor company Bear Paw
Energy Inc. in 1995 and joined TransMontaigne in 1996 when TransMontaigne
acquired a majority interest in the predecessor company. From 1988 to 1995 he
was President of SOCO Gas Systems, Inc. and Vice President -- Gas Management for
SOCO. Mr. Clark was Vice President

39
<PAGE> 40

Gas Gathering, Processing and Marketing of Ladd Petroleum Corporation, an
affiliate of General Electric from 1985 to 1988. Prior to 1985, Mr. Clark held
various management positions with NICOR, Inc. and its affiliates NICOR
Exploration, Northern Illinois Gas and Reliance Pipeline Company. Mr. Clark
received his Bachelor of Science Degree from Bradley University and an M.B.A.
from Northern Illinois University.

JAY W. DECKER has served as a Director of the Company since May 1996. Mr.
Decker has been the Executive Vice President and a Director of Hugoton Energy
Corporation, a public independent oil company since 1995. From 1989 until its
merger into Hugoton Energy, Mr. Decker was the President and Chief Executive
Officer of Consolidated Oil & Gas, Inc., a private independent oil company based
in Denver, Colorado and President of a predecessor company. Prior to 1989, Mr.
Decker served as Vice President -- Operations for General Atlantic Energy
Company and in various capacities for Peppermill Oil Company, Wainoco Oil & Gas
and Shell Oil Company. Mr. Decker received his Bachelor of Science Degree in
Petroleum Engineering from the University of Wyoming. Mr. Decker also serves as
a Director of FX Energy.

WILLIAM J. JOHNSON will resign as a Director of the Company following the
completion of the Transactions. Mr. Johnson has served as a Director of the
Company since May 1996. Mr. Johnson, a Director of SOCO since 1994, is a private
consultant to the oil and gas industry and is President and a Director of JonLoc
Inc., an oil and gas company of which he and his family are the sole
shareholders. From 1991 to 1994, Mr. Johnson was President, Chief Operating
Officer and a Director of Apache Corporation. Previously, he was a Director,
President and Chief Executive Officer of Tex/Con Oil and Gas, where he served
from 1989 to 1991. Prior thereto, Mr. Johnson served in various capacities with
major oil companies, including Director and President USA of BP Exploration
Company, President of Standard Oil Production Company and Senior Vice President
of The Standard Oil Company. Mr. Johnson received a Bachelor of Science degree
in Petroleum Geology from Mississippi State University and completed the
Advanced Management Course at the University of Houston. Mr. Johnson serves as a
Director of Tesoro Petroleum, Camco International and J. Ray McDermott. Mr.
Johnson also serves on the advisory board of Texas Commerce Bank, Houston.

ALEXANDER P. LYNCH has served as a Director of the Company since May 1996.
Mr. Lynch is currently a Partner at the Beacon Group, a financial advisory and
merchant banking firm. Mr. Lynch had been Co-President and Co-Chief Executive
Officer of The Bridgeford Group, a financial advisory firm, since 1995. From
1991 to 1994, he served as Senior Managing Director of Bridgeford. From 1985
until 1991, Mr. Lynch was a Managing Director of Lehman Brothers, a division of
Shearson Lehman Brothers Inc. Mr. Lynch received his Bachelor of Arts Degree
from the University of Pennsylvania and an M.B.A. from the Wharton School of
Business at the University of Pennsylvania. Mr. Lynch also serves as a Director
of Lincoln Snacks Company and Illinois Central Corporation.

WILLIAM E. MACAULAY will be appointed a Director of the Company following
the completion of the Transactions. Mr. Macaulay has been the President and
Chief Executive Officer of First Reserve Corporation, a corporate manager of
private investments (including First Reserve Fund VII, Limited Partnership)
focusing on the energy and energy related sectors, since 1983. Prior to 1983, he
was a General Partner of Meridian Capital Company, a private investment firm
specializing in corporate buyouts and energy. From 1976 to 1981, Mr. Macaulay
was with Oppenheimer & Co., where he served in various capacities, including as
Executive Vice President of Oppenheimer Management Corp. and as Director of
Corporate Finance and a Member of the Management Committee and a General Partner
of Oppenheimer & Co. He holds a B.A. from the City College of New York and an
M.B.A. from the Wharton School of the University of Pennsylvania. Mr. Macaulay
serves as a director of Weatherford Enterra, Inc., Maverick Tube Corporation,
TransMontaigne Oil Company, Hugoton Energy Corporation, Cal Dive International,
Inc. and Domain Energy Corporation.

JOHN C. SNYDER will resign as a Director of the Company following the
completion of the Transactions. Mr. Snyder has served as a Director of the
Company since its formation. Mr. Snyder, the Chairman and Chief Executive
Officer of SOCO, founded one of SOCO's predecessors in 1978. From 1973 to 1977,
Mr. Snyder was an independent oil operator in Texas and Oklahoma. Previously, he
was a director and the Executive Vice President of May Petroleum Inc. where he
served from 1971 to 1973. Mr. Snyder was the first president of
Canadian-American Resources Fund, Inc., which he founded in 1969. From 1964 to
1966, Mr. Snyder was employed by Humble Oil and Refining Company (currently
Exxon Co., USA) as a petroleum engineer. Mr.

40
<PAGE> 41

Snyder received his Bachelor of Science Degree in Petroleum Engineering from the
University of Oklahoma and his Masters Degree in Business Administration from
the Harvard University Graduate School of Business Administration. Mr. Snyder is
a director of the Community Enrichment Center, Inc., Forth Worth, Texas.

CHANGE IN CONTROL PLAN

In June 1997, the Company adopted a Change in Control Plan (the "Change in
Control Plan") which will provide payments to all employees in the event there
is a "change in control" (as defined in the Change in Control Plan) of the
Company and the employee is terminated, or for certain executives,
constructively terminated. The Change in Control Plan provides that certain
executives and key managers are entitled to receive payments, including an
amount ranging from 34% to 150% of their base compensation in the year the
payment is to be made plus an amount equal to their most recent bonus. Further,
upon a change in control all non-vested securities of the Company held by
employees (as defined in the Change in Control Plan) including non-vested
options to purchase Common Stock held by employees and all non-vested rights
under the Company's 401(k) plan, bonus plan and deferred compensation plan vest
automatically.

EDELMAN EMPLOYMENT AGREEMENT AND RELATED MATTERS

Mr. Edelman, the Chief Executive Officer of the Company, has entered into
an employment agreement (the "Employment Agreement"), which will become
effective concurrently with the sale of the shares of Common Stock offered
hereby. Under the Employment Agreement, Mr. Edelman has agreed to be employed by
the Company for a period of three years, at a base salary of $350,000 per year,
subject to adjustment by mutual agreement. Pursuant to the Employment Agreement,
Mr. Edelman will commit a substantial portion of his working time to the Company
and the business of the Company will represent his primary responsibility. Under
the terms of the Employment Agreement, however, he may continue to engage in
outside business activities at substantially current levels. Mr. Edelman is
entitled to receive an annual bonus during the term of his employment, with the
target bonus set at 100% of his base salary, based on performance criteria
determined by the Company's Board of Directors in its sole discretion. The
Employment Agreement also provides that if Mr. Edelman's employment is
terminated by the Company without cause, or by Mr. Edelman for good reason (as
defined in the Employment Agreement), he will be entitled to payments equal to
two times the sum of: (i) his base salary for the then-current year; plus (ii)
the greater of (a) his target bonus for the then-current year and (b) the actual
bonus paid to him for the prior year; plus (iii) the maximum contributions the
Company would have made in the year of termination on Mr. Edelman's behalf to
the Company's 401(K) plan and the amount Mr. Edelman would have accrued in the
year of termination under the Company's Deferred Compensation Plan. In addition,
Mr. Edelman would receive a prorated portion of his target bonus for the
then-current year.

Concurrently with the sale of the shares of Common Stock offered hereby,
the Company will grant Mr. Edelman options to purchase 250,000 shares of Common
Stock, which options will vest immediately pursuant to the Company's stock
option plan described below under "Stock Option Plan."

Mr. Edelman has served since 1988 and expects to continue to serve as
Chairman of Lomak, a publicly traded oil and gas company whose principal areas
of operation are the Midcontinent, Appalachian and Gulf Coast regions of the
United States. The Company currently has no business relationships with Lomak
and Lomak does not own any of the Company's securities. Although the Company
does not believe that any conflicts have arisen, or are likely to arise, as a
result of Mr. Edelman's position with Lomak, because of Mr. Edelman's position
at Lomak, conflicts of interests may arise between the Company and Lomak. The
Company intends that the terms of any future transactions and agreements between
the Company and Lomak will be substantially as favorable to the Company as could
be obtained from third parties. In the past, with respect to new business
proposals, including acquisitions, the Company and Mr. Edelman have employed the
following procedures to resolve any potential conflicts: (i) if such proposals
were directed to or originated by Lomak or its employees, such proposals were
deemed to be for Lomak's benefit; and (ii) if such proposals were directed to or
originated by the Company or its employees, or if such proposals were not
specifically identified for either company or its employees, such proposals were
deemed to be for the Company's benefit. Mr. Edelman and the Company plan to
continue the foregoing procedures to resolve any future conflicts that may
arise.

41
<PAGE> 42

Delaware law imposes certain fiduciary duties on corporate directors,
including a duty of loyalty. The duty of loyalty has been generally described as
a duty to act in good faith and in the best interests of the corporation. Under
the corporate opportunity doctrine developed by the Delaware courts, an
individual who fails to offer to the corporation of which he serves as a
director a business opportunity presented to such individual in his capacity as
a director of that corporation may be liable for a breach of fiduciary duty.
Neither the Company's Certificate of Incorporation or Bylaws, nor the
certificate of incorporation or bylaws of Lomak limit a director's fiduciary
duty with respect to potential conflicts of interests.

STOCK OPTION PLAN

The Company's stock option plan, which is administered by the Compensation
Committee, provides for the granting of options to purchase shares of Common
Stock to key employees of the Company and certain other persons who are not
employees of the Company, but who from time to time provide substantial advice
or other assistance or services to the Company. The plan permits options to
acquire up to 3,000,000 shares of Common Stock to be outstanding at any one
time. During 1996, options to purchase 512,000 shares of Common Stock were
granted to 50 employees at an average exercise price of $7.75 per share. During
1997, options to purchase 271,000 shares of Common Stock were granted to 56
employees at an average exercise price of $9.25 per common share. The exercise
price of all such options was equal to the fair market value of the Common Stock
on the date of grant. All options granted during 1996 and 1997 were for a term
of five years, with 30% of the options becoming exercisable after one year, an
additional 30% becoming exercisable after two years and the remaining options
becoming exercisable after the three years.

MANAGEMENT EQUITY PARTICIPATION PROGRAM

Concurrently with the sale of the shares of Common Stock offered hereby,
the Company will sell shares of Common Stock having an aggregate value of
$3,000,000 (303,797 shares of Common Stock at the Public Offering Price of
$9.875 per share) to the Management Investors (including Mr. Edelman) at a
purchase price per share equal to the Public Offering Price. In connection with
these sales, the Company will loan to each Management Investor (other than Mr.
Edelman) up to 85% of such purchase price pursuant to five-year 8.5% loans which
will be secured by all of the shares of Commom Stock purchased by, or awarded
to, such Management Investor.

Concurrently with the sale of the shares of Common Stock offered hereby,
the Company also intends to award an aggregate of 150,000 shares of restricted
Common Stock to the Management Investors (other than Mr. Edelman) in order to
induce these individuals to invest in the Company through their purchase of $1.0
million of Common Stock and to enhance their interest in the Company's future
success. The Company has also agreed to grant to Mr. Edelman 350,000 shares of
restricted Common Stock in consideration for his efforts in structuring and
arranging the private placement of the New Preferred Stock. The ownership of
such shares will vest over a five-year period at the rate of 20% per year, or
sooner if there is a "change in control" (as defined in the Company's Change in
Control Plan).

42
<PAGE> 43

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table provides information as to the beneficial ownership of
Common Stock of the Company by each person who, to the knowledge of the Company,
beneficially owns 5% or more of the Common Stock of the Company, each person who
will be a director of the Company after the Offering, the five most highly
compensated executive officers, including the Chief Executive Officer and by all
such executive officers and directors of the Company as a group. Except as noted
below, no director or executive officer of the Company beneficially owns any
equity securities of the Company other than Common Stock and Warrants. The
business address of each individual listed below, except as otherwise noted, is:
c/o Patina Oil & Gas Corporation, 1625 Broadway, Suite 2000, Denver, Colorado
80202.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP OF COMMON STOCK AFTER THE
COMMON STOCK PRIOR TO THE COMMON STOCK AFTER THE TRANSACTIONS --
TRANSACTIONS(a)(b)(c) TRANSACTIONS(d) AS ADJUSTED(e)
-------------------------- ----------------------- -----------------------
NUMBER NUMBER NUMBER
OF SHARES PERCENTAGE OF SHARES PERCENTAGE OF SHARES PERCENTAGE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Edelman............. 30,000 * 482,532 2.4% 952,532 4.7%
Brian J. Cree................. 39,279 * 51,937 * 166,687 *
Keith M. Crouch............... 9,652 * 19,779 * 70,779 *
Ronald E. Dashner............. 8,400 * 18,527 * 67,127 *
David J. Kornder.............. 7,227 * 17,354 * 59,954 *
Jay W. Decker................. 2,927 * 2,927 * 11,427 *
Robert J. Clark............... 2,927 * 2,927 * 11,427 *
Alexander P. Lynch............ 2,927 * 2,927 * 11,427 *
Arnold L. Chavkin(f).......... 0 * 1,585,903 7.9% 1,585,903 7.9%
William E. Macaulay(g)........ 0 * 2,290,748 11.4% 2,290,748 11.4%
All executive officers and
directors as a group........ 118,296 0.6% 4,513,302 22.1% 5,355,422 26.1%
Snyder Oil Corporation........ 14,000,000(h) 74.4% 0 * 0 *
777 Main Street
Fort Worth, Texas 76102
Stark Investments............. 1,464,420 7.2% 1,464,420 6.8% 1,464,420 6.8%
150 West Market Street
Mequon, Wisconsin 53092
First Reserve Fund VII,
Limited Partnership......... 0 * 2,290,748 11.4% 2,290,748 11.4%
475 Steamboat Road
Greenwich, Connecticut 06830
Chase Venture Capital
Associates, L.P. ........... 0 * 1,585,903 7.9% 1,585,903 7.9%
380 Madison Avenue, 12th
Floor
New York, New York 10017
</TABLE>

- ---------------
* Less than 1%

(a) As of June 30, 1997.

(b) All shares are owned both of record and beneficially unless otherwise
specified by footnote to this table. Based solely upon information furnished
by such individuals or contained in filings made by such beneficial owners
with the Commission.

(c) Calculated pursuant to Rule 13d-3(d) under the Exchange Act, shares not
outstanding that are subject to options, warrants, rights, or conversion
privileges exercisable within sixty days are deemed outstanding for the
purpose of calculating the number and percentage owned by such person, but
not deemed outstanding for the purpose of calculating the percentage owned
by any other person.

(d) For purposes of this calculation, the number of shares of Common Stock
deemed outstanding includes: (i) 230,000 shares of Common Stock issued to
the New Preferred Stock Investors (including 70,000 shares to be transferred
to the New Preferred Stock Investors or their designated affiliates by
SOCO); (ii) 303,797 shares of Common Stock

43
<PAGE> 44

purchased by the Management Investors (at the Public Offering Price of
$9.875 per share); (iii) 4,210,526 shares of Common Stock issuable upon
conversion of the New Preferred Stock (in conjunction with the issuance of
1,600,000 shares of New Preferred Stock having a conversion price of $9.50
per share); (iv) 250,000 shares of Common Stock issuable upon exercise of
stock options issued to Mr. Edelman pursuant to the Company's Stock Option
Plan; and excludes the 500,000 shares of restricted Common Stock awarded to
the Management Investors (which shares will vest over a five-year period at
the rate of 20% per year).

(e) For purposes of this calculation, the number of shares of Common Stock
deemed outstanding includes those included in note (d) above and also
includes: (i) the 500,000 shares of restricted Common Stock awarded to the
Management Investors (which Shares will vest over a five-year period at the
rate of 20% per year); and (ii) 394,620 unvested shares issuable upon
exercise of outstanding stock options (having a weighted average exercise
price of $8.40 per share).

(f) Mr. Chavkin may be deemed to share beneficial ownership of the 571,429
shares of New Preferred Stock and 1,585,903 shares of Common Stock owned by
Chase Venture Capital Associates, L.P. through his role with Chase Venture
Capital Associates, L.P. Mr. Chavkin disclaims beneficial ownership of such
shares of New Preferred Stock and Common Stock.

(g) Mr. Macaulay may be deemed to share beneficial ownership of the 825,397
shares of New Preferred Stock and 2,290,748 shares of Common Stock owned by
First Reserve Fund VII, Limited Partnership through his ownership of common
stock of First Reserve Corporation, which is the sole general partner of
First Reserve Fund VII, Limited Partnership. Mr. Macaulay disclaims
beneficial ownership of such shares of New Preferred Stock and Common Stock.

(h) Between 10,000,000 and 11,500,000 of these shares (depending on whether, and
to what extent, the Underwriters exercise their overallotment option) will
be sold by SOCO in this Offering. 70,000 of these shares will be transferred
to the New Preferred Stock Investors or their designated affiliates and the
remaining 2,430,000 to 3,930,000 shares will be repurchased by the Company
as part of the Concurrent Transactions.

44
<PAGE> 45

SELLING STOCKHOLDER

The following table sets forth certain information concerning the
beneficial ownership of Common Stock by SOCO.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE NUMBER OF
TRANSACTIONS NUMBER OF OFFERING(a) NUMBER OF SHARES BENEFICIALLY
SELLING ---------------------- SHARES BEING --------------------- SHARES BEING OWNED AFTER THE
STOCKHOLDER NUMBER(b) PERCENT OFFERED NUMBER PERCENT REPURCHASED(a) TRANSACTIONS
- ---------------- ---------- ------- ------------ --------- ------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Snyder Oil
Corporation... 14,000,000 74.1% 10,000,000 4,000,000 21.2% 3,930,000 0
</TABLE>

- ---------------

(a) Assumes that the Underwriters' overallotment option is not exercised and
that all shares offered hereby will be sold and no other shares of Common
Stock will be purchased or sold by SOCO. If the Underwriters' overallotment
option is exercised in full, SOCO will beneficially own 2,500,000 shares,
representing approximately 13.3% of the outstanding Common Stock, and,
accordingly, the number of shares repurchased by the Company as part of the
Concurrent Transactions will be 2,430,000, as 70,000 will be transferred to
the New Preferred Stock Investors or their designated affiliates by SOCO.

(b) Of the 14,000,000 shares of Common Stock owned by SOCO, 2,000,000 shares are
Series A Common Stock. The Series A Common Stock has three votes per share
rather than one vote per share. The Series A Common Stock will automatically
convert into Common Stock upon sale by SOCO.

DESCRIPTION OF CAPITAL STOCK

GENERAL

Pursuant to the Certificate of Incorporation of the Company, the authorized
capital stock consists of 40,000,000 shares of common stock, par value $.01 per
share (of which 38,000,000 shares are Common Stock and 2,000,000 shares have
been designated Series A Common Stock) and 5,000,000 shares of preferred stock,
par value $0.01 per share. As of June 30, 1997, there were 18,820,248 shares of
Common Stock outstanding, 2,000,000 of which were Series A Common Stock, and
1,467,926 shares of Old Preferred Stock outstanding. All of the Series A Common
Stock is owned by SOCO and, upon sale or transfer, will convert into Common
Stock. The following descriptions of the securities of the Company are
summaries, do not purport to be complete or to give effect to applicable
statutory or common law, and are qualified in their entirety by reference to the
Certificate of Incorporation, which is included as an exhibit to the Company's
Registration Statement on Form S-4 dated April 2, 1996.

COMMON STOCK

General. The Company is authorized to issue 40,000,000 shares of common
stock, par value $0.01, of which 38,000,000 shares are Common Stock and
2,000,000 shares have been designated as Series A Common Stock. The holders of
Common Stock are entitled to one vote for each share on all matters submitted to
a vote of stockholders. The holders of Common Stock do not have cumulative
voting rights in the election of directors of the Company. The holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of legally available funds. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets of the Company remaining after
provision for payment of liabilities and satisfaction of the liquidation
preference of any shares of preferred stock that may be outstanding. The holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights. The shares of Common Stock outstanding are validly issued, fully paid
and nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to those of holders of the Old Preferred Stock and any other
series of preferred stock.

Series A Common Stock. Except as set forth below, each share of Series A
Common Stock is identical in all respects to the Common Stock. The holders of
shares of Series A Common Stock are entitled to vote upon all matters submitted
to a vote of the stockholders of the Company, but shall in all cases be entitled
to three votes per share of Series A Common Stock held. Upon sale by SOCO or
upon notice to the Company that the Company is no longer eligible for inclusion
in SOCO's consolidated financial statements, the Series A Common Stock shall
automatically convert into shares of Common Stock.

45
<PAGE> 46

PREFERRED STOCK

The Company is authorized to issue 5,000,000 shares of preferred stock, par
value $.01 per share. The Company presently has one series of preferred stock
outstanding and will issue another series of preferred stock concurrently with
the Offering.

Old Preferred Stock

As of June 30, 1997, 1,467,926 shares of the Company's 7.125% Preferred
Stock (the "Old Preferred Stock") were outstanding. Shares of the Old Preferred
Stock are convertible into Common Stock at any time at $8.61 per share. Shares
of Old Preferred Stock are redeemable at 105.7% at the option of the Company at
any time after May 2, 1998 if the average closing price of the Company's Common
Stock is greater than $12.92 per share for 20 of the 30 days prior to and not
less than five days preceding the redemption date. Shares of Old Preferred Stock
are redeemable at any time after May 2, 1999 at 104.988% of their stated value,
declining to 100% in 2006. The stated value of the Old Preferred Stock is $25.00
per share; the liquidation preference is $25.00 per share, plus accrued and
unpaid dividends. Holders of shares of Old Preferred Stock are not generally
entitled to vote, except with respect to certain limited matters.

New Preferred Stock

Subject to the conditions described under "Concurrent Transactions," the
Company will issue, in connection with the sale of the shares of Common Stock
offered hereby, 1,600,000 shares of New Preferred Stock to the New Preferred
Stock Investors. The New Preferred Stock will be convertible into Common Stock,
based on the $25.00 per share liquidation preference, at the option of the
holders thereof at any time at a conversion price equal to $9.50 per share.
Accordingly, one share of New Preferred Stock would be convertible into
approximately 2.6316 shares of Common Stock (which is the result of $25.00
divided by $9.50). Holders of New Preferred Stock will be entitled to vote their
shares of New Preferred Stock with the Common Stock, based upon the number of
shares of Common Stock into which the shares of New Preferred Stock are
convertible. In addition, the two holders of New Preferred Stock holding the
largest number of shares of New Preferred Stock shall each be entitled to
designate a member of the Company's Board of Directors.

The New Preferred Stock will have a stated value of $25.00 per share and
will carry an 8.5% annual dividend payable quarterly. The dividend will be
payable in-kind (the "PIK Dividend") for two years from the issuance date (the
"PIK Period") and payable in cash thereafter. The PIK Dividend will be payable
based on the New Preferred Stock's stated value of $25.00 per share. During the
PIK Period, the New Preferred Stock Investors have agreed not to sell short any
of the Company's securities. This restriction shall also apply during the PIK
Period to future purchasers of the New Preferred Stock or of the underlying
Common Stock into which they are convertible. The Company has agreed that,
following the PIK Period, it will register the shares of New Preferred Stock
(and the shares of Common Stock underlying them) with the Commission, as
described below under "Registration Rights."

The Company will have the right to redeem the New Preferred Stock at any
time, in whole or in part, beginning three years after the issuance date at 106%
of its stated value, plus accrued and unpaid interest thereon to the redemption
date. Thereafter, the redemption price will decline by two percentage points per
annum until the redemption price reaches the stated value of the New Preferred
Stock. The New Preferred Stock will have a liquidation preference equal to
$25.00 per share plus accrued dividends.

Future Issuances of Preferred Stock

As the Company has elected to sell 1,600,000 shares of New Preferred Stock
concurrently with the sale of the shares of Common Stock offered hereby, it
shall retain the right to sell, in a subsequent sale, up to 920,000 additional
shares of New Preferred Stock to the New Preferred Stock Investors at any time
prior to December 31, 1997 for a purchase price of $25.00 per share. Any such
sale shall be subject to certain conditions, including: (i) the absence of any
material adverse change in the business of the Company since the date hereof;
and (ii) the average price of the Common Stock over the ten-day period prior to
the date the

46
<PAGE> 47

Company notifies the New Preferred Stock Investors that it is electing to sell
such shares shall be at least 90% of the Public Offering Price.

The Board of Directors also has authority, without stockholder approval, to
issue up to 1,806,392 additional shares of preferred stock (after consideration
of the 1,600,000 shares of New Preferred Stock issued) in one or more series and
to determine the number of shares, designations, dividend rights, conversion
rights, voting power, redemption rights, liquidation preferences and other terms
of any such series. The issuance of preferred stock, while providing desired
flexibility in connection with possible acquisitions and other corporate
purposes, could adversely affect the voting power of holders of Common Stock and
the likelihood that such holders will receive dividend payments and payments
upon liquidation and could have the effect of delaying, deferring or preventing
a change in control.

WARRANTS

In 1996, the Company issued 3,000,000 warrants (the "Warrants"), initially
representing the right to purchase an aggregate of 3,000,000 shares of Common
Stock. Each Warrant entitles the holder thereof initially to purchase one share
of Common Stock for an initial exercise price of $12.50 per share. The Company
repurchased 80,549 Warrants during 1996 and 2,919,451 Warrants are currently
outstanding. The Warrants are exercisable at any time prior to May 2, 2001, at
which time they expire.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock, Warrants and
Preferred Stock is ChaseMellon Shareholder Services, L.L.C., 2323 Bryan Street,
Suite 2300, Dallas, Texas, 75201.

REGISTRATION RIGHTS

The Company has granted the New Preferred Stock Investors customary
"demand" registration rights with respect to the shares of New Preferred Stock,
the shares of Common Stock issuable upon conversion of shares of the New
Preferred Stock and the shares of Common Stock issued to the New Preferred Stock
Investors in consideration for their prior commitment to purchase the New
Preferred Stock (collectively, the "Registrable Securities"). At any time after
the second anniversary of the date hereof the holder or holders of not less than
one-third of the Registrable Securities then outstanding may demand that the
Company to register Registrable Securities for sale pursuant to the Securities
Act; provided that the number of shares of Registrable Securities proposed to be
sold shall be at least 25% of the aggregate number of shares of Registrable
Securities then outstanding. The holders of Registrable Securities shall be
entitled to no more than three such demands in the aggregate. In addition, the
Company has agreed that, under certain circumstances, holders of Registrable
Securities may have the right to include their shares of Registrable Securities
in registrations by the Company of its securities being offered for sale for its
own account. All such registrations shall be effected at the Company's sole
expense.

In addition, the Company has granted the Management Investors certain
registration rights with respect to the shares of Common Stock that they are
acquiring. The Company has agreed with the Management Investors that if the
Company registers securities for sale pursuant to the Securities Act, it will,
subject to certain conditions, use its reasonable efforts to include in such
registration shares of Common Stock owned by Management Investors who wish to
have their shares so included.

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<PAGE> 48

DESCRIPTION OF CERTAIN INDEBTEDNESS

The following is a summary of certain indebtedness of the Company. To the
extent such summary contains descriptions of the Credit Agreement and the Notes,
such descriptions do not purport to be complete and are qualified in their
entirety by reference to such documents, which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.

CREDIT AGREEMENT

In April 1997, the Company entered into its Credit Agreement. The Credit
Agreement consists of a revolving credit facility in an aggregate amount up to
$140.0 million. The amount available under the Credit Agreement is adjusted
semiannually and equaled $110.0 million at June 30, 1997, with $85.0 million
outstanding under the revolving credit facility.

Assuming the closing of the Transactions as of June 30, 1997, the Company
would have had approximately $29.0 million of availability under the Credit
Agreement on such date. In the event the sale of the New Preferred Stock is
insufficient to fund the repurchase of the shares of Common Stock owned by SOCO,
the Credit Agreement, will permit the Company to fund up to $14.9 million of any
shortfall through borrowings under the Credit Agreement.

The Company may elect that all or a portion of the credit facility bear
interest at a rate equal to: (i) the higher of (a) prime rate plus a margin
equal to .25% (the "Applicable Margin") or (b) the Federal Funds Effective Rate
plus 0.5% plus the Applicable Margin; or (ii) the rate at which Eurodollar
deposits for one, two, three or six months (as selected by the Company) are
offered in the interbank Eurodollar market plus a margin which fluctuates from
0.625% to 1.125%, determined by a debt to EBITDA ratio. During the six months
ended June 30, 1997, the average interest rate under the facility approximated
6.9%.

The Credit Agreement contains certain financial covenants, including but
not limited to a maximum total debt to capitalization ratio, a maximum total
debt to EBITDA ratio and a minimum current ratio. The Credit Agreement also
contains certain negative covenants that could limit the Company's ability to
incur other debt, dispose of assets, pay dividends or repurchase securities. The
negative covenants include, among other things, restrictions on indebtedness,
certain liens, guaranties, speculative derivative instruments and other similar
obligations, asset dispositions, dividends, loans and advances, creation of
subsidiaries, investments, leases, acquisitions, mergers, changes in fiscal
year, transactions with affiliates, changes in business conducted, sale and
leaseback and operating lease transactions, sale of receivables, prepayment of
other indebtedness, amendments to principal documents, negative pledge clauses,
issuance of securities and non-speculative commodity hedging. Specifically, the
Credit Agreement restricts the Company from incurring indebtedness, in addition
to the Notes and to borrowings under the Credit Agreement, in excess of $1.0
million. Borrowings under the Credit Agreement mature in 2000 but may be prepaid
at anytime.

SENIOR SUBORDINATED NOTES

In connection with the Gerrity Acquisition, the Company assumed $100
million principal amount of the Notes issued by Gerrity in 1994. The Notes have
been reflected in the financial statements since the Gerrity Acquisition at a
book value of 105.875% of their principal amount. Interest is payable each
January 15, and July 15. The Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after July 15, 1999, initially at
105.875% of their principal amount, declining to 102.938% on or after July 15,
2000 and declining to 100% on or after July 15, 2001. Upon a change of control,
as defined in the Notes (which, as so defined, does not include the consummation
of the Transactions described herein), the Company is obligated to make an offer
to purchase all outstanding Notes at a price of 101% of the principal amount
thereof. In addition, the Company would be obligated, subject to certain
conditions, to make offers to purchase Notes with the net cash proceeds of
certain asset sales or other dispositions of assets at a price of 101% of the
principal amount thereof. Subsequent to the Gerrity Acquisition, the Company
repurchased and retired $7.7 million principal amount of the Notes, resulting in
$92.3 million of principal amount of Notes outstanding, or a book value of $97.7
million as of June 30, 1997. The Notes are unsecured general obligations

48
<PAGE> 49

of the Company and are subordinated to all senior indebtedness of the Company
and to any existing and future indebtedness of the Company's subsidiaries.

The Notes contain covenants that, among other things, limit the ability of
the Company to incur additional indebtedness, pay dividends, engage in
transactions with shareholders and affiliates, create liens, sell assets, engage
in mergers and consolidations and make investments in unrestricted subsidiaries.
Specifically, the Notes restrict the Company from incurring indebtedness
(exclusive of the Notes) in excess of approximately $51.0 million, if after
giving effect to the incurrence of such additional indebtedness and the receipt
and application of the proceeds therefrom, the Company's interest coverage ratio
is less than 2.5:1 or adjusted consolidated net tangible assets is less than
150% of the aggregate indebtedness of the Company. The Company currently meets
these ratios and accordingly is not limited in its ability to incur additional
debt.

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<PAGE> 50

SHARES ELIGIBLE FOR FUTURE SALE

Immediately following consummation of the Transactions, there will be
15,854,045 shares of Common Stock issued and outstanding (excluding shares of
Common Stock issuable upon the exercise of all currently outstanding options and
warrants and the conversion of all outstanding Preferred Stock). Of such shares,
all of the 11,500,000 shares of Common Stock potentially sold in the Offering
will be immediately eligible for resale in the public market, except for any of
such shares owned by an "affiliate" of the Company within the meaning of Rule
144 under the Securities Act ("Rule 144"), which shares may be subject to
certain of the resale limitations of Rule 144. Of the 4,354,045 remaining
outstanding shares, 730,000 are "restricted securities" within the meaning of
Rule 144 and may not be publicly resold, except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption from
registration, including that provided by Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has held "restricted securities" for at least
one year (including a person who may be deemed an affiliate of the Company) is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1% of the then-outstanding shares of
Common Stock of the Company, and the average weekly trading volume of the
Company's Common Stock on all exchanges and on the NYSE during the four calendar
weeks preceding the sale. In addition to the previously described volume
limitations on the sale of restricted securities and securities held by
affiliates of the Company, sales under Rule 144 are also subject to certain
restrictions relating to manner of sale, notice and the availability of current
public information about the Company. A person who has not been an "affiliate"
of the Company at any time during the 90 days preceding a sale, and who has held
restricted shares for at least one year, would be entitled to sell such shares
immediately under Rule 144(k) without regard to the volume limitations, manner
of sale provisions or notice or other requirements of Rule 144. The foregoing
summary of Rule 144 is not intended to be a complete description thereof.

The Company and each of the Management Investors have agreed that, for a
period of 180 days after the date of this Prospectus, they will not, without
prior written consent of the Underwriters, offer, sell, contract to sell or
otherwise dispose of any Common Stock or securities convertible, exercisable or
exchangeable for Common Stock or grant any options or warrants to purchase
Common Stock, subject to certain exceptions. Upon expiration of the 180-day
period, 602,232 shares of Common Stock (assuming the exercise of all currently
outstanding options and warrants) will be eligible for immediate resale without
restriction under the Securities Act, subject to certain volume, timing and
other requirements of Rule 144. Each of the New Preferred Stock Investors has
agreed, in connection with the purchase of the New Preferred Stock, not to
offer, sell, contract to sell or otherwise dispose of any New Preferred Stock or
any Common Stock or securities convertible, exercisable or exchangeable for
Common Stock or grant any options or warrants to purchase Common Stock, for a
period of one year from the date of this Prospectus, and has agreed not to
transfer any such securities between the first and the second anniversary of the
closing of the Offering, except with the consent of the Company's Board of
Directors or pursuant to Rule 144; thereafter, the New Preferred Stock Investors
will be free to sell such shares, but any such sale, transfer or disposition
must be in compliance with the requirements of the Securities Act and any other
applicable laws. In addition, each of the New Preferred Stock Investors has
agreed: (i) not to sell short any of the Company's securities for a period of
two years; and (ii) to certain standstill provisions with respect to the
Company's voting securities, including, among other provisions, a five-year
restriction on the Preferred Stock Investors' ability to transfer any shares of
New Preferred Stock or Common Stock to any person who, after giving effect to
such transfers, would be the beneficial owner of 7.5% or more of the aggregate
voting power of all of the Company's securities, except for transfers in
connection with certain qualifying tender or exchange offers and transfers to
persons who agree to substantially similar restrictions as those agreed to by
the New Preferred Stock Investors. See "Concurrent Transactions -- Issuance of
New Preferred Stock" and "Description of Capital Stock -- Preferred Stock -- New
Preferred Stock."

The Company has agreed, under certain circumstances, to register for sale
pursuant to the Securities Act, the shares of New Preferred Stock, the shares of
Common Stock issuable upon conversion thereof and the shares of Common Stock
issued to the New Preferred Stock Investors in consideration for their prior
commitment to purchase shares of New Preferred Stock and the shares of Common
Stock purchased by, or awarded to, the Management Investors. See "Description of
Capital Stock -- Registration Rights."

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<PAGE> 51

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, SOCO has
agreed to sell to each of the Underwriters named below, and each of such
Underwriters, for whom Smith Barney, Inc. and Morgan Stanley & Co. Incorporated
are acting as representatives (the "Representatives"), has severally agreed to
purchase from SOCO, the respective number of shares of Common Stock set forth
opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
- ------------------------------------------- ----------
<S> <C>
Smith Barney Inc. ......................... 1,487,100
Morgan Stanley & Co. Incorporated.......... 1,487,100
A.G. Edwards & Sons, Inc. ................. 1,487,100
Jefferies & Company, Inc. ................. 1,487,100
PaineWebber Incorporated................... 1,487,100
ABN AMRO Chicago Corporation............... 115,000
Bear, Stearns & Co. Inc. .................. 115,000
Donald & Co. Securities, Inc. ............. 80,500
Donaldson, Lufkin & Jenrette Securities
Corporation.............................. 115,000
First Albany Corporation................... 80,500
Gaines, Berland Inc. ...................... 80,500
Gerard Klauer Mattison & Co., Inc. ........ 80,500
Hanifen, Imhoff Inc. ...................... 80,500
Howard, Weil, Labouisse, Friedrichs
Inc. .................................... 115,000
Johnson Rice & Company L.L.C. ............. 80,500
C.L. King & Associates, Inc. .............. 80,500
Kirkpatrick, Pettis, Smith, Polian Inc. ... 80,500

<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
- ------------------------------------------- ----------
<S> <C>
Lehman Brothers Inc. ...................... 115,000
McDonald & Company Securities, Inc. ....... 80,500
McMahan Securities Co. L.P. ............... 80,500
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................. 115,000
Monness, Crespi, Hardt & Co. Inc. ......... 80,500
Morgan Keegan & Company, Inc. ............. 80,500
Oppenheimer & Co., Inc. ................... 115,000
Petrie Parkman & Co., Inc. ................ 115,000
Prudential Securities Incorporated......... 115,000
Ragen MacKenzie Incorporated............... 80,500
Rauscher Pierce Refsnes, Inc. ............. 80,500
Raymond James & Associates, Inc. .......... 80,500
The Robinson-Humphrey Company, LLC......... 80,500
Wm Smith Securities, Incorporated.......... 80,500
Stephens Inc. ............................. 80,500
Van Kasper & Company....................... 80,500
----------
Total.............................. 10,000,000
==========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all shares of Common Stock offered hereby (other than those covered by the
overallotment option described below) if any such shares are taken.

The Underwriters initially propose to offer part of the shares offered
hereby directly to the public at the public offering price set forth on the
cover of this Prospectus and part of the shares offered hereby to certain
dealers at a price which represents a concession not in excess of $0.32 per
share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $0.10 per share to other
Underwriters, or to certain other dealers.

SOCO has granted to the Underwriters an overallotment option to purchase up
to an additional 1,500,000 shares of Common Stock on the same terms per share.
If the Underwriters exercise such option, each of the Underwriters will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
offered hereby. The Underwriters may exercise such option on or before the
thirtieth day from the date of the public offering of the shares offered hereby
and only to cover overallotments made of the shares in connection with the
Offering. Under the terms of the Share Repurchase Agreement, the Company is
obligated to purchase from SOCO all shares of Common Stock owned by SOCO that
are not sold in the Offering. Accordingly, to the extent that the Underwriters
do not exercise their overallotment option, the Company will purchase such
shares from SOCO.

In connection with this Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appears above) and
may effect transactions which stabilize, maintain or otherwise affect the market
price of the Common Stock at levels above those which might otherwise prevail in
the open market. Such transactions may include placing bids for the Common Stock
or effecting purchase of the Common Stock for the purpose of pegging, fixing or
maintaining the price of the Common Stock or for the purpose of reducing a
syndicate short position created in connection with the offering. A syndicate
short position may be covered by

51
<PAGE> 52

exercise of the option described above in lieu or in addition to open market
purchases. In addition, the contractual arrangements among the Underwriters
include a provision whereby, if the Representatives purchase Common Stock in the
open market for the account of the underwriting syndicate and the securities
purchased can be traced to a particular Underwriter or member of the selling
group, the underwriting syndicate may require the Underwriter or selling group
member in question to purchase the Common Stock in question at the cost price to
the syndicate or may recover from (or decline to pay to) the Underwriter or
selling group member in question the selling concession applicable to the
securities in question. The Underwriters are not required to engage in any of
these activities and any such activities, if commenced, may be discontinued at
any time.

Edwards, one of the Underwriters, has been engaged by the Independent
Committee to render the opinion concerning the fairness, from a financial point
of view, of: (i) the consideration to be paid to the Company for the New
Preferred Stock and (ii) the Repurchase, as described in "Concurrent
Transactions -- Approval of Transactions." For such services, Edwards will
receive a fee of $250,000. Edwards was previously engaged by the Company to
deliver a fairness opinion to Gerrity in connection with the formation of the
Company and the execution by the Company of a certain subordinated loan
agreement. Edwards was also engaged to deliver a fairness opinion to the holders
of Gerrity Preferred Stock in connection with a transaction pursuant to which
holders of depository shares of Gerrity received shares of the Company's
convertible preferred stock. Edwards received customary fees in connection with
the delivery of each of the opinions described in the preceding two sentences.

The Company and SOCO have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.

LEGAL MATTERS

Certain legal matters with respect to the validity of the Common Stock will
be passed upon for the Company by Simpson Thacher & Bartlett (a partnership
which includes professional corporations), New York, New York. Certain legal
matters with respect to the Common Stock will be passed upon for the
Underwriters by Mayer, Brown & Platt, New York, New York.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1995 and 1996 and for each of the three years in the period ended December 31,
1996 have been incorporated by reference and included herein in reliance upon
the report of Arthur Andersen LLP, independent certified public accountants,
incorporated by reference and included herein, and upon the authority of such
firm as experts in accounting and auditing.

The financial statements of Gerrity Oil & Gas Corporation for each of the
two years in the period ended December 31, 1995 have been incorporated by
reference and included herein in reliance upon the report of Arthur Andersen
LLP, independent certified public accountants, incorporated by reference and
included herein, and upon the authority of such firm as experts in accounting
and auditing.

The consolidated statements of Gerrity Oil & Gas Corporation of income and
cash flows for the year ended December 31, 1993, incorporated by reference in
the registration statement, have been incorporated herein in reliance on the
report of Coopers & Lybrand, independent accountants, given on the authority of
that firm as experts in accounting and auditing.

Certain information with respect to the oil and natural gas reserves of the
Company derived from reports of Netherland, Sewell & Associates, Inc., a firm of
independent petroleum consultants, has been included and incorporated herein in
reliance upon the authority of such firm as experts with respect to the matters
contained in its reports.

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<PAGE> 53

AVAILABLE INFORMATION

The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549 and at its Regional
Offices at Seven World Trade Center, Suite 1300, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611.
Copies of such materials also may be obtained by mail at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. In addition, the Commission maintains a
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov. The Common Stock is listed on the New York Stock
Exchange, and similar information concerning the Company may also be inspected
and copied at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.

The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, supplements and exhibits thereto, the
"Registration Statement"), of which this Prospectus constitutes a part, under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
does not contain all of the information set forth in or incorporated by
reference in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the shares offered hereby, reference
is made to the Registration Statement, copies of which may be obtained from the
Commission as set forth above. Any statements contained in this Prospectus
concerning the provisions of any contract, agreement or other document filed
with the Registration Statement as exhibits are not necessarily complete
summaries of such documents, and in each instance reference is made to the copy
of such document so filed. Each such statement is qualified in its entirety by
such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act (Commission file number 1-14344) are incorporated
herein by reference:

(a) Annual Report on Form 10-K for the year ended December 31, 1996;

(b) Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1997 and June 30, 1997; and

(c) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A dated April 25, 1996, as
updated by any amendment or report filed for the purpose of updating such
description.

In addition, the following document heretofore filed by Gerrity Oil & Gas
Corporation with the Commission pursuant to the Exchange Act (Commission file
number 0-18667) is incorporated herein by reference: Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1996.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of filing of such documents. Any
statement contained in a document all or a portion of which is incorporated
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus. The Company will furnish without charge to each person, including
any beneficial owner of Common Stock, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of such person, a copy of any of the
foregoing documents incorporated by reference herein, except for the exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates). Requests for such
copies should be directed to Patina Oil & Gas Corporation, Attention: Investor
Relations, 1625 Broadway, Suite 2000, Denver, Colorado 80202 (telephone: (303)
389-3600).

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<PAGE> 54

GLOSSARY OF OIL AND GAS TERMS

The following are abbreviations and definitions of terms commonly used in
the oil and gas industry and in this Prospectus.

"Bbl" means barrel.

"Bcf" means billion cubic feet.

"Bcfe" means billion cubic feet of natural gas equivalent, which is
determined using the ratio of six Mcf of natural gas to one barrel of oil so
that one barrel of oil is referred to as six Mcf of natural gas or "Mcfe."

"Boe" means barrel of oil equivalent, determined using the ratio of six Mcf
of natural gas (including natural gas liquids) to one Bbl of oil.

"Btu" means British Thermal Unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.

"Capital expenditures" means costs associated with development and
successful exploratory drilling, leasehold acquisitions, producing property
acquisitions, and other miscellaneous capital expenditures.

"Completion" means the stimulation and installation of equipment for the
production of oil or natural gas.

"Developed acreage" means the number of acres that are allocated or
assignable to producing wells or wells capable of production.

"Development well" means a well drilled within the proved area of an oil or
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.

"Frac" means the initial Completion of a well for production.

"Exploitation" means further development of a known oil or natural gas
area.

"Gross" oil and gas wells or "gross" acres are the total number of wells or
acres in which the Company has an interest, without regard to the size of that
working interest.

"Lease operating expense" means all direct costs associated with and
necessary to operate a producing property, excluding production taxes.

"MBbl" means a thousand barrels of oil.

"Mcf" means thousand cubic feet.

"Mcfe" means a thousand cubic feet of natural gas equivalent, which is
determined using the ratio of six Mcf of natural gas to one barrel of oil, so
that one barrel of oil is referred to as six Mcf of natural gas equivalent or
"Mcfe."

"MMBtu" means million Btus.

"MMcf" means million cubic feet.

"MMcfe" means million cubic feet of natural gas equivalent.

"Net" oil and gas wells or "net" acres are determined by multiplying gross
wells or acres by the Company's working interest in those wells or acres.

"Pretax present value" means when used with respect to required disclosure
respecting oil and gas reserves, a calculation of the estimated future gross
revenue to be generated from the production of proved reserves, net of estimated
production and future development costs, using prices and costs in effect as of
the date indicated, without giving effect to non-property related expenses such
as general and administrative expenses, debt service and future income tax
expense or to depreciation, depletion and amortization, discounted using an
annual discount rate of 10%. "Present value of estimated pre tax net revenues"
or "pretax present value at constant prices of estimated future net revenues"
means estimated future net revenues discounted by a factor of ten percent per
annum, before income taxes and with no price or cost escalation or
de-escalation, in accordance with guidelines promulgated by the Securities and
Exchange Commission.

"Productive well" means a well that is producing oil and/or natural gas or
that is capable of production.

"Proved reserves" refer to those quantities of oil and natural gas which,
upon analysis of geologic and engineering data, appear with reasonable certainty
to be recoverable in the future from known oil and natural

54
<PAGE> 55

gas reservoirs under existing economic and operating conditions. Proved reserves
are limited to those quantities of oil and natural gas which can be expected,
with little doubt, to be recoverable commercially at current prices and costs,
under existing regulatory practices and with existing conventional equipment and
operating method.

"Proved developed reserves" include proved developed producing reserves and
proved developed non-producing reserves.

"Proved developed producing reserves" include only those reserves expected
to be recovered from existing completion intervals in existing wells.

"Proved developed nonproducing reserves" include those reserves contained
in geological formations through which an existing well has been drilled but
from which the well has not yet produced. The reserves are said to be
nonproducing or "behind-the-pipe" because the oil and gas are sealed out of the
well bore by the casing leading to the existing completion interval.
Behind-the-pipe reserves are classified as proved developed only if the cost of
completing the well for production of such reserves is relatively small compared
to the cost of a new well.

"Proved undeveloped reserves" include those reserves expected to be
recovered from new wells on proved undrilled acreage or from existing wells
where a relatively major expenditure is required for recompletion.

"Recompletion" refers to the completion of an existing well for production
from a new formation that exists within the well. See "proved developed
nonproducing reserves."

"Refrac" is similar to a recompletion except that the stimulation occurs
within the existing producing formation in an attempt to increase production and
reserves.

"Reserve life index" means the calculation of total proved reserves divided
by oil and natural gas production for the relevant annual period.

"Reserves" means natural gas and oil, on a net revenue interest basis,
found to be commercially recoverable.

"Royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but does not require the owner
to pay any portion of the costs of drilling or operating the wells on the leased
acreage. Royalties may be either landowner's royalties, which are reserved by
the owner of the leased acreage at the time the lease is granted, or overriding
royalty interests, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.

"Spot price" means average of reported natural gas or oil prices for
location-specific contracts with durations of 31 days or less as quoted in
various publications such as Inside FERC.

"Undeveloped acreage" means lease acreage on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and natural gas regardless of whether such acreage contains
proved reserves.

"Working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners royalties. See the definitions of "net revenue interest"
and "royalty" above. For example, the owner of a 100% working interest in a
lease burdened only by a typical 1/8 landowner's royalty would be required to
pay 100% of the costs of a well but would be entitled to retain 87.5% of the
production. The remaining 12.5% would accrue to the royalty owners.

"Workover" means to perform recompletion or mechanical work in an existing
well bore.

In this Prospectus, natural gas volumes are stated at the legal pressure
base of the state or area in which the reserves are located at 60 degrees
Fahrenheit.

55
<PAGE> 56

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PATINA OIL & GAS CORPORATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONDENSED CONSOLIDATED PRO FORMA INFORMATION
Introduction........................................................................ F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet, June 30, 1997............. F-3
Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Six
Months Ended June 30, 1997....................................................... F-4
Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Year
Ended December 31, 1996.......................................................... F-5
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements............ F-6

CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants............................................ F-8
Consolidated Balance Sheets......................................................... F-9
Consolidated Statements of Operations............................................... F-10
Consolidated Statements of Changes in Stockholders' Equity.......................... F-11
Consolidated Statements of Cash Flows............................................... F-12
Notes to Consolidated Financial Statements.......................................... F-13
</TABLE>

F-1
<PAGE> 57

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY

The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1997 and the related Pro Forma Condensed Consolidated Statement of Operations
for the Six Months then Ended and the Year Ended December 31, 1996, give effect
to the Gerrity Acquisition and the Concurrent Transactions. The pro forma
consolidated financial statements are based upon the assumptions set forth in
the accompanying notes to such statements. The pro forma adjustments are based
upon available information and assumptions that management believes are
reasonable under the circumstances.

The pro forma consolidated financial statements as adjusted comprise
historical financial data that have been retroactively adjusted or combined to
reflect the effect of the Gerrity Acquisition and the Concurrent Transactions on
the historical financial statements included elsewhere in this Prospectus. The
Unaudited Pro Forma Condensed Consolidated Balance Sheet at June 30, 1997 was
prepared as if the Concurrent Transactions were consummated on June 30, 1997,
the related Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Six Months Ended June 30, 1997 was prepared as if the Concurrent
Transactions were consummated on January 1, 1997 and the Unaudited Pro Forma
Condensed Consolidated Statement of Operations for the Year Ended, December 31,
1996 was prepared as if both the Gerrity Acquisition and the Concurrent
Transactions were consummated on January 1, 1996. The historical information
provided under the heading "Gerrity Acquisition" in the statement of operations
for the year ended December 31, 1996, includes results for Gerrity for the
period from January 1, 1996 until its purchase on May 2, 1996. The unaudited pro
forma condensed consolidated financial statements should be read in conjunction
with the related historical financial statements and are not necessarily
indicative of the results that would have actually occurred had the Gerrity
Acquisition and the Concurrent Transactions been consummated on the dates or for
the period indicated or which may occur in the future.

F-2
<PAGE> 58

PATINA OIL & GAS CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA UNAUDITED
PATINA HISTORICAL ADJUSTMENTS PRO FORMA
----------------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current assets................................... $ 29,610 $ $ 29,610
Oil and gas properties and equipment, net........ 382,573 382,573
Other noncurrent assets, net..................... 1,334 1,334
-------- --------
$ 413,517 $413,517
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.............................. $ 27,729 $ $ 27,729
Long-term debt................................... 182,685 1,437(e) 178,647
(5,475)(b)
Other noncurrent liabilities..................... 5,561 5,561

Stockholders' equity
Preferred stock, $.01 par...................... 15 16(a) 31
Common stock, $.01 par......................... 188 (39)(b) 159
2(a)
3(c)
5(d)
Capital in excess of par value................. 189,620 39,982(a) 199,459
(36,636)(b)
2,997(c)
4,933(d)
(1,437)(e)
Deferred compensation.......................... -- (4,938)(d) (4,938)
Notes receivable from Management Investors..... -- (850)(c) (850)
Retained earnings.............................. 7,719 7,719
-------- --------
197,542 201,580
-------- --------
$ 413,517 $413,517
======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-3
<PAGE> 59

PATINA OIL & GAS CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA UNAUDITED
PATINA HISTORICAL ADJUSTMENTS PRO FORMA
----------------- ----------- ----------
<S> <C> <C> <C>
REVENUES
Oil and natural gas sales.................... $52,113 $ $ 52,113
Other........................................ 227 227
------- -------
52,340 52,340
------- -------

EXPENSES
Direct Operating............................. 9,322 9,322
Exploration.................................. 62 62
General and administrative................... 2,611 184(f) 3,783
988(g)
Interest and other........................... 8,485 (141)(h) 8,344
Depletion, depreciation, and amortization.... 24,776 24,776
------- -------
45,256 46,287
------- -------
Income before taxes............................ 7,084 6,053
Provision for (benefit from) income taxes...... -- --
------- -------
Net income..................................... 7,084 6,053
------- -------
Dividends on preferred stock................... 1,330 2,113(i) 3,443
Accretion of discount........................ -- 263(a) 263
------- -------
1,330 3,706
------- -------
Net income applicable to common stock.......... $ 5,754 $ 2,347
======= =======
Net income per share........................... $ 0.30 $ 0.15
======= =======
Weighted average shares outstanding............ 18,921 (2,966)(b)(c) 15,955
======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE> 60

PATINA OIL & GAS CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
GERRITY UNAUDITED
PATINA GERRITY PRO FORMA UNAUDITED TRANSACTION PRO FORMA
(HISTORICAL) ACQUISITION ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Oil and gas sales........... $ 82,185 $16,540 $ $ 98,725 $ $ 98,725
Other....................... 1,003 410 1,413 1,413
------- ------- -------- --------
83,188 16,950 100,138 100,138

EXPENSES
Direct Operating............ 14,519 2,841 525(j) 17,718 17,718
(167)(k)
Exploration................. 224 434 658 658
General and
administrative........... 6,151 2,275 (476)(k) 7,425 369(f) 8,782
(525)(j) 988(g)
Interest and other.......... 14,304 4,533 361(l) 19,198 (282)(h) 18,916
Depletion, depreciation, and
amortization............. 44,822 8,968 (2,127)(m) 51,663 51,663
------- ------- -------- --------
80,020 19,051 96,662 97,737
------- ------- -------- --------
Income (loss) before taxes.... 3,168 (2,101) 3,476 2,401
Provision for (benefit from)
income taxes................ (394) (714) 1,108(n) -- --
------- ------- -------- --------
Net income (loss)............. 3,562 (1,387) 3,476 2,401
------- ------- -------- --------
Dividends on preferred
stock....................... 2,129 1,518 (802)(o) 2,845 4,299(i) 7,144
Accretion of discount....... -- -- -- 527(a) 527
------- ------- -------- --------
2,129 1,518 2,845 7,671
------- ------- -------- --------
Net income (loss) applicable
to common stock............. $ 1,433 $(2,905) $ 631 $ (5,270)
======= ======= ======== ========
Net income (loss) per share... $ 0.08 $ 0.03 $ (0.31)
======= ======== ========
Weighted average shares
outstanding................. 17,796 19,787 16,821
======= ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE> 61

PATINA OIL & GAS CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated financial statements reflect
the adjustments described below.

BALANCE SHEET

(a) To reflect the issuance of 1,600,000 shares of New Preferred Stock at $25.00
per share and 160,000 common shares to the New Preferred Stock Investors for
estimated net proceeds of $40.0 million. The estimated net proceeds will be
used to repurchase common shares from SOCO. The New Preferred Stock is being
recorded at a $1,580,000 discount, representing the estimated fair value of
the 160,000 common shares issued to the New Preferred Stock Investors. The
discount will be expensed over the three year call period as additional non
cash dividend expense of $527,000 each year. The 160,000 common shares
issued to the New Preferred Stock Investors have been accounted for as
equity with the allocation of the net proceeds received from the sale of the
New Preferred Stock to be allocated to the New Preferred Stock and Common
Stock based upon the relative fair value of the securities at the date of
issuance. Under the Preferred Stock Purchase Agreement, the New Preferred
Stock Investors have agreed to purchase in the aggregate a minimum of $40.0
million and a maximum of $63.0 million of New Preferred Stock.

(b) To reflect the Repurchase of 3,930,000 common shares from SOCO at $9.33 per
share for $36,674,760. The Repurchase will be financed with proceeds from
issuance of 1,600,000 shares of New Preferred Stock to the New Preferred
Stock Investors and the issuance of 303,797 shares of Common Stock to the
Management Investors.

(c) To reflect the sale of 303,797 restricted common shares to the Management
Investors at $9.875 per share. The Company will loan 85% or $850,000 of the
purchase price to the Management Investors, excluding Mr. Edelman. The
$850,000 has been reflected as a contra account within the equity section on
the balance sheet.

(d) To reflect the granting of 500,000 restricted common shares to the
Management Investors. These restricted common shares have been accounted for
as deferred compensation within the equity section on the balance sheet at
the estimated fair value of $9.875 per share and also shown as a related
reduction in equity to be expensed over the five year vesting period.

(e) To record the estimated costs incurred in conjunction with the Transactions.

STATEMENT OF OPERATIONS

(f) To reflect the terms of the employment agreement entered into with Mr.
Edelman concurrently with the Transactions (annual base salary adjusted to
$350,000 and bonus award increased to maximum targeted amount of 100% of the
adjusted annual base salary).

(g) To reflect the compensation expense associated with the Management Investors
stock grant (100,000 common shares vested annually at an estimated fair
value of $9.875 per share).

(h) To adjust interest expense to reflect the decrease in bank borrowings under
the Company's Credit Agreement due to the excess proceeds netted from the
issuance of $40.0 million of New Preferred Stock, the purchase by Management
Investors of restricted Common Stock, and the repurchase of $36.7 million of
common stock owned by SOCO, net of estimated transaction costs.

(i) To reflect the non-cash dividends on 1,600,000 shares of New Preferred Stock
issued to the New Preferred Stock Investors. The Company has the ability to
issue up to 920,000 additional shares of New Preferred Stock. For each
additional 100,000 shares of New Preferred Stock issued, the six month
dividends and annual dividends would increase by $107,000 and $219,000,
respectively. As the Public Offering Price of the Common Stock is greater
than the conversion price of $9.50 per share, additional non cash dividends
of $789,000 per year would be recorded for two years (reflecting the
issuance of 1,600,000 shares of New Preferred Stock). Accordingly, at the
Public Offering Price

F-6
<PAGE> 62

of $9.875 per share, additional non cash dividends of $395,000 and $789,000
have been reflected in the six month and annual unaudited pro forma
condensed consolidated statement of operations, respectively.

(j) To conform the financial statement presentation by Gerrity of various
overhead changes and recoveries to a basis consistent with that of the
Company.

(k)To reflect the reduction in direct operating and general and administrative
expenses that result from the elimination of redundant personnel, lease space
and other corporate services.

(l) To adjust interest expense to reflect the refinancing or payment of: (i)
$1,200,000 (or 1.20%) of Gerrity's 11 3/4% Senior Subordinated Notes (the
"Notes"); (ii) Gerrity's bank borrowings under the terms of the Company's
bank credit facility; (iii) the payable to parent; and (iv) transaction
costs. The interest expense reflects the Eurodollar Margin set forth in the
current bank credit agreement, which margin was applied to the current
Eurodollar Rate resulting in an average borrowing rate of approximately
6.75%.

(m) To adjust depletion, depreciation and amortization of oil and gas properties
based on the purchase price allocated to Gerrity oil and gas properties and
the use of a combined depletion, depreciation and amortization rate.

(n) To record the estimated provision for income taxes to reflect the
anticipated effective income tax rate of the combined entity after the
Gerrity Acquisition.

(o) To reduce dividends paid on Gerrity Preferred Stock reflecting the exchange
of all Gerrity Preferred Stock into Old Preferred Stock.

F-7
<PAGE> 63

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders,
Patina Oil & Gas Corporation:

We have audited the accompanying consolidated balance sheets of Patina Oil
& Gas Corporation (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Patina Oil & Gas Corporation
and subsidiaries as of December 31, 1995 and 1996, and results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP
Fort Worth, Texas
February 17, 1997

F-8
<PAGE> 64

PATINA OIL & GAS CORPORATION

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents.................................. $ 1,000 $ 6,153 $ 10,568
Accounts receivable................................... 6,611 19,977 15,840
Inventory and other................................... 2,000 1,457 3,202
--------- --------- ---------
9,611 27,587 29,610
--------- --------- ---------
Oil and gas properties, successful efforts method....... 333,513 559,072 564,902
Accumulated depletion, deprecation and amortization... (118,919) (160,432) (183,886)
--------- --------- ---------
214,594 398,640 381,016
--------- --------- ---------
Gas facilities and other................................ 4,775 6,421 5,140
Accumulated depreciation.............................. (4,459) (4,917) (3,583)
--------- --------- ---------
316 1,504 1,557
--------- --------- ---------
Other assets, net....................................... -- 2,502 1,334
--------- --------- ---------
$ 224,521 $ 430,233 $ 413,517
========= ========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...................................... $ 3,852 $ 15,063 $ 18,854
Accrued liabilities................................... 415 11,509 8,875
Payable to parent..................................... 5,344 -- --
--------- --------- ---------
9,611 26,572 27,729
--------- --------- ---------

Senior debt............................................. -- 94,500 85,000
Subordinated debt....................................... -- 103,094 97,685
Debt to parent.......................................... 75,000 -- --
Other noncurrent liabilities............................ 26,247 9,831 5,561
Commitments and contingencies
Stockholders' equity....................................
Preferred stock, $.01 par, 5,000,000 shares
authorized, -0- and 1,593,608 shares issued and
outstanding at December 31, 1995 and December 31,
1996 and 1,467,926 issued and outstanding at June
30, 1997........................................... -- 16 15
Common stock, $.01 par, 40,000,000 shares authorized,
14,000,000 and 18,886,932 shares issued and
outstanding at December 31, 1995 and December 31,
1996 and 18,820,248 issued and outstanding at June
30, 1997........................................... 140 189 188
Capital in excess of par value........................ -- 194,066 189,620
Investment by parent.................................. 113,523 -- --
Retained earnings..................................... -- 1,965 7,719
--------- --------- ---------
113,663 196,236 197,542
--------- --------- ---------
$ 224,521 $ 430,233 $ 413,517
========= ========= =========
</TABLE>

F-9
<PAGE> 65

PATINA OIL & GAS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Oil and gas sales........................... $67,749 $50,073 $82,185 $29,816 $52,113
Other....................................... 73 29 1,003 294 227
------- ------- ------- ------- -------
67,822 50,102 83,188 30,110 52,340
------- ------- ------- ------- -------
EXPENSES
Direct operating............................ 8,110 8,867 14,519 5,401 9,322
Exploration................................. 784 416 224 149 62
General and administrative.................. 7,484 5,974 6,151 3,113 2,611
Interest and other.......................... 3,869 5,476 14,304 4,979 8,485
Depletion, depreciation and amortization.... 43,036 32,591 44,822 18,723 24,776
------- ------- ------- ------- -------
Income (loss) before taxes.................... 4,539 (3,222) 3,168 (2,255) 7,084
------- ------- ------- ------- -------
Provision (benefit) for income taxes
Current..................................... -- -- -- -- --
Deferred.................................... 1,589 (1,128) (394) (394) --
------- ------- ------- ------- -------
1,589 (1,128) (394) (394) --
------- ------- ------- ------- -------
Net income (loss)............................. $ 2,950 $(2,094) $ 3,562 $(1,861) $ 7,084
======= ======= ======= ======= =======
Net income (loss) per common share............ $ 0.21 $ (0.15) $ 0.08 $ (0.16) $ 0.30
======= ======= ======= ======= =======
Weighted average shares outstanding........... 14,000 14,000 17,796 15,959 18,921
======= ======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-10
<PAGE> 66

PATINA OIL & GAS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CAPITAL IN RETAINED
---------------- ---------------- EXCESS OF INVESTMENT EARNINGS
SHARES AMOUNT SHARES AMOUNT PAR VALUE BY PARENT (DEFICIT)
------ ------ ------ ------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993...... -- $ -- 14,000 $140 $ -- $ 92,725 $ --
Credit in lieu of taxes....... -- -- -- -- -- (8,190) --
Change in investment by
parent..................... -- -- -- -- -- 28,221 --
Net income.................... -- -- -- -- -- 2,950 --
----- ---- ------ ---- -------- --------- -------
Balance, December 31, 1994...... -- -- 14,000 140 -- 115,706 --
Credit in lieu of taxes....... -- -- -- -- -- 1,107 --
Change in investment by
parent..................... -- -- -- -- -- (1,196) --
Net loss...................... -- -- -- -- -- (2,094) --
----- ---- ------ ---- -------- --------- -------
Balance, December 31, 1995...... -- -- 14,000 140 -- 113,523 --
Credit in lieu of taxes....... -- -- -- -- -- 171 --
Change in investment by
parent..................... -- -- -- -- -- (7,514) --
Net loss through the Gerrity
Acquisition date........... -- -- -- -- -- (532) --
Gerrity Acquisition........... 1,205 12 6,000 60 194,291 (105,648) --
Issuance of common............ -- -- 4 -- 27 -- --
Repurchase of common and
warrants................... -- -- (1,117) (11) (9,722) -- --
Issuance of preferred......... 389 4 -- -- 9,470 -- --
Preferred dividends........... -- -- -- -- -- -- (2,129)
Net income subsequent to the
Gerrity Acquisition........ -- -- -- -- -- -- 4,094
----- ---- ------ ---- -------- --------- -------
Balance, December 31, 1996...... 1,594 16 18,887 189 194,066 -- 1,965
Issuance of common............ -- -- 4 -- 31 -- --
Repurchase of common and
preferred.................. (126) (1) (71) (1) (4,477) -- --
Preferred dividends........... -- -- -- -- -- -- (1,330)
Net income.................... -- -- -- -- -- -- 7,084
----- ---- ------ ---- -------- --------- -------
Balance, June 30, 1997
(Unaudited)................... 1,468 $ 15 18,820 $188 $ 189,620 $ -- $ 7,719
===== ==== ====== ==== ======== ========= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-11
<PAGE> 67

PATINA OIL & GAS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- -------------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss)....................... $ 2,950 $ (2,094) $ 3,562 $(1,861) $ 7,084
Adjustments to reconcile net income
(loss) to net cash provided by
operations
Exploration expense.................. 784 416 224 149 62
Depletion, depreciation and
amortization....................... 43,036 32,591 44,822 18,723 24,776
Deferred taxes....................... 1,589 (1,128) (394) (394) --
Amortization of deferred credits..... (2,539) (2,025) (605) (646) --
Changes in current and other assets
and liabilities
Decrease (increase) in
Accounts receivable............. 3,642 1,472 (1,057) 1,384 4,015
Inventory and other............. -- -- 338 102 52
Increase (decrease) in
Accounts payable................ (1,552) (10,902) (4,249) (5,052) 4,042
Accrued liabilities............. (220) 77 4,844 1,504 (2,313)
Other liabilities............... -- -- 5,511 1,059 (4,237)
-------- -------- ------- ------- -------
Net cash provided by operations...... 47,690 18,407 52,996 14,968 33,481
-------- -------- ------- ------- -------
Investing activities
Acquisition, development and
exploration.......................... (95,596) (21,842) (8,532) (1,375) (8,348)
Gerrity Acquisition expenditures, net of
cash acquired........................ -- -- (2,375) (1,040) --
Sale of oil and gas properties.......... (782) 782 1,111 -- --
-------- -------- ------- ------- -------
Net cash used by investing........... (96,378) (21,060) (9,796) (2,415) (8,348)
-------- -------- ------- ------- -------
Financing activities
Increase (decrease) in payable/debt
to parent............................ 18,476 1,011 (80,466) (78,615) --
Increase (decrease) in indebtedness..... -- -- 72,863 96,108 (14,909)
Deferred credits........................ 1,991 2,838 814 624 --
Increase (decrease) in investment by
parent............................... 28,221 (1,196) (7,514) (7,514) --
Cost of common stock issuance........... -- -- (11,882) (9,310) --
Repurchase of common stock and
warrants............................. -- -- (9,733) (923) (4,479)
Preferred dividends..................... -- -- (2,129) (710) (1,330)
-------- -------- ------- ------- -------
Net cash realized (used) by
financing.......................... 48,688 2,653 (38,047) (340) (20,718)
-------- -------- ------- ------- -------
Increase in cash.......................... -- -- 5,153 12,213 4,415
Cash and equivalents, beginning of
period.................................. 1,000 1,000 1,000 1,000 6,153
-------- -------- ------- ------- -------
Cash and equivalents, end of period....... $ 1,000 $ 1,000 $ 6,153 $13,213 $ 10,568
======== ======== ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-12
<PAGE> 68

PATINA OIL & GAS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)

(1) ORGANIZATION AND NATURE OF BUSINESS

The Company, a Delaware corporation, was incorporated in January 1996 to
hold the assets and operations of SOCO in the Wattenberg Field and to facilitate
the acquisition of Gerrity. Previously, SOCO's Wattenberg operations had been
conducted through SOCO or its wholly owned subsidiary, SOCO Wattenberg
Corporation ("SWAT"). On May 2, 1996, SOCO contributed the balance of its
Wattenberg assets to SWAT and transferred all of the shares of SWAT to the
Company. Immediately thereafter, Gerrity merged into another wholly owned
subsidiary of the Company. As a result of these transactions, SWAT and Gerrity
became subsidiaries of the Company. The Company's operations currently consist
of the acquisition, development, and production of oil and gas properties in the
Wattenberg field.

SOCO currently owns approximately 74% of the common stock of the Company.
In conjunction with the Gerrity Acquisition, the Company offered to exchange the
Company's preferred stock for Gerrity's preferred stock (the "Original Exchange
Offer"). A total of 1,204,847 shares were issued in exchange for approximately
75% of Gerrity's preferred stock. In October 1996, Gerrity's certificate of
incorporation was amended to provide that all shares of Gerrity's preferred
stock not exchanged in the Original Exchange Offer be exchanged for the
Company's preferred stock on the same terms as the Original Exchange Offer. Upon
consummation of this exchange, the Company had approximately 1.6 million
preferred shares outstanding.

The above transactions were accounted for as a purchase of Gerrity. The
amounts and results of operations of the Company for periods prior to the
Gerrity Acquisition reflected in these financial statements include the
historical amounts and results of SOCO's Wattenberg operations. Certain amounts
in the accompanying financial statements have been allocated in a reasonable and
consistent manner in order to depict the historical financial position, results
of operations and cash flows of the Company on a stand-alone basis prior to the
Gerrity Acquisition.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Producing Activities

The Company utilizes the successful efforts method of accounting for its
oil and gas properties. Consequently, leasehold costs are capitalized when
incurred. Unproved properties are assessed periodically within specific
geographic areas and impairments in value are charged to expense. Exploratory
expenses, including geological and geophysical expenses and delay rentals, are
charged to expense as incurred. Exploratory drilling costs are initially
capitalized, but charged to expense if and when the well is determined to be
unsuccessful. Costs of productive wells, unsuccessful developmental wells and
productive leases are capitalized and amortized on a unit-of-production basis
over the life of the remaining proved or proved developed reserves, as
applicable. Gas is converted to equivalent barrels at the rate of six Mcf to one
barrel. Amortization of capitalized costs has generally been provided over the
entire D-J Basin as the wells are located in the same reservoir. No accrual has
been provided for estimated future abandonment costs as management estimates
that salvage value will approximate such costs.

In 1995, the Company adopted Statement of Financial Accounting Standards
No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets". SFAS
121 requires the Company to assess the need for an impairment of capitalized
costs of oil and gas properties on a field-by-field basis. During 1995, 1996,
and the six months ended June 30, 1997 the Company did not provide for any
impairments. Changes in the underlying assumptions or the amortization units
could, however, result in impairments in the future.

F-13
<PAGE> 69

PATINA OIL & GAS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other Assets

Other assets reflect the value assigned to a noncompete agreement entered
into as part of the Gerrity Acquisition. The value is being amortized over five
years at a rate intended to approximate the decline in value of the noncompete
agreement. Amortization expense for the year ended December 31, 1996 and the six
months ended June 30, 1997 was $2,632,000 and $1,167,000, respectively.
Scheduled amortization for the next five years is $333,000 for the remainder of
1997, $500,000 in 1998, and $250,000 in each of 1999 and 2000.

Section 29 Tax Credits

The Company from time to time enters into arrangements to monetize its
Section 29 tax credits.These arrangements result in revenue increases of
approximately $0.40 per Mcf on production volumes from qualified Section 29
properties. As a result of such arrangements, the Company recognized additional
gas revenues of $2.5 million, $2.0 million, $1.5 million and $942,000 during
1994, 1995, 1996 and the six months ended June 30, 1997, respectively. These
arrangements are expected to increase revenues through 2002.

Gas Imbalances

The Company uses the sales method to account for gas imbalances. Under this
method, revenue is recognized based on the cash received rather than the
Company's proportionate share of gas produced. Gas imbalances at December 31,
1995, 1996 and June 30, 1997 were insignificant.

Financial Instruments

The book value and estimated fair value of cash and equivalents was $1.0
million, $6.2 and $10.6 million at December 31, 1995, 1996 and June 30, 1997,
respectively. The book value approximates fair value due to the short maturity
of these instruments. The book value and estimated fair value of the Company's
debt to parent and senior debt was $75.0 million, $94.5 million and $85.0
million at December 31, 1995, 1996 and June 30, 1997, respectively. The fair
value is presented at face value given its floating rate structure. The book
value of the Notes was $103.1 million and $97.7 million and the estimated fair
value was $105.6 million and $101.5 million at December 31, 1996 and June 30,
1997, respectively. The fair value is estimated based on their price on the New
York Stock Exchange.

From time to time, the Company enters into commodity contracts to hedge the
price risk of a portion of its production. Gains and losses on such contracts
are deferred and recognized in income as an adjustment to oil and gas sales
revenues in the period to which the contracts relate.

In the fourth quarter of 1996, the Company entered into various swap sales
contracts with a weighted average oil price (NYMEX based) of $22.19 for contract
volumes of 95,000 barrels of oil for January 1997 through February 1997. The
Company recognized $113,000 of losses related to these contracts based on
settlements during the first quarter of 1997. These losses were reflected as
deductions from oil revenues in the period settled.

In the fourth quarter of 1996 and early 1997, the Company entered into
various swap sales contracts with a weighted average natural gas price
(CIG-Inside FERC based) of $3.02 for contract volumes of 2,250,000 MMBtu's of
natural gas for January 1997 through March 1997. The Company recognized $1.6
million of gains related to these contracts based on settlements during the
first quarter of 1997. These gains were reflected as additions to gas revenues
in the period settled.

F-14
<PAGE> 70

PATINA OIL & GAS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In the second quarter of 1997, the Company entered various swap sales
contracts with terms as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
QUANTITY PRICE PER
PERIOD PRODUCT (MMBtu's) MMBtu's(a) INDEX
--------------------------------- ----------- ---------------- ---------------- -----
<S> <C> <C> <C> <C>
July - September................. Natural Gas 460,000 $ 1.75 CIG
July - September................. Natural Gas 920,000 $ 2.14 NGPL
July - September................. Natural Gas 920,000 $ 2.15 PEPL
----------------
2,300,000
=============
</TABLE>

- ---------------
(a) The average wellhead price related to the above swap contracts taking into
consideration the value of the related natural gas liquids, net of any
gathering, transportation and processing fees, is estimated at $2.05 per
Mcf.

Supplemental Cash Flow Information

The Gerrity Acquisition involved cash and non-cash consideration as
presented below (in thousands):

<TABLE>
<S> <C>
Cash payments made for merger..................................... $ 14,257
Senior debt assumed............................................... 19,000
Subordinated debt assumed......................................... 105,805
Minority interest in Gerrity preferred stock not exchanged at
merger date..................................................... 9,878
Preferred stock issued............................................ 30,122
Common stock and warrants issued.................................. 46,750
Other liabilities assumed......................................... 12,423
--------
Fair value of assets acquired..................................... $238,235
========
</TABLE>

The above cash payments made include approximately $4.9 million of costs
capitalized and allocated to oil and gas properties. The above cash payments are
reduced in the accompanying consolidated statements of cash flows by $2.1
million of cash acquired in the Gerrity Acquisition.

Risks and Uncertainties

Historically, the market for oil and gas has experienced significant price
fluctuations. Prices for natural gas in the Rocky Mountain region have
traditionally been particularly volatile and have been depressed since 1994. In
large part, the decreased prices are the result of mild weather, increased
production in the region and limited transportation capacity to other regions of
the country. In the fourth quarter of 1996, both oil and natural gas prices
increased considerably, however, there can be no assurance that these increases
will be sustained. Increases or decreases in prices received could have a
significant impact on the Company's future results of operations. Subsequent to
year-end, both oil and gas prices have declined to levels similar to the
Company's realized average prices in 1996.

Other

All liquid investments with an original maturity of three months or less
are considered to be cash equivalents. Certain amounts in prior period
consolidated financial statements have been reclassified to conform with current
classification.

All cash payments for income taxes were made by SOCO during 1994, 1995 and
through May 2, 1996 at which point the Company began paying its own taxes. The
Company was charged interest by SOCO on its debt to SOCO of $3.9 million, $5.4
million and $1.6 million during 1994, 1995 and through May 2, 1996, which was
reflected as an increase in debt to SOCO.

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The preparation of financial
statements in conformity with generally accepted accounting principles requires

F-15
<PAGE> 71

PATINA OIL & GAS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

(3) OIL AND GAS PROPERTIES

The cost of oil and natural gas properties at December 31, 1994, 1995 and
1996 and June 30, 1997 includes no significant unevaluated leasehold. Acreage is
generally held for exploration, development or resale and its value, if any, is
excluded from amortization. The following table sets forth costs incurred
related to oil and natural gas properties.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
1994 1995 1996 JUNE 30, 1997
------- ------- -------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Acquisition..................... $ 7,556 $ 650 $218,380 $ 101
Development..................... 88,213 12,141 8,301 7,972
Exploration and other........... 1,693 429 224 62
------- ------- -------- ------
$97,462 $13,220 $226,905 $ 8,135
======= ======= ======== ======
</TABLE>

In May 1996, the Gerrity Acquisition discussed in Note 1 was consummated.
The following table summarizes the unaudited pro forma effects on the Company's
financial statements assuming that the Gerrity Acquisition and the Original
Exchange Offer had been consummated on January 1, 1995 and 1996. Future results
may differ substantially from pro forma results due to changes in these
assumptions, changes in oil and natural gas prices, production declines and
other factors. Therefore, pro forma statements cannot be considered indicative
of future operations.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, SIX MONTHS
--------------------- ENDED
1995 1996 JUNE 30, 1996
-------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Total revenues......................... $103,962 $100,138 $47,060
Total expenses......................... $111,300 $ 96,662 $50,713
Depletion, depreciation and
amortization......................... $ 63,383 $ 51,662 $27,945
Net income (loss)...................... $ (7,338) $ 3,476 $(3,653)
Net income (loss) per common share..... $ (0.51) $ 0.03 $ (0.27)
Weighted average shares outstanding.... 20,000 19,796 18,921
</TABLE>

(4) INDEBTEDNESS

The following indebtedness was outstanding on the respective dates:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Bank facilities.................................. $ -- $ 94,500 $85,000
Less current portion............................. -- -- --
------- -------- -------
Senior debt, net............................... $ -- $ 94,500 $85,000
======= ======== =======
Subordinated notes............................... $ -- $103,094 $97,685
======= ======== =======
Debt to parent................................... $75,000 $ -- $ --
======= ======== =======
</TABLE>

As of July 24, 1997, the Company had approximately $173.7 million of debt
outstanding, consisting of $76.0 million of senior debt and $97.7 million of
Notes.

F-16
<PAGE> 72

PATINA OIL & GAS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In April 1997, the Company entered into an amended bank credit agreement
(the "Facility"). The Facility is a revolving credit facility in an aggregate
amount up to $140.0 million. The amount available under the Facility is adjusted
semiannually and equaled $110.0 million at June 30, 1997, with $85.0 million
outstanding under the revolving credit facility.

The borrower may elect that all or a portion of the credit facility bear
interest at a rate equal to: (i) the higher of (a) prime rate plus a margin
equal to 0.25% (the "Applicable Margin") or (b) the Federal Funds Effective Rate
plus .5% plus the Applicable Margin, or (ii) the rate at which Eurodollar
deposits for one, two, three or six months (as selected by the Company) are
offered in the interbank Eurodollar market plus a margin which fluctuates from
0.625% to 1.125%, determined by a debt to EBITDA ratio. During the six months
ended June 30, 1997, the average interest rate under the facility approximated
6.8%.

The bank credit agreement contains certain financial covenants, including
but not limited to, a maximum total debt to capitalization ratio, a maximum
total debt to EBITDA ratio and a minimum current ratio. The bank credit
agreement also contains certain negative covenants, including but not limited to
restrictions on indebtedness; certain liens; guaranties, speculative derivatives
and other similar obligations; asset dispositions; dividends, loans and
advances; creation of subsidiaries; investments; leases; acquisitions; mergers;
changes in fiscal year; transactions with affiliates; changes in business
conducted; sale and leaseback and operating lease transactions; sale of
receivables; prepayment of other indebtedness; amendments to principal
documents; negative pledge causes; issuance of securities; and non-speculative
commodity hedging.

In conjunction with the Gerrity Acquisition, the Company assumed $100
million of 11.75% Senior Subordinated Notes due July 15, 2004 issued by Gerrity
in 1994. Under purchase accounting, the Notes have been reflected in the
accompanying financial statements at a book value of 105.875% of their principal
amount. Interest is payable each January 15, and July 15. The Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after July 15, 1999, initially at 105.875% of their principal amount, declining
to 102.938% on or after July 15, 2000 and declining to 100% on or after July 15,
2001. Upon a change of control, as defined in the Notes, the Company is
obligated to make an offer to purchase all outstanding Notes at a price of 101%
of the principal amount thereof. In addition, the Company would be obligated,
subject to certain conditions, to make offers to purchase Notes with the net
cash proceeds of certain asset sales or other dispositions of assets at a price
of 101% of the principal amount thereof. Subsequent to the Gerrity Acquisition,
the Company repurchased and retired $7.7 million of the Notes, resulting in
$92.3 million of principal amount of Notes outstanding, or a book value of $97.7
million in the accompanying financial statements. The Notes are unsecured
general obligations of the Company and are subordinated to all senior
indebtedness of the Company and to any existing and future indebtedness of the
Company's subsidiaries.

The Notes contain covenants that, among other things, limit the ability of
the Company to incur additional indebtedness, pay dividends, engage in
transactions with shareholders and affiliates, create liens, sell assets, engage
in mergers and consolidations and make investments in unrestricted subsidiaries.
Specifically, the Notes restrict the Company from incurring indebtedness
(exclusive of the Notes) in excess of approximately $51.0 million, if after
giving effect to the incurrence of such additional indebtedness and the receipt
and application of the proceeds therefrom, the Company's interest coverage ratio
is less than 2.5:1 or adjusted consolidated net tangible assets is less than
150% of the aggregate indebtedness of the Company. The Company currently meets
these ratios and accordingly, is not limited in its ability to incur additional
debt.

Prior to the Gerrity Acquisition, SOCO financed all of the Company's
activities. A portion of such financing was considered to be an investment by
parent in the Company with the remaining portion being considered debt to
parent. The portion considered to be debt to parent versus an investment by
parent was a discretionary percentage determined by SOCO after consideration of
the Company's internally generated cash flows and level of capital expenditures.
Subsequent to the Gerrity Acquisition, the $75.0 million debt to parent was paid
in full and the Company does not expect SOCO to provide any additional funding.

F-17
<PAGE> 73

PATINA OIL & GAS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On the portion of such financing which was considered to be debt to parent,
SOCO charged interest at a rate which approximated the average interest rate
being paid by SOCO under its revolving credit facility (5.5%, 7.0% and 6.9% for
1994, 1995 and the four month period ended May 2, 1996, respectively).

Scheduled maturities of indebtedness for the next five years are zero for
1997, 1998, and 1999, and $85.0 million in 2000, and zero in 2001. The long-term
portions of the credit facilities are scheduled to expire in 2000; however, it
is management's intent to review both the short-term and long-term facilities
and extend the maturities on a regular basis.

There were no cash payments for interest expense in 1994, 1995 or in the
first four months of 1996. Cash payments for interest totaled $10.5 million in
the eight months ended December 31, 1996 and $8.7 million for the six months
ended June 30, 1997.

(5) STOCKHOLDERS' EQUITY

A total of 40,000,000 common shares, $0.01 par value, are authorized of
which 18,820,248 were issued and outstanding at June 30, 1997. The Company
issued 6,000,000 common shares and 3,000,000 warrants exercisable at $12.50 in
exchange for all of the outstanding stock of Gerrity upon consummation of the
Gerrity Acquisition. Of the 18,820,248 shares outstanding, 2,000,000 are
designated as Series A Common Stock. The Series A Common Stock is identical to
the common shares except that the Series A Common Stock is entitled to three
votes per share rather than one vote per share. The Series A Common Stock is
owned by SOCO and reverts to regular common shares upon certain conditions.
Subsequent to the merger date, the Company repurchased 1,187,200 shares of
common stock, 500,000 warrants issued to Gerrity's former chief executive
officer, and 80,549 warrants for total consideration of $10.5 million. No
dividends have been paid on common stock as of June 30, 1997.

A total of 5,000,000 preferred shares, $0.01 par value, are authorized of
which 1,467,926 were issued and outstanding at June 30, 1997. In May 1996, 1.2
million shares of 7.125% preferred stock were issued to certain Gerrity
preferred shareholders electing to exchange their preferred shares in the
Original Exchange Offer. Thus there were no proceeds received related to this
issuance. In October 1996, Gerrity's certificate of incorporation was amended to
provide that all shares of Gerrity's preferred stock not exchanged in the
Original Exchange Offer be exchanged for the Company's preferred shares on the
same terms as the Original Exchange Offer. This exchange resulted in the
issuance of an additional 389,000 preferred shares. The stock is convertible
into common stock at any time at $8.61 per share. The 7.125% preferred stock is
redeemable at the option of the Company at any time after May 2, 1998 if the
average closing price of the Company's common stock for 20 of the 30 days prior
to not less than five days preceding the redemption date is greater than $12.92
per share or at any time after May 2, 1999. The liquidation preference is $25.00
per share, plus accrued and unpaid dividends. The Company paid $2.1 and $1.3
million ($1.78 per 7.125% convertible share per annum) in preferred dividends
during the year ended December 31, 1996 and for the six months ended, June 30,
1997 and had accrued an additional $354,000 at December 31, 1996 and $327,000 at
June 30, 1997 for dividends.

Earnings per share are computed by dividing net income, less dividends on
preferred stock, by weighted average common shares outstanding. Net income
(loss) applicable to common for 1994, 1995, 1996 and the six months ended June
30, 1997, was $2,950,000, ($2,094,000), $1,433,000 and $5,754,000, respectively.
Differences between primary and fully diluted earnings per share were
insignificant for all periods presented.

In 1996, the shareholders adopted a stock option plan for employees
providing for the issuance of options at prices not less than fair market value.
Options to acquire up to three million shares of common stock may be outstanding
at any given time. The specific terms of grant and exercise are determinable by
a committee of independent members of the Board of Directors. A total of 512,000
options were issued in May 1996 with an exercise price of $7.75 per common share
and 271,000 options were issued in February 1997 with an exercise

F-18
<PAGE> 74

PATINA OIL & GAS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

price of $9.25 per common share. The options vest over a three-year period (30%,
60%, 100%) and expire five years from date of grant.

In 1996, the shareholders adopted a stock grant and option plan (the
"Directors' Plan") for nonemployee Directors of the Company. The Directors' Plan
provides for each nonemployee Director to receive common shares having a market
value equal to $2,250 quarterly in payment of one-half their retainer. A total
of 3,632 shares were issued in 1996 and 2,076 shares were issued during the
first six months of 1997. It also provides for 5,000 options to be granted
annually to each nonemployee Director. A total of 20,000 options were issued in
May 1996 with an exercise price of $7.75 per common share and 20,000 options
were issued in May 1997 with an exercise price of $8.625. The options vest over
a three-year period (30%, 60%, 100%) and expire five years from date of grant.

At December 31, 1996, the Company had a fixed stock option compensation
plan, which is described above. The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for the plans. Accordingly, no compensation cost has been recognized
for these fixed stock option plans. Had compensation cost for the Company's
fixed stock option compensation plans been determined consistent with Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," the Company's net income (in thousands) and earnings
per share would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1996
-------
<S> <C>
Net income (loss)
As reported....................................................... $ 3,562
Pro forma......................................................... $ 3,281
Income (loss) per common share
As reported....................................................... $ 0.08
Pro forma......................................................... $ 0.06
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Sholes option-pricing model with the following weighted-average
assumptions used for grants in 1996: dividend yield of 0%; expected volatility
of 30%; risk-free interest rate of 6.4%; and expected life of 4.5 years.

A summary of the status of the Company's fixed stock option plan as of
December 31, 1996 and changes during the year is presented below (shares are in
thousands):

<TABLE>
<CAPTION>
1996
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ ----------------
<S> <C> <C>
Outstanding at beginning of year....................... -- $ --
Granted................................................ 532 7.75
Exercised.............................................. -- --
Forfeited.............................................. (29) 7.75
---
Outstanding at end of year............................. 503 7.75
Options exercisable at year end........................ -- --
---
Weighted-average fair value of options granted during
the year............................................. $ 2.81
</TABLE>

The following table summarizes information about fixed stock options
outstanding at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ---------------------------------
NUMBER WEIGHTED-AVG. NUMBER
OUTSTANDING AT REMAINING WEIGHTED- EXERCISABLE AT WEIGHTED-
DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICE 1996 LIFE EXERCISE PRICE 1996 EXERCISE PRICE
- -------------- -------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
7.75...... 503,000 4.3 years $ 7.75 -- --
</TABLE>

F-19
<PAGE> 75

PATINA OIL & GAS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) FEDERAL INCOME TAXES

Prior to the Gerrity Acquisition, the Company had been included in the tax
return of SOCO. Current and deferred income tax provisions allocated by SOCO
were determined as though the Company filed as an independent company, making
the same tax return elections used in SOCO's consolidated return. Subsequent to
the Gerrity Acquisition, the Company will not be included in the tax return of
SOCO.

A reconciliation of the statutory rate to the Company's effective rate as
they apply to the provision (benefit) for the years ended December 31, 1994,
1995, 1996 and the six months ended, June 30, 1997 follows:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
1994 1995 1996 JUNE 30, 1997
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Federal statutory rate................... 35% (35)% 35% 35%
Utilization of net deferred tax asset.... -- -- (35)% (35)%
Tax benefit recognized prior to Gerrity
Acquisition............................ -- -- (12)% --
--
--- --- ---
Effective income tax rate................ 35% (35)% (12)% --%
== === === ===
</TABLE>

For book purposes the components of the net deferred asset and liability at
December 31, 1995 and 1996, respectively, were:

<TABLE>
<CAPTION>
1995 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
NOL carryforwards..................................... $ 15,716 $24,586
Production payment receivables and other.............. 128 27,382
-------- -------
15,844 51,968
-------- -------
Deferred tax liabilities
Depreciable and depletable property................... 41,169 48,145
Investments and other................................. -- --
-------- -------
41,169 48,145
-------- -------
Deferred tax assets (liability)......................... (25,325) 3,823
-------- -------
Valuation allowance..................................... -- (3,823)
-------- -------
Net deferred tax asset (liability)...................... $(25,325) $ --
======== =======
</TABLE>

For tax purposes, the Company had regular net operating loss carryforwards
of $70.2 million and alternative minimum tax ("AMT") loss carryforwards of $35.1
million at December 31, 1996. Utilization of $31.9 million regular net operating
loss carryforwards and $31.6 million AMT loss carryforwards will be limited to
$5.2 million per year as a result of the merger of Gerrity and SWAT on May 2,
1996. These carryforwards expire from 2006 through 2011. At December 31, 1996,
the Company had alternative minimum tax credit carryforwards of $478,000 which
are available indefinitely. No cash payments were made by the Company for
federal taxes during 1995 and 1996. As discussed in Note 1, the accompanying
financial statements include certain Wattenberg operations previously owned
directly by SOCO. Accordingly, certain operating losses generated by these
properties were retained by SOCO. In addition, certain taxable income generated
by SOCO did not offset the Company's net operating loss carryforwards. Prior to
the Gerrity Acquisition, the effect of such items has been reflected as a charge
or credit in lieu of taxes in the Company's consolidated statement of changes in
stockholders' equity.

F-20
<PAGE> 76

PATINA OIL & GAS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) MAJOR CUSTOMERS

During 1996 and the six months ended June 30, 1997, PanEnergy, Inc.
accounted for 38% and 42% of revenues, respectively. During 1994, 1995, 1996 and
the six months ended June 30, 1997, Amoco Production Company accounted for 25%,
22%, 19% and 15%, subsidiaries of SOCO accounted for 59%, 46%, 0% and 0%, and
Total Petroleum accounted for 15%, 20%, 10%, and 8% of revenues, respectively.
Management believes that the loss of any individual purchaser would not have a
long-term material adverse impact on the financial position or results of
operations of the Company.

(8) RELATED PARTY

Prior to the Gerrity Acquisition, the Company did not have its own
employees. Employees, certain office space and furniture, fixtures and equipment
were provided by SOCO. SOCO allocated general and administrative expenses to the
Company based on its estimate of expenditures incurred on behalf of the Company.
Subsequent to the Gerrity Acquisition, certain field, administrative and
executive employees of SOCO and Gerrity became employees of the Company. SOCO
will continue to provide certain services to the Company under the Transition
Agreement. During 1996 and the first six months of 1997, the Company paid
approximately $650,000 and $898,000, respectively to SOCO under a corporate
services agreement.

(9) COMMITMENTS AND CONTINGENCIES

The Company leases office space and certain equipment under non-cancellable
operating leases. Future minimum lease payments under such leases approximate
$500,000 per year from 1997 through 2001.

The Company is a party to various other lawsuits incidental to its
business, none of which are anticipated to have a material adverse impact on its
financial position or results of operations.

(10) UNAUDITED SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION

Independent petroleum consultants directly evaluated 89%, 100% and 100% of
proved reserves at December 31, 1994, 1995 and 1996, respectively. All reserve
estimates are based on economic and operating conditions at that time. Future
net cash flows as of each year-end were computed by applying then current prices
to estimated future production less estimated future expenditures (based on
current costs) to be incurred in producing and developing the reserves. All
reserves are located onshore in the United States.

Future prices received for production and future production costs may vary,
perhaps significantly, from the prices and costs assumed for purposes of these
estimates. There can be no assurance that the proved reserves will be developed
within the periods indicated or that prices and costs will remain constant. With
respect to certain properties that historically have experienced seasonal
curtailment, the reserve estimates assume that the seasonal pattern of such
curtailment will continue in the future. There can be no assurance that actual
production will equal the estimated amounts used in the preparation of reserve
projections.

There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures. The data in the tables below represent estimates only.
Oil and natural gas reserve engineering must be recognized as a subjective
process of estimating underground accumulations of oil and gas that cannot be
measured in an exact way, and estimates of other engineers might differ
materially from those shown above. The accuracy of any reserve estimate is a
function of the quality of available data and engineering and geological
interpretation and judgement. Results in drilling, testing and production after
the date of the estimate may justify revisions. Accordingly, reserve estimates
are often materially different from the quantities of oil and natural gas that
are ultimately recovered.

F-21
<PAGE> 77

PATINA OIL & GAS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

QUANTITIES OF PROVED RESERVES --

<TABLE>
<CAPTION>
OIL NATURAL GAS
------ -----------
(MBbl) (MMcf)
<S> <C> <C>
Balance, December 31, 1993............................ 16,928 229,862
Revisions........................................... (4,450) (50,021)
Extensions, discoveries and additions............... 1,372 20,900
Production.......................................... (1,829) (23,893)
Purchases........................................... 197 1,855
Sales............................................... -- --
------ -------
Balance, December 31, 1994............................ 12,218 178,703
Revisions........................................... (3,609) (19,618)
Extensions, discoveries and additions............... 154 785
Production.......................................... (1,342) (20,981)
Purchases........................................... -- --
Sales............................................... -- (32)
------ -------
Balance, December 31, 1995............................ 7,421 138,857
Revisions........................................... 720 (1,314)
Extensions, discoveries and additions............... 194 1,342
Production.......................................... (1,688) (23,947)
Purchases........................................... 15,834 183,729
Sales............................................... (6) (2,008)
------ -------
Balance, December 31, 1996............................ 22,475 296,659
====== =======
</TABLE>

PROVED DEVELOPED RESERVES --

<TABLE>
<CAPTION>
OIL NATURAL GAS
------ -----------
(MBbl) (MMcf)
<S> <C> <C>
December 31, 1993..................................... 7,365 136,765
====== =======
December 31, 1994..................................... 8,832 147,869
====== =======
December 31, 1995..................................... 6,955 133,088
====== =======
December 31, 1996..................................... 15,799 242,777
====== =======
</TABLE>

F-22
<PAGE> 78

PATINA OIL & GAS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STANDARDIZED MEASURE --

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Future cash inflows............................... $ 356,224 $1,668,475
Future costs:
Production...................................... (100,505) (338,752)
Development..................................... (13,428) (160,856)
---------- ----------
Future net cash flows............................. 242,291 1,168,867
Undiscounted income taxes......................... (29,873) (294,407)
---------- ----------
After tax net cash flows.......................... 212,418 874,460
10% discount factor............................... (84,902) (374,524)
---------- ----------
Standardized measure.............................. $ 127,516 $ 499,936
========== ==========
</TABLE>

CHANGES IN STANDARDIZED MEASURE --

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure, beginning of year... $191,011 $161,481 $ 127,516
Revisions:
Prices and costs........................ (56,928) 2,240 351,724
Quantities.............................. (29,498) (14,230) 501
Development costs....................... (8,044) (1,182) (11,024)
Accretion of discount................... 19,101 16,148 27,619
Income taxes............................ 23,121 10,963 (129,612)
Production rates and other.............. (8,422) (21,265) (3,706)
-------- -------- ---------
Net revisions........................... (60,670) (7,326) 235,502
Extensions, discoveries and additions..... 19,583 2,064 3,791
Production................................ (58,099) (40,877) (67,666)
Future development costs incurred......... 67,484 12,192 7,906
Purchases(a).............................. 2,172 -- 193,998
Sales (b)................................. -- (18) (1,111)
-------- -------- ---------
Standardized measure, end of year......... $161,481 $127,516 $ 499,936
======== ======== =========
</TABLE>

- ---------------
(a) "Purchases" includes the present value at the end of the period acquired
during the year plus the cash flow received on such properties during the
period, rather than their estimated present value at the time of the
acquisition.

(b) "Sales" represents the present value at the beginning of the period of
properties sold, less the cash flow received on such properties during the
period.

F-23
<PAGE> 79

======================================================

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES OFFERED HEREBY TO ANY PERSON
IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION OF AN OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION SET HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 10
Concurrent Transactions............... 17
Capitalization........................ 21
Use of Proceeds....................... 21
Price Range of Common Stock........... 22
Dividend Policy....................... 22
Selected Historical and Pro Forma
Consolidated Financial Data......... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 30
Management............................ 38
Security Ownership of Certain
Beneficial Owners and Management.... 43
Selling Stockholder................... 45
Description of Capital Stock.......... 45
Description of Certain Indebtedness... 48
Shares Eligible for Future Sale....... 50
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Available Information................. 53
Incorporation of Certain Documents by
Reference........................... 53
Glossary of Oil and Gas Terms......... 54
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

======================================================

10,000,000 SHARES

PATINA OIL & GAS
CORPORATION

COMMON STOCK
------------
PROSPECTUS
OCTOBER 15, 1997
------------
SMITH BARNEY INC.

MORGAN STANLEY DEAN WITTER
A.G. EDWARDS & SONS, INC.
JEFFERIES & COMPANY, INC.
PAINEWEBBER INCORPORATED

======================================================