INTERCOAST ENERGY CO, S-1/A, 1996-06-28

INTERCOAST ENERGY CO
S-1/A, 1996-06-28
CRUDE PETROLEUM & NATURAL GAS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1996.

REGISTRATION NO. 333-4525

AMENDMENT NO. 1

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
INTERCOAST ENERGY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 1311 42-1456354
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S.
JURISDICTION OF CLASSIFICATION CODE NUMBER) EMPLOYER
INCORPORATION OR IDENTIFICATION
ORGANIZATION) NO.)

666 GRAND AVENUE, 26TH FLOOR
DES MOINES, IOWA 50309
(515) 281-2693
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DONALD C. HEPPERMANN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
666 GRAND AVENUE, 26TH FLOOR
DES MOINES, IOWA 50309
(515) 281-2693
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:
LYNNWOOD R. MOORE, JR., ESQ. MARGO S. SCHOLIN, ESQ.
CONNER & WINTERS, A PROFESSIONAL BAKER & BOTTS, L.L.P.
CORPORATION 3000 ONE SHELL PLAZA, 910 LOUISIANA
2400 FIRST PLACE TOWER, 15 EAST 5TH HOUSTON, TEXAS 77002
STREET
TULSA, OKLAHOMA 74103-4391
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) FEE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $0.01 par
value................. 8,222,500 shares $16.00 $131,560,000 $45,366(3)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

(1) Includes 1,072,500 shares subject to an over-allotment option to be
granted to the Underwriters.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457.

(3) $39,021 of such registration fee has been previously paid by the
Registrant.

----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

CROSS REFERENCE SHEET

PURSUANT TO ITEM 501(B) OF REGULATION S-K.

<TABLE>
<CAPTION>
REGISTRATION
STATEMENT ITEM HEADING IN THE FORM PROSPECTUS CAPTION
-------------- ------------------- ------------------
<C> <S> <C>
1. Forepart of the
Registration Statement and
Outside Front Cover Page
of Prospectus............. Outside Front Cover Page

2. Inside Front and Outside
Back Cover Pages of
Prospectus................ Inside Front and Outside Back Cover Pages

3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed
Charges................... Prospectus Summary; Risk Factors;
The Company

4. Use of Proceeds............ Prospectus Summary; Use of Proceeds

5. Determination of Offering
Price..................... Outside Front Cover Page; Underwriting

6. Dilution................... Dilution

7. Selling Security Holders... Principal and Selling Stockholder

8. Plan of Distribution....... Outside Front Cover Page;
Underwriting

9. Description of Securities
to Be Registered.......... Description of Capital Stock

10. Interests of Named Experts
and Counsel............... *

11. Information with Respect to
the Registrant............ Prospectus Summary; The Company;
Dividend Policy; Unaudited Pro
Forma Combined Financial
Statements; Selected Historical
Financial Data; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Business and
Properties; Relationship Between
the Company and the Parent;
Management; Certain Transactions;
Principal and Selling Stockholder;
Description of Capital Stock;
Shares Eligible for Future Sale;
Financial Statements
12. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities............... *
</TABLE>
- --------
* Not applicable or answer thereto is negative.
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED JUNE 28, 1996

7,150,000 SHARES

INTERCOAST ENERGY COMPANY

COMMON STOCK

-----------

Of the 7,150,000 shares of Common Stock offered hereby (the "Offering"),
6,150,000 shares are being offered by InterCoast Energy Company ("InterCoast"
or the "Company") and 1,000,000 shares are being offered by MidAmerican Capital
Company ("MidAmerican Capital" or the "Selling Stockholder"), the Company's
sole stockholder. See "Principal and Selling Stockholder." The Company will not
receive any proceeds from the sale of shares by the Selling Stockholder.

Prior to the Offering, there has been no public market for the Common Stock
of the Company (the "Common Stock"). It is currently estimated that the initial
public offering price will be between $15.00 and $17.00 per share. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The Common Stock has been approved for listing
on the New York Stock Exchange, subject to notice of issuance, under the symbol
"ICE."

SEE "RISK FACTORS" ON PAGES 9 TO 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN 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 Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions (1) Company (2) Stockholder
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................... $ $ $ $
- ------------------------------------------------------------------------------
Total....................... $ $ $ $
- ------------------------------------------------------------------------------
Total Assuming Full Exercise
of Over-Allotment Option
(3)........................ $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting."

(2) Before deducting expenses estimated at $895,000, payable pro rata by the
Company and the Selling Stockholder.

(3) Assuming exercise in full of the 30-day option granted by the Selling
Stockholder to the Underwriters to purchase up to 1,072,500 additional
shares, on the same terms, solely to cover over-allotments. See
"Underwriting" and "Principal and Selling Stockholder."

-----------

The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected
that delivery of the Common Stock will be made in New York City on or about
, 1996.

-----------

PAINEWEBBER INCORPORATED MERRILL LYNCH & CO.

-----------

THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>

PRIMARY AREAS OF NATURAL GAS AND OIL ACTIVITY

[MAP IDENTIFYING PRIMARY GEOGRAPHIC AREAS OF THE COMPANY'S NATURAL GAS AND OIL
OPERATING ACTIVITIES APPEARS HERE.]

CPEX(TM) SUBSCRIBERS

[MAP OF UNITED STATES IDENTIFYING LOCATIONS OF SUBSCRIBERS TO CPEX(TM) APPEARS
HERE.]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. References to "InterCoast" or the "Company"
herein include InterCoast Energy Company and its subsidiaries and their
predecessors unless the context otherwise requires. The information in this
Prospectus assumes an initial public offering price of $16.00 per share of
Common Stock and that, unless otherwise indicated, the Underwriters' over-
allotment option will not be exercised. Pro forma information gives effect to
the April 1996 Sawyer Canyon Acquisition (as hereinafter defined) and to the
acquisition of the assets of GED Gas Services, L.L.C. ("GED"), a natural gas
marketing company, effective November 1995. Certain terms relating to the
energy industry are defined in "Glossary." Investors should carefully consider
the information set forth under the heading "Risk Factors."

THE COMPANY

InterCoast is an energy company engaged primarily in (i) the development,
exploration, acquisition and production of natural gas and crude oil, (ii) the
marketing of natural gas and electricity, and (iii) the development and
operation of the first market-based national electronic exchange ("CPEX(TM)")
for the buying and selling of wholesale electric power and transmission
services. The Company's principal natural gas and oil operations are located in
Texas, Louisiana, Oklahoma and New Mexico. The Company has increased its
natural gas and oil reserves and cash flow through a balanced focus on
Extensional Infill drilling (as hereinafter defined), strategic acquisitions of
producing properties and regionally focused exploratory drilling. The Company
believes its success has resulted from its ability to (i) identify internally a
large number of desirable Extensional Infill drilling locations, (ii) apply
strict economic and reserve risk criteria to both drilling and acquisition
operations, and (iii) operate as an efficient, low-cost producer. Through the
implementation of this approach, the Company has replaced 390% of its
production at an average finding cost from all sources of $0.85 per Mcfe for
the three-year period ended December 31, 1995, after giving pro forma effect to
the Sawyer Canyon Acquisition.

In April 1996, the Company acquired properties in the Sawyer Canyon Field,
Sutton County, Texas (the "Sawyer Canyon Acquisition") from Enron Oil & Gas
Company at a net purchase price of $45.2 million. The acquired properties
include 350 gross (319 net) wells (of which approximately 95% are operated by
the Company) and had estimated net proved reserves of 58.2 Bcfe at December 31,
1995, virtually all of which are natural gas. The acquired properties also
include 37.2 miles of associated gas gathering lines. After giving pro forma
effect to the Sawyer Canyon Acquisition, the Company's estimated net proved
reserves have grown by 201%, from 83.5 Bcfe at December 31, 1992, to 251.0 Bcfe
at December 31, 1995. At December 31, 1995, on a pro forma basis, approximately
76% of the Company's estimated net proved reserves were natural gas, and the
Company's PV-10 Reserve Value was $223.6 million and its standardized measure
of discounted future net cash flows was $189.8 million. Average daily
production has improved from 27.2 MMcfe during 1992 to 87.1 MMcfe during April
1996, representing an increase of 220%. At March 31, 1996, on a pro forma
basis, the net tangible assets and properties of the Company's natural gas and
oil operations comprised over 97% of the Company's total tangible asset base.

The Company is also engaged in natural gas and wholesale electric power
marketing. The Company provides a range of natural gas marketing services to
industrial and utility customers and natural gas producers in addition to
marketing substantially all of the natural gas produced from Company-operated
wells. In the electric power sector, which is rapidly shifting from being
heavily regulated to becoming a more competitive industry, the Company actively
pursues opportunities for the wholesale brokering, purchasing and marketing of
electricity. The Company's Federal Energy Regulatory Commission ("FERC")
certification as a power marketer became effective in July 1995, allowing it to
purchase electricity and resell it to wholesale purchasers. As a recent entrant
into this business, the Company's strategic thrust is to expand its electric
power marketing business to keep pace with the competitive changes in the
electric industry. In a further move, the Company established commercial
operation of CPEX(TM) in May 1995. CPEX(TM) permits subscribers, including
utilities and other electric power generation, transmission and marketing
companies, to electronically buy and sell wholesale electricity and
transmission services via the Company's proprietary network.

3
<PAGE>

BUSINESS STRENGTHS AND STRATEGIES

The Company believes that it has several key strengths and strategies that
position it to continue as a successful energy company and respond effectively
and rapidly to changing market opportunities. These include:

. Active Extensional Infill Drilling Program. The Company targets drilling
prospects that enhance the economic recovery of natural gas and oil in
producing areas to a level greater than that previously achieved by the
owners of the prevailing leasehold by increasing the density of wells that
penetrate known reservoirs. Typically, development of these prospects
requires that the Company obtain some or all of the rights to drill on
acreage that is held by production. The Company refers to this approach as
"Extensional Infill" drilling which has been implemented by various members
of the Company's current management team since 1985. The Company focuses on
internally generated Extensional Infill drilling opportunities within the
Mid-Continent region, with particular emphasis on north Louisiana, northwest
Oklahoma and the Texas panhandle, and southeast New Mexico. Through its
Extensional Infill drilling program, the Company has developed 53.7 Bcfe of
estimated net proved reserves through the end of 1995 at an average cost of
$0.75 per Mcfe. The Company utilizes an experienced team of geologists,
petroleum engineers and landmen to generate, evaluate and acquire
Extensional Infill prospects, applying strict economic and reserve risk
criteria. The Company's geologists regularly monitor and analyze drilling
and production activities within their geographic areas of expertise to
generate new drilling prospects. Because a majority of the Company's
Extensional Infill prospects involve farmouts on acreage not currently
leased by the Company, the Company is able to maintain a large number of
Extensional Infill prospects without making a major capital investment in an
inventory of undeveloped leasehold acreage. As a result of this approach,
the Company is able to drill prospects on the basis of their technical and
economic merits rather than to retain expiring leasehold positions. During
the three-year period ended December 31, 1995, the Company drilled 87
Extensional Infill wells, 52 of which were completed as commercial
producers. At April 30, 1996, the Company had in excess of 150 Extensional
Infill prospects identified in the core areas in which it operates and
anticipates identifying at least 50 additional prospects during the
remainder of 1996. The Company currently plans to drill at least 27
Extensional Infill wells based on its $12 million 1996 capital budget for
Extensional Infill drilling.

. Strategic Producing Property Acquisitions. The Company seeks strategic
acquisitions of producing properties where it can obtain operational control
and where opportunities exist both to reduce operating costs and increase
production and reserves through Extensional Infill drilling and other
exploitation activities. From April 1, 1992 through April 30, 1996, the
Company acquired 188.7 Bcfe of estimated net proved reserves through 31
acquisitions at an average acquisition cost of $0.67 per Mcfe. In many
situations, the Company's acquisition of producing properties originates
from the identification of Extensional Infill drilling prospects. The
Company's most successful acquisition involving this approach was the
acquisition of its interests in the Elm Grove Field, Bossier Parish,
Louisiana. In early 1994, a Company geologist generated a number of
Extensional Infill drilling prospects in the Elm Grove Field. The Company
was able to acquire the 15 marginal producing wells in the field at a cost
of $6.7 million in August 1994. It then assumed operations of the field and
has since drilled 11 productive wells, recompleted 6 of the 15 existing
wells to access the behind pipe reserves and discovered a deeper productive
zone not previously produced in the field. As a result of the Company's
enhancement efforts, gross average daily production from the Elm Grove Field
has increased from 2 MMcf when acquired to a rate of 10 MMcf during April
1996, and estimated net proved reserves increased from 15.2 Bcfe at the time
of acquisition to approximately 31.6 Bcfe (including net production of 3.1
Bcfe since its acquisition) at December 31, 1995.

. Regionally Focused Exploratory Drilling Program. The Company initiated a
regionally focused exploratory drilling program in 1994. The Company
generally seeks larger exploratory prospects which are based upon good
subsurface geologic control on unproved structures or features which provide
both significant reserve potential and an opportunity for multiple well
locations. The Company focuses its exploratory efforts primarily in the Gulf
Coast region where its personnel have extensive experience. The Company
currently plans to drill 6 to 8 exploratory wells in 1996, primarily in the
Gulf Coast region, based on a 1996 budget for exploratory drilling of $4
million, which represents 25% of the Company's total drilling budget.

4
<PAGE>

. Efficient Operator. The Company pursues workovers, recompletions and other
production optimization methods in order to exploit the additional
production capabilities of its existing reserve base, new well completions
and newly acquired properties. For this reason, the Company prefers to
operate its properties in order to enhance its ability to maximize their
present value and to maintain control of operating expenses and the timing
and amount of capital expenditures. At April 30, 1996, the Company owned
interests in 2,051 gross (667 net) wells, approximately 32% gross (83% net)
of which are operated by the Company. The Company believes that it is a low-
cost operator as indicated by its lease operating expenses of $0.61 per Mcfe
during 1995 ($0.50 per Mcfe during the first quarter of 1996). The Company
has generally found that it has been able to increase product prices and
reduce costs when compared to the prior operators of its newly acquired
properties.

. Natural Gas Marketing. During the first quarter of 1996, the Company
marketed over 200 MMcf per day of natural gas, including approximately 50
MMcf per day of natural gas from its operated wells. The Company's natural
gas marketing activities provide the Company with the opportunity to
maximize both the current sales volumes and the price received for its
natural gas production and to minimize marketing and transportation costs.
The Company intends to expand its existing natural gas marketing business
and acquire other natural gas marketing companies where strategic synergies
exist. Effective November 1995, the Company acquired the assets of GED, a
natural gas marketing company that specializes in aggregating volumes
purchased from producers, and, in the first quarter of 1996, the Company
opened a natural gas marketing office to focus on market opportunities in
the northern end of the Mid-Continent area.

. Electric Power Marketing. The electric industry is rapidly shifting from
being heavily regulated to becoming a more competitive industry. In 1992,
Congress passed the Energy Policy Act which accelerated competitive trends
within the electric industry. The Company commenced electric wholesale power
brokering operations in October 1993. As a broker, the Company acts as an
intermediary between wholesale buyers and sellers. Effective July 1995, the
Company's FERC certification as a power marketer became effective which
allows it to fully engage in the wholesale purchase and sale of electricity.
To date, the Company has brokered and marketed sales of electricity among
over 60 utilities. Since attaining marketer status, the Company has
experienced a steady increase in total quarterly sales. The Company believes
it will be able to capitalize on expanding marketing opportunities created
within the increasingly competitive electric power industry.

. First Market-Based National Electronic Power Exchange. In May 1995, the
Company launched commercial operation of CPEX(TM), the first market-based
national electronic exchange for the buying and selling of wholesale
electric power and transmission services. As of April 30, 1996, CPEX(TM) had
30 subscribers with operations in 25 states. Subscribers utilize CPEX(TM) to
electronically buy and sell electricity and transmission services through
on-site computers in the competitive wholesale market for the next one-hour
and four-hour durations. As both the number of CPEX(TM) subscribers and
their familiarity with the competitive exchange of electric power have
increased, the Company has seen a rise in the number of megawatt hours
("MWh") traded on CPEX(TM). The Company's strategy is to continually upgrade
the capabilities of CPEX(TM) and expand market penetration in order to
maintain its industry-leading position in the market-based electronic
trading of wholesale electric power.

RELATIONSHIP WITH MIDAMERICAN CAPITAL

The Company is currently an indirect wholly owned subsidiary of MidAmerican
Energy Company ("MidAmerican Energy"). MidAmerican Energy, an electric and gas
utility, was formed in July 1995 as a result of the merger of Iowa-Illinois Gas
and Electric Company and Midwest Resources Inc. MidAmerican Energy, through its
wholly owned subsidiary, MidAmerican Capital, currently owns a total of
7,927,500 shares of Common Stock and after the Offering will own 6,927,500
shares of Common Stock (or 5,855,000 shares of Common Stock if the Underwriters
exercise their over-allotment option in full) or approximately 49% (or 42% if
the Underwriters exercise their over-allotment option in full) of the
outstanding shares of Common Stock. As a result of such stock ownership,
MidAmerican Capital and MidAmerican Energy will in all likelihood be able

5
<PAGE>

to elect all members of the Board of Directors of the Company (the "Board of
Directors") and to control the vote on matters submitted to the Board of
Directors. It is contemplated that upon completion of the Offering the Board of
Directors will be comprised of seven members, five of whom will be directors or
current or former officers of MidAmerican Energy, MidAmerican Capital or the
Company.

The Company and MidAmerican Capital intend to enter into certain agreements
providing for, among other things, demand registration rights, tax sharing
arrangements, general indemnification of MidAmerican Capital and administrative
services to be provided by either party to the other. The Company and
MidAmerican Capital and its other affiliates may enter into other transactions
and agreements from time to time in the future. The relationship between the
Company and MidAmerican Capital and its other affiliates may give rise to
conflicts of interest with respect to, among other things, transactions and
agreements among the Company and MidAmerican Capital and its other affiliates,
potential competitive business activities or business opportunities, issuances
of additional shares of voting securities, the election of directors or the
payment of dividends, if any, by the Company. There can be no assurance that
conflicts will be resolved in favor of the Company.

The Board of Directors will utilize procedures in evaluating the terms and
provisions of any material transactions between the Company and MidAmerican
Capital or its affiliates as the Board of Directors may deem appropriate in
light of its fiduciary duties under state law, including, when appropriate,
consideration by the disinterested directors. The Company intends that all
future transactions and agreements between the Company and MidAmerican Capital
or its other affiliates will be at least as favorable to the Company as could
be obtained from third parties.

MidAmerican Energy and MidAmerican Capital will realize certain benefits as a
result of the Offering, including proceeds from the sale of shares of Common
Stock and the creation of a public market for the Common Stock. In addition,
all of the net proceeds to the Company from the Offering will be used to repay
a note payable to MidAmerican Capital and to repay indebtedness under the
Company's revolving credit facility, which was borrowed to repay a note payable
to MidAmerican Capital.

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Com-
pany............................ 6,150,000 shares
Common Stock Offered by the Sell-
ing Stockholder................. 1,000,000 shares
Common Stock to be Outstanding
after the Offering.............. 14,079,500 shares (1)
Use of Proceeds.................. The net proceeds to the Company of the
Offering are estimated to be $90.7 million
and will be used to repay indebtedness (i)
to MidAmerican Capital which was incurred to
finance the Sawyer Canyon Acquisition and
(ii) outstanding under the Company's
revolving credit facility. See "Use of
Proceeds."
New York Stock Exchange Symbol... ICE
</TABLE>
- --------

(1) Includes 2,000 restricted shares of Common Stock issuable under the
Company's Non-Employee Director Restricted Stock Plan upon completion of
the Offering but does not include 541,600 shares of Common Stock reserved
for issuance pursuant to outstanding options under the Company's Long Term
Incentive Plan. See "Management--Long-Term Incentive Stock Plan" and
"Management--Director Stock Plan."

6
<PAGE>

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following table sets forth, as of and for each of the periods indicated,
certain summary historical and summary pro forma financial data for the Company
giving effect to certain acquisitions and the Offering. The historical data as
of March 31, 1996 and for the three months ended March 31, 1996 and 1995 are
unaudited and the results for such periods are not necessarily indicative of
results for the full year. In the opinion of management, such unaudited
historical data reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation. The summary pro forma financial
information, except in the case of balance sheet data, reflects the Sawyer
Canyon Acquisition and the acquisition of the assets of GED as if such
acquisitions occurred on January 1, 1995 and gives effect to the Offering. The
unaudited summary pro forma balance sheet data reflect the Sawyer Canyon
Acquisition as if it occurred on March 31, 1996 and give effect to the
Offering. The summary historical financial data should be read in conjunction
with the consolidated financial statements of the Company included elsewhere in
this Prospectus and "Selected Historical Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
summary pro forma financial data are derived from the Unaudited Pro Forma
Combined Financial Statements included elsewhere in this Prospectus, and should
be read in conjunction therewith.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------- ------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1993 1994 1995 1995 1995 1996 1996
-------- -------- -------- ----------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
InterCoast Oil and Gas
Company
Gas and oil revenues... $ 37,359 $ 44,466 $ 48,109 $ 61,193 $10,995 $ 15,647 $ 19,072
Gas and oil operating
expenses.............. (9,616) (15,016) (14,552) (17,505) (3,645) (3,508) (4,122)
Depreciation, depletion
and amortization
expense............... (13,535) (18,602) (21,489) (27,897) (5,115) (6,214) (7,567)
General and
administrative
expense, net.......... (2,183) (2,633) (2,288) (2,508) (640) (714) (769)
-------- -------- -------- -------- ------- -------- --------
12,025 8,215 9,780 13,283 1,595 5,211 6,614
-------- -------- -------- -------- ------- -------- --------
InterCoast Energy
Marketing
Natural gas sales
revenues.............. 16,715 13,700 24,066 82,269 1,996 34,972 34,972
Cost of gas sold....... (16,216) (13,142) (23,218) (80,434) (1,874) (34,184) (34,184)
Gathering system
revenues.............. -- -- -- 1,594 -- -- 315
Gathering system
expenses.............. -- -- -- (105) -- -- (31)
Electric power sales
revenues.............. 19 446 421 421 -- 406 406
Cost of electric power
sold.................. -- -- (325) (325) -- (292) (292)
Operating expenses..... (369) (778) (952) (1,918) (209) (596) (596)
General and
administrative
expense............... (163) (314) (410) (410) (103) (181) (181)
-------- -------- -------- -------- ------- -------- --------
(14) (88) (418) 1,092 (190) 125 409
-------- -------- -------- -------- ------- -------- --------
Continental Power
Exchange, Inc.
Administrative and
development expense,
net................... -- (849) (3,442) (3,442) (460) (739) (739)
-------- -------- -------- -------- ------- -------- --------
Corporate expenses..... (1,013) (1,553) (1,554) (2,738) (389) (472) (705)
-------- -------- -------- -------- ------- -------- --------
Income before income
taxes................. 10,998 5,725 4,366 8,195 556 4,125 5,579
Provision for income
taxes................. 4,984 2,324 1,481 2,821 189 1,529 2,037
-------- -------- -------- -------- ------- -------- --------
Net income............. $ 6,014 $ 3,401 $ 2,885 $ 5,374 $ 367 $ 2,596 $ 3,542
======== ======== ======== ======== ======= ======== ========
Average common shares
outstanding........... 7,928 7,928 7,928 14,078 7,928 7,928 14,078
Earnings per common
share................. $ 0.76 $ 0.43 $ 0.36 $ 0.38 $ 0.05 $ 0.33 $ 0.25
======== ======== ======== ======== ======= ======== ========
CASH FLOW AND OTHER DA-
TA:
EBITDA (1)............. $ 24,670 $ 25,356 $ 27,359 $ 37,596 $ 6,179 $ 10,477 $ 13,284
Net cash provided
(used) by:
Operating activities... 25,535 22,800 38,186 47,083 12,271 13,793 16,092
Investing activities... (73,700) (43,491) (43,522) (88,762) (11,155) (14,310) (59,550)
Financing activities... 50,441 22,186 8,512 53,752 (1,438) (5,907) 39,333
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------
PRO FORMA
HISTORICAL AS ADJUSTED
---------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 1,879 $ 381
Working capital......................................... 1,761 263
Total assets............................................ 204,091 247,833
Long-term debt.......................................... 47,000 --
Stockholders' equity.................................... 104,757 195,499
</TABLE>

- -------
(1) EBITDA is income before income taxes, interest, depreciation, depletion and
amortization. EBITDA is a financial measure commonly used in the Company's
industry and should not be considered in isolation or as a substitute for
net income, cash flow provided by operating activities or other income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.

7
<PAGE>

SUMMARY HISTORICAL AND PRO FORMA NATURAL GAS AND OIL OPERATING AND RESERVE DATA

The following table sets forth summary information, on a historical and pro
forma basis for the Sawyer Canyon Acquisition, with respect to the operation of
the Company's natural gas and oil properties and the Company's estimated proved
natural gas and oil reserves at the end of the periods indicated. See "Business
and Properties--Natural Gas and Oil Reserves" and "Business and Properties--
Production, Prices and Operating Expenses."

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------- -----------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995 1995 1996 1996
------- ------- ------- --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PRODUCTION:
Natural gas (MMcf)..... 12,742 15,591 17,835 25,980 4,066 5,113 6,727
Oil and liquids
(MBbls)............... 691 1,024 1,028 1,045 252 316 320
Total (MMcfe).......... 16,887 21,737 24,003 32,250 5,578 7,008 8,648
AVERAGE SALES PRICE:
Natural gas (per Mcf)
(1)................... $ 2.04 $ 1.82 $ 1.65 $ 1.63 $ 1.61 $ 2.00 $ 2.02
Oil (per Bbl).......... 16.07 14.93 16.45 16.43 16.41 17.64 17.70
AVERAGE COSTS (PER
MCFE):
Lease operating ex-
pense................. $ 0.57 $ 0.69 $ 0.61 $ 0.54 $ 0.65 $ 0.50 $ 0.48
Depreciation, depletion
and amortization...... 0.80 0.86 0.90 0.87 0.92 0.89 0.87
General and administra-
tive, net (2)......... 0.13 0.12 0.10 0.08 0.11 0.10 0.09
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
PRO FORMA
1993 1994 1995 1995
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
ESTIMATED PROVED RESERVES:
Natural gas (MMcf).................... 112,023 148,611 133,673 191,427
Oil and liquids (MBbls)............... 8,955 7,304 9,844 9,923
Total (MMcfe)......................... 165,754 192,434 192,737 250,965
Estimated future net cash flows before
income taxes, discounted at 10% per
annum (in thousands)................. $137,711 $144,595 $168,159 $223,571
Standardized measure of discounted fu-
ture net cash flows (in thousands)... $118,202 $126,044 $136,924 $189,778
Percent of proved developed reserves.. 90% 81% 83% 86%
Reserve Life Index (in years) (3)..... 9.8 8.9 8.0 7.8
RESERVE REPLACEMENT DATA:
Finding costs (per Mcfe) (4).......... $ 0.73 $ 0.73 $ 0.85 $ 0.85
Production replacement ratio (5)...... 612% 263% 107% 349%
</TABLE>
- --------
(1) Includes the results of the Company's price risk management activities. See
"Business and Properties--Natural Gas and Oil Production Marketing
Activities."
(2) Before allocation of corporate expenses.
(3) Calculated by dividing year-end proved reserves by annual actual or pro
forma production (as applicable) for the most recent year.
(4) Represents the average finding costs over a three-year period, ending at
the end of the period presented.
(5) Equals current period reserve additions through acquisitions of reserves,
extensions and discoveries, and revisions to prior estimates divided by the
production for such period.

8
<PAGE>

RISK FACTORS

The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the shares of
Common Stock offered hereby.

VOLATILITY OF NATURAL GAS AND OIL PRICES; INDUSTRY CONDITIONS

The Company's financial condition, profitability and future rate of growth
and the carrying value of its natural gas and oil properties are significantly
dependent upon prevailing prices for natural gas, oil and condensate. The
Company's ability to maintain its borrowing capacity and to obtain additional
capital on attractive terms is also substantially dependent upon natural gas
and oil prices. The energy markets have historically been, and are likely to
continue to be, volatile and prices for natural gas and oil are subject to
large fluctuations in response to relatively minor changes in the supply and
demand for natural gas and oil, market uncertainty and a variety of additional
factors beyond the control of the Company. These factors include weather
conditions in the United States, the condition of the United States economy,
the actions of the Organization of Petroleum Exporting Countries, governmental
regulation, political stability in the Middle East and other petroleum
producing areas, the foreign and domestic supply of natural gas and oil, the
price of foreign imports and the availability of alternate fuel sources. A
substantial or extended decline in natural gas and oil prices could have a
material adverse effect on the Company's financial position, results of
operations, quantities of natural gas and oil reserves that may be
economically produced, carrying value of its proved reserves and access to
capital. In addition, the marketability of the Company's and third party
production depends upon a number of factors beyond the Company's control,
including the availability and capacity of transportation and processing
facilities, the effect of federal and state regulation of natural gas and oil
production and transportation, changes in supply due to drilling by other
producers and changes in demand. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business and Properties--
Natural Gas and Oil Production Marketing Activities."

PRICE RISK MANAGEMENT

In connection with the marketing of its own natural gas production, the
Company has entered into, and intends in the future to enter into, price risk
management contracts and arrangements. See "Business and Properties--Natural
Gas and Oil Production Marketing Activities." These contracts involve fixed
for floating price swap agreements on notional volumes which require payments
to (or the receipt of payments from) counterparties to such agreements based
on the differential between a fixed and variable price for natural gas. The
Company maintains coverage of such notional volumes with adequate physical
volume deliveries at the hub points used to price such agreements. The Company
utilizes these contracts in an effort to reduce risks relating to the
volatility of natural gas prices. However, such transactions may also limit
potential gains by the Company if natural gas prices were to rise
substantially over the price established by the contracts. The contracts are
subject to market risks relating to potential future increases in natural gas
prices which must be managed by the Company on a portfolio basis.
Additionally, credit risks exist because a party to a contract may not be able
to perform the contract in accordance with its terms. The Company is currently
party to swap arrangements covering an amount of natural gas volumes which is
equal to approximately 50% of its current total monthly production of its
equity gas, at a weighted average price of $2.047 per MMBtu at May 1, 1996.

In connection with its third party natural gas marketing activities, the
Company also has entered into, and intends in the future to enter into, price
risk management contracts and arrangements. See "Business and Properties--
Natural Gas and Oil Production Marketing Activities." These contracts and
arrangements relate to natural gas and include forward contracts involving
physical delivery of natural gas, swap agreements which require payments to
(or the receipt of payments from) counterparties to such agreements based on
the differential between a fixed and variable price for natural gas, swap
agreements designed to translate geographic pricing differences ("basis"), New
York Mercantile Exchange ("NYMEX") or other exchange-traded options, over-the-
counter options and other similar contractual arrangements. The Company
utilizes these contracts in an effort to reduce risks relating to the
volatility of natural gas prices. The contracts themselves involve certain
risks, including volatility risks and regional supply and demand aberrations
which must be managed by the Company

9
<PAGE>

on a portfolio basis. Additionally, credit risks exist because a party to a
contract may not be able to perform the contract in accordance with its terms.
There also exists a delivery or receipt risk that the Company or a
counterparty may not be able to fulfill its physical requirements due to
reasons within or outside its control. In the event of non-performance, the
Company may be required to purchase or sell natural gas at prices greatly
above or below market prices to fulfill contractual obligations or the Company
may be required to make certain payments in order to satisfy its obligations
under the contracts, possibly without legal recourse against the non-
performing party. While the Company is not currently involved in similar
contracts and arrangements with respect to electric power, it is anticipated
that in the future similar types of activities may be undertaken with respect
to electric power.

Certain employees of the Company are authorized to enter into risk
management contracts and arrangements within the Company's risk management
guidelines. There is no assurance that these guidelines will prevent
significant losses relating to these contracts and arrangements. Further,
these guidelines may not adequately address market volatility and other risks
associated with these contracts and arrangements. In addition, the risk exists
that these contracts and arrangements could be entered into or traded outside
of the guidelines. If these employees enter into or buy and sell these
contracts and arrangements outside these guidelines, such activity could
result in significant losses.

RESERVE REPLACEMENT RISKS

The Company's future performance is dependent upon its ability to find,
develop and acquire additional natural gas and oil reserves that are
economically recoverable. Without successful drilling or acquisition
activities, the Company's reserves and revenues will decline. No assurances
can be given that the Company will be able to find and develop or acquire
additional reserves at an acceptable cost. Further, the Company's approach to
obtaining drilling rights for its Extensional Infill drilling prospects
depends upon the willingness of property owners to grant the necessary
drilling rights to the Company after the prospects have been identified by the
Company. The Company may encounter difficulty in obtaining grants of farmouts
on certain of its locations on reasonable terms, in which case the Company may
not be able to obtain the drilling rights at all, or it may incur substantial
costs or burdens or experience significant delays before finally obtaining the
desired rights.

The Company's natural gas and oil business is capital intensive and, to
maintain its asset base of natural gas and oil reserves, a significant amount
of cash flow from operations must be reinvested in property acquisitions and
development and exploration activities. 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 investments
to maintain or expand its asset base would be impaired. Without such
investment, the Company's natural gas and oil reserves would decline.

The successful acquisition of producing properties requires an assessment of
recoverable reserves, future natural gas and oil prices and operating costs,
potential environmental and other liabilities and other factors. Such
assessments are necessarily inexact and their accuracy inherently uncertain.
In addition, no assurances can be given that the Company's exploitation and
development activities will result in any increases in reserves. The Company's
operations may be curtailed, delayed or canceled as a result of lack of
adequate capital and other factors, such as title problems, weather,
compliance with governmental regulations or price controls, mechanical
difficulties or shortages or delays in the delivery of equipment. In addition,
the costs of exploitation and development may materially exceed initial
estimates.

RELIANCE ON ESTIMATES OF NATURAL GAS AND OIL RESERVES

The reserve data set forth in this Prospectus represent only estimates of
Netherland, Sewell and Associates, Inc., other third-party petroleum engineers
and the Company. Reserve engineering is a subjective process of estimating the
recovery of underground accumulations of natural gas and oil that cannot be
measured in an exact manner, and the accuracy of any reserve estimate is a
function of the quality of the available data, of the assumptions made, and of
engineering and geological interpretation and judgment. Estimates of
economically recoverable natural gas and oil reserves and of future net cash
flows therefrom necessarily depend upon a number of variable factors and
assumptions, such as historical production from the area compared with
production from other producing areas, the assumed effects of regulations by
governmental agencies and assumptions concerning future natural gas and oil
prices, future operating costs, severance and excise taxes, development costs
and

10
<PAGE>

workover and remedial costs, all of which may in fact vary considerably from
actual results. As a result, any such estimates are inherently imprecise, and
estimates by other engineers, or by the same engineers at a different time,
might differ materially from those included herein. Actual prices, production,
development expenditures, operating expenses and quantities of recoverable
natural gas and oil reserves will vary from those assumed in the estimates and
such variances may be significant. Any significant variance from the
assumptions could result in the actual quantity of the Company's reserves and
future net cash flow therefrom being materially different from the estimates
set forth in this Prospectus. In addition, the Company's estimated reserves
may be subject to downward or upward revision, based upon production history,
results of future exploration and development, prevailing natural gas and oil
prices, operating and development costs and other factors. The Company's
properties may also be susceptible to hydrocarbon drainage from production by
other operators on adjacent properties. See "Business and Properties--Natural
Gas and Oil Reserves."

The present worth of future net cash flows set forth herein should not be
construed as the current market value or the value at any prior date of the
estimated natural gas and oil reserves attributable to the Company's
properties. In accordance with applicable requirements of the Securities and
Exchange Commission (the "Commission"), the estimated discounted future net
revenues from estimated proved reserves are based on prices and costs as of
the date of the estimate unless such prices or costs are contractually
determined at such date. Actual future prices and costs may be materially
higher or lower. Actual future net revenues also will be affected by factors
such as actual production, supply and demand for natural gas and oil,
curtailments or increases in consumption by natural gas purchasers, changes in
governmental regulations or taxation and the impact of inflation on costs.

OPERATING RISKS

The natural gas and oil business involves a variety of operating risks,
including the risk of fire, explosions, blow-outs, pipe failure, abnormally
pressured formations and environmental hazards such as oil spills, gas leaks,
ruptures or discharges of toxic gases. Any of these occurrences could result
in substantial losses to the Company due to injury or loss of life, severe
damage to or destruction of property, natural resources and equipment,
pollution or other environmental damage, clean-up responsibilities, regulatory
investigation and penalties and suspension of operations. Moreover, offshore
operations are subject to a variety of operating risks peculiar to the marine
environment, such as hurricanes or other adverse weather conditions, to more
extensive governmental regulation, including regulations that may, in certain
circumstances, impose strict liability for pollution damage, and to
interruption or termination of operations by governmental authorities based on
environmental or other considerations. The presence of unanticipated pressure
or irregularities in formations, miscalculations or accidents may cause such
activity to be unsuccessful, resulting in a total loss of the Company's
investment in such activity. Although the Company maintains insurance coverage
considered to be customary in the industry, it is not fully insured against
certain of these risks, either because such insurance is not available or
because of the high premium costs. There can be no assurance that any
insurance obtained by the Company will be adequate to cover any losses or
liabilities, or that such insurance will continue to be available or available
on terms which are acceptable to the Company. See "Business and Properties--
Operational Hazards and Insurance."

CERTAIN RISKS OF NATURAL GAS MARKETING OPERATIONS

The profitability of the Company's natural gas marketing operations depends
in large part on the ability of the Company's management to assess and respond
to changing market conditions in negotiating natural gas purchase and sales
agreements. The inability of management to respond appropriately to changing
market conditions could have a negative effect on the profitability of the
Company's natural gas marketing businesses. Under certain agreements, the
Company is obligated to purchase or sell specified quantities of natural gas
at prices related to the market price. Although the Company attempts to match
its purchase obligations with sales obligations in certain instances, it is
still subject to price risk, particularly where the index or market for
determining the purchase price under a contract is different from the index or
market for determining the sales price under the corresponding contract. The
Company uses financial risk management techniques to hedge its price risk, but
these techniques and actions do not eliminate all such risk. See "--Price Risk
Management."

11
<PAGE>

In the natural gas marketing business, a buyer's ability to purchase natural
gas is affected by its financial strength. In the past, MidAmerican Capital
has provided letters of credit and guarantees to support certain of the
Company's purchases of natural gas. Accordingly, the Company's historical
ability to purchase and the volumes and terms of its purchases have been
dependent, in part, on the financial support of MidAmerican Capital. After the
Offering, the Company's own financial strength may affect its ability to
purchase and the volumes and terms under which it will be able to purchase
natural gas. There can be no assurance that the Company's financial strength
will be sufficient to provide the financial support that may be required to
continue the present volume of purchases or to permit increased volumes of
purchases at acceptable prices.

CERTAIN RISKS AFFECTING CPEX(TM)

The electric energy power exchange business is an emerging industry
characterized by technological change, new product and service introductions
and evolving industry standards. The future success of CPEX(TM) will depend in
large part on the Company's ability to anticipate industry standards, quickly
adopt and integrate industry advancements and enhance its products and
services on a timely basis to keep pace with technological changes and changes
in the power exchange market. Any delay or failure to respond to market or
technological changes or evolving industry standards, or the failure of
CPEX(TM) to achieve market acceptance, could have a material adverse effect on
the future operations of CPEX(TM). Although the Company is developing in-house
capabilities to support its current CPEX(TM) software applications and to
develop new software applications for its CPEX(TM) operations, it will
continue to rely heavily on the services of third party specialty software
development firms. Because of the Company's reliance on such third party
services, it may not be able to control either the software support services
required in its CPEX(TM) operations or the timing of the development and
implementation of new software and hardware configurations, delays in which
could cause the Company to lose market share to its competitors. Further,
there can be no assurance that legal protections relied upon by the Company to
protect the proprietary intellectual property rights underlying its trading
network will be adequate or that the Company's competitors will not
independently develop technologies which are substantially equivalent or
superior to the Company's technologies. The Company's CPEX(TM) operations have
incurred losses since their inception, and there can be no assurance that such
operations will become profitable. CPEX(TM) is in the early stage of
commercial operation, and there can be no assurance of its future viability or
that the Company will recover its investment in CPEX(TM).

CERTAIN RISKS AFFECTING ELECTRIC POWER MARKETING OPERATIONS

Although in the early stages of development, the wholesale electric power
marketing business is very competitive with approximately 200 companies to
date having received FERC certification as power marketers. Many of these
competitors have greater financial resources than the Company and direct
access to generating resources. The Company neither owns nor has any long-term
rights to any electric generating resources. There can be no assurance that
the Company will be able to procure adequate amounts of electricity at
reasonable prices or to find markets for such electricity. The Company has
only recently entered the power marketing business, and its power marketing
operations have incurred losses in the past. There can be no assurance that
such operations will become profitable.

DEPENDENCE ON KEY PERSONNEL; LIMITED OPERATING HISTORY

The Company's operations are dependent upon a relatively small group of
management and technical personnel. The loss of one or more of these
individuals could have a material adverse effect on the Company. See
"Management--Directors and Executive Officers." In addition, the Company's
power marketing and CPEX(TM) operations have a limited operating history and
are essentially start-up operations.

COMPETITION

The energy industry is highly competitive, particularly with respect to the
acquisition of desirable natural gas and oil properties and in marketing
natural gas and oil production and electricity. The Company competes

12
<PAGE>

with major and independent energy companies (including public utilities), as
well as numerous individuals and marketers. The availability of funds and
information relating to a property, the investment criteria utilized by the
Company and the availability of alternate fuel sources are factors which also
affect the Company's ability to compete. In addition, the Company faces
intense competition in the natural gas marketing and power marketing
businesses. Competition is also emerging in electric energy exchange networks.
The Company expects competition to increase in these markets from both
existing competitors and other companies that may enter these markets in the
future. Many of the Company's competitors in its business activities have
financial and other resources and acquisition, exploration and development
budgets that are substantially greater than those of the Company, which may
adversely affect the Company's ability to compete with these companies. See
"Business and Properties--Competition."

GOVERNMENTAL REGULATION

Oil and gas operations are subject to various federal, state and local
governmental regulations which may be changed from time to time in response to
economic or political conditions. Matters subject to regulation include
discharge permits for drilling operations, drilling and abandonment bonds,
reports concerning operations, the spacing of wells, unitization and pooling
of properties and taxation. From time to time, regulatory agencies have
imposed price controls and limitations on production by restricting the rate
of flow of oil and gas wells below actual production capacity in order to
conserve supplies of oil and gas. In addition, the production, handling,
storage, transportation and disposal of oil and gas, by-products thereof and
other substances and materials produced or used in connection with oil and gas
operations are subject to regulation under federal, state and local laws and
regulations primarily relating to protection of human health and the
environment. These laws and regulations have continually imposed increasingly
strict requirements for water and air pollution control and solid waste
management. To date, expenditures related to compliance with these laws have
not been significant. The Company believes, however, that the trend of more
expansive and stricter environmental legislation and regulations will continue
and such legislation may result in additional costs to the Company in the
future. Amendments to the Resource Conservation and Recovery Act to regulate
further the handling, transportation, storage and disposal of oil and gas
exploration and production wastes have been considered by Congress and may be
adopted. Such legislation, if enacted, could have a significant adverse impact
on the Company's operating costs. See "Business and Properties--Regulation."

Although the Company's natural gas marketing business is generally not
subject to federal or state regulation, many of the parties with whom the
Company does business (including interstate and intrastate pipelines,
gathering and storage companies, and local distribution companies) are subject
to federal and state regulation. As a result, changes in governmental
regulations may have an adverse impact on the Company's natural gas marketing
business. In addition, such parties may also file tariffs at the federal
and/or state level on account of their regulated status, changes in which may
have an adverse effect on the Company's natural gas marketing business.
Finally, because the Company's natural gas marketing business is affiliated
with a regulated utility, it is possible that government regulation could
directly or indirectly adversely impact such a business. See "Business and
Properties--Regulation."

The timing and direction of future federal and state regulatory actions will
likely impact the Company's power marketing and electricity trading exchange
operations. The Company has designed CPEX(TM) and has plans for future system
developments predicated on the regulatory freedom for wholesale and,
eventually, retail electricity users to choose among supply sources and
transmission paths. Federal and state legislation and decisions that federal
and various state regulators make about whether, when and how retail
competition may come about, the terms and conditions under which traditional
utilities will be allowed to compete, and whether state or federal
governmental authorities will establish or approve power exchanges, will
likely have a significant bearing on the Company's ability to compete in this
market. Additionally, future changes in the regulation of power marketers and
the regulation of power marketing in general by the FERC or state authorities
are possible. Currently, the Company is essentially free to compete for
wholesale electricity customers across the United States, except for certain
transactions involving MidAmerican Energy. While there are no regulatory
proceedings currently pending or in the planning stages of which the Company
is aware that would further restrict the

13
<PAGE>

Company's ability to compete, there can be no assurance that regulatory
changes might not take place in the future that could adversely impact the
Company's ability to compete. See "Business and Properties--Regulation."

PRINCIPAL STOCKHOLDER

MidAmerican Energy, through its wholly owned subsidiary MidAmerican Capital,
currently owns 7,927,500 shares of Common Stock and after the Offering will
own 6,927,500 shares of Common Stock (or 5,855,000 shares of Common Stock if
the Underwriters exercise their over-allotment option in full) or
approximately 49% (or 42% if the Underwriters exercise their over-allotment
option in full) of the outstanding shares of Common Stock. Such concentration
of ownership of Common Stock may have an adverse effect on the market price of
the Common Stock. As a result of such stock ownership, MidAmerican Capital and
MidAmerican Energy will in all likelihood be able to elect all members of the
Board of Directors and to control the vote on matters submitted to the Board
of Directors or stockholders, including, without limitation, matters relating
to the Company's exploration, development, capital, operating and acquisition
expenditure plans. It is contemplated that upon completion of the Offering the
Board of Directors will be comprised of seven members, five of whom will be
directors or current or former officers of MidAmerican Energy, MidAmerican
Capital or the Company. See "Relationship Between the Company and the Parent"
and "Principal and Selling Stockholder."

The Company and MidAmerican Capital intend to enter into certain agreements,
including a registration rights agreement, a tax sharing agreement, an
administrative services agreement and a general indemnification agreement, to
provide for certain transactions and relationships between the parties.
Pursuant to the indemnification agreement, the Company will indemnify
MidAmerican Capital and its affiliates against liabilities associated, among
other things, with the Company's business prior to and after the Offering,
employment and employee benefit matters arising from the corporate
restructuring of MidAmerican Capital, and the Offering. See "Relationship
Between the Company and the Parent--Contractual Arrangements." The Company and
MidAmerican Capital and its other affiliates may enter into other transactions
and agreements from time to time in the future. The relationship between the
Company and MidAmerican Capital and its other affiliates may give rise to
conflicts of interest with respect to, among other things, transactions and
agreements among the Company and MidAmerican Capital and its other affiliates,
potential competitive business activities or business opportunities, issuances
of additional shares of voting securities, the election of directors or the
payment of dividends, if any, by the Company. There can be no assurance that
conflicts will be resolved in favor of the Company. There are no contractual
or other restrictions on the ability of MidAmerican Capital or its other
affiliates to engage in oil and gas exploration and production, natural gas
marketing or electric power marketing or in the operation of an electric power
trading exchange. Circumstances presently exist and could arise in the future
in which the Company and MidAmerican Capital or its other affiliates engage in
activities in competition with one another. See "Relationship Between the
Company and the Parent--Potential Conflicts of Interest."

MidAmerican Energy and MidAmerican Capital will realize certain benefits as
a result of the Offering, including proceeds from the sale of shares of Common
Stock owned by MidAmerican Capital and the creation of a public market for the
Common Stock which will provide a market indication of the value of the
Company. See "Principal and Selling Stockholder" and "Shares Eligible for
Future Sale." In addition, all of the net proceeds to the Company from the
Offering will be used to repay a note payable to MidAmerican Capital, the
proceeds of which were used to finance the Sawyer Canyon Acquisition, and to
repay indebtedness under the Company's revolving credit facility which was
borrowed to repay a note payable to MidAmerican Capital. See "Use of
Proceeds."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; DILUTION

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiations between
the Company and the Underwriters and may not be indicative of the future
market price for the Common Stock. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Company has applied to list the Common Stock on the New York Stock Exchange.
No assurance can be made, however, that an active trading market for the

14
<PAGE>

Common Stock will develop or, if developed, that it will be sustained. The
market price of the Common Stock could also be subject to significant
fluctuation in response to variations in results of operations and other
factors. Investors in the Common Stock offered hereby will also experience
immediate and substantial dilution in the net tangible book value of their
shares of Common Stock. At an assumed public offering price of $16.00 per
share, the dilution to investors would be $2.42 per share. In addition,
MidAmerican Capital acquired its shares of Common Stock at a per share price
that is substantially less than the initial public offering price. See
"Dilution."

SHARES ELIGIBLE FOR FUTURE SALE

MidAmerican Capital has agreed not to dispose of any shares of Common Stock,
other than pursuant to the Offering, without the prior consent of PaineWebber
Incorporated for a period of 180 days from the date of this Prospectus. The
shares of Common Stock held by MidAmerican Capital are deemed "restricted
securities" within the meaning of Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act"), and may be resold after the 180-day period
only upon registration under the Securities Act or pursuant to an exemption
from registration, including exemptions contained in Rule 144. MidAmerican
Capital will be granted certain rights to demand registration of its shares of
Common Stock at any time commencing six months from the date of the closing of
the Offering. See "Relationship Between the Company and the Parent--
Contractual Arrangements--Registration Rights Agreement." As of the date
hereof, options exercisable for 541,600 shares of Common Stock were
outstanding under the Company's 1996 Long Term Incentive Plan, none of which
are currently exercisable. Generally, all shares issued upon the exercise of
such options will be freely tradeable under the Securities Act. Future sales
of substantial amounts of Common Stock in the public market following the
Offering could adversely affect the market price of Common Stock. The Company
is unable to make any prediction as to the effect, if any, that the future
sales of Common Stock or the availability of Common Stock for sale will have
on the market price of the Common Stock prevailing from time to time. See
"Shares Eligible for Future Sale."

FORWARD-LOOKING STATEMENTS

There are a number of statements in this Prospectus which address
activities, events or developments which the Company expects or anticipates
will or may occur in the future, including such things as future capital
expenditures (including the amount and nature thereof), wells to be drilled or
reworked, natural gas and oil prices and demand, drilling prospects to be
identified, expansion and other development trends of industry segments in
which the Company is active, acquisitions of assets and businesses, production
of natural gas and oil reserves, expansion and growth of the Company's
businesses and operations, and other such matters. These statements are based
on certain assumptions and analyses made by the Company in light of its
experience and its perception of historical trends, current conditions and
expected future developments as well as other factors it believes are
appropriate under the circumstances. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, including the risk factors
discussed in this section; general economic, market or business conditions;
the business opportunities (or lack thereof) that may be presented to and
pursued by the Company; changes in laws or regulations and other factors, most
of which are beyond the control of the Company. Consequently, all of the
forward-looking statements made in this Prospectus are qualified by these
cautionary statements and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the Company or its business or operations.

BLANK CHECK PREFERRED STOCK

The Company's Certificate of Incorporation (the "Certificate of
Incorporation") authorizes blank check preferred stock which may have the
effect of discouraging unsolicited acquisition proposals. See "Description of
Capital Stock--Preferred Stock."

DIVIDEND POLICY

15
<PAGE>

THE COMPANY

InterCoast is an energy company engaged primarily in (i) the development,
exploration, acquisition and production of natural gas and crude oil, (ii) the
marketing of natural gas and electricity, and (iii) the development and
operation of the first market-based national electronic exchange, CPEX(TM),
for the buying and selling of wholesale electric power and transmission
services. The Company's principal natural gas and oil operations are located
in Texas, Louisiana, Oklahoma and New Mexico. The Company has increased its
natural gas and oil reserves and cash flow through a balanced focus on
Extensional Infill drilling, strategic acquisitions of producing properties
and regionally focused exploratory drilling. The Company believes its success
has resulted from its ability to (i) identify internally a large number of
desirable Extensional Infill drilling locations, (ii) apply strict economic
and reserve risk criteria to both drilling and acquisition operations, and
(iii) operate as an efficient, low-cost producer.

The Company was incorporated in Delaware on May 17, 1996, in connection with
the corporate restructuring of MidAmerican Capital and is an indirect wholly
owned subsidiary of MidAmerican Energy, an electric and gas utility.
MidAmerican Energy was formed in July 1995 as a result of the merger of Iowa-
Illinois Gas and Electric Company and Midwest Resources Inc. MidAmerican
Energy, through its wholly owned subsidiary MidAmerican Capital, will in all
likelihood continue to maintain effective control over the Company and its
operations, including the election of the Board of Directors, election of
officers and dividend policy, as well as other operational matters.

The Company is organized as a holding company with four direct wholly owned
subsidiaries: (i) InterCoast Oil and Gas Company, formerly named Medallion
Production Company ("InterCoast Oil and Gas"), which conducts the Company's
natural gas and oil exploration and production business, (ii) InterCoast Gas
Services Company ("InterCoast Gas Services"), which conducts the Company's
natural gas marketing business, (iii) Continental Power Exchange, Inc.
("Continental Power Exchange"), which operates CPEX(TM), the Company's market-
based electronic exchange for the buying and selling of wholesale electricity
and transmission services, and (iv) InterCoast Power Marketing Company
("InterCoast Power Marketing"), which conducts the Company's power marketing
and brokering operations.

In 1992, InterCoast Oil and Gas acquired from Medallion Petroleum, Inc.
certain undeveloped natural gas and oil properties, prospect inventory and
goodwill (name, personnel and operating and management rights of certain
natural gas and oil properties). The acquired management of Medallion
Petroleum, Inc. had been engaged in the natural gas and oil business since
1985. Prior to 1992, the Company participated in the oil and gas business
principally as a passive investor in drilling and acquisition operations
conducted by other industry members, including Medallion Petroleum, Inc.

InterCoast Gas Services was formed in May 1996. Portions of its natural gas
marketing operations have been in business since 1985. Continental Power
Exchange was formed in 1994 and commenced commercial operation of CPEX(TM) in
May 1995. InterCoast Power Marketing was formed in 1993. It commenced
brokering electric power transactions in October 1993 and commenced marketing
electric power in July 1995.

The Company's principal executive offices are located at 666 Grand Avenue,
26th Floor, Des Moines, Iowa 50309, and its telephone number is (515) 281-
2693. The principal operating offices of InterCoast Oil and Gas are located at
7130 South Lewis Avenue, Suite 700, Tulsa, Oklahoma 74136, and its telephone
number is (918) 488-8283.

16
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
to be sold by the Company in the Offering are estimated to be $90.7 million
after deducting estimated underwriting discounts and commissions and the
estimated offering expenses payable by the Company. Approximately $45.2
million of such net proceeds will be used to repay in full indebtedness due
MidAmerican Capital under a promissory note (the "MidAmerican Capital Note"),
due on or before April 12, 1997, with interest payable quarterly at a floating
rate based on LIBOR plus 55 basis points (6.17% through September 11, 1996).
The proceeds of the MidAmerican Capital Note were utilized in connection with
the Sawyer Canyon Acquisition. See "Business and Properties--Producing
Property Acquisitions--Sawyer Canyon Acquisition." The Company intends to use
approximately $45 million of the net proceeds for the repayment of all
indebtedness anticipated to be outstanding under a new five-year unsecured
$100 million revolving credit facility (the "Credit Facility"). Such
indebtedness will be incurred in order to repay existing non-interest bearing
indebtedness due MidAmerican Capital incurred in connection with financing the
Company's operating and acquisition activities. The Company has received
commitments for the Credit Facility and anticipates that the facility will be
in place prior to consummation of the Offering. The Credit Facility will bear
interest payable quarterly at a floating rate based on the higher of The First
National Bank of Chicago's corporate base rate or a rate based on the federal
funds rate or, at the Company's option, at a fixed rate for certain interest
rate periods based on LIBOR. Future borrowings under the Credit Facility will
be available for Extensional Infill and exploratory drilling, acquisition
activities and for general corporate purposes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." The Company will not receive any proceeds from the sale of
shares of Common Stock by MidAmerican Capital in the Offering, and MidAmerican
Capital will pay its pro rata share of offering expenses.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on the Common Stock.
The Company currently intends to retain its earnings to provide funds for
reinvestment in the Company's businesses and, therefore, does not anticipate
declaring or paying cash dividends in the foreseeable future. The Company is a
holding company that conducts substantially all of its operations through its
subsidiaries. As a result, the Company's ability to pay dividends on the
Common Stock will be dependent on the cash flow of its subsidiaries. Payment
of dividends is also subject to then existing business conditions and the
business results, cash requirements and financial condition of the Company,
and will be at the discretion of the Board of Directors. In addition, under
the terms of the Credit Facility the payment of dividends will be limited to
25% of the Company's consolidated net income for its immediately preceding
fiscal quarter. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

17
<PAGE>

CAPITALIZATION

The following table sets forth at March 31, 1996: (a) the capitalization of
the Company, (b) the pro forma capitalization of the Company after giving
effect to debt incurred in connection with the Sawyer Canyon Acquisition, and
(c) the as adjusted capitalization of the Company after giving effect to the
transaction described in (b) above, the use of borrowings under the Credit
Facility to pay long-term debt due to MidAmerican Capital as described under
"Use of Proceeds," and the Offering and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds." This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Company's historical and
unaudited pro forma combined financial statements, including the notes
thereto, included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------
PRO FORMA PRO FORMA
ACTUAL FOR ACQUISITION AS ADJUSTED
-------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Due to MidAmerican Capital............... $ 47,000 $ 47,000 $ --
MidAmerican Capital Note................. -- 45,240 --
-------- -------- --------
Total long-term debt................... 47,000 92,240 --
-------- -------- --------
Stockholders' equity:
Preferred stock, $0.01 par value,
5,000,000 shares authorized; no shares
issued and outstanding.................. -- -- --
Common stock, $0.01 par value, 25,000,000
shares authorized;
7,927,500 shares issued and outstanding;
14,077,500 shares pro forma as adjusted
(1)..................................... 79 79 141
Additional paid-in capital............... 85,995 85,995 176,675
Retained earnings........................ 18,683 18,683 18,683
-------- -------- --------
Total stockholders' equity............. 104,757 104,757 195,499
-------- -------- --------
Total capitalization...................... $151,757 $196,997 $195,499
======== ======== ========
</TABLE>
- --------

(1) Excludes 2,000 restricted shares of Common Stock to be issued under the
Company's Non-Employee Director Restricted Stock Plan upon completion of
the Offering. See "Management--Director Stock Plan."

18
<PAGE>

DILUTION

At March 31, 1996, the net tangible book value of the Company was $100.4
million or $12.66 per share of Common Stock. "Net tangible book value" per
share represents the amount of the Company's tangible net worth (tangible
assets less liabilities) divided by the total number of shares of Common Stock
outstanding. After giving effect as of March 31, 1996, to the receipt of $90.7
million of estimated net proceeds (net of estimated underwriting discounts and
commissions and other estimated offering expenses to be borne by the Company)
from the sale by the Company of 6,150,000 shares of Common Stock at an assumed
public offering price of $16.00 per share, the net tangible book value of the
Common Stock outstanding at March 31, 1996, would have been approximately
$191.1 million or $13.58 per share, representing an immediate increase in net
tangible book value of approximately $0.92 per share to MidAmerican Capital
and an immediate dilution of approximately $2.42 per share to new investors
purchasing the Common Stock at the initial public offering price. The
following table illustrates such per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $16.00
------
Net tangible book value per share at March 31, 1996... $12.66
Increase in net tangible book value per share
attributable to new investors........................ 0.92
------
Net tangible book value per share after the Offering........... 13.58
------
Dilution in net tangible book value per share to new invest-
ors........................................................... $ 2.42
======
</TABLE>

The following table summarizes as of March 31, 1996, after giving effect to
the Offering, the number of shares of Common Stock purchased or to be
purchased from the Company, the total consideration paid or to be paid and the
average price per share paid or to be paid by MidAmerican Capital and by new
investors purchasing shares of Common Stock in the Offering (assuming an
initial public offering price of $16.00 per share):

<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION AVERAGE
-------------------------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------- ---------------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholder.... 7,927,500 56% $104,757,000 52% $13.21
New investors........... 6,150,000 44 98,400,000 48 16.00
------------- ------ ------------ ---
Total................. 14,077,500 100% $203,157,000 100%
============= ====== ============ ===
</TABLE>
- --------

(1) Sales by MidAmerican Capital in the Offering will reduce the number of
shares owned by it, the sole existing stockholder, to 6,927,500 shares
(assuming no exercise of the Underwriters' over-allotment option), or
approximately 49% of the total number of shares of Common Stock to be
outstanding after the Offering, and will increase the number of shares
held by new investors to 7,150,000 shares, or approximately 51% of the
total number of shares of Common Stock to be outstanding after the
Offering.

The above computations assume no exercise of the Underwriters' over-
allotment option and no exercise of any outstanding stock options. As of the
date hereof, there were outstanding options to purchase 541,600 shares of
Common Stock at an exercise price equal to the initial public offering price
per share for the Common Stock in the Offering. See "Management--Long-Term
Incentive Stock Plan." The above computations also exclude 2,000 restricted
shares of Common Stock to be issued under the Company's Non-Employee Director
Restricted Stock Plan upon completion of the Offering. See "Management--
Director Stock Plan."

19
<PAGE>

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The accompanying unaudited pro forma combined statements of income are
presented as if the acquisitions of the Sawyer Canyon Properties (as
hereinafter defined) and the assets of GED (the "Gas Marketing Assets") and
this Offering had been completed January 1, 1995. The Sawyer Canyon Properties
were acquired in April 1996 for total consideration of $45.2 million, subject
to post-closing adjustment, and the Gas Marketing Assets were acquired
effective November 1995 for total consideration of $1.8 million, subject to
post-closing adjustment. The historical results of the Company include the
results of the Gas Marketing Assets effective as of November 1, 1995. The
accompanying unaudited pro forma combined balance sheet as of March 31, 1996
is presented as if the acquisition of the Sawyer Canyon Properties and this
Offering had occurred on March 31, 1996.

The unaudited pro forma combined financial statements are based on the
assumptions set forth in the notes to such statements. Such pro forma
information should be read in conjunction with the Company's financial
statements and related notes thereto and is not necessarily indicative of the
results that actually would have occurred had the transactions been in effect
on the dates or for the periods indicated, or of results that may occur in the
future.

20
<PAGE>

INTERCOAST ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------- -------------------------------------
INTERCOAST SAWYER GAS
ENERGY CANYON MARKETING ACQUISITION OFFERING AS
COMPANY PROPERTIES ASSETS ADJUSTMENTS ADJUSTMENTS ADJUSTED
---------- ---------- --------- ----------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INTERCOAST OIL AND GAS
COMPANY
Gas and oil revenues... $ 48,109 $13,084 -- -- -- $ 61,193
Gas and oil operating
expenses.............. (14,552) (2,953) -- -- -- (17,505)
Depreciation, depletion
and amortization
expense............... (21,489) -- -- $ (6,408)(1) -- (27,897)
General and
administrative
expense, net.......... (2,288) -- -- (220)(2) -- (2,508)
-------- ------- ------- -------- ------- --------
9,780 10,131 -- (6,628) -- 13,283
-------- ------- ------- -------- ------- --------
INTERCOAST ENERGY MAR-
KETING
Natural gas sales
revenues.............. 24,066 -- $58,203 -- -- 82,269
Cost of gas sold....... (23,218) -- (57,216) -- -- (80,434)
Gathering system
revenues.............. -- 1,594 -- -- -- 1,594
Gathering system
expenses.............. -- (105) -- -- -- (105)
Electric power sales
revenues.............. 421 -- -- -- -- 421
Cost of electric power
sold.................. (325) -- -- -- -- (325)
Operating expenses..... (952) -- (966) -- -- (1,918)
General and
administrative
expense............... (410) -- -- -- -- (410)
-------- ------- ------- -------- ------- --------
(418) 1,489 21 -- -- 1,092
-------- ------- ------- -------- ------- --------
CONTINENTAL POWER EX-
CHANGE, INC.
Administrative and
development expense,
net................... (3,442) -- -- -- -- (3,442)
-------- ------- ------- -------- ------- --------
Corporate expenses...... (1,554) -- -- -- $(1,184)(3) (2,738)
-------- ------- ------- -------- ------- --------
Interest expense........ -- -- -- (2,961)(4) 2,961 (5) --
-------- ------- ------- -------- ------- --------
Income before income
taxes.................. 4,366 11,620 21 (9,589) 1,777 8,195
Provision for income
taxes.................. 1,481 -- -- 718 (6) 622 (6) 2,821
-------- ------- ------- -------- ------- --------
Net income.............. $ 2,885 $11,620 $ 21 $(10,307) $ 1,155 $ 5,374
======== ======= ======= ======== ======= ========
Average common shares
outstanding............ 7,928 6,150 (7) 14,078
======== ======= ========
Earnings per common
share.................. $ 0.36 $ 0.38
======== ========
</TABLE>

See Notes to Unaudited Pro Forma Combined Financial Statements.

21
<PAGE>

INTERCOAST ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- ------------------------------------
INTERCOAST SAWYER
ENERGY CANYON ACQUISITION OFFERING AS
COMPANY PROPERTIES ADJUSTMENTS ADJUSTMENTS ADJUSTED
---------- ---------- ------------ ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INTERCOAST OIL AND GAS
COMPANY
Gas and oil revenues... $ 15,647 $3,425 -- -- $ 19,072
Gas and oil operating
expenses.............. (3,508) (614) -- -- (4,122)
Depreciation, depletion
and amortization
expense............... (6,214) -- $(1,353)(1) -- (7,567)
General and administra-
tive expense, net..... (714) -- (55)(2) -- (769)
-------- ------ ------- ----- --------
5,211 2,811 (1,408) -- 6,614
-------- ------ ------- ----- --------
INTERCOAST ENERGY MAR-
KETING
Natural gas sales reve-
nues.................. 34,972 -- -- -- 34,972
Cost of gas sold....... (34,184) -- -- -- (34,184)
Gathering system reve-
nues.................. -- 315 -- -- 315
Gathering system ex-
penses................ -- (31) -- -- (31)
Electric power sales
revenues.............. 406 -- -- -- 406
Cost of electric power
sold.................. (292) -- -- -- (292)
Operating expenses..... (596) -- -- -- (596)
General and administra-
tive expense.......... (181) -- -- -- (181)
-------- ------ ------- ----- --------
125 284 -- -- 409
-------- ------ ------- ----- --------
CONTINENTAL POWER EX-
CHANGE, INC.
Administrative and de-
velopment expense,
net................... (739) -- -- -- (739)
-------- ------ ------- ----- --------
Corporate expense....... (472) -- -- $(233)(3) (705)
-------- ------ ------- ----- --------
Interest expense........ -- -- (740)(4) 740 (5) --
-------- ------ ------- ----- --------
Income before income
taxes.................. 4,125 3,095 (2,148) 507 5,579
Provision for income
taxes.................. 1,529 -- 331 (6) 177 (6) 2,037
-------- ------ ------- ----- --------
Net income.............. $ 2,596 $3,095 $(2,479) $ 330 $ 3,542
======== ====== ======= ===== ========
Average common shares
outstanding............ 7,928 6,150 (7) 14,078
======== ===== ========
Earnings per common
share.................. $ 0.33 $ 0.25
======== ========
</TABLE>

See Notes to Unaudited Pro Forma Combined Financial Statements.

22
<PAGE>

INTERCOAST ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1996

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
INTERCOAST -------------------------------------
ENERGY ACQUISITION OFFERING AS
COMPANY ADJUSTMENTS ADJUSTMENTS ADJUSTED
---------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.... $ 1,879 -- $ 90,742 (7) $ 381
(92,240)(5)
Accounts receivable.......... 25,656 -- -- 25,656
Other........................ 1,393 -- -- 1,393
--------- ------- -------- ---------
Total current assets........ 28,928 -- (1,498) 27,430
Gas and oil properties, net.... 166,231 $45,240(8) -- 211,471
Continental Power Exchange,
Inc., net..................... 4,338 -- -- 4,338
Intangible and other assets,
net........................... 4,594 -- -- 4,594
--------- ------- -------- ---------
Total assets................ $ 204,091 $45,240 $ (1,498) $ 247,833
========= ======= ======== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable............. $ 22,642 -- -- $ 22,642
Other current liabilities.... 4,525 -- -- 4,525
--------- ------- -------- ---------
Total current liabilities... 27,167 -- -- 27,167
--------- ---------
Accumulated deferred income
taxes, net.................... 25,167 -- -- 25,167
--------- ---------
Long-term debt
MidAmerican Capital Note..... -- $45,240(8) $(45,240)(5) --
Due to MidAmerican Capital... 47,000 -- (47,000)(5) --
--------- ------- -------- ---------
47,000 45,240 (92,240) --
--------- ------- -------- ---------
Stockholders' equity
Common stock $0.01 par value,
25,000,000 shares
authorized; 7,927,500 shares
issued and outstanding;
14,077,500 pro forma as
adjusted.................... 79 -- 62 (7) 141
Additional paid-in capital... 85,995 -- 90,680 (7) 176,675
Retained earnings............ 18,683 -- -- 18,683
--------- ------- -------- ---------
Total stockholders' equity.. 104,757 -- 90,742 195,499
--------- ------- -------- ---------
Total liabilities and stock-
holders' equity............ $ 204,091 $45,240 $ (1,498) $ 247,833
========= ======= ======== =========
</TABLE>

See Notes to Unaudited Pro Forma Combined Financial Statements.

23
<PAGE>

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

(1) Reflects additional estimated depreciation, depletion and amortization,
calculated using the unit-of-production method, after giving effect to the
Sawyer Canyon Acquisition as if such acquisition had occurred on January
1, 1995. The Company's actual and pro forma depreciation, depletion and
amortization rates for the year ended December 31, 1995 and the three
months ended March 31, 1996 were $0.90 ($0.87 on a pro forma basis) and
$0.89 ($0.87 on a pro forma basis) per Mcfe produced, respectively.

(2) Reflects estimated incremental general and administrative expenses due to
the Sawyer Canyon Acquisition.

(3) Reflects estimated incremental corporate expenses primarily related to the
Company becoming publicly held.

(4) Reflects increased interest expense as if the Company incurred borrowings
under the MidAmerican Capital Note to finance $45.2 million of the
acquisition cost for the Sawyer Canyon Properties as of January 1, 1995.

(5) Reflects the assumed repayment of outstanding indebtedness from the
estimated net proceeds of the Offering and a corresponding elimination of
interest expense on such indebtedness.

(6) Reflects pro forma adjustments for income tax expense using the Company's
statutory federal tax rate.

(7) Reflects the assumed sale by the Company, net of Underwriters' discount
and estimated offering costs payable by the Company, of 6,150,000 shares
of Common Stock at an assumed initial offering price of $16.00 per share.

(8) Reflects pro forma adjustments to reflect the acquisition of the Sawyer
Canyon Properties for total consideration of $45.2 million as if such
acquisition had occurred on March 31, 1996.

24
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following table sets forth selected consolidated financial data for the
Company as of and for each of the periods indicated. The selected financial
information presented in the table below for and at the end of each of the
years in the three-year period ended December 31, 1995 is derived from the
audited financial statements of the Company. The selected financial
information for and at the end of the years ended December 31, 1991 and 1992
and for and at the end of the three months ended March 31, 1995 and 1996 is
derived from the unaudited financial statements of the Company which, in the
opinion of management, include all adjustments (which consist only of normal
recurring adjustments) necessary for a fair presentation of the selected
financial information for such periods. The results for the three months ended
March 31, 1996 are not necessarily indicative of the results to be achieved
for the full year. The following information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's consolidated financial statements and
unaudited pro forma combined financial statements and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
InterCoast Oil and Gas
Company
Gas and oil revenues... $ 7,133 $ 20,767 $ 37,359 $ 44,466 $ 48,109 $ 10,995 $ 15,647
Gas and oil operating
expenses.............. (1,972) (4,587) (9,616) (15,016) (14,552) (3,645) (3,508)
Depreciation, depletion
and amortization
expense............... (3,025) (8,517) (13,535) (18,602) (21,489) (5,115) (6,214)
General and
administrative
expense, net.......... (284) (1,264) (2,183) (2,633) (2,288) (640) (714)
-------- -------- -------- -------- -------- -------- --------
1,852 6,399 12,025 8,215 9,780 1,595 5,211
-------- -------- -------- -------- -------- -------- --------
InterCoast Energy
Marketing
Natural gas sales
revenues.............. -- 7,554 16,715 13,700 24,066 1,996 34,972
Cost of gas sold....... -- (7,262) (16,216) (13,142) (23,218) (1,874) (34,184)
Electric power sales
revenues.............. -- -- 19 446 421 -- 406
Cost of electric power
sold.................. -- -- -- -- (325) -- (292)
Operating expenses..... -- (127) (369) (778) (952) (209) (596)
General and
administrative
expense............... -- -- (163) (314) (410) (103) (181)
-------- -------- -------- -------- -------- -------- --------
-- 165 (14) (88) (418) (190) 125
-------- -------- -------- -------- -------- -------- --------
Continental Power
Exchange, Inc.
Administrative and
development expense,
net................... -- -- -- (849) (3,442) (460) (739)
-------- -------- -------- -------- -------- -------- --------
Corporate expenses..... (338) (795) (1,013) (1,553) (1,554) (389) (472)
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes................. 1,514 5,769 10,998 5,725 4,366 556 4,125
Provision for income
taxes................. 522 2,471 4,984 2,324 1,481 189 1,529
-------- -------- -------- -------- -------- -------- --------
Net income............. $ 992 $ 3,298 $ 6,014 $ 3,401 $ 2,885 $ 367 $ 2,596
======== ======== ======== ======== ======== ======== ========
Average common shares
outstanding........... 7,928 7,928 7,928 7,928 7,928 7,928 7,928
Earnings per common
share................. $ 0.13 $ 0.42 $ 0.76 $ 0.43 $ 0.36 $ 0.05 $ 0.33
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA (1)............. $ 4,539 $ 14,372 $ 24,670 $ 25,356 $ 27,359 $ 6,179 $ 10,477
Net cash provided
(used) by:
Operating activities... 7,764 10,627 25,535 22,800 38,186 12,271 13,793
Investing activities... (34,585) (24,839) (73,700) (43,491) (43,522) (11,155) (14,310)
Financing activities... 26,737 15,337 50,441 22,186 8,512 (1,438) (5,907)
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and cash
equivalents........... $ 231 $ 1,356 $ 3,632 $ 5,127 $ 8,303 $ 4,805 $ 1,879
Working capital........ 1,078 5,889 6,336 10,233 11,511 7,391 1,761
Total assets........... 47,782 72,793 137,843 160,976 200,164 166,912 204,091
Long-term debt......... -- -- 46,368 60,724 52,907 58,117 47,000
Stockholder's equity... 42,994 61,629 71,716 82,947 102,161 84,483 104,757
</TABLE>
- -------
(1) EBITDA is income before income taxes, interest, depreciation, depletion
and amortization. EBITDA is a financial measure commonly used in the
Company's industry and should not be considered in isolation or as a
substitute for net income, cash flow provided by operating activities or
other income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's
profitability or liquidity.

25
<PAGE>

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

The following discussion is intended to assist in understanding the
Company's historical financial position and results of operations as of and
for each year of the three-year period ended December 31, 1995 and the
unaudited three-month periods ended March 31, 1996 and 1995. The Company's
historical financial statements and notes thereto included elsewhere in this
Prospectus contain detailed information that should be referred to in
conjunction with the following discussion. Also included in this Prospectus
are (i) separate financial statements relating to producing natural gas and
oil properties acquired in April 1996 and (ii) unaudited pro forma combined
financial statements reflecting such acquisition, the acquisition of the
assets of a natural gas marketing company effective November 1995 and the
Offering.

OVERVIEW

InterCoast is an energy company engaged primarily in (i) the development,
exploration, acquisition and production of natural gas and crude oil, (ii) the
marketing of natural gas and electricity, and (iii) the development and
operation of the first market-based national electronic exchange, CPEX(TM),
for the buying and selling of wholesale electric power and transmission
services. The Company's principal natural gas and oil operations are located
in Texas, Louisiana, Oklahoma and New Mexico. The Company has increased its
natural gas and oil reserves through a balanced focus on Extensional Infill
drilling, strategic acquisitions of producing properties and regionally
focused exploratory drilling. The Company believes its success has resulted
from its ability to (i) identify internally a large number of desirable
Extensional Infill drilling locations, (ii) apply strict economic and reserve
risk criteria to both drilling and acquisition operations, and (iii) operate
as an efficient low-cost producer.

RESULTS OF OPERATIONS

Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995

Consolidated

The Company had net income of $2.6 million, or $0.33 per share, for the
three months ended March 31, 1996, compared to net income of $0.4 million, or
$0.05 per share, for the same period in 1995. The increase was primarily
attributable to the Company's natural gas and oil operations which contributed
pre-tax income of $5.2 million and $1.6 million for the quarters ended March
31, 1996 and 1995, respectively. The Company's energy marketing activity added
$0.1 million to pre-tax income for the three-month period ended March 31, 1996
as compared to the $0.2 million loss incurred by this activity for the same
period in 1995. In addition, Continental Power Exchange realized losses of
$0.7 million for the three months ended March 31, 1996 compared to the $0.5
million loss for the same period in 1995. The Company also incurred during the
first quarter of 1996 $0.5 million and $1.5 million of corporate expenses and
income tax expense, respectively, as compared to $0.4 million of corporate
expenses and $0.2 million of income tax expense incurred during the same
period in 1995.

Natural Gas and Oil Operations

Production. The Company's production increased to 7.0 Bcfe during the first
three months of 1996 as compared to 5.6 Bcfe during the first three months of
1995, a 25% increase. This additional production primarily resulted from
successful drilling activity in north Louisiana, Gulf Coast--Texas, and
northwest Oklahoma and the Texas panhandle. The increase in production was
also due to the Company's exchange of certain non-operated limited partnership
interests for working interests in operated properties and the acquisition of
producing properties in south Louisiana, both of which took place after March
1995.

Gas and Oil Revenues. Revenues from natural gas and oil for the three months
ended March 31, 1996, increased from $11.0 million to $15.6 million, or 42%,
as compared to the same period during 1995, primarily due to increased
production. The Company also realized increases in product prices during the
first quarter of 1996 as compared to the same period in 1995. The Company's
natural gas price swap activity for the three

26
<PAGE>

months ended March 31, 1996 resulted in an average natural gas price of $2.00
per Mcf, or 87% of the $2.29 per Mcf average price that would have otherwise
been received, resulting in a $1.4 million decrease in gas and oil revenues.
For the same period in 1995, the average gas sales price realized by the
Company was $1.61 per Mcf, including the effects of natural gas price swap
arrangements, or 109% of the $1.48 per Mcf average natural gas price that
otherwise would have been received, resulting in a $0.6 million increase in
gas and oil revenues. The Company realized an average oil price of $17.64 per
Bbl during the first three months of 1996, which was a 7% increase over the
$16.41 per Bbl average oil price for the comparable period of 1995.

Gas and Oil Operating Expenses. Gas and oil operating expenses for the
three-month period ended March 31, 1996 decreased to $3.5 million, or $0.50
per Mcfe, from $3.6 million, or $0.65 per Mcfe, for the comparable period of
1995. This decrease was primarily the result of cost reduction procedures
implemented in the Newhall-Potrero Field, the disposition of the Company's
interests in the relatively high-cost Montague Field and lower relative
operating costs on the properties acquired as a result of the exchange of
certain of the Company's non-operated limited partnership interests for
working interests in operated properties. These operating expense reductions
were partially offset by higher production taxes resulting from increased
production volumes. Operating expenses included $0.6 million and $0.5 million
of production taxes during the first three months of 1996 and 1995,
respectively.

Depreciation, Depletion and Amortization Expense. During the three-month
period ended March 31, 1996, depreciation, depletion and amortization expense
increased to $6.2 million from $5.1 million for the comparable period of 1995.
This increase was attributable to the increase in natural gas and oil
production during the first quarter of 1996 as compared to the first quarter
of 1995 and was partially offset by a decline in the Company's depreciation,
depletion and amortization rate per unit to $0.89 per Mcfe during the three-
month period ended March 31, 1996, from $0.92 per Mcfe for the comparable
period in 1995. The decrease in the depreciation, depletion and amortization
rate was primarily due to the relatively low-cost reserve additions made
during 1995.

General and Administrative Expense, Net. General and administrative
expense, which is recorded net of overhead reimbursements received by the
Company from other working interest owners in Company-operated wells,
increased slightly to $0.7 million for the three months ended March 31, 1996,
as compared to $0.6 million for the same period in 1995. The increase was
primarily attributable to the hiring of additional personnel during 1995.
Overhead reimbursements from the Company-operated wells during the first three
months of each of 1996 and 1995 were $0.5 million.

Energy Marketing Operations

Natural Gas Sales Revenues and Cost of Gas Sold. The Company's natural gas
sales revenues for the first three months of 1996 increased to $35.0 million
as compared to $2.0 million during the same period of 1995, while cost of gas
sold increased to $34.2 million from $1.9 million during those periods. As a
result, the Company's natural gas sales margin improved to $0.8 million for
the first quarter of 1996 as compared to $0.1 million during the same period
in 1995. This margin improvement primarily resulted from increased marketed
volumes due to the acquisition of additional gas marketing assets effective
November 1995, increased marketed volumes from Company-operated wells and
generally higher natural gas prices.

Electric Power Sales Revenues and Cost of Electric Power Sold. During the
first quarter of 1996, the Company marketed approximately 17,000 MWh which
added $0.3 million to electric power sales revenues at a nominal margin. In
addition, the Company realized $0.1 million in brokered electric power
revenues during the three months ended March 31, 1996, on approximately
130,000 MWh brokered. As a result, the Company's electric power sales margin
for the first three months of 1996 was $0.1 million. The Company had no
electric power marketing activity during the first quarter of 1995.

Operating Expenses. Operating expenses increased to $0.6 million for the
three months ended March 31, 1996, as compared to $0.2 million during the same
period of 1995. This increase primarily resulted from the purchase of gas
marketing assets effective November 1995 and additional start-up operating
costs.

27
<PAGE>

Electric Energy Power Exchange

Administrative and Development Expense, Net. During the first three months
of 1996, the administrative and development expense of the Company's electric
energy power exchange operations increased to $0.7 million compared to $0.5
million during the first three months of 1995. This increase was primarily
attributable to increased non-product development general and administrative
expenses. First quarter 1996 administrative and development expenses were
partially offset by transaction and fee revenues of $0.1 million.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Consolidated

The Company had net income of $2.9 million, or $0.36 per share, in 1995 as
compared to net income of $3.4 million, or $0.43 per share, in 1994. The
Company's natural gas and oil operations contributed pre-tax income in 1995 of
$9.8 million as compared to $8.2 million for 1994. The Company's energy
marketing activity reduced 1995 pre-tax income by $0.4 million as compared to
the $0.1 million loss incurred by this activity during 1994. Continental Power
Exchange realized losses of $3.4 million for 1995 and $0.8 million during
1994. Pre-tax income was further reduced by $1.6 million in corporate expenses
in both 1995 and 1994, while income tax expense of $1.5 million and $2.3
million, respectively, was also incurred during the same periods.

Natural Gas and Oil Operations

Production. The Company's production rose to 24.0 Bcfe in 1995 as compared
to 21.7 Bcfe in 1994, an increase of 11%. This increase primarily resulted
from increased gas production due to drilling and acquisition additions in
Louisiana, southeast New Mexico, Offshore Gulf of Mexico and Texas.

Gas and Oil Revenues. Gas and oil revenues for 1995 increased from $44.5
million to $48.1 million, or 8%, as compared to 1994, primarily due to
increases in production. This improvement was partially offset by a 9%
decrease in the average gas sales price from $1.82 per Mcf in 1994 to $1.65
per Mcf in 1995. After giving effect to the Company's natural gas price swap
activity, the 1995 price of $1.65 per Mcf was 106% of the $1.55 per Mcf
average gas sales price that would have otherwise been received, resulting in
a $1.8 million increase in gas and oil revenues. The Company did not have any
natural gas price swap arrangements in effect during 1994. The Company also
realized an average sales price for oil of $16.45 per Bbl in 1995 as compared
to $14.93 per Bbl during 1994, a 10% increase.

Gas and Oil Operating Expenses. Gas and oil operating expenses for 1995
decreased to $14.6 million, or $0.61 per Mcfe, from $15.0 million, or $0.69
per Mcfe, for 1994. This reduction was primarily due to the sale in mid-1994
of the Company's interest in the Sacatosa Field. At the time of this
disposition, the Sacatosa Field was uneconomic to the Company's interest and
represented approximately 29% of its total monthly gas and oil operating
expenses. These operating expense reductions were partially offset by
increases in production taxes from $1.8 million in 1994 to $2.1 million in
1995.

Depreciation, Depletion and Amortization Expense. During 1995, depreciation,
depletion and amortization expense increased to $21.5 million from $18.6
million for 1994. This increase was attributable to the increase in natural
gas and oil production during 1995 as compared to 1994. In addition, the
Company's depreciation, depletion and amortization rate per unit increased to
$0.90 per Mcfe during 1995 from $0.86 per Mcfe for 1994. The increase in the
depreciation, depletion and amortization rate was primarily due to revisions
in previous reserve estimates caused by low natural gas prices at the end of
1994.

General and Administrative Expense, Net. General and administrative expense,
which is recorded net of overhead reimbursements received by the Company from
other working interest owners in Company-operated wells, decreased to $2.3
million in 1995 as compared to $2.6 million in 1994. The decrease was
primarily attributable to an increase in overhead reimbursements from Company-
operated wells to $2.0 million in 1995 from $1.5 million in 1994.

28
<PAGE>

Energy Marketing Operations

Natural Gas Sales Revenues and Cost of Gas Sold. The Company's natural gas
sales revenues for 1995 increased to $24.1 million as compared to $13.7
million in 1994, while cost of gas sold increased to $23.2 million from $13.1
million during the same period. As a result, the Company's natural gas sales
margin improved to $0.9 million in 1995 as compared to $0.6 million in 1994.
This margin improvement primarily resulted from the acquisition of additional
gas marketing assets effective November 1995, but was partially offset by
generally lower natural gas prices in 1995 as compared to 1994.

Electric Power Sales Revenues and Cost of Electric Power Sold. The Company
began marketing electric power after its FERC certification as a power
marketer became effective in July 1995. During 1995, the Company marketed
20,000 MWh which added $0.3 million to electric power sales revenues at a
nominal margin. In addition, the Company realized $0.1 million in brokered
electric power revenues during 1995 as compared to $0.4 million of brokered
electric power revenues in 1994. As a result, the Company's electric power
sales margin for 1995 decreased to $0.1 million as compared to $0.4 million in
1994. The decrease in electric power sales margin was primarily due to lower
volumes brokered during 1995 of 99,000 MWh as compared to 640,000 MWh brokered
during 1994, but was partially offset by the addition of marketed volumes in
1995.

Operating Expenses. Operating expenses increased to $1.0 million in 1995 as
compared to $0.8 million in 1994 primarily due to the purchase of gas
marketing assets effective November 1995.

Electric Energy Power Exchange

Administrative and Development Expense, Net. During 1995, administrative and
development expenses increased to $3.4 million from $0.8 million in 1994. This
increase was primarily attributable to non-product development general and
administrative expenses in 1995. Administrative and development expenses
incurred during 1995 were partially offset by transaction and fee revenues of
$0.1 million.

Year Ended December 31, 1994 Compared to Year Ended December 31, 1993

Consolidated

The Company had net income of $3.4 million, or $0.43 per share, in 1994 as
compared to net income of $6.0 million, or $0.76 per share, in 1993. The
decrease was primarily attributable to the Company's natural gas and oil
operations which contributed pre-tax income in 1994 of $8.2 million as
compared to $12.0 million for 1993. The Company's energy marketing activity
reduced 1994 pre-tax income by $0.1 million while it essentially broke even
during 1993. Continental Power Exchange realized a loss of $0.8 million in
1994 during its first year of operation. Pre-tax income was further reduced by
$1.6 million and $1.0 million of corporate expenses during 1994 and 1993,
respectively. In addition, the Company incurred income tax expense of $2.3
million and $5.0 million during 1994 and 1993, respectively.

Natural Gas and Oil Operations

Production. The Company's production increased 28% in 1994, to 21.7 Bcfe, as
compared to 16.9 Bcfe in 1993. This increase was primarily attributable to a
full twelve months of production from the Company's acquisition of DKM
Resources, Inc. ("DKM") in September 1993. The Company also realized increased
production from numerous acquisitions in 1994, principally the interests in 17
fields acquired from Union Oil Company of California in July 1994 and the
purchase of certain properties in the Elm Grove Field in August 1994.
Additionally, the Company realized production increases resulting from
significant reserve additions from its drilling activity during 1994.

Gas and Oil Revenues. Gas and oil revenues for 1994 increased from $37.4
million to $44.5 million, or 19%, as compared to 1993, primarily due to
increases in production. This improvement was tempered by decreases of 11% and
7%, respectively, in the Company's average sales price of natural gas and oil.
The

29
<PAGE>

Company realized an average natural gas price of $1.82 per Mcf in 1994 as
compared to an average natural gas price of $2.04 per Mcf in 1993. The Company
did not have any natural gas price swap arrangements in effect during 1994.
During 1993, however, the Company's natural gas price swap activity resulted
in a decrease in gas and oil revenues of $0.6 million, or $0.05 per Mcf, and
reduced its average natural gas price to 98% of the $2.09 per Mcf average
price that would have otherwise been realized. The Company's average oil sales
price was $14.93 per Bbl in 1994 as compared to an average oil sales price of
$16.07 per Bbl in 1993.

Gas and Oil Operating Expenses. Gas and oil operating expenses for 1994
increased to $15.0 million from $9.6 million for 1993. This increase was
primarily due to the acquisition of a substantial number of relatively higher
operating cost properties in the Company's acquisition of DKM and higher
production taxes resulting from increased production volumes. Operating
expenses included $1.8 million and $1.6 million of production taxes during
1994 and 1993, respectively.

Depreciation, Depletion and Amortization Expense. During 1994, depreciation,
depletion and amortization expense increased to $18.6 million from $13.5
million for 1993. This increase was attributable to increased natural gas and
oil production during 1994 as compared to 1993. In addition, the Company's
depreciation, depletion and amortization rate per unit increased to $0.86 per
Mcfe during 1994 from $0.80 per Mcfe for 1993. The increase in the
depreciation, depletion and amortization rate was primarily due to the
addition of relatively shorter-lived oil properties in the Company's
acquisition of DKM and revisions to previous reserve estimates.

General and Administrative Expense, Net. General and administrative expense,
which is recorded net of overhead reimbursements received by the Company from
other working interest owners in Company-operated wells, increased to $2.6
million in 1994 as compared to $2.2 million in 1993. This increase was
primarily attributable to additional personnel hired in late 1993 as a result
of the DKM acquisition and was partially offset by increased overhead
reimbursements from Company-operated wells which totaled $1.5 million in 1994
as compared to $0.9 million in 1993.

Energy Marketing Operations

Natural Gas Sales Revenues and Cost of Gas Sold. The Company's natural gas
sales revenues for 1994 decreased to $13.7 million as compared to $16.7
million in 1993, while cost of gas sold decreased to $13.1 million from $16.2
million during the same period. As a result, the Company's natural gas sales
margin improved slightly to $0.6 million in 1994 as compared to $0.5 million
in 1993.

Electric Power Sales Revenues and Cost of Electric Power Sold. The Company
realized $0.4 million in brokered electric power sales during 1994 as compared
to nominal amounts of brokered electric power sales in 1993. The increase in
electric power sales revenue and margin was primarily due to higher volumes
brokered during 1994 of 640,000 MWh as compared to 38,000 MWh brokered during
1993.

Operating Expenses. Operating expenses increased to $0.8 million in 1994 as
compared to $0.4 million in 1993 primarily due to increased staffing.

CORPORATE EXPENSES

Certain general and administrative costs reported by the Company are for
services provided by MidAmerican Energy or MidAmerican Capital. The Company
currently intends to utilize certain of such services on a transitional basis
through the end of 1996. The costs of the services received, including
overhead costs, are classified as directly assigned costs or allocable costs.
Allocable costs are allocated based on the Company's relative percentage of
three factors. The three factors are total revenues, total assets and total
payroll. Wages and salaries, of the Company's corporate staff, MidAmerican
Capital and MidAmerican Energy, are classified as directly assigned or
allocable based upon individual employee time reporting, along with associated
payroll taxes and the costs of benefits. In addition, certain directly
assigned Company expenses paid by MidAmerican Energy are billed to the
Company.

30
<PAGE>

The Company incurred corporate expenses of $1.6 million, $1.6 million and
$1.0 million in 1995, 1994 and 1993, respectively, and $0.5 million and $0.4
million during the first quarters of 1996 and 1995, respectively. Increases in
corporate expenses have been primarily due to increases in payroll and related
personnel expenses.

LIQUIDITY AND CAPITAL RESOURCES

The Company had working capital of $6.3 million, $10.2 million and $11.5
million at December 31, 1993, 1994 and 1995, respectively. Historically, the
Company has funded its operations principally through cash flow from natural
gas and oil operations and contributed capital and borrowings from MidAmerican
Capital.

The Company's net cash flow from operations for the first three months of
1996 was $13.8 million compared to $12.3 million for the same period in 1995.
The increase in cash flow was attributable to increases in both natural gas
and oil production and average realized product prices, the acquisition of
additional gas marketing assets effective November 1995, and the start-up of
another natural gas marketing operation in February 1996. Net cash flow from
operations during 1995 was $38.2 million as compared to $22.8 million and
$25.5 million for 1994 and 1993, respectively. The increase in cash flow for
1995 as compared to 1994 was principally due to increased natural gas and oil
production, reduced operating and administrative costs, and the acquisition of
additional natural gas marketing assets effective November 1995. The decrease
in cash flow for 1994 as compared to 1993 was primarily attributable to
increased general and administrative expense and corporate expense due to
Company growth.

In April 1996, the Company acquired the interests of Enron Oil & Gas Company
in certain properties located in the Sawyer Canyon Field, Sutton County,
Texas. The purchase price was financed with a floating interest rate note from
MidAmerican Capital in the amount of $45.2 million. The initial interest rate
was 6.17% for a six-month period. The pro forma pre-tax operating cash flows
for the year ended December 31, 1995 relating to the Sawyer Canyon Acquisition
were $11.4 million (excluding $3.0 million of pro forma interest expense).

From January 1, 1993 through March 31, 1996, after giving effect to the
Sawyer Canyon Acquisition described above, the Company had invested $220.3
million, principally in additions to natural gas and oil properties. The
Company's total capital budget for the last nine months of 1996 is
approximately $23.2 million. The Company has allocated $8.4 million of this
budget to Extensional Infill drilling, $2.3 million to exploratory drilling,
$5.0 million to enhancement of its existing natural gas and oil reserve base,
and $7.5 million to energy marketing and electric energy power exchange
activities. For the calendar year 1997, the Company currently anticipates
total capital expenditures of $57.0 million. Of this total 1997 capital
budget, the Company currently intends to allocate $14.0 million to Extensional
Infill drilling, $4.0 million to exploratory drilling, $25.0 million to
producing natural gas and oil property acquisitions, $9.5 million to
enhancement of its existing natural gas and oil reserve base, and $4.5 million
to energy marketing and electric energy power exchange activities. The
majority of the Company's capital expenditures are discretionary in nature and
actual levels of capital expenditures may vary significantly due to a variety
of factors, including drilling results, natural gas and oil prices, industry
conditions, the cost of goods and services and the extent to which proved
properties are acquired. The Company anticipates that these capital
expenditures will be funded principally from cash flow from natural gas and
oil operations, working capital and borrowings under credit facilities.

The Company is actively pursuing acquisitions of producing natural gas and
oil properties and natural gas marketing companies. The timing and size of any
acquisition and the related capital requirements are unpredictable. The
Company intends to fund acquisitions and operating activities through a
combination of cash flow from operations, working capital and borrowings under
credit facilities.

The Company has received a commitment for a five-year unsecured $100 million
revolving credit facility. The Company is currently negotiating the definitive
terms of this new revolving credit facility, however, the Company anticipates
that the Credit Facility will be subject to the following terms. The Company's
borrowing base under the Credit Facility will be based upon the Company's
natural gas and oil reserves and certain

31
<PAGE>

receivables and will be subject to redetermination on a semi-annual basis.
Advances under the Credit Facility may be utilized by the Company for working
capital and other general corporate purposes and repayment of indebtedness.
Outstanding advances will bear interest payable quarterly at a floating rate
based on the higher of The First National Bank of Chicago's corporate base
rate or a rate based on the federal funds rate or, at the Company's option, at
a fixed rate for certain interest rate periods based on LIBOR. The Company
will pay a commitment fee on the unused portion of the Credit Facility. The
Credit Facility will contain customary covenants which will, among other
things, restrict the sale of assets, mergers and consolidations and limit
additional indebtedness and the payment of dividends. In addition, the Company
will be required to maintain a minimum net worth, which will be adjusted for
the Offering, and an interest coverage ratio. Upon completion of the Offering
and the application of estimated net proceeds therefrom as set forth in "Use
of Proceeds," the Credit Facility will be available to fund the Company's
operating and acquisition activities.

ACCOUNTING AND TAX MATTERS

On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 (SFAS 121) regarding accounting for asset impairments. This
statement requires the Company to review long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The adoption of SFAS 121 had no impact on
the Company's results of operations or financial position. Although the
Company's electric energy power exchange operations are in the early stage of
commercial development and have incurred losses since inception, management
believes that future cash flows will be in excess of capitalized costs at
March 31, 1996.

The Company has been included in the consolidated federal and, where
appropriate, state income tax returns of MidAmerican Energy. The consolidated
income tax currently payable (or receivable) has been allocated among the
Company and other members of the affiliated income tax reporting group based
on the respective contributions of these group members to total consolidated
taxable income and tax credits. The Company has received (or made) payments
for the income tax reductions (or increases) attributable to its activities.
In 1995, the amount received was approximately $9.0 million. Actual current
income tax liabilities or benefits, including alternative minimum tax, may
vary primarily depending on the number of wells drilled, intangible drilling
costs incurred and other investments in natural gas and oil properties by the
Company. Subsequent to the Offering, the Company will no longer be included in
consolidated tax returns of MidAmerican Energy. See "Relationship Between the
Company and the Parent--Contractual Arrangements--Tax Sharing Agreement."

BUSINESS AND PROPERTIES

InterCoast is an energy company engaged primarily in (i) the development,
exploration, acquisition and production of natural gas and crude oil, (ii) the
marketing of natural gas and electricity, and (iii) the development and
operation of the first market-based national electronic exchange, CPEX(TM),
for the buying and selling of wholesale electric power and transmission
services. The Company's principal natural gas and oil operations are located
in Texas, Louisiana, Oklahoma and New Mexico. The Company has increased its
natural gas and oil reserves and cash flow through a balanced focus on
Extensional Infill drilling, strategic acquisitions of producing properties
and regionally focused exploratory drilling. The Company believes its success
has resulted from its ability to (i) identify internally a large number of
desirable Extensional Infill drilling locations, (ii) apply strict economic
and reserve risk criteria to both drilling and acquisition operations, and
(iii) operate as an efficient, low-cost producer. Through the implementation
of this approach, the Company has replaced 390% of its production at an
average finding cost from all sources of $0.85 per Mcfe for the three-year
period ended December 31, 1995, after giving pro forma effect to the Sawyer
Canyon Acquisition.

In April 1996, the Company acquired properties in the Sawyer Canyon Field,
Sutton County, Texas from Enron Oil & Gas Company at a net purchase price of
$45.2 million. The acquired properties include 350 gross (319 net) wells (of
which approximately 95% are operated by the Company) and had estimated net
proved reserves of 58.2 Bcfe at December 31, 1995, virtually all of which are
natural gas. The acquired properties also include 37.2 miles of associated gas
gathering lines. After giving pro forma effect to the Sawyer Canyon

32
<PAGE>

Acquisition, the Company's estimated net proved reserves have grown by 201%,
from 83.5 Bcfe at December 31, 1992, to 251.0 Bcfe at December 31, 1995. At
December 31, 1995, on a pro forma basis, approximately 76% of the Company's
estimated net proved reserves were natural gas, and the Company's PV-10
Reserve Value was $223.6 million and its standardized measure of discounted
future net cash flows was $189.8 million. Average daily production has
improved from 27.2 MMcfe during 1992 to 87.1 MMcfe during April 1996,
representing an increase of 220%. At March 31, 1996, on a pro forma basis, the
net tangible assets and properties of the Company's natural gas and oil
operations comprised over 97% of the Company's total tangible asset base.

The Company is also engaged in natural gas and wholesale electric power
marketing. The Company provides a range of natural gas marketing services to
industrial and utility customers and natural gas producers in addition to
marketing substantially all of the natural gas produced from Company-operated
wells. In the electric power sector, which is rapidly shifting from being
heavily regulated to becoming a more competitive industry, the Company
actively pursues opportunities for the wholesale brokering, purchasing and
marketing of electricity. The Company's FERC certification as a power marketer
became effective in July 1995, allowing it to purchase electricity and resell
it to wholesale purchasers. As a recent entrant into this business, the
Company's strategic thrust is to expand its electric power marketing business
to keep pace with the competitive changes in the electric industry. In a
further move, the Company established commercial operation of CPEX(TM) in May
1995. CPEX(TM) permits subscribers, including utilities and other electric
power generation, transmission and marketing companies, to electronically buy
and sell wholesale electricity and transmission services via the Company's
proprietary network.

BUSINESS STRENGTHS AND STRATEGIES

. Active Extensional Infill Drilling Program. The Company targets drilling
prospects that enhance the economic recovery of natural gas and oil in
producing areas to a level greater than that previously achieved by the
owners of the prevailing leasehold by increasing the density of wells that
penetrate known reservoirs. Typically, development of these prospects
requires that the Company obtain some or all of the rights to drill on
acreage that is held by production. The Company refers to this approach as
"Extensional Infill" drilling which has been implemented by various members
of the Company's current management team since 1985. The Company focuses on
internally generated Extensional Infill drilling opportunities within the
Mid-Continent region, with particular emphasis on north Louisiana,
northwest Oklahoma and the Texas panhandle, and southeast New Mexico.
Through its Extensional Infill drilling program, the Company has developed
approximately 53.7 Bcfe of estimated net proved reserves through the end of
1995 at an average cost of $0.75 per Mcfe. The Company utilizes an
experienced team of geologists, petroleum engineers and landmen to
generate, evaluate and acquire Extensional Infill prospects, applying
strict economic and reserve risk criteria. The Company's geologists
regularly monitor and analyze drilling and production activities within
their geographic areas of expertise to generate new drilling prospects.
Because a majority of the Company's Extensional Infill prospects involve
farmouts on acreage not currently leased by the Company, the Company is
able to maintain a large number of Extensional Infill prospects without
making a major capital investment in an inventory of undeveloped leasehold
acreage. As a result of this approach, the Company is able to drill
prospects on the basis of their technical and economic merits rather than
to retain expiring leasehold positions. During the three-year period ended
December 31, 1995, the Company drilled 87 Extensional Infill wells, 52 of
which were completed as commercial producers. At April 30, 1996, the
Company had in excess of 150 Extensional Infill prospects identified in the
core areas in which it operates and anticipates identifying at least 50
additional prospects during the remainder of 1996. The Company currently
plans to drill at least 27 Extensional Infill wells based on its $12
million 1996 capital budget for Extensional Infill drilling. See "Business
and Properties--Extensional Infill Drilling."

33
<PAGE>

activities. From April 1, 1992 through April 30, 1996, the Company acquired
188.7 Bcfe of estimated net proved reserves through 31 acquisitions at an
average acquisition cost of $0.67 per Mcfe. In many situations, the
Company's acquisition of producing properties originates from the
identification of Extensional Infill drilling prospects. The Company's most
successful acquisition involving this approach was the acquisition of its
interests in the Elm Grove Field, Bossier Parish, Louisiana. In early 1994,
a Company geologist generated a number of Extensional Infill drilling
prospects in the Elm Grove Field. The Company was able to acquire the 15
marginal producing wells in the field at a cost of $6.7 million in August
1994. It then assumed operations of the field and has since drilled 11
productive wells, recompleted 6 of the 15 existing wells to access the
behind pipe reserves and discovered a deeper productive zone not previously
produced in the field. As a result of the Company's enhancement efforts,
gross average daily production from the Elm Grove Field has increased from
2 MMcf when acquired to a rate of 10 MMcf during April 1996, and estimated
net proved reserves increased from 15.2 Bcfe at the time of acquisition to
approximately 31.6 Bcfe (including net production of 3.1 Bcfe since its
acquisition) at December 31, 1995. See "Business and Properties--Producing
Property Acquisitions."

. Regionally Focused Exploratory Drilling Program. The Company initiated a
regionally focused exploratory drilling program in 1994. The Company
generally seeks larger exploratory prospects which are based upon good
subsurface geologic control on unproved structures or features which
provide both significant reserve potential and an opportunity for multiple
well locations. The Company focuses its exploratory efforts primarily in
the Gulf Coast region where its personnel have extensive experience. The
Company currently plans to drill 6 to 8 exploratory wells in 1996,
primarily in the Gulf Coast region, based on a 1996 budget for exploratory
drilling of $4 million, which represents 25% of the Company's total
drilling budget. See "Business and Properties--Exploratory Drilling."

. Efficient Operator. The Company pursues workovers, recompletions and other
production optimization methods in order to exploit the additional
production capabilities of its existing reserve base, new well completions
and newly acquired properties. For this reason, the Company prefers to
operate its properties in order to enhance its ability to maximize their
present value and to maintain control of operating expenses and the timing
and amount of capital expenditures. At April 30, 1996, the Company owned
interests in 2,051 gross (667 net) wells, approximately 32% gross (83% net)
of which are operated by the Company. The Company believes that it is a
low-cost operator as indicated by its lease operating expenses of $0.61 per
Mcfe during 1995 ($0.50 per Mcfe during the first quarter of 1996). The
Company has generally found that it has been able to increase product
prices and reduce costs when compared to the prior operators of its newly
acquired properties. See "Business and Properties--Production, Prices and
Operating Expenses."

. Natural Gas Marketing. During the first quarter of 1996, the Company
marketed over 200 MMcf per day of natural gas, including approximately 50
MMcf per day of natural gas from its operated wells. The Company's natural
gas marketing activities provide the Company with the opportunity to
maximize both the current sales volumes and the price received for its
natural gas production and to minimize marketing and transportation costs.
The Company intends to expand its existing natural gas marketing business
and acquire other natural gas marketing companies where strategic synergies
exist. In December 1995, the Company acquired the assets of GED, a natural
gas marketing company that specializes in aggregating volumes purchased
from producers, and, in the first quarter of 1996, the Company opened a
natural gas marketing office to focus on market opportunities in the
northern end of the Mid-Continent area. See "Business and Properties--
Natural Gas and Oil Production Marketing Activities."

. Electric Power Marketing. The electric industry is rapidly shifting from
being heavily regulated to becoming a more competitive industry. In 1992,
Congress passed the Energy Policy Act which accelerated competitive trends
within the electric industry. The Company commenced electric wholesale
power brokering operations in October 1993. As a broker, the Company acts
as an intermediary between wholesale buyers and sellers. Effective July
1995, the Company's FERC certification as a power marketer became effective
which allows it to fully engage in the wholesale purchase and sale of
electricity. To date, the Company has brokered and marketed sales of
electricity among over 60 utilities. Since attaining marketer status, the
Company has experienced a steady increase in total quarterly sales. The
Company believes it

34
<PAGE>

will be able to capitalize on expanding marketing opportunities created
within the increasingly competitive electric power industry. See "Business
and Properties--Electric Power Marketing."

. First Market-Based National Electronic Power Exchange. In May 1995, the
Company launched commercial operation of CPEX(TM), the first market-based
national electronic exchange for the buying and selling of wholesale
electric power and transmission services. As of April 30, 1996, CPEX(TM) had
30 subscribers with operations in 25 states. Subscribers utilize CPEX(TM) to
electronically buy and sell electricity and transmission services through
on-site computers in the competitive wholesale market for the next one-hour
and four-hour durations. As both the number of CPEX(TM) subscribers and
their familiarity with the competitive exchange of electric power have
increased, the Company has seen a rise in the number of MWh traded on
CPEX(TM). The Company's strategy is to continually upgrade the capabilities
of CPEX(TM) and expand market penetration in order to maintain its industry-
leading position in the market-based electronic trading of wholesale
electric power. See "Business and Properties--Continental Power Exchange,
Inc."

NATURAL GAS AND OIL EXPLORATION AND PRODUCTION

The Company implements its balanced approach of Extensional Infill drilling,
strategic producing property acquisitions and regionally focused exploratory
drilling by using an integrated team of geologists, reservoir engineers,
geologic engineers and landmen who have extensive experience in all facets of
oil and gas exploration and production. This integrated team approach allows
the Company to direct its professional and technical resources between its
drilling and acquisition efforts, as needed, with the result that the efforts
of each technical group serve to complement each other. The Company's
professionals perform subsurface and geologic analysis and a thorough reservoir
engineering evaluation of proved developed reserves to generate its drilling
and acquisition prospects. The Company also utilizes exploitation techniques
and seismic delineation to enhance the overall potential of its natural gas and
oil properties and prospects. Additionally, the Company markets production from
its operated properties for its own account as well as that of third parties.

EXTENSIONAL INFILL DRILLING

The Company's primary and continuing focus has been the drilling of
Extensional Infill wells throughout the southern half of the Mid-Continent
region of the United States. The Company employs a geological engineering
approach and an application of tight sands technology to this effort, and
specifically concentrates on drilling opportunities in northern Louisiana,
northwest Oklahoma and the Texas panhandle, and southeast New Mexico. The
Company has focused its Extensional Infill drilling program in these areas due
to attractive economic conditions (lower leasehold, drilling and operating cost
environment, and proximity to established markets), reservoir characteristics
(multiple, stacked pay potential; established, analog field data; and long-
lived reserves) and a favorable regulatory climate. In addition, the Company's
technical staff has many years of prospect generating and operating experience
in these regions.

The Company's Extensional Infill drilling prospects are generally
characterized by lower permeability reservoirs which lend themselves to
application of tight sand fracturing technology and sophisticated completion
engineering techniques. The Company's engineers have considerable experience in
these technologies. While with a previous employer, the Company's President was
directly involved (in conjunction with Halliburton Company engineers) in the
development and patenting of the CO/2/ Foam Fracturing process which enhances
the performance of tight sand reservoirs and, since its development in the
early 1980s, has become the prevalent completion technology in tight sand areas
throughout the Mid-Continent region.

The Company currently has geologists with regionally specific expertise and
an average of nineteen years experience in offices located in Tulsa, Oklahoma;
Dallas, Houston and Midland, Texas; and Shreveport, Louisiana. The Company
provides an incentive program to these professionals through the assignment of
an overriding royalty interest to the generating geologist on each prospect
drilled which allows for the attraction and retention of highly qualified,
experienced geologists who are motivated and rewarded based on success. In
addition, the Company believes that this program provides for effective
management of fixed overhead costs

35
<PAGE>

because the Company sets the base salaries of its geologists below the
industry average. The Company minimizes potential conflicts of interest in
this incentive program by subjecting each prospect proposal to intense
engineering, operational and economic scrutiny and by requiring that final
drilling and completion decisions be made by senior members of management who
do not receive overriding royalties.

Minimizing capital commitments to leasehold acreage positions is another key
component to the Company's Extensional Infill drilling approach. Many
companies commit large amounts of capital in acreage positions with the
potential for prospects. In contrast, the Company acquires ownership positions
only after identifying a specific geologic prospect. This approach delays the
required capital exposure on leasehold positions, thereby enhancing the
overall economic return on the Company's drilling activities. Moreover, as a
result of this approach, the Company is able to drill prospects on the basis
of their technical and economic merits and not because of expiring leasehold
positions. This approach demands a team of landmen who are skilled and
experienced at structuring transactions to acquire the necessary ownership
position by utilizing a variety of acquisition techniques and maintaining
close relationships with industry members. From 1992 through 1995, this team
has acquired drilling rights in 120 Extensional Infill drilling prospects, on
which the Company has drilled 87 wells, 52 of which were completed as
commercial producers. These wells have added reserves totaling 53.7 Bcfe
through the end of 1995 at an average finding cost of $0.75 per Mcfe. At April
30, 1996, the Company had in excess of 150 Extensional Infill prospects
identified in the core areas in which it operates and anticipates identifying
at least 50 additional prospects during the remainder of 1996. The Company
currently plans to drill at least 27 Extensional Infill wells based on its $12
million 1996 capital budget for Extensional Infill drilling. The Company's
approach to obtaining drilling rights for its Extensional Infill drilling
prospects depends upon the willingness of property owners to grant the
necessary drilling rights to the Company after the prospects have been
identified by the Company, and the Company may encounter difficulty in
obtaining, or may not be able to obtain, such rights. See "Risk Factors--
Reserve Replacement Risks."

EXPLORATORY DRILLING

The Company initiated an active, regionally focused exploratory drilling
program in 1994 which generally seeks larger exploratory prospects which are
based upon good subsurface geologic control on unproved structures or features
which provide both significant reserve potential and an opportunity for
multiple well locations. The Company believes that while these exploratory
prospects have an inherently higher risk profile, they have significantly
higher upside reward potential. The Company focuses its exploratory efforts
primarily in the Gulf Coast region where its personnel have extensive
experience.

The Company consistently applies its geological engineering approach to its
exploratory drilling effort and utilizes the strict economic criteria employed
in its Extensional Infill drilling analysis adjusted, however, for the
increased risk characteristics associated with exploratory drilling. The
Company broadens its exposure to a variety of exploration opportunities by
seeking to limit its risk capital in any individual prospect from 10% to 20%
of the exploratory drilling budget, depending on the Company's perception of
the risk associated with each individual prospect.

The Company's primary exploratory successes have come in the Louisiana Gulf
Coast region of the United States. The Company's most recent discovery on an
exploratory prospect occurred in April 1996. The new well, located in
Jefferson Parish, Louisiana, is perforated in the lower of two productive sand
lobes and is currently shut-in, pending connection to a gas pipeline. The
Company is also currently attempting to acquire offsetting leasehold. Upon
completion of the pipeline connection and testing of the lower sand, the
Company expects the upper sand lobe to be perforated and produced at an
estimated combined rate of 5 MMcf to 8 MMcf per day based upon its analysis of
logs and results of other wells in the surrounding area completed in that
zone. The Company has evaluated the prospect geology and determined that at
least one delineation well will be required in 1996 to exploit this discovery
further.

The Company's 1996 capital budget for exploratory drilling is $4 million,
representing 25% of the Company's total drilling budget. During 1996, the
Company currently plans to drill five to seven additional

36
<PAGE>

exploratory wells primarily in south Louisiana. The Company has also expanded
its exploration activity into southeast New Mexico where it currently intends
to drill a prospect generated as a result of a 3-D seismic survey.

PRODUCING PROPERTY ACQUISITIONS

The Company actively pursues acquisitions of producing natural gas and oil
properties that strategically complement its drilling and operational
activities. The Company's acquisition strategy focuses on negotiated
transactions where it can obtain operational control. In addition, the Company
directs its acquisition efforts toward properties where its technical team
perceives that opportunities exist to enhance value. These opportunities can
include reducing operating costs and increasing existing production and
reserves through Extensional Infill drilling and other exploitation
activities, including deeper tests to explore for new zones not currently
producing. These acquisition-related efforts often result from a direct
synergy with the Company's other activities. For example, on several occasions
the Company's acquisitions have been the result of obtaining leasehold
positions to drill locations identified through its Extensional Infill
drilling program. In addition, the Company has successfully acquired
additional interests in fields and properties where it already owns
significant interests, thereby benefiting from the Company's prior operating
experience and existing marketing relationships.

The Company dedicates two professional employees to its natural gas and oil
acquisition activities. In keeping with the Company's integrated team
approach, these employees coordinate the expertise of other Company personnel
and, as needed, highly qualified independent consultants to review, negotiate,
close and assimilate significant acquisitions. In addition, these
professionals and the Company's management seek to ensure that all
acquisitions meet the Company's strict economic, operational and reserve risk
criteria. Although this approach results in fluctuating amounts spent on
acquisitions from year to year, the Company believes it has resulted in the
acquisition of higher quality properties.

From April 1, 1992 through April 30, 1996, the Company completed 31 natural
gas and oil property acquisitions, involving total acquisition costs of
approximately $126.5 million. Of these completed acquisitions, 18
transactions, at a cost of $10 million, were acquisitions of additional
interests in properties already owned by the Company.

The following table presents a summary of the Company's acquisitions of
estimated net proved reserves.

<TABLE>
<CAPTION>
PROVED ACQUISITION ACQUISITION
NUMBER OF RESERVES COST COST
ACQUISITIONS ACQUISITIONS (MMCFE) (1) (THOUSANDS) (2) ($/MCFE)
------------ ------------ ----------- --------------- -----------
<S> <C> <C> <C> <C>
1992 6 7,964 $ 3,823 $0.48
1993 15 90,782 58,277 0.64
1994 7 32,743 17,358 0.53
1995 2 1,195 1,786 1.49
Sawyer Canyon 1 56,058 45,240 0.81
--- ------- -------- -----
Total 31 188,742 $126,484 $0.67
=== ======= ======== =====
</TABLE>
- --------
(1) Estimated net proved reserves at date of acquisition for properties
purchased prior to April 1996 are based on the first year-end reserve
report prepared following the acquisition date and adjusted for production
between the acquisition date and the first year-end. The estimated net
proved reserves are not identical to the current amount of such reserves
due to subsequent production and drilling activities.
(2) Acquisition cost is based on the price paid at the acquisition date.

Sawyer Canyon Acquisition

In April 1996, the Company purchased the interests of Enron Oil & Gas
Company in the Sawyer Canyon Field, Sutton County, Texas (the "Sawyer Canyon
Properties") at a net purchase price of approximately $45.2 million. The
Sawyer Canyon Properties include 350 gross (319 net) wells (of which virtually
all of the net wells are operated by the Company) that produced 17.4 MMcf of
natural gas and 48 Bbls of oil per day in April 1996

37
<PAGE>

net to the acquired interest. At December 31, 1995, the Company estimated the
proved reserves of the Sawyer Canyon Properties at 57.8 Bcf of natural gas and
78.6 MBbls of oil, of which 96% was proved developed. The Sawyer Canyon
Properties also include 37.2 miles of associated gas gathering lines. The
Company believes the attributes of the Sawyer Canyon Properties are similar to
previously acquired properties that the Company has enhanced through
operating, marketing and drilling activities, but there can be no assurance
that such enhancement will occur in the case of the Sawyer Canyon Properties.
See "--Significant Natural Gas and Oil Properties."

The Company conveyed certain of its interests in the Sawyer Canyon
Properties with production qualifying for credits under Section 29 of the
Internal Revenue Code of 1986, as amended (the "Code"), to another subsidiary
of MidAmerican Capital. See "Certain Transactions."

SIGNIFICANT NATURAL GAS AND OIL PROPERTIES

The following table sets forth certain information which relates to the
Company's principal natural gas and oil property areas, including the pro
forma effects of the Sawyer Canyon Acquisition, for the periods indicated.

<TABLE>
<CAPTION>
PRO FORMA DECEMBER 31, 1995
----------------------------------------------------------
NET PROVED RESERVES
----------------------------------------------------
PV-10 PV-10
NATURAL OIL AND RESERVE RESERVE
GROSS GAS LIQUIDS TOTAL VALUE VALUE
PROPERTY--AREA WELLS (MMCF) (MBBLS) (MMCFE) (IN THOUSANDS) (% OF TOTAL)
-------------- ----- ------- -------- ------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sawyer Canyon Field......... 350 57,754 79 58,228 $ 55,412 25%
ArkLaTex Area............... 74 39,572 305 41,402 44,109 20
Anadarko Basin.............. 213 34,195 310 36,055 29,657 13
Gulf Coast Louisiana........ 38 10,396 546 13,672 22,511 10
Offshore Gulf of Mexico..... 76 11,226 514 14,310 19,977 9
Gulf Coast and South Texas.. 57 7,341 525 10,491 11,261 5
Newhall-Potrero............. 36 2,959 1,969 14,773 8,437 4
Other....................... 1,207 27,984 5,675 62,034 32,207 14
----- ------- ----- ------- -------- ---
Total..................... 2,051 191,427 9,923 250,965 $223,571(1) 100%
===== ======= ===== ======= ======== ===
</TABLE>
- --------

(1)The pro forma standardized measure of discounted future net cash flows as
of December 31, 1995 was $189.8 million.

Sawyer Canyon Field

The Company's largest concentration of reserve holdings, consisting of 23%
of its proved reserves as of December 31, 1995 on a pro forma basis, is the
Sawyer Canyon Field, Sutton County, Texas, which was purchased in April 1996.
See "--Producing Property Acquisitions--Sawyer Canyon Acquisition." The
Company owns interests in 350 gross (319 net) wells of which 327 gross (319
net) wells are operated by the Company. The Company's average working interest
in this field is 91%. The Company's leasehold position consists of
approximately 34,887 gross (34,053 net) acres. During April 1996, the Company
realized average daily production of 17.4 MMcf of natural gas and 48 Bbls of
oil from the Sawyer Canyon Field.

The main producing formation in the Sawyer Canyon Field is the Canyon
sandstone at a depth of approximately 5,500 feet. Natural gas in the Canyon
formation is stratigraphically trapped in lenticular sandstone reservoirs. A
typical Sawyer Canyon Field well encounters multiple productive reservoirs
within the 800 foot to 1,400 foot thickness of the Canyon formation. These
Canyon reservoirs tend to be discontinuous and generally exhibit lower
porosity and permeability, characteristics which reduce the area that can be
effectively drained by a single well to units as small as 40 acres.

The Company's 58.2 Bcfe of proved reserves attributable to the Sawyer Canyon
Field are 96% proved developed. The Company currently plans on drilling seven
additional infill locations to exploit the remaining proved undeveloped
reserves. The Company also believes that additional proved reserves may
ultimately be

38
<PAGE>

attributed to many of the 60 or more 40-acre locations remaining on the
property. The Company has also identified additional enhancement potential
through several recompletion possibilities in existing wellbores into Canyon
sand reservoirs not currently producing. In addition to exploiting these
Canyon sand development opportunities, the Company currently intends to
evaluate portions of the Sawyer Canyon Field for potential in the shallower
Wolfcamp and deeper Strawn formations which have been found to be productive
in the area.

ArkLaTex Area

The Company's second largest concentration of reserve holdings, representing
approximately 16% of total proved reserves as of December 31, 1995 on a pro
forma basis, is located in the ArkLaTex Area primarily in Bossier, Claiborne,
Lincoln, and Union Parishes in northern Louisiana. The Company owns an
interest in 74 gross (38 net) wells of which 42 gross (36 net) wells are
operated by the Company. The Company's average working interest in its
ArkLaTex Area operated wells is approximately 86%. Average daily production
from the ArkLaTex Area, net to the Company's interest, was approximately 10.7
MMcf of natural gas and 103 Bbls of oil during April 1996.

Certain members of the Company's management have been active in the ArkLaTex
Area since 1977. Production in the ArkLaTex Area is primarily from the
Hosston, Cotton Valley and Haynesville formations of Cretaceous and Jurassic
age at depths of 5,500 feet to 10,000 feet. These formations are lower
permeability sandstones which were developed on 640-acre spacing and require
Extensional Infill drilling and advanced fracture stimulations to drain the
reserves in place adequately.

Elm Grove Field. The Company's net proved reserves in the Elm Grove Field,
Bossier Parish, Louisiana, at December 31, 1995, were 28.5 Bcfe, of which 97%
was proved developed. Production out of the Elm Grove Field is natural gas
from the Hosston and Cotton Valley formations at depths of 7,000 feet to 9,600
feet. The Company owns an interest in 42 gross (27 net) wells, of which 29
gross (27 net) wells are operated by the Company. The Company's average
working interest in its operated properties in the Elm Grove Field is
approximately 92%. In addition, the Company acquired in 1995 non-operated
properties with an average working interest of approximately 3% with acreage
offsetting the Company's operated properties. The Company's operated leasehold
position consists of approximately 5,760 gross (5,649 net) acres. Average
daily production from the Elm Grove Field, net to the Company's interest, was
approximately 7.7 MMcf of natural gas and 30 Bbls of oil during April 1996.

Due to the Company's operational enhancements, average gross production from
the original properties has reached a rate of 10 MMcf per day during April
1996, up from an average daily production level of 2 MMcf per day when the
Company assumed operations in August 1994. The Company has acquired additional
interests in the area through multiple acquisitions that have increased
reserves with minimal additional administrative costs. The Company has
identified several behind pipe zones and three to five additional infill
locations that have not been classified as proved reserves but which the
Company believes have significant potential to increase proved reserves.

Since the Company acquired its first interest in the Elm Grove Field, it has
drilled 11 productive wells, recompleted 6 of the 15 existing wells to access
behind pipe reserves and discovered a deeper productive zone not previously
produced in the field. The Company has also drilled 10 productive wells in
five ArkLaTex fields other than Elm Grove. The Company expects to continue to
generate drilling prospects in the fields in which it is currently active and
other ArkLaTex Area fields. The Company currently plans to drill at least 8
prospects during 1996 in the ArkLaTex Area.

Anadarko Basin Area

The Company's Anadarko Basin properties are located in northwest Oklahoma
and the Texas panhandle. The Company owns an interest in 213 gross (82 net)
wells of which it operates 153 gross (75 net) wells. Average

39
<PAGE>

daily production from the area, net to the Company's interest, was
approximately 10.1 MMcf of natural gas and 81 Bbls of oil during April 1996.

Certain members of the Company's management team have been actively involved
in the development of reserves in the Anadarko Basin since 1974. The majority
of the Company's properties in this area are located on the Northern Shelf and
are predominantly natural gas producing from various formations of
Pennsylvanian and Pre-Pennsylvanian age at depths of 7,000 feet to 12,000
feet. The Company's Mills Ranch Field, operated by Chevron, is in the deeper
part of the basin with production from depths of 10,000 feet to 20,000 feet.
Pre-Pennsylvanian reservoirs include the Mississippi, Chester and Hunton
formations and are typically fractured carbonates. Pennsylvanian reservoirs
include the Redfork, Atoka and Morrow sandstones.

Spacing across the Anadarko Basin is generally on 640 acre units with
extensive Extensional Infill drilling having occurred over the last 15 years.
The Company has participated in the drilling of 44 gross (37 net) Extensional
Infill wells in this area since 1992. Of the 36.1 Bcfe total proved reserves
as of December 31, 1995, net to the Company's interest and attributable to the
Anadarko Basin area, 82% are proved developed. The Company plans to continue
to exploit areas of the Anadarko Basin that require Extensional Infill
drilling for adequate reserve drainage.

Gulf Coast Louisiana Area

The Company's onshore Gulf Coast Louisiana properties are located in 10
fields in south Louisiana. The Company owns an interest in 38 gross (7 net)
wells of which it operates 9 gross (5 net) wells. During April 1996, average
daily production from the area, net to the Company's interest, was
approximately 6 MMcf of natural gas and 295 Bbls of oil.

The Company has 22 years of management experience in the Gulf Coast
Louisiana Area. Since 1992, the Company has actively developed its reserves in
the area through its Extensional Infill and exploratory drilling programs and
producing property acquisitions. The Company's proved reserves of 13.7 Bcfe as
of December 31, 1995 in the Gulf Coast Louisiana Area are 90% proved
developed.

Offshore Gulf of Mexico Area

The Company has non-operated working interests ranging from 2% to 14% in 14
offshore fields (including blocks located in the Eugene Island, Ship Shoal,
South Timbalier, Vermilion, West Cameron and Galveston Island areas) which are
operated primarily by Newfield Exploration Company ("Newfield"). The Company
has interests in 76 gross (6 net) wells with an average working interest of
approximately 8%. During April 1996, average daily production from this area,
net to the Company's interest, was approximately 7.8 MMcf of natural gas and
350 Bbls of oil.

These fields produce from various Pleistocene, Pliocene and Miocene sands
ranging from 6,000 feet to 15,000 feet in depth. The Company's participation
with Newfield in the development of these offshore reserves was initiated in
1990. The last year of active participation in new leasehold acquisition with
Newfield was 1992, although the Company has continued to participate in the
development of the properties where it already owns leases.

In 1995, Newfield added reserves through drilling in the Ship Shoal 159,
South Timbalier 148 and South Timbalier 193 Fields which resulted in upward
revisions of 2.9 Bcfe of net proved reserves to the Company. In total, the
Company has net proved reserves of 14.3 Bcfe as of December 31, 1995 in the
Offshore Gulf of Mexico Area which are 92% proved developed.

Gulf Coast and South Texas

The Company's onshore Gulf Coast and South Texas properties are located in
eight fields in south Texas. The Company owns an interest in 57 gross (15 net)
wells, of which it operates 10 gross (4 net) wells. Average

40
<PAGE>

production from the area, net to the Company's interest, was approximately 4.6
MMcf of natural gas and 184 Bbls of oil per day during April 1996.

The Company has been developing its reserves in the onshore Gulf Coast and
South Texas Area that were acquired prior to 1992 through its participation in
various exploratory drilling programs. In 1993 and 1994, the Company expanded
its Gulf Coast and South Texas reserve base with the acquisition of one non-
operated and three operated fields. The Company has generally been successful
in improving the profitability of the properties acquired from other operators
by increasing production rates through an aggressive workover program,
improving marketing arrangements for natural gas and oil sales and lowering
the lifting cost per unit of production.

The Company's proved reserves of 10.5 Bcfe as of December 31, 1995 from the
onshore Gulf Coast and South Texas Area are 94% proved developed. The Company
has identified three workovers to re-establish production from currently shut-
in wells that it operates in the Gillock Field and is currently installing
artificial lift and a saltwater disposal system.

Newhall-Potrero Field

The Newhall-Potrero Field is located in Los Angeles County, California,
outside the city of Valencia. The Company owns a 100% working interest in 36
active wells, all of which are operated by the Company. The Company's
leasehold position consists of approximately 1,450 acres. During April 1996,
average daily production from the field, net to the Company's interest, was
approximately 360 Bbls of oil and 0.7 MMcf of natural gas.

The Company's interest in the Newhall-Potrero Field was acquired in 1993 and
is comprised of the Rancho San Francisco and Ferguson leases. Production is
predominantly oil produced from the multiple Modelo sands in the Miocene
formation at a depth range of 6,000 feet to 13,000 feet.

The Company has been able to increase oil production in April 1996 by 89
Bbls of oil per day over 1994 average daily levels by converting certain wells
from gas lift to pumping unit operations and reworking other wells. The
Company has also realized a 31% reduction in lifting costs from $6.32 per BOE
in 1994 to $4.35 per BOE in 1995. The Company believes that there are other
production enhancement opportunities in the Newhall-Potrero Field through the
recompletion of wells to undrained portions of the oil reservoirs and
installing additional pumping units. The Company currently plans 4 to 6
workovers in an attempt to enhance production further during 1996.

NATURAL GAS AND OIL RESERVES

The Company's estimated total proved and proved developed reserves of
natural gas and oil as of December 31, 1993, 1994 and 1995, and pro forma for
the Sawyer Canyon Acquisition as of December 31, 1995, were as follows:

<TABLE>
<CAPTION>
PROVED RESERVES (1) PROVED DEVELOPED RESERVES (2)
----------------------------------- -----------------------------------
NATURAL GAS OIL AND LIQUIDS TOTAL NATURAL GAS OIL AND LIQUIDS TOTAL
DECEMBER 31, (MMCF) (MBBL) (MMCFE) (MMCF) (MBBL) (MMCFE)
------------ ----------- --------------- ------- ----------- --------------- -------
<S> <C> <C> <C> <C> <C> <C>
1993.................... 112,023 8,955 165,754 100,660 8,173 149,698
1994.................... 148,611 7,304 192,434 115,099 6,717 155,401
1995.................... 133,673 9,844 192,737 111,189 8,255 160,719
Pro Forma 1995.......... 191,427 9,923 250,965 166,735 8,327 216,697
</TABLE>
- --------
(1) Estimated quantities of proved natural gas and oil reserves for 1994 and
1995 (on an historical and pro forma basis) are based upon reserve reports
prepared by Netherland, Sewell and Associates, Inc. ("Netherland,
Sewell"), the Company's independent petroleum engineers, except that, of
the quantities set forth above, (a) 35,872 MMcf of natural gas, 681 MBbls
of oil and 39,958 MMcfe of the Company's proved undeveloped reserves and
the Company's net APPL limited partnership proved reserves for 1994 and
(b) 20,736 MMcf of natural gas, 1,951 MBbls of oil and 32,442 MMcfe of the
Company's proved undeveloped reserves and the Company's net Merit limited
partnership proved reserves for 1995 (on an historical and pro forma
basis) are based upon estimates evaluated by the

41
<PAGE>

Company. Estimated quantities of natural gas and oil reserves for 1993 are
based upon compilations of estimates of independent petroleum engineers and
the Company's engineers.
(2) Estimated quantities of proved developed natural gas and oil reserves for
1994 and 1995 (on an historical and pro forma basis) are based upon reserve
reports prepared by Netherland, Sewell, except that, of the quantities set
forth above, (a) 2,360 MMcf of natural gas, 94 MBbls of oil and 2,924 MMcfe
of the Company's net APPL limited partnership proved developed reserves for
1994 and (b) 1,509 MMcf of natural gas, 401 MBbls of oil and 3,915 MMcfe of
the Company's net Merit limited partnership proved reserves for 1995 (on an
historical and pro forma basis) are based on estimates evaluated by the
Company. Estimated quantities of natural gas and oil reserves for 1993 are
based upon compilations of estimates of independent petroleum engineers and
the Company's engineers.

The following table sets forth the estimated future net cash flows from the
Company's estimated proved reserves as of December 31, 1993, 1994 and 1995, and
pro forma for the Sawyer Canyon Acquisition as of December 31, 1995:

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- DECEMBER 31,
1993 1994 1995 1995
-------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Estimated future net cash flows
before income
taxes (1)........................... $220,335 $221,513 $258,220 $346,803
Estimated future net cash flows be-
fore income taxes, discounted at 10%
per annum (2) (3)................... $137,711 $144,595 $168,159 $223,571
Standardized measure of discounted
future net cash flows (3)........... $118,202 $126,044 $136,924 $189,778
</TABLE>
- --------
(1) Estimated future net cash flows before income taxes for 1994 and 1995 (on
an historical and pro forma basis) are based upon reserve estimates
prepared by Netherland, Sewell, except that, of the estimates of such cash
flows set forth above, (a) $47,155,000 of such estimates for 1994 is
attributable to the Company's proved undeveloped reserves and the Company's
net APPL Limited Partnership proved reserves which are based upon reserve
estimates evaluated by the Company and (b) $30,232,000 of such estimate for
1995 (on an historical and pro forma basis) is attributable to the
Company's proved undeveloped reserves and the Company's net Merit Limited
Partnership proved reserves which are also based upon reserve estimates
evaluated by the Company. Such estimate for 1993 is based upon compilations
of reserve estimates of independent petroleum engineers and the Company's
engineers.
(2) Estimated future net cash flows before income taxes, discounted at 10%, for
1994 and 1995 (on an historical and pro forma basis) are based upon reserve
estimates prepared by Netherland, Sewell, except that, of the estimates of
such cash flows set forth above, (a) $28,400,000 of such estimate for 1994
is attributable to the Company's proved undeveloped reserves and the
Company's net APPL limited partnership proved reserves which are based upon
reserve estimates evaluated by the Company and (b) $15,717,000 of such
estimate for 1995 (on an historical and pro forma basis) is attributable to
the Company's proved undeveloped reserves and the Company's net Merit
limited partnership proved reserves which are also based upon reserve
estimates evaluated by the Company. Such estimate for 1993 is based upon
compilations of reserve estimates of independent petroleum engineers and
the Company's engineers.

(3) The difference between estimated future net cash flows before income taxes,
discounted at 10% per annum and the standardized measure of discounted
future net cash flows of $19,509,000, $18,551,000, $31,235,000 and
$33,793,000 for 1993, 1994, 1995 and 1995 on a pro forma basis,
respectively, is the present value of income taxes applicable to such
future net cash flows.

The reserve data set forth in this Prospectus represent only estimates of
Netherland, Sewell, other third-party engineers and the Company. A summary of
Netherland, Sewell's report dated May 13, 1996 for pro forma December 31, 1995
is filed as an exhibit to the registration statement of which this Prospectus
is a part. Reserve engineering is a subjective process of estimating the
recovery of underground accumulations of natural gas and oil that cannot be
measured in an exact manner, and the accuracy of any reserve estimate is the
function of the quality of the available data, of the assumptions made, and of
engineering and geological interpretation and judgment. Estimates of
economically recoverable natural gas and oil reserves and of future net cash
flows therefrom necessarily depend upon a number of variable factors and
assumptions, such as historical production from the area compared with
production from other producing areas, the assumed effects of regulations by
governmental agencies and assumptions concerning future natural gas and oil
prices, future operating costs, severance and excise taxes, development costs
and workover and remedial costs, all of which may in fact vary considerably
from actual results. For those reasons, estimates of the economically
recoverable natural gas and oil reserves attributable to any particular group
of properties, classifications of such reserves based on risk of recovery and
estimates of the future net revenues expected therefrom, prepared by different
engineers or by the same engineers at different times, may vary substantially.
All such estimates are to some degree speculative, and classifications of
reserves are only attempts to define the degree of speculation involved. Actual
prices, production, development expenditures, operating expenses and quantities
of recoverable natural gas and oil reserves will vary from those assumed in the
estimates and such variances may be significant. Any significant

42
<PAGE>

variance from the assumptions could result in the actual quantity of the
Company's reserves and future net cash flow therefrom being materially
different from the estimates set forth herein. In addition, the Company's
estimated reserves may be subject to downward or upward revision, based upon
production history, results of future exploration and development, prevailing
natural gas and oil prices, operating and development costs and other factors.

Estimates with respect to proved undeveloped reserves that may be developed
and produced in the future are often based upon volumetric calculations and
upon analogy to similar types of reserves rather than actual production
history. Estimates based on these methods are generally less reliable than
those based on actual production history. Subsequent evaluation of the same
reserves based upon production history will result in variations, which may be
substantial, in the estimated reserves.

The present worth of future net cash flows shown above should not be
construed as the current market value, or the market value as of December 31,
1995, or any prior date, of the estimated natural gas and oil reserves
attributable to the Company's properties. In accordance with applicable
requirements of the Commission, the estimated discounted future net revenues
from estimated proved reserves are based on prices and costs as of the date of
the estimate unless such prices or costs are contractually determined at such
date. Actual future prices and costs may be materially higher or lower. Actual
future net revenues also will be affected by factors such as actual
production, supply and demand for natural gas and oil, curtailments or
increases in consumption by natural gas purchasers, changes in governmental
regulations or taxation and the impact of inflation on costs.

In accordance with methodology approved by the Commission, specific
assumptions were applied in the estimates of future net cash flows. Under this
methodology, estimated future net cash flows are determined by reducing
estimated future gross cash flows to the Company for natural gas and oil sales
by the estimated costs to develop and produce the underlying reserves,
including future capital expenditures, operating costs, transportation costs,
royalty and overriding royalty burdens. Estimated future production costs were
based on actual annual production costs incurred during the reported period. A
portion of the Company's proved reserves are undeveloped, and future
development costs thereon were calculated based on a continuation of present
economic conditions.

Future net cash flows were discounted at 10% per annum to arrive at
discounted future net cash flows. The 10% discount factor used to calculate
present value is required by the Commission, but such rate is not necessarily
the most appropriate discount rate. Present worth of future net cash flows,
irrespective of the discount rate used, is materially affected by assumptions
as to timing of future natural gas and oil prices and production, which may
prove to be inaccurate. In addition, the calculations of estimated net
revenues do not take into account the effect of certain cash outlays,
including, among other things, general and administrative costs, interest
expense and dividends.

The Company does not file reserve reports with any federal agency other than
the Commission.

PRODUCTIVE WELLS

The following table sets forth the number of productive natural gas and oil
wells in which the Company owned an interest as of April 30, 1996. Productive
wells consist of producing wells and wells capable of production, including
natural gas wells awaiting pipeline connections to commence deliveries and oil
wells awaiting connection to production facilities. Wells which are completed
in more than one producing horizon are counted as one well. Of the gross wells
reported below, five had multiple completions.

<TABLE>
<CAPTION>
GROSS NET
----- -----
<S> <C> <C>
Natural gas wells............................................. 999 532.8
Oil wells..................................................... 1,052 134.4
----- -----
Total....................................................... 2,051 667.2
===== =====
</TABLE>

43
<PAGE>

ACREAGE DATA

The following table sets forth certain information regarding the Company's
developed and undeveloped lease acreage as of April 30, 1996.

<TABLE>
<CAPTION>
DEVELOPED ACREAGE UNDEVELOPED ACREAGE
----------------- -------------------
STATE GROSS NET GROSS NET
- ----- ----------------- -------------------
<S> <C> <C> <C> <C>
Oklahoma.................................. 41,360 32,848 17,011 11,229
Texas (1)................................. 71,577 51,458 9,931 8,403
Louisiana................................. 20,338 6,915 7,133 6,172
Montana................................... 21,946 8,955 -- --
Colorado.................................. 16,985 3,913 4,186 2,699
Wyoming................................... 9,823 6,255 -- --
Other..................................... 20,757 13,081 4,443 3,367
-------- -------- --------- ---------
Total................................... 202,786 123,425 42,704 31,870
======== ======== ========= =========
</TABLE>
- --------
(1) 34,887 gross (34,053 net) acres of the developed acreage and none of the
gross undeveloped acreage are attributable to the Sawyer Canyon
Acquisition.

DRILLING ACTIVITIES

During the periods indicated, the Company drilled or participated in the
drilling of the following exploratory and development wells:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
-------------------------------- ENDED
1993 1994 1995 MARCH 31, 1996
---------- ---------- ---------- ----------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ---- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory:
Productive................. 9 1.1 11 1.1 9 0.8 1 0.4
Non-Productive............. 7 1.9 8 4.0 7 3.4 1 1.0
--- ---- --- ---- --- ---- ------- -------
Total.................... 16 3.0 19 5.1 16 4.2 2 1.4
=== ==== === ==== === ==== ======= =======
Development:
Productive................. 20 10.2 22 15.7 32 21.4 2 2.0
Non-Productive............. 7 6.5 15 10.4 17 12.3 3 2.2
--- ---- --- ---- --- ---- ------- -------
Total.................... 27 16.7 37 26.1 49 33.7 5 4.2
=== ==== === ==== === ==== ======= =======
</TABLE>

At April 30, 1996, the Company was participating in the drilling or
completion of 6 gross (4.3 net) wells, 2 of which are still being drilled and
4 of which were determined to be productive. All of the Company's drilling
activities are conducted with independent contractors. The Company owns no
drilling equipment.

The information contained in the foregoing table 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 and
the natural gas and oil reserves generated therefrom.

44
<PAGE>

PRODUCTION, PRICES AND OPERATING EXPENSES

The following table sets forth the Company's net production of natural gas
and oil, average sales prices and certain production data during the periods
indicated on a historical and pro forma basis:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ ---------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995 1995 1996 1996
------ ------ ------ --------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net production volumes:
Natural gas (MMcf)..... 12,742 15,591 17,835 25,980 4,066 5,113 6,727
Oil and liquids
(MBbls)............... 691 1,024 1,028 1,045 252 316 320
Average sales prices:
Natural gas (per Mcf)
(1)................... $ 2.04 $ 1.82 $ 1.65 $ 1.63 $1.61 $2.00 $2.02
Oil (per Bbl).......... 16.07 14.93 16.45 16.43 16.41 17.64 17.70
Average production costs
per Mcfe (2)............ $ 0.57 $ 0.69 $ 0.61 $ 0.54 $0.65 $0.50 $0.48
</TABLE>
- --------
(1) Includes the results of the Company's price risk management activities.
See "--Natural Gas and Oil Production Marketing Activities."
(2) Production costs are equivalent to lease operating expenses and may vary
substantially among wells depending on the methods of recovery employed
and other factors.

NATURAL GAS AND OIL PRODUCTION MARKETING ACTIVITIES

The Company markets substantially all of the natural gas production from
Company-operated wells to pipelines and third party gas marketers. The Company
believes that its marketing activities add value by giving the Company
opportunities to obtain competitive prices for products, rapidly connect new
wells to pipelines, minimize pipeline and purchaser balancing problems,
maintain continuous sales of production and secure prompt payment. The
Company's production marketing group utilizes strict economic and risk-reward
analysis and the experience of other technical groups to evaluate the various
marketing alternatives for each project.

Substantially all of the Company's natural gas is sold either under short-
term contracts (one year or less) providing for variable or market sensitive
prices or under various long-term contracts providing for fixed prices which
dedicate the natural gas to a single purchaser for an extended period of time.

In connection with the marketing of its natural gas production, the Company
engages in natural gas price risk management activities primarily through the
use of fixed for floating price swap agreements on notional volumes that
require payments to (or the receipt of payments from) counterparties to such
agreements based on the differential between a fixed and variable price for
natural gas. The Company maintains coverage of such notional volumes with
adequate physical volume deliveries at the hub points used to price such
arrangements. The Company intends to continue to consider various risk
management arrangements to stabilize cash flow and earnings and reduce the
Company's susceptibility to volatility in natural gas prices. These agreements
involve certain risks, see "Risk Factors--Price Risk Management."

The Company utilizes, from time to time, natural gas price swaps for a
portion of its natural gas production to achieve a more predictable cash flow
and to reduce its exposure to product price fluctuations. The Company records
these transactions under settlement accounting guidelines and, accordingly,
includes gains or losses in gas and oil revenues in the period of the swapped
production. The Company currently has three separate natural gas price swaps
in place. Effective January 1, 1995, the Company effectively fixed the sales
price for a portion of its natural gas production at a NYMEX price of $1.905
per MMBtu for a five-year term. In September 1995, the Company effectively
fixed the sales price for an additional portion of its natural gas production
at a NYMEX price of $2.055 per MMBtu for ten years. In May 1996, the Company
effectively fixed the sales price for an additional portion of its natural gas
production at a NYMEX price of $2.23 per MMBtu for a one-year term. The
Company, in May 1996, also fixed a basis component of the net wellhead sales
price for a portion of its natural gas production at the NYMEX price less
$0.096 per MMBtu for a one-year term. For the calendar years 1996, 1997 and
1998, these transactions cover aggregate notional volumes of 11,720,000
MMBtus, 8,060,000 MMBtus

45
<PAGE>

and 4,836,000 MMBtus, respectively, and result at annual weighted average
prices per MMBtu of $2.0325, $1.9942 and $1.9832, respectively. The Company
currently intends to limit its natural gas price swap activity to no more than
50% of its natural gas production.

Since early 1995, the Company has been more aggressively marketing a portion
of the oil production from its properties through the off lease marketing of
volumes in its core oil producing areas. As a result of this marketing
activity, the Company has realized improvements to the price received for its
oil production in these areas.

The Company, in May 1996, in order to integrate its various natural gas
marketing activities, reorganized its corporate structure so that all of its
natural gas marketing operations are conducted through InterCoast Gas
Services. This action coordinates the Company's natural gas and oil production
marketing activities described above with the natural gas marketing operations
described below, which the Company has recently acquired and started. The
Company intends that InterCoast Gas Services will be able to provide an
assorted range of services and believes that it can provide value to its
natural gas and oil exploration and production operations and to its electric
marketing and brokering business.

In the past, MidAmerican Capital has provided letters of credit and
guarantees to support certain of the Company's purchases of natural gas.
Accordingly, the Company's historical ability to purchase and the volumes and
terms of its purchases have been dependent, in part, on the financial support
of MidAmerican Capital. After the Offering, the Company's own financial
strength may affect its ability to purchase and the volumes and terms under
which it will be able to purchase natural gas. There can be no assurance that
the Company's financial strength will be sufficient to provide the financial
support that may be required to continue the present volume of purchases or to
permit increased volumes of purchases at acceptable prices. See "Risk
Factors--Certain Risks of Natural Gas Marketing Operations."

In late 1995, the Company initiated a plan to grow its wholesale natural gas
marketing business. This plan involved two components: (i) strategic
acquisitions of other natural gas marketing companies and (ii) the start-up of
its own natural gas marketing company. During that time period, the Company
acquired for $1.8 million the assets of GED, a small natural gas marketing
company located in Tulsa, Oklahoma. This operation focuses on aggregating
natural gas volumes from producers and providing services (including
nomination, pipeline balancing, royalty payment administration, and other
accounting and administrative services) to these producers. As of April 30,
1996, this portion of InterCoast Gas Services purchased natural gas from over
600 wells located primarily in Oklahoma and the Texas panhandle. The volumes
of natural gas purchased from these producers are aggregated with volumes
purchased from other gas marketing companies and resold to natural gas
distribution companies, industrial end-users and other natural gas marketing
companies. This portion of InterCoast Gas Services' operations enters into
both short-term and long-term sales agreements, as well as utilizes various
price risk management contracts and arrangements, including NYMEX options and
basis swap agreements, fixed for floating price swap agreements, fixed price
forward purchase and sale agreements, options and other similar contractual
arrangements. See "Risk Factors--Price Risk Management."

In the first quarter of 1996, the Company opened a natural gas marketing
office to focus on market opportunities in the northern end of the Mid-
Continent region, concentrating on wholesale customers in that region. This
portion of InterCoast Gas Services' operations purchases natural gas from
producers, pipelines and other marketing companies and resells the natural gas
to industrial end-users, natural gas distribution companies, producing
companies, pipelines and other marketing companies. Sales and purchases are
made generally on a firm basis but may also be on a swing or interruptible
basis. The terms of the agreements have been for periods of less than one
year; however, longer term contracts may be entered into in the future. This
operation also utilizes various price risk management contracts and
arrangements, including NYMEX options and basis swap agreements, fixed for
floating price swap agreements, fixed price forward purchase and sale
agreements, over the counter option contracts and other similar contractual
arrangements. See "Risk Factors--Price Risk Management."

46
<PAGE>

ELECTRIC POWER MARKETING

The Company engages in the purchase and sale of wholesale electric power,
both as a broker and marketer. As a broker, the Company acts as an
intermediary by facilitating transactions between buyers and sellers of
electricity. When acting as a marketer, the Company purchases and takes title
to electricity and resells that electricity to other utilities. In connection
with its marketing activity, the Company may also contract with electric
utilities for transmission services. The Company began its electric marketing
business in October 1993, and its FERC certification as a power marketer
became effective in July 1995. Prior to the effectiveness of its power
marketer certification, the Company's electric marketing business was limited
to brokering transactions. Through the first quarter of 1996, the Company had
brokered and marketed approximately 925,000 MWh among over 60 utilities. The
Company's strategy is to establish itself as a reliable trading and marketing
partner for wholesale electricity transactions throughout the United States
and Canada.

The Company has secured interchange and transmission agreements which
specify the terms and conditions under which market participants transact
business with one another. Through April 1996, the Company has executed 82
interchange agreements and 29 transmission agreements with utilities and other
clients across the United States. The Company is currently negotiating the
terms of approximately 50 additional such agreements. The Company has also
applied to become a member of the Western Systems Power Pool which would allow
it to transact business with over 100 additional market participants.

The Company's electric power marketing operations currently do not use price
risk management contracts and arrangements, however, the Company in the future
may utilize such contracts and arrangements in its electric power marketing
business. See "Risk Factors--Price Risk Management."

Although in the early stages of development, the wholesale electric power
marketing business is very competitive. Many of these competitors have greater
financial resources than the Company and have direct access to generating
resources. The Company neither owns nor has any long-term rights to any
electric generating resources. See "Risk Factors--Certain Risks Affecting
Electric Power Marketing Operations."

The Company believes it will be able to capitalize on expanding market
opportunities created by the deregulation of the electric power industry, the
most recent of which is FERC Order Numbers 888 and 889 which effectively
mandate open access transmission for the electric industry but there can be no
assurance that the Company will be successful in this area. See "Risk
Factors--Governmental Regulation."

CONTINENTAL POWER EXCHANGE, INC.

The Company's wholly owned subsidiary, Continental Power Exchange, developed
and launched in May 1995 commercial operation of the first market-based
national electronic exchange for the buying and selling of wholesale
electricity and transmission services, CPEX(TM). CPEX(TM) is an on-line
computer and telecommunications system that links subscribers electronically
for the purpose of buying, selling and wheeling wholesale electric power. The
first-of-its-kind software and network automatically determines the least-cost
transmission path for moving wholesale electricity between two points. In a
matter of seconds, CPEX(TM) identifies the least-cost transmission path and
electronically displays to subscribers offers to buy and sell electricity.
Subscribers are able to electronically initiate and consummate transactions
through the CPEX(TM) system and clear transactions through its electric funds
network.

The Company commenced commercial operation of CPEX(TM) in May 1995 with 11
charter subscribers and had 30 subscribers with operations in 25 states as of
April 30, 1996. Until February 1996, CPEX(TM) subscribers were limited to
trades of only one-hour duration for the following hour. Currently, CPEX(TM)
has been expanded to permit trades over the next four-hour duration also.

The Company focuses on continuous enhancements to its electronic network, as
well as the expansion of marketing and sales efforts. In an effort to
accelerate the pace of its software development and marketing activities, the
Company may attempt to form strategic alliances with other participants which
may involve equity investments by such participants.

47
<PAGE>

During 1996, the number of trades conducted by CPEX(TM) subscribers and the
aggregate amount and value of energy traded have increased each month. The
Company's current target customers are electric generation and transmission
companies, including investor owned utilities, municipally owned and operated
power systems, public power authorities, and rural electric generation and
transmission systems. Subject to regulatory changes implemented by the FERC
and state regulatory authorities, the Company expects that future target
customers will also include large industrial and commercial end-users,
independent power producers, co-generators, power marketers, energy
aggregators and power marketers. CPEX(TM) is still in its introductory stage,
however, and there can be no assurances that it will be commercially accepted
on a widespread basis. See "Risk Factors--Certain Risks Affecting CPEX(TM)."

COMPETITION

Natural Gas and Oil Activities and Natural Gas Marketing Activities

The oil and gas industry is highly competitive. The Company faces
competition both from major and independent oil and gas companies and from
numerous individuals in seeking to acquire producing properties, in obtaining
labor and equipment to conduct its operations, and in marketing. Many of these
competitors have financial and other resources substantially in excess of
those available to the Company.

Competitors of the Company in the natural gas marketing business include
other producers, natural gas pipelines and their affiliated marketing
companies, local gas distribution companies, independent marketers and
providers of alternate energy supplies. Increases in worldwide energy
production capability have brought about surpluses in energy supplies in
recent years. This, in turn, has resulted in substantial competition in
markets historically served by domestic natural gas from alternative sources
of energy, such as residual fuel oil, and among domestic natural gas
suppliers. Changes in government regulations relating to the production,
transportation and marketing of natural gas have also resulted in significant
changes in the historical marketing patterns of the industry. Generally, these
changes have resulted in the shifting of the focus of pipeline companies from
the regulated purchase of natural gas to the provision of transportation
services, the development by natural gas producers of their own marketing
programs to take advantage of new regulations requiring pipelines to transport
natural gas for regulated fees, and the emergence of various types of
marketing companies and other aggregators of natural gas supplies. As a
consequence, natural gas prices, which were once effectively determined by
government regulations, are now largely established by competition.

CPEX(TM)

Competition in electronic energy exchange networks is emerging. The
Company's principal competitors at this time come primarily from within the
electric industry or from the natural gas industry which was partially
deregulated several years ago. Nevertheless, the Company believes that the
size of the wholesale and retail energy markets, and the expected cost savings
resulting from less regulation, will likely cause numerous competitors to
develop their own electronic energy trading networks. Competitive networks are
being developed by companies with greater financial and other resources than
the Company. The Company believes its ability to compete successfully in this
business depends on a number of factors both within and outside its control,
including product pricing, quality and performance; success in developing new
products; effectiveness of sales and marketing resources and strategies;
strategic relationships with other energy management system vendors; timing of
new product and service launchings by the Company and its competitors; general
market and economic conditions; and government and regulatory authority
actions. Further, some utilities may still regard the effects of less
regulation, with the resultant creation of market economies, as a threat to
their current market dominance. Accordingly, these utilities may attempt to
delay the implementation of regulatory changes, which could diminish the
benefits of certain of the Company's products and services. In addition,
utilities have formed regional and national reliability councils whose main
purpose is to monitor and control the interconnected transmission grid.
Through their actions, these councils could adopt rules to circumvent or delay
the introduction of competition or to otherwise diminish the benefits of
certain of the Company's products and services.

48
<PAGE>

Power Marketing

Several hundred companies are competing today to serve the same markets that
the Company is serving, and the Company anticipates that numerous additional
companies will soon be competing with it. The number of power marketers that
currently have received FERC certification is approximately 200. A significant
number of these power marketers are backed by companies having greater
financial and other resources than the Company, including energy companies,
natural gas marketing companies, electric utilities and financial trading
companies.

REGULATION

General

The oil and gas industry is extensively regulated by federal, state and
local authorities. Legislation affecting the oil and gas industry is under
constant review for amendment or expansion. Numerous departments and agencies
have issued rules and regulations affecting the oil and gas industry and its
individual members, some of which carry substantial penalties for the failure
to comply. The regulatory burden on the oil and gas industry increases its
cost of doing business and, consequently, affects its profitability. Inasmuch
as such laws and regulations are frequently amended or reinterpreted, the
Company is unable to predict the future cost or impact of complying with such
regulations.

Exploration and Production

Exploration and production operations of the Company are subject to various
types of regulation at the federal, state and local levels. Such regulation
includes requiring drilling permits, requiring the maintenance of bonds in
order to drill or operate wells, and regulating the location of wells
(including limitation on the spacing and density of field development), the
method of drilling and casing wells, the surface use and restoration of
properties upon which wells are drilled, and the plugging and abandoning of
wells. The Company's operations are also subject to various conservation
regulations, including regulation of the size of drilling and spacing units or
proration units, the density of wells which may be drilled, and the
unitization or pooling of oil and gas properties. In this regard, some states,
including the states in which the Company operates, allow the forced pooling
or integration of lands and leases to facilitate exploration, while other
states rely on voluntary pooling of lands and leases. In addition, state
conservation laws establish maximum rates of production from oil and gas
wells, generally prohibit the venting or flaring of gas, and may impose
certain requirements regarding the ratability of production. The effect of
these regulations is to limit the amounts of crude oil and natural gas the
Company can produce from its wells and the number of wells or the locations at
which the Company can drill.

Oklahoma and Texas have adopted limits on natural gas production that
attempt to match production with market demand. In March 1992, Oklahoma
enacted legislation which places statewide limits on natural gas production.
The Oklahoma Corporation Commission sets production levels quarterly. The
production of natural gas from a single well is limited to the greater of a
specified Mcf per day or a percentage of the total daily production capacity
of the well. In April 1992, the Texas Railroad Commission (the "TRC"), which
is the state agency that regulates oil and gas production in Texas,
unanimously approved a new proration system that eliminated monthly purchaser
nominations as the starting point for determining reservoir market demand.
Instead, the TRC relies upon certain information filed monthly by well
operators, in addition to using historical production data for each well
during the same month from the previous year, subject to certain adjustments,
to arrive at a production allowable. The Company cannot predict whether other
states will adopt similar regulations or legislation governing natural gas
production. However, the effect of such legislation and regulations may be to
decrease the allowable daily production and the revenues from natural gas
properties, including properties that produce both oil and natural gas. It is
also possible that such legislation and regulations may result in a decrease
in natural gas production in such states, which could exert upward pressure on
the price of natural gas.

Various federal, state and local laws and regulations covering the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, may affect the exploration, development and production
operations of the Company. Both operators and non-operators may be liable for
obligations such

49
<PAGE>

as the proper plugging and abandoning of wells and remediation of oil spills.
The costs of compliance with such obligations, and penalties for violations of
environmental laws, can be substantial. The Company is also subject to laws
and regulations concerning occupational safety and health. It is not
anticipated that the Company will be required in the near future to expend
amounts that are material to its overall operations by reason of environmental
or occupational safety and health laws and regulations, but because such laws
and regulations are frequently changed, the Company is unable to predict the
ultimate costs of compliance.

Natural Gas Sales, Gathering and Transportation

Federal legislation and regulatory controls have historically affected the
price of the natural gas produced and sold by the Company and the manner in
which such production is marketed. Historically, the transportation and sale
for resale of natural gas in interstate commerce were regulated pursuant to
the Natural Gas Act of 1938 (the "NGA"), the Natural Gas Policy Act of 1978
(the "NGPA") and the regulations promulgated thereunder by the FERC. Since
1978, maximum selling prices of certain categories of natural gas sold in so-
called "first sales" (which include sales from the Company's own production),
whether sold in interstate or intrastate commerce, were regulated pursuant to
the NGPA. Pursuant to provisions of the NGPA and the Natural Gas Decontrol Act
of 1989, price and non-price controls were removed at various times with all
remaining controls for "first sales" lifted as of January 1, 1993.

In addition, in December 1992, the FERC issued Order 547, which is a blanket
certificate of public convenience and necessity pursuant to Section 7 of the
NGA and which authorizes any company which is not an interstate natural gas
pipeline or an affiliate thereof to make certain sales for resale in
interstate commerce that would otherwise be subject to the FERC's NGA
jurisdiction. The blanket certificate which covers the Company's non-first
sale marketing activities was effective January 7, 1993, and permits sales at
negotiated rates on an effectively deregulated basis.

The cumulative impact on the Company of the NGPA, the Natural Gas Wellhead
Decontrol Act and Order 547 is that none of the Company's natural gas sales
are subject to price regulation. Rather, the Company is able to obtain that
price contractually agreed upon with the purchaser. Under current market
conditions, natural gas prices under recently negotiated contracts tend to be
lower than most regulated price ceilings previously prescribed by the NGPA.

Historically, interstate pipeline companies generally acted as wholesale
merchants by purchasing natural gas from producers and reselling the natural
gas to local distribution companies and large end-users. Under the NGA and
NGPA, the transportation and sale of natural gas by interstate pipeline
companies have been subject to extensive regulation, and the construction of
new pipelines, the extension of existing pipelines and the commencement and
cessation of sales or transportation services by pipeline companies generally
have required prior FERC authorization.

Commencing in 1985, the FERC promulgated a series of orders and regulations
adopting changes that significantly altered the transportation and marketing
of natural gas. These changes were intended to foster competition in the
natural gas industry by, among other things, inducing or mandating that
interstate pipeline companies provide nondiscriminatory transportation
services to producers, distributors and other shippers (so-called "open
access" requirements).

In April 1992 (and clarified in August 1992 and finalized in November 1992),
the FERC issued Order 636, a complex regulation which had a major impact on
natural gas pipeline operations, services and rates. Among other things, Order
636 required each interstate pipeline company to "unbundle" its traditional
wholesale services and create and make available on an open and
nondiscriminatory basis numerous constituent services (such as gathering
services, storage services, firm and interruptible transportation services,
and stand-by sales services) and to adopt a new rate making methodology to
determine appropriate rates for those services. To the extent the pipeline
company or its sales affiliate makes natural gas sales as a merchant in the
future, they must do so in direct competition with all other sellers pursuant
to private contracts; however, pipeline companies are

50
<PAGE>

not required to remain "merchants" of natural gas. Most of the interstate
pipeline companies have transferred their sales activities to marketing
affiliates and have become transporters only. Order 636 and various pipeline
filings to implement Order 636 are the subject of numerous appeals. The
Company cannot predict whether and to what extent judicial review will affect
these matters.

As a result of Order 636, a number of interstate pipeline companies have (i)
"spun down" their gathering systems from regulated pipeline transportation
companies to unregulated affiliates, (ii) spun-off gathering systems to non-
related entities, and/or (iii) "refunctionalized" portions of their pipeline
facilities from transmission to gathering. A consequence of this divestiture
of gathering facilities could be separate, and higher, gathering fees.

With respect to oil pipeline rates subject to the FERC's jurisdiction, in
October 1993 the FERC issued Order 561 in order to fulfill the requirements of
Title XVIII of the Energy Policy Act of 1992. Order 561 establishes an
indexing system, effective January 1, 1995, under which oil pipelines will be
able to readily change their rates to track changes in the Producer Price
Index for Finished Goods (PPI-FG), minus one percent. This index will
establish ceiling levels for rates. Order 561 also permits cost-of-service
proceedings to establish just and reasonable rates for initial rates for new
service. Cost-of-service review may also be invoked when an oil pipeline
company claims it is significantly under-recovering its costs, or when
customers claim the pipeline's rates are excessive in relation to actual
costs. The order does not alter the right of a pipeline to seek FERC
authorization to charge market-based rates. However, until the FERC makes the
finding that the pipeline does not exercise significant market power, the
pipeline's rates cannot exceed the applicable index ceiling level or a level
justified by the pipeline's cost of service.

Environmental Matters

The Company's operations and properties are subject to extensive federal,
state and local laws and regulations relating to the generation, storage,
handling, emission, transportation and discharge of materials into the
environment. Permits are required for various of the Company's operations, and
these permits are subject to revocation, modification and renewal by issuing
authorities. Governmental authorities have the power to enforce compliance
with their regulations, and violations are subject to fines or injunctions, or
both. It is possible that increasingly strict requirements will be imposed by
environmental laws and enforcement policies thereunder. Based on the existing
regulatory structure, the Company does not anticipate that it will be required
in the near future to expend amounts that are material in relation to its
total capital expenditure program by reason of environmental laws and
regulations, but because such laws and regulations are frequently changed, the
Company is unable to predict the ultimate cost of such compliance.

Natural Gas Marketing Operations

Although the Company's natural gas marketing business is generally not
subject to federal or state regulation, many of the parties with whom the
Company does business (including interstate and intrastate pipeline, gathering
and storage companies, and local distribution companies) are subject to
federal and state regulation. As a result, changes in governmental regulations
may have an adverse impact on the Company's natural gas marketing business. In
addition, such parties may also file tariffs at the federal and/or state level
on account of their regulated status, changes in which may have an adverse
effect on the Company's natural gas marketing business. Finally, because the
Company's natural gas marketing business is affiliated with a regulated
utility, it is possible that government regulation could directly or
indirectly adversely affect such a business.

CPEX(TM) and Power Marketing

Federal and state regulations currently prohibit open competition for retail
electric customers. CPEX(TM) can thus only be used by utilities and power
marketers in the wholesale electric market. The timing and direction of future
federal and state regulatory actions will likely impact the Company's power
marketing and electricity trading exchange operations. The Company has
designed CPEX(TM) and has plans for future system developments predicated on
its assumption that the development of increased regulatory freedom for
wholesale and, eventually

51
<PAGE>

retail, electricity users to choose among supply sources and transmission
paths. Federal and state legislation and decisions that federal and various
state regulators make about whether, when and how retail competition may come
about, and the terms and conditions under which traditional utilities will be
allowed to compete, will likely have a significant bearing on the Company's
ability to compete in this market. Additionally, future changes in the
regulation of power marketers and the regulation of power marketing in general
by the FERC or state authorities are possible. The Company is essentially free
to compete for wholesale electricity customers across the United States,
except for certain transactions involving MidAmerican Energy. While there are
no regulatory proceedings currently pending or in the planning stages of which
the Company is aware that would further restrict the Company's ability to
compete, there can be no assurance that regulatory changes might not take
place in the future that could adversely impact the Company's ability to
compete.

In April 1996, the FERC released Order Number 888 which establishes the
criteria by which the nation's public electric utilities must open their
transmission lines to wholesale competitors. Companion FERC Order Number 889
requires the same public utilities to establish electronic bulletin boards to
share information openly about available transmission capacity. The Company
believes the practical result of these orders will be to increase
significantly the volume of competitive wholesale electric power transactions
creating new business opportunities for power marketers.

OPERATIONAL HAZARDS AND INSURANCE

The operations of the Company are subject to all risks inherent in the
exploration for, and development and production of, natural gas and oil
(including natural hazards such as blowouts, cratering and fires) which could
result in damage or injury to, or destruction of, drilling rigs and equipment,
formations, producing facilities or other property, or could result in
personal injury, loss of life, pollution or other environmental damage. Any
such event could result in substantial cost to the Company which could have a
material adverse effect upon the financial condition of the Company in the
event it is not fully insured against such risk. Although the Company
maintains insurance coverage considered to be customary in the industry, it is
not fully insured against certain of these risks, either because such
insurance is not available or because of the high premium costs. There can be
no assurance that any insurance obtained by the Company will be adequate to
cover any losses or liabilities, or that such insurance will continue to be
available or available on terms which are acceptable to the Company. Although
such operational risks and hazards may to some extent be minimized, no
combination of experience, knowledge and scientific evaluation can eliminate
the risk of investment or assure a profit to any company engaged in oil and
gas operations.

TITLE TO PROPERTIES

The Company believes it has satisfactory title to all of its producing
natural gas and oil properties in accordance with standards generally accepted
in the oil and gas industry. The Company's properties are subject to customary
royalty interests, liens for current taxes and other burdens which the Company
believes do not materially interfere with the use of or affect the value of
such properties.

EMPLOYEES

The Company had approximately 130 full-time employees as of April 30, 1996.
From time to time the Company uses the services of independent contractors for
various field and other services. Management believes that its relations with
its employees are excellent.

LEGAL PROCEEDINGS

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<PAGE>

among other things, an accounting of the production of oil, gas and other
minerals from the properties since the alleged lapse of the leases, damages of
not less than $5,000,000 for restoration and clean up of the lands covered by
the leases and certain other damages for trespass and mental anguish. The
Company is in the preliminary stages of investigating the facts on which the
lawsuit appear to be based. Based on the Company's preliminary investigations,
the claim of damages for restoration and clean up of certain lands appears to
relate to properties which the Company does not own. The Company currently
intends to continue its investigation of the lawsuit and to defend the action
vigorously.

The Company is a defendant in certain other legal proceedings that have
resulted from the ordinary conduct of its business. In the opinion of the
Company's management, none of these proceedings will have a material adverse
effect on the Company's financial condition or results of operations.

RELATIONSHIP BETWEEN THE COMPANY AND THE PARENT

OWNERSHIP OF STOCK

MidAmerican Energy, through its wholly owned subsidiary MidAmerican Capital,
currently owns 7,927,500 shares of Common Stock and after the Offering will
own 6,927,500 shares of the Common Stock (or 5,855,000 shares if the
Underwriters exercise their over-allotment option in full) or approximately
49% (or 42% if the Underwriters exercise their over-allotment option in full)
of the outstanding shares of Common Stock. Such concentration of ownership of
Common Stock may have an adverse effect on the market price of the Common
Stock. As a result of such stock ownership, MidAmerican Capital and
MidAmerican Energy will in all likelihood be able to elect all members of the
Board of Directors and to control the vote on matters submitted to the Board
of Directors or stockholders, including, without limitation, matters relating
to the Company's exploration, development, capital, operating and acquisition
expenditure plans. It is contemplated that upon completion of the Offering the
Board of Directors will be comprised of seven members, five of whom will be
directors or current or former officers of MidAmerican Energy, MidAmerican
Capital or the Company.

CONTRACTUAL ARRANGEMENTS

The Company and MidAmerican Capital anticipate entering into a number of
agreements for the purpose of defining the ongoing relationship between them.
These agreements will not be the result of arm's length negotiations between
independent parties. The Company intends that all future transactions between
the Company, MidAmerican Capital and other affiliates will be on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties. Because of its affiliate status, the Company is restricted from
entering into certain agreements with MidAmerican Energy without regulatory
approval.

The discussion below includes summaries of the material provisions of
certain of the contractual arrangements between MidAmerican Capital and the
Company. These summaries do not purport to be complete. Reference is made to
the provisions of, and such summaries are qualified in their entirety by
reference to, such agreements, which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.

Registration Rights Agreement. Prior to the consummation of the Offering,
the Company and MidAmerican Capital anticipate entering into a Registration
Rights Agreement (the "Registration Rights Agreement"), which, among other
things, will provide that upon the request of MidAmerican Capital, the Company
will register under the Securities Act any of the shares of Common Stock then
held by MidAmerican Capital, for sale in accordance with MidAmerican Capital's
intended method of disposition thereof (a "Demand Registration"). MidAmerican
Capital will have the right to request two Demand Registrations. The Company
will have the right to delay the filing of a demand registration, or if a
shelf registration statement is then effective, postpone the sale of shares of
Common Stock under such registration statement, for up to 90 days if in the
Company's judgment such filing or sale may have a material adverse effect on
the Company. MidAmerican Capital also will have "piggy-back" registration
rights to include the shares of Common Stock then held by it in certain other
registrations of Common Stock. MidAmerican Capital has agreed to pay its pro
rata share of all costs and expenses in connection with each registration of
its shares of Common Stock. Under the Registration Rights Agreement,
MidAmerican Capital cannot exercise a Demand Registration for at least six
months after completion of the Offering.

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<PAGE>

Tax Sharing Agreement. For federal income tax purposes, the Company has been
included in the affiliated group of which MidAmerican Energy is the parent
corporation (the "Tax Group"). The Company has also been included in certain
state and local tax returns of MidAmerican Energy or its subsidiaries. The
consolidated income tax payable (or receivable) has historically been
allocated among the Company and other members of the Tax Group based on the
respective contributions to the consolidated taxable income and tax credits of
the Tax Group. The Company has received (or made) payments for the income tax
reductions (or increases) contributed to the Tax Group. Prior to the
consummation of the Offering, the Company and MidAmerican Capital anticipate
entering into a Tax Sharing Agreement (the "Tax Sharing Agreement") which
provides for the allocation of payments of taxes for periods during which the
Company is included in the Tax Group. The Tax Sharing Agreement will also
provide for the allocation of responsibility for filing of tax returns and
other related matters. As a result of the Offering, the Company will no longer
be included in the Tax Group.

Administrative Services Agreement. Prior to the consummation of the
Offering, the Company and MidAmerican Capital anticipate entering into an
Administrative Services Agreement (the "Administrative Services Agreement"),
under which MidAmerican Capital may provide or procure from other MidAmerican
Capital subsidiaries certain administrative services. The services which will
be included under the Administrative Services Agreement and which may be
provided to the Company include the use of office facilities and equipment,
airplanes, vehicles and personal services by executives, management,
professional and technical employees, which include accounting, tax, legal,
information processing, financial/treasury, risk management/ insurance, fuel
supply, transportation and other administrative services. The Administrative
Services Agreement will be reciprocal in that it also provides that the
Company may provide or procure similar administrative services for MidAmerican
Capital. MidAmerican Capital has a reciprocal administrative services
agreement with MidAmerican Energy for services similar to those provided under
the Administrative Services Agreement. Under the Administrative Services
Agreement, it is planned that either party may terminate all or particular
services upon 50 days' prior written notice to the other and that each party
to the Administrative Services Agreement will agree to indemnify the other
party for damages caused by its negligence or willful misconduct. The charges
for the personal services will be based on the direct and indirect labor costs
attributable to the provision of such services and the office and equipment
rental charges will be set based upon cost and value studies, or, in both
cases, at rates mutually agreed upon by the parties.

Upon completion of the Offering, it is intended that the Company and
MidAmerican Energy will participate as separate employers in a "multiple
employer" plan under Section 401(k) of the Code. In addition, it is
anticipated that the Company will be a participating employer in various
health and welfare (e.g., medical, disability, dental and life insurance)
benefit plans administered by MidAmerican Energy. The Company is charged the
costs of such administration pursuant to the Administrative Services
Agreement. The Company currently intends to establish its own 401(k) plan and
health and welfare benefits plans in the future.

Indemnification Agreement. Prior to the consummation of the Offering, the
Company and MidAmerican Capital anticipate entering into an Indemnification
Agreement (the "Indemnification Agreement") whereby the Company will indemnify
MidAmerican Capital and its affiliates against certain losses, claims, damages
and liabilities, including those arising out of: (i) the conduct by the
Company of its businesses prior to and after the Offering, (ii) employment and
employee benefit matters arising from the corporate restructuring of
MidAmerican Capital, and (iii) the Offering (other than those arising from
written information supplied by MidAmerican Capital to the Company expressly
for inclusion in this Prospectus). In addition, it is contemplated that the
Indemnification Agreement will provide for the assignment by MidAmerican
Capital and the assumption by the Company of certain contracts relating to the
Company's business and for the indemnification of MidAmerican Capital by the
Company for claims and liabilities relating to those contracts.

POTENTIAL CONFLICTS OF INTEREST

The relationship between the Company and MidAmerican Capital and its other
affiliates may give rise to conflicts of interest with respect to, among other
things, transactions and agreements among the Company and MidAmerican Capital
and its other affiliates, potential competitive business activities and
business opportunities, issuances of additional shares of voting securities,
the election of directors or the payment of dividends, if any,

54
<PAGE>

by the Company or the exercise by MidAmerican Capital of its ability to
control the management and affairs of the Company. There can be no assurance
that conflicts will be resolved in favor of the Company. There are no
contractual or other restrictions on the ability of MidAmerican Capital or its
other affiliates to engage in oil and gas exploration and production, natural
gas marketing or electric wholesale power marketing or the operation of an
electric power trading exchange. The Company and MidAmerican Capital and its
other affiliates presently compete to a certain extent in energy marketing,
and other circumstances could arise in which the Company and MidAmerican
Capital or its other affiliates would engage in activities in competition with
one another. One of MidAmerican Capital's other wholly owned subsidiaries is
presently engaged in the business of retail marketing of natural gas.

The Company and MidAmerican Capital or its other affiliates may enter into
transactions and agreements in the future in addition to those described above
under "--Contractual Arrangements." The Board of Directors will utilize
procedures in evaluating the terms and provisions of any material transactions
between the Company and MidAmerican Capital or its other affiliates as the
Board of Directors may deem appropriate in light of its fiduciary duties under
state law. The Company intends that all future transactions and agreements
between the Company and MidAmerican Capital or its other affiliates will be at
least as favorable to the Company as could be obtained from third parties.

Directors and executive officers of the Company who are also directors or
executive officers of MidAmerican Energy or MidAmerican Capital may have
conflicts of interest with respect to matters potentially or actually
involving or affecting the Company, including acquisitions, financings and
other corporate opportunities that may be suitable for the Company and
MidAmerican Energy or MidAmerican Capital. To the extent such conflicts arise,
such directors and executive officers may consult with their legal advisors
and make a determination after consideration of a number of factors, including
whether such opportunity is presented to any such director or executive
officer in his or her capacity as a director or officer of the Company,
whether such opportunity is within the Company's line of business or
consistent with its strategic objectives and whether the Company will be able
to undertake or benefit from such opportunity. In addition, determinations may
be made by the Board of Directors, when appropriate, by a vote of
disinterested directors. See "Risk Factors--Principal Stockholder."

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<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is certain information about each of the persons that will
serve as directors and executive officers of the Company upon completion of
the Offering. The Company will have a total of seven directors, including two
who are not affiliated with the Company, MidAmerican Energy or MidAmerican
Capital. Directors will hold office for one-year terms and will be elected at
each annual meeting of the stockholders of the Company. The Company's
executive officers serve at the discretion of the Board of Directors.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Donald C. Heppermann..... 53 Chairman and Chief Executive Officer of the
Company, Director

William E. Warnock, Jr... 43 President of the Company and President and
Chief Executive Officer of InterCoast Oil
and Gas, Director

Russell E. Christiansen.. 61 Director

Stanley J. Bright........ 56 Director

John A. Rasmussen, Jr.... 50 Director

Dr. George G. Daly....... 55 Director

Robert C. Thomas......... 67 Director

Norman R. Foreman........ 58 President and Chief Executive Officer of
Continental Power Exchange

Lon P. Compton........... 52 Senior Vice President-Energy Marketing of
the Company

Daniel E. Lonergan....... 39 Vice President-Finance, Controller and
Treasurer of the Company

Gene C. Daley............ 46 Senior Vice President-Exploration and
Development of InterCoast Oil and Gas

J. Chris Jacobsen........ 41 Senior Vice President-Reserves and
Production of InterCoast Oil and Gas

Brian L. Cantrell........ 36 Vice President-Finance, Secretary and
Treasurer of InterCoast Oil and Gas

John P. Stojka........... 51 Senior Vice President and Chief Operating
Officer of Continental Power Exchange
</TABLE>

Donald C. Heppermann serves as Chairman and Chief Executive Officer and is
currently sole Director of the Company. Mr. Heppermann joined the Company in
1990 and served as its President and Chief Operating Officer from 1990 to
1996. Prior to joining the Company, he was Vice President and Treasurer of
Pinnacle West Capital Corp. (the holding company of Arizona Public Service
Company), Phoenix, Arizona. Prior to joining Pinnacle West, he was Vice
President-Finance and Administration for the pipeline group of Enron Corp.,
Houston, Texas, and had earlier served in other capacities with a predecessor
of Enron, InterNorth Inc., Omaha, Nebraska. Mr. Heppermann holds a Bachelor of
Science degree in Accounting from the University of Missouri and an M.B.A.
from Creighton University.

William E. Warnock, Jr. is the President and, upon completion of the
Offering, will become a Director of the Company and he also serves as
President and Chief Executive Officer of InterCoast Oil and Gas. Mr. Warnock
joined InterCoast Oil and Gas in 1992 as its President and Chief Operating
Officer. Prior to joining InterCoast Oil and Gas, Mr. Warnock co-founded
Medallion Petroleum, Inc. in 1985 and served as its President. Prior to
founding Medallion Petroleum, Inc., Mr. Warnock was Senior Vice President of
Oil and Gas Operations with Crystal Oil Company. Prior to that time, he was
Reservoir Engineering Manager of the Offshore Division with Exxon Company
U.S.A. Mr. Warnock graduated magna cum laude from Auburn University with a
Bachelor of

56
<PAGE>

Science in Civil Engineering, and he is a registered professional engineer in
both petroleum and civil engineering. Mr. Warnock is a member of the Young
President's Organization and a regional director of the Independent Petroleum
Association of America (and on its Natural Gas Committee); he is also a
charter member of U.S. Representative Steve Largent's Energy Roundtable and a
member of Energy Advocates of America, the Society of Petroleum Engineers and
the Oklahoma Independent Petroleum Association.

Russell E. Christiansen will become a Director of the Company upon
completion of the Offering. Mr. Christiansen is Chairman, Office of the CEO,
and a Director of MidAmerican Energy. Mr. Christiansen was Chairman, President
and Chief Executive Officer of Midwest Resources Inc. ("Midwest Resources")
and its utility and non-utility operations, a predecessor of MidAmerican
Energy, from October 1992 to June 1995. Mr. Christiansen earned his Bachelor
of Science degree in engineering from South Dakota State University in
Brookings and is a graduate of Edison Electric Institute's Executive Graduate
School. Mr. Christiansen joined Midwest Resources in 1959 as an engineer. Mr.
Christiansen is a past director and executive committee member of Edison
Electric Institute. He serves on the Board of Directors of Des Moines
Development Corp., Norwest Bank Iowa, N.A., Greater Des Moines Committee, Iowa
Association of Business & Industry, Siouxland Foundation and Greater
Siouxland, Inc. He is past president of the North Central Electric Association
and past chairman of the Iowa Nature Conservancy.

Stanley J. Bright will become a Director of the Company upon completion of
the Offering. Mr. Bright is President, Office of the CEO, and a Director of
MidAmerican Energy, and is a Director of Utilx Corporation. He was Chairman,
President and Chief Executive Officer of Iowa-Illinois Gas and Electric
Company ("Iowa-Illinois"), a predecessor of MidAmerican Energy. Mr. Bright
joined Iowa-Illinois in September 1986 as Vice President-Finance and Chief
Financial Officer. He was elected President and a Director of Iowa-Illinois
Investment Co. (a predecessor of MidAmerican Capital) upon that company's
formation in June 1987. Mr. Bright was elected President and Chief Operating
Officer of Iowa-Illinois in April 1990 and assumed the additional positions of
Chairman and Chief Executive Officer in May 1991. Previously, Mr. Bright was a
financial officer of Potomac Electric Power Company ("PEPCO"), Washington,
D.C. He was also President and a Director of Potomac Capital Investment
Corporation, a wholly owned subsidiary of PEPCO. Prior to joining PEPCO,
Mr. Bright was associated with Price Waterhouse. He is a graduate of George
Washington University and is a certified public accountant.

John A. Rasmussen, Jr. will become a Director of the Company upon completion
of the Offering. Mr. Rasmussen serves as Group Vice President and General
Counsel of MidAmerican Energy. Mr. Rasmussen was Group Vice President, Midwest
Capital Group, Inc., a subsidiary of Midwest Resources, from 1992 to 1995 and
Vice President and General Counsel of Midwest Resources from 1989 to 1995. Mr.
Rasmussen joined Midwest Resources in 1987 as Associate General Counsel.
Previously, he was Vice President and General Counsel at Enron Oil & Gas
Company, a subsidiary of Enron Corp., and held positions with Enron Corp.
predecessors, InterNorth Inc. and Northern Natural Gas. Mr. Rasmussen has a
Bachelor of Arts degree and Doctor of Jurisprudence from the University of
Nebraska.

Dr. George G. Daly will become a Director of the Company upon completion of
the Offering. Dr. Daly is Dean and Professor of Economics and Management at
the Leonard N. Stern School of Business, New York University. Prior to joining
NYU in 1993, he served for ten years as the Dean of the University of Iowa's
School of Business. He has served as an Assistant Director at the Institute
for Defense Analyses in Washington, D.C., and Chief Economist at the Office of
Energy Research and Development in the White House. He received an A.B. from
Miami University in Ohio and both his M.A. and Ph.D. from Northwestern
University.

Robert C. Thomas will become a Director of the Company upon completion of
the Offering. Mr. Thomas served as Chairman and Chief Executive Officer of
Tenneco Gas from 1990 until his retirement in 1994. During that time, he had
executive responsibility for all of Tenneco Inc.'s gas pipeline companies and
natural gas liquids, methanol and MTBE interests. He joined Tenneco in 1956
and held successively higher management positions in Tenneco's exploration and
production and natural gas operations. He is a past board member of the
Interstate Natural Gas Association of America, American Gas Association, Gas
Research Institute, and Institute of Gas Technology. He is currently serving
as Chairman of the Board of The Sarkeys Energy Center at the University of
Oklahoma, as a Vice President of the International Association of LNG
Importers and as a Senior Associate

57
<PAGE>

of Cambridge Energy Research Associates. He is a graduate of the University of
Oklahoma with a Bachelor of Science degree in Geological Engineering.

Norman R. Foreman is President and Chief Executive Officer of Continental
Power Exchange. Mr. Foreman joined the Company in 1992 as Executive Vice
President-Corporate Development and has served as the President of its energy
services group since 1994. Prior to joining the Company, Mr. Foreman served as
Vice President, Industries Group of Midwest Resources from 1991 to 1992 and
held several other senior executive positions at Midwest Resources. Prior to
joining Midwest Resources, he was Vice President and General Manager-Enron
Liquids Marketing at Enron Corp., Houston, Texas, and had earlier served in
other executive capacities with a predecessor of Enron, InterNorth Inc.,
Omaha, Nebraska. Mr. Foreman holds a business organization and management
degree from the University of Nebraska.

Lon P. Compton is the Company's Senior Vice President-Energy Marketing. Mr.
Compton joined AmGas Inc., a subsidiary of MidAmerican Capital, in September
1995 as its Director of Sales and Business Development and was made its Vice
President and General Manager in April 1996. Prior to joining AmGas Inc., he
had been President and Chief Operating Officer of Consolidated Fuel
Corporation, a natural gas marketing company, from 1989 to September 1995. Mr.
Compton also served as Executive Vice President of Sunrise Energy Company, a
natural gas marketing company, from 1991 to 1994 and as its President and
Chief Operating Officer from October 1994 to September 1995. Sunrise Energy
Company filed for protection under the federal bankruptcy laws in October
1994. Prior to joining Consolidated Fuel Corporation, he was President and
Chief Operating Officer of NAGASCO, Inc., a natural gas marketing and
gathering company. He has also held natural gas marketing, gathering and
supply management positions with Lear Petroleum Corporation (Producers Gas
Company), Tennessee Gas Pipeline Company and Valero Energy Company. He
graduated with a degree in economics and finance from the University of
Houston.

Daniel E. Lonergan is Vice President-Finance, Controller and Treasurer of
the Company. Mr. Lonergan joined the Company in 1987 and held a variety of
positions prior to his appointment to Treasurer and General Manager Finance in
1991. He was appointed Vice President-Finance and Controller in 1993. Mr.
Lonergan joined Iowa-Illinois in 1984. Mr. Lonergan is a graduate of the
University of Iowa with Bachelor of Arts and M.B.A. degrees.

Gene C. Daley has served as Senior Vice President-Exploration and
Development of InterCoast Oil and Gas since 1993. Mr. Daley had previously
served as Executive Vice President-Oil & Gas Operations of InterCoast Oil and
Gas since 1993 and as Vice President and General Manager Oil & Gas since 1991.
His association with the Company began with the acquisition of Carter
Resources, Inc., where Mr. Daley served as President from the inception of
that company until its acquisition in 1991, a period of 16 years. Prior to
that, Mr. Daley was an offshore exploration geologist for Texaco, Inc. Mr.
Daley graduated from South Dakota School of Mines and Technology with a
Bachelor of Science degree in Geological Engineering. He is a member of the
Oklahoma Independent Petroleum Association.

J. Chris Jacobsen has served as Senior Vice President-Reserves and
Production of InterCoast Oil and Gas since 1995 and had been its Vice
President--Reserves and Production since 1994. Mr. Jacobsen had formerly been
a Senior Vice President of Netherland, Sewell & Associates, Inc. since 1989,
where he performed field and well reserve analyses for over 12 years. In
addition, Mr. Jacobsen had been involved through Netherland, Sewell in the
supervision and management of Hamon Operating Company's oil and gas operations
for five years. Mr. Jacobsen has 19 years of experience in petroleum
engineering. His career commenced in 1977 with Exxon Company U.S.A., where he
held various engineering and supervisory assignments for five years. Mr.
Jacobsen graduated from Rose-Hulman Institute of Technology with a Bachelor of
Science degree in Chemical Engineering. He is a registered professional
engineer in petroleum engineering and is a member of the Oklahoma Independent
Petroleum Association.

Brian L. Cantrell serves as Vice President-Finance, Secretary and Treasurer
of InterCoast Oil and Gas. Prior to his association with InterCoast Oil and
Gas in 1992, Mr. Cantrell had been Vice President of Medallion Petroleum, Inc.
since 1985. Prior to that time, Mr. Cantrell was associated with Peat,
Marwick, Mitchell and Company. Mr. Cantrell is a certified public accountant
and graduated with honors from the University of Oklahoma earning a Bachelor
of Accountancy degree and a Masters Degree in Accountancy (Taxation). He is a
member of the American Institute of Certified Public Accountants, the Oklahoma
Society of Certified Public Accountants and the Oklahoma Independent Petroleum
Association.

58
<PAGE>

John P. Stojka is Senior Vice President and Chief Operating Officer of
Continental Power Exchange. Mr. Stojka joined Continental Power Exchange as
its Vice President and General Manager in 1994. Prior to joining the Company,
Mr. Stojka was Director-Business Development with Electronic Data Systems from
1992 to 1994 and was Director, Consulting of Energy Management Associates,
Inc. from 1989 to 1991. Prior to that time he held several positions with
Niagara Mohawk Power Corporation. Mr. Stojka holds a Bachelor of Science in
electrical engineering from Clarkson University and an M.B.A. from Syracuse
University.

COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Bylaws provide that the Board of Directors may elect such
directorate committees as it may from time to time determine. Two committees
of the Board of Directors are expected to be established: the Audit Committee
and the Compensation Committee. It is expected that Dr. George G. Daly and
Robert C. Thomas will be the only members of these committees.

COMPENSATION OF DIRECTORS

Each Director of the Company is reimbursed for expenses incurred in
attending meetings of the Board of Directors and meetings of committees of the
Board of Directors. Each Director is paid $12,000 annually, and each Director
that is not an employee of the Company, MidAmerican Energy or one of their
affiliates receives $750 for each meeting of the Board of Directors or
committee thereof attended by the Director in person and $400 for each such
meeting attended by telephone and also receives Common Stock under the
Company's Non-Employee Director Restricted Stock Plan. See "--Director Stock
Plan."

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth certain information with respect to the
compensation of, and the grant of options to purchase shares of common stock
of MidAmerican Energy to, the Company's chief executive officer and for each
of its four other most highly compensated executive officers (the "named
executive officers") during fiscal 1995.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
AWARDS PAYOUTS
--------------------- ---------
SECURITIES
RESTRICTED UNDERLYING LONG-TERM
OTHER ANNUAL STOCK OPTIONS/ INCENTIVE ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION ($) ($) ($) (1)(2) ($) (#) ($) ($) (3)
------------------ ------- ------ ------------ ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald C. Heppermann.... 213,208 46,125 61,775 81,302 60,000 -- 5,930
Chairman and Chief
Executive Officer
William E. Warnock,
Jr. ................... 158,000 39,067 0 -- -- -- 5,023
President
Norman R. Foreman....... 147,750 30,015 20,211 -- -- -- 4,955
President and Chief
Executive Officer of
Continental Power
Exchange
John P. Stojka.......... 160,625 15,000 3,717 -- -- -- 3,284
Senior Vice President
and Chief Operating
Officer of Continental
Power Exchange
J. Chris Jacobsen....... 131,875 13,350 21,852 -- -- -- --
Senior Vice President--
Reserves and Production
of InterCoast Oil and
Gas
</TABLE>
- --------
(1) Does not include the value of perquisites and other personal benefits
because the aggregate amount of such compensation, if any, does not exceed
the lesser of $50,000 or 10 percent of the total amount of annual salary
and bonus for the named executive officers.
(2) Consists of (i) compensation provided by MidAmerican Capital's employee
relocation policy and reimbursement for income taxes, if any, paid in
connection with the executive's relocation of $61,775, $20,211 and $21,852
to Messrs. Heppermann, Foreman and Jacobsen, respectively, and (ii) a
reimbursement payment of $3,717 to Mr. Stojka pursuant to his employment
arrangement with the Company.
(3) Amounts consist of matching contributions by the Company to the Company's
401(k) Plan.

59
<PAGE>

The following table sets forth information concerning stock option grants to
named executive officers to purchase shares of MidAmerican Energy's common
stock.

OPTIONS GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#) FISCAL YEAR (1) ($/SHARE) DATE (2) ($) (3)
---- ---------- ------------------ --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Donald C. Heppermann.... 60,000 8% 14.50 7/26/05 94,800
William E. Warnock,
Jr..................... 0 -- -- -- --
Norman R. Foreman....... 0 -- -- -- --
John P. Stojka.......... 0 -- -- -- --
J. Chris Jacobsen....... 0 -- -- -- --
</TABLE>
- --------
(1) Represents percentage of total options to purchase shares of MidAmerican
Energy common stock granted to all employees of MidAmerican Energy,
including employees of the Company.
(2) During the exercise period the recipient of the option grant may exercise
25% of the total options granted after one year from the date of the
grant, 50% after two years from the date of the grant, 75% after three
years from the date of the grant and all of the options after four years
from the date of the grant. Options become fully exercisable in the event
of termination of employment with the Company by reason of disability,
retirement at age 55 and after five years of service with the Company,
death or a change in control as defined in the plan.
(3) The Black-Scholes Option Pricing Model was used to determine the grant
date present value of the stock options granted in 1995 by MidAmerican
Energy to the named executive officers. Under the Black-Scholes Option
Pricing Model, the grant date present value of the stock options referred
to in the table was $1.58.

The ultimate values of the options will depend on the future market price of
MidAmerican Energy's common stock, which cannot be forecast with reasonable
accuracy. The actual value, if any, an optionholder will realize upon exercise
of an option will depend on the excess of the market price of MidAmerican
Energy's common stock over the exercise price on the date the option is
exercised.

The material assumptions and adjustments incorporated in the model in
estimating the value of the options include the following:

--An exercise price of the option of $14.50, equal to the fair market value
of the underlying stock on the date of the grant.

--An option term of ten years.

--An interest rate of 6.28% that represents the interest rate on a U.S.
Treasury security on the date of the grant with a maturity date
corresponding to that of the option term.

--Volatility of 23% calculated using daily stock prices, including
predecessor companies, for the six month period prior to the grant date.

--Dividends at the rate of $1.20 per share representing the annualized
dividends paid with respect to a share of MidAmerican Energy common stock
at the date of the grant.

60
<PAGE>

The following table sets forth information concerning year end option values
of options to purchase shares of MidAmerican Energy common stock held by the
named executive officers.

FISCAL YEAR END OPTIONS VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT DECEMBER 31, 1995 DECEMBER 31, 1995 (1)
-------------------- ---------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---- -------------------- ---------------------
<S> <C> <C>
Donald C. Heppermann................. 0/60,000 0/$135,000
William E. Warnock, Jr. ............. 0/0 N/A
Norman R. Foreman.................... 0/0 N/A
John P. Stojka....................... 0/0 N/A
J. Chris Jacobsen.................... 0/0 N/A
</TABLE>
- --------
(1) Based on the closing price of MidAmerican Energy's common stock at
December 31, 1995 of $16.75 per share.

No options were exercised during 1995.

The following table sets forth information concerning the awards of
restricted shares of common stock of MidAmerican Energy to named executive
officers in 1995.

LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
NUMBER OF SHARES, PERFORMANCE OR OTHER
UNITS OR OTHER PERIOD UNTIL
NAME RIGHTS(#) (1) MATURATION OR PAYOUT
---- ----------------- --------------------
<S> <C> <C>
Donald C. Heppermann.................... 5,607 6/30/98
William E. Warnock, Jr.................. 0 N/A
Norman R. Foreman....................... 0 N/A
John P. Stojka.......................... 0 N/A
J. Chris Jacobsen....................... 0 N/A
</TABLE>
- --------

(1) The restricted stock awards shown in the foregoing table were made
pursuant to the MidAmerican Energy Company 1995 Long-Term Incentive Plan.
Such awards consist of restricted shares of common stock of MidAmerican
Energy and are subject to the achievement by MidAmerican Energy of
specific performance measures during a three-year performance period
ending June 30, 1998. During this performance period, the holder of the
restricted stock will be entitled to receive the dividends on the
restricted stock and vote the stock; however, the stock will not be vested
until the achievement of the performance measures. The number of
restricted shares will be prorated based on the length of employment with
MidAmerican Energy in accordance with MidAmerican Energy's practices. The
restrictions will lapse, however, in the event of termination of
employment with MidAmerican Energy by reason of retirement, disability,
death or a change in control as defined in the plan.

RETIREMENT PLANS

MidAmerican Energy maintains an unfunded Supplemental Retirement Plan
("Supplemental Plan") for certain designated officers of MidAmerican Energy,
including certain officers of the Company, to provide additional retirement
benefits to designated participants, as determined by the Board of Directors
of MidAmerican Energy. Messrs. Heppermann, Warnock, and Foreman participated
in the Supplemental Plan in fiscal 1995. The Supplemental Plan provides
retirement benefits up to sixty-five percent of a participant's Total Cash
Compensation in effect immediately prior to retirement. "Total Cash
Compensation" means the highest amount payable to a participant as annual base
salary during the five years immediately prior to retirement plus the average
of the participant's last three years' awards under an annual incentive bonus
program. Participants must be credited with five years service in order to be
eligible to receive benefits under the Supplemental Plan. A participant who
elects early retirement is entitled to reduced benefits under the Supplemental
Plan.

61
<PAGE>

The supplemental retirement benefit will be reduced by the amount of the
participant's regular retirement benefit under the Iowa-Illinois Gas and
Electric Company Pension Plan ("Iowa-Illinois Pension Plan") and by benefits
under the Iowa-Illinois Gas and Electric Company Supplemental Retirement Plan.

The Iowa-Illinois Pension Plan provides for the payment of fixed pension
benefits upon retirement determined under a formula based on the eligibility
date of the employee, age at retirement, final average compensation and years
of credited service. Final average compensation is determined by the highest
sixty consecutive months of compensation during the ten years prior to
retirement.

A survivor benefit is payable to a surviving spouse under the Supplemental
Plan. Benefits from the Supplemental Plan will be paid out of general
corporate funds. Deferred compensation is considered part of the salary
covered by the Supplemental Plan.

The table below shows the estimated aggregate annual benefits payable under
the Supplemental Plan and the Iowa-Illinois Pension Plan. The amounts exclude
Social Security and are based on a straight life annuity and retirement at
ages 55, 60 and 65. Federal law limits the amount of benefits payable to an
individual through the tax qualified defined benefit plans, and benefits
exceeding such limitation are payable under the Supplemental Plan.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFIT
------------------------------------------------------------------
TOTAL CASH AGE AT RETIREMENT
COMPENSATION AT ------------------------------------------------------------------
RETIREMENT 55 60 65
--------------- -------- -------- --------
<S> <C> <C> <C>
$100,000 $ 55,000 $ 60,000 $ 65,000
150,000 82,500 90,000 97,500
200,000 110,000 120,000 130,000
250,000 137,500 150,000 162,500
300,000 165,000 180,000 195,000
350,000 192,500 210,000 227,500
400,000 220,000 240,000 260,000
450,000 247,500 270,000 292,500
500,000 275,000 300,000 325,000
</TABLE>

Upon completion of the Offering, it is contemplated that the Company will
implement an unfunded supplemental retirement plan for certain designated
officers which will be substantially identical to the Supplemental Plan. Any
supplemental retirement benefit under the Company's supplemental retirement
plan will be reduced by a participant's retirement benefit under any
retirement plan maintained by MidAmerican Energy.

Compensation Committee Interlocks and Insider Participation. For fiscal
1995, all compensation decisions with respect to executive officers of the
Company were made by the Compensation Committee of the Board of Directors of
MidAmerican Capital. Stanley J. Bright, Russell E. Christiansen, Lance E.
Cooper and John A. Rasmussen, Jr., each an executive officer of MidAmerican
Energy, served as members of the Compensation Committee during 1995. See
"Relationship Between the Company and the Parent" and "Certain Transactions."
Messrs. Bright, Christiansen and Rasmussen are also directors of the Company.
See "--Directors and Executive Officers."

LONG-TERM INCENTIVE STOCK PLAN

The Board of Directors and MidAmerican Capital, the sole stockholder of the
Company, have approved the InterCoast Energy Company Long Term Incentive Plan
(the "Stock Plan"). The Stock Plan will become effective upon, and only in the
event of, consummation of the Offering. A copy of the Stock Plan has been
filed as an exhibit to the registration statement of which this Prospectus is
a part, and the following summary is qualified in its entirety by reference to
the text of the Stock Plan.

62
<PAGE>

That number of shares of Common Stock which equals 10% of the number of such
shares issued and outstanding immediately after the closing of the Offering
have been reserved for issuance upon exercise of options granted under the
Stock Plan. The Board of Directors may use authorized but unissued shares of
the Common Stock or shares held in the treasury of the Company for the
exercise of options. The Stock Plan is not subject to the provisions of the
Employee Retirement Income Security Act of 1974 and the options granted
thereunder are not and will not be "incentive stock options," as such term is
defined at Section 422 of the Code.

Administration. The Stock Plan will be administered by the Compensation
Committee of the Board of Directors (the "Committee"), the composition of
which shall, unless otherwise determined by the Board of Directors, at all
times satisfy the provisions of Rule 16b-3 of the Securities Exchange Act of
1934, as from time to time in effect, and Section 162(m) of the Code. The
Committee has the authority, in its discretion, to select the eligible
employees to whom options shall be granted and the number of shares of Common
Stock covered by such options. The Committee has the power to construe and
interpret the Stock Plan and to establish and amend rules and regulations for
its administration subject to the express provisions of the Stock Plan. Any
determination by the Committee is final and binding upon all persons.

Eligible Employees. Any key employee of the Company, or a subsidiary of the
Company, is eligible for selection by the Committee as an optionee under the
Stock Plan.

Purchase Price. The purchase price of a share of Common Stock under each
option granted under the Stock Plan shall be no less than the fair market
value of a share of Common Stock on the date of grant.

Vesting of Rights to Exercise Option. Each option granted under the Stock
Plan will become exercisable in full or in installments as determined by the
Committee at the time of the grant. The Committee has the power to accelerate
the vesting of any option for which vesting requirements are established.
Vesting will accelerate automatically upon the occurrence of certain events.
Subject to any vesting provisions and to termination of employment, each
option may be exercised at any time, or from time to time, during the option
period of 10 years, as to all or any part of the shares of Common Stock
covered thereby.

Method of Exercise. Each option granted may be exercised, at the optionee's
election, by: (i) cash payment of the full amount of the exercise price, (ii)
through the delivery of shares of Common Stock held by the optionee for at
least six months and having a fair market value equal to the full amount of
the exercise price, (iii) by the withholding by the Company from the shares of
Common Stock upon any exercise of the option that number of shares having a
fair market value equal to the full amount of the exercise price pursuant to a
written election delivered to the Committee at least six months prior to the
date of exercise, or (iv) by a combination of such methods. The optionee will
be required to pay to the Company for remittance an amount necessary to
satisfy federal, state and local income taxes incurred by reason of exercise,
or at the optionee's election, shares having a fair market value equal to the
amount of such income taxes may be withheld by the Company. No fractional
shares of Common Stock will be issued upon the exercise of options.

Effect of Termination of Employment. If, during the option period, the
optionee's employment with the Company or one of its subsidiaries terminates
other than for cause or by reason of the optionee's death, disability or
retirement in accordance with the terms of a Company retirement plan, the
option may thereafter be exercised only to the extent it was exercisable at
the time of such termination of employment until the earlier of the expiration
of the option or ninety days following such termination. In the event of the
death, disability or retirement of the optionee while employed by the Company
or one of its subsidiaries, the option granted to such optionee will become
fully vested to the extent it is not otherwise and the optionee, his or her
guardian or legal representative, or distributees or heirs, as the case may
be, will be permitted to exercise such option at any time before the earlier
of the expiration of such option or three years after the optionee's death,
disability or retirement. In the event an optionee's employment with the
Company or a subsidiary of the Company is terminated for cause, any options
granted to such optionee and not previously exercised will expire forthwith.

63
<PAGE>

Option Agreement. Options granted under the Stock Plan are and will be
subject to the terms and conditions of the Stock Plan and will be evidenced by
a written agreement between the optionee and the Company. The option agreement
will incorporate the Stock Plan by reference, set forth the number of shares,
the time or times at and after which the option is exercisable in whole or in
part, the expiration date of the option, and other details deemed pertinent by
the Committee.

Adjustments Resulting from Changes in Capitalization. The Stock Plan
provides that in the event of a merger, consolidation, reorganization,
recapitalization, stock split or stock dividend or a combination or
reclassification of shares, the number and kind of shares subject to options
then outstanding and the exercise price of outstanding options shall be
adjusted proportionately. In the event of any other change affecting the
Common Stock, such adjustments as may be deemed equitable by the Board of
Directors, in its sole discretion, shall be made to give proper effect to such
event.

Amendment and Termination. The Board of Directors may suspend or terminate
the Stock Plan at any time and may amend the Stock Plan from time to time in
such respects as the Board of Directors may deem advisable. Without
shareholder approval the Board of Directors may not (i) increase the maximum
number of shares that may be purchased pursuant to the exercise of options
except to make appropriate adjustments in the event of certain changes in the
capital structure of the Company; or (ii) withdraw the administration of the
Stock Plan from the Committee. No amendments or termination of the Stock Plan
may affect or impair the rights or obligations under any options theretofore
granted without the consent of the optionee.

Federal Income Tax Aspects

Under applicable provisions of the Code: (i) the grant of an option under
the Stock Plan results in no taxable income to the optionee or deductions to
the Company at the time it is granted, (ii) upon exercise of the option the
optionee will realize taxable income, and the Company will realize a
deduction, in an amount equal to the amount, if any, by which the then fair
market value of the shares thereby acquired exceeds the purchase price for
such shares, and (iii) upon the disposition of the shares so acquired the
optionee will realize a gain or loss if the amount realized on such
disposition differs from the fair market value of the shares at the time of
the exercise of the option.

The following table sets forth information concerning stock option grants
made by the Company, subject to consummation of the Offering, to certain
directors and employees of the Company. Options to purchase an aggregate of
541,600 shares of Common Stock have been granted under the Stock Plan at the
date of this Prospectus. The purchase price per share of Common Stock subject
to the options will be the initial offering price of the Common Stock in the
Offering. The outstanding options become exercisable with respect to one-third
of the shares of Common Stock covered thereby on each anniversary of the date
of grant and will expire on the tenth anniversary of the date of grant.

<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION UNDERLYING OPTIONS
----------------- ------------------
<S> <C>
Donald C. Heppermann,....................................... 85,000
Chairman and Chief Executive Officer
William E. Warnock, Jr.,.................................... 85,000
President
Norman R. Foreman,.......................................... 38,500
President and Chief Executive Officer of Continental Power
Exchange
John P. Stojka,............................................. 25,800
Senior Vice President and Chief Operating Officer of Conti-
nental Power Exchange
J. Chris Jacobsen,.......................................... 40,000
Senior Vice President--Reserves and Production of Inter-
Coast Oil and Gas
All executive officers, including the above................. 402,300
All directors who are not executive officers................ 0
All employees, excluding executive officers................. 139,300
</TABLE>

64
<PAGE>

DIRECTOR STOCK PLAN

The Board of Directors and MidAmerican Capital, the sole stockholder of the
Company, have approved and adopted the InterCoast Energy Company Non-Employee
Director Restricted Stock Plan (the "Director Plan"). The Director Plan will
become effective upon, and only in the event of, consummation of the Offering.
A copy of the Director Plan has been filed as an exhibit to the registration
statement of which this Prospectus is a part, and the following summary is
qualified in its entirety by reference to the text of the Director Plan.

A total of 50,000 shares of Common Stock has been reserved for issuance
under the Director Plan. The Director Plan provides for the automatic award of
shares of Common Stock to directors of the Company who are not also employees
of the Company or of an affiliate (each, an "Eligible Director"). The shares
of Common Stock issuable under the Director Plan are subject to restrictions
in that they may not be sold, transferred, assigned, pledged, hypothecated or
otherwise encumbered until the happening of certain events. The Director Plan
is not subject to the provisions of the Employee Retirement Income Security
Act of 1974.

Under the Director Plan, each Eligible Director will be awarded 1,000
restricted shares of Common Stock on the date such director is first elected
or appointed to the Board of Directors (the "Initial Awards"). Thereafter, on
the day of each successive annual meeting of the Company's stockholders, each
Eligible Director who will continue to serve as a director of the Company
after such meeting will be awarded an additional 800 restricted shares of
Common Stock (the "Annual Awards"). The restrictions on the shares granted
under the Director Plan terminate upon an Eligible Director's death or
disability while serving as a member of the Board of Directors, failure to be
re-elected to the Board of Directors after being duly nominated, removal from
the Board of Directors or failure to be duly nominated for re-election
following a change in control of the Company, retirement from the Board of
Directors, or removal from the Board of Directors other than for cause.

The term of the Director Plan is ten years and no shares of Common Stock may
be awarded to Eligible Directors after the tenth anniversary of the Director
Plan's approval by the sole stockholder of the Company. The Board of Directors
may terminate the Director Plan at any time.

Federal Income Tax Consequences

An Eligible Director will realize income for federal income tax purposes,
and the Company will be entitled to a deduction, on the dates shares of Common
Stock are issued in respect of Initial Awards and Annual Awards. Income
realized by an Eligible Director by reason of the receipt of an Initial Award
or an Annual Award will constitute self-employment income of such Eligible
Director.

ANNUAL INCENTIVE COMPENSATION PLANS

Each of the Company and its subsidiary InterCoast Oil and Gas maintains a
Performance Incentive Plan under which cash awards are made to eligible
participants. The plans are designed to reward eligible employees for the
respective company's attainment of certain performance goals approved by the
Compensation Committee of the Board of Directors. Bonus payments are awarded
under the plans upon the achievement of the pre-established operating and
financial performance goals and, with respect to certain participants, a
portion of each award is discretionary based on individual performance. The
Compensation Committee establishes target, minimum and maximum award levels
for all participants and, with respect to certain participants, a mega-maximum
award level, all expressed as a percentage of salary. The largest targeted
award opportunity levels under each plan in 1995 ranged from 20% to 120% of
base salary. The minimum target levels ranged from 5% to 20% under the
Company's plan and 2% to 8% under the InterCoast Oil and Gas plan.
Participation in the Company's Performance Incentive Plan is limited to key
employees of the Company as selected by the Compensation Committee. All
employees of InterCoast Oil and Gas are eligible to participate in the
InterCoast Oil and Gas Performance Incentive Plan.

401(K) PLAN

The Company currently participates in the MidAmerican Energy 401(k) Plan
(the "401(k) Plan"). All full-time employees of the Company and its
subsidiaries are eligible to participate in the 401(k) Plan. Each eligible
employee may elect to contribute to the 401(k) Plan, through payroll
deductions, up to 15% of his or her salary,

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<PAGE>

subject to a statutorily prescribed annual limit. The Company currently makes
a matching contribution on behalf of participating employees equal to 65% of
the first 6% of compensation contributed by an employee. Employee and Company
contributions are held and invested by the 401(k) Plan's trustee.
Distributions may be made from a participating employee's account upon
termination of employment, retirement, termination of the 401(k) Plan or in
the event of financial hardship.

OFFICER AND DIRECTOR LIABILITY

As permitted by the provisions of the Delaware General Corporation Law (the
"DGCL"), the Certificate of Incorporation provides that no director of the
Company shall be held personally liable to the Company or its stockholders for
monetary damages for breach of his or her fiduciary duty as director, except
for liability (a) for any breach of the director's duty of loyalty to the
Company or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) for
unlawful dividend payments or stock redemptions or repurchases or (d) for any
transaction from which the director derived an improper personal benefit. The
effect of such provisions of the Certificate of Incorporation will be to
eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits brought on behalf of the Company) to recover
monetary damages against a director for breach of fiduciary duty as a director
(including breaches resulting from negligence or gross negligence), except in
situations described above. The provisions of the Certificate of Incorporation
do not eliminate the liability of a director for violation of federal
securities laws or limit the rights of the Company or its stockholders, in
appropriate circumstances, to seek equitable remedies such as injunctive or
other forms of non-monetary relief. Such remedies may not be available in all
cases.

The Certificate of Incorporation and the Company's Bylaws (the "Bylaws")
provide that the Company shall indemnify all directors and officers of the
Company to the fullest extent permitted by the DGCL. Under such provisions,
any director or officer, who in his capacity as such, is made or threatened to
be made a party to any suit or proceeding may be indemnified if the Board of
Directors determines such director of officer acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company. The Bylaws and the DGCL further provide that such indemnification
is not exclusive of any other rights to which such individuals may be entitled
under the Certificate of Incorporation, the Bylaws, any agreement, vote of
stockholders or disinterested directors or otherwise. The Company intends to
enter into certain agreements ("Indemnity Agreements") with each of its
directors and certain executive officers designed to give effect to the
foregoing provisions of the Certificate of Incorporation and to provide
additional protection against the possibility of uninsured liability. Pursuant
to the Indemnity Agreements, the Company will, to the extent permitted under
applicable law, indemnify such persons against all expenses, judgments, fines,
ERISA excise taxes and penalties incurred in connection with the defense,
settlement or appeal of any actions or proceedings brought against them by
reason of the fact that they are or were directors or officers of the Company.

CERTAIN TRANSACTIONS

The Company receives general and administrative services from MidAmerican
Capital and MidAmerican Energy. The cost of such services received, including
overhead costs, are billed to the Company. Overhead costs are allocated to the
Company based on measures of use such as percent of payroll hours and number
of employees. Wages and salaries are charged directly to the Company based
upon individual employee time reporting, along with associated payroll taxes
and the costs of benefits. In addition, certain Company expenses paid by
MidAmerican Capital are billed to the Company. The amounts of such MidAmerican
Energy costs billed to general and administrative expense during 1993, 1994
and 1995 were $355,000, $393,000 and $516,000, respectively. See "Relationship
Between the Company and the Parent."

In September 1993, InterCoast Oil and Gas assigned to Medallion Petroleum
Inc. ("Medallion Petroleum"), of which William E. Warnock, Jr. (President of
the Company) and Brian L. Cantrell (Vice President--Finance of InterCoast Oil
and Gas) are officers, directors and stockholders, a 0.692% overriding royalty
interest in the oil and gas properties of DKM Resources, Inc. and its
subsidiary in satisfaction of a finder's fee earned by one of

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<PAGE>

Medallion Petroleum's stockholders in connection with the acquisition by
InterCoast Oil and Gas of the outstanding capital stock of DKM Resources, Inc.
For the years ended December 31, 1993, 1994 and 1995, Medallion Petroleum
received $18,377, $63,720 and $71,219, respectively, on account of such
overriding royalty interest.

Production from a significant number of wells included in the Sawyer Canyon
Acquisition qualifies for Section 29 tax credits under the Code ("Section 29
Credits"). The Company is not able to take full advantage of Section 29
Credits because it is subject to alternative minimum tax which, among other
things, limits a taxpayer's ability to utilize Section 29 Credits.
Concurrently with the Sawyer Canyon Acquisition and in order to realize value
from the Section 29 Credits, the Company conveyed certain interests in such
wells to InterCoast Global Management, Inc., a wholly owned subsidiary of
MidAmerican Capital, and retained a production payment on 100% of the net
proceeds of production from such wells until approximately 80% of the
estimated proved developed natural gas reserves attributable to the wells
(approximately 24 Bcf of natural gas) has been produced. In consideration of
its conveyance, the Company received from InterCoast Global Management, Inc.
$5,615,000 in cash and a promissory note in the amount of $2,315,000, which is
payable in 48 monthly installments over four years and bears interest at the
prime rate. The Company manages the operations of the Section 29 Wells and has
the option to purchase at any time all or a portion of the Section 29 Wells
for their then fair market value.

In connection with the employment of J. Chris Jacobsen, Senior Vice
President--Reserves and Production of InterCoast Oil and Gas, InterCoast Oil
and Gas committed that it would assist Mr. Jacobsen in the sale of his former
residence and adjoining land in Dallas County, Texas. Mr. Jacobsen sold the
residence in December 1995, but has not sold 17 acres of adjoining land. It is
currently contemplated that, pursuant to its commitment, InterCoast Oil and
Gas will purchase the 17 acres. InterCoast Oil and Gas and Mr. Jacobsen have
agreed that the purchase price will be $180,000, which is the lower of two
independent appraisals of the property, and it is expected that Mr. Jacobsen
will bear a portion of the obligation for future real estate taxes and will
receive a portion of the gain, if any, upon a sale of the property by
InterCoast Oil and Gas.

PRINCIPAL AND SELLING STOCKHOLDER

Of the 7,150,00 shares of Common Stock offered hereby, 1,000,000 shares are
being offered by MidAmerican Capital. As of June 26, 1996, MidAmerican Capital
beneficially owned 7,927,500 shares of Common Stock. After the Offering,
MidAmerican Capital will beneficially own 6,927,500 shares of Common Stock (or
49% of the outstanding shares of Common Stock). For a description of the
relationship between MidAmerican Capital and the Company see "Relationship
Between the Company and the Parent" and "Certain Transactions." MidAmerican
Capital's address is 666 Grand Avenue, Des Moines, Iowa 50309.

MidAmerican Capital has granted to the Underwriters an option, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to
an additional 1,072,500 shares of Common Stock at the initial public offering
price set forth on the cover page of this Prospectus, less the underwriting
discounts and commissions. The Underwriters may exercise such option only to
cover over-allotments, if any, incurred in the sales of the shares of Common
Stock offered hereby. To the extent the Underwriters exercise such option,
each of the Underwriters will be obligated, subject to certain conditions, to
purchase such percentage of such additional shares of Common Stock as is
approximately equal to the percentage of shares of Common Stock that it is
obligated to purchase as shown in the table set forth in "Underwriting." If
such option is exercised in full, the number of shares of Common Stock
beneficially owned by MidAmerican Capital after the Offering will be 5,855,000
(or 42% of the outstanding shares of Common Stock).

DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

Under the Certificate of Incorporation, the Company is currently authorized
to issue 25,000,000 shares of Common Stock, par value $0.01 per share. As of
the date of this Prospectus, there were 7,927,500 shares of Common Stock
outstanding. All of such outstanding shares of Common Stock are fully paid and
nonassessable.

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<PAGE>

Each share of Common Stock has an equal and ratable right to receive dividends
when, as and if declared by the Board of Directors out of assets legally
available therefor, subject to any preferential dividend rights of any
preferred stock then outstanding.

In the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share equally and ratably in the
assets available for distribution after payment of all liabilities, and
subject to any prior rights of any holders of preferred stock that at the time
may be outstanding. The holders of Common Stock have no preemptive,
subscription, conversion or redemption rights. Each share of Common Stock is
entitled to one vote in the election of directors and on all other matters
submitted to a vote of stockholders. Holders of Common Stock do not have
cumulative voting rights, which means that the holders of a majority of shares
voting for the election of directors can elect all members of the Board of
Directors subject to election.

PREFERRED STOCK

Under the Certificate of Incorporation, the Board of Directors is
authorized, without further approval or action by the stockholders of the
Company, to issue 5,000,000 shares of preferred stock, par value $0.01 per
share (the "Preferred Stock"), from time to time in one or more series, and to
fix the dividend rates and terms, conversion rights, voting rights, redemption
rights and terms, liquidation preferences, sinking fund and any other rights,
preferences, privileges and restrictions applicable to each series of
Preferred Stock. The purpose of authorizing the Board of Directors to
determine such rights, preferences, privileges and restrictions is to
eliminate delays associated with a stockholder vote on specific issuances of
Preferred Stock. The issuance of Preferred Stock, while providing flexibility
in connection with possible acquisitions and other corporate purposes, could,
among other things, adversely affect the voting power of the 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 of the Company. The Company has no current
plans to issue any shares of Preferred Stock.

SECTION 203 OF THE DGCL

The Certificate of Incorporation provides that the Company has opted out of
Section 203 of the DGCL which, under certain circumstances, prevents an
interested stockholder (generally defined as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a business
combination with a Delaware corporation for a period of three years following
the date such person became an interested stockholder of such corporation.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is The Bank of New
York.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no market for the Common Stock. Future
sales of substantial amounts of Common Stock in the public market could
adversely affect the market price of the Common Stock.

Upon completion of the Offering, the Company will have outstanding an
aggregate of 14,079,500 shares of Common Stock. All of the 7,150,000 shares
sold in the Offering (8,222,500 shares if the over-allotment option granted to
the Underwriters is exercised in full) will be freely tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act (whose sales would be subject to certain
limitations and restrictions described below).

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<PAGE>

The 7,927,500 shares of Common Stock held by the Company's existing sole
stockholder, MidAmerican Capital, were issued and sold by the Company in
reliance on an exemption from the registration requirements of the Securities
Act. The outstanding shares of Common Stock held by MidAmerican Capital after
the Offering will be subject to the "lock-up" agreement described below. After
expiration of such lock-up agreement 180 days after the date of this
Prospectus, the Common Stock then owned by MidAmerican Capital may be resold
only upon registration under the Securities Act (see "Relationship Between the
Company and the Parent--Contractual Arrangements--Registration Rights
Agreement") or pursuant to an exemption from such registration requirements,
including exemptions contained in Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
two years (including the holding period of any prior owner except an
affiliate) is entitled to sell in "broker's transactions" or to market makers,
within any three-month period commencing 90 days after the date of this
Prospectus, a number of shares that does not exceed the greater of (i) 1% of
the number of shares of Common Stock then outstanding (approximately 140,000
shares immediately after the Offering) or (ii) generally, the average weekly
trading volume in the Common Stock during the four calendar weeks preceding
the required filing of a Form 144 with respect to such sale. Sales under Rule
144 are generally subject to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been
an affiliate of the Company at any time during the 90 days preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least
three years, is entitled to sell such shares without having to comply with the
manner of sale, public information, volume limitation or notice filing
provisions of Rule 144. Under Rule 701 under the Securities Act, persons who
purchase shares upon exercise of options granted prior to the effective date
of the Offering are entitled to sell such shares 90 days after the effective
date of the Offering in reliance on Rule 144, without having to comply with
the holding period and notice filing requirements of Rule 144 and, in the case
of non-affiliates, without having to comply with the public information,
volume limitation or notice filing provisions of Rule 144. The Commission has
proposed certain amendments to Rule 144 that would reduce the requisite
holding period from two years to one year.

As soon as practicable following the Offering, the Company intends to file a
registration statement on Form S-8 under the Securities Act covering an
aggregate of up to 1,457,750 shares of Common Stock reserved for issuance
pursuant to the Stock Plan and Director Plan. Shares of Common Stock issued
upon exercise of the stock options granted under the Stock Plan or issued
pursuant to the Director Plan after the effective date of such registration
statement will be freely tradeable, except for any such shares acquired by an
"affiliate" of the Company, as that term is defined in Rule 144 under the
Securities Act.

The Company and MidAmerican Capital have agreed not to offer, sell, contract
to sell, grant any option to purchase or otherwise dispose of, directly or
indirectly, any shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for any capital stock or
warrants or other rights to purchase shares of capital stock of the Company
owned by any of them prior to the expiration of 180 days from the date of this
Prospectus, except (i) for shares of Common Stock offered hereby, (ii) with
the prior written consent of PaineWebber Incorporated and (iii) in the case of
the Company, for the issuance of shares of Common Stock upon the exercise of
options, or the grant of options to purchase shares of Common Stock under the
Stock Plan or the grant of restricted stock awards under the Director Plan.

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<PAGE>

UNDERWRITING

The Underwriters named below, acting through PaineWebber Incorporated and
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Representatives"),
have severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement by and among the Company, MidAmerican Capital and the
Representatives (the "Underwriting Agreement"), to purchase from the Company
and MidAmerican Capital, and the Company and MidAmerican Capital have
severally agreed to sell to the Underwriters, respectively, 6,150,000 shares
and 1,000,000 shares of Common Stock, which in the aggregate equals the number
of shares of Common Stock set forth opposite the name of such Underwriters
below:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
PaineWebber Incorporated...........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................

---------
Total............................................................ 7,150,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock listed above are subject to certain
conditions. The Underwriting Agreement also provides that the Underwriters are
committed to purchase, and the Company and MidAmerican Capital are obligated
to sell, all of the shares of Common Stock offered by this Prospectus, if any
of the shares of Common Stock being sold pursuant to the Underwriting
Agreement are purchased (without consideration of any shares that may be
purchased through the exercise of the Underwriters' over-allotment option).

The Representatives have advised the Company and MidAmerican Capital that
the Underwriters propose to offer the shares of Common Stock to the public
initially at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession to other dealers not in excess of $ per share. After
the initial public offering of the shares of Common Stock, the public offering
price, the concessions to selected dealers and the reallowance to other
dealers may be changed by the Representatives.

MidAmerican Capital has granted to the Underwriters an option, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to
an additional 1,072,500 shares of Common Stock at the initial public offering
price set forth on the cover page of this Prospectus, less the underwriting
discounts and commissions. The Underwriters may exercise such option only to
cover over-allotments, if any, incurred in the sales of shares of Common
Stock. To the extent the Underwriters exercise such option, each of the
Underwriters will become obligated, subject to certain conditions, to purchase
such percentage of such additional shares of Common Stock as is approximately
equal to the percentage of shares of Common Stock that it is obligated to
purchase as shown in the table set forth above.

The Company and MidAmerican Capital have severally agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.

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<PAGE>

The Representatives have informed the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.

Each of the Representatives has from time to time performed various
investment banking and financial advisory services for MidAmerican Energy or
certain of its subsidiaries, for which they have received customary fees and
reimbursement of their out-of-pocket expenses.

MidAmerican Capital and the Company and each of the Company's directors and
executive officers have agreed not to offer, sell, contract to sell, or grant
any option to purchase or otherwise dispose of, directly or indirectly, any
shares of capital stock of the Company or any securities convertible into or
exercisable or exchangeable for any capital stock or warrants or other rights
to purchase shares of capital stock of the Company owned by any of them prior
to the expiration of 180 days from the date of this Prospectus, except (i) for
the shares of Common Stock offered hereby, (ii) with the prior written consent
of PaineWebber Incorporated, and (iii) in the case of the Company, for the
issuance of shares of Common Stock upon the exercise of options, or the grant
of options to purchase shares of Common Stock under the Stock Plan or the
grant of restricted stock awards under the Director Plan.

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price was determined pursuant to negotiations
between the Company and the Representatives. Among the factors considered in
determining the initial public offering price, in addition to prevailing
market conditions, were certain financial information of the Company, the
history of, and the prospects for, the Company and the industry in which it
competes, an assessment of the Company's management, its past and present
operations, the prospects for, and timing of, future revenues of the Company,
the present state of the Company's development, and the above factors in
relation to market values and various valuation measures of other companies
engaged in activities similar to the Company. The initial public offering
price set forth on the cover page of this Prospectus should not, however, be
considered an indication of the actual value of the Common Stock. Such price
is subject to change as a result of market conditions and other factors. There
can be no assurance that an active trading market will develop for the Common
Stock or that the Common Stock will trade in the public market subsequent to
the Offering at or above the initial public offering price.

The Common Stock has been approved for listing on the New York Stock
Exchange, subject to notice of issuance. In order to meet one of the
requirements for listing the Common Stock on the New York Stock Exchange, the
Underwriters have undertaken to sell lots of 100 or more shares to a minimum
of 2,000 beneficial holders.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Conner & Winters, A Professional
Corporation, Tulsa, Oklahoma. Certain legal matters in connection with the
Common Stock offered hereby will be passed upon for the Underwriters by Baker
& Botts, L.L.P., Houston, Texas.

EXPERTS

The audited financial statements of the Company included in this Prospectus
or elsewhere in the Registration Statement of which this Prospectus is a part
and the statements of revenues and direct operating expenses of the Sawyer
Canyon Properties for the years ended December 31, 1994 and 1995, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance
upon the authority of said firm as experts in giving said reports.

Information appearing in this Prospectus regarding the Company's estimated
quantities of natural gas and oil reserves and the discounted present value of
future pre-tax cash flows therefrom is based, to the extent

71
<PAGE>

described herein, upon estimates of such reserves and present values prepared
by Netherland, Sewell and Associates, Inc., independent petroleum engineers.
Such information has been so included herein in reliance upon the authority of
such firm experts in petroleum engineering.

ADDITIONAL INFORMATION

The Company has filed a Registration Statement on Form S-1 (the
"Registration Statement") with respect to the shares of Common Stock offered
hereby with the Securities and Exchange Commission (the "Commission") under
the Securities Act. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain items of which are contained in schedules and
exhibits to the Registration Statement as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference.

Upon completion of the Offering, the Company will be subject to the
informational reporting requirements of the Securities Exchange Act of 1934,
as amended, and, in accordance therewith, will file reports, proxy statements
and other information with the Commission. The Registration Statement and the
exhibits and schedules forming a part thereof, as well as such reports, proxy
statements and other information, may be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional offices of the Commission: Northeast
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048,
and Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained from the Public
Reference Section of the Commission at its Washington address at prescribed
rates. In addition, the Commission maintains a Web site that contains reports,
proxy and information statements and other information filed electronically by
the Company with the Commission which can be accessed over the Internet at
http://www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information.

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<PAGE>

GLOSSARY

The following are definitions of certain terms used in this Prospectus.

BBL. One barrel of crude oil, condensate or other liquids equal to 42 U.S.
gallons.

BCF. Billion cubic feet.

BCFE. Billion cubic feet of natural gas equivalent.

BOE. Barrels of oil equivalent, determined using the ratio of six Mcf of
natural gas to one Bbl of crude oil, condensate or natural gas liquids.

BTU. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 degrees Fahrenheit to 59.5
degrees Fahrenheit under specific conditions.

DEVELOPED ACREAGE. The number of acres which are allocated or assignable to
producing wells or wells capable of production.

DEVELOPMENT WELL. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive in an
attempt to recover proved undeveloped reserves.

EXPLORATORY WELL. A well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir or to extend a known reservoir.

EXTENSIONAL INFILL DRILLING. Drilling of a well to enhance the economic
recovery of natural gas and oil in producing areas to a level greater than
that previously achieved by the owners of the prevailing leasehold by
increasing the density of wells that penetrate known reservoirs. Typically,
development of these prospects requires that the Company obtain some or all of
the rights to drill on acreage that is held by production.

FARMOUT. An assignment of an interest in a drilling location and related
acreage conditional upon the drilling of a well or the establishment of
production on that location. The assignor usually retains a royalty interest
or a working interest after payout in the lease.

FINDING COSTS. Expressed in terms of dollars per Mcfe, calculated by
dividing the amount of total costs incurred for oil and gas activities by the
amount of proved reserves added during the same period (including the effect
on proved reserves of reserve revisions).

GROSS ACRES OR GROSS WELLS. The number of acres or wells in which the
Company has a working interest.

LEASE OPERATING EXPENSE. Costs incurred to operate and maintain wells and
related equipment and facilities including depreciation and applicable
operating costs of support equipment and facilities and other costs of
operating and maintaining those wells and related equipment and facilities.

MBBL. One thousand barrels.

MCF. One thousand cubic feet.

MCFE. One thousand cubic feet of natural gas equivalent.

MMBBL. One million barrels.

MMBTU. One million Btus.

MMCF. One million cubic feet.

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<PAGE>

MMCFE. One million cubic feet of natural gas equivalent.

MWH. Megawatt hour, a unit of power equal to that expended by one million
watts in one hour.

NATURAL GAS EQUIVALENT. Cubic feet of natural gas equivalent, determined
using the ratio of one Bbl of crude oil, condensate or natural gas liquids to
six Mcf of natural gas.

NET ACRES OR NET WELLS. The sum of the fractional working interests owned in
gross acres or gross wells.

NET PROFITS INTEREST. An interest in an oil and gas property entitling the
owner to a share of the gross revenues from oil and gas production less all
operating, production, development, transportation, transmission and marketing
expenses, production, sales and ad valorem taxes attributable to such
production.

OVERRIDING ROYALTY INTEREST. A royalty interest which is carved out of a
lessee's interest under an oil and gas lease.

PRODUCTIVE WELL. A well that is producing oil and gas or that is capable of
production.

PROVED DEVELOPED NONPRODUCING RESERVES. Proved developed reserves expected
to be recovered from zones behind casing in existing wells.

PROVED DEVELOPED PRODUCING RESERVES. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and able to produce to market.

PROVED DEVELOPED RESERVES. Proved reserves that can be expected to be
recovered through existing wells with existing equipment and operating
methods.

PROVED RESERVES. The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.

PROVED UNDEVELOPED RESERVES. Reserves that are expected to be recovered from
new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion.

PV-10 RESERVE VALUE. The pre-tax present value, discounted at 10% per annum,
of future net cash flows from estimated proved reserves, calculated holding
prices and costs constant at amounts in effect on the date of the estimate
(unless such prices or costs are subject to change pursuant to contractual
provisions). The difference between the PV-10 Reserve Value and the
standardized measure of discounted future net cash flows is the present value
of income taxes applicable to such future net cash flows.

RESERVE LIFE INDEX. Calculated by dividing year-end proved reserves by
annual production for the most recent year.

ROYALTY INTEREST. An interest in an oil and gas property entitling the owner
to a share of oil or gas production free of costs of production.

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS. The present value,
discounted at 10% per annum, of future net cash flows from estimated proved
reserves, calculated holding prices and costs constant at amounts in effect on
the date of the estimate (unless such prices or costs are subject to change
pursuant to contractual provisions) and in all instances in accordance with
the Commission's rules for inclusion of oil and gas reserve information in
financial statements filed with the Commission.

UNDEVELOPED ACREAGE. Lease acreage on which wells have not been participated
in or completed to a point that would permit the production of commercial
quantities of oil and gas regardless of whether such acreage contains proved
reserves.

WHEELING. Involves the movement of electricity through the transmission
systems of transmission owners who do not own title to the electricity.

WORKING INTEREST. A cost bearing interest which gives the owner the right to
drill, produce and conduct oil and gas operations on the property, as well as
a right to a share of production therefrom.

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INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
InterCoast Energy Company Consolidated Financial Statements
Report of independent public accountants................................ F-2
Consolidated balance sheets as of December 31, 1994 and 1995............ F-3
Consolidated statements of income for the years ended December 31, 1993,
1994 and 1995.......................................................... F-4
Consolidated statements of stockholder's equity for the years ended
December 31, 1993, 1994 and 1995....................................... F-5
Consolidated statements of cash flows for the years ended December 31,
1993, 1994 and 1995.................................................... F-6
Notes to consolidated financial statements.............................. F-7
InterCoast Energy Company Interim Consolidated Financial Statements
(Unaudited)
Consolidated balance sheets as of December 31, 1995 and March 31, 1996.. F-18
Consolidated statements of income for the three months ended March 31,
1995 and 1996.......................................................... F-19
Consolidated statement of stockholder's equity for the three months
ended March 31, 1996................................................... F-20
Consolidated statements of cash flows for the three months ended March
31, 1995 and 1996...................................................... F-21
Notes to unaudited consolidated financial statements.................... F-22
Sawyer Canyon Properties
Report of independent public accountants................................ F-24
Statements of revenues and direct operating expenses for the years ended
December 31, 1994 and 1995............................................. F-25
Notes to statements of revenues and direct operating expenses........... F-26
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholder and Board of Directors of
InterCoast Energy Company:

We have audited the accompanying consolidated balance sheets of InterCoast
Energy Company (a Delaware corporation and an indirect wholly owned subsidiary
of MidAmerican Energy Company) and Subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income, changes in
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated 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 InterCoast Energy Company
and Subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.

Arthur Andersen LLP

Tulsa, Oklahoma

June 28, 1996

F-2
<PAGE>

INTERCOAST ENERGY COMPANY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................. $ 5,127 $ 8,303
Accounts receivable........................................ 6,641 23,016
Other...................................................... 2,562 1,640
-------- --------
Total current assets..................................... 14,330 32,959
Gas and oil properties, net.................................. 141,070 158,597
Continental Power Exchange, Inc., net........................ 3,078 4,030
Intangible and other assets, net............................. 2,498 4,578
-------- --------
Total assets............................................. $160,976 $200,164
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable........................................... $ 3,104 $ 17,482
Other current liabilities.................................. 993 3,966
-------- --------
Total current liabilities................................ 4,097 21,448
-------- --------
Accumulated deferred income taxes, net....................... 13,208 23,648
-------- --------
Long-term debt due to MidAmerican Capital.................... 60,724 52,907
-------- --------
Stockholder's equity
Common stock ($0.01 par value, 25,000,000 shares
authorized, 7,927,500 shares issued and outstanding)...... 79 79
Additional paid-in capital................................. 69,666 85,995
Retained earnings.......................................... 13,202 16,087
-------- --------
Total stockholder's equity............................... 82,947 102,161
-------- --------
Total liabilities and stockholder's equity............... $160,976 $200,164
======== ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of these statements.

F-3
<PAGE>

INTERCOAST ENERGY COMPANY

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
INTERCOAST OIL AND GAS COMPANY
Gas and oil revenues............ $ 37,359 $ 44,466 $ 48,109
Gas and oil operating expenses.. (9,616) (15,016) (14,552)
Depreciation, depletion and
amortization expense........... (13,535) (18,602) (21,489)
General and administrative
expense, net................... (2,183) (2,633) (2,288)
------------- ------------- -------------
12,025 8,215 9,780
------------- ------------- -------------
INTERCOAST ENERGY MARKETING
Natural gas sales revenues...... 16,715 13,700 24,066
Cost of gas sold................ (16,216) (13,142) (23,218)
Electric power sales revenues... 19 446 421
Cost of electric power sold..... -- -- (325)
Operating expenses.............. (369) (778) (952)
General and administrative
expense........................ (163) (314) (410)
------------- ------------- -------------
(14) (88) (418)
------------- ------------- -------------
CONTINENTAL POWER EXCHANGE, INC.
Administrative and development
expense, net................... -- (849) (3,442)
------------- ------------- -------------
Corporate expenses................ (1,013) (1,553) (1,554)
------------- ------------- -------------
Income before income taxes........ 10,998 5,725 4,366
Provision for income taxes........ 4,984 2,324 1,481
------------- ------------- -------------
Net income........................ $ 6,014 $ 3,401 $ 2,885
============= ============= =============
Average common shares
outstanding...................... 7,928 7,928 7,928
============= ============= =============
Earnings per common share......... $ 0.76 $ 0.43 $ 0.36
============= ============= =============
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of these statements.

F-4
<PAGE>

INTERCOAST ENERGY COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
COMMON SHARES
------------- ADDITIONAL RETAINED
SHARES AMOUNT PAID-IN CAPITAL EARNINGS TOTAL
------ ------ --------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992.. 7,928 $79 $57,763 $ 3,787 $ 61,629
Net income.................... -- -- -- 6,014 6,014
Contributions from MidAmerican
Capital...................... -- -- 4,073 -- 4,073
----- --- ------- ------- --------
BALANCE AT DECEMBER 31, 1993.. 7,928 79 61,836 9,801 71,716
Net income.................... -- -- -- 3,401 3,401
Contributions from MidAmerican
Capital...................... -- -- 7,830 -- 7,830
----- --- ------- ------- --------
BALANCE AT DECEMBER 31, 1994.. 7,928 79 69,666 13,202 82,947
Net income.................... -- -- -- 2,885 2,885
Contributions from MidAmerican
Capital...................... -- -- 16,329 -- 16,329
----- --- ------- ------- --------
BALANCE AT DECEMBER 31, 1995.. 7,928 $79 $85,995 $16,087 $102,161
===== === ======= ======= ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of these statements.

F-5
<PAGE>

INTERCOAST ENERGY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................... $ 6,014 $ 3,401 $ 2,885
Adjustments to reconcile net income to net cash
from operating activities:
Deferred income taxes, net..................... 4,020 2,168 10,410
Provision for depreciation, depletion and
amortization.................................. 13,672 19,631 22,993
Change in working capital items:
Accounts receivable........................... (2,791) 3,254 (16,375)
Other current assets.......................... 45 (1,032) 922
Accounts payable.............................. 2,869 (2,782) 14,378
Other current liabilities..................... 1,706 (1,840) 2,973
-------- -------- --------
Net cash from operating activities........... 25,535 22,800 38,186
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in:
Gas and oil properties......................... (74,984) (42,849) (40,845)
Continental Power Exchange, Inc................ -- (3,927) (2,223)
Other.......................................... (162) (180) (2,283)
Proceeds from sale of gas and oil properties.... 1,446 3,465 1,829
-------- -------- --------
Net cash from investing activities........... (73,700) (43,491) (43,522)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of borrowings from MidAmerican
Capital....................................... 47,486 16,716 --
Repayments of borrowings from MidAmerican
Capital....................................... (1,118) (2,360) (7,817)
Contributions from MidAmerican Capital......... 4,073 7,830 16,329
-------- -------- --------
Net cash from financing activities........... 50,441 22,186 8,512
-------- -------- --------
Net increase in cash and cash equivalents........ 2,276 1,495 3,176
Cash and cash equivalents at beginning of
period.......................................... 1,356 3,632 5,127
-------- -------- --------
Cash and cash equivalents at end of period....... $ 3,632 $ 5,127 $ 8,303
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid (received) during the period for:
Income taxes................................... $ 964 $ 156 $ (8,929)
======== ======== ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of these statements.

F-6
<PAGE>

INTERCOAST ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1) ACCOUNTING POLICIES

Corporate Structure

InterCoast Energy Company (InterCoast or the Company), a Delaware
corporation, is a wholly owned subsidiary of MidAmerican Capital Company
(MidAmerican Capital). MidAmerican Capital, a Delaware corporation, is a
wholly owned subsidiary of MidAmerican Energy Company (MidAmerican Energy).
MidAmerican Capital reorganized its businesses and formed the Company on May
17, 1996 as a holding company for four wholly owned subsidiaries: InterCoast
Oil and Gas Company (formerly Medallion Production Company), primarily engaged
in the acquisition, development, exploration and production of natural gas and
oil, InterCoast Gas Services Company, primarily engaged in the marketing of
natural gas, InterCoast Power Marketing Company, primarily engaged in the
wholesale marketing and brokering of electric power, and Continental Power
Exchange, Inc., developer and operator of a proprietary network facilitating
electronic electric power exchange. InterCoast Gas Services Company and
InterCoast Power Marketing Company are combined as InterCoast Energy Marketing
on the Consolidated Statements of Income. The Company accounted for the
reorganization in a manner similar to that in pooling-of-interests accounting.

Principles of Consolidation

The consolidated financial statements include the Company and its wholly
owned subsidiaries. Intercompany transactions have been eliminated.

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reported period.
Actual results may differ from those estimates.

Common Stock Conversion and Split

The financial statements and notes thereto reflect retroactively the common
shares authorized, issued and outstanding at the date of formation.

Earnings Per Share

Net income per share is calculated by dividing net income by the weighted
average shares of common stock and common stock equivalents outstanding.

Gas and Oil Properties

The Company accounts for its gas and oil properties using the full cost
method of accounting which provides for the capitalization of all acquisition,
exploration and development costs incurred for the purpose of finding natural
gas and oil reserves. The unamortized cost of gas and oil properties,
including estimated future development and abandonment costs, is amortized
using the unit-of-production method based on the ratio of volumes produced to
proved reserves.

Unevaluated properties and associated costs not currently being amortized
and included in gas and oil properties were $1.5 million, $1.6 million and
$2.1 million at December 31, 1993, 1994 and 1995, respectively. Such costs
relate to projects which were at such dates undergoing exploration or
development activities or in which the Company intends to commence such
activities in the future. The Company will begin to amortize these costs when
proved reserves are established or impairment is determined.

The Company's unamortized costs of gas and oil properties are limited to the
sum of the future net revenues attributable to proved gas and oil reserves
discounted at ten percent plus the cost of any unproved properties. If the
Company's unamortized costs in gas and oil properties exceed this ceiling
amount, a provision for additional

F-7
<PAGE>

INTERCOAST ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
depreciation, depletion and amortization is required. At December 31, 1993,
1994 and 1995, the Company's unamortized costs of gas and oil properties did
not exceed such ceiling amount.

Proceeds from the sale of gas and oil properties are applied to reduce the
costs in the full cost pool unless the sale involves a significant quantity of
reserves in relation to the cost center, in which case a gain or loss would be
recognized.

The Company conducts certain of its drilling activities (Programs), on a
joint venture basis, together with working interest participants. The
agreements under which these investors participate provide the Company with
certain reversionary interests in the properties in the Programs and current
reimbursement of proportionate amounts of overhead and seismic costs. Overhead
reimbursements of $872,000, $1,520,000 and $2,047,000 are included in the
Consolidated Statements of Income as a reduction of general and administrative
expenses for InterCoast Oil and Gas Company for 1993, 1994 and 1995,
respectively.

Production Imbalances

Joint interest owners may take more or less than their ownership interest of
natural gas volumes from jointly owned reservoirs. The Company follows the
sales method of accounting for imbalances, whereby the Company recognizes
revenues based on the actual volumes of gas sold to purchasers. The Company
records a liability if its sales of gas volumes in excess of its entitlements
from a jointly owned reservoir exceed its interest in the remaining estimated
gas reserves of such reservoir. Volumetric production is monitored to minimize
imbalances, and such imbalances were not significant at December 31, 1993,
1994 and 1995.

Amortization of Goodwill

Goodwill was recognized with the acquisition of operating rights, certain
other assets and personnel of Medallion Petroleum, Inc. in 1992 and with the
acquisition of certain assets and personnel of GED Gas Services, L.L.C. in
1995. Goodwill is amortized over the expected period of benefit of forty years
using the straight line method. The unamortized balance of goodwill included
on the Consolidated Balance Sheets as Intangible and Other Assets at December
31, 1994 and 1995 is $1,829,000 and $3,486,000, respectively.

Long-Lived Assets

In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of". This statement, which the Company plans to
adopt for reporting periods after January 1, 1996, requires the Company to
review long-lived assets for impairment whenever circumstances indicate that
the carrying amount of an asset may not be recoverable. Adoption of SFAS No.
121 is not expected to have a material impact on the Company's results of
operations or financial position at the time of adoption.

Stock-Based Compensation Plans

In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" regarding accounting for stock-based compensation plans. This
statement, which is effective for reporting periods beginning January 1, 1996,
allows for alternative methods of adoption. The Company does not expect the
accounting provisions or the alternative disclosure provisions of SFAS No. 123
to have a material impact on the Company's compensation costs.

Accounting for Commodity Price Risk Management

The Company engages in price risk management activities to minimize the
impact of market fluctuations on assets, liabilities, production or other
contractual commitments. Changes in the market value of these transactions are
deferred until the gain or loss on the underlying item is recognized. See Note
8 for further discussion of the Company's price risk management activities.

F-8
<PAGE>

INTERCOAST ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Consolidated Statements of Cash Flows

For purposes of the Consolidated Balance Sheets and Statements of Cash
Flows, the Company considers all highly liquid debt instruments purchased with
a remaining maturity of three months or less to be cash equivalents. There
were no material non-cash investing or financing activities in 1993, 1994 or
1995.

2) GAS AND OIL PROPERTIES, NET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Gas and oil properties.................................. $186,131 $225,147
Accumulated depreciation, depletion and amortization.... (45,061) (66,550)
-------- --------
Gas and oil properties, net............................. $141,070 $158,597
======== ========
</TABLE>

The 1993, 1994 and 1995 provision for depreciation, depletion and
amortization of the Company's gas and oil properties was recorded at the rate
of $0.80, $0.86 and $0.90, respectively, per equivalent thousand cubic feet of
natural gas production.

3) CONTINENTAL POWER EXCHANGE, INC., NET

Continental Power Exchange, Inc., a development stage company, was
established in 1994 to operate a computerized information system facilitating
the real-time exchange of power in the electric industry. The Company's
capitalized costs represent (a) costs incurred in obtaining a Federal Energy
Regulatory Commission ("FERC") ruling granting FERC regulated entities the
right to participate in the system without further regulatory filings, (b)
capitalized network development costs including hardware, communication
systems and software development costs and (c) plant assets including
furniture and fixtures, leasehold improvements, office computers and other
equipment.

Capitalized costs incurred were as follows:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
FERC ruling.................................................... $1,432 $ 461
Network development............................................ 1,760 1,396
Plant assets................................................... 735 366
------ ------
$3,927 $2,223
====== ======
</TABLE>

Costs relating to the FERC ruling are amortized over 12 months beginning the
quarter in which incurred. Depreciation of the capitalized network development
costs began in the second quarter of 1996. Depreciation of plant assets over a
period of 5-7 years begins when the related assets are placed in service.
Accumulated depreciation and amortization was $849,000 and $2,120,000 at
December 31, 1994 and 1995, respectively.

Revenues representing primarily initial sign-up fees and testing period
transaction revenues of $80,000 for the year ending December 31, 1995 are
included in the Consolidated Statements of Income as a reduction to
Administrative and Development Expense.

F-9
<PAGE>

INTERCOAST ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4) INCOME TAXES

The Company is included in the consolidated federal and, where appropriate,
state income tax returns of MidAmerican Energy. The consolidated income tax
currently payable (or receivable) has been allocated among the Company and
other members of the affiliated income tax reporting group (Group) based on
the respective contributions to the consolidated taxable income and tax
credits of the Group. The Company has received (or made) payments for the
income tax reductions (or increases) contributed to the Group.

The components of the provision for income taxes are shown below:

<TABLE>
<CAPTION>
1993 1994 1995
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current--Federal.................................... $ 804 $ 107 $(7,980)
--State............................................. 160 49 (979)
Deferred--Federal................................... 3,135 1,495 9,498
--State............................................. 885 673 942
------ ------ -------
Total............................................... $4,984 $2,324 $ 1,481
====== ====== =======
</TABLE>

A reconciliation of the statutory federal income tax rate to the overall
effective income tax rate follows:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate....................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit... 1.9 2.1 0.4
State tax true-ups...................................... 3.6 -- --
Other items, net........................................ 4.8 3.5 (1.5)
---- ---- ----
Overall effective income tax rate....................... 45.3% 40.6% 33.9%
==== ==== ====
</TABLE>

The components of the net deferred tax liability are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------- --------
(IN THOUSANDS)
<S> <C> <C>
Accelerated depreciation/depletion methods............. $(4,604) $(15,380)
Intangible drilling costs.............................. 17,062 38,278
Other.................................................. 750 750
------- --------
Accumulated deferred income taxes...................... $13,208 $ 23,648
======= ========
</TABLE>

F-10
<PAGE>

INTERCOAST ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5) LONG-TERM DEBT DUE TO MIDAMERICAN CAPITAL

At December 31, 1994 and 1995, the Company had $60,724,000 and $52,907,000,
respectively, relating to intercompany loans from MidAmerican Capital due
December 31, 1997. Borrowings under the loans are non-interest bearing. The
proceeds of the loans were primarily used to acquire natural gas and oil
reserves. The Company may prepay the loans without incurring any penalty. The
Company's average monthly balance outstanding for the years ended December 31,
1993, 1994 and 1995 was $19,314,000, $52,863,000 and $58,117,000,
respectively. The following table reconciles the borrowings and repayments for
each of the three years in the period ended December 31, 1995.

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Balance at December 31, 1992........................... $ --
Cash transfers to acquire gas and oil reserves........ 47,486
Repayments from operating cash flows.................. (1,118)
-------
Balance at December 31, 1993........................... 46,368
Cash transfers to acquire gas and oil reserves........ 16,716
Repayments from operating cash flows.................. (2,360)
-------
Balance at December 31, 1994........................... 60,724
Repayments from operating cash flows.................. (7,817)
-------
Balance at December 31, 1995........................... $52,907
=======
</TABLE>

6) RELATED PARTY TRANSACTIONS

The Company receives general and administrative services from MidAmerican
Capital and MidAmerican Energy. The costs of such services received, including
overhead costs, are classified as directly assigned costs or allocable costs.
Directly assigned costs are assigned (and billed) to the Company. Costs that
are not directly assigned are allocated based on the Company's relative
percentage of three factors. The three factors are total revenues, total
assets and total payroll. Wages and salaries of the Company's corporate staff
and personnel of MidAmerican Capital and MidAmerican Energy are classified as
directly assigned or allocable based upon individual employee time reporting,
along with associated payroll taxes and the costs of benefits. In addition,
certain directly assigned Company expenses paid by MidAmerican Capital are
billed to the Company. The amounts of such allocated MidAmerican Energy costs
billed and charged to corporate expense during 1993, 1994 and 1995 were
$355,000, $393,000 and $516,000, respectively.

7) EMPLOYEE BENEFITS

MidAmerican Energy provides certain health care benefits for certain Company
employees upon retirement. MidAmerican Energy is amortizing the discounted
present value of the obligation at January 1, 1993 to expense over 20 years.
Provisions for post-retirement benefits other than pensions are allocated to
the Company based on participants' compensation. The amount expensed during
1993, 1994 and 1995 was $16,000, $45,000 and $49,000, respectively.

The Company's employees participate in MidAmerican Energy's noncontributory
defined benefit retirement income plan. Benefits under the plan are based on
participants' compensation, years of service and age at retirement. Funding is
based on the actuarially determined costs of the plan and the requirements of
the Internal Revenue Code and the Employee Retirement Income Security Act.

As of December 31, 1993, 1994 and 1995, the Company has not been required to
contribute to the plan. Pension costs are allocated to the Company based on
participants' compensation. The amount the Company expensed during 1993, 1994
and 1995 was $17,000, $73,000 and $2,000, respectively. At December 31, 1994
and 1995, the Company's pension accrual included in the Consolidated Balance
Sheets as Other Current Liabilities was $90,000 and $92,000, respectively.

F-11
<PAGE>

INTERCOAST ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

Price Risk Management

The Company has entered into swaps, futures and options to manage risks
associated with fluctuations in the price of natural gas production and
marketing activities.

Commodity Price Swaps. Commodity price swap agreements require the Company
to make payments to (or entitle it to receive payments from) the
counterparties based upon the differential between a specified fixed and
variable price. The Company accounts for these transactions on a settlement
basis and, accordingly, gains or losses are included in gas and oil revenues
in the period in which the underlying natural gas is produced. These
agreements do not impose cash margin requirements on the Company or provide
for collateral to the Company. At December 31, 1995, the Company was party to
commodity price swap agreements covering approximately 8.0 MMBtu, 6.3 MMBtu
and 23.2 MMBtu of natural gas for the years 1996 and 1997 and for the period
1998 through 2005, respectively.

Futures and Options Contracts. Natural gas futures require the Company to
buy or sell natural gas at a fixed price. Natural gas options held to hedge
price risk only provide the right, not the requirement, to buy or sell natural
gas at a fixed price. The Company uses futures to manage margins on offsetting
fixed-price purchase or sale commitments for physical quantities of natural
gas. The Company uses options to limit overall price risk exposure. Futures
contracts mandate initial margin requirements. The Company maintains such
margin accounts and funds in cash any daily settlement requirements relating
to futures contracts.

At December 31, 1995, the Company had futures contracts to purchase natural
gas for approximately 10.1 MMBtu and to sell natural gas for approximately 4.9
MMBtu. The associated unrecognized gain on futures contracts was $486,000.

Basis Swaps. Basis swap agreements require the Company to make payments to
(or entitle it to receive payments from) the counterparties based upon the
differential between the variable costs associated with the delivery of
natural gas production to specific delivery points and a contractually
specified fixed cost. At December 31, 1995, the Company had basis swap
arrangements relating to a total of approximately 2.1 MMBtu during 1996.

Credit Risk. Credit risk relates to the risk of loss that the Company would
incur as a result of the nonperformance by counterparties pursuant to the
terms of their contractual obligations. The Company's overall exposure to
credit risk may be affected positively or negatively in that the
counterparties may be similarly affected by changes in economic, regulatory or
other conditions. The Company maintains credit policies with regard to its
counterparties that management believes minimize overall credit risk. With
regard to commodity price and basis swaps, these policies include an
evaluation of potential counterparties' financial condition (including credit
rating), collateral agreements under certain circumstances and the use of
standardized agreements. With regard to futures and options contracts, the
Company utilizes New York Mercantile Exchange (NYMEX) contracts. Such
contracts are guaranteed by the NYMEX and, accordingly, have nominal credit
risk. As a result, the Company's risk is limited to the initial purchase price
of the options and to changes in the market value of the futures contracts.
Accordingly, the Company does not anticipate any material impact on its
financial position or results of operations as a result of nonperformance by
the counterparties to the financial instruments related to its natural gas
production and marketing activities.

The Company has entered into letters of credit and financial guarantees to
support certain well costs and the natural gas and electric power purchases of
its marketing subsidiaries. Letters of credit and financial guarantees are
conditional commitments issued by the Company to guarantee performance to a
third party.

F-12
<PAGE>

INTERCOAST ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company had letters of credit totaling $1,103,000 and $1,914,000 and
financial guarantees amounting to $0 and $2,750,000 which were not reflected
on the Consolidated Balance Sheets as of December 31, 1994 and 1995,
respectively.

The fair value of the Company's letters of credit was $8,000 and $14,000 at
December 31, 1994 and 1995, respectively, estimated based on fees currently
charged for similar agreements. The fair value of the Company's financial
guarantees is not determinable based on the specific characteristics of the
guarantees.

9) CONCENTRATION OF CREDIT RISK

Although credit risk is inherent to the foregoing types of financial
instruments and the Company is exposed to losses in the event of non-
performance by the counterparties, the Company believes that the aggregate
credit risk associated with its present swap and hedge arrangements is not
significant due to the nature of the contracts and the counterparties thereto.

The Company's gas and oil production purchasers consist primarily of
independent marketers and major gas pipeline companies. The Company performs
credit evaluations of its customers' financial condition and obtains credit
support if the Company believes it is warranted. The Company has not
experienced any significant losses from uncollectible accounts.

10) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of current assets and current liabilities approximate
fair value due to the short-term nature of those instruments. The fair value
of the Company's long-term debt due to MidAmerican Capital based on current
rates offered to the Company for debt of similar maturity at December 31, 1994
and 1995 was $50,270,000 and $46,822,000, respectively, as compared to a book
value at December 31, 1994 and 1995 of $60,724,000 and $52,907,000,
respectively.

11) COMMITMENTS

The Company is a lessee in several agreements to lease office space at
various locations. The lease agreements expire in 1999 through 2001, with
various options for renewal. The following is a schedule by year of estimated
future rent expense on such leases as of December 31, 1995:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1996....................................................... $ 514,000
1997....................................................... 519,000
1998....................................................... 524,000
1999....................................................... 472,000
2000....................................................... 318,000
Thereafter................................................. 205,000
----------
Total.................................................. $2,552,000
==========
</TABLE>

12) SUBSEQUENT EVENTS

F-13
<PAGE>

INTERCOAST ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

produced. In consideration, the Company received from InterCoast Global
Management, Inc. $5.6 million in cash and a promissory note in the amount of
$2.3 million, which is payable in 48 monthly installments over four years and
bears interest at the prime rate. The total adjusted purchase price was $45.2
million. The Company recorded no gain or loss related to this transaction. The
proved reserves associated with the production payment are included in the
Company's estimated net quantities of oil and gas reserves presented in Note
14. The revenues and direct operating expenses for the acquired properties and
gathering systems for 1995 were $14.7 million and $3.1 million, respectively.

On May 22, 1996, the Company's Board of Directors and sole stockholder
approved the Intercoast Energy Long Term Incentive Plan (the Stock Plan) which
is to become effective upon, and only in the event of, consummation of the
offering contemplated by the Registration Statement described below. The
number of shares of Common Stock reserved for issuance upon exercise of
options to be granted under the Stock Plan equals 10% of the number of shares
issued and outstanding immediately after closing of the offering. The Board
has granted options for 541,600 shares at a purchase price equal to the
initial offering price at which shares are to be issued to the public. These
options vest at a rate of one-third per year commencing one year from the date
of the grant and expire ten years from the date of grant.

On May 24, 1996, the Company filed a registration statement with the
Securities and Exchange Commission relating to the proposed public offering by
the Company of 6,150,000 previously unissued shares of its common stock.

On June 19, 1996, an action was brought by Nab Nat. Resources, L.L.C.
against several defendants, including InterCoast Oil and Gas, in the Second
Judicial District Court, Claiborne Parish, State of Louisiana, seeking a
declaration of the court that certain leases and a unit agreement had lapsed
by reason of a cessation of production of oil or gas in paying quantities that
allegedly occurred in the mid 1980's. The plaintiff also seeks, among other
things, an accounting of the production of oil, gas and other minerals from
the properties since the alleged lapse of the leases, damages of not less than
$5,000,000 for restoration and clean up of the lands covered by the leases and
certain other damages for trespass and mental anguish. The Company is in the
preliminary stages of investigating the facts on which the lawsuit appear to
be based. Based on the Company's preliminary investigations, the claim of
damages for restoration and clean up of certain lands appears to relate to
properties which the Company does not own. The Company currently intends to
continue its investigation of the lawsuit and to defend the action vigorously.

13) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The results of operations by quarter for the years ended December 31, 1994
and 1995 are as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
1994 QUARTER ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Total revenues....................... $ 15,612 $ 15,529 $ 14,139 $ 13,332
Income before income taxes........... $ 1,976 $ 2,280 $ 1,187 $ 282
Net income........................... $ 1,235 $ 1,247 $ 553 $ 366
Net income per share................. $ 0.16 $ 0.16 $ 0.07 $ 0.04
<CAPTION>
1995 QUARTER ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Total revenues....................... $ 12,991 $ 14,223 $ 14,047 $ 31,335
Income before income taxes........... $ 556 $ 1,219 $ 581 $ 2,010
Net income........................... $ 367 $ 591 $ 214 $ 1,713
Net income per share................. $ 0.05 $ 0.07 $ 0.03 $ 0.21
</TABLE>

F-14
<PAGE>

INTERCOAST ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In the fourth quarter of 1994, the Company experienced a significant decline
in its realized gas price causing reductions in gas and oil revenues and
income before income taxes as compared to the prior three quarters of 1994.

In the fourth quarter of 1995, the Company acquired certain assets of GED
Gas Services, L.L.C. The acquisition generated natural gas sales revenues of
$14.1 million in such quarter that were not included in the 1994 fourth
quarter results or the prior three quarters of 1995. Additionally, in the
fourth quarter of 1995, the Company's gas production volumes and realized gas
prices increased resulting in higher gas and oil revenues and income before
income taxes as compared to the prior three quarters of 1995.

14) SUPPLEMENTARY OIL AND GAS DISCLOSURES

Users of the following information should be aware that the process of
estimating quantities of proved and proved developed oil and gas reserves is
very complex, requiring significant subjective decisions in the evaluation of
all available geological, engineering and economic data for each reservoir.
The data for a given reservoir may also change substantially over time as a
result of numerous factors including, but not limited to, additional
development activity, evolving production history and continual reassessment
of the viability of production under varying economic conditions.
Consequently, material revisions to existing reserve estimates occur from time
to time. Although every reasonable effort is made to ensure that reserve
estimates reported represent the most accurate assessment possible, the
significance of the subjective decisions required and variances in available
data for various reservoirs make these estimates generally less precise than
other estimates presented in connection with financial statement disclosures.

Proved reserves are estimated quantities of natural gas, crude oil and
condensate that geological and engineering data demonstrate, with reasonable
certainty, to be recoverable in future years from known reservoirs under
economic and operating conditions existing at the time the estimates were
made.

Proved developed reserves are proved reserves that can be expected to be
recovered through wells and equipment in place and under operating methods
being utilized at the time the estimates were made.

Capitalized costs for oil and gas producing activities consist of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Proved properties............................... $146,422 $184,502 $223,088
Unproved properties............................. 1,487 1,629 2,059
Accumulated depletion, depreciation and
amortization................................... (26,459) (45,061) (66,550)
-------- -------- --------
Net capitalized costs....................... $121,450 $141,070 $158,597
======== ======== ========
</TABLE>

Costs incurred for oil and gas property acquisition, exploration and
development activities are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Development............................................. $12,749 $22,000 $34,639
Property acquisitions................................... 59,913 18,705 2,726
Exploration............................................. 2,322 2,144 3,480
------- ------- -------
$74,984 $42,849 $40,845
======= ======= =======
</TABLE>

F-15
<PAGE>

INTERCOAST ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Estimated Net Quantities of Oil and Gas Reserves--(Unaudited)

The following table sets forth the Company's net proved reserves, including
the changes therein, and proved developed reserves (all within the United
States) at the end of each of the three years in the period ended December 31,
1995:

<TABLE>
<CAPTION>
NATURAL OIL AND
GAS LIQUIDS TOTAL
(MMCF) (MBBL) (MMCFE)
--------- -------- ---------
<S> <C> <C> <C>
Net proved reserves at December 31, 1992........ 64,806.5 3,111.0 83,472.5
Revisions of previous estimates............... (6,649.3) 441.8 (3,998.5)
Extensions, discoveries and other additions... 14,911.6 288.4 16,642.0
Purchases of reserves in place................ 55,740.1 5,840.3 90,781.9
Production.................................... (12,741.8) (690.8) (16,886.6)
Sales of reserves in place.................... (4,043.7) (35.6) (4,257.3)
--------- -------- ---------
Net proved reserves at December 31, 1993........ 112,023.4 8,955.1 165,754.0
Revisions of previous estimates............... (10,931.0) (1,089.0) (17,465.0)
Extensions, discoveries and other additions... 39,713.5 375.0 41,963.5
Purchases of reserves in place................ 23,804.9 1,489.6 32,742.5
Production.................................... (15,590.9) (1,024.4) (21,737.3)
Sales of reserves in place.................... (408.9) (1,402.5) (8,823.9)
--------- -------- ---------
Net proved reserves at December 31, 1994........ 148,611.0 7,303.8 192,433.8
Revisions of previous estimates............... (22,594.8) 3,265.8 (3,000.0)
Extensions, discoveries and other additions... 24,372.5 514.0 27,456.5
Purchases of reserves in place................ 1,119.2 12.7 1,195.4
Production.................................... (17,835.4) (1,027.9) (24,002.8)
Sales of reserves in place.................... 0.0 (224.4) (1,346.4)
--------- -------- ---------
Net proved reserves at December 31, 1995........ 133,672.5 9,844.0 192,736.5
========= ======== =========
Net proved developed reserves
at December 31, 1993.......................... 100,660.0 8,173.0 149,698.0
at December 31, 1994.......................... 115,099.0 6,717.0 155,401.0
at December 31, 1995.......................... 111,189.0 8,255.0 160,719.0
</TABLE>

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves (Unaudited)

The following information has been developed utilizing procedures prescribed
by Statement of Financial Accounting Standards No. 69 "Disclosures about Oil
and Gas Producing Activities" (SFAS No. 69) and based on natural gas and crude
oil reserve and production volumes estimated, in part by the Company, but
primarily by the Company's independent petroleum engineers, Netherland, Sewell
and Associates, Inc. It may be useful for certain comparative purposes, but
should not be solely relied upon in evaluating the Company or its performance.
Further, information contained in the following table should not be considered
as representative of realistic assessments of future cash flows, nor should
the Standardized Measure of Discounted Future Net Cash Flows be viewed as
representative of the current value of the Company.

The Company believes that the following factors should be taken into account
in reviewing the following information: (1) future costs and selling prices
will probably differ from those required to be used in these calculations; (2)
due to future market conditions and governmental regulations, actual rates of
production achieved in future years may vary significantly from the rate of
production assumed in the calculations; (3) selection of a 10% discount rate
is arbitrary and may not be reasonable as a measure of the relative risk
inherent in realizing future net oil and gas revenues; and (4) future net
revenues may be subject to different rates of income taxation.

F-16
<PAGE>

INTERCOAST ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Under the Standardized Measure, future cash inflows were estimated by
applying period-end oil and gas prices adjusted for fixed and determinable
escalations to the estimated future production of period-end reserves. As of
December 31, 1995, approximately 37.5 Bcf of gas of the Company's future
production was subject to commodity price swap agreements (see Note 8). Future
cash inflows were reduced by estimated future development, abandonment and
production costs based on period-end costs in order to arrive at future net
cash flow before tax. Future income tax expense has been computed by applying
period-end statutory tax rates to aggregate future pre-tax net cash flows,
reduced by the tax basis of the properties involved and tax carryforwards. Use
of a 10% discount rate is required by SFAS No. 69.

Management does not rely solely upon the following information in making
investment and operating decisions. Such decisions are based upon a wide range
of factors, including estimates of probable as well as possible reserves and
varying price and cost assumptions considered more representative of a range
of possible economic conditions that may be anticipated.

The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves is as follows:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows....................... $ 354,076 $ 369,430 $ 430,282
Future production costs................... (119,855) (123,914) (155,984)
Future development and abandonment costs.. (13,886) (24,003) (16,078)
--------- --------- ---------
Future net cash flows before income
taxes.................................... 220,335 221,513 258,220
Future income tax expense................. (50,633) (47,526) (65,314)
10% annual discount for estimating timing
of cash flows............................ (51,500) (47,943) (55,982)
--------- --------- ---------
Standardized measure of discounted future
net cash flows........................... $ 118,202 $ 126,044 $ 136,924
========= ========= =========
</TABLE>

A summary of the principal changes in the standardized measure of discounted
future net cash flows applicable to proved oil and gas reserves is as follows
(unaudited):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning of the period...................... $ 62,177 $118,202 $126,044
-------- -------- --------
Revisions of previous estimates:
Changes in prices and costs.................. (551) (25,715) 8,275
Changes in quantities........................ (3,957) (13,134) (2,627)
Changes in future development costs.......... (6,016) (7,323) (2,948)
Previously estimated development costs
incurred during the period.................. 8,951 11,572 17,954
Additions to proved reserves resulting from
extensions and discoveries, less related
costs....................................... 16,314 31,935 26,998
Sales of reserves in place................... (2,763) (663) (769)
Purchases of reserves in place............... 68,074 27,006 2,085
Accretion of discount........................ 7,760 13,771 14,460
Sales of oil and gas, net of production
costs....................................... (27,728) (29,129) (32,961)
Net changes in income taxes.................. (4,089) 958 (12,684)
Changes in estimated timing of production and
other....................................... 30 (1,436) (6,903)
-------- -------- --------
Net increase................................. 56,025 7,842 10,880
-------- -------- --------
End of period................................ $118,202 $126,044 $136,924
======== ======== ========
</TABLE>

F-17
<PAGE>

INTERCOAST ENERGY COMPANY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................... $ 8,303 $ 1,879
Accounts receivable......................... 23,016 25,656
Other....................................... 1,640 1,393
-------- --------
Total current assets...................... 32,959 28,928
Gas and oil properties, net................... 158,597 166,231
Continental Power Exchange, Inc., net......... 4,030 4,338
Intangible and other assets, net.............. 4,578 4,594
-------- --------
Total assets.............................. $200,164 $204,091
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable............................ $ 17,482 $ 22,642
Other current liabilities................... 3,966 4,525
-------- --------
Total current liabilities................. 21,448 27,167
-------- --------
Accumulated deferred income taxes, net........ 23,648 25,167
-------- --------
Long-term debt due to MidAmerican Capital..... 52,907 47,000
-------- --------
Stockholder's equity
Common stock ($.01 par value, 25,000,000
shares authorized, 7,927,500 shares issued
and outstanding)........................... 79 79
Additional paid-in capital.................. 85,995 85,995
Retained earnings........................... 16,087 18,683
-------- --------
Total stockholder's equity................ 102,161 104,757
-------- --------
Total liabilities and stockholder's
equity................................... $200,164 $204,091
======== ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of these statements.

F-18
<PAGE>

INTERCOAST ENERGY COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1995 1996
-------------- --------------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
INTERCOAST OIL AND GAS COMPANY
Gas and oil revenues.......................... $ 10,995 $ 15,647
Gas and oil operating expenses................ (3,645) (3,508)
Depreciation, depletion and amortization
expense...................................... (5,115) (6,214)
General and administrative expense, net....... (640) (714)
------------- --------------
1,595 5,211
------------- --------------
INTERCOAST ENERGY MARKETING
Natural gas sales revenues.................... 1,996 34,972
Cost of gas sold.............................. (1,874) (34,184)
Electric power sales revenues................. -- 406
Cost of electric power sold................... -- (292)
Operating expenses............................ (209) (596)
General and administrative expense............ (103) (181)
------------- --------------
(190) 125
------------- --------------
CONTINENTAL POWER EXCHANGE, INC.
Administrative and development expense, net... (460) (739)
------------- --------------
Corporate expenses.............................. (389) (472)
------------- --------------
Income before income taxes...................... 556 4,125
Provision for income taxes...................... 189 1,529
------------- --------------
Net income...................................... $ 367 $ 2,596
============= ==============
Average common shares outstanding............... 7,928 7,928
============= ==============
Earnings per common share....................... $ 0.05 $ 0.33
============= ==============
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of these statements.

F-19
<PAGE>

INTERCOAST ENERGY COMPANY

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY

(UNAUDITED)

<TABLE>
<CAPTION>
COMMON SHARES ADDITIONAL
------------- PAID- RETAINED
SHARES AMOUNT IN CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995........ 7,928 $79 $85,995 $16,087 $102,161
Net income.......................... -- -- -- 2,596 2,596
----- --- ------- ------- --------
BALANCE AT MARCH 31, 1996........... 7,928 $79 $85,995 $18,683 $104,757
===== === ======= ======= ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of this statement.

F-20
<PAGE>

INTERCOAST ENERGY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1995 1996
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................... $ 367 $ 2,596
Adjustments to reconcile net income to net
cash from operating activities:
Deferred income taxes, net................... 3,761 1,519
Provision for depreciation, depletion and
amortization................................ 5,623 6,352
Change in working capital items:
Accounts receivable......................... (1,046) (2,640)
Other current assets........................ 320 247
Accounts payable............................ 1,560 5,160
Other current liabilities................... 1,686 559
-------------- --------------
Net cash from operating activities......... 12,271 13,793
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in:
Gas and oil properties....................... (10,389) (13,847)
Continental Power Exchange, Inc.............. (752) (362)
Other......................................... (14) (101)
-------------- --------------
Net cash from investing activities......... (11,155) (14,310)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of borrowings from MidAmerican
Capital...................................... -- 3,246
Repayments of borrowings from MidAmerican
Capital...................................... (2,607) (9,153)
Contributions from MidAmerican Capital........ 1,169 --
-------------- --------------
Net cash from financing activities......... (1,438) (5,907)
-------------- --------------
Net decrease in cash and cash equivalents...... (322) (6,424)
Cash and cash equivalents at beginning of
period........................................ 5,127 8,303
-------------- --------------
Cash and cash equivalents at end of period..... $ 4,805 $ 1,879
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid (received) during the period for:
Income taxes................................. $ (3,573) $ 10
============== ==============
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of these statements.

F-21
<PAGE>

INTERCOAST ENERGY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1) GENERAL

The accompanying consolidated financial statements have been prepared by
InterCoast Energy Company (Company), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the Company, all
adjustments are of a normal and recurring nature and have been made to present
fairly the financial position, the results of operations, the changes in cash
flows and the changes in stockholder's equity for the periods presented.
Although the Company believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these financial
statements be read in conjunction with the audited, consolidated financial
statements and notes thereto included in this Prospectus.

2) STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121

On January 1, 1996, the Company adopted SFAS No. 121 regarding accounting
for asset impairments. This statement requires the Company to review long-
lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
adoption of SFAS 121 had no impact on the Company's results of operations or
financial position.

3) SUBSEQUENT EVENTS

In April 1996, the Company acquired the interests of Enron Oil & Gas Company
in certain gas and oil properties, associated gas gathering lines and other
well equipment located in Texas. The net purchase price at closing was
approximately $53.2 million. The Company concurrently conveyed certain
interests in particular wells to InterCoast Global Management, Inc., a wholly
owned subsidiary of MidAmerican Capital Company, the Company's sole
stockholder. The Company retained a production payment on 100 percent of the
net proceeds of production from such wells until approximately 80 percent of
the estimated proved developed natural gas reserves attributable to the wells
is produced. In consideration, the Company received from InterCoast Global
Management, Inc. $5.6 million in cash and a promissory note in the amount of
$2.3 million, which is payable in 48 monthly installments over four years and
bears interest at the prime rate. The total adjusted purchase price was $45.2
million. The Company recorded no gain or loss related to this transaction. The
proved reserves associated with the production payment are included in the
Company's estimated net quantities of oil and gas reserves. The revenues and
direct operating expenses for the acquired properties and gathering systems
for the first quarter of 1996, which were not included in the Company's
results of operations for the first quarter of 1996, were $3.7 million and
$0.6 million, respectively.

On May 24, 1996, the Company filed a registration statement with the
Securities and Exchange Commission relating to the proposed offering by the
Company of 6,150,000 previously unissued shares of its Common Stock.

F-22
<PAGE>

INTERCOAST ENERGY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

production of oil or gas in paying quantities that allegedly occurred in the
mid 1980's. The plaintiff also seeks, among other things, an accounting of the
production of oil, gas and other minerals from the properties since the
alleged lapse of the leases, damages of not less than $5,000,000 for
restoration and clean up of the lands covered by the leases and certain other
damages for trespass and mental anguish. The Company is in the preliminary
stages of investigating the facts on which the lawsuit appear to be based.
Based on the Company's preliminary investigations, the claim of damages for
restoration and clean up of certain lands appears to relate to properties
which the Company does not own. The Company currently intends to continue its
investigation of the lawsuit and to defend the action vigorously.

F-23
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholder and Board of Directors of
InterCoast Energy Company:

We have audited the accompanying statements of revenues and direct operating
expenses of the Sawyer Canyon Properties (see Note 1) for the years ended
December 31, 1995 and 1994. These statements are the responsibility of
InterCoast Energy Company's management. Our responsibility is to express an
opinion on these 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 statements of revenues and
direct operating expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the statements of revenues and direct operating expenses
referred to above presents fairly, in all material respects, the revenues and
direct operating expenses of the Sawyer Canyon Properties (see Note 1) for the
years ended December 31, 1995 and 1994, in conformity with generally accepted
accounting principles.

Arthur Andersen LLP

Houston, Texas

June 28, 1996

F-24
<PAGE>

SAWYER CANYON PROPERTIES

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
----------------------------------- ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31, 1996
----------------- ----------------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Gas and oil.............. $20,661 $13,084 $3,425
Gathering systems........ 2,033 1,594 315
------- ------- ------
Total revenues......... 22,694 14,678 3,740
------- ------- ------
DIRECT OPERATING EXPENSES:
Gas and oil operating.... 2,625 2,953 614
Gathering systems........ 163 105 31
------- ------- ------
Total expenses......... 2,788 3,058 645
------- ------- ------
Excess of revenues over
direct operating
expenses.................. $19,906 $11,620 $3,095
======= ======= ======
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-25
<PAGE>

SAWYER CANYON PROPERTIES

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

(1) THE SAWYER CANYON PROPERTIES

On March 30, 1996, Enron Oil & Gas Company (EOG) entered into a purchase and
sale agreement (the Agreement) to sell certain gas and oil properties and
related assets and two gathering systems (collectively, the Sawyer Canyon
Properties) to InterCoast Oil and Gas Company (the Company). The purchase
price as of the January 1, 1996 effective date, $55.5 million, was subject to
certain adjustments including the net revenues (as defined in the Agreement)
between the effective date and the closing date. The net purchase price at
closing, April 12, 1996, was approximately $53.2 million of which $3.0 million
was assigned to the carrying value of related gathering systems which were
transferred to InterCoast Gas Services Company, an affiliated company. The
properties, predominantly natural gas, and the associated gathering systems
are located in West Texas.

Concurrent with the closing of the acquisition of the Sawyer Canyon
Properties from EOG, the Company conveyed certain interests in particular
wells to InterCoast Global Management, Inc., a wholly owned subsidiary of
MidAmerican Capital Company, the Company's indirect parent. The Company
retained a production payment on 100 percent of the net proceeds of production
of such wells until approximately 80 percent of the estimated proved developed
natural gas reserves attributable to the wells has been produced. The Company
received from InterCoast Global Management, Inc. $5.6 million in cash and a
promissory note in the amount of $2.3 million, which is payable in 48 monthly
installments over four years and bears interest at the prime rate. The Company
recorded no gain or loss on this transaction.

(2) BASIS OF PRESENTATION

Certain costs, such as depreciation, depletion and amortization, general and
administrative expenses and federal and state income taxes were not allocated
to the above properties because the property interests and related assets and
gathering systems acquired represent only a portion of EOG's business and the
costs incurred by EOG are not necessarily indicative of the costs to be
incurred by the Company. Historical financial information reflecting financial
position, results of operations and cash flows of the Sawyer Canyon Properties
are not presented because the entire acquisition cost was assigned to the gas
and oil property interests and the related gathering systems. Accordingly, the
historical statements of revenues and direct operating expenses have been
presented in lieu of the financial statements required under Rule 3-05 of
Securities and Exchange Commission Regulation S-X.

Revenues and direct operating expenses for the gas and oil properties
included in the accompanying statement represent EOG's interest in the
properties and are presented on the accrual basis of accounting and may not be
representative of future operations. Revenues on the gas and oil properties
are shown net of any applicable severance taxes. Certain of the gas and oil
properties qualify as high-cost natural gas wells and are currently exempt
from Texas severance taxes. Depreciation, depletion and amortization,
allocated general and administrative expenses and federal and state income
taxes have been excluded.

Revenues and direct operating expenses for the two gathering systems are
presented on the accrual basis of accounting and may not be representative of
future operations. Depreciation, depletion and amortization, allocated general
and administrative expenses and federal and state income taxes have been
excluded.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and direct operating
expenses during the reporting period. Actual results could differ from those
estimates.

(3) RELATED PARTY TRANSACTIONS

Included in gas and oil revenues (excluding severance taxes and gathering
and transportation expenses) for the gas and oil properties is approximately
$21.2 million, $13.0 million and $3.0 million for the years ended

F-26
<PAGE>

SAWYER CANYON PROPERTIES

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES--(CONTINUED)

December 31, 1994 and 1995, and the three months ended March 31, 1996,
respectively, related to the sale of natural gas and crude oil and condensate
volumes to affiliates of EOG.

Included in revenues for the two gathering systems is approximately $1.8
million, $1.2 million and $0.3 million for the years ended December 31, 1994
and 1995, and the three months ended March 31, 1996, respectively, from the
transportation of natural gas for EOG's production volumes, which are shown as
a reduction in the related gas and oil revenues.

(4) COMMITMENTS AND CONTINGENCIES

Pursuant to the terms of the Agreement, certain claims, litigation, or
disputes pending as of the effective date and certain matters arising in
connection with ownership of the properties or the gathering systems prior to
the effective date are retained by EOG.

(5) SUPPLEMENTAL FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

Users of the following information should be aware that the process of
estimating quantities of proved and proved developed oil and gas reserves is
very complex, requiring significant subjective decisions in the evaluation of
all available geological, engineering and economic data for each reservoir.
The data for a given reservoir may also change substantially over time as a
result of numerous factors including, but not limited to, additional
development activity, evolving production history and continual reassessment
of the viability of production under varying economic conditions.
Consequently, material revisions to existing reserve estimates occur from time
to time. Although every reasonable effort is made to ensure that reserve
estimates reported represent the most accurate assessments possible, the
significance of the subjective decisions required and variances in available
data for various reservoirs make these estimates generally less precise than
other estimates presented in connection with financial statement disclosures.

Proved reserves are estimated quantities of natural gas, crude oil and
condensate, that geological and engineering data demonstrate, with reasonable
certainty, to be recoverable in future years from known reservoirs under
economic and operating conditions existing at the time the estimates were
made.

Proved developed reserves are proved reserves expected to be recovered
through wells and equipment in place and under operating methods being
utilized at the time the estimates were made.

Estimates of proved and proved developed reserves at December 31, 1994 and
1993 were based on studies performed by the engineering staff of EOG.
Estimates of proved and proved developed reserves at December 31, 1995 are
based on estimates prepared by Netherland, Sewell and Associates, Inc.

Estimated Net Quantities of Oil and Gas Reserves

<TABLE>
<CAPTION>
OIL AND
GAS LIQUIDS
(MMCF) (MBBL)
------- --------
<S> <C> <C>
Net proved reserves at December 31, 1993................... 79,614 51
Production............................................... (10,903) (32)
------- ---
Net proved reserves at December 31, 1994................... 68,711 19
Production............................................... (8,145) (17)
Revisions of previous estimates and other................ (2,812) 77
------- ---
Net proved reserves at December 31, 1995................... 57,754 79
======= ===
Net proved developed reserves
at December 31, 1994...................................... 66,449 40
at December 31, 1995...................................... 55,546 72
</TABLE>

F-27
<PAGE>

SAWYER CANYON PROPERTIES

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES--(CONTINUED)

Standardized Measure of Discounted Future Net Cash Flows Relating to Oil and
Gas Properties

The following information has been developed utilizing procedures described
by Statement of Financial Accounting Standards No. 69 "Disclosures About Oil
and Gas Producing Activities" and based on natural gas and crude oil reserve
and production volumes estimated by the engineering staff of Netherland,
Sewell and Associates, Inc. It may be useful for certain comparison purposes,
but should not be solely relied upon in evaluating the oil and gas properties
or their performance. Further, information contained in the following table
should not be considered as representative of realistic assessments of future
cash flows, nor should the Standardized Measure of Discounted Future Net Cash
Flows be viewed as representative of the current value of the oil and gas
properties.

The future cash flows presented below are based on sales prices, cost rates,
and statutory income tax rates in existence as of the date of the projections
estimated by Netherland, Sewell and Associates, Inc. It is possible that
material revisions to some estimates of natural gas and crude oil reserves may
occur in the future, development and production of the reserves may occur in
periods other than those assumed, and actual prices realized and costs
incurred may vary significantly from those used.

The future cash flows presented by the Company in the future will be based
on the Company's cost structure and timing of future development and
production and accordingly may be significantly different from those of EOG.

<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Future cash inflows.................... $145,946 $133,190
Future production costs................ (45,659) (43,034)
Future development costs............... (1,573) (1,573)
-------- --------
Future net cash flows.................. 98,714 88,583
Discount to present value at 10% annual
rate.................................. (39,129) (33,171)
-------- --------
Standardized measure of discounted
future net cash flows relating to
proved oil and gas reserves........... $ 59,585 $ 55,412
======== ========
</TABLE>

Changes in Standardized Measure of Discounted Future Net Cash Flows

The following table sets forth the changes in the standardized measure of
discounted future net cash flows relating to proved oil and gas reserves for
the years ended December 31, 1994 and 1995:

<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Beginning of period.................... $ 70,565 $ 59,585
Accretion of discount.................. 7,056 5,958
Sales of oil and gas, net of production
costs................................. (18,036) (10,131)
-------- --------
Net decrease........................... (10,980) (4,173)
-------- --------
End of period.......................... $ 59,585 $ 55,412
======== ========
</TABLE>

F-28
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.

----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
The Company.............................................................. 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Unaudited Pro Forma Combined Financial Statements........................ 20
Selected Historical Financial Data....................................... 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 26
Business and Properties.................................................. 32
Relationship Between the Company and the Parent.......................... 53
Management............................................................... 56
Certain Transactions..................................................... 66
Principal and Selling Stockholder........................................ 67
Description of Capital Stock............................................. 67
Shares Eligible for Future Sale.......................................... 68
Underwriting............................................................. 70
Legal Matters............................................................ 71
Experts.................................................................. 71
Additional Information................................................... 72
Glossary................................................................. 73
Index to Financial Statements............................................ F-1
</TABLE>

----------------
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

7,150,000 SHARES

INTERCOAST ENERGY
COMPANY

COMMON STOCK

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

PROSPECTUS

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

PAINEWEBBER INCORPORATED

MERRILL LYNCH & CO.

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

, 1996

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

All amounts, except SEC and NASD fees, are estimates.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.......... $ 45,366
NASD filing fee.............................................. 13,656
New York Stock Exchange listing fee.......................... 125,000
Transfer agent's fees........................................ 3,000
Printing, engraving and shipping expenses.................... 125,000
Legal fees and expenses...................................... 150,000
Blue sky fees and expenses................................... 15,000
Accounting fees.............................................. 300,000
Investment advisory fees..................................... 100,000
Miscellaneous................................................ 17,978
--------
Total.................................................... $895,000(1)
========
</TABLE>
--------

(1) MidAmerican Capital, as a selling stockholder, will pay a
pro rata share of such expenses based on the ratio of the
total number of shares sold by it in the Offering to the
total number of shares sold in the Offering.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law provides generally that
a corporation may indemnify any person who was or is a party to or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
in nature, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) and, in a proceeding not by or in the right of the
corporation, judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with such suit or proceeding, if he
acted in good faith and in a manner believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reason to believe his conduct was unlawful. Delaware law
further provides that a corporation may not indemnify any person against
expenses incurred in connection with an action by or in the right of the
corporation if such person shall have been adjudged to be liable in the
performance of his duty to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine that,
despite the adjudication of liability but in the view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
the expenses which such court shall deem proper. The Certificate of
Incorporation and Bylaws provide that the Company shall indemnify an officer
or director against liabilities incurred by such person as authorized under
the Delaware General Corporation Law. In addition, the Company has entered
into specific agreements with the directors and officers of the Company
providing for indemnification of such persons under certain circumstances. The
Certificate of Incorporation also eliminates, subject to certain limitations,
the liability of the Company's directors for monetary damages for breach of
their fiduciary duty as directors.

The form of Underwriting Agreement included as Exhibit 1.1 provides for
indemnification of the Company and certain controlling persons under certain
circumstances, including liabilities under the Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following information is furnished as to securities of the Company sold
within the past three years which were not registered under the Securities
Act. Each of the issuances and sales described below was effected and relies
upon an exemption from registration under Section 4(2) of the Securities Act,
for transactions by an

II-1
<PAGE>

issuer not involving any public offering, or other exemptions as set forth
below. Grants of options are included only to the extent that such grants are
considered to be sales. No underwriting discounts or commissions were paid in
connection with such issuances and sales.

1. On May 23, 1996, in connection with the organization of the Company,
the Company issued 7,927,500 shares of Common Stock to MidAmerican Capital
as consideration for the transfer to the Company of the stock of the
Company's operating subsidiaries in which MidAmerican Capital had made
capital contributions aggregating $105,892,000 as of March 31, 1996.

2. Effective May 22, 1996, the Company granted stock options for the
purchase of 541,600 shares of the Common Stock to certain officers and key
employees of the Company pursuant to the Stock Plan.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits*:

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
1.1** Form of Underwriting Agreement.
3.1*** Certificate of Incorporation of the Company.
3.2*** Bylaws of the Company.
4.1 Form of stock certificate for the Company's Common Stock, par
value $0.01 per share.
5.1 Opinion of Conner & Winters, A Professional Corporation.
10.1*** Purchase and Sale Agreement dated March 30, 1996, between the
Company and Enron Oil & Gas Company and Enron Oil & Gas
Marketing Inc.
10.2*** Amendment to Purchase and Sale Agreement dated April 10, 1996,
between the Company and Enron Oil & Gas Company and Enron Oil
& Gas Marketing, Inc.
10.3** Revolving Credit Facility dated , 1996, between the
Company and .
10.4** Administrative Services Agreement dated as of , 1996,
between the Company and MidAmerican Capital Company.
10.5*** InterCoast Energy Company Long-Term Incentive Plan.
10.6*** InterCoast Energy Company Non-Employee Director Stock Plan.
10.7*** Purchase and Sale Agreement dated April 12, 1996, between the
Company and InterCoast Global Management, Inc.
10.8** Tax Sharing Agreement dated as of , 1996, between the
Company and MidAmerican Capital Company.
10.9** Indemnification Agreement dated as of , 1996, between the
Company and MidAmerican Capital.
10.10 Promissory Note dated April 12, 1996, in the original
principal amount of $45,240,000 made by the Company in favor
of MidAmerican Capital.
10.11** Variable Balance Promissory Note and Loan Agreement dated May
17, 1996, in the original principal amount of $47,000,000
made by the Company in favor of MidAmerican Capital.
10.12*** InterCoast Energy Company Performance Incentive Plan.
10.13*** Medallion Production Company Performance Incentive Plan dated
April 1992, and addendums dated January 1994 and March 1994.
10.14 Asset Purchase Agreement dated December 15, 1995, between GED
Gas Services, L.L.C., Unit Corporation, Kevin J. Sullivan, as
Trustee of the Karen S. Sullivan Trust dated June 9, 1992,
Robert L. Bayless, Bill A. Queen, Burt B. Holmes, and Kent
Bogart, and GED Energy Services, Inc., and InterCoast Energy
Company.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2*** Consent of Netherland, Sewell and Associates, Inc.
23.3*** Consent of Conner & Winters, A Professional Corporation
(included in Exhibit 5).
23.4*** Consent of William E. Warnock, Jr.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
23.5*** Consent of Russell E. Christiansen.
23.6*** Consent of Stanley J. Bright.
23.7*** Consent of John A. Rasmussen, Jr.
23.8*** Consent of George G. Daly.
23.9*** Consent of Robert C. Thomas.
24.1*** Power of Attorney (included in this Part II).
27.1 Financial Data Schedule.
99.1 Summary reserve report of Netherland, Sewell & Associates,
Inc. dated May 13, 1996.
</TABLE>
--------
*Exhibits excluded are not applicable.
**To be filed by amendment.

***Filed with the Registration Statement on Form S-1, No. 333-4525, on
May 24, 1996.

(b) Financial Statement Schedules:

None.

All other schedules are omitted as inapplicable or because the required
information is contained in the financial statements or included in the
footnotes thereto.

ITEM 17. UNDERTAKINGS.

1. The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closings specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.

2. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

3. The undersigned Registrant hereby undertakes that:

(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(ii) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF DALLAS AND STATE OF TEXAS ON THE 28TH DAY OF JUNE, 1996.

InterCoast Energy Company

/s/ Donald C. Heppermann
By: _________________________________
DONALD C. HEPPERMANN CHAIRMAN AND
CHIEF EXECUTIVE OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:

NAME TITLE DATE
---- ----- ----
/s/ Donald C. Heppermann Chairman, Chief
- ------------------------------------- Executive Officer June 28, 1996
DONALD C. HEPPERMANN and Director
(Principal
Executive Officer)

Vice President--
/s/ Daniel E. Lonergan Finance, Controller June 28, 1996
- ------------------------------------- and Treasurer
DANIEL E. LONERGAN (Principal
Accounting Officer
and Principal
Financial Officer)

II-4

<PAGE>

EXHIBIT 4.1

INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF DELAWARE PAR VALUE $.01

SHARES
THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NEW YORK CUSIP ____________________
SEE REVERSE FOR
CERTAIN DEFINITIONS

INTERCOAST ENERGY COMPANY

THIS CERTIFIES THAT

IS OWNER OF

FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF

InterCoast Energy Company, transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares represented
thereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation, as amended, or as may be
amended (a copy of which is on file with the Transfer Agent), to all of which
the holder by acceptance hereof agrees and assents. This certificate is not
valid until countersigned by the Transfer Agent and the Registrar.

In Witness Whereof, the said Corporation has caused the facsimile
signatures of its duly authorized officers to be hereunto affixed.

DATED:

COUNTERSIGNED AND REGISTERED:

The Bank of New York,
Transfer Agent and Registrar

By:
- --------------------- ------------------------ ---------------------------
Chairman and Treasurer Authorized Signature
Chief Executive Officer

<PAGE>

INTERCOAST ENERGY COMPANY

THE CORPORATION WILL FURNISH, UPON REQUEST AND WITHOUT CHARGE, A FULL
STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE
RIGHTS OF THE SHARES OF EACH CLASS OF STOCK OF THE CORPORATION AUTHORIZED TO BE
ISSUED. SUCH REQUEST MAY BE MADE TO THE CORPORATION AT ITS PRINCIPAL PLACE OF
BUSINESS OR TO THE TRANSFER AGENT.

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM -as tenants in common UNIF GIFT MIN ACT -________Custodian_________
(Cust) (Minor)

TEN ENT -as tenants by the entities UNIF TRANS MIN ACT-______Custodian________
(Cust) (Minor)

JT TEN -as joint tenants with right of Under Uniform Gifts to Minors
survivorship and not as Act_____________________
tenants in common (State)

Additional abbreviations may also be used though not on the above list.

For value received, __________________________________________ hereby
sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

[ ] _________________________________________________________
_______________________________________________________________________________.
Please print or typewrite name and address including postal zip code of assignee

_______________________________________________________________________________

____________________________________________________________, Assignee ________
shares of the capital stock represented by the within certificate and do hereby
irrevocably constitute and appoint

_______________________________________________________________________________

Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.

Dated ____________________________ X ______________________________________

X ______________________________________
Please sign here exactly as name(s) is
(are) shown on the face of this
certificate without any change or
alteration whatever.
SIGNATURE(S) GUARANTEED:

IMPORTANT NOTICE: When you sign your name to this Assignment Form without
filling in the name of your "Assignee" or "Attorneys," this stock certificate
becomes fully negotiable, similar to a check endorsed in blank. Therefore, to
safeguard a signed certificate, it is recommended that you either (i) fill in
the name of the new owner in the "Assignee" blank or (ii) if you are sending the
certificate to your bank or broker, fill in the name of the bank or broker in
the "Attorney" blank. Alternatively, instead of using this Assignment Form, you
may sign a separate "stock power" form (available from New York Stock Exchange,
commercial bank or trust company) and then mail the unsigned stock certificate
and the signed "stock power" in separate envelopes. For added protection, use
certified or registered mail for a stock certificate. If you have any questions
on the transfer procedure, please call the registrar and transfer agent listed
on the face of this certificate.

<PAGE>

EXHIBIT 5.1

[LETTERHEAD OF CONNER & WINTERS]

June 28, 1996

InterCoast Energy Company
666 Grand Avenue, 26th Floor
Des Moines, Iowa 50309

Re: Registration Statement on Form S-1
(the "Registration Statement")
------------------------------------------------

Gentlemen:

We have acted as counsel for InterCoast Energy Company, a Delaware
corporation (the "Company"), in connection with the proposed public offering of
an aggregate of up to 8,222,500 shares of the Company's Common Stock, par value
$0.01 per share (the "Shares"), of which up to (i) 6,150,000 shares will be sold
by the Company and (ii) 2,072,500 shares will be sold by MidAmerican Capital
Company (the "Selling Stockholder") (including up to 1,072,500 shares subject to
an over-allotment option granted by the Selling Stockholder to the underwriters
offering the Shares). As described in the Registration Statement, the Company
and the Selling Stockholder are selling the Shares pursuant to an Underwriting
Agreement (the "Underwriting Agreement") to be entered into among the Company,
the Selling Stockholder and PaineWebber Incorporated and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as representatives of the underwriters.

In reaching the conclusions expressed in this opinion, we have (a)
examined such certificates of public officials and of corporate officers and
directors and such other documents and matters as we have deemed necessary or
appropriate, (b) relied upon the accuracy of facts and information set forth in
all such documents, and (c) assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as copies, and the
authenticity of the originals from which all such copies were made.
<PAGE>

June , 1996
Page 2

Based on the foregoing, we are of the opinion that:

1. The Shares to be sold by the Company have been duly authorized
and, when issued, delivered and paid for in accordance with the terms and
conditions of the Underwriting Agreement, will be validly issued, fully paid and
non-assessable shares of Common Stock of the Company.

2. The previously issued Shares to be sold by the Selling
Stockholder have been duly authorized and are validly issued, fully paid and
non-assessable shares of Common Stock of the Company.

We consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Registration
Statement and the Prospectus constituting a part thereof under the caption
"Legal Matters."

Very truly yours,

CONNER & WINTERS,
A Professional Corporation

<PAGE>

EXHIBIT 10.10

PROMISSORY NOTE

$45,240,000 Des Moines, Iowa
April 12, 1996

FOR VALUE RECEIVED, the undersigned, MEDALLION PRODUCTION COMPANY, a
Delaware corporation, promises to pay to the order of INTERCOAST ENERGY COMPANY,
a Delaware corporation, at Des Moines, Iowa, or at such other place as the legal
holder hereof may designate in writing, the principal sum of Forty Five Million
Two Hundred Forty Thousand Dollars ($45,240,000) in legal U.S. tender, with
interest thereon from the date hereof at the Applicable Rate (as hereinafter
defined), as hereinafter provided:

(1) Interest on the unpaid principal balance of this Note
shall be payable in arrears on a quarterly basis commencing on the 12th
day of July, 1996, and thereafter on the 12th day of October, January
and April during the term hereof.

(2) All principal and any accrued but unpaid interest shall
be due and payable on April 12, 1997.

The "Applicable Rate," means, for the relevant Interest Period, the sum
of (i) the rate reasonably determined by the payee hereof to be the rate at
which deposits in U.S. dollars are offered by the First National Bank of Chicago
to first-class banks in the London interbank market at approximately 11:00 a.m.
(London time) two Business Days (as hereinafter defined) prior to the first day
of such Interest Period, and having a maturity approximately equal to such
Interest Period, plus (ii) 0.55% per annum; provided, however in the event the
current principal revolving bank credit facility of InterCoast Energy Company is
amended or is replaced by another revolving bank credit facility of InterCoast
Energy Company is amended or is replaced by another revolving bank credit
facility of InterCoast Energy Company or its successor or assigns, the
Applicable Rate hereunder shall be changed to the rate of interest under such
amended or replacement revolving bank credit facility.

"Interest Period" means each period of six months commencing on the date
hereof.

"Business Day" means a day other than Saturday or Sunday on which
banks are open for business in Chicago, New York and Des Moines, Iowa, and on
which dealings in United States dollars are carried on in the London interbank
market.

Interest shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days. If any payment shall become due upon a
Saturday or Sunday or other day on which a majority of commercial banks on the
Des Moines, Iowa, are closed by reason of a holiday, such payment shall be due
upon and interest shall accrue to the next ensuing banking day.

<PAGE>

The undersigned may voluntarily prepay all or a portion of the principal
indebtedness hereunder, at any time, without premium or penalty.

All sums not paid when due hereunder shall bear interest from the due date
until paid at the Applicable Rate plus six percent (6%) per annum.

If all or any portion of the indebtedness hereby evidenced is not paid when
due, and such failure to pay continues for a period in excess of ten days
following notice by the holder to the undersigned of such failure to pay, or in
the event of the dissolution, insolvency, bankruptcy or receivership of the
undersigned, the holder may, without further notice or demand, declare this
indebtedness to be immediately due and payable.

The undersigned agrees that if, and as often as, this Note is placed in the
hands of an attorney for collection or to defend or enforce any of the holder's
rights hereunder or under any instruments securing payment of this Note, the
undersigned will pay to the holder its reasonable attorney's fees and all court
costs and other expenses incurred in connection therewith.

The makers, endorsers, sureties, guarantors and all other persons who may
become liable for all or any part of this obligation severally waive presentment
for payment, protest and notice of nonpayment. Said parties consent to any
extension of time (whether one or more) of payment hereof, release of all or any
part of the security for the payment hereof and the release of any party liable
for payment of this obligation. Any such extension of time or release may
be made at any time and from time to time without notice to any such party and
without discharging said party's liability hereunder.

This Note is to be construed according to the laws of the State of Iowa.

MEDALLION PRODUCTION COMPANY

By: /s/ Brian L. Cantrell
----------------------------
Name: Brian L. Cantrell
----------------------------
Title: Vice President-Finance
----------------------------

-2-

<PAGE>

EXHIBIT 10.14

ASSET PURCHASE AGREEMENT

By and Between

GED GAS SERVICES, L.L.C.,
Unit Corporation,
Kevin J. Sullivan, as Trustee of the Karen S. Sullivan Trust dated June 9,
1992, Robert L. Bayless,
Bill A. Queen,
Burt B. Holmes, and
Kent Bogart

and

GED ENERGY SERVICES, INC.

and

INTERCOAST ENERGY COMPANY
<PAGE>

INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>

Section 1 Definitions 2

Section 2 Sale and Assignment of Assets 4

Section 3 Purchase Price 5

Section 4 Taxes, Fees and Expenses 8

Section 5 Effective Date 9

Section 6 Representations and Warranties of Seller and Members 10

Section 7 Representations and Warranties of Buyer 13

Section 8 Business Between Date of this Agreement and Closing 14

Section 9 Covenants of Seller and Members and Buyer 15

Section 10 Actions at Closing 15

Section 11 Further Assurances 16

Section 12 Indemnification 17

Section 13 Notice, Defense and Payment 18

Section 14 Survival of Representations, Covenants and Agreements 19

Section 15 Employees 19

Section 16 Conditions Precedent 20

Section 17 Third Party Beneficiaries 22

Section 18 Miscellaneous 23

Section 19 Announcements 26

Section 20 Seller and Members' Obligations after the Closing 27
</TABLE>

1
<PAGE>

This Asset Purchase Agreement (the "Agreement") is entered into this 15th
day of December 1995, by and among GED Gas Services, L.L.C. an Oklahoma Limited
Liability Company ("GED"), Unit Corporation, Kevin J. Sullivan, as Trustee of
the Karen S. Sullivan Trust dated June 9, 1992, Robert L. Bayless, Bill A.
Queen, Burt B. Holmes and Kent Bogart and GED Energy Services, Inc., a
Delaware Corporation, and InterCoast Energy Company, a Delaware Corporation.

WITNESSETH

WHEREAS, Buyer desires to purchase from Seller and Seller desires to sell
to Buyer, on the terms and subject to the conditions in this Agreement
substantially all of the Assets and business of Seller's wholesale gas marketing
enterprise.

NOW, THEREFORE, in consideration of the premise and the respective
covenants, agreements, representations and warranties contained herein, the
parties hereby agree as follows:

Section 1
---------

DEFINITIONS

1.01 Definitions. The terms defined in this Section 1 shall for all
-----------
purposes of this Agreement, have the meanings herein specified:

(a) "Affiliate" means any person directly or indirectly controlling or
controlled by, or under common control with, a Party hereto.

(b) "Agreement" means this Asset Purchase Agreement.

(c) "Assets" means the following:
1. the rights of the Seller pursuant to the contracts listed in
Exhibit A (the "Contracts");
2. the physical assets reflected on Exhibit B (the "Physical
Assets");
3. the office supplies and software located in GED's Tulsa
office ("Office Supplies");
4. the rights of the Seller pursuant to leases set forth in
Exhibit C (the "Leases");
5. the intangible property consisting of all trade names,
trademarks, service marks, copyrights, patents, patent
rights, licenses, trade secrets, technical know-how developed
and/or used by GED which is not otherwise information and/or

2
<PAGE>

processes within the public domain, goodwill and other
intangibles including without limitation tort or insurance
proceeds arising out of any damage, destruction or impairment
of any Assets between the Effective Date and the Closing (the
"Intangible Property");

6. the name "GED Gas Services" and any variation thereof;
provided however that Buyer agrees to allow Seller to retain
use of the name of GED Gas Services, L.L.C. until such
reasonable time as it can change its name with the Oklahoma
Secretary of State's Office;

7. Without limitation all books and records related to the
Assets ("Books and Records").

8. For purposes of this Agreement Assets shall not include any
real property, unless the Parties subsequently enter into a
separate Schedule identifying the real property separately
from all other Physical Assets.

9. Assets shall not include the Akers Gas Gathering System and
the Butler Gas Gathering System.

(d) "Buyer" means GED Energy Services, Inc.

(e) "Closing" means the closing of the transactions contemplated by this
Agreement at GED's Tulsa, Oklahoma office located at 7666 East 61st
Street, on December 15, 1995, or such other place, time or date as the
Parties may mutually agree upon.

(f) "Company Documents" means the Articles of Organization.

(g) "Effective Date" means 12:01 AM Central Time, November 1, 1995.

(h) "Employees" means all persons who are employed by GED at any time from
its formation on March 31, 1995, until Closing. Former Employees
includes all persons who were employed by GED at any time prior to the
Effective Date.

(i) "GED" means GED Gas Services, L.L.C.

(j) "Members" means Unit Corporation, Kevin J. Sullivan, as Trustee of
the Karen S. Sullivan Trust dated June 9, 1992, Robert L. Bayless,

3
<PAGE>

Bill A. Queen, Burt B. Holmes and Kent Bogart . Individually any
of the Members shall be referred to as a Member.

(k) "Parties" means Buyer, GED, and Members, and "Party" means either
Buyer, GED, Member(s), or Seller, as the context requires.

(l) "Seller" means GED.

(m) "Taxes" means any tax, license, governmental charge or fee,
withholding or an assessment of any other nature, including without
limitation income, excise, property and sale taxes imposed by any
federal, state or local government, agency or taxing authority
thereof and any interest, penalty or addition to the tax relating
thereto.

Section 2
---------

SALE AND ASSIGNMENT OF ASSETS

2.01 On the Closing, Seller agrees to sell, transfer, assign, convey and
deliver the Assets to Buyer, and Buyer agrees to purchase, accept and acquire
the Assets from Seller, in each case free and clear of any and all liens,
security interests, claims or encumbrances of every kind ("Encumbrances") for
the price and on the terms and conditions hereinafter set forth.

2.02 Seller will effect such transfer of the Assets by a Bill of Sale and
Assignment substantially in the form as set out in Exhibit 2.02.

2.03 In the event that Seller owns or has rights with respect to
contracts not listed in Exhibit A, physical assets not listed in Exhibit B, or
leases not listed in Exhibit C, Seller unconditionally grants to Buyer the
right, but not the obligation to take ownership or assignment of such contracts,
physical assets, or leases without the payment of any additional consideration
to Seller ("Other Assets"). Whenever Buyer exercises such right, all
provisions of this Agreement applicable to Assets shall be equally applicable to
Other Assets. The Akers Gas Gathering System and the Butler Gas Gathering
System shall not be considered as Other Assets.

2.04 If the consents, approvals and waivers necessary for the assignment
or assumption of any Contract or Lease are not obtained by Seller, then, from
and after the Closing, Buyer will perform such Contract or Lease on behalf of
Seller, and Seller will provide to Buyer the benefits of such Contract or Lease,
and enforce at the request and expense of the Buyer, for the account of the
Buyer, any rights of the Seller arising from such Contract or Lease (including
without limitation the right to elect to terminate in accordance with the terms
thereof upon the advice of the Buyer).

4
<PAGE>

2.05 As of the Closing and subject to the terms and conditions of this
Agreement, Buyer agrees to assume and to satisfy, perform and be liable for
Seller's executory liabilities, covenants, duties and obligations arising from
or relating to the Contracts or Leases and which arise from or out of an event ,
action or inaction after the Closing provided, however, that Buyer will be
obligated only for those Contracts and Leases from which it is permitted to
receive the benefits from pursuant to this Agreement. Buyer specifically
assumes the Revenue Suspense as shown in the Allocation of Purchase Price and
agrees to pay producers on a timely basis.

2.06 Buyer shall be permitted to sublet Seller's current office space
until at least January 1, 1997, from R.M. Management Company at the same monthly
rate as in effect on November 1, 1995.

Section 3
---------

PURCHASE PRICE

3.01 The Purchase Price shall be $1,825,000. The $1,825,000 payment is
inclusive of all Taxes. At least five business days prior to Closing Buyer and
Seller and Members shall agree upon Schedules showing the breakdown of the
Purchase Price between payment to Seller and the portion of the Purchase Price,
if any, attributable to Taxes, as well as an allocation of Purchase Price to the
various categories of Assets. The Purchase Price shall be subject to
adjustment as provided elsewhere in this Agreement.

3.02 On the day of Closing, Buyer shall pay to Seller the Purchase Price
less the amount in Escrow as defined below.

3.03 In the event Seller engages in any transaction that is not within
the ordinary course of business between the Effective Date and the Closing Date,
Buyer at its option may commence a renegotiation of the Purchase Price. In the
event that the Buyer and Seller are unable to agree on an adjustment to the
Purchase Price, then Buyer shall be under no obligation to proceed with the
purchase of Assets and this Agreement shall terminate.

3.04 In the event that Seller's financial results for the month of
November results in net negative income (i.e a loss) the Purchase Price shall be
downward adjusted by $150,000 as part of the Post Closing Settlement.

3.05 As security for the Seller's and Members's indemnities or other
agreements contained in this Agreement, but without limitation on Seller's and
Members's liabilities under this Agreement, Buyer shall place $100,000 of the
Purchase Price into an escrow account to be administered by Norwest Bank
("Escrow").

5
<PAGE>

There shall be a Post Closing settlement ("the Post Closing Settlement") on a
day which is 15 days after Buyer and Seller close their respective books for
1995, but in no event later than 120 days after the Effective Date.

At the Post Closing, the cash settlement paid by Buyer to Seller at Closing will
be adjusted and paid as follows:

(a) for any inaccuracies in the October 31, 1995 financial statements;

(b) for any expenses incurred by Seller that were not reflected in the cash
settlement at Closing and are attributable to business on or after the Effective
Date;

(c) for any expenses incurred by Buyer that were not reflected in the cash
settlement at Closing and are attributable to business before the Effective
Date;

(d) for any revenues received by Seller and attributable to business on or
after the Effective Date that were not reflected in the cash settlement at
Closing;

(e) for any revenues received by Buyer and attributable to business before
the Effective Date that were not reflected in the cash settlement at Closing;

(f) for any futures accounts related expenses or revenues that were not
properly reflected in the cash settlement at Closing to make futures activities
tie into physical transactions consistent with Paragraph 3.07 of this Agreement.

(g) for any claims by Buyer resulting from breaches by Seller of any
misrepresentation or warranty under this Agreement; and

(h) any other adjustment authorized under this Agreement.

In this regard, attached hereto as Exhibit "F" and made a part hereof is a Post
Closing Adjustment Schedule that will be used as the basis for determing the
Post Closing Settlement Amount, if any.

Prior to the Post Closing Settlement, Buyer shall present to Seller and Members
an itemized list describing each item for which it proposes an adjustment to the
Purchase Price. If Seller and Members have any objection to any proposed
adjustment, Seller and Members shall notify Buyer within 10 days after receipt
of the itemized list from Buyer, as to the basis for such objection(s). Until
such time as the Parties resolve any objection(s) there shall be no payment out
of the Escrow for that item. Any net remaining amount in Escrow that is not
subject to dispute shall be paid to Seller at the Post Closing Settlement. If
necessary, a final non-appealable judicial determination shall be considered as
a resolution of an objection(s). At such time as the Parties resolve such
objection(s) any remaining net amount in escrow shall be distributed to the
Buyer and/or Seller in accordance with the adjustments. Interest accrued during

6
<PAGE>

the time in which money is held in Escrow shall be distributed on a pro rata
basis to the Party(s) receiving the proceeds from the Escrow account. Claims by
Buyer resulting from breaches by Seller or Members of any representation,
warranty, or violation of any other term and condition in this Agreement shall
be a basis to make an adjustment. Reasonable Escrow expenses shall be shared
equally.

Nothing in this Section shall be construed as limiting the liability of the
Seller and Members under this Agreement to the amount of the Escrow under this
Section, nor shall that amount be considered as liquidated damages for any
breach under this Agreement.

3.06 At the Closing the Buyer shall pay to the Seller the cash settlement
for the Purchase Price of $1,825,000, as adjusted, as set forth in the Schedule
entitled, "Allocation of Purchase Price."

3.07 At the Closing, Seller shall transfer its open commodity futures
contracts to an account designated by Buyer, and Buyer shall deposit the
necessary margin funds, if any, required to maintain the account. The account
is designated "REFCO" on Seller's October 31, 1995, Balance Sheet. All activity
in the REFCO account reflects futures transactions done to hedge physical
transactions. Accordingly, rights and responsibilities with respect to the
balance in the account, cash taken out of the account, and contracts in the
account shall be allocated consistent with the rights and responsibilities of
Buyer and Seller with respect to the Assets as described in Section 5 below.

3.08 Part of the assets being transferred hereunder consists of two
contracts with U.S. Gas Services, Inc., specifically identified as follows (the
"Contracts").

(a) ONG $2.07/MMBTU
(b) ANR SE $2.50/MMBTU

In regard to these Contracts only, Buyer shall be entitled to the first three
cents ($.03) profit margin on these Contracts from and after the Effective Date.
Seller shall be entitled to all profit margin in these Contracts in excess of
three cents ($.03) from and after the Effective Date and continuing for a period
of one (1) year. Notwithstanding the one (1) year limitation on such allocation
of the profit margin, the allocation of the profit margin in excess of three
cents ($.03) to Seller shall terminate sooner if the total volume delivered
under said Contract reaches 285,000 MMBTU or the total margin attributable to
Seller is $90,000, whichever comes first.

Buyer shall remit to Seller its share of the profit margin on a monthly
basis. For purposes of the paragraph, profit margin shall be defined as
follows:

A. CASH PROFIT MARGIN shall be the difference between the contract sales
price ($2.07 and $2.50/MMBTU respectfully) and the purchase price.

7
<PAGE>

The purchase price for ONG shall be the index price as posted by the
publication "Inside F.E.R.C." for ONG for the applicable month.

The purchase price for ANR shall be the actual cost of the gas
delivered to the delivery point which is the interconnect between ANR SE
and Ohio Valley Gas Corp.

B. HEDGE PROFIT MARGIN shall be the difference between the hedge buy
(long) price and the hedge sales (short) position. The long hedge
positions relating to those contracts are as follows:

December - NA -, January - $2,011, February - $1,962, March - $1,823, April
-$1,756, May - $1,735, June - $1,731, July - $1,721, August - $1,726,
September - $1,735, October - $1.76, November - $1,836

The sales hedge position will be the NYMEX settlement price for the
applicable month.

C. The total profit margin relating to those contracts will be the sum
of the cash profit and the hedge profit.

D. The gross profit relating to those contracts will be the total
profit margin multiplied times the sale revenue relating to those
contracts.

Section 4
---------

TAXES, FEES AND EXPENSES

4.01 Prior to Closing Buyer, Members and Seller shall jointly agree upon
a breakdown of the Purchase Price itemizing any and all Taxes that may be
payable to third parties including all governmental authorities. To the extent
that it is later determined that there is any other Tax owed arising from the
acquisition and assignment of Assets from Seller to Buyer, Seller and Members
shall either pay such Tax directly to the appropriate authority or reimburse
Buyer for such payment within 10 days of receiving written notice from Buyer;
provided, however, that Buyer shall not pay any Tax without approval by Seller
and Members unless withholding such payment will adversely affect Buyer.

4.02 Any income tax liability arising as a result of the Purchase Price
(specifically including the state and federal income tax of Seller and Members)
shall be the sole responsibility of the Party incurring the same.

4.03 Seller and Members shall retain the right to protest any request for
payment by a taxing authority. Should Seller file a protest, it shall first
indemnify the

8
<PAGE>

Buyer against any and all interest, penalties, or other losses of whatever
nature that may impact Buyer as a result of Seller's protest.

Section 5
---------

EFFECTIVE DATE
--------------

5.01 In addition to the liabilities addressed in Section 2.05, as of the
Closing, Buyer will assume the following, and only the following, liabilities
and obligations of Seller for the period between the Effective Date and Closing:
all executory obligations or liabilities related to the Contracts and Leases on
or after the Effective Date provided, however, that Buyer will be obligated only
to the extent that (a) Buyer receives the benefits of such Contracts and Leases,
and (b) the Contracts and Leases have been utilized in the ordinary course of
business by Seller.

5.02 All operating and other costs, expenses and charges directly or
indirectly attributable to the Contracts and Leases and incurred prior to the
Effective Date shall be the responsibility and obligation of Seller (and, to the
extent provided by law or contract, the Members) whether paid by Seller or Buyer
before or after the Closing provided, however, that Buyer shall not pay any such
expense without approval by Seller unless withholding such payment will
adversely affect Buyer. Seller and Members shall be entitled to all contract
rights, claims, penalties, receivables, revenues, accounting adjustments, or
other claims of any nature relating to the Contracts and Leases prior to the
Effective Date whether paid to Seller or Buyer before or after the Closing.

5.03 Prepaid expenses incurred in the ordinary course of business shall
be purchased by and shall inure to the benefit of the Buyer as of the Effective
Date at a total cost not to exceed $35,500.

5.04 All gas production or transportation related imbalances,
deficiencies or adjustments incurred prior to the Effective Date shall be the
responsibility of Seller and Members. All gas production or transportation
related imbalances, deficiencies or adjustments incurred after the Effective
Date shall be the responsibility of Buyer. At such time as Buyer has completed
identification of gas production or transportation related imbalances,
deficiencies or adjustments it shall notify Seller and Members for the purposes
of making a proper adjustment to the Purchase Price. Such adjustment shall be
based upon any changes to the imbalances that were not reflected in the October
31, 1995 Financials.

5.05 To facilitate any necessary adjustment to the Purchase Price, Seller
shall prepare complete financial statements for the period ending October 31,
1995, prior to Closing attached hereto as Exhibit D. In the event that any
assets and liabilities or revenues and expenses are later identified pertaining
to Seller's business activities which took place on or prior to October 31,
1995, and which were not reflected on the

9
<PAGE>

October 31, 1995 financial statements, such items shall form a basis for an
adjustment to the Purchase Price.

5.06 Notwithstanding anything else in this Agreement to the contrary,
Seller and Members shall be solely responsible for all bonus payments resulting
from Seller's operations prior to the Effective Date, regardless whether such
bonus payments are made before or after the Effective Date. Buyer assumes no
responsibility for bonus payments attributable to performance prior to the
Effective Date.

5.07 Notwithstanding anything else in this Agreement to the contrary,
Buyer shall be under no obligation to be financially or legally responsible for
any new agreement taking place on or after the Effective Date between GED and an
Affiliate, without Buyer's written consent.

5.08 Notwithstanding anything else in this Agreement to the contrary,
Buyer shall be under no obligation to be financially or legally responsible for
any increase in salary or benefits that takes place on or after the Effective
Date, unless Seller can demonstrate to Buyer's satisfaction that such increases
are in the ordinary course of business.

Section 6
---------

REPRESENTATIONS AND WARRANTIES OF SELLER AND MEMBERS

The Seller and Members represent and warrant to the Buyer the following:

6.01 Seller is an Oklahoma limited liability company duly organized,
validly existing and in good standing under the laws of the State of Oklahoma
and has full power and authority to own its properties, to conduct its business,
and to enter into this Agreement.

6.02 Seller and Members have full power and lawful authority to execute
and deliver this Agreement and to consummate and perform the transaction
contemplated hereby in the manner herein provided. The execution and delivery
of this Agreement by Seller and Members and the consummation and performance of
the transaction contemplated hereby in the manner herein provided have been duly
and validly authorized by all necessary legal actions, and this Agreement,
assuming due execution by Buyer, constitutes the legal, valid and binding
obligation of Seller and Members, enforceable against them in accordance with
its terms. The consummation of the transactions contemplated by this Agreement
will not violate, or be in conflict with, any provisions of any agreement or
document to which Seller or Members is a party or by which Seller or Members is
or are bound.

10
<PAGE>

6.03 To the best of Seller's and Members' knowledge and belief neither
the execution and delivery of this Agreement by Seller and Members nor the
consummation and performance of the transaction contemplated hereby in the
manner herein provided (i) requires the approval, consent or authorization of,
filing with, or notice to, any federal, state, local or other governmental
agency or body or any other third party, or (ii) conflicts, or will conflict,
with or results, or will results, in the breach or violation of any term or
provision of, constitutes, or will constitute, a default under, causes, or will
cause, the acceleration of any payments pursuant to, or otherwise impairs, or
will impair, the good standing, validity or effectiveness of (A) the Company
Documents of Seller in effect on the date hereof and at the time of the Closing,
(B) any indenture, mortgage, deed of trust, lease, note agreement or other
agreement or instrument to which Seller or Members on the date hereof and
immediately prior to Closing, is a party or by which any of them or any of their
respective assets or properties, on the date hereof and immediately prior to
Closing, is bound, or (C) any law, judgment, order, writ, injunction, decree,
award, rule or regulation in effect at Closing of any court, arbitrator or
governmental agency or body.

6.04 Except as provided for in Section 2.04, Seller will have as of the
Closing good and marketable title to and possession and control of the Assets
used or usable in its business, free and clear of Encumbrances. To the best of
Seller's and Members' knowledge and belief the Assets used by Seller in the
conduct of its business are in good repair and operating condition, ordinary
wear and tear excepted, and are and will be on Closing usable in the ordinary
course of business.

6.05 Since November 1, 1995, Seller has conducted its business in the
ordinary course and there have not been any changes in the condition of the
Assets or the business prospects of Seller other than changes in the ordinary
course of business which in the aggregate have not been materially adverse.

6.06 Seller maintains liability and casualty insurance, or self insures
itself or through its Members, in such amounts with such coverages and
deductibles with respect to its business, operations, assets and properties
which in its reasonable business judgment are sufficient.

6.07 There is no uncured event of default by Seller or Members which has
occurred under any agreement or document which would affect title to or
ownership of the Assets.

6.08 To the best of Seller's and Members' knowledge and belief no
material information affecting the Assets and rights related thereto, has been
or will be withheld from Buyer.

6.09 No representation or warranty by Seller and Members in this
Agreement or in any Schedule, Exhibit, certificate or document furnished or to
be furnished to Buyer pursuant hereto, or in connection with the transaction
contemplated

11
<PAGE>

hereby, contains or will contain any untrue statement of a material fact or
omits or will omit to state such a material fact necessary to make the
statements contained therein not misleading.

6.10 To the best of Seller's and Members' knowledge and belief there are
no legal, administrative or arbitral actions, suits or proceedings ("Legal
Proceedings") pending against and adversely affecting the Assets or Seller in
the conduct of its business. There are no Legal Proceedings threatened, and no
investigations pending or threatened, against or affecting the Assets or Seller
in the conduct of its business, which, if adversely determined, could
individually or in the aggregate have a material adverse effect on the
operations of Seller or its ability to conduct its operations in the manner and
to the extent heretofore conducted. Seller is not subject to or in default with
respect to any indictment, judgment, order, writ, injunction, decree or award of
any court, arbitrator or governmental agency or body. Seller and Members have
no knowledge of any actions which are threatened against or affecting the Assets
or Seller; and Seller and Members are not aware of any existing grounds on
which any such action, suit or proceeding might be brought.

6.11 To the best of Seller's and Members' knowledge and belief all taxes,
rents, operating costs and other costs and expenses related to the Assets which
were due prior to the Effective Date have been paid prior to the Effective Date.

6.12 To the best of Seller's and Members' knowledge and belief all taxes,
rents, operating costs and other costs and expenses related to the Assets which
are due prior to Closing have been or will be paid prior to Closing.

6.13 To the best of the Seller's and Members' knowledge and belief all
purchasers of gas from or attributable to the Assets are currently paying Seller
the full amount as required by the Contracts.

6.14 To the best of its knowledge and belief Seller has prepared a
statement accurately identifying all known gas production or transportation
related imbalances, deficiencies or adjustments incurred prior to the Effective
Date (Exhibit E).

6.15 Seller has disclosed each and every one of its derivative
transactions to Buyer's Accountant, Arthur Andersen.

6.16 To the best of Seller's knowledge and belief all Seller's Financial
Statements are, and when prepared, will be true and complete in all material
respects and have been prepared in accordance with GAAP consistently applied.

6.17 To the best of Seller and Members's knowledge and belief Seller has
complied with all applicable federal, state, and local laws and regulations.

12
<PAGE>

Section 7
---------

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to the Seller and Members the following:

7.01 Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.

7.02 Buyer has full power and lawful authority to execute and deliver
this Agreement and to consummate and perform the transaction contemplated hereby
in the manner herein provided. The execution and delivery of this Agreement by
Buyer and the consummation and performance of the transaction contemplated
hereby in the manner herein provided have been fully and validly authorized by
all necessary corporate action (including approval of Buyer's Board of
Directors), and this Agreement, assuming due execution by Seller and Members,
constitutes the legal, valid and binding obligation of Buyer, enforceable
against it in accordance with its terms.

7.03 Neither the execution and delivery of this Agreement by Buyer nor
the consummation and performance of the transaction contemplated hereby in the
manner herein provided (i) requires the approval, consent or authorization of,
filing with, or notice to, any federal, state, local or other governmental
agency or body, or (ii) conflicts, or will conflict with, or results, or will
result, in the breach or violation of any term or provision of, constitutes, or
will constitute, a default under, causes, or will cause, the acceleration of any
payment pursuant to, or otherwise impairs, or will impair, the good standing,
validity or effectiveness of (A) the Company Documents of Buyer, (B) any
indenture, mortgage, deed of trust, lease, note agreement or other agreement or
instrument to which Buyer is a party or by which it or its assets or properties
on the date hereof and immediately prior to Closing, is bound, or (C) any law,
judgment, order, writ, injunction, decree, award, rule or regulation in effect
at Closing of any court, arbitrator or governmental agency or body.

7.04 Buyer has been given full access to Seller's Books and Records as
well as Seller's Employees.

7.05 To the best of its knowledge and belief Buyer has been given all
material information it has requested.

7.06 Buyer has been given a fair opportunity to complete its due
diligence review.

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Section 8
---------

BUSINESS BETWEEN DATE OF THIS AGREEMENT AND CLOSING

During the period between the date of this Agreement and the Closing Date:

8.01 Seller shall conduct the business pending Closing in the ordinary
course consistent with past practice unless otherwise provided by this
Agreement. Seller may acquire or dispose of Assets in the ordinary course of
business. From the date of this Agreement until the Closing, Seller shall, in
all material respects, (a) maintain and keep the Assets in as good repair and
condition as at present, except for ordinary wear and tear and damage due to
casualty covered by insurance, (b) perform all of the obligations under leases,
contracts and documents relating to or affecting the Assets, (c) use its
reasonable efforts to maintain and preserve its business organization intact, to
retain its present employees and to maintain substantially good relationships
with those with which Seller has contracts or contacts and (d) substantially
comply with and perform all obligations and duties imposed on it by all federal,
state and local laws and all rules, regulations and orders imposed by federal,
state or local governmental authorities.

8.02 Seller shall not directly or indirectly engage in transactions
involving derivative instruments except for the purpose of balancing its books
with respect to future commitments to purchase gas tied to future commitments to
sell gas. In no event shall Seller engage in any form of speculative use of
derivative instruments.

8.03 Seller shall not without the prior written consent of Buyer, which
consent will not be unreasonably withheld, make or agree to make any new
agreement with an Affiliate.

8.04 Seller or Members shall pay in full when due all taxes, rentals,
royalties and operating and other costs and expenses attributable to the Assets
and shall perform and discharge all obligations relating to the Assets based
upon the occurrence of events or the existence of conditions prior to the
Closing.

8.05 Seller and Members shall permit Buyer and its authorized
employees, agents, accountants, legal counsel and other representatives to have
the right but not the obligation to have access to the books, records, plant,
properties and offices of Seller during normal working hours reasonably
requested by Buyer at such place or places designated by Seller and to permit
Buyer to contact and meet with the officers, managers and employees of Seller at
such place or places and at such times as Seller reasonably may designate and as
Buyer from time to time reasonably may request.

8.06 Buyer shall do all such things, perform all such acts, execute all
such documents and hold all such meetings as may be necessary or required to
enable Buyer to perform it obligations under this Agreement.

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8.07 Seller and Members shall disclose to Buyer any third party inquires
regarding an interest in the purchase of Seller's Assets.

Section 9
---------

COVENANTS OF SELLER AND MEMBERS AND BUYER

Seller and Members and Buyer covenant to each other as follows:

9.01 Seller and Buyer will use their respective best efforts to cause the
conditions precedent set forth in Section 16 applicable to such Party, to be
fulfilled and satisfied as soon as practicable.

9.02 Seller and Members and Buyer agree that the sale of the Assets is an
occasional sale as distinguished from a sale conducted in the usual and regular
course of business of either Seller or Buyer.

9.03 If any of the Assets are damaged or destroyed in whole or in part
prior to Closing, Seller or Members shall repair or replace such Assets as soon
as reasonably practicable. Seller shall notify Buyer of any such damage or
destruction as soon as reasonably practicable. If Seller or Members are unable
to repair or replace such Assets to Buyer's satisfaction, Buyer shall be under
no obligation to Close. For purposes of this section any action or inaction by
Seller or Members which causes a Contract to become invalid, void, or breached
shall be considered a damage.

Section 10
----------

ACTIONS AT CLOSING

10.01 At the Closing, the following actions shall be taken, each being deemed
to occur simultaneously with all others:

(a) Seller and Members shall cause to be executed and delivered to Buyer
releases and termination statements properly releasing all liens, security
interests and encumbrances burdening the Assets, in a form suitable for
recording in the jurisdictions where the Assets are located.

(b) Except as provided for in Section 2.04, Seller and Members shall cause
to be executed and delivered to Buyer all consents, authorizations and approvals
of third persons required in connection with the sale, transfer and assignment
of the Assets.

(c) Seller shall deliver to Buyer evidence that it is a limited liability
company in good standing in all jurisdictions in which it is authorized to do
business.

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(d) Seller shall execute and deliver to Buyer an Assignment and Bill of
Sale in the attached form.

(e) Seller and Members will execute and deliver to Buyer an affidavit
stating to the best of Seller's and Members' knowledge there has been no
material adverse change to the Assets since October 31,1995, to the best of
Seller and Members's knowledge Seller and Members are not aware of any claim,
demand, proceeding, suit or regulatory actions which could materially impact the
value of the Assets, and to the best of Seller and Members's knowledge Seller
and Members have complied in all material respects with the requirements of this
Agreement.

(f) Buyer shall pay to the Seller the Purchase Price less the Escrow as the
same may be adjusted in accordance with this Agreement. Payment shall be by
direct bank or wire transfer in same day funds to Seller or Seller's account or
accounts as specified by Seller in writing at least five business days prior to
the Closing.

(g) Seller shall provide to Buyer proof of continuing COBRA coverage to be
in effect for a period of 18 months following the Closing.

Section 11
----------

FURTHER ASSURANCES

11.01 Each Party shall, from time to time after Closing at the request of
the other Party, and without further consideration, execute and deliver such
other instruments of sale, transfer, conveyance and assignment and take such
other action as the Party making the request may require more effectively to
transfer, convey and assign to and vest in Buyer, all right, interest and title
to the Assets.

11.02 Each Party shall cooperate with the other in making any regulatory
filings, or responding to a regulatory agency, in connection with carrying out
the intents and purposes of this Agreement.

11.03 Any Party may at its own expense during normal working hours audit
another Party's accounting books and records for any item pertinent to an
adjustment to the Purchase Price for a period of one year after Closing.

11.04 Buyer shall provide Seller and Members with reasonable access in
Tulsa to the Books and Records to the extent reasonably necessary for Seller and
Members to prepare taxes or other reporting requirements pertinent to Seller's
operations.

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<PAGE>

Section 12
----------

INDEMNIFICATION

12.01 Seller and Members shall indemnify and hold harmless Buyer and its
Affiliates, and their directors, officers, employees, agents and representatives
from and against:

(a) Any and all liabilities, claims, demands, losses, damages, costs,
expenses and deficiencies incurred as a result of or arising out of any
misrepresentation, breach of or nonfulfillment of any representation, covenant
or agreement on the part of Seller and Members under this Agreement, or from any
misrepresentation in or omission from a Schedule, Exhibit, certificate,
agreement or other instrument furnished to Buyer by Seller and Members pursuant
to this Agreement and any and all actions, suits, claims, proceedings,
investigations, audits, demands, assessments, fines, judgments, settlements,
costs and other expenses (including, without limitation, reasonable audit and
legal fees) incident to any of the foregoing or the enforcement of this
indemnification;

(b) Except as provided for in Section 5, any and all liabilities,
claims, demands, losses, damages, costs, expenses and deficiencies incurred as a
result of or arising out of the use and ownership by Seller of the Assets prior
to the Closing including Taxes;

(c) With respect to all Contracts and Leases any and all liabilities,
claims, losses, damages, costs, expenses and deficiencies as a result of or
arising by a party's claim that the assignment of the Contract or Lease to Buyer
is invalid; and

(d) Against any liability not expressly assumed by Buyer under this
Agreement;

(e) Seller's failure to comply with any applicable Bulk Transfer Law;

12.02 Buyer shall indemnify, defend and hold harmless Seller and Members
against and in respect of:

(a) Any and all liabilities, claims, demands, losses, damages, costs,
expenses and deficiencies incurred as the result of or arising out of any
misrepresentation, breach of or nonfulfillment of any representation, covenant
or agreement on the part of Buyer under this Agreement or from any
misrepresentation or omission from any Schedule, Exhibit, certificate, agreement
or other instrument furnished to Seller and Members by Buyer pursuant to this
Agreement, and any and all actions, suits, claims, proceedings, investigations,
audits, demands, assessments, fines, judgments, settlements, costs and other
expenses (including, without limitation,

17
<PAGE>

reasonable audit and legal fees) incident to any of the foregoing or the
enforcement of this indemnification;

(b) Any and all liabilities, claims, demands, losses, damages, costs,
expenses and deficiencies incurred as a result of or arising out of the use and
ownership by Buyer of the Assets after the Closing.

(c) InterCoast Energy Company hereby agrees to guarantee the full and
timely performance of the covenants, agreements, and indemnities of Buyer herein
pursuant to this Section 12.

Section 13
----------

NOTICE, DEFENSE AND PAYMENT.

The Parties agree as follows:

13.01 Promptly following the receipt by the Buyer of any claim, demand,
action or suit, loss, cost, damage or expense, for which Seller or Members are
obligated under the indemnification provisions ("Action"), Buyer shall give
written notice of such Action to Seller and Members accompanied by copies of any
written documentation with respect thereto received by Buyer specifying the
nature of such claim or demand and the amount or estimated amount thereof and
stating the basis upon which indemnification is being sought pursuant to this
Agreement. Following receipt of notice of an Action by Seller or Members,
Seller or Members shall notify Buyer in the same manner. Such notice shall
constitute a claim for indemnification hereunder ("Claim").

13.02 Seller, Members or Buyer, as the case may be, shall have the right
at its option, to compromise or defend, at its own expense and with its own
counsel, any Action with respect to which they receive a Claim. The Party
making the Claim shall have the right, at its option, to participate in the
settlement or defense of any such Action, with its own counsel and at its own
expense, but the recipient of the Claim shall have the right to control such
settlement or defense. The Parties agree to cooperate in any such defense or
settlement and to give each other reasonable access to all information relevant
thereto. (The Parties will take all prudent actions to preserve the attorney-
client privilege and the work-product privilege. However, the Parties need not
make disclosures that will likely result in the loss of such privileges). The
Parties will similarly cooperate in the prosecution of any claim or lawsuit
against any third party. In the event that the recipient of a Claim fails to
notify the Party making the Claim of its intent to take any action within 15
days after receipt of a Claim, the Party making the Claim without waiving any
rights to indemnification hereunder may defend such Action and shall have the
right to enter into any good faith settlement thereof without the prior written
consent from the recipient of the Claim.

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<PAGE>

13.03 Each Party shall pay promptly to the other Party the amount of any
properly indemnifiable claim made hereunder. In the event that the indemnifying
Party fails to pay and discharge promptly any such claim, the indemnified Party
shall have the right, notwithstanding any other rights that it may have against
the indemnifying Party or any other person, firm or corporation, to offset the
unpaid amount of any such claim against any payments otherwise due from the
indemnified Party to the Indemnifying Party hereunder.

Section 14
----------

SURVIVAL OF REPRESENTATIONS, COVENANTS AND AGREEMENTS

14.01 All representations, covenants and agreements made by Seller and
Members and Buyer in this Agreement or in any Schedule, Exhibit or other
instrument required to be delivered hereunder or entered into pursuant hereto,
and all claims arising from a breach of any representatives, covenants, and
agreements or obligations shall survive the Closing in accordance with the
Statute of Limitations for bringing a breach of contract claim under Oklahoma
law.

Section 15
----------

EMPLOYEES

15.01 While it is Buyer's present intent to hire all of Seller's present
Employees, except as noted in Section 16 , Seller and Members understands that
Buyer is not obligated to hire any of Seller's present Employees. Further,
Buyer will not be required to continue to employ any Employee. Except as noted
in Section 16, Employees when employed by Buyer shall be deemed to be employees
"at will" and may be terminated at any time and for any reason.

15.02 Seller and Members shall retain all liabilities and obligations with
respect to Employees and Former Employees arising prior to the Closing. Such
obligation shall include but not be limited to Seller and Members retention of
all liabilities and obligations under Section 4980B of the Internal Revenue
Service Code with respect to the continuation health care coverage of retired
Employee with respect to qualifying events occurring under such Section on or
before the Closing.

15.03 Seller shall be required to work cooperatively with Buyer to ensure
COBRA benefits are available to all Employees hired by Buyer until such time as
Buyer can develop its own benefit program for Employees.

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<PAGE>

15.04 Buyer shall not assume and shall not be responsible for, and Seller
and Members shall retain and be responsible for, all liabilities and obligations
of Seller for Former Employee medical, life, pension and any and all other
benefits of Former Employees under any Seller Employee benefits plan.

15.05 Nothing herein shall prevent Buyer's right to terminate, amend,
modify or discontinue, at any time, any employee benefit plan or arrangement for
the benefit of Buyer's Employees, whether the foregoing are in existence on the
date of the Agreement or hereafter established; provided, however, that no such
termination, amendment, modification or discontinuance shall relieve Buyer of
any severance or other employee benefit liabilities assumed under this
Agreement.

15.06 For any and all of Seller's Employees hired by Buyer, Buyer will
permit such Employees to carry over all of their unused vacation that had been
earned under Seller's vacation policies as of the Closing. Buyer will permit
Employees to take such vacation following the Closing, provided it is scheduled
consistent with Buyer's vacation policy. Buyer will give each Employee full
credit for unused sick leave days earned as of the Closing under Seller's sick
leave policy and will permit each Employee to use such sick leave days after the
Closing in the same manner as sick leave days are available to Buyer's employees
under Buyer's sick leave policy. The costs for accrued benefits which Employees
take after the Effective Date shall be born by Seller and Members. Buyer shall
be entitled to recover such costs from the Escrow as described in Section 3.
Seller shall prepare Schedule G identifying for each Employee, the start date,
unused vacation and accrued sick leave. For purposes of this Section any unused
sick leave or vacation will be terminated as of December 31, 1995.

15.07 Pursuant to standard procedure, Seller will prepare and distribute
Forms W-2 to Employees for compensation through the Closing and Buyer will
prepare and distribute Forms W-2 to Employees for compensation paid after the
Closing.

Section 16
----------

CONDITIONS PRECEDENT

The following are the respective conditions precedent of the Parties:

16.01 The obligations of Buyer to consummate the transaction contemplated
by this Agreement are subject to the performance of the following conditions or
waiver thereof by Buyer:

(a) Representations and Warranties True at Closing. The representations
and warranties of Seller and Members contained in the Agreement, or in any
certificate or document delivered pursuant to the provisions hereof, or in
connection with the transaction contemplated hereby are true and complete.

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<PAGE>

(b) Compliance with Agreement. On and as of the Closing, Seller and
Members shall have performed and complied with all agreements, covenants and
conditions required by this Agreement to be performed and complied with by it
prior to or at Closing.

(c) Material Adverse Change. Subsequent to the execution of this
Agreement through the Closing, there shall not have been any material adverse
change in, or other event or condition of any character which in any one case or
in the aggregate has materially adversely affected the Assets.

(d) Consents. All approvals, consents, permits or licenses from any
governmental authority or regulatory body or agency having appropriate
jurisdiction for the consummation of the transaction contemplated by this
Agreement under applicable laws, rules or regulations shall have been obtained
by and shall be effective at the time of Closing.

(e) No Injunction. On the Closing no governmental agency shall have
instituted or given notice of its intent to institute any suit, action or legal
or administrative proceeding to restrain, enjoin or otherwise question the
validity of the transaction contemplated by this Agreement and no order or
decree so restraining or enjoining such transactions shall be in effect.

(f) Employees. On or prior to the Closing Buyer shall have received
satisfactory assurances that Bill Queen, L. Jamey Langston, and any other
Employee designated by Buyer as a key employee within 10 days of Closing have
agreed to work for Buyer and that all Seller Employee benefit matters have been
resolved satisfactorily to Buyer. Buyer shall notify Seller of any key employee
designations in writing.

(g) Other Due Diligence. On or prior to the Closing, Buyer shall have
completed and be satisfied with such other due diligence as Buyer may elect to
undertake.

(h) Akers Transportation Agreement. On or prior to the Closing Buyer
shall have entered into a satisfactory gas transportation agreement with Seller
governing the price and terms and conditions for the transportation of natural
gas on the Akers gas gathering system to the interconnection with the Northern
Natural Gas pipeline.

16.02 The obligations of Seller and Members to consummate the transaction
contemplated by this Agreement are subject to the performance of the following
conditions or waiver thereof by Seller and Members:

(a) Representations and Warranties True at Closing. The representations
and warranties of Buyer contained in this Agreement or in any certificate or
document delivered pursuant to the provisions hereof, or in connection with the
transaction

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<PAGE>

contemplated hereby were true and complete when made, and shall be true on and
as of the Closing as though such representations and warranties were made at and
as of such date.

(b) Compliance With Agreement. On and as of the Closing, Buyer shall have
performed and complied with all agreements, covenants, and conditions required
by this Agreement to be performed and complied with by it prior to or at
Closing.

(e) Consents. All approvals, consents, permits or licenses from any
governmental authority or regulatory body or agency having appropriate
jurisdiction for the consummation of the transaction contemplated by this
Agreement under applicable laws, rules or regulations shall have been obtained
by and shall be effective at the time of Closing.

(f) No Injunction. On the Closing no governmental agency shall have
instituted or given notice of its intent to institute any suit, action or legal
or administrative proceeding to restrain, enjoin or otherwise question the
validity of the transaction contemplated by this Agreement and no order or
decree so restraining or enjoining such transactions shall be in effect.

(g) Seller shall have entered into an agreement acceptable to Seller's
bank and Buyer which gives Buyer exclusive control over Seller's bank account
used for the receipt of all funds received in the ordinary course of business.

Section 17
----------

THIRD PARTY BENEFICIARIES

17.01 This Agreement is only for the benefit of the Parties and their
respective successors and assigns and is not intended nor does it provide that
any person not a Party be entitled to any, direct or indirect, express or
implied, rights or benefits hereunder. Except as provided in Section 17.02,
nothing herein shall act to creat any liability or obligation on the part of the
Members in favor or of any third party.

17.02 Liabilities and contingent liabilities of Seller and Members to
Buyer cannot be assigned by Buyer to a third party unless such assignee or
successor is a successor to all, or a substantial portion, of the Assets Buyer
obtained from Seller.

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<PAGE>

Section 18
----------

MISCELLANEOUS

The Parties agree as follows:

18.01 All notices, consents, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
delivered if delivered personally, telefaxed with receipt acknowledged, mailed
by registered or certified mail return receipt requested, or delivered by a
recognized commercial courier to the Party at the Party's last address
designated in writing. Prior to Closing any and all Notices from Buyer to
Seller and Members shall be sent to:

GED Gas Services, L.L.C.
7666 E. 61st Street, Suite 370
Tulsa, OK 74133
Attn.: Bill Queen

Telephone (918) 254-1531
Facsimile (918) 254-6903

Subsequent to Closing any and all Notices from Buyer to Seller and Members shall
be sent to Kevin J. Sullivan at the following two addresses:

c/o Mysock & Chevaillier 2131 Palomar Airport Road, #306
2021 S. Lewis, Suite 700 Carlsbad, CA 92099
Tulsa, OK 74104

In addition Buyer shall send notices to:

John Nikkel
Unit Corp.
P.O. Box 702500
Tulsa, OK 74170

Buyer shall in good faith good send notices to the three addresses listed above.
However, failure by the Members to receive such notices at any address other
than at Mysock & Chevaillier shall not be considered a breach of this Agreement
as long as Buyer can demonstrate that it had made a reasonable effort to contact
the Members in writing.

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<PAGE>

For purposes of this Agreement, Buyer's address is:

GED Energy Services, Inc.
666 Grand Ave.
Suite 2600
Des Moines, IA 50303
Attn.: Norm Foreman

Telephone: (515) 281-2649
Facsimile: (515) 281-2312

18.02 This Agreement, including the Schedules and Exhibits, shall not be
amended or modified except as agreed to in writing signed by or on behalf of the
Parties.

18.03 Except as otherwise specifically provided herein, this Agreement
shall be governed by and construed and enforced in accordance with the laws of
the State of Oklahoma without regard to principles of conflict of law.

18.04 Buyer shall not assign any of its rights or obligations under this
Agreement to any party without the prior written consent of Seller, nor shall
Seller assign any rights or obligations under this Agreement without Buyer's
prior written consent. Nothing contained in this Agreement shall limit Buyer's
ability to assign any of its rights or obligations under this Agreement to an
Affiliate subsequent to Closing.

18.05 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.

18.06 If any of the provisions of this Agreement is held invalid or
unenforceable, such invalidity or unenforceability shall not affect in any way
the validity or enforceability of any other provisions of this Agreement except
those which the invalidated or unenforceable provision comprises an integral
part of or is otherwise clearly inseparable from. In the event any provision is
held invalid or unenforceable, the Parties shall attempt to agree on a valid or
enforceable provision which shall be a reasonable substitute for such invalid or
enforceable provision in light of the tenor of this Agreement and, on so
agreeing, shall incorporate such substitute provision in this Agreement.

18.07 This Agreement, which includes the Schedules and Exhibits, contains
the entire agreement between the Parties hereto with respect to the transaction
contemplated herein and all prior understandings and agreements shall merge
herein. There are no additional terms, whether consistent or inconsistent, oral
or written, which are intended to be part of the Parties' understandings which
have not been incorporated into this Agreement and the Schedules or Attachment
referenced herein.

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<PAGE>

18.08 No waiver by any Party, whether express or implied, of any right
under any provision of this Agreement shall constitute a waiver of such Party's
right at any other time or a waiver of such Party's rights under any other
provision of this Agreement unless it is made in writing and signed by an
officer of the Party waiving the condition. No failure by any Party to take any
action with respect to any breach of this Agreement or default by the other
Party shall constitute a waiver of the former Party's right to enforce any
provision of this Agreement or to take action with respect to such breach or
default or any subsequent breach of default by such other Party.

18.9 Notwithstanding any other provisions hereof, this Agreement shall
terminate upon the occurrence of any of the following events:

(a) The mutual written consent of Seller and Members and Buyer;

(b) Upon written notice by any Party, should Closing fail to occur on or
before December 15, 1995, or such later date as provided herein, provided,
however, that (a) the right to terminate this Agreement under this Section shall
not be available to a Party whose failure to fulfill any of its obligations
under this Agreement has been the cause of, or resulted in, the failure of the
Closing to occur on or prior to such date and (c) any termination pursuant to
this Section shall not relieve either Party of any liability to the other Party
for its willful breach of the provisions hereof occurring before such
termination, it being understood and agreed that, if all of the conditions to a
Party's obligations set forth in Section 16 have been satisfied or waived on or
by the Closing, the failure of such Party to perform such of its obligations as
would be required to close on such date shall be deemed to be a willful breach
by such Party;

(c) By Buyer if the conditions precedent to its obligations to
consummate the transaction contemplated by this Agreement set forth in Section
16 have not been satisfied or waived by it or if any permanent injunction or
other final order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of such transactions shall
be in effect; or

(d) By Seller and Members if the conditions precedent to its obligations
to consummate the transaction contemplated by this Agreement set forth in
Section 16 have not been satisfied or waived by it or if any permanent
injunction or other final order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of such
transactions shall be in effect.

18.10 If either the Seller and Members or Buyer terminates this Agreement
as provided in the foregoing Section, this Agreement will forthwith become void,
and there will be no liability or obligation on the part of Buyer or Seller and
Members or their officers or directors except as set forth elsewhere in this
Agreement, and except to the extent such termination or any purported
termination results from the willful breach by a Party of any of its
representations, covenants or agreements in this Agreement,

25
<PAGE>

whereupon the non-breaching Party shall be entitled to equitable relief,
injunctive relief and specific performance, as well as all other remedies
available at law or in equity.

18.11 If any Party institutes litigation against any other Party alleging
that such other Party has breached this Agreement, the non-prevailing Party or
Parties (whether plaintiff or defendant) in such action shall reimburse the
prevailing Party or Parties for the prevailing Party or Parties' reasonable
attorneys' fees, witness fees, court costs and all other reasonable costs in
connection with such litigation.

18.12 All fees, costs and expenses incurred by any Party in negotiating
this Agreement or in consummating the transactions contemplated by this
Agreement shall be paid by the Party incurring the same, including, without
limitation , legal, and accounting fees, costs and expenses.

18.13 The Parties acknowledge that they and their respective counsel have
negotiated and drafted this Agreement jointly and agree that the rule of
construction that ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation or construction of this Agreement.

18.14 This Agreement shall be binding upon and inure to the benefit of the
Parties hereto and their respective successors and permitted assigns. Any such
assignment shall not constitute a novation.

18.15 Seller and Buyer acknowledge that the sale and assignment of the
Assets pursuant to this Agreement does not include nor constitute a sale of
securities. The sale and assignment are intended to be strictly a sale of
assets only. There is no other consideration being acquired or purchased by
Buyer from Seller or any third party relating to the Assets. The asset sale and
assignment structure was organized, requested and presented to Seller by Buyer.
Buyer has the capability to independently manage the Assets it is purchasing.

Buyer represents that it has such knowledge and experience in business and
financial matters and financial matters to be capable of evaluating the merits
and risks of purchasing the Assets.

Section 19
----------

ANNOUNCEMENTS

19.01 Seller and Members shall make no public disclosure regarding the
Purchase Price without the advanced written consent of the Buyer.

19.02 Seller and Members shall issue no press releases or other similar
public pronouncements concerning the details of the Agreement without the
advanced

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<PAGE>

written approval of Buyer. This provision shall not, however, limit disclosures
to third parties to the extent necessary to fulfill the terms and conditions of
this Agreement.

ARTICLE 20
----------

SELLER AND MEMBERS' OBLIGATIONS AFTER THE CLOSING

20.1 For a period of one year following the Closing, Seller and Members
will take no actions that impair the goodwill, business reputation, employee
relations and prospects connected with the Assets. In furtherance, but not in
limitation to this general obligation Seller and Members agree that for a period
of one (1) year after the Closing, they will not: a) solicit for hire, nor agree
to employ directly or indirectly, any Employee of Seller hired by Buyer; b)
solicit, divert or take away any current and active Customer or Supplier of
Buyer; and c) not in any manner interfere with the employment relationship of
any Employee of Buyer. The restrictions in this paragraph are specifically
limited to those enterprises and those employees of Buyer that relate to
business activities of Buyer that are acquired from Seller herein.
Notwithstanding this limitation any Member shall be permitted to develop the
Butler Gas Gathering System project.

20.2 Notwithstanding the one year limitation described above, no Member
shall be permitted to retain or utilize any Seller customer list, supplier list,
or other non-public records for any business purpose without the advanced
written permission of Buyer.

IN WITNESS WHEREOF, the Parties hereto have entered into the Agreement as
of the date first written above.

27
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase Agreement
to be executed as of the date first above mentioned:

BUYER: SELLER:
GED Energy Services, Inc. GED Gas Services, L.L.C.

By: /s/Norman R. Foreman By: /s/ Alan J. Fuller
------------------------------ ------------------------------
Norman R. Foreman, President

Unit Corporation

By: /s/ J.D. Nichols
------------------------------

InterCoast Energy Company Kevin J. Sullivan, as Trustee
of the Karen S. Sullivan Trust
dated June 9, 1992

By: /s/ Kevin J. Sullivan
By: /s/ Norman R. Foreman ------------------------------
-----------------------------
Norman R. Foreman,
Vice President Robert L. Bayless

By: /s/ Robert L. Bayless
------------------------------

Bill A. Queen

By: /s/ Bill Queen
------------------------------

Burt B. Holmes

By: /s/ Burt B. Holmes
------------------------------

Kent Bogart

By: /s/ Kent Bogart
------------------------------

28
<PAGE>

The following schedules have been omitted, and the Registrant agrees to
furnish supplementally a copy of any such omitted schedule to the Securities and
Exchange Commission upon its request:

Exhibits
--------
A Gas Contracts
B Property & Equipment List
C Maintenance Agreements
D October 31, 1995, Financial Statements
E October 31, 1995, Imbalance Detail
F Post Closing Adjustment Schedule
G Employee Census

<PAGE>
Exhibit 21.1

INTERCOAST ENERGY COMPANY

List of Subsidiaries
--------------------

Name State of Incorporation
- ---- ----------------------

InterCoast Oil and Gas Company Delaware

Medallion California Properties Company Texas

Continental Power Exchange, Inc. Delaware

InterCoast Gas Services Company Delaware

InterCoast Gas Services Company Oklahoma

GED Energy Services, Inc. Delaware

InterCoast Trade & Resources Inc. Delaware

InterCoast Power Marketing Company Delaware

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and all references to our Firm) included in this Registration
Statement.

ARTHUR ANDERSEN LLP

Tulsa, Oklahoma
June 28, 1996

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 8,303 1,879
<SECURITIES> 0 0
<RECEIVABLES> 23,016 25,656
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 32,959 28,928
<PP&E> 236,302 247,978
<DEPRECIATION> 69,097 72,815
<TOTAL-ASSETS> 200,164 204,091
<CURRENT-LIABILITIES> 21,448 27,167
<BONDS> 0 0
0 0
0 0
<COMMON> 79 79
<OTHER-SE> 102,082 104,678
<TOTAL-LIABILITY-AND-EQUITY> 200,164 204,091
<SALES> 72,596 52,921
<TOTAL-REVENUES> 72,596 52,921
<CGS> 23,543 36,372
<TOTAL-COSTS> 60,536 46,690
<OTHER-EXPENSES> 7,694 2,106
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 4,366 4,125
<INCOME-TAX> 1,481 1,529
<INCOME-CONTINUING> 2,885 2,596
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,885 2,596
<EPS-PRIMARY> 0.36 0.33
<EPS-DILUTED> 0.36 0.33

</TABLE>

<PAGE>

EXHIBIT 99.1

NETHERLAND, SEWELL & ASSOCIATES, INC.

May 13, 1996

Mr. J. Chris Jacobsen
Medallion Production Company
Suite 700
7130 South Lewis Avenue
Tulsa, Oklahoma 74136

Dear Mr. Jacobsen:

In accordance with your request, we have estimated the proved reserves and
future net revenue, as of January 1, 1996, to the Medallion Production Company
(MPC) interest in certain oil and gas properties located in the United States.
The estimates included herein are identical to the estimates presented in our
report dated February 6, 1996, which set forth our estimates as of December 31,
1995; except, this report includes additional estimated reserves and future
revenue for recently acquired interests in the Sonora Field, Texas, area and
certain proved undeveloped locations. This report has been prepared using
constant prices and costs as set forth in this letter.

As presented in the accomnpanying summary projections, Tables I through IV,
we estimate the net reserves and future net reserves to the MPC interest, as of
January 1, 1996, to be:

Net Reserves Future Net Revenue
------------------------------------ -----------------------------------
Oil Gas Present Worth
Category (Barrels) (MCF) Total at 10%
- ----------------------------------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Proved Developed
Producing 7,401,126 142,134,854 $261,350,800 $175,802,800
Non-Producing 524,735 23,090,710 49,830,600 29,385,100
Proved Undeveloped 45,721 5,465,298 5,389,400 2,666,600
--------- ----------- ------------ ------------
Total Proved 7,971,582 170,690,862 $316,570,800 $207,854,500
</TABLE>

The oil reserves shown include crude oil, condensate, and gas plant
liquids. Oil volumes are expressed in barrels which are equivalent to 42 United
States gallons. Gas volumes are expressed in thousands of standard cubic feet
(MCF) at the contract temperature and pressure bases.
<PAGE>

This report includes summary projections of reserves and revenue for
each reserve category along with one-line summaries of reserves, economics, and
basic data by lease. For the purposes of this report, the term "lease" refers to
a single economic projection.

The estimated reserves and future revenue shown in this report are for
proved developed producing, proved developed non-producing, and proved
underdeveloped reserves. No study was made to determine whether probable or
possible reserves might be established for these properties. This report does
not include any value which could be attributed to interests in undeveloped
acreage beyond those tracts for which undeveloped reserves have been estimated.
Definitions of all reserve categories are presented immediately following this
letter.

Future gross revenue to the MPC interest is prior to deducting state
production taxes and ad valorem taxes. Future net revenue is after deducting
these taxes, future capital costs, and operating expenses, but before
consideration of federal income taxes; future net revenue for the offshore
properties is also after deducting abandonment costs. The future net revenue
has been discounted at an annual rate of 10 percent to determine its "present
worth." The present worth is shown to indicate the effect of time on the value
of money and should not be construed as being the fair market value of the
properties.

For the purposes of this report, a field inspection of the properties
has not been performed nor has the mechanical operation or condition of the
wells and their related facilities been examined. We have not investigated
possible environmental liability related to the properties; therefore, our
estimates; do not include any costs which may be incurred due to such possible
liability. Our estimates do not include any salvage value for the lease and
well equipment nor the cost of abandoning the onshore properties. Future
revenue estimates for offshore properties also do not include salvage value for
the lease and well equipment, but do include MPC's estimates of the costs to
abandon the wells, platforms, and production facilities. Abandonment costs for
offshore properties are included with other capital investments.

Oil prices used in this report are based on a December 31, 1995 West
Texas Intermediate posted price of $18.00 per barrel, adjusted by lease for
gravity, transportation fees, and regional posted price differentials. Gas
prices used in this report are based on either the most current price available
for each lease, adjusted to a December 1995 regional spot market price of $2.24
per MMBTU, or the contract price. As requested, gas prices for properties being
marketed by Intercoast Gas Services, a wholly-owned subsidiary of MPC, have been
increased to take into account the value of the marketing revenue. Oil and gas
prices are held constant throughout the life of the properties.

Lease and well operating costs are based on operating expense records of
MPC. For non-operated properties, these costs include the per-well overhead
expenses allowed under joint operating agreements along with costs estimated to
be incurred at and below the district and field levels. As requested, lease and
well operating costs for the operated properties include only direct lease and
field level costs. Headquarters general and administrative overhead expenses of
MPC are not included. Lease and well operating costs are held constant
throughout the life

-2-
<PAGE>

of the properties. Capital costs are included as required for workovers, new
development wells, and production equipment.

We have made no investigation of potential gas volume and value imbalances
which may have resulted from overdelivery or underdelivery to the MPC interest.
Therefore, our estimates of reserves and future revenue do not include
adjustments for the settlement of any such imbalances; our projections are based
on MPC receiving its net revenue interest share of estimated future gross gas
production.

The reserves included in this report are estimates only and should not be
construed as exact quantities. They may or may not be recovered; if recovered,
the revenues therefrom and the costs related thereto could be more or less than
the estimated amounts. The sales rates, prices received for the reserves, and
costs incurred in recovering such reserves may vary from assumptions included in
this report due to governmental policies and uncertainties of supply and demand.
Also, estimates of reserves may increase or decrease as a result of future
operations.

In evaluating the information at our disposal concerning this report, we
have excluded from our consideration all matters as to which legal or
accounting, rather than engineering and geological, interpretation may be
controlling. As in all aspects of oil and gas evaluation, there are
uncertainties inherent in the interpretation of engineering and geological data;
therefore, our conclusions necessarily represent only informed professional
judgments.

The titles to the properties have not been examined by Netherland, Sewell &
Associates, Inc., nor has the actual degree or type of interest owned been
independently confirmed. The data used in our estimates were obtained from
Medallion Production Company, other interest owners, various operators of the
properties, and the nonconfidential files of Netherland, Sewell & Associates,
Inc. and were accepted as accurate. We are independent petroleum engineers,
geologists, and geophysicists; we do not own an interest in these properties and
are not employed on a contingent basis. Basic geologic and field performance
data together with our engineering work sheets are maintained on file in our
office.

Very truly yours,

/s/ Frederic D. Sewell

-3-