MILLER EXPLORATION CO, S-1/A, 1998-01-30

MILLER EXPLORATION CO
S-1/A, 1998-01-30
CRUDE PETROLEUM & NATURAL GAS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1998

REGISTRATION NO. 333-40383
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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

MILLER EXPLORATION COMPANY
(Exact name of Registrant as specified in its charter)

DELAWARE 1311 38-3379776
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)

3104 LOGAN VALLEY ROAD
TRAVERSE CITY, MICHIGAN 49685-0348
(616) 941-0004
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)

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

KELLY E. MILLER
PRESIDENT
MILLER EXPLORATION COMPANY
3104 LOGAN VALLEY ROAD
TRAVERSE CITY, MICHIGAN 49685-0348
(616) 941-0004
(Name, address, including zip code, and telephone number, including area code,
of Registrant's agent for service)

COPIES OF COMMUNICATION TO:

STEPHEN C. WATERBURY, ESQ. ALAN P. BADEN, ESQ.
WARNER NORCROSS & JUDD LLP VINSON & ELKINS L.L.P.
111 LYON STREET, N.W. 2300 FIRST CITY TOWER, 1001 FANNIN
GRAND RAPIDS, MICHIGAN 49503 HOUSTON, TEXAS 77002
(616) 752-2137 (713) 758-2222

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

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 SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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, DATED JANUARY 30, 1998

PROSPECTUS
6,100,000 SHARES

[LOGO OF MILLER EXPLORATION COMPANY APPEARS HERE]

COMMON STOCK

Of the 6,100,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), offered hereby, 5,500,000 shares are being sold by Miller
Exploration Company ("Miller" or the "Company"), and 600,000 shares are being
sold by the Selling Stockholders named herein. See "Principal and Selling
Stockholders." The Company will not receive any part of the proceeds from the
sale of Common Stock by the Selling Stockholders. A portion of the Offering
proceeds, and the inclusion of affiliate-owned shares of Common Stock in the
Offering, will benefit certain affiliates of the Company. See "Risk Factors--
Certain Benefits to Affiliates." Prior to the offering made hereby (the
"Offering"), there has been no public market for the Common Stock. It currently
is estimated that the initial public offering price will be between $10.00 and
$12.00 per share. See "Underwriting" for information relating to the factors to
be considered in determining the initial public offering price. The Common
Stock has been approved for inclusion on the Nasdaq National Market under the
symbol "MEXP."

-----------

ANY INVESTMENT IN THE SECURITIES OFFERED HEREIN INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 11.

-----------

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 COM- MISSION 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) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)....................... $ $ $ $
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders named herein have agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
915,000 additional shares of Common Stock on the same terms and conditions
as set forth above to cover over-allotments, if any. If the Underwriters
exercise this option in full, the total Price to Public will be $ ,
the total Underwriting Discounts and Commissions will be $ , the total
Proceeds to Company will be $ and the total Proceeds to Selling
Stockholders will be $ . See "Underwriting."

-----------

The shares of Common Stock are offered, subject to prior sale, when, as and
if delivered to and accepted by the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made against payment therefor,
on or about , 1998 at the offices of Bear, Stearns & Co. Inc., 245
Park Avenue, New York, New York 10167.

BEAR, STEARNS & CO. INC.

RAYMOND JAMES & ASSOCIATES, INC.

STEPHENS INC.

THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>

[DRAWING OF SALT DOME GEOLOGICAL STRUCTURE AND ILLUSTRATIONSOF THE DEVELOPMENT
OF THE COMPANY'S OPERATIONS FROM INCEPTIONTO THE PRESENT, INCLUDING A DRAWING
OF A 1920'S DRILLING RIGAND MODERN PRODUCTION FACILITIES]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING."

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised. Unless otherwise
indicated, references herein to the "Company" or "Miller" are to Miller
Exploration Company, a Delaware corporation, and its subsidiaries and
predecessors, and give pro forma effect to the Combination Transaction (defined
below) as if it had already occurred. Certain terms used herein relating to the
oil and gas industry are defined in the Glossary of Certain Oil and Gas Terms
included elsewhere in this Prospectus.

THE COMPANY

Miller is an independent oil and gas exploration and production company with
established exploration efforts concentrated primarily in three regions: the
Mississippi Salt Basin, the onshore Gulf Coast region of Texas and Louisiana
and the Michigan Basin. Miller emphasizes the use of seismic data analysis and
imaging, as well as other emerging technologies, to explore for and develop oil
and natural gas in its core exploration areas. Miller is the successor to the
independent oil and natural gas exploration and production business first
established in Michigan by members of the Miller family in 1925.

The Company was organized in connection with the combination (the
"Combination Transaction") of Miller Oil Corporation ("MOC") and interests in
oil and gas properties owned by certain affiliated entities and interests in
such properties owned by certain business partners and investors (collectively,
the "Combined Assets"). The Company has budgeted a significant increase in
drilling activity and plans to drill 50 gross wells (28.3 net to the Company)
in 1998, the majority of which are exploratory wells in the Mississippi Salt
Basin. The Company's capital expenditure budget for both exploration and
development activity in all of its areas of concentration is $46.2 million for
1998. Miller incurred expenditures for exploration and development activity of
$21.1 million with respect to the Company's interest in 25 gross wells (8.8 net
to the Company) for the year ended December 31, 1996 and $17.1 million with
respect to the Company's interest in 27 gross wells (5.8 net to the Company)
for the nine months ended September 30, 1997. Estimated proved reserves
attributable to the Combined Assets have increased 168%, from 19.9 Bcfe as of
January 1, 1994 to 53.4 Bcfe as of September 30, 1997. Estimated proved
reserves increased 79%, 71% and 6% for the years ended December 31, 1994, 1995
and 1996, respectively, and decreased 17% for the nine months ended September
30, 1997. The increases in 1994 and 1995 were due primarily to active
exploration efforts in Mississippi, while the smaller increase in 1996 and the
decrease in the first nine months of 1997 resulted primarily from a greater
focus on leasing efforts in anticipation of an expanded 1998 exploration
program.

The Company's primary exploration effort is currently focused on the
Mississippi Salt Basin, which contains one of the largest onshore
concentrations of salt domes in North America. The Company owns interests in
approximately 63,000 gross leasehold acres (41,000 net to the Company) in the
Mississippi Salt Basin in prospective areas around 20 salt domes, which the
Company believes is one of the largest strategic lease positions around the
salt domes in the basin. Due to innovations over the last few years, seismic
technology now enables geoscientists to generate improved imaging of the flanks
of salt structures and associated faulting, the primary hydrocarbon trapping
mechanisms in this area. The Company commenced its exploration activities in
Mississippi in 1993 and has participated in the drilling of 21 wells, 11 of
which (52%) have been completed, establishing commercial production around six
salt domes. As of September 30, 1997, these wells had produced 29.2 Bcfe gross
(18.8 Bcfe net to the Company) and had established estimated gross proved
reserves of 78.4 Bcfe (36.1 Bcfe net to the Company). In the Mississippi Salt
Basin, the Company is using technologically advanced seismic data processing
methods to reinterpret existing regional 2-D seismic data and analyze and
interpret newly acquired 2-D seismic data. In addition, the Company is
currently participating in multiple 3-D seismic acquisition projects in this
region, which the Company believes will improve the identification of potential
hydrocarbon traps.

3
<PAGE>

The Company's prospects in the Gulf Coast region of Texas and Louisiana also
lend themselves to 3-D seismic-aided exploration due to the geological
complexity prevalent in this region. Since 1994, the Company has participated
in approximately 300 square miles of 3-D seismic surveys and the drilling of 50
gross wells within the boundaries of these surveys. Twenty-seven of the wells
drilled have been completed as commercially productive. As of September 30,
1997, these wells had established estimated proved reserves of 79.6 Bcfe (9.3
Bcfe net to the Company). The Company expects to participate in nine gross
wells (2.3 net to the Company) in this area in 1998, all of which are supported
by 3-D seismic data.

The Company's current operations in Michigan were developed after 1988, when
the Company sold all of its producing properties to Conoco, Inc. In the
Michigan Basin, the Company has an interest in over 300 producing wells within
a leasehold position that is the result of prior successful exploration efforts
in the Niagaran Reef Trend. Miller's current Michigan Basin production is
predominantly long-lived, lower volume Antrim Shale production, as compared to
the higher volume wells of the onshore Gulf Coast and Mississippi Salt Basin.
The Company is continuing to pursue additional exploration opportunities in the
Michigan Basin.

The Combined Assets consist of MOC, interests in oil and gas properties from
oil and gas exploration companies beneficially owned by members of the Miller
family (the "Affiliated Entities") and interests in such properties owned by
certain business partners and investors, including Amerada Hess Corporation
("AHC"), Dan A. Hughes, Jr. ("Hughes"), and SASI Minerals Company ("SASI"). No
assets other than those in which MOC or the Affiliated Entities currently have
an interest will be part of the Combined Assets. The Company and the owners of
the Combined Assets have entered into separate agreements that provide for the
issuance of an estimated 6,930,000 shares of Common Stock and the payment of an
estimated $50.5 million in cash to certain participants in the Combination
Transaction in exchange for the Combined Assets. The Combination Transaction is
expected to occur concurrently with the closing of the Offering.

In this Prospectus, reference to historical combined financial information of
the Company means the historical combined results of the Company and the
Affiliated Entities. Reference to pro forma financial information of the
Company means the historical combined information, plus the contribution or
acquisition of the Combined Assets from the non-affiliated participants in the
Combination Transaction.

The Company's principal office is located at 3104 Logan Valley Road, Traverse
City, Michigan 49685-0348 and its telephone number is (616) 941-0004. The
Company also maintains offices in Houston, Texas and Jackson and Columbia,
Mississippi.

BUSINESS STRATEGY

The following is a summary of the key elements of the Company's business
strategy:

4
<PAGE>

Exploit Prospect Inventory. The Company has an identified inventory of
over 32 exploration and development prospects, all of which it plans to
drill in 1998 and 1999. This Offering will enable the Company to retain a
larger working interest in its prospects, conduct an aggressive seismic
data acquisition program and accelerate its drilling activities.

Utilize Advanced Technology. The Company utilizes advanced technology in
analyzing, interpreting and visualizing seismic data to assemble and
develop its inventory of exploration and development drilling prospects.
The Company focuses its 3-D seismic efforts on areas that exhibit
geological complexity where 2-D seismic has been effective in increasing
drilling success rates, but has limitations in locating subtle trapping
structures.

Experienced Technical Team. The Company has assembled a technical team
with an average of over 18 years of experience, including extensive
experience with the acquisition, processing and interpretation of both 2-D
and 3-D seismic data and the use of 3-D work stations to evaluate and
develop drilling prospects.

SUMMARY DRILLING AND BUDGET DATA

The following table sets forth certain summary drilling and budget
information with respect to the Company's activities in its core regions for
the periods indicated. The final determination with respect to the drilling of
any well, including those currently budgeted, will depend on a number of
factors, including (i) the results of exploration efforts and the review and
analysis of the seismic data, (ii) the availability of sufficient capital
resources by the Company and other participants for drilling prospects, (iii)
economic and industry conditions at the time of drilling, including prevailing
and anticipated prices for oil and natural gas and the availability of drilling
rigs and crews, (iv) the financial results of the Company, (v) the availability
of leases on reasonable terms and (vi) the availability of permits for the
potential drilling location. There can be no assurance that the budgeted wells
will, if drilled, encounter reservoirs of commercial quantities of oil or
natural gas. For a description of the Company's drilling results, see "Business
and Properties--Drilling Activities."

<TABLE>
<CAPTION>
WELLS
DRILLED
DECEMBER
31, 1994 CAPITAL EXPENDITURES
THROUGH 1998 DECEMBER 31, 1994 BUDGETED CAPITAL
SEPTEMBER BUDGETED THROUGH EXPENDITURES FOR
30, 1997 WELLS SEPTEMBER 30, 1997 1998
---------- ---------- --------------------- --------------------
SEISMIC
LEASE SEISMIC & LEASE &
GROSS NET GROSS NET ACQUISITION DRILLING ACQUISITION DRILLING
----- ---- ----- ---- ----------- --------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mississippi Salt Basin.. 14 11.3 28 14.7 $16,379 $25,579 $866 $40,130
Onshore Gulf Coast
Texas................. 50 14.2 6 1.5 3,930 6,679 24 913
Louisiana............. 6 1.3 3 0.8 1,176 2,117 8 807
Michigan Basin/Other.... 21 4.8 13 11.3 715 1,949 78 3,400
--- ---- --- ---- ------- ------- ---- -------
Total............... 91 31.6 50 28.3 $22,200 $36,324 $976 $45,250
=== ==== === ==== ======= ======= ==== =======
</TABLE>

5
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered
By the Company.................. 5,500,000 shares
By the Selling Stockholders..... 600,000 shares
Common Stock to be Outstanding
after the Offering................ 12,430,000 shares(1)
Use of Proceeds.................... The net proceeds of the Offering will be
used for repayment of all outstanding
indebtedness of approximately $8.3 million,
to fund a portion of the purchase price for
the Combined Assets, to fund capital
expenditures relating to exploration and
development activities, to increase working
capital and for other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market Symbol...... "MEXP"
</TABLE>
- --------

(1) Includes an estimated 6,930,000 shares of Common Stock to be issued in
connection with the Combination Transaction. Does not include 885,000
shares of Common Stock issuable pursuant to employee stock options at
exercise prices per share equal to the initial public offering price
(555,000 shares) and 110% of the initial public offering price (330,000
shares) and 109,500 shares of restricted Common Stock that are expected to
be granted to directors, officers and certain employees of the Company in
connection with the consummation of the Offering. See "Management--
Executive Compensation--Employee Benefit Plans--Stock Option and Restricted
Stock Plan of 1997."

RISK FACTORS

Any investment in the Common Stock involves a high degree of risk. The risks
that a potential investor should consider before making an investment in the
Common Stock include, but are not limited to risks associated with: (i) the
Company's dependence on exploratory drilling activities, (ii) volatility of oil
and natural gas prices, (iii) uncertainty of estimates of oil and natural gas
reserves, (iv) management of the Company's growth and implementation of its
growth strategy, (v) substantial capital requirements associated with the
Company's operations, (vi) the Company's historical operating losses and
variability of operating results, (vii) replacement of oil and natural gas
reserves, (viii) operating hazards and uninsured risks, (ix) competition, (x)
government regulation and environmental matters, (xi) hedging transactions,
(xii) marketability of production, (xiii) dependence on key personnel, (xiv)
technological changes, (xv) shortages of drilling rigs, equipment, supplies and
personnel, (xvi) the control of the Company by existing stockholders, (xvii)
certain antitakeover considerations, (xviii) certain benefits to be received by
affiliates of the Company (xix) dilution, (xx) absence of dividends on the
Common Stock; (xxi) the absence of a prior public market for the Common Stock;
and (xxii) possible stock price volatility. See "Risk Factors."

6
<PAGE>

SUMMARY HISTORICAL COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA

The following tables set forth summary historical combined data and pro forma
data of the Company as of the dates and for the periods indicated. The
historical combined financial data for the three years ended December 31, 1996
are derived from the combined financial statements of the Company which have
been audited by Arthur Andersen LLP, independent public accountants. The
historical combined financial data as of and for the nine months ended
September 30, 1996 and 1997 are derived from unaudited combined financial
statements of the Company, included elsewhere in this Prospectus, which, in the
opinion of management, contain all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation thereof. These audited and
unaudited combined financial statements of the Company and the related notes
thereto, included elsewhere in this Prospectus, are collectively referred to in
this Prospectus as the "Combined Financial Statements." Pro forma data are
based on assumptions and include adjustments as explained in the notes to the
unaudited pro forma financial data. The unaudited pro forma financial
statements are not necessarily indicative of the results of future operations
of the Company and should be read in conjunction with the Combined Financial
Statements. For a description of the Combination Transaction, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview." The following financial information should be read in conjunction
with "Capitalization," "Selected Historical Combined Financial and Operating
Data," "Selected Unaudited Pro Forma Combined Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Combined Financial Statements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------- -----------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996(1) 1996 1997 1997(1)
------ ------ ------ ----------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Natural gas.......... $2,424 $2,748 $5,614 $20,690 $3,719 $4,329 $15,565
Crude oil and
condensate.......... 672 715 1,101 5,045 854 710 2,783
Other operating
revenues............ 167 296 395 395 355 492 492
------ ------ ------ ------- ------ ------ -------
Total operating
revenue........... 3,263 3,759 7,110 26,130 4,928 5,531 18,840
------ ------ ------ ------- ------ ------ -------
Operating expenses:
Lease operating
expenses and
production taxes.... 811 777 1,123 2,185 753 917 1,517
Depreciation,
depletion and
amortization........ 1,009 1,666 2,629 9,099 1,826 2,019 7,747
General and
administrative...... 1,200 1,270 1,591 2,011 1,002 1,335 1,625
------ ------ ------ ------- ------ ------ -------
Total operating
expenses.......... 3,020 3,713 5,343 13,295 3,581 4,271 10,889
------ ------ ------ ------- ------ ------ -------
Operating income....... 243 46 1,767 12,835 1,347 1,260 7,951
------ ------ ------ ------- ------ ------ -------
Interest expense....... (810) (1,017) (1,139) -- (789) (922) --
Lawsuit settlement..... -- 3,521 -- -- -- -- --
------ ------ ------ ------- ------ ------ -------
Income (loss) before
income taxes.......... (567) 2,550 628 12,835 558 338 7,951
Provision for income
taxes(2).............. -- -- -- 3,782 -- -- 2,215
------ ------ ------ ------- ------ ------ -------
Net income (loss)(2)... $ (567) $2,550 $ 628 $ 9,053 $ 558 $ 338 $ 5,736
====== ====== ====== ======= ====== ====== =======
Pro forma net income
per share(2)(3)....... $ 0.73 $ 0.46
======= =======
Pro forma weighted
average shares
outstanding(3)........ 12,430 12,430
======= =======
</TABLE>

7
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------- ----------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996(1) 1996 1997 1997(1)
------- ------- ------- ----------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
DATA:
Net cash provided by
operating activities.. $ 1,720 $ 511 $ 2,162 $17,057 $ 1,912 $ 2,201 $13,327
Net cash used in
investing activities.. (1,150) (151) (4,743) (54,736) (3,839) (2,487) (52,480)
Net cash provided by
(used in) financing
activities............ (395) (377) 2,811 40,413 1,835 (17) 41,354
OTHER OPERATING DATA:
Adjusted EBITDA(4)(6).. $ 1,252 $ 1,712 $ 4,396 $21,934 $ 3,173 $ 3,279 $15,698
Operating cash
flow(5)(6)............ 442 674 3,230 18,125 2,365 2,315 13,441
Capital expenditures... 4,528 6,323 6,184 21,111 4,614 5,166 17,120
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital........ $(1,769) $(1,980) $(2,682) $ 4,575 $(2,688) $(3,466) $ 3,791
Oil and gas properties,
net................... 14,257 17,731 20,732 90,238 20,462 21,163 90,669
Total assets........... 16,444 20,005 24,050 96,050 22,883 23,993 96,003
Long-term debt,
including notes
payable............... 9,442 9,801 12,881 -- 11,661 12,939 --
Equity................. 5,596 7,410 7,769 80,722 7,943 8,032 80,635
</TABLE>
- --------
(1) Assumes the Combination Transaction and the Offering and the application of
the proceeds therefrom had taken place on January 1, 1996 for the purposes
of Statement of Operations Data, Statement of Cash Flows Data and Other
Operating Data and that such events had occurred at the end of the period
presented for the purposes of Balance Sheet Data.
(2) Gives pro forma effect to the application of federal and state income taxes
to the Company as if it were a taxable corporation for the periods
presented. Upon the consummation of the Combination Transaction, the
Company will be required to record a one-time non-cash charge to earnings
in connection with establishing a deferred tax liability on the balance
sheet in accordance with SFAS No. 109, "Accounting for Income Taxes." If
the Combination Transaction had been consummated for the periods presented,
such charge would have been approximately $5.5 million. The ultimate amount
of the charge that will be recorded is dependent upon a number of factors
and cannot be determined until consummation of the Combination Transaction.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview."
(3) Pro forma net income per share has been computed assuming that an estimated
6,930,000 shares of Common Stock to be issued in connection with the
Combination Transaction and 5,500,000 shares of Common Stock to be issued
in connection with the Offering have been outstanding since January 1,
1996.
(4) Adjusted EBITDA represents earnings before interest expense, income taxes,
a non-operating gain on a lawsuit settlement and depreciation, depletion
and amortization.
(5) Operating cash flow represents cash flows from operating activities prior
to changes in assets and liabilities.
(6) The Company believes that EBITDA and operating cash flow may provide
additional information about the Company's ability to meet its future
requirements for debt service, capital expenditures and working capital.
EBITDA and operating cash flow are financial measures commonly used in the
oil and gas industry and should not be considered in isolation or as a
substitute for net income, operating income, cash flows from operating
activities or any other measure of financial performance presented in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity. Because EBITDA excludes some, but
not all, items that affect net income and because operating cash flow
excludes changes in assets and liabilities and these measures may vary
among companies, the EBITDA and operating cash flow data presented above
may not be comparable to similarly titled measures of other companies.

8
<PAGE>

The following table sets forth historical combined information and pro forma
information of the Company with respect to production volumes, average sale
prices, average costs and number of wells drilled for the periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- -------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PRODUCTION VOLUMES:
Crude oil and
condensate (MBbls).... 39.5 31.6 46.5 243.0 35.0 33.4 151.8
Natural gas (MMcf)..... 1,228.4 1,324.0 2,030.0 8,668.8 1,555.3 1,713.0 6,295.4
Natural gas equivalent
(MMcfe)............... 1,465.7 1,513.3 2,309.1 10,126.8 1,765.0 1,913.3 7,206.2
AVERAGE SALE PRICES:
Crude oil and
condensate ($ per
Bbl).................. $ 17.00 $ 22.68 $ 23.66 $ 20.76 $ 24.44 $ 21.26 $ 18.33
Natural gas ($ per
Mcf).................. 1.97 2.08 2.77 2.39 2.39 2.53 2.47
Natural gas equivalent
($ per Mcfe).......... 2.11 2.29 2.91 2.54 2.59 2.63 2.55
AVERAGE COSTS ($ PER
MCFE):
Lease operating
expenses and
production taxes...... $ 0.55 $ 0.51 $ 0.49 $ 0.22 $ 0.43 $ 0.48 $ 0.21
Depreciation, depletion
and amortization...... 0.69 1.10 1.14 0.90 1.03 1.06 1.08
General and
administrative........ 0.82 0.84 0.69 0.20 0.57 0.70 0.23
NUMBER OF WELLS
DRILLED(1):
Gross.................. 27 39 25 25 18 27 27
Net(2)................. 2.5 5.2 2.7 8.8 1.6 2.5 5.8
</TABLE>
- --------
(1) For a description of the Company's drilling results, see "Business and
Properties--Drilling Activities."
(2) Wells in which the Company holds an after-payout working interest are not
included because such interests had not been earned at the time of
drilling.

9
<PAGE>

SUMMARY OIL AND NATURAL GAS RESERVE DATA

The following table sets forth summary data with respect to the Company's
estimated proved oil and natural gas reserves as of the dates indicated and the
estimated future net cash flows attributable thereto. Information in this
Prospectus relating to estimated net proved oil and natural gas reserves at
December 31, 1996 and September 30, 1997, and the estimated future net revenues
attributable thereto, is based upon the reserve reports (the "Reserve Reports")
prepared by S.A. Holditch & Associates (as to Michigan Basin reserves) and
Miller and Lents, Ltd. (as to non-Michigan Basin reserves), independent
petroleum engineers (the "Independent Engineers"). Summaries of such Reserve
Reports as of September 30, 1997 are attached as Appendices A and B to this
Prospectus. See "Experts." All calculations of estimated net proved reserves
have been made in accordance with the rules and regulations of the Securities
and Exchange Commission (the "SEC") and, except as otherwise indicated, give no
effect to federal or state income taxes otherwise attributable to estimated
future net revenues from the sale of oil and natural gas. In accordance with
such regulations, the Reserve Reports used oil and natural gas prices in effect
at the respective dates of the Reserve Reports. There are numerous
uncertainties inherent in estimating quantities of proved reserves and in
projecting future rates of production and timing of development expenditures,
including many factors beyond the control of the Company. See "Risk Factors--
Uncertainty of Estimates of Oil and Natural Gas Reserves" and "Business and
Properties--Oil and Natural Gas Reserves."

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
1996 1997
------------------ -------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER UNIT DATA)
<S> <C> <C>
Net Proved Reserves:
Crude oil (MBbl)...................... 1,353.9 1,174.0
Natural gas (MMcf).................... 56,394.2 46,378.3
Natural gas equivalent (MMcfe)........ 64,517.6 53,422.3
Net Proved Developed Reserves:
Crude oil (MBbl)...................... 534.6 421.7
Natural gas (MMcf).................... 37,489.9 29,563.7
Natural gas equivalent (MMcfe)........ 40,697.5 32,093.9
Estimated future net revenues before
income taxes(1)........................ $ 160,820 $ 118,313
Present value of estimated future net
revenues before income taxes(2)........ $ 117,144 $ 87,484
Standardized measure of discounted
estimated future net cash flows(3)..... $ 97,185 $ 78,319
</TABLE>
- --------
(1) The average prices for crude oil were $25.23 per Bbl at December 31, 1996
and $21.74 per Bbl at September 30, 1997. The average prices for natural
gas were $3.27 per Mcf at December 31, 1996 and $3.12 per Mcf at September
30, 1997. Includes income from Section 29 tax credits of $1,043 and $794,
as of December 31, 1996 and September 30, 1997, respectively.
(2) The present value of estimated future net revenues attributable to the
Company's reserves was prepared using constant prices as of the calculation
date, discounted at 10% per annum on a pre-tax basis.
(3) The standardized measure of discounted estimated future net cash flows
represents discounted estimated future net cash flows attributable to the
Company's reserves after income taxes, calculated in accordance with
Statement of Financial Accounting Standards No. 69.

10
<PAGE>

RISK FACTORS

Any investment in the Common Stock involves a high degree of risk.
Prospective purchasers of the Common Stock carefully should consider the risk
factors set forth below, as well as the other information contained in this
Prospectus. This Prospectus contains forward-looking statements. See "--
Forward-Looking Information." Actual results may differ materially from those
projected in the forward-looking statements as a result of any number of
factors, including risk factors set forth below.

DEPENDENCE ON EXPLORATORY DRILLING ACTIVITIES

The Company's revenues, operating results and future rate of growth are
substantially dependent upon the success of its exploratory drilling program,
which will be funded in part with the proceeds of the Offering. See "Use of
Proceeds." Exploratory drilling involves numerous risks, including the risk
that no commercially productive oil or natural gas reservoirs will be
encountered. The cost of drilling, completing and operating wells is often
uncertain, and drilling operations may be curtailed, delayed or canceled as a
result of a variety of factors, including unexpected drilling conditions,
pressure or irregularities in formations, equipment failures or accidents,
adverse weather conditions, compliance with governmental requirements and
shortages or delays in the availability of drilling rigs and the delivery of
equipment. Despite the use of 2-D and 3-D seismic data and other advanced
technologies, exploratory drilling remains a speculative activity. Even when
fully utilized and properly interpreted, 2-D and 3-D seismic data and other
advanced technologies only assist geoscientists in identifying subsurface
structures and do not enable the interpreter to know whether hydrocarbons are
in fact present in those structures. In addition, the use of 2-D and 3-D
seismic data and other advanced technologies requires greater predrilling
expenditures than traditional drilling strategies, and the Company could incur
losses as a result of such expenditures. The Company's future drilling
activities may not be successful. There can be no assurance that the Company's
overall drilling success rate or its drilling success rate for activity within
a particular region will not decline. Unsuccessful drilling activities could
have a material adverse effect on the Company's business, results of
operations and financial condition. The Company may not have any option or
lease rights in potential drilling locations it identifies. Although the
Company has identified numerous potential drilling locations, there can be no
assurance that they will ever be leased or drilled or that oil or natural gas
will be produced from these or any other potential drilling locations. In
addition, drilling locations initially may be identified through a number of
methods, some of which do not include interpretation of 3-D or other seismic
data. Wells that currently are included in the Company's capital budget may be
based upon statistical results of drilling activities in other areas that the
Company believes are geologically similar, rather than on analysis of seismic
or other data. Actual drilling results are likely to vary from such
statistical results and such variance may be material. Similarly, the
Company's drilling schedule may vary from its capital budget, and there is
increased risk of such variance from the 1998 capital budget because of future
uncertainties, including those described above. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

VOLATILITY OF OIL AND NATURAL GAS PRICES

The Company's revenues, operating results and future rate of growth are
substantially dependent upon the prevailing prices of, and demand for, oil and
natural gas. Historically, the markets for oil and natural gas have been
volatile and are likely to continue to be volatile in the future. Prices for
oil and natural gas are subject to wide fluctuation in response to relatively
minor changes in the supply of and demand for oil and natural gas, market
uncertainty and a variety of additional factors that are beyond the control of
the Company. These factors include worldwide and domestic supplies of oil and
natural gas, the ability of the members of the Organization of Petroleum
Exporting Countries to agree to and maintain oil price and production
controls, political instability or armed conflict in oil-producing regions,
the price and level of foreign imports, the level of consumer demand, the
price and availability of alternative fuels, the availability of pipeline
capacity, weather conditions, domestic and foreign governmental regulations
and taxes and the overall economic environment. It is impossible to predict
future oil and natural gas price movements with certainty. Declines in oil and
natural gas prices may have a material adverse affect on the Company's
financial condition, liquidity, ability to finance planned capital
expenditures and results of operations. Lower oil and natural gas prices also
may reduce the amount of oil and natural gas that the Company can produce
economically. See "--Uncertainty of Estimates of Oil and Natural

11
<PAGE>

Gas Reserves," "Business and Properties--Competition," "--Governmental
Regulation" and "--Environmental Matters."

The Company periodically reviews the carrying value of its oil and natural
gas properties under the full cost accounting rules of the SEC. Under these
rules, capitalized costs of proved oil and natural gas properties may not
exceed the present value of estimated future net revenues from proved
reserves, discounted at 10%. Application of the "ceiling" test generally
requires pricing future revenue at the unescalated prices in effect as of the
end of each fiscal quarter and requires a write-down for accounting purposes
if the ceiling is exceeded, even if prices were depressed for only a short
period of time. The Company may be required to write-down the carrying value
of its oil and natural gas properties when oil and natural gas prices are
depressed or unusually volatile. If a write-down is required, it would result
in a charge to earnings, but would not impact cash flow from operating
activities. Once incurred, a write-down of oil and natural gas properties is
not reversible at a later date.

UNCERTAINTY OF ESTIMATES OF OIL AND NATURAL GAS RESERVES

This Prospectus contains estimates of the Company's proved oil and natural
gas reserves and the estimated future net revenues therefrom based upon the
Company's own estimates or on Reserve Reports that rely upon various
assumptions, including assumptions required by the SEC as to oil and natural
gas prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds. The process of estimating oil and natural gas reserves
is complex, requiring significant decisions and assumptions in the evaluation
of available geological, geophysical, engineering and economic data for each
reservoir. As a result, such estimates are inherently imprecise. Actual future
production, oil and natural gas prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and natural
gas reserves may vary substantially from those estimated by the Company or
contained in the Reserve Reports. Any significant variance in these
assumptions could materially affect the estimated quantity and value of
reserves set forth in this Prospectus. The Company's properties also may be
susceptible to hydrocarbon drainage from production by other operators on
adjacent properties. In addition, the Company's proved reserves may be subject
to downward or upward revision based upon production history, results of
future exploration and development, prevailing oil and natural gas prices,
mechanical difficulties, government regulation and other factors, many of
which are beyond the Company's control. Actual production, revenues, taxes,
development expenditures and operating expenses with respect to the Company's
reserves likely will vary from the estimates used, and such variances may be
material.

Data included in this Prospectus regarding the Company's reserves as of
December 31, 1994 and 1995 have not been reported upon by the Independent
Engineers. Approximately 40% of the Company's total estimated proved reserves
at September 30, 1997 were undeveloped, which are by their nature less
certain. Recovery of such reserves will require significant capital
expenditures and successful drilling operations. The Company's Reserve Reports
assume that substantial capital expenditures by the Company will be required
to develop such reserves. Although cost and reserve estimates attributable to
the Company's oil and natural gas reserves have been prepared in accordance
with industry standards, no assurance can be given that the estimated costs
are accurate, that development will occur as scheduled or that the results
will be as estimated. See "Business and Properties--Oil and Natural Gas
Reserves."

The present value of future net revenues referred to in this Prospectus
should not be construed as the current market value of the estimated oil and
natural gas reserves attributable to the Company's properties. In accordance
with applicable requirements of the SEC, the estimated discounted future net
cash flows from proved reserves generally are based on prices and costs as of
the date of the estimate, whereas actual future prices and costs may be
materially higher or lower. Actual future net cash flows also will be affected
by increases in consumption by oil and natural gas purchasers and changes in
governmental regulations or taxation. The timing of actual future net cash
flows from proved reserves, and thus their actual present value, will be
affected by the timing of both the production and the incurrence of expenses
in connection with development and production of oil and natural gas
properties. In addition, the 10% discount factor, which is required by the SEC
to be used in calculating discounted future net cash flows for reporting
purposes, is not necessarily the most appropriate discount factor based on
interest rates in effect from time to time and risks associated with the
Company or the oil and natural gas industry in general.

12
<PAGE>

RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH AND IMPLEMENTATION OF GROWTH
STRATEGY

The Company's rapid growth has placed, and is expected to continue to place,
a significant strain on the Company's financial, technical, operational and
administrative resources. As the Company increases the number of projects it
is evaluating or in which it is participating, there will be additional
demands on the Company's financial, technical, operational and administrative
resources. Any increase in the Company's activities as an operator will
increase its exposure to operating hazards. See "--Operating Hazards and
Uninsured Risks." The Company has relied in the past and expects to continue
to rely on project partners and independent contractors, including geologists,
geophysicists and engineers, that have provided the Company with seismic
survey planning and management, project and prospect generation, land
acquisition, drilling and other services. Upon consummation of the Combination
Transaction, the Company will have 23 full-time employees. Due to the
competitive nature of the markets in which the Company operates, the Company
currently believes that the demand for qualified geologists, geophysicists and
engineers is increasing. See "--Dependence on Key Personnel." As the Company
increases the number of projects it is evaluating or in which it is
participating, there will be additional demands on the Company's financial,
technical, operational and administrative resources and continued reliance by
the Company on project partners and independent contractors, and these strains
on resources, additional demands and continued reliance may negatively affect
the Company. The Company's ability to continue its growth will depend upon a
number of factors, including its ability to obtain leases or options on
properties, its ability to acquire additional 3-D seismic data, its ability to
identify and acquire new exploratory sites, its ability to develop existing
sites, its ability to continue to retain and attract skilled personnel, its
ability to maintain or enter into new relationships with project partners and
independent contractors, the results of its drilling program, hydrocarbon
prices, access to capital and other factors. Although the Company intends to
upgrade its technical, operational and administrative resources following the
Offering and to increase its ability to provide internally certain of the
services previously provided by outside sources, there can be no assurance
that it will be successful in doing so or that it will be able to continue to
maintain or enter into new relationships with project partners and independent
contractors. The failure to continue to upgrade the Company's technical,
administrative, operating and financial resources and control systems or the
occurrence of unexpected expansion difficulties, including difficulties in
recruiting or engaging and retaining geophysicists, geologists, engineers and
sufficient numbers of qualified personnel and independent contractors to
enable the Company to expand its role in the drilling and production phase, or
the reduced availability of seismic gathering, drilling or other services in
the face of growing demand, could have a material adverse effect on the
Company's business, financial condition and results of operations. There can
be no assurance that the Company will be successful in achieving growth or any
other aspect of its business strategy.

SUBSTANTIAL CAPITAL REQUIREMENTS

The Company makes and will continue to make substantial capital expenditures
in its exploration and development projects. The Company intends to finance
these capital expenditures with the net proceeds from the Offering, cash flow
from operations and its existing financing arrangements. Additional financing
may be required in the future to fund the Company's developmental and
exploratory drilling and seismic activities. No assurance can be given as to
the availability or terms of any such additional financing that may be
required or that financing will continue to be available under the existing or
new financing arrangements. If additional capital resources are not available
to the Company, its drilling, seismic and other activities may be curtailed
and its business, financial condition and results of operations could be
materially adversely affected. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

HISTORICAL OPERATING LOSSES AND VARIABILITY OF OPERATING RESULTS

Excluding unusual, one-time transactions, the Company incurred net losses in
1994 and 1995 of $0.6 million and $1.0 million, respectively, and net income
in 1996 and for the nine months ended September 30, 1997 of $0.6 million and
$0.3 million, respectively, on an historical combined basis. There can be no
assurance that the Company will be profitable in the future. The development
of the Company's business and its participation in an

13
<PAGE>

increasingly larger number of projects have required and will continue to
require substantial expenditures. The Company's future operating results may
fluctuate significantly depending upon a number of factors, including industry
conditions, prices of oil and natural gas, rates of drilling success, rates of
production from completed wells and the timing of capital expenditures. This
variability could have a material adverse effect on the Company's business,
financial condition and results of operations. There also may be other factors
that significantly affect the Company's quarterly operating results which are
difficult to predict and which could result in earnings falling short, for a
particular period, of either a prior fiscal period or investors' expectations.
In addition, any failure or delay in the realization of expected cash flows
from operating activities could limit the Company's ability to invest and
participate in economically attractive projects. See "Selected Historical
Combined Financial and Operating Data," "Selected Unaudited Pro Forma Combined
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Combined Financial Statements.

RESERVE REPLACEMENT RISK

In general, production from oil and natural gas properties declines as
reserves are depleted, with the rate of decline depending on reservoir
characteristics. Except to the extent that the Company conducts successful
exploration and development activities or acquires properties containing
proved reserves, or both, the proved reserves of the Company will decline as
reserves are produced. The Company's future oil and natural gas production is
highly dependent upon its ability to economically find, develop or acquire
reserves in commercial quantities. The business of exploring for or developing
reserves is capital intensive. To the extent cash flow from operations is
reduced and external sources of capital become limited or unavailable, the
Company's ability to make the necessary capital investment to maintain or
expand its asset base of oil and natural gas reserves would be impaired. The
Company participates in a substantial percentage of its wells as non-operator.
The failure of an operator of the Company's wells to adequately perform
operations, or an operator's breach of the applicable agreements, could
adversely impact the Company. In addition, there can be no assurance that the
Company's future exploration and development activities will result in
additional proved reserves or that the Company will be able to drill
productive wells at acceptable costs. Furthermore, although the Company's
revenues could increase if prevailing prices for oil and natural gas increase
significantly, the Company's finding and development costs also could
increase. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

OPERATING HAZARDS AND UNINSURED RISKS

The oil and natural gas business involves certain operating hazards such as
well blowouts, craterings, explosions, uncontrollable flows of oil, natural
gas or well fluids, fires, formations with abnormal pressures, pipeline
ruptures or spills, pollution, releases of toxic gas and other environmental
hazards and risks, any of which could result in substantial losses to the
Company. The availability of a ready market for the Company's oil and natural
gas production also depends on the proximity of reserves to, and the capacity
of, oil and natural gas gathering systems, pipelines and trucking or terminal
facilities. The Company delivers natural gas through gas gathering systems and
gas pipelines that it does not own. Federal and state regulation of oil and
natural gas production and transportation, tax and energy policies, changes in
supply and demand and general economic conditions all could adversely affect
the Company's ability to produce and market its oil and natural gas. In
addition, the Company may be liable for environmental damage caused by
previous owners of property purchased and leased by the Company. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could reduce or eliminate the funds available
for exploration, development or acquisitions or result in the loss to the
Company's properties. In accordance with customary industry practices, the
Company maintains insurance against some, but not all, of such risks and
losses. The Company carries only certain limited types of business
interruption insurance. The Company may elect to self-insure if management
believes that the cost of insurance, although available, is excessive relative
to the risks presented. The occurrence of an event that is not covered, or not
fully covered, by insurance could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, pollution and environmental risks generally are not fully insurable.
The Company participates in a substantial percentage of its wells on a non-

14
<PAGE>

operated basis, which may limit the Company's ability to control the risks
associated with oil and natural gas operations. See "Business and Properties--
Operating Hazards and Uninsured Risks."

COMPETITION

The Company operates in the highly competitive areas of oil and natural gas
exploration, exploitation, acquisition and production. In seeking to acquire
desirable producing properties or new leases for future exploration and in
marketing its oil and natural gas production, as well as in seeking to acquire
the equipment and expertise necessary to operate and develop those properties,
the Company faces intense competition from a large number of independent,
technology-driven companies as well as both major and other independent oil
and natural gas companies. Many of these competitors have financial and other
resources substantially in excess of those available to the Company. Such
companies may be able to pay more for exploratory prospects and productive oil
and natural gas properties and may be able to define, evaluate, bid for and
purchase a greater number of properties and prospects than the Company's
financial or human resources merit. The Company's ability to explore for oil
and natural gas prospects and to acquire additional properties in the future
will depend upon its ability to conduct its operations, to evaluate and select
suitable properties and to consummate transactions in this highly competitive
environment. See "Business and Properties--Competition."

GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS

Oil and natural gas operations are subject to various federal, state and
local government laws and 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 bonds, reports
concerning operations, spacing of wells, unitization and pooling of
properties, environmental protection 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 natural gas wells below actual
production capacity to conserve supplies of oil and natural gas. The Company
also is subject to changing and extensive tax laws, the effects of which
cannot be predicted. The development, production, handling, storage,
transportation and disposal of oil and natural gas, by-products thereof and
other substances and materials produced or used in connection with oil and
natural gas operations are subject to laws and regulations primarily relating
to protection of human health and the environment. The discharge of oil,
natural gas or pollutants into the air, soil or water may give rise to
significant liabilities on the part of the Company to the government and third
parties and may result in the assessment of civil or criminal penalties or
require the Company to incur substantial costs of remediation. Legal
requirements frequently are changed and subject to interpretation, and the
Company is unable to predict the ultimate cost of compliance with these
requirements or their effect on its operations. No assurance can be given that
existing laws or regulations, as currently interpreted or reinterpreted in the
future, or future laws or regulations will not materially adversely affect the
Company's business, results of operations and financial condition. See
"Business and Properties--Governmental Regulation" and "--Environmental
Matters" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Environmental and Other Regulatory Matters."

RISKS OF HEDGING TRANSACTIONS

To manage its exposure to price risks in the marketing of its oil and
natural gas, the Company has in the past and expects to continue to enter into
oil and natural gas price hedging arrangements with respect to a portion of
its expected production. The Company's hedging policy provides that, without
the prior approval of the Company's Board of Directors, generally not more
than 50% of its production quantities can be hedged, and that any such hedges
shall not be longer than one year in duration. These arrangements may include
future contracts on the New York Mercantile Exchange ("NYMEX"). While intended
to reduce the effects of volatility of the price of oil and natural gas, such
transactions may limit potential gains by the Company if oil and natural gas
prices were to rise substantially over the price established by the hedge. In
addition, such transactions may expose the Company to the risk of financial
loss in certain circumstances, including instances in which (i) production is
less than expected, (ii) there is a widening of price differentials between
delivery points for the Company's production and the delivery point assumed in
the hedge arrangement, (iii) the counterparties to the Company's future
contracts fail to perform the contract or (iv) a sudden, unexpected event
materially impacts oil or natural gas prices. During 1994, 1995 and 1996, the
Company did not hedge any of its oil and natural gas

15
<PAGE>

production, and as of September 30, 1997, the Company had hedged 13% of its
natural gas production for the nine months then ended on an historical
combined basis. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Hedging."

MARKETABILITY OF PRODUCTION

The marketability of the Company's production depends in part upon the
availability, proximity and capacity of natural gas gathering systems,
pipelines and processing facilities. The Company delivers natural gas through
gas gathering systems and gas pipelines that it does not own. Federal and
state regulation of oil and natural gas production and transportation, tax and
energy policies, changes in supply and demand and general economic conditions
all could adversely affect the Company's ability to produce and market its oil
and natural gas. See "Business and Properties--Governmental Regulation." Any
dramatic change in market factors could have a material adverse effect on the
Company's business, financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL

The Company has assembled a team of geologists, geophysicists and engineers,
some of whom are non-employee consultants and independent contractors, having
considerable experience in oil and natural gas exploration and production,
including applying 2-D and 3-D imaging technology. The Company is dependent
upon the knowledge, skills and experience of these experts to provide 2-D and
3-D imaging and to assist the Company in reducing the risks associated with
its participation in oil and natural gas exploration projects. In addition,
the success of the Company's business also depends to a significant extent
upon the abilities and continued efforts of its management. The Company
expects to enter into employment agreements prior to consummation of the
Offering with five key management employees. See "Management--Executive
Compensation--Employment Agreements." The Company does not maintain key-man
life insurance with respect to any of its employees. Competition among oil and
gas companies for qualified geologists, geophysicists and engineers and other
technical experts and consultants is intense. The loss of services of key
management personnel or the Company's technical experts and consultants, or
the inability to attract additional qualified personnel, experts or
consultants, could have a material adverse effect on the Company's business,
financial condition, results of operations, development efforts and ability to
grow. There can be no assurance that the Company will be successful in
attracting and/or retaining its key management personnel or technical experts
or consultants. See "--Risks Associated with Management of Growth and
Implementation of Growth Strategy," "Management--Directors and Executive
Officers" and "Business and Properties--Employees."

TECHNOLOGICAL CHANGES

The oil and gas industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies. As others use or develop new technologies, the
Company may be placed at a competitive disadvantage, and competitive pressures
may force the Company to implement such new technologies at substantial costs.
In addition, other oil and gas companies may have greater financial, technical
and personnel resources that allow them to enjoy technological advantages and
may in the future allow them to implement new technologies before the Company.
There can be no assurance that the Company will be able to respond to such
competitive pressures and implement such technologies on a timely basis or at
an acceptable cost. One or more of the technologies currently utilized by the
Company or implemented in the future may become obsolete. In such cases, the
Company's business, financial condition and results of operations could be
materially adversely affected. If the Company is unable to utilize the most
advanced commercially available technology, the Company's business, financial
condition and results of operations could be materially and adversely
affected. See "Business and Properties--Competition."

SHORTAGES OF DRILLING RIGS, EQUIPMENT, SUPPLIES AND PERSONNEL

There is a general shortage of drilling rigs, equipment and supplies, which
the Company believes may intensify. The costs and delivery times of rigs,
equipment and supplies are substantially greater than in prior periods and
currently are escalating. Shortages of drilling rigs, equipment or supplies
could delay and adversely affect the Company's exploration and development
operations, which could have a material adverse effect on its business,
financial condition and results of operations. The Company expects to obtain
sufficient drilling rigs, equipment and supplies to conduct its planned 1998
drilling program.

16
<PAGE>

The demand for, and wage rates of, qualified rig crews have begun to rise in
the drilling industry in response to the increasing number of active drilling
rigs in service. Such shortages have in the past occurred in the industry in
times of increasing demand for drilling services. If the number of active
drilling rigs continues to increase, the oil and gas industry may experience
shortages of qualified personnel to operate drilling rigs, which could delay
the Company's drilling operations and adversely affect the Company's business,
financial condition and results of operations.

CONTROL BY CERTAIN STOCKHOLDERS

Upon consummation of the Offering and the Combination Transaction,
directors, executive officers and principal stockholders of the Company, and
certain of their affiliates, will beneficially own approximately 34.25% of the
Company's outstanding Common Stock (approximately 31.9% if the Underwriters
exercise the over-allotment option in full). Accordingly, these stockholders,
as a group, will be able to control the outcome of stockholder votes,
including votes concerning the election of directors, the adoption or
amendment of provisions in the Company's Certificate of Incorporation or
Bylaws and the approval of mergers and other significant corporate
transactions. The existence of these levels of ownership concentrated in a few
persons makes it unlikely that any other holder of Common Stock will be able
to affect the management or direction of the Company. These factors also may
have the effect of delaying or preventing a change in the management or voting
control of the Company. See "Principal and Selling Stockholders" and
"Description of Capital Stock."

CERTAIN ANTITAKEOVER CONSIDERATIONS

The Company's Certificate of Incorporation and Bylaws include certain
provisions that may have the effect of delaying, deterring or preventing a
future takeover or change in control of the Company without the approval of
the Company's Board of Directors. Such provisions also may render the removal
of directors and management more difficult. Among other things, the Company's
Certificate of Incorporation and/or Bylaws: (i) provide for a classified Board
of Directors serving staggered three-year terms; (ii) impose restrictions on
who may call a special meeting of stockholders; (iii) include a requirement
that stockholder action be taken only by unanimous written consent or at
stockholder meetings; (iv) specify certain advance notice requirements for
stockholder nominations of candidates for election to the Board of Directors
and certain other stockholder proposals; and (v) impose certain restrictions
and supermajority voting requirements in connection with specified business
combinations not approved in advance by the Company's Board of Directors. In
addition, the Company's Board of Directors, without further action by the
stockholders, may cause the Company to issue up to 2,000,000 shares of
preferred stock, $0.01 par value ("Preferred Stock"), on such terms and with
such rights, preferences and designations as the Board of Directors may
determine. Issuance of such Preferred Stock, depending upon the rights,
preferences and designations thereof, may have the effect of delaying,
deterring or preventing a change in control of the Company. Further, certain
provisions of the Delaware General Corporation Law (the "Delaware Law") impose
restrictions on the ability of a third party to effect a change in control and
may be considered disadvantageous by a stockholder. See "Description of
Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market following
the Offering could adversely affect the market price for the Common Stock. An
estimated 6,930,000 shares to be issued in the Combination Transaction will
not, at the time of issuance, be registered under the Securities Act of 1933,
as amended (the "Securities Act"), and, therefore, are not freely tradeable
unless subsequently registered under the Securities Act or exempted from such
registration. The Company has agreed that upon consummation of the Combination
Transaction it will enter into a Registration Rights Agreement with each
person receiving shares of Common Stock in the Combination Transaction.
Pursuant to the Registration Rights Agreement, such persons collectively will
receive piggyback registration rights that provide for the registration of the
resale of such shares at the Company's expense. Beginning one year after the
consummation of the Offering, all of such shares to be issued in the
Combination Transaction (other than the shares being offered hereby by the
Selling Stockholders) may be sold pursuant to the requirements of Rule 144
promulgated under the Securities Act ("Rule 144"), subject to certain volume
limitations, manner of sale and other requirements relating to the sale of
such securities. Up to

17
<PAGE>

885,000 shares of Common Stock issuable pursuant to stock options and 109,500
shares of restricted Common Stock are expected to be granted to directors,
officers and certain employees of the Company in connection with the Offering.
The Company anticipates that shares of Common Stock issuable upon exercise of
such options and the restricted stock awards will become available for future
sale in the public market pursuant to a subsequently filed registration
statement on Form S-8. The Company and its current stockholders, executive
officers and directors have agreed not to offer for sale, sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date
of this Prospectus without the prior written consent of Bear, Stearns & Co.
Inc., subject to certain exceptions. Such consent may be given at any time and
without public notice. See "Management--Executive Compensation--Employee
Benefit Plans--Stock Option and Restricted Stock Plan of 1997," "Description
of Capital Stock--Registration Rights of Certain Stockholders," "Shares
Eligible for Future Sale" and "Underwriting."

CERTAIN BENEFITS TO AFFILIATES

Certain affiliates of the Company will benefit from the Offering by
receiving directly or indirectly a portion of the Offering proceeds. The
Company intends to use $2.5 million of the Offering proceeds to repay a loan
from the C.E. Miller Trust used to fund a down payment made in connection with
the Combination Transaction. C.E Miller, a director of the Company, is the
sole trustee of the Trust. See "Use of Proceeds", "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Certain Transactions--Transactions with C.E. Miller
and Affiliates." The Company also intends to use $275,000 of the Offering
proceeds to pay bonuses to certain management personnel upon the consummation
of the Offering. See "Management--Executive Compensation--Certain Other
Arrangements." In addition, Kelly E. Miller, the President and Chief Executive
Officer of the Company, and certain members of his family have included an
aggregate of 600,000 shares of Common Stock in the Offering. See "Principal
and Selling Stockholders."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of the Common Stock in the Offering will experience an immediate
and substantial dilution in pro forma net tangible book value per share. See
"Dilution."

ABSENCE OF DIVIDENDS ON COMMON STOCK

The Company currently intends to retain any earnings for the future
operation and development of its business and currently does not anticipate
paying any cash dividends with respect to the Common Stock in the foreseeable
future. Any future dividends also may be restricted by agreements with the
Company's lenders. See "Dividend Policy."

NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY

Before the Offering, there has been no public market for the Common Stock,
and an active public market for the Common Stock may not develop or, if
developed, may not be sustained. The initial public offering price will be
determined through negotiation between the Company and the Underwriters based
on several factors that may not be indicative of future market prices. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The consummation of the Offering provides
no assurance that an active trading market for the Common Stock will develop
or, if developed, that it will be sustained. The trading price of the Common
Stock and the price at which the Company may sell securities in the future
could be subject to large fluctuations in response to changes in government
regulations, quarterly variations in operating results, litigation, general
market conditions, the prices of oil and natural gas, announcements by the
Company and its competitors, the liquidity of the Company, the Company's
ability to raise additional funds and other events.

FORWARD-LOOKING INFORMATION

All statements other than statements of historical fact contained in this
Prospectus, including statements in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business and Properties,"
are forward-looking statements. Forward-looking statements in this Prospectus
generally are accompanied by words such as "anticipate," "believe,"
"estimate," "project," "expect" or similar

18
<PAGE>

statements. Such forward-looking information involves important known and
unknown risks and uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, no
assurance can be given that such expectations will prove correct. Factors that
could cause the Company's results to differ materially from the results
discussed in such forward-looking statements include the risks described under
"Risk Factors," such as the fluctuations of the prices received or demand for
the Company's oil and natural gas, the uncertainty of drilling results and
reserve estimates, operating hazards, acquisition risks, requirements for
capital, general economic conditions, the competition from other exploration,
development and production companies and the effects of governmental and
environmental regulation. All forward-looking statements in this Prospectus
are expressly qualified in their entirety by the cautionary statements in this
paragraph and potential investors are cautioned not to place undue reliance on
the forward-looking statements made in this Prospectus.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company are estimated to be approximately $55.3 million ($64.6
million if the Underwriters exercise their over-allotment option in full),
assuming an initial public offering price of $11.00 per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses. The Company will not receive any of the proceeds from the
sale of the 600,000 shares of Common Stock by the Selling Stockholders in the
Offering.

The Company intends to use a portion of the net proceeds to repay
indebtedness of approximately $8.3 million incurred under the Credit Facility
(defined below) and to fund the estimated $50.5 million cash portion of the
purchase price for the Combined Assets, including repayment of a $2.5 million
loan made to the Company by the C.E. Miller Trust (as described below) to fund
a down payment made in connection with the Combination Transaction. The
Company currently expects to pay management bonuses in the aggregate amount of
$275,000 upon consummation of the Offering. See "Management--Executive
Compensation--Certain Other Arrangements." The remainder of the proceeds will
be used to fund future capital expenditures relating to exploration and
development activities, to increase working capital and for other general
corporate purposes. While the Company believes that the net proceeds from the
Offering, cash flow from operations and borrowings under its Credit Facility
should allow the Company to finance its operations through at least 1998 based
on current conditions, additional financing may be required in the future to
fund the Company's drilling and 3-D seismic acquisition programs. To the
extent that the net proceeds of the Offering are not used immediately, they
will be invested in short-term, interest-bearing obligations.

MOC obtained a $5.0 million revolving line of credit (the "Original Line of
Credit") and a $1.0 million term loan (the "Term Loan") pursuant to a Business
Loan Agreement dated September 10, 1996 with First of America-Michigan, N.A.
("FOA"). FOA has made available an additional $1.0 million revolving line of
credit (the "Additional Line of Credit" and, together with the Original Line
of Credit and Term Loan, the "Credit Facility"). At September 30, 1997, $4.5
million was outstanding under the Original Line of Credit, no amount was
outstanding under the Additional Line of Credit, and $0.8 million was
outstanding under the Term Loan. Interest accrues under the Original Line of
Credit and Term Loan at a variable annual rate equal to the New York Consensus
Prime Rate, which was 8.5% at September 30, 1997, and under the Additional
Line of Credit at a variable annual rate equal to the New York Consensus Prime
Rate plus one-quarter of 1%. Indebtedness under the Original Line of Credit
and the Additional Line of Credit matures April 10, 1998, and indebtedness
under the Term Loan matures September 10, 2000. MOC borrowed $2.5 million from
the C.E. Miller Trust for the purpose of funding a down payment made in
connection with the Combination Transaction. Interest accrues on this loan at
the New York Consensus Prime Rate. This loan is scheduled to mature June 1,
1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

DIVIDEND POLICY

The Company currently intends to retain its earnings for future growth and,
therefore, does not anticipate paying cash dividends with respect to the
Common Stock in the foreseeable future. Under Delaware law, the Company is
permitted to pay dividends only out of surplus, or, if there is no surplus,
out of its net profits. Payments of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account
various factors, including the Company's financial condition, operating
results and current and anticipated cash needs.

19
<PAGE>

DILUTION

As of September 30, 1997, the Company's pro forma net tangible book value
would have been approximately $25.3 million, or approximately $3.66 per share
of Common Stock, after giving pro forma effect to the Combination Transaction,
the contribution of existing MOC shareholder notes and the termination of
MOC's S corporation status as if all such transactions had been completed at
such date. Net tangible book value per share represents the total book value
of the Company's tangible assets reduced by the amount of the Company's total
liabilities, divided by the number of shares of Common Stock outstanding.
After giving further effect to the sale by the Company of shares of Common
Stock at an assumed initial public offering price of $11.00 per share and the
application of such net proceeds as described under "Use of Proceeds," the
adjusted pro forma net tangible book value of the Common Stock as of September
30, 1997 would have been $6.49 per share. This represents an immediate
increase in pro forma net tangible book value of $2.83 per share to the
Company's existing stockholders and an immediate dilution in pro forma net
tangible book value of $4.51 per share to new investors purchasing shares of
Common Stock in the Offering at the initial public offering price. The
following table illustrates the per share dilution in pro forma net tangible
book value to new investors:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $11.00
Pro forma net tangible book value per share at September 30,
1997........................................................ $3.66
Increase in pro forma net tangible book value per share
attributable to the sale of Common Stock in the Offering.... 2.83
Adjusted pro forma net tangible book value per share after
giving effect to the Offering................................. 6.49
------
Dilution in net tangible book value to the purchasers of Common
Stock in the Offering......................................... $ 4.51
======
</TABLE>

The following table sets forth, on a pro forma basis to give effect to the
Combination Transaction as of September 30, 1997, differences between (i) the
number of shares of Common Stock acquired from the Company by existing
stockholders and to be acquired from the Company by new investors purchasing
shares in the Offering and (ii) the total and average prices paid by existing
stockholders and to be paid by new investors purchasing shares in the Offering
(in each case based on an assumed initial public offering price of $11.00 per
share):

<TABLE>
<CAPTION>
SHARES TOTAL AVERAGE
PURCHASED(1) CONSIDERATION(2) PRICE
----------------- ------------------ PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
------ ---------- ------- ---------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 6,930 55.8% $25,335 29.5% $ 3.66
New investors................... 5,500 44.2 60,500 70.5 11.00
------ ----- ------- -----
Total....................... 12,430 100.0% $85,835 100.0%
====== ===== ======= =====
</TABLE>
- --------

(1) These numbers do not include 885,000 shares of Common Stock issuable
pursuant to employee stock options at exercise prices per share equal to
the initial public offering price (555,000 shares) and 110% of the initial
public offering price (330,000 shares) and 109,500 shares of restricted
Common Stock that are expected to be granted to directors, officers and
certain employees of the Company in connection with the Offering. See
"Management--Executive Compensation--Employee Benefit Plans--Stock Option
and Restricted Stock Plan of 1997."
(2) The existing stockholders of the Company, after giving effect to the
Combination Transaction, will have acquired all of their shares of Common
Stock in exchange for certain of the Combined Assets; therefore, such
stockholders will have no direct cash cost with respect to the acquisition
of such shares.

20
<PAGE>

CAPITALIZATION

The following table sets forth (i) the historical combined capitalization of
the Company as of September 30, 1997, and (ii) the pro forma capitalization of
the Company as of September 30, 1997 after giving effect to the Combination
Transaction, the contribution of existing MOC shareholder notes, the
termination of MOC's S corporation status and the sale of 5,500,000 shares of
Common Stock in the Offering at an assumed initial public offering price of
$11.00 per share 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 Combined Financial Statements.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
HISTORICAL PRO
COMBINED FORMA
---------- -------
(IN THOUSANDS)
<S> <C> <C>
Current portion of notes payable and long-term debt(1).. $ 4,753 $ --
Long-term debt(1)....................................... 8,186 --
Equity(2):
Preferred Stock, $0.01 par value, 2,000,000 shares
authorized; none issued and outstanding.............. -- --
Common Stock, $0.01 par value, 20,000,000 shares
authorized; none issued and outstanding; 12,430,000
issued and outstanding pro forma..................... -- 124
Additional paid-in capital............................ -- 80,511
Retained earnings..................................... 7,835 --
Combined equity....................................... 197 --
------- -------
Total equity........................................ 8,032 80,635
------- -------
Total capitalization................................ $20,971 $80,635
======= =======
</TABLE>
- --------
(1) See note 6 to the Combined Financial Statements.

(2) These numbers do not include 885,000 shares of Common Stock issuable
pursuant to employee stock options at exercise prices per share equal to
the initial public offering price (555,000 shares) and 110% of the initial
public offering price (330,000 shares) and 109,500 shares of restricted
Common Stock that are expected to be granted to directors, officers and
certain employees of the Company in connection with the Offering. See
"Management--Executive Compensation--Employee Benefit Plans--Stock Option
and Restricted Stock Plan of 1997."

21
<PAGE>

SELECTED HISTORICAL COMBINED FINANCIAL AND OPERATING DATA

The following table presents selected historical combined financial data of
the Company as of the dates and for the periods indicated. The historical
combined financial data as of and for each of the three years in the period
ended December 31, 1996 are derived from the Combined Financial Statements
which have been audited by Arthur Andersen LLP, independent public
accountants. The historical combined financial data as of and for the years
ended December 31, 1992 and 1993 are unaudited. The historical combined
financial data as of and for the nine months ended September 30, 1996 and 1997
are derived from the Combined Financial Statements of the Company which, in
the opinion of management, contain all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation thereof. The results
for the nine months ended September 30, 1997 are not necessarily indicative of
the results that may be achieved for the full year ending December 31, 1997.
The following table also sets forth certain pro forma income tax, net income
and net income per share information. Pro forma data are based on assumptions
and include adjustments as explained in the notes to the unaudited pro forma
financial data. The unaudited pro forma financial statements are not
necessarily indicative of the results of future operations of the Company and
should be read in conjunction with the Combined Financial Statements.
Historical net income (loss) per share has been omitted since such information
is not meaningful and the historically combined Company is not a separate
legal entity with a single capital structure. The following data should be
read in conjunction with "Capitalization," "Selected Unaudited Pro Forma
Combined Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Combined Financial Statements.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Natural gas.......... $ 3,302 $ 3,749 $ 2,424 $ 2,748 $ 5,614 $ 3,719 $ 4,329
Crude oil and
condensate.......... 835 817 672 715 1,101 854 710
Other operating
income.............. 258 268 167 296 395 355 492
------- ------- ------- ------- ------- ------- -------
Total operating
income............ 4,395 4,834 3,263 3,759 7,110 4,928 5,531
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Lease operating
expenses and
production taxes.... 781 539 811 777 1,123 753 917
Depreciation,
depletion and
amortization........ 1,313 1,300 1,009 1,666 2,629 1,826 2,019
General and
administrative...... 1,121 1,086 1,200 1,270 1,591 1,002 1,335
------- ------- ------- ------- ------- ------- -------
Total operating
expenses.......... 3,215 2,925 3,020 3,713 5,343 3,581 4,271
------- ------- ------- ------- ------- ------- -------
Operating income....... 1,180 1,909 243 46 1,767 1,347 1,260
------- ------- ------- ------- ------- ------- -------
Interest expense....... (753) (634) (810) (1,017) (1,139) (789) (922)
Lawsuit settlement..... -- -- -- 3,521 -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)...... $ 427 $ 1,275 $ (567) $ 2,550 $ 628 $ 558 $ 338
======= ======= ======= ======= ======= ======= =======
Pro forma income
before taxes(1)....... $12,835 $ 7,951
Pro forma provision
for income taxes(1)... 3,782 2,215
------- -------
Pro forma net
income(1)............. $ 9,053 $ 5,736
======= =======
Pro forma net income
per share(1)(2)....... $ 0.73 $ 0.46
======= =======
Pro forma weighted
average shares
outstanding(2)........ 12,430 12,430
======= =======
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (at
end of period):
Working capital........ $ 927 $ (434) $(1,769) $(1,980) $(2,682) $(2,688) $(3,466)
Oil and gas
properties, net....... 12,520 14,150 14,257 17,731 20,732 20,462 21,163
Total assets........... 15,610 17,702 16,444 20,005 24,050 22,883 23,993
Long-term debt,
including notes
payable............... 7,643 9,213 9,442 9,801 12,881 11,661 12,939
Equity................. 6,508 6,787 5,596 7,410 7,769 7,943 8,032
</TABLE>

22
<PAGE>

- --------
(1) Gives pro forma effect to the application of federal and state income
taxes to the Company as if it were a taxable corporation for the periods
presented. Upon the consummation of the Combination Transaction, the
Company will be required to record a one-time non-cash charge to earnings
in connection with establishing a deferred tax liability on the balance
sheet in accordance with SFAS No. 109, "Accounting for Income Taxes." If
the Combination Transaction had been consummated for the periods
presented, such charge would have been approximately $5.5 million. The
ultimate amount of the charge that will be recorded is dependent upon a
number of factors and cannot be determined until consummation of the
Combination Transaction. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
(2) Pro forma net income per share has been computed assuming that an
estimated 6,930,000 shares of Common Stock to be issued in connection with
the Combination Transaction and 5,500,000 shares of Common Stock to be
issued in connection with the Offering have been outstanding since January
1, 1996.

23
<PAGE>

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The pro forma unaudited combined financial data set forth below has been
prepared to give effect to the Combination Transaction and the Offering and
the application of the estimated net proceeds therefrom. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview." The pro forma unaudited statements of operations for the year ended
December 31, 1996 and for the nine months ended September 30, 1997 were
prepared on the basis that the Combination Transaction and the Offering
occurred on January 1, 1996. The pro forma unaudited balance sheet as of
September 30, 1997 was prepared on the basis that the Combination Transaction
and the Offering occurred on September 30, 1997. Pro forma data give effect to
the revenues and direct operating expenses of the properties acquired from the
non-affiliated participants in the Combination Transaction (the "Acquired
Properties"). In addition, the pro forma data are based on assumptions and
include adjustments as explained in the notes to the unaudited pro forma
combined financial statements and are not necessarily indicative of the
results of future operations of the Company. The following financial
information should be read in conjunction with "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Combined Financial Statements.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
PRO
COMBINED ACQUIRED PRO FORMA FORMA
COMPANY PROPERTIES ADJUSTMENTS COMBINED
-------- ---------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Natural gas................... $ 5,614 $15,232 $ (156)(a) $20,690
Crude oil and condensate...... 1,101 4,037 (93)(a) 5,045
Other operating revenues...... 395 395
------- ------- ------- -------
7,110 19,269 (249) 26,130
Operating Expenses:
Lease operating expenses and
production taxes............. 1,123 1,153 (91)(a) 2,185
Depreciation, depletion and
amortization................. 2,629 6,470 (b) 9,099
General and administrative.... 1,591 420 (c) 2,011
------- ------- ------- -------
5,343 1,153 6,799 13,295
Operating income................ 1,767 18,116 (7,048) 12,835
Interest expense................ (1,139) 1,139 (d) --
------- ------- ------- -------
Income before income taxes...... 628 18,116 (5,909) 12,835
Provision for income taxes...... -- -- 3,782 (e) 3,782
------- ------- ------- -------
Net income...................... $ 628 $18,116 $(9,691) $ 9,053
======= ======= ======= =======
Net income per common share..... $ 0.73
=======
Weighted average common shares
outstanding.................... 12,430 (f) 12,430
======= =======
</TABLE>

24
<PAGE>

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
PRO
COMBINED ACQUIRED PRO FORMA FORMA
COMPANY PROPERTIES ADJUSTMENTS COMBINED
-------- ---------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Natural gas................... $4,329 $11,357 $ (121)(a) $15,565
Crude oil and condensate...... 710 2,140 (67)(a) 2,783
Other operating revenues...... 492 492
------ ------- ------- -------
5,531 13,497 (188) 18,840
Operating Expenses:
Lease operating expenses and
production taxes............. 917 664 (64)(a) 1,517
Depreciation, depletion and
amortization................. 2,019 5,728 (b) 7,747
General and administrative.... 1,335 290 (c) 1,625
------ ------- ------- -------
4,271 664 5,954 10,889
Operating income................ 1,260 12,833 (6,142) 7,951
Interest expense................ (922) 922 (d) --
------ ------- ------- -------
Income before income taxes...... 338 12,833 (5,220) 7,951
Provision for income taxes...... -- -- 2,215 (e) 2,215
------ ------- ------- -------
Net income...................... $ 338 $12,833 $(7,435) $ 5,736
====== ======= ======= =======
Net income per common share..... $ 0.46
=======
Weighted average common shares
outstanding.................... 12,430 (f) 12,430
======= =======
</TABLE>

25
<PAGE>

UNAUDITED PRO FORMA BALANCE SHEET AS OF SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
COMBINED PRO FORMA PRO FORMA
ASSETS COMPANY ADJUSTMENTS COMBINED
------ -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current Assets:
Cash........................................ $ 107 $55,300 (g) $ 2,611
(5,296)(h)
(47,500)(i)
Accounts receivable......................... 2,253 2,253
Inventories................................. 47 47
Prepaid expenses............................ 36 36
Other current assets........................ 186 186
------- ------- -------
2,629 2,504 5,133
Oil and gas properties, net................... 21,163 50,500 (i) 90,669
19,513 (j)
(507)(k)
Property and equipment, net................... 201 201
------- ------- -------
Total assets.............................. $23,993 $72,010 $96,003
======= ======= =======
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C>
Current Liabilities:
Notes payable............................... $ 4,515 $(4,515)(h) $ --
Current portion of long-term debt........... 238 (238)(h) --
Accounts payable and joint interest
advances................................... 1,134 1,134
Accrued interest............................ 202 202
Other accrued expenses...................... 6 6
------- ------- -------
6,095 (4,753) 1,342
Long-term debt................................ 8,186 (7,643)(l) --
(543)(h)
Deferred revenue.............................. 1,680 1,680
Other non-current liabilities................. -- 3,000 (i) 3,000
Deferred income taxes......................... -- 3,830 (j) 9,346
5,516 (m)
Equity:
Preferred Stock............................. -- --
Common Stock................................ -- 55 (g) 124
69 (j)
Additional paid-in capital.................. -- 55,245 (g) 80,511
15,614 (j)
(507)(k)
7,643 (l)
(5,516)(m)
8,032 (n)
Combined equity............................. 197 (197)(n) --
Retained earnings........................... 7,835 (7,835)(n) --
------- ------- -------
Total equity................................ 8,032 72,603 80,635
------- ------- -------
Total liabilities and equity.............. $23,993 $72,010 $96,003
======= ======= =======
</TABLE>
- --------
Notes to unaudited pro forma combined financial data:
(a) To reflect the elimination of operating results from certain non-strategic
oil and natural gas assets that will be sold by the Company prior to the
Combination Transaction.

26
<PAGE>

(b) To reflect the estimated additional depreciation, depletion and
amortization expense resulting from the acquisition of the Acquired
Properties and the sale of certain non-strategic assets using the unit-of-
production method applied to the basis of the properties acquired and
sold.

(c) To reflect estimated incremental general and administrative expenses
expected to be incurred as a direct result of increased operations after
the Combination Transaction. Such expenses are primarily from increased
salaries and additional new employees to perform administrative and
operational activities ($0.5 million per year) and the elimination of the
Royalty Participation Program ($0.1 million per year). See "Management-
Executive Compensation." Excluded from this amount is $275,000 of non-
recurring bonuses to be paid to certain employees of the Company in
connection with the consummation of the Offering.
(d) To reflect the reduction in interest expense attributable to MOC
shareholder notes being contributed in connection with the Combination
Transaction, resulting in the cancellation of the indebtedness (see (l)
below), and the cancellation of other indebtedness with the use of
proceeds from the Offering (see (h) below).
(e) Gives pro forma effect to the application of federal and state income
taxes to the Company as if it were a taxable corporation for the periods
presented. Upon the consummation of the Combination Transaction, the
Company will be required to record a one-time non-cash charge to earnings
in connection with establishing a deferred tax liability on the balance
sheet in accordance with SFAS No. 109, "Accounting for Income Taxes." If
the Combination Transaction had been consummated for the periods
presented, such charge would have been approximately $5.5 million. The
ultimate amount of the charge that will be recorded is dependent upon a
number of factors and cannot be determined until consummation of the
Combination Transaction. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."

(f) To reflect the issuance of Common Stock in exchange for certain of the
Combined Assets in the Combination Transaction and the issuance of Common
Stock in the Offering. This amount does not include 885,000 shares of
Common Stock issuable pursuant to employee stock options at exercise
prices equal to the initial public offering price (555,000 shares) and
110% of the initial public offering price (330,000 shares) and 109,500
shares of restricted Common Stock that are expected to be granted to
certain management employees of the Company in connection with the
consummation of the Offering. See "Management-Executive Compensation-
Employee Benefit Plans-Stock Option and Restricted Stock Plan of 1997."

(g) To reflect the estimated net proceeds of the Offering of $55.3 million.
(h) To reflect the use of proceeds to repay indebtedness.

(i) To reflect the purchase price for the cash portion of the Combination
Transaction and the associated cash payment due at the time of the
Combination Transaction and other non-current liabilities necessary to
finance this portion of the Combination Transaction. See "Business and
Properties--Core Exploration and Development Regions--Mississippi Salt
Basin."

(j) To reflect the fair value of the Combined Assets being contributed by the
unaffiliated entities in the Combination Transaction, a deferred tax
liability in accordance with SFAS No.109, "Accounting for Income Taxes,"
for the difference between the financial reporting basis and the tax basis
of the Combined Assets being contributed and the exchange of Common Stock
for certain of these assets.
(k) To reflect the reduction in the cost basis of the non-strategic properties
sold prior to consummation of the Combination Transaction, and the payment
of these proceeds to MOC's existing shareholders.
(l) To reflect the contribution of the MOC shareholder notes in connection
with the Combination Transaction, resulting in the cancellation of the
indebtedness.
(m) To reflect a deferred tax liability in accordance with SFAS No. 109,
"Accounting for Income Taxes," for the difference between the financial
reporting basis and the tax basis of the Company, after consummation of
the Combination Transaction.
(n) To reflect the reclassification of combined equity and the
reclassification of retained earnings as additional paid-in capital, upon
MOC's termination of its S corporation status.

27
<PAGE>

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

Unless otherwise indicated, the historical information contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations refers to the historical combined operations of the Company without
giving effect to the Combination Transaction.

OVERVIEW

Miller is an independent oil and gas company with its current exploration
effort concentrated in the Mississippi Salt Basin, the onshore Gulf Coast
region of Texas and Louisiana and the Michigan Basin. The Company has an
established production base in each area.

In 1972, the Miller family began to acquire a substantial and strategic
leasehold position and apply emerging seismic technology to discover oil and
natural gas reserves in the Northern Michigan Niagaran Reef Trend. The Company
also explored and had production in Texas, Wyoming, North Dakota and Montana.
In 1988, the Miller family and their affiliated companies sold their producing
properties to Conoco, Inc., reserving the undeveloped acreage in the Michigan
Basin. After the Conoco, Inc. sale, the Company shifted its focus to
development of the Antrim Shale formation in its Northern Michigan leases.
Since 1988, the Company has participated in drilling over 600 commercially
productive Antrim Shale wells. Since 1993, the Company has developed its base
of properties and inventory of prospects in Mississippi, Louisiana and Texas.

The Company uses the full-cost method of accounting for its oil and natural
gas properties. Under this method, all acquisition, exploration and
development costs, including any general and administrative costs that are
directly attributable to the Company's acquisition, exploration and
development activities, are capitalized in a "full-cost pool" as incurred. The
Company records depletion of its full-cost pool using the unit-of-production
method. To the extent that such capitalized costs in the full-cost pool (net
of depreciation, depletion and amortization and related deferred taxes) exceed
the present value (using a 10% discount rate) of estimated future net after-
tax cash flows from proved oil and natural gas reserves, such excess costs are
charged to operations. The Company has not been required to make any such
write-downs. Once incurred, a write-down of oil and natural gas properties is
not reversible at a later date.

The Company recently was organized as a Delaware corporation to serve as the
surviving company in the Combination Transaction. Pursuant to the agreements
among the Company and the owners of the Combined Assets, the Company has
agreed to issue to those owners an estimated 6,930,000 shares of Common Stock
and an estimated $50.5 million in cash in exchange for the Combined Assets.
Certain of the owners of the Combined Assets will receive a number of shares
of Common Stock proportionate to the value of their ownership interests in the
Combined Assets calculated on the basis of the initial public offering price
of the Common Stock.

Because the Company, MOC and the Affiliated Entities share common ownership
and management, the combination of those particular Combined Assets will be
accounted for as a reorganization of entities as prescribed by SEC Staff
Accounting Bulletin ("SAB") No. 47. The unaffiliated entities participating in
the Combination Transaction are not under the common ownership and management
of the Company. Consequently, the Company will account for the acquisition of
those unaffiliated assets under the purchase method of accounting, under which
the properties will be recorded at their estimated fair value at the date on
which the Combination Transaction is consummated.

The Company is not currently subject to federal income taxation because MOC
and the Affiliated Entities were not tax reporting entities but, instead,
taxes relating to the operations of MOC and the Affiliated Entities were
required to be paid by the owners thereof as S corporations. As a result, the
Company did not pay any taxes for any of these periods nor do the Combined
Financial Statements include any deferred tax liability, on a historical
basis. This tax treatment will continue until consummation of the Combination
Transaction, which will occur upon the consummation of the Offering, at which
time the Company will become subject to taxation as a C corporation.

For the reasons described above, the Combined Financial Statements do not
include a provision for deferred tax liabilities. At September 30, 1997, the
estimated tax basis of the Company's net assets was approximately $16.0
million less than the basis for financial accounting purposes. The difference
is primarily the result of deductions for oil and gas property costs for tax
purposes in excess of the recorded expense for

28
<PAGE>

financial accounting purposes. As a result, upon the consummation of the
Combination Transaction, the Company will be required to record a one-time
non-cash charge to earnings for the deferred tax liability in accordance with
SFAS No. 109, "Accounting for Income Taxes." If the Combination Transaction
had been consummated at September 30, 1997, such charge would have been
approximately $5.5 million. The difference between the tax basis and the
financial accounting basis of the Company's net assets, and, therefore, the
ultimate amount of the charge that will be recorded, will continue to change
until the consummation of the Combination Transaction (which will be
contemporaneous with the consummation of the Offering) as a result of ongoing
differences between the amount of tax deductions and corresponding expenses
for financial accounting purposes. Accordingly, the ultimate amount of the
non-cash charge that will be recorded cannot be determined until consummation
of the Combination Transaction and such amount may vary significantly from the
estimate at September 30, 1997.

RESULTS OF OPERATIONS

The following table summarizes production volumes, average sales prices,
operating revenues and average costs for the Company's oil and natural gas
operations for the periods presented. For pro forma information with respect
to production volumes, average sale prices and average costs, see "Business
and Properties--Volumes, Prices and Production Costs."

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT
AMOUNTS)
<S> <C> <C> <C> <C> <C>
Production volumes:
Crude oil and condensate (MBbls)... 39.5 31.6 46.5 35.0 33.4
Natural gas (MMcf)................. 1,228.4 1,324.0 2,030.0 1,555.3 1,713.0
Natural gas equivalent (MMcfe)..... 1,465.7 1,513.3 2,309.1 1,765.0 1,913.3
Average sales prices:
Crude oil and condensate ($ per
Bbl).............................. $ 17.00 $ 22.68 $ 23.66 $ 24.44 $ 21.26
Natural gas ($ per Mcf)............ 1.97 2.08 2.77 2.39 2.53
Natural gas equivalent ($ per
Mcfe)............................. 2.11 2.29 2.91 2.59 2.63
Operating revenues:
Crude oil and condensate........... $ 672 $ 715 $ 1,101 $ 854 $ 710
Natural gas........................ 2,424 2,748 5,614 3,719 4,329
Average Costs ($ per Mcfe):
Lease operating expenses and
production taxes.................. $ 0.55 $ 0.51 $ 0.49 $ 0.43 $ 0.48
Depletion, depreciation and
amortization...................... 0.69 1.10 1.14 1.03 1.06
General and administrative......... 0.82 0.84 0.69 0.57 0.70
</TABLE>

Nine Months Ended September 30, 1997 Compared to the Nine Months Ended
September 30, 1996

Oil and natural gas revenues for the nine months ended September 30, 1997
increased 10% to $5.0 million from $4.6 million for the same period in 1996.
Production volumes for natural gas during the nine months ended September 30,
1997 increased 10% to 1,713.0 MMcf from 1,555.3 MMcf for the same period in
1996. Average natural gas prices increased 6% to $2.53 per Mcf for the nine
months ended September 30, 1997 from $2.39 per Mcf in the same period in 1996.
Production volumes for oil during the nine months ended September 30, 1997
decreased 4% to 33.4 MBbls from 35.0 MBbls for the same period in 1996.
Average oil prices decreased 13% to $21.26 per barrel during the nine months
ended September 30, 1997 from $24.44 per barrel in the same period in 1996.
This decrease in oil prices is primarily attributable to cyclical fluctuations
in the spot market for oil.

Lease operating expenses and production taxes for the nine months ended
September 30, 1997 increased 22% to $0.9 million from $0.8 million for the
same period in 1996. Lease operating expenses and production taxes increased
primarily due to increased production as described above, and an increase in
operating expenses per equivalent unit to $0.48 per Mcfe for the nine months
ended September 30, 1997 from $0.43 per Mcfe in the same period in 1996.

29
<PAGE>

Depreciation, depletion and amortization ("DD&A") expense for the nine
months ended September 30, 1997 increased 11% to $2.0 million from $1.8
million for the same period in 1996. This increase was due to increased
production and a 3% increase in the 1997 depletion rate to $1.06 per Mcfe from
$1.03 per Mcfe in the nine months ended September 30, 1996, which was the
result of increased drilling and related seismic costs.

General and administrative expense for the nine months ended September 30,
1997 increased 33% to $1.3 million from $1.0 million for the same period in
1996, as a result of increases in the number of employees and related
benefits, plus increased office rent.

Interest expense for the nine months ended September 30, 1997 increased 17%
to $0.9 million from $0.8 million in the same period in 1996. Increases in
interest expense were due to increased debt levels in late 1996 and 1997
incurred to finance substantial leasehold acquisition activities in the
Mississippi Salt Basin area.

Net income for the nine months ended September 30, 1997 decreased to $0.3
million from $0.6 million for the same period in 1996, as a result of the
factors described above.

Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995

Oil and natural gas revenues for 1996 increased 94% to $6.7 million from
$3.5 million in 1995. Production volumes for natural gas in 1996 increased 53%
to 2,030.0 MMcf from 1,324.0 MMcf in 1995. Average natural gas prices
increased 33% to $2.77 per Mcf in 1996 from $2.08 per Mcf in 1995. Production
volumes for oil in 1996 increased 47% to 46.5 MBbls from 31.6 MBbls in 1995.
Average oil prices increased 4% to $23.66 per Bbl in 1996 from $22.68 per Bbl
in 1995. The increase in oil and natural gas production was due primarily to
new wells being successfully drilled and completed during 1996, along with
recompletions of existing wells.

Lease operating expenses and production taxes for 1996 increased 45% to $1.1
million from $0.8 million in 1995. Lease operating expenses and production
taxes increased due to increased production generated from new oil and natural
gas wells drilled and completed since December 31, 1995. Operating expenses
per equivalent unit in 1996 decreased to $0.49 per Mcfe from $0.51 per Mcfe in
1995. The per unit cost decreased as a result of increased production of
natural gas which had lower per unit operating costs.

DD&A expense for 1996 increased 58% to $2.6 million from $1.7 million in
1995. This increase was due to the increase in oil and natural gas production
as well as a 4% increase in the depletion rate ($1.14 per Mcfe in 1996 from
$1.10 per Mcfe in 1995).

General and administrative expense for 1996 increased 25% to $1.6 million
from $1.3 million for 1995 due primarily to an increase in directors' fees,
salaries and wages and office rent.

Interest expense for 1996 increased 12% to $1.1 million from $1.0 million in
1995 due to increased debt levels in 1996.

Net income for 1996 decreased to $0.6 million from $2.5 million in 1995 as a
result of the factors described above, plus a $3.5 million favorable lawsuit
settlement received by the Company in 1995.

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

Oil and natural gas revenues for 1995 increased 12% to $3.5 million from
$3.1 million in 1994. Production volumes for natural gas for 1995 increased 8%
to 1,324.0 MMcf from 1,228.4 MMcf in 1994. Average natural gas prices
increased 6% to $2.08 per Mcf in 1995 from $1.97 per Mcf in 1994. Production
volumes for oil for 1995 decreased 20% to 31.6 MBbls from 39.5 MBbls in 1994.
Average oil prices increased 33% to $22.68 per Bbl in 1995 from $17.00 per Bbl
in 1994.

Lease operating expenses and production taxes remained relatively stable at
approximately $0.8 million in 1995 and 1994. Lease operating expenses and
production taxes per equivalent unit in 1995 decreased to $0.51 per Mcfe from
$0.55 per Mcfe in 1994. The per unit cost decreased as a result of increased
production of natural gas which had lower per unit operating costs.

30
<PAGE>

DD&A expense for 1995 increased 65% to $1.7 million from $1.0 million in
1994 as a result of increased production as well as a 59% increase in the
depletion rate ($1.10 per Mcfe in 1995 from $0.69 per Mcfe in 1994). The
increased depletion rate was caused primarily by increased exploration
expenditures attributable to 3-D seismic surveys performed for new wells
drilled and completed since December 31, 1994 and downward revisions in
reserve estimates in 1995.

General and administrative expense for 1995 increased 6% to $1.3 million
from $1.2 million in 1994, primarily as a result of the hiring of additional
staff as well as salary increases and bonuses for existing employees.

Interest expense for 1995 increased to $1.0 million from $0.8 million in
1994. This increase in 1995 was due to the additional debt incurred to finance
operations.

Net income for 1995 was $2.5 million, compared to a net loss of $0.6 million
in 1994, as a result of the factors described above, plus a $3.5 million
favorable lawsuit settlement received by the Company in 1995.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company's primary sources of capital have been funds
generated by operations, equity capital contributions and borrowings,
primarily from MOC's shareholders and under the Credit Facility. The Company
had working capital deficits of $2.7 million at December 31, 1996 and $3.5
million at September 30, 1997.

The Credit Facility includes the $5.0 million Original Line of Credit, the
$1.0 million Additional Line of Credit and the $1.0 million Term Loan.
Principal outstanding under the Original Line of Credit and the Additional
Line of Credit matures April 10, 1998. Interest is payable monthly under the
Original Line of Credit at a variable annual rate equal to the New York
Consensus Prime Rate, which was 8.5% on September 30, 1997. Interest is
payable monthly under the Additional Line of Credit at a variable annual rate
equal to the New York Consensus Prime Rate plus one-quarter of 1%. Principal
outstanding under the Term Loan is payable in equal monthly installments of
$24,477 and matures September 10, 2000. Interest on the Term Loan is payable
monthly at the New York Consensus Prime Rate. At September 30, 1997,
borrowings under the Credit Facility were $5.3 million, consisting of $4.5
million under the Original Line of Credit and $0.8 million under the Term
Loan. As security for its obligations under the Credit Facility, MOC granted
to FOA a security interest in certain of its oil and natural gas interests and
other properties. A portion of the proceeds from this Offering will be used to
repay the amounts outstanding under the Credit Facility. The Company is
currently discussing alternative credit facilities with various lenders. See
"Use of Proceeds."

Pursuant to a promissory note dated November 26, 1997, the C.E. Miller Trust
loaned $2.5 million to MOC, which MOC used to fund a down payment made in
connection with the Combination Transaction. The loan is unsecured and
subordinated to the Credit Facility. Interest accrues on the loan at a
variable rate equal to the New York Consensus Prime Rate and is payable
monthly, and principal is payable in full on June 1, 1998. A portion of the
proceeds from this Offering will be used to repay the loan. See "Use of
Proceeds" and "Certain Transactions--Transactions with C.E. Miller and
Affiliates."

In 1991, the shareholders of MOC loaned to MOC an aggregate of $7.6 million
pursuant to separate loan agreements. Principal on the indebtedness is payable
in full on October 18, 2006. Interest is payable within 30 days after the end
of each quarter at the New York City Prime Rate, which was 8.5% per annum as
of September 30, 1997, plus 2%. As of September 30, 1997, no principal
payments had been made on the indebtedness, and all interest due and payable
by that date had been paid. The shareholders of MOC have agreed to contribute
the indebtedness to MOC as capital pursuant to the Combination Agreement,
resulting in cancellation of the indebtedness. Such cancellation is not
expected to result in income to the Company for federal income tax purposes.
See "--Overview."

The Company has budgeted capital expenditures of approximately $4.7 million
for the fourth quarter of 1997 and $46.2 million for 1998. Substantially all
of the capital expenditures will be used to fund 3-D seismic

31
<PAGE>

surveys, drilling and development activities and leasehold acquisitions in the
Company's project areas. The actual amounts of capital expenditures and number
of wells drilled may differ significantly from such estimates.

The Company intends to fund its budgeted capital expenditures through the
end of 1998 from cash flow from operations, borrowings under the Credit
Facility and the net proceeds of this Offering.

The Company's revenues, profitability, future growth and ability to borrow
funds or obtain additional capital, and the carrying value of its properties,
substantially are dependent on prevailing prices of oil and natural gas. The
Company cannot predict future oil and natural gas price movements with
certainty. Declines in prices received for oil and natural gas may have an
adverse effect on the Company's financial condition, liquidity, ability to
finance capital expenditures and results of operations. Lower prices also may
impact the amount of reserves that can be produced economically by the
Company.

The Company has experienced and expects to continue to experience
substantial working capital requirements primarily due to the Company's active
exploration and development programs and its increased participation
percentages and its technology enhancement programs. While the Company
believes that the net proceeds from this Offering, cash flow from operations
and borrowings under the Credit Facility should allow the Company to implement
its present business strategy through 1998, additional financing may be
required in the future to fund the Company's growth, development and
exploration program and continued technological enhancement. In the event such
capital resources are not available to the Company, its exploration and other
activities may be curtailed.

HEDGING

Beginning in 1997, the Company began using certain hedging instruments
(e.g., NYMEX futures contracts) for a portion of its natural gas production to
achieve a more predictable cash flow, as well as to reduce the exposure to
price fluctuations. The Company's hedging arrangements apply to only a portion
of its production (primarily in the Michigan Antrim Shale), provide only
partial price protection against declines in oil and natural gas prices and
limit potential gains from future increases in prices. See "Risk Factors--
Risks of Hedging Transactions." Such hedging arrangements may expose the
Company to risk of financial loss in certain circumstances, including
instances where production is less than expected, the Company's customers fail
to purchase contracted quantities of oil or natural gas or a sudden unexpected
event materially impacts oil or natural gas prices. For financial reporting
purposes, gains and losses related to hedging are recognized as oil and
natural gas revenues during the period the hedged transactions occur.
Following the consummation of the Offering and the Combination Transaction,
the Company expects that the amount of hedges that it has in place will vary
from time to time but at no time does it expect that hedging activities will
be of material significance.

Beginning in 1997, the Company began to follow a strategy of striving to
maximize return on investment through hedging a portion of its activities
relating to natural gas price volatility. While this strategy should help the
Company reduce its exposure to price risks, it also limits the Company's
potential gains from increases in market prices for natural gas. The Company
intends to continue to hedge up to 50% of its natural gas production to retain
a portion of the potential for greater upside from increase in natural gas
prices, while limiting to some extent the Company's exposure to declines in
natural gas prices. The Company does not believe that its current level of oil
production warrants a hedging policy. See "Risk Factors--Volatility of Oil and
Natural Gas Prices." During 1994, 1995 and 1996, the Company did not hedge any
of its oil or natural gas production, and as of September 30, 1997, the
Company had hedged 13% of its natural gas production for the nine months then
ended.

EFFECTS OF INFLATION AND CHANGES IN PRICE

The Company's results of operations and cash flows are affected by changing
oil and natural gas prices. If the price of oil and natural gas increases
(decreases), there could be a corresponding increase (decrease) in the
operating cost that the Company is required to bear for operations, as well as
an increase (decrease) in revenues. Recent rates of inflation have had a
minimal effect on the Company.

32
<PAGE>

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128, "Earnings per Share" and SFAS No. 129, "Disclosure Information about
Capital Structure," which are effective for the Company's year-end 1997
financial statements. In 1997, FASB also issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," each of which will require expanded
disclosures effective for 1998. The Company does not expect the application of
these statements to have a material effect on its financial position,
liquidity or results of operations.

ENVIRONMENTAL AND OTHER REGULATORY MATTERS

The Company's business is subject to certain federal, state and local laws
and regulations relating to the exploration for, and the development,
production and transportation of, oil and natural gas, as well as
environmental and safety matters. Many of these laws and regulations have
become more stringent in recent years, often imposing greater liability on a
larger number of potentially responsible parties. Although the Company
believes it is in substantial compliance with all applicable laws and
regulations, the requirements imposed by laws and regulations frequently are
changed and subject to interpretation, and the Company is unable to predict
the ultimate cost of compliance with these requirements or their effect on its
operations. Any suspensions, terminations or inability to meet applicable
bonding requirements could materially adversely affect the Company's business,
financial condition and results of operations. Although significant
expenditures may be required to comply with governmental laws and regulations
applicable to the Company, compliance has not had a material adverse effect on
the earnings or competitive position of the Company. Future regulations may
add to the cost of, or significantly limit, drilling activity. See "Risk
Factors--Governmental Regulation and Environmental Matters," "Business and
Properties--Governmental Regulation" and "--Environmental Matters."

33
<PAGE>

BUSINESS AND PROPERTIES

THE COMPANY

Miller is an independent oil and gas exploration and production company with
established exploration efforts concentrated primarily in three regions: the
Mississippi Salt Basin, the onshore Gulf Coast region of Texas and Louisiana
and the Michigan Basin. Miller emphasizes the use of seismic data analysis and
imaging, as well as other emerging technologies, to explore for and develop
oil and natural gas in its core exploration areas. Miller is the successor to
the independent oil and natural gas exploration and production business first
established in Michigan by members of the Miller family in 1925.

The Company was organized in connection with the combination of MOC and
interests in oil and gas properties owned by the Affiliated Entities and
interests in such properties owned by certain business partners and investors,
including AHC, Hughes and SASI. The Company has budgeted a significant
increase in drilling activity and plans to drill 50 wells (28.3 net to the
Company) in 1998, the majority of which are exploratory wells in the
Mississippi Salt Basin. The Company's capital expenditure budget for both
exploration and development activity in all of its areas of concentration is
$46.2 million for 1998. Miller incurred expenditures for exploration and
development activity of $21.1 million with respect to the Company's interest
in 25 gross wells (8.8 net to the Company) for the year ended December 31,
1996 and $17.1 million with respect to the Company's interest in 27 gross
wells (5.8 net to the Company) for the nine months ended September 30, 1997.
Estimated proved reserves attributable to the Combined Assets have increased
168%, from 19.9 Bcfe as of January 1, 1994 to 53.4 Bcfe as of September 30,
1997. Estimated proved reserves increased 79%, 71% and 6% for the years ended
December 31, 1994, 1995 and 1996, respectively, and decreased 17% for the nine
months of 1997. The increases in 1994 and 1995 were due primarily to active
exploration efforts in Mississippi, while the smaller increase in 1996 and the
decrease in the first nine months of 1997 resulted primarily from a greater
focus on leasing efforts in anticipation of an expanded 1998 exploration
program.

The Company's primary exploration effort is currently focused on the
Mississippi Salt Basin, which contains one of the largest onshore
concentrations of salt domes in North America. The Company owns interests in
approximately 63,000 gross leasehold acres (41,000 net to the Company) in the
Mississippi Salt Basin in prospective areas around 20 salt domes, which the
Company believes is one of the largest strategic lease positions around the
salt domes in the basin. Due to innovations over the last few years, seismic
technology now enables geoscientists to generate improved imaging of the
flanks of salt structures and associated faulting, the primary hydrocarbon
trapping mechanisms in this area. The Company commenced its exploration
activities in Mississippi in 1993 and has participated in the drilling of 21
wells, 11 of which (52%) have been completed, establishing commercial
production around six salt domes. As of September 30, 1997, these wells had
produced 29.2 Bcfe gross (18.8 Bcfe net to the Company) and had established
estimated gross proved reserves of 78.4 Bcfe (36.1 Bcfe net to the Company).
In the Mississippi Salt Basin, the Company has used technologically advanced
seismic data processing methods to reinterpret existing regional 2-D seismic
data and analyze and interpret newly acquired 2-D seismic data. In addition,
the Company is currently participating in multiple 3-D seismic acquisition
projects in this region, which the Company believes will improve the
identification of potential hydrocarbon traps.

The Company's prospects in the Gulf Coast region of Texas and Louisiana also
lend themselves to 3-D seismic-aided exploration due to the geological
complexity prevalent in this region. Since 1994, the Company has participated
in approximately 300 square miles of 3-D seismic surveys and the drilling of
50 gross wells within the boundaries of these surveys. Twenty-seven of the
wells drilled have been completed as commercially productive. As of September
30, 1997, these wells had established estimated proved reserves of 79.6 Bcfe
(9.3 Bcfe net to the Company). The Company expects to participate in nine
gross wells (2.3 net to the Company) in this area in 1998, all of which are
supported by 3-D seismic data.

34
<PAGE>

within a leasehold position that is the result of prior successful exploration
efforts in the Niagaran Reef Trend. Miller's current Michigan Basin production
is predominantly long-lived, lower volume Antrim Shale production, as compared
to the higher volume wells of the onshore Gulf Coast and Mississippi Salt
Basin. The Company is continuing to pursue additional exploration
opportunities in the Michigan Basin.

The Combined Assets consist of MOC, interests in oil and gas properties from
the Affiliated Entities and interests in such properties owned by certain
business partners and investors, including AHC, Hughes and SASI. The Company
and the owners of the Combined Assets have entered into separate agreements
that provide for the issuance of an estimated 6,930,000 shares of Common Stock
and the payment of an estimated $50.5 million in cash to certain participants
in the Combination Transaction in exchange for the Combined Assets. Certain
owners of the Combined Assets will receive a number of shares of Common Stock
proportionate to the value of their ownership interests in the Combined Assets
calculated on the basis of the initial public offering price of the Common
Stock.

BUSINESS STRATEGY

The key elements of the Company's business strategy are as follows:

Focused Exploration Effort. The Company seeks to concentrate its
exploration activities in areas which provide the potential for the
discovery of significant reserves where a strategic leasehold position can
be acquired, where there has been limited application of advanced seismic
data interpretation techniques and where there are multiple potential pay
zones. The Company has assembled an extensive database in the Mississippi
Salt Basin, including basin-wide geologic studies, production data and well
data. The Company has an identified inventory of 22 prospects in the
Mississippi Salt Basin and seven prospects in the Texas and Louisiana Gulf
Coast region. The majority of these prospects have multiple drilling
locations. The Company's prospects in the Mississippi Salt Basin have been
delineated primarily with computer-enhanced analysis of 2-D seismic data,
while the Gulf Coast prospects have been identified primarily with 3-D
seismic data. The Company plans to conduct selected 3-D seismic surveys in
the Mississippi Salt Basin with respect to certain of these prospects to
further delineate drilling objectives.

Exploit Prospect Inventory. The Company has an identified inventory of
over 32 exploration and development prospects, all of which it plans to
drill in 1998 and 1999. Based on the initial success of its salt dome
drilling, the Company intends to retain larger working interests in its
undrilled prospects. This Offering will enable the Company to retain a
larger working interest in its prospects, conduct an aggressive seismic
data acquisition program and accelerate its drilling activities.

Extensive Data Base. The Company has a significant library of technical
and proprietary data. The Company's current inventory includes over 1,900
miles of 2-D seismic data and 309 square miles of 3-D seismic data in the
three regions in which it currently operates. The acquisition of 3-D
seismic data on a large scale is often not cost effective. The Company
attempts to target the acquisition and application of 3-D seismic data by
applying its technical expertise to reprocessed 2-D seismic data. The
Company believes this approach allows it to more effectively target 3-D
seismic surveys, reducing overall finding and development costs.

Utilize Advanced Technology. The Company utilizes advanced technology in
analyzing, interpreting and visualizing seismic data to assemble and
develop its inventory of exploration and development drilling prospects.
This strategy has been pursued in proven geological regions that have
historically produced significant amounts of hydrocarbons. The Company has
focused its 3-D seismic efforts on areas that exhibit geological complexity
where 2-D seismic has been effective in increasing drilling success rates,
but has limitations in locating subtle trapping structures.

Experienced Technical Team. The Company has assembled a technical team
with an average of over 18 years of experience, the majority of which has
been in the Company's areas of current operations. This multi-disciplined
technical team has extensive experience with the acquisition, processing
and interpretation of both 2-D and 3-D seismic data and the use of 3-D work
stations to evaluate and develop drilling prospects.

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<PAGE>

CORE EXPLORATION AND DEVELOPMENT REGIONS

Mississippi Salt Basin

The Company believes that the Mississippi Salt Basin, which extends from
Southwestern Alabama across central Mississippi into Northeastern Louisiana,
has a significant number of under-developed salt domes. This basin has
produced substantial amounts of oil and natural gas and continues to be a very
active exploration region. Oil and natural gas discovered in the Mississippi
Salt Basin have been produced from reservoirs with various stratigraphic and
structural characteristics, and may be found in multiple horizons from
approximately 3,500 feet to 19,000 feet in depth. Oil and natural gas reserves
around salt domes have been encountered in the Eutaw, Lower Tuscaloosa,
Washita-Fredericksburg, Paluxy, Rodessa, Sligo, Hosston and Cotton Valley
formations, all of which are normally pressured. The Company owns leasehold
interests in 63,000 gross acres (41,000 net to the Company) covering 20 known
salt domes. The Company's working interest partner in this basin is Key
Production Company, Inc. ("Key").

Salt domes are geologic structures formed by the upward thrusting of
subsurface salt accumulations towards the surface. Such structures are
generally found in groups in geologic basins that provided the necessary
conditions for their formation. Salt domes are typically subsurface structures
that are easily identified with seismic surveys, but are occasionally visible
as surface expressions. The salt domes of the Mississippi Salt Basin were
formed in the Cretaceous period. These salt domes range in diameter from 1/2
mile to 3 miles and vertically extend from 2,000 feet in depth to near 20,000
feet. The development of the salt domes resulted in the formation of oil and
gas traps. Salt domes similar to those of the Mississippi Salt Basin are a
significant cause for major oil and gas accumulations in the Texas and
Louisiana Gulf Coast, Northern Louisiana, East Texas, and the offshore Gulf of
Mexico.

Until the late 1980s, geological models of the salt domes in the Mississippi
Salt Basin generally assumed that either the extreme and rapid growth of the
salt structure breeched the seals of any formations trapping hydrocarbons
against the domes or that the growth of the salt domes occurred after
hydrocarbons had migrated through the region, in either case, leaving the
formations around the salt domes nonproductive. From 1987 to 1991, Oryx Energy
Corporation ("Oryx") drilled three successful wells on Mississippi salt dome
structures, proving that the flanks of these salt domes were productive. AHC
purchased Oryx's entire interest in this area, and in 1993 MOC acquired a
12.5% working interest from AHC in approximately 35,000 gross acres
surrounding seven domes. As part of the Combination Transaction, the Company
will acquire all of AHC's reserves and leasehold interests in these
properties, comprising an approximate 87.5% working interest in the aggregate.
The Company selectively reprocessed an extensive 2-D seismic database that had
been acquired over these salt dome prospects, and further acquired new 2-D
seismic to improve the selection of the drillsites along the flanks of the
salt domes. Based on the positive results of the first several prospects
drilled, MOC acquired leasehold interests around 13 additional salt domes that
it considered to be prospective.

The Company believes that the key to exploiting salt dome prospects
effectively is the accurate delineation of a salt dome's flanks, with the
recognition of fault patterns and the location of fault blocks with large
reserve potential. While the reinterpreted 2-D seismic data provided the
Company's explorationists with better imaging of a salt dome's subsurface
structures, it proved to have limitations in defining the exact locations of
the flanks of a salt dome. The Company believes that all of its unsuccessful
salt dome wells have either encountered the interior of the salt dome or were
too far off structure to encounter the anticipated hydrocarbon trap. The
Company believes that 3-D seismic imaging will allow it to more effectively
image such traps and better define the size and location of its drilling
targets. The Company believes that 3-D seismic imaging will improve its
ability to resolve and interpret such complex geologic structures based on its
effective use on similar onshore salt domes in Texas and Louisiana, as well as
offshore salt domes in the Gulf of Mexico. The Company intends to utilize its
reprocessed 2-D seismic database to more effectively manage its 3-D seismic
acquisition program. The Company currently is acquiring or making arrangements
to acquire approximately 120 square miles of proprietary 3-D seismic data over
and around three of its salt dome prospects. Additionally, the Company is
participating in a 270 square mile multi-party 3-D seismic survey, a portion
of which will cover prospective acreage around four of the Company's salt dome
prospects.

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<PAGE>

The Company owns an interest in eight producing wells in the Mississippi
Salt Basin that had aggregate average production in September 1997 of 29.1
MMcfe/d gross (15.4 MMcfe/d net to the Company) at depths ranging from 14,500
to 17,300 feet. Since the Company began its exploration activity in
Mississippi in 1993, it has participated in 21 wells drilled around six salt
dome structures, 11 of which (52%) established commercial production. The
Company has 28 wells (14.7 net wells) budgeted in 1998 for the Mississippi
Salt Basin with a capital expenditure budget of $41.0 million, including $4.8
million for the acquisition of 3-D seismic around seven salt domes in 1998.
This will provide 3-D seismic data on 11 of 28 Mississippi Salt Basin wells
budgeted for 1998. As of September 30, 1997, the Company's Mississippi Salt
Basin wells had produced 29.2 Bcfe gross (18.8 Bcfe net to the Company) and
had established 78.4 Bcfe gross (36.1 Bcfe net to the Company) of estimated
proved reserves.

In the Combination Transaction, the Company is acquiring AHC's entire
leasehold interest in six producing wells and 19,634 net undeveloped acres
located around eleven salt domes. Prior to the Combination Transaction, MOC
owned a 12.5% working interest in these properties. As of September 30, 1997,
these properties had 50.6 Bcfe gross (32.8 Bcfe net to the Company) of
estimated proved reserves and had an aggregate present value of future net
revenues of $60.1 million. The aggregate purchase price of $50.5 million is
payable as follows: $47.5 million (subject to certain adjustments) at closing
which is expected to occur concurrently with the consummation of this
Offering, and $0.5 million, $1.0 million and $1.5 million, respectively, on
the first, second and third anniversaries of the closing. AHC has agreed to
retain liability for certain events and conditions affecting the AHC
properties that arose before the effective date of September 1, 1997, and the
Company has agreed to assume liabilities relating to certain events and
conditions affecting these properties after September 1, 1997.

The following is a description of the Company's two most significant
projects to date in the Mississippi Salt Basin:

Midway Dome. The Company currently has two wells producing around the Midway
Dome structure in Lamar County, Mississippi, the Allar #1 (in which the
Company has an 86.9% working interest) which was drilled in July 1995 and the
Patterson #1 (in which the Company has an 82.7% working interest) drilled in
February 1996. In September 1997, these two wells produced an average of
approximately 17.4 MMcfe/d gross on a combined basis, (11.1 MMcfe/d net to the
Company). As of September 30, 1997, these wells had produced a combined total
9.8 Bcfe gross (6.3 Bcfe net to the Company). The wells have estimated proved
reserves of 35.6 Bcfe gross (22.6 Bcfe net to the Company). These wells
produce from the Hosston formation at a depth of approximately 15,500 feet and
encountered net pay columns of 48 feet on the Allar #1 and 40 feet on the
Patterson #1. In 1998, the Company's capital expenditure budget net to its
interest is approximately $6.7 million for the drilling of three additional
wells in this prospect area.

Dry Creek Dome. The Company currently has two producing wells on the Dry
Creek Dome structure in Covington County, Mississippi, the Mineral Management
#2 (in which the Company has an 84.8% working interest) which was drilled in
December 1994 and the McRaney #1 (in which the Company has an 85.6% working
interest) which was drilled in February 1995. In September 1997, these two
wells produced at an average combined rate of 5.7 MMcfe/d gross (3.7 MMcfe/d
net to the Company), and have jointly produced a total of 15.5 Bcfe gross
(10.1 Bcfe net to the Company). As of September 30, 1997, these wells had
estimated proved reserves of 9.0 Bcfe gross (5.8 Bcfe net to the Company). The
Mineral Management #2 and the McRaney #1 both produce from the Hosston
formation at a depth of approximately 14,500 to 15,000 feet, and encountered
net pay columns of 148 feet and 244 feet, respectively. The Company has
budgeted the drilling of two additional Hosston wells on Dry Creek Dome in
1998, and the Company's capital expenditure budget net to its interest is
approximately $4.4 million for these wells.

Onshore Gulf Coast of Texas and Louisiana

The Company believes that the onshore Gulf Coast area of Texas and Louisiana
is a high potential, multi-pay region that lends itself to 3-D seismic-
supported exploration due to its substantial structural and stratigraphic
complexity. The Company's current and anticipated 1998 drilling activities are
expected to be as an active working interest partner in select projects
proposed by Dan A. Hughes Company (the "Hughes Company") in Zapata, Webb,
Duval, Karnes and McMullen Counties, Texas and Cameron and Terrebonne
Parishes, Louisiana, under an exploration agreement to which the Company has
been a party since 1994. Before accepting a proposed prospect under the
agreement, the Company undertakes a thorough evaluation, considering
geographic location,

37
<PAGE>

scale, geological and geophysical model, anticipated drilling prospects,
number of pay zones, trend potential, expected project economics and access to
market. The Company incorporates its digital database, including geophysical,
geological and production data, and the opinions of regional geologists and
geophysicists in its participation decisions. Except within areas of mutual
interest ("AMI") formed around prospects offered under the exploration
agreement with the Hughes Company, the Company is free to acquire leases,
develop its own prospects and explore in the onshore Gulf Coast region. The
Company currently expects to continue its joint venture relationships in the
future, in addition to generating its own prospects in the onshore Gulf Coast
region.

Texas

The Company owns working interests in 30 wells in Texas that had aggregate
average production in September 1997 of 40.0 MMcfe/d gross (2.4 MMcfe/d net to
the Company) from depths ranging from 3,500 to 14,500 feet. Since the Company
began its exploration in Texas in 1987, it has participated in 263 square
miles of 3-D seismic surveys and 68 wells, of which 31 (46%) established
commercial production. The Company has six gross wells (1.5 net wells)
budgeted for 1998 in the Texas Gulf Coast region with a 1998 capital
expenditure budget of approximately $0.9 million. The wells that the Company
intends to drill in 1998 are 3-D seismic-supported and these exploratory tests
would be drilled on geologic structures where the Company has established
commercial production in its previous drilling attempts. As of September 30,
1997, the Company's Texas wells had produced 5.8 Bcfe net to the Company and
had established estimated proved reserves of 5.7 Bcfe.

The following is a description of three of the Company's significant current
projects in the onshore Gulf Coast area of Texas:

Dilworth Dome Project. The Dilworth Dome is a salt dome located in McMullen
County that was evaluated with 3-D seismic in 1996. Three oil sands were
developed in the Upper Wilcox (Carizzo Sand) at a depth of approximately 3,500
feet, with estimated total reserves of 613 MBbl and remaining reserves of 456
MBbl. The Company has a 25% working interest in this project. The Company has
participated in the drilling of 17 gross wells in this field, of which 11
wells have established commercial production. As of September 30, 1997, total
production from the 11 producing wells was 430 Bbl/d gross (75 Bbl/d net to
the Company). The Company is a participant in approximately 4,100 acres under
lease and/or farm-in, of which the Company owns approximately 1,025 net acres.
It is anticipated that two Carrizo test wells will be drilled in this project
in the fourth quarter of 1997.

Mirando Hondo Project. The Mirando Hondo project located in Zapata and Webb
Counties involves exploring the Berry R. Cox and South Aviators Fields, which
recently have been surveyed with 3-D seismic. The Company owns an
approximately 35.0% working interest in this project. The Company intends to
participate in the drilling of 2.0 gross wells (0.7 net) in 1998 that have
multiple objectives with the primary objective of the Upper Hinnant Sand.
These wells are expected to be drilled to depths of approximately 13,000 feet.
The Company recently participated in two Upper Hinnant Sand exploratory
discoveries which were developed as a result of 3-D seismic data. The Company
is a participant in approximately 5,450 gross acres under lease and/or farm-
in, and has a 1998 capital expenditure budget of approximately $1.0 million
for further development in this area.

McCaskill Project. The McCaskill Project is a Middle Wilcox objective
located in Karnes County. The Company participated in the drilling of the B.P.
Green #2 (in which the Company has a 7.5% working interest) in 1993 and as of
September 30, 1997, this well had produced 7.1 Bcfe (0.5 Bcfe net to the
Company) from the Middle Wilcox Green Sand located at a depth of approximately
12,500 feet. After the drilling of the B.P. Green #2, a 3-D seismic study was
undertaken in the area that resulted in the discovery of the Goehring Wilbern
#1 (in which the Company has a 13.7% working interest). This well commenced
production in October 1996, and as of September 30, 1997 had produced 1.0 Bcfe
(0.1 Bcfe net to the Company). In 1998, the Company anticipates drilling one
exploratory well in this project based on 3-D seismic with an estimated cost
of $0.2 million.

Louisiana

The Company owns working interests in producing properties in Cameron and
Terrebonne Parish, Louisiana that had aggregate average production for
September 1997 of 17.1 MMcfe/d gross (2.4 MMcfe/d net to the Company). Since
the Company began its exploration in Louisiana in 1995, it has participated in
21 square miles of 3-D seismic surveys and 14 gross wells, seven of which were
completed as commercially productive, four of

38
<PAGE>

which are currently producing. The Company has five wells (1.0 net to the
Company) budgeted for 1997 and three wells for 1998 in the Louisiana area,
with a 1998 capital expenditure budget of approximately $0.8 million. The
exploratory wells that are budgeted for drilling in 1998 are 3-D seismic-
supported and are in the immediate area where the Company previously had
established commercial production. As of September 30, 1997, the Company's
Louisiana wells had produced 4.1 Bcfe (0.3 Bcfe net to the Company) and had
established estimated gross proved reserves of 24.8 Bcfe (3.5 Bcfe net to the
Company).

The Company's most significant exploration project in the Louisiana region
to date is the Lapeyrouse Prospect in Terrebonne Parish, approximately three
miles southwest of the Bay Baptiste Field, which has produced over 120 Bcfe.
The Company participated in the LL&E #157 discovery well in 1994 in this area
and owns a 30.2% working interest. This well was drilled in transition zone
waters of approximately 20 feet in depth and commenced production in June
1996. As of September 30, 1997, the well had produced a total of 2.4 Bcfe (0.5
Bcfe net to the Company). The Company and its joint venture partners have
approximately 1,500 gross acres under lease in this project, and have 3-D
seismic over the prospective area. This 3-D seismic has confirmed three
separate prospective locations. These wells are expected to be drilled in
depths ranging between 11,500 and 15,500 feet. The LL&E production platform
was designed with facilities in place to accommodate the future drilling. The
Company has five wells budgeted for drilling in 1997 and three wells budgeted
for 1998 in this project, with a total 1997-1998 capital expenditure budget of
approximately $2.1 million.

Michigan Basin

The Company has been involved in oil and natural gas exploration and
production activities in the Michigan Basin since 1925. These activities
include operations in the Northern and Western Niagaran Reef Trend (Silurian)
and the Antrim Shale (Devonian) in Otsego, Montmorency and Manistee Counties.
Beginning in 1988 the Company participated in the drilling of over 600 Antrim
Shale wells. The Company currently has an interest in over 300 Antrim Shale
wells (in which it owns an average 12.5% working interest), some of which have
been assigned to third parties for the purpose of monitizing the Section 29
tax credits available for production from the assigned interests. See "--Joint
Venture Exploration, Participation and Farm-out Agreements." The balance of
the wells was sold to fund the Company's exploration program. The majority of
these Antrim Shale wells are in Otsego County and produce from depths of
approximately 1,300 to 1,600 feet.

Production from the Antrim Shale, including the Section 29 tax credits
available from such production, continue to be the Company's primary producing
property base in this region. As a result of its shallow production in the
Antrim Shale, the Company has an interest in approximately 14,000 acres held
by production in Otsego County, with its deep rights being of interest,
primarily for the Niagaran Reef Trend located at depths of approximately 6,500
feet. The Company has an active drilling program anticipated for the Antrim
Shale in Montmorency County and Manistee County at depths of approximately
1,400 feet. The Company has approximately 8,700 gross acres leased in Manistee
County, which is expected to provide sufficient acreage for development of a
field if the drilling is deemed successful. The Company has a 100% working
interest in this project. The Company also has an active lease program in an
area of the Niagaran Reef Trend that the Company believes has been under-
explored. In addition, the Company is pursuing other on-going leasing efforts
in areas in the Michigan Basin. In 1998, the Company plans to evaluate a
4,500-acre lease block in Hillsdale County, with a 10 square mile 3-D seismic
survey. The project is located approximately 12 miles southwest of the Albion-
Scipio Field which has produced over 125 MBbl of oil and 200 Bcfe of natural
gas. These wells are expected to be drilled to a depth of approximately 3,500
feet to test the primary objective of the Trenton formation (Ordovician).

JOINT VENTURE EXPLORATION, PARTICIPATION AND FARM-OUT AGREEMENTS

The Company is a party to the joint venture exploration, participation,
farm-out and other agreements described below.

Mississippi Salt Basin Agreements

Since March 1993, the Company has entered into a series of joint venture
exploration agreements and farm-out agreements with AHC, Liberty Energy
Corporation, Bonray, Inc. and Key. These agreements govern the

39
<PAGE>

rights and obligations of the Company and the other working-interest owners
with respect to lease acquisition, seismic surveys, drilling and development
of specified geographic AMIs over and around 20 salt domes in Southern
Mississippi within the Mississippi Salt Basin. Pursuant to these agreements,
the Company has acquired and will have the right to acquire a portion of the
working interest in leases owned or acquired by the parties within the AMIs.
The agreements expire between March 1, 1998 and January 1, 2000, except with
respect to AMIs where a joint operating agreement has been executed, in which
case the term extends as long as any lease within that AMI remains in effect.

Under the joint venture agreement between MOC and Key, if either party
elects not to participate on a proposed 3-D seismic program proposed by the
other party, the non-participating party will farm-out its non-producing
leasehold interest in that dome, retaining an option to participate after
payout of the seismic expenses and the drilling and completion expenses of the
exploratory well, for a proportionally reduced 25% working interest in the
exploratory well. The non-participating party will retain 25% of its original
leasehold interest outside the initial well but within the identified dome
area. Without mutual agreement, no more than two 3-D seismic surveys will be
committed to and/or conducted concurrently. Either party may propose an
Initial Exploratory Well, defined as the first exploratory well proposed and
drilled on each dome after a 3-D program has been conducted. A party electing
not to participate in an Initial Exploratory Well is obligated to assign to
the proposing party its interest in leases within that dome area to the depth
drilled by the Initial Exploratory Well. For wells drilled without conducting
a 3-D survey, a non-participating party is subject to a 400% non-consent
penalty. MOC is generally the operator for leasehold acquisition and
production operations, and Key is generally the operator for 3-D seismic,
drilling and completion operations.

Onshore Gulf Coast Agreements

MOC and the Hughes Company executed a Participation Agreement dated January
1, 1994. Pursuant to the provisions of the Participation Agreement, as
extended for the years 1995 and 1996, MOC had the option to participate with
Hughes for a 25% of 8/8ths working interest in prospects offered by the Hughes
Company during calendar years 1994, 1995 and 1996. Pursuant to participation
letters, MOC elected to participate in a number of prospects including the
Destino Prospect in Duval County, Texas, the Dilworth Prospect in McMullen
County, Texas, the South Aviators Prospect in Zapata County, Texas, the
McCaskill Prospect in Karnes County, Texas, the Mirando Hondo Prospect in Webb
County, Texas, the Lapeyrouse Prospect in Terrebonne Parish, Louisiana and the
Northwest Kings Bayou Prospect in Cameron Parish, Louisiana. Each of the
participation letters identifies the prospect, county and area covered
therein. The Participation Agreement requires MOC to pay its proportionate
share of actual costs, an overhead fee, prospect bonuses and certain back-in
working interests at prospect payout and program payout. The Participation
Agreement provides a form of Joint Operating Agreement which is to be executed
as to each prospect. The Joint Operating Agreement generally provides that the
Hughes Company will be the operator, that any party may propose to drill a
well or other operation subject to limitations with respect to concurrent
wells and that parties electing not to participate in a proposed operation are
subject to a 400% non-consent penalty. MOC is entitled to the benefit of any
special marketing arrangements or price structures that the Hughes Company is
able to negotiate in regard to the sale but may elect to market its share of
oil or natural gas in kind.

Michigan Basin Agreements

MOC entered into a Purchase and Sale Agreement dated as of January 1, 1995
with Miller Shale Limited Partnership for the purpose of monetizing the
Section 29 tax credits available from most of its Antrim gas wells in
Michigan, and a Purchase and Sale Agreement dated as of November 1, 1996 with
Miller Shale Limited Partnership for the purpose of selling part of the
reversionary interest retained by MOC under the prior Purchase and Sale
Agreement. Miller Shale Limited Partnership is a Michigan limited partnership
owned 1% by the general partner, Miller Shale S.V., L.L.C., an affiliate of
MOC, and 99% by the limited partner, Far Gas Acquisitions Corporation, an
unrelated party. As a result, pursuant to the terms of the two Purchase and
Sale

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<PAGE>

Agreements, MOC has assigned its interest in the wells, leases, equipment and
other property to Miller Shale Limited Partnership, reserving three separate
production payments, an additional contingent payment and a reversionary
interest. The first and second production payments generally entitle MOC to
receive 97% of the net cash flow from the assigned properties until a
specified dollar amount or specified volume is achieved from production
attributable to the assigned interests. As of September 30, 1997, the
estimated remaining production volume was 9.0 Bcfe and the estimated remaining
dollar amount was $4.8 million. The third production payment and the
additional contingent payment generally entitle MOC to receive 96% of the net
cash flow from additional specified volumes of production attributable to the
assigned interests. The reversionary interest entitles MOC to a reassignment
of 90% of the interests after a larger specified volume of natural gas has
been produced from the assigned interests. Miller Shale Limited Partnership
also is obligated to make quarterly payments to MOC equivalent to a percentage
of the tax credits available under Code Section 29 with respect to natural gas
produced and sold from the interests assigned. MOC also has an option to
repurchase the assigned interests for fair market value after December 31,
2002, the expiration date of the Section 29 tax credits.

OIL AND NATURAL GAS RESERVES

The Company's estimated total proved reserves of oil and natural gas as of
December 31, 1996, and September 30, 1997, and the present values of estimated
future net revenues attributable to these reserves as of those dates were as
follows:

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
1996 1997
------------------ -------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER UNIT DATA)
<S> <C> <C>
Net Proved Reserves:
Crude oil (MBbl)...................... 1,353.9 1,174.0
Natural gas (MMcf).................... 56,394.2 46,378.3
Natural gas equivalent (MMcfe)........ 64,517.6 53,422.3
Net Proved Developed Reserves:
Crude oil (MBbl)...................... 534.6 421.7
Natural gas (MMcf).................... 37,489.6 29,563.7
Natural gas equivalent (MMcfe)........ 40,697.5 32,093.9
Estimated future net revenues before
income taxes(1)........................ $160,820 $118,313
Present value of estimated future net
revenues before income taxes(2)........ $117,144 $ 87,484
Standardized measure of discounted
estimated future net cash flows(3)..... $ 97,185 $ 78,319
</TABLE>
- --------
(1) The average prices for crude oil were $25.23 per Bbl at December 31, 1996
and $21.74 per Bbl at September 30, 1997. The average prices for natural
gas were $3.27 per Mcf at December 31, 1996 and $3.12 per Mcf at September
30, 1997. Includes income from Section 29 tax credits of $1,043 and $794,
as of December 31, 1996 and September 30, 1997, respectively.
(2) The present value of estimated future net revenues attributable to the
Company's reserves was prepared using constant prices as of the
calculation date, discounted at 10% per annum on a pre-tax basis.
(3) The standardized measure of discounted estimated future net cash flows
represents discounted estimated future net cash flows attributable to the
Company's reserves after income taxes, calculated in accordance with
Statement of Financial Accounting Standards No. 69.

The reserve estimates reflected above were prepared by the Independent
Engineers and are part of their Reserve Reports on the Company's natural gas
and oil properties. Summaries of such Reserve Reports as of September 30, 1997
are attached as Appendices A and B to this Prospectus.

In accordance with applicable requirements of the SEC, estimates of the
Company's proved reserves and future net revenues are made using sales prices
estimated to be in effect as of the date of such reserve estimates and are
held constant throughout the life of the properties (except to the extent a
contract specifically provides for escalation). Estimated quantities of proved
reserves and future net revenues therefrom are affected by natural gas and oil
prices, which have fluctuated widely in recent years. There are numerous
uncertainties inherent in estimating oil and natural gas reserves and their
estimated values, including many factors beyond the control of the Company.
The reserve data set forth in this Prospectus represents only estimates.
Reservoir engineering is a

41
<PAGE>

subjective process of estimating underground accumulations of natural gas and
oil that cannot be measured in an exact manner. The accuracy of any reserve
estimate is a function of the quality of available data and of engineering and
geologic interpretation and judgment. As a result, estimates of different
engineers, including those used by the Company, may vary. In addition,
estimates of reserves are subject to revision based upon actual production,
results of future development and exploration activities, prevailing natural
gas and oil prices, operating costs and other factors. The revisions may be
material. Accordingly, reserve estimates often are different from the
quantities of natural gas and oil that ultimately are recovered and are highly
dependent upon the accuracy of the assumptions upon which they are based. The
Company's estimated proved reserves have not been filed with or included in
reports to any federal agency. See "Risk Factors--Uncertainty of Estimates of
Oil and Natural Gas Reserves."

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

DRILLING ACTIVITIES

The Company drilled, or participated in the drilling of, the following
number of wells during the periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------ SEPTEMBER 30,
1994 1995 1996 1997
--------- ---------- --------- --------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- --- ----- ---- ----- --- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory Wells(1):
Natural gas................. 10 2.9 8 5.3 4 0.8 2 0.6
Oil......................... 1 0.1 4 1.7 -- -- 2 0.3
Non-productive.............. 14 4.0 15 5.2 13 6.4 5 1.2
--- --- --- ---- --- --- ------ ------
Total..................... 25 7.0 27 12.2 17 7.2 9 2.1
=== === === ==== === === ====== ======
Development Wells(2):
Natural gas................. 2 0.3 8 2.6 -- -- 11 2.3
Oil......................... -- -- 3 1.7 6 1.2 3 0.6
Non-productive.............. -- -- 1 0.5 2 0.4 4 0.8
--- --- --- ---- --- --- ------ ------
Total..................... 2 0.3 12 4.8 8 1.6 18 3.7
=== === === ==== === === ====== ======
</TABLE>
- --------
(1) Includes 2.0 gross (2.0 net to the Company) Antrim Shale wells for the
year ended December 31, 1995.
(2) Includes 2.0 gross (0.3 net to the Company) Antrim Shale wells for the
year ended December 31, 1994 and 5.0 gross (0.7 net to the Company) Antrim
Shale wells for the year ended December 31, 1995 and 9.0 gross (1.3 net to
the Company) Antrim Shale wells for the nine months ended September 30,
1997.

At September 30, 1997, the Company was in the process of drilling and/or
completing one gross (0.3 net to the Company) well that is not reflected in
the table.

PRODUCTIVE WELLS AND ACREAGE

Productive Wells

The following table sets forth the Company's ownership interest as of
September 30, 1997 in productive oil and natural gas wells in the areas
indicated:

42
<PAGE>

<TABLE>
<CAPTION>
OIL NATURAL GAS TOTAL
--------- ------------- ----------
REGION GROSS NET GROSS NET GROSS NET
------ ----- --- ----- ------ ----- ----
<S> <C> <C> <C> <C> <C> <C>
Mississippi Salt Basin.................... -- -- 7 6.1 7 6.1
Onshore Gulf Coast
Texas................................... 15 2.7 10 1.5 25 4.2
Louisiana............................... -- -- 4 0.6 4 0.6
Michigan Basin/Other...................... 1 0.1 308 34.3 309 34.4
--- --- ----- ------ --- ----
Total................................. 16 2.8 329 42.5 345 45.3
=== === ===== ====== === ====
</TABLE>

Productive wells consist of producing wells and wells capable of production,
including wells waiting on pipeline connection. Wells that are completed in
more than one producing horizon are counted as one well. Of the gross wells
reported above, none had multiple completions.

Acreage

Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and natural gas, regardless of whether such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. A net
acre is deemed to exist when the sum of fractional ownership interests in
gross acres equals one. The number of net acres is the sum of the fractional
interests owned in gross acres expressed as whole numbers and fractions
thereof. The following table sets forth the approximate developed and
undeveloped acreage in which the Company held a leasehold mineral or other
interest at September 30, 1997:

<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
------------ -------------- --------------
REGION GROSS NET GROSS NET GROSS NET
------ ------ ----- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Mississippi Salt Basin............ 4,800 4,505 57,796 36,625 62,596 41,130
Onshore Gulf Coast
Texas........................... 9,308 1,286 22,961 6,461 32,269 7,747
Louisiana....................... 687 162 18,658 2,427 19,345 2,589
Michigan Basin/Other.............. 20,414 1,318 39,374 20,760 59,789 22,078
------ ----- ------- ------ ------- ------
Total......................... 35,209 7,271 138,789 66,273 173,999 73,544
====== ===== ======= ====== ======= ======
</TABLE>

In addition, the Company has pre-seismic lease options to acquire an
additional 741 acres, substantially all of which expire within one year.

All of the leases for the undeveloped acreage summarized in the preceding
table will expire at the end of their respective primary terms unless the
existing leases are renewed or production has been obtained from the acreage
subject to the lease prior to that date, in which event the lease will remain
in effect until the cessation of production. To this end, the Company's
forecasted drilling schedule takes into consideration not only the
attractiveness of individual prospects, but the lease expirations as well. The
following table sets forth the minimum remaining terms of leases for the gross
and net undeveloped acreage at September 30, 1997:

<TABLE>
<CAPTION>
ACRES EXPIRING
--------------
GROSS NET
------- ------
<S> <C> <C>
Twelve Months Ending:
December 31, 1997........................................ 3,241 405
December 31, 1998........................................ 44,819 14,405
December 31, 1999........................................ 23,186 12,420
Thereafter............................................... 102,753 46,314
------- ------
Total.................................................. 173,999 73,544
======= ======
</TABLE>

43
<PAGE>

VOLUMES, PRICES AND PRODUCTION COSTS

The following table sets forth the historical combined information and pro
forma information of the Company with respect to production volumes, average
prices received and average production costs for the periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- --------------------------
PRO PRO
FORMA FORMA
1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Production:
Crude oil and
condensate (MBbls)... 39.5 31.6 46.5 243.0 35.0 33.4 151.8
Natural gas (MMcf).... 1,228.4 1,324.0 2,030.0 8,668.0 1,555.3 1,713.0 6,295.4
Natural gas equivalent
(MMcfe).............. 1,465.7 1,513.3 2,309.1 10,126.8 1,765.0 1,913.3 7,206.2
Average sales prices:
Crude oil and
condensate ($ per
Bbl)................. $ 17.00 $ 22.68 $ 23.66 $ 20.76 $ 24.44 $ 21.26 $ 18.33
Natural gas ($ per
Mcf)................. 1.97 2.08 2.77 2.39 2.39 2.53 2.47
Natural gas equivalent
($ per Mcfe)......... 2.11 2.29 2.91 2.54 2.59 2.63 2.55
Average Costs ($ per
Mcfe):
Lease operating
expenses and
production taxes..... $ 0.55 $ 0.51 $ 0.49 $ 0.22 $ 0.43 $ 0.48 $ 0.21
Depreciation,
depletion and
amortization......... 0.69 1.10 1.14 0.90 1.03 1.06 1.08
General and adminis-
trative.............. 0.82 0.84 0.69 0.20 0.57 0.70 0.23
</TABLE>

COSTS INCURRED IN OIL AND NATURAL GAS ACTIVITIES

The following table sets forth the historical combined information and pro
forma information with respect to costs incurred by the Company in oil and
natural gas acquisition, exploration and development activities for the
periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- --------------
PRO PRO
FORMA FORMA
1994 1995 1996(1) 1996(1) 1997 1997
------ ------ ------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Costs incurred for the year:
Property acquisition............ $ 872 $1,123 $2,264 $ 8,337 $3,033 $ 7,553
Exploration..................... 2,003 2,130 2,340 8,080 609 4,460
Development..................... 1,653 3,070 1,580 4,700 1,524 5,111
------ ------ ------ ------- ------ -------
Total......................... $4,528 $6,323 $6,184 $21,117 $5,166 $17,124
====== ====== ====== ======= ====== =======
</TABLE>
- --------
(1) Includes $757 for the acquisition of proved producing properties.

Costs incurred represent amounts incurred by the Company for exploration,
property acquisition and development activities. Periodically, the Company
will receive proceeds from participants subsequent to project initiation for
an assignment of an interest in the project. These payments are represented by
proceeds from participants.

OIL AND NATURAL GAS MARKETING AND MAJOR CUSTOMERS

Most of the Company's oil and natural gas production is sold by its
operators under price sensitive or spot market contracts. The revenues
generated by the Company's operations are highly dependent upon the prices of
and demand for oil and natural gas. The price received by the Company for its
oil and natural gas production depends on numerous factors beyond the
Company's control, including seasonality, the condition of the United States
economy, foreign imports, political conditions in other oil-producing and
natural gas-producing countries,

44
<PAGE>

the actions of the Organization of Petroleum Exporting Countries and domestic
government regulation, legislation and policies. Decreases in the prices of
oil and natural gas could have an adverse effect on the carrying value of the
Company's proved reserves and the Company's revenues, profitability and cash
flow. Although the Company currently is not experiencing any significant
involuntary curtailment of its oil or natural gas production, market, economic
and regulatory factors in the future may materially affect the Company's
ability to sell its oil or natural gas production. See "Risk Factors--
Volatility of Oil and Natural Gas Prices" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." For the year ended
December 31, 1996, sales to the Company's three largest customers on an
historical combined basis were approximately 51%, 24% and 19%, respectively,
of the Company's oil and natural gas revenues. Due to the availability of
other markets and pipeline connections, the Company does not believe that the
loss of any single oil or natural gas customer would have a material adverse
effect on the Company's results of operations.

COMPETITION

The oil and gas industry is highly competitive in all of its phases. The
Company encounters competition from other oil and natural gas companies in all
areas of its operations, including the acquisition of seismic options and
lease options on properties. The Company's competitors include major
integrated oil and natural gas companies and numerous independent oil and
natural gas companies, individuals and drilling and income programs. Many of
the Company's competitors are large, well established companies with
substantially larger operating staffs and greater capital resources than the
Company's and which, in many instances, have been engaged in the exploration
and production business for a much longer time than the Company. Such
companies may be able to pay more for seismic and lease options on oil and
natural gas properties and exploratory prospects and to define, evaluate, bid
for and purchase a greater number of properties and prospects than the
Company's financial or human resources permit. The Company's ability to
acquire additional properties and to discover reserves in the future will be
dependent upon its ability to evaluate and select suitable properties and to
consummate transactions in a highly competitive environment. See "Risk
Factors--Competition" and "--Substantial Capital Requirements."

OPERATING HAZARDS AND UNINSURED RISKS

Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil
and natural gas may involve unprofitable efforts, not only from dry wells, but
from wells that are productive but do not produce sufficient net revenues to
return a profit after drilling, operating and other costs. The cost of
drilling, completing and operating wells is often uncertain. The Company's
drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, many of which are beyond the Company's control, including
title problems, weather conditions, compliance with governmental requirements
and shortages or delays in the delivery of equipment and services. The
Company's future drilling activities may not be successful and, if
unsuccessful, such failure may have a material adverse effect on the Company's
future results of operations and financial condition. See "Risk Factors--
Dependence on Exploratory Drilling Activities" and "--Shortages of Rigs,
Equipment, Supplies and Personnel."

In addition, the Company's use of 3-D seismic technology requires greater
pre-drilling expenditures than traditional drilling strategies. Although the
Company believes that its use of 3-D seismic technology will increase the
probability of success, unsuccessful wells are likely to occur. There can be
no assurance that the Company's drilling program will be successful or that
unsuccessful drilling efforts will not have a material adverse effect on the
Company.

The Company's operations are subject to hazards and risks inherent in
drilling for and producing and transporting oil and natural gas, such as
fires, natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline ruptures and spills, any of which can
result in the loss of hydrocarbons, environmental pollution, personal injury
claims and other damage to properties of the Company and others. The Company
maintains insurance against some but not all of the risks described above. In
particular,

45
<PAGE>

the insurance maintained by the Company does not cover claims relating to
failure of title to oil and natural gas leases, trespass during 2-D and 3-D
survey acquisition or surface change attributable to seismic operations, and,
except in limited circumstances, losses due to business interruption. In
certain circumstances in which insurance is available the Company may not
purchase it. The occurrence of an event that is not covered, or not fully
covered, by insurance could have a material adverse effect on the Company's
financial condition and results of operations. See "Risk Factors--Operating
Hazards and Uninsured Risks."

EMPLOYEES

Upon consummation of the Combination Transaction, the Company will have 23
full-time employees, including three geologists and one engineer. As drilling
production activities increase, the Company intends to hire additional
technical, operational and administrative personnel as appropriate. None of
the Company's employees are represented by any labor union. The Company
believes its relations with its employees are good. To optimize prospect
generation and development, the Company uses the services of independent
consultants and contractors to perform various professional services,
particularly in the area of seismic data mapping, acquisition leases and lease
options, construction, design, well-site surveillance, permitting and
environmental assessment. Field and on-site productions operation services,
such as pumping, maintenance, dispatching, inspection and testing, generally
are provided by independent contractors. The Company believes that this use of
third-party service providers enhances its ability to contain general and
administrative expenses.

FACILITIES

The Company currently leases approximately 8,000 square feet of office space
for its principal offices in Traverse City, Michigan. The Company also leases
approximately 3,300 square feet of office space in Houston, Texas,
approximately 1,300 square feet of office space in Jackson, Mississippi, and
approximately 2,000 square feet of office space and 3,600 square feet of
warehouse space in Columbia, Mississippi.

TITLE TO PROPERTIES

The Company believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and gas
industry. As is customary in the industry in the case of undeveloped
properties, little investigation of record title is made at the time of
acquisition (other than a preliminary review of local records).
Investigations, including a title opinion of legal counsel, generally are made
before commencement of drilling operations. The Company's properties are
subject to customary royalty, overriding royalty, carried, net profits,
working and other similar interests, liens incident to operating agreements,
liens for current taxes and other burdens. In addition, the Credit Facility is
secured by certain oil and natural gas interests and other properties of MOC.

GOVERNMENTAL REGULATION

The Company's oil and natural gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by
federal and state agencies. Failure to comply with such rules and regulations
can result in substantial penalties. The regulatory burden on the oil and gas
industry increases the Company's cost of doing business and affects its
profitability. Although the Company believes it is in substantial compliance
with all applicable laws and regulations, the Company is unable to predict the
future cost or impact of complying with such laws because those laws and
regulations frequently are amended or reinterpreted.

State Regulation

The states in which the Company operates require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of oil and natural
gas. These states also have statutes or regulations addressing conservation
matters, including provisions for the unitization or pooling of oil and
natural gas properties, the establishment of maximum rates of production from
wells and the regulation of spacing, plugging and abandonment of such wells.
In addition, state laws generally

46
<PAGE>

prohibit the venting or flaring of natural gas, regulate the disposal of
fluids used in connection with operations and impose certain requirements
regarding the ratability of production.

Federal Regulation

The Company's sales of natural gas are affected by the availability, terms
and cost of transportation. The price and terms for access to pipeline
transportation are subject to extensive regulation. The Federal Energy
Regulatory Commission ("FERC") regulates the transportation and sale for
resale of natural gas in interstate commerce pursuant to the Natural Gas Act
of 1938 and the Natural Gas Policy Act of 1978. In the past, the federal
government has regulated the prices at which oil and natural gas can be sold.
While sales by producers of natural gas, and all sales of oil and natural gas
liquids currently can be made at uncontrolled market prices, Congress could
reenact price controls in the future.

In recent years, FERC has undertaken various initiatives to increase
competition within the natural gas industry. As a result of initiatives like
FERC Order 636, issued in April 1992 and its progeny, the interstate natural
gas transportation and marketing system has been substantially restructured to
remove various barriers and practices that historically limited non-pipeline
natural gas sellers, including producers, from effectively competing with
interstate pipelines for sales to local distribution companies and large
industrial and commercial customers. The most significant provisions of Order
No. 636 require that interstate pipelines provide transportation separate or
"unbundled" from their sales service, and require that pipelines provide firm
and interruptible transportation service on an open access basis that is equal
for all natural gas supplies. In many instances, the result of Order No. 636
and related initiatives has been to substantially reduce or eliminate the
interstate pipelines' traditional role as wholesalers of natural gas in favor
of providing only storage and transportation services. Although Order No. 636
has largely been upheld on appeal, several appeals remain pending in related
restructuring proceedings. It is difficult to predict when these remaining
appeals will be completed or their impact on the Company.

FERC has announced several important transportation-related policy
statements and proposed rule changes, including a statement of policy and a
request for comments concerning alternatives to its traditional cost-of-
service ratemaking methodology to establish the rates interstate pipelines may
charge for their services. A number of pipelines have obtained FERC
authorization to charge negotiated rates as one such alternative. In February
1997, FERC announced a broad inquiry into issues facing the natural gas
industry to assist FERC in establishing regulatory goals and priorities in the
post-Order No. 636 environment. Similarly, the Texas Railroad Commission
recently has changed its regulations governing transportation and gathering
services provided by intrastate pipelines and gatherers to prohibit undue
discrimination in favor of affiliates. While the changes being considered by
these federal and state regulators would affect the Company only indirectly,
they are intended to further enhance competition in natural gas markets.
Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, FERC, state commissions and the courts.
The natural gas industry historically has been very heavily regulated;
therefore, there is no assurance that the less stringent regulatory approach
recently pursued by FERC and Congress will continue.

The price the Company receives from the sale of oil and natural gas liquids
is affected by the cost of transporting products to markets. Effective January
1, 1995, FERC implemented regulations establishing an indexing system for
transportation rates for oil pipelines, which, generally, would index such
rates to inflation, subject to certain conditions and limitations. The Company
is not able to predict with certainty the effect, if any, of these regulations
on its operations. However, the regulations may increase transportation costs
or reduce well head prices for oil and natural gas liquids. See "Risk
Factors--Governmental Regulation and Environmental Matters" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Environmental and Other Regulatory Matters."

ENVIRONMENTAL MATTERS

The Company's operations and properties are subject to extensive and
changing federal, state and local laws and regulations relating to
environmental protection, including the generation, storage, handling,
emission,

47
<PAGE>

transportation and discharge of materials into the environment, and relating
to safety and health. The recent trend in environmental legislation and
regulation generally is toward stricter standards, and this trend likely will
continue. These laws and regulations may require the acquisition of a permit
or other authorization before construction or drilling commences; restrict the
types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities;
limit or prohibit construction, drilling and other activities on certain lands
lying within wilderness, wetlands and other protected areas; require remedial
measures to mitigate pollution from former operations such as plugging
abandoned wells; and impose substantial liabilities for pollution resulting
from the Company's operations. The permits required for various of the
Company's operations are subject to revocation, modification and renewal by
issuing authorities. Governmental authorities have the power to enforce
compliance with their regulations, and violators are subject to civil and
criminal penalties or injunction. Management believes that the Company is in
substantial compliance with current applicable environmental laws and
regulations, and that the Company has no material commitments for capital
expenditures to comply with existing environmental requirements. Nevertheless,
changes in existing environmental laws and regulations or in interpretations
thereof could have a significant impact on the Company, as well as the oil and
gas industry in general and thus the Company is unable to predict the ultimate
cost and effects of such continued compliance in the future.

The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and comparable state statutes impose strict, joint and several
liability on certain classes of persons who are considered to have contributed
to the release of a "hazardous substance" into the environment. These persons
include the owner or operator of a disposal site or sites where a release
occurred and companies that disposed or arranged for the disposal of the
hazardous substances released at the site. Under CERCLA such persons or
companies may be liable for the costs of cleaning up the hazardous substances
that have been released into the environment and for damages to natural
resources, and it is not uncommon for the neighboring land owners and other
third parties to file claims for personal injury, property damage and recovery
of response costs allegedly caused by the hazardous substances released into
the environment. The Resource Conservation and Recovery Act ("RCRA") and
comparable state statutes govern the disposal of "solid waste" and "hazardous
waste" and authorize imposition of substantial civil and criminal penalties
for noncompliance. Although CERCLA currently excludes petroleum from its
definition of "hazardous substance," state laws affecting the Company's
operations impose clean-up liability relating to petroleum and petroleum-
related products. In addition, although RCRA classifies certain oil field
wastes as "non-hazardous," such exploration and production wastes could be
reclassified as hazardous wastes thereby making such wastes subject to more
stringent handling and disposal requirements.

The Company has acquired leasehold interests in numerous properties that for
many years have produced natural gas and oil. Although the Company believes
that the previous owners of these interests used operating and disposal
practices that were standard in the industry at the time, hydrocarbons or
other wastes may have been disposed of or released on or under the properties.
In addition, most of the Company's properties are operated by third parties
whose treatment and disposal or release of hydrocarbons or other wastes is not
under the Company's control. These properties and the wastes disposed thereon
may be subject to CERCLA, RCRA and analogous state laws. Notwithstanding the
Company's lack of control over properties operated by others, the failure of
the operator to comply with applicable environmental regulations may, in
certain circumstances, adversely impact the Company.

Federal regulations require certain owners or operators of facilities that
store or otherwise handle oil, such as the Company, to prepare and implement
spill prevention, control countermeasure and response plans relating to the
possible discharge of oil into surface waters. The Oil Pollution Act of 1990,
as amended ("OPA"), contains numerous requirements relating to the prevention
of and response to oil spills into waters of the United States. For onshore
facilities that may affect waters of the United States, OPA requires an
operator to demonstrate $10.0 million in financial responsibility, and for
offshore facilities the financial responsibility requirement is at least $35.0
million. Regulations currently are being developed under federal and state
laws concerning oil pollution prevention and other matters that may impose
additional regulatory burdens on the Company. In addition, the federal Clean
Water Act and analogous state laws require permits to be obtained to authorize

48
<PAGE>

discharge into surface waters or to construct facilities in wetland areas.
With respect to certain of its operations, the Company is required to maintain
such permits or meet general permit requirements. The Environmental Protection
Agency ("EPA") has adopted regulations concerning discharges of storm water
runoff. This program requires covered facilities to obtain individual permits,
participate in a group or seek coverage under an EPA general permit. The
Company believes that it will be able to obtain, or be included under, such
permits, where necessary, and to make minor modifications to existing
facilities and operations that would not have a material effect on the
Company. See "Risk Factors--Governmental Regulation and Environmental Matters"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Environmental and Other Regulatory Matters."

LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the directors,
nominees for director, executive officers and certain key employees of the
Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
DIRECTORS--TERM EXPIRING IN
1999
C.E. "Gene" Miller.......... 68 Chairman of the Board and Director
Frank M. Burke, Jr.......... 58 Director*

DIRECTORS--TERM EXPIRING IN
2000
Kelly E. Miller............. 43 President, Chief Executive Officer
and Director
Dan A. Hughes, Jr........... 40 Director*

DIRECTORS--TERM EXPIRING IN
2001
William J. Baumgartner...... 42 Vice President-Finance, Chief Financial
Officer, Secretary and Director
William Casey McManemin..... 37 Director*
Kenneth J. Foote............ 41 Director*

EXECUTIVE OFFICERS WHO ARE
NOT DIRECTORS
Douglas A. Bell............. 38 Vice President-Production
Michael L. Calhoun.......... 38 Vice President-Operations
Lew P. Murray............... 41 Vice President-Exploration

CERTAIN KEY EMPLOYEES
Charles A. Morrison......... 48 Exploration Manager
Curtiss R. Yeiter........... 41 Treasurer
</TABLE>
- --------
*These individuals are expected to be appointed as directors of the Company
on or before consummation of the Offering.

49
<PAGE>

Set forth below is a description of the backgrounds of the directors,
nominees for director, executive officers and certain key employees of the
Company.

C.E. "GENE" MILLER has served as the Chairman of the Board and a director of
the Company since its founding in 1997 and of MOC since MOC's founding in
1986. Since 1982, Mr. Miller has served as President, Secretary and Treasurer
of Eagle Investments, Inc. ("Eagle"), an oil and gas investment company
affiliated with the Company, and since 1990 has served as President, Secretary
and Treasurer of Eagle International, Inc., ("Eagle International"), an
international oil and gas development company also affiliated with the
Company. Mr. Miller has been involved in the domestic oil and gas industry for
over 35 years, primarily in Michigan and Texas. Mr. Miller is a past president
of the Michigan Oil and Gas Association and also served as a director of that
organization. Mr. Miller previously served as a vice president and director
and on the Executive Committee of the Independent Petroleum Association of
America, and as a director of the National Stripper Well Association. In
addition, Mr. Miller has been involved in a number of civic activities and is
a member of several boards of directors.

KELLY E. MILLER has served as the President and Chief Executive Officer of
the Company since its founding in 1997 and as President and a director of MOC
since MOC's founding in 1986. Since 1982, Mr. Miller has served as a Vice
President of Eagle. Mr. Miller serves on the Board of Governors of the
Independent Petroleum Association of America and the Boards of Directors of
the Michigan Oil and Gas Association and Republic Bancorp, Inc. (NASDAQ). Mr.
Miller has been involved in the oil and gas industry since 1978, focusing his
efforts in the areas of strategic planning, prospect development, acquisition
and administration. Mr. Miller received a B.S. degree with a major in
Petroleum Geology and a B.B.A. degree with a major in Petroleum Land
Management from the University of Oklahoma. Mr. Miller also completed the
Owner/President Management Program (OPM) through the Harvard University
Graduate School of Business. Mr. Miller is a Certified Petroleum Geologist
with the American Association of Petroleum Geologists, an international
geological organization.

WILLIAM J. BAUMGARTNER has served as the Vice President-Finance, Chief
Financial Officer and Secretary and as a director of the Company since its
founding in 1997 and as Vice President--Finance and Chief Financial Officer of
MOC since 1991. Mr. Baumgartner previously held the positions of Controller,
Treasurer and Secretary of MOC. Mr. Baumgartner was employed in public
accounting and with various independent oil and gas exploration entities prior
to joining MOC in 1985. Mr. Baumgartner graduated from Ferris State College in
1979 with a B.S. degree in Accounting. Mr. Baumgartner is a member of the
Michigan Oil and Gas Association as well as various committees of the
Independent Petroleum Association of America.

FRANK M. BURKE, JR. has served as Chairman, Chief Executive Officer and
Managing General Partner of Burke, Mayborn Company, Ltd., a private investment
and consulting company located in Dallas, Texas, since 1984. Burke, Mayborn
Company Ltd. provides strategic and financial consulting to selected
individuals and entities. From 1960 to 1984, Mr. Burke was associated with
Peat, Marwick, Mitchell & Co., an international firm of certified public
accountants. Mr. Burke was elected partner in 1968, and served as a member of
the Peat Marwick Board of Directors from 1978 to 1984. During the same period
Mr. Burke served as Chairman, Energy Group for Peat Marwick International and
National Director of Energy and Natural Resources for Peat Marwick in the
United States. Mr. Burke presently serves as a director of Kaneb Services,
Inc. (NYSE), Kaneb Pipe Line Partners, L.P. (NYSE) and CMS NOMECO Oil & Gas
Co., a wholly owned subsidiary of CMS Energy Corporation (NYSE). In addition,
Mr. Burke serves on the board of directors of numerous private corporations.

DAN A. HUGHES JR. is a partner in Dan A. Hughes Company, an oil and gas
exploration company located in Beeville, Texas, and has served as Exploration
Manager of Dan A. Hughes Company since 1985. Mr. Hughes currently serves on
the Regional Board of Trustees for the Independent Petroleum Association of
America and as Vice President for the Lower Gulf Coast District for Texas Mid-
Continent Oil & Gas Association. Mr. Hughes has been active in the oil and gas
industry for more than 20 years, overseeing exploration and development
activities in Texas and Louisiana, as well as internationally. Mr. Hughes
received a B.B.A. degree from Texas

50
<PAGE>

A&M University and attended Texas A&M University for post graduate studies in
geology. Mr. Hughes is involved in a number of civic activities and is a
member of several boards of directors and executive committees.

WILLIAM CASEY MCMANEMIN is a Registered Professional Engineer in the state
of Texas and received a B.S. degree in Petroleum Engineering from Texas A&M
University. Since 1988 Mr. McManemin has served as an officer, shareholder and
director of the Manager of SASI Minerals Company and the General Partner of
Spinnaker Royalty Company, L.P. In addition, since September 1993, Mr.
McManemin has served as an officer, shareholder and director of the General
Partner of Republic Royalty Company. All of such companies are engaged in oil
and gas property acquisition, exploration and development, including
activities in several of the same regions and areas in which the Company's
present and past activities are located. In addition to membership in numerous
oil and gas industry associations, Mr. McManemin is a member of the Executive
Committee of the Board of Trustees of The St. Mark's School of Texas.

KENNETH J. FOOTE has served as a managing director of First National
Acceptance Company, a private financial services company, since 1987. Mr.
Foote's primary responsibilities are in the areas of financial analysis,
taxation, and strategic planning. Additionally, Mr. Foote is a director of
First National Bank of Michigan. From 1979-1982, Mr. Foote worked for the
public accounting firm of Arthur Andersen and received his CPA during that
time. From 1982-1987, he was a principal in two real estate ventures before
joining First National Acceptance Company. Mr. Foote has a A.B. in economics
from Princeton University and received his masters in accounting from New York
University.

LEW P. MURRAY has served as Vice President-Exploration of the Company since
its founding in 1997 and of MOC since January 1996. Mr. Murray holds a B.S.
degree with a major in Geology from the University of Oklahoma. Mr. Murray is
a Certified Petroleum Geologist with the American Association of Petroleum
Geologists. Mr. Murray served as Exploration Manager of MOC from 1992 until
1996 and has been involved in the exploration program of MOC and its
affiliates since 1981. Mr. Murray's primary responsibilities involve the
review and recommendations of all domestic and international prospects.

DOUGLAS A. BELL has served as Vice President-Production of the Company since
its founding and of MOC since January 1996. In addition, Mr. Bell has served
in various production-related capacities with affiliates of MOC since his
graduation from Lake Superior State University in 1981. Mr. Bell's primary
responsibilities include production operations, well completions and reserve
analysis.

MICHAEL L. CALHOUN will serve as Vice President-Operations of the Company
effective January 12, 1998. Mr. Calhoun is a Registered Professional Engineer
in the state of Texas and received a B.S. degree in Petroleum Engineering and
a B.A. degree in Business Administration from the University of Texas. In
addition Mr. Calhoun received a Masters in Business Administration from
Southern Methodist University. Since 1989, Mr. Calhoun has served in several
capacities for Amerada Hess Corporation, including as a Financial Analyst,
Manager of Production, Planning and Control, District Superintendent and, most
recently, as Operations Manager for the Gulf Coast District. From 1987 to
1989, Mr. Calhoun served as an engineer for Greenwich Oil Corporation in
Dallas, Texas, and from 1985 to 1987 as a field engineer for the Texas
Railroad Commission.

CURTISS R. YEITER, C.P.A. has served as Treasurer of the Company since its
founding in 1997 and Controller of MOC since 1993. Mr. Yeiter graduated from
Northern Michigan University with a B.S. degree in Accounting and became a
Certified Public Accountant in 1982. Mr. Yeiter was employed by the public
accounting firm of BDO Seidman, LLP from 1979 until 1989 at which time he
began employment with MOC. Mr. Yeiter's primary responsibilities involve
financial reporting, management of accounting and information systems and
personnel management.

CHARLES A. MORRISON has served as Exploration Manager of the Company since
December 1, 1997. Since 1981 Mr. Morrison has been the President of Charles A.
Morrison Consulting Geophysicist, Inc. located in Jackson, Mississippi. Mr.
Morrison graduated from Louisiana Tech University with a B.S. degree in
Geology. Prior to forming Charles A. Morrison Consulting Geophysicist, Inc.,
Mr. Morrison served in a geophysical

51
<PAGE>

capacity with several companies, including Western Geophysical Company, Cities
Service Oil Company and T.H. Clements and Associates. Mr. Morrison has been
responsible for the acquisition of over 30 3-D seismic surveys in the Upper
Gulf Coast region and has been involved in the interpretation of over 60 3-D
seismic surveys in a consulting capacity.

The Company's Board of Directors is divided into three classes with
staggered terms of office, initially ending as set forth above. Thereafter,
the term for each class will expire on the date of the third annual
stockholders' meeting for the election of directors following the most recent
election of directors for that class. Each director holds office until the
next annual meeting of stockholders for the election of directors of his class
and until his successor has been duly elected and qualified. Executive
officers generally are elected annually by the Board of Directors to serve,
subject to the discretion of the Board of Directors, until their successors
are elected or appointed. The Board of Directors of the Company has adopted a
policy providing that directors are expected to maintain, directly or
indirectly, a minimum investment in the Company of approximately $100,000.

There is no family relationship between any of the directors or between any
director and any executive officer of the Company except that C.E. Miller and
Kelly Miller are father and son and Douglas Bell is the son-in-law of C.E.
Miller and the brother-in-law of Kelly Miller. For information regarding
certain business relationships between the Company and certain of its
directors and executive officers, see "Certain Transactions."

COMMITTEES OF THE BOARD

On or before consummation of the Offering, the Company will establish three
standing committees of the Board of Directors: an Audit Committee, a
Compensation Committee and a Stock Plan Committee. Messrs. Burke (Chairman),
Foote, Hughes and McManemin are expected to be members of the Audit Committee.
Messrs. McManemin (Chairman), Burke, Foote, Hughes, C.E. Miller and Kelly
Miller are expected to be members of the Compensation Committee. Messrs.
McManemin (Chairman) and Hughes are expected to be members of the Stock Plan
Committee. The Audit Committee will review the functions of the Company's
management and independent accountants pertaining to the Company's financial
statements and perform such other related duties and functions as are deemed
appropriate by the Audit Committee or the Board of Directors. The Compensation
Committee will recommend to the Board of Directors the base salaries, bonuses
and other incentive compensation for the Company's officers. The Stock Plan
Committee will administer the Company's Stock Option and Restricted Stock Plan
of 1997 (the "1997 Stock Option Plan"). See "--Executive Compensation--
Employee Benefit Plans--Stock Option and Restricted Stock Plan of 1997."

DIRECTOR COMPENSATION

Directors who are also employees of the Company are not separately
compensated for serving on the Board of Directors. Directors who are not
employees of the Company and who attend a minimum number of three meetings per
year receive an annual retainer fee of $15,000 per year. In addition, each
non-employee director receives $1,000 for attendance at each meeting of the
Board of Directors and $500 for attendance at each committee meeting. The
Chairman of each committee receives $750 for each committee meeting attended.
All fees will be paid in shares of Common Stock. In addition, the Company
reimburses directors for the reasonable expenses incurred in connection with
attending meetings of the Board of Directors and its committees. Each non-
employee director is granted an option on the date of each annual meeting of
stockholders to purchase 3,000 shares of Common Stock. The per share exercise
price of options granted to directors is 100% of the fair market value of the
Common Stock on the date each option is granted. In addition, each non-
employee director is expected to receive upon the consummation of the
Combination Transaction and this Offering an option to purchase 10,000 shares
of Common Stock at an exercise price per share equal to the initial public
offering price. See "--Executive Compensation--Employee Benefit Plans--Stock
Option and Restricted Stock Plan of 1997."

INDEMNIFICATION AND LIMITATION OF LIABILITY

Delaware Law Provisions

Limitation of Liability. The Delaware Law permits corporations to adopt a
provision in their certificate of incorporation eliminating, with certain
exceptions, the personal liability of a director of the corporation or its

52
<PAGE>

stockholders for monetary damages for breach of the director's fiduciary duty
as a director. Under the Delaware Law, a corporation may not eliminate or
limit director monetary liability for (i) breaches of the director's duty of
loyalty to the corporation or its stockholders, (ii) acts or omissions not in
good faith or involving intentional misconduct or a knowing violation of law,
(iii) unlawful dividends, stock repurchases or redemptions or (iv)
transactions from which the director received an improper personal benefit.
This provision also may not limit a director's liability for violation of, or
otherwise relieve a corporation or its directors from the necessity of
complying with, federal or state securities laws, or affect the availability
of non-monetary remedies such as injunctive relief or rescission. The
Company's Certificate of Incorporation contains a provision stating that
directors shall not be personally liable for monetary damage to the Company,
except to the extent required by the Delaware Law.

Indemnification. The Delaware Law generally permits indemnification of
expenses incurred in the defense or settlement of a derivative or third-party
action, provided that there is a determination that indemnification is proper
because the person seeking indemnification acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal proceeding, the person
had no reasonable cause to believe the person's conduct was unlawful. Such
indemnification shall be made (i) by a majority vote of disinterested
directors (even though less than a quorum), (ii) by a committee of such
directors designated by majority vote of such directors (even though less than
a quorum), (iii) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion or (iv) by the
stockholders. Without court approval, however, no indemnification may be made
in respect of any derivative action in which the person is adjudged liable to
the corporation. The Delaware Law requires indemnification of expenses when
the individual being indemnified successfully has defended the action on the
merits or otherwise.

The Company's Certificate of Incorporation provides that directors and
executive officers shall be indemnified to the full extent provided by the
Delaware Law. As to other persons who are not directors or executive officers
but who may be eligible for indemnification, the Certificate of Incorporation
provides that such persons may be indemnified by the Company to the extent
permissible by law and the Certificate of Incorporation and as authorized by
the Board of Directors. The Certificate of Incorporation further provides that
the Company may purchase and maintain insurance to cover such expenses,
whether or not indemnification would be permissible under the Delaware Law in
the absence of insurance.

The Company intends to enter into an Indemnity Agreement with each of its
directors and executive officers which provides rights additional to those
available under the Delaware Law or the Company's Certificate of Incorporation
or Bylaws. The Indemnity Agreements provide for indemnification in certain
instances against liability and expenses incurred in connection with
proceedings brought by or in the right of the Company or by third parties by
reason of a person acting as an officer or director of the Company or of
another company at the request of the Company.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

On or before the consummation of the Offering, the Company will establish a
Compensation Committee. Messrs. McManemin, Burke, Hughes, C.E. Miller and
Kelly Miller are expected to be members of the Compensation Committee. C.E.
Miller, the Chairman and a director of the Company, serves as President,
Secretary, Treasurer and a director of, and Kelly E. Miller, the President,
Chief Executive Officer and a director of the Company, serves as Vice
President of, Eagle and Eagle International. No executive officer of the
Company serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of
the Company's Board of Directors or Compensation Committee. In

53
<PAGE>

the past, matters with respect to the compensation of executive officers of
MOC were determined by its Board of Directors, which currently includes Kelly
E. Miller, David A. Miller, Daniel R. Miller and Sue Ellen Bell.

EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning the
compensation paid by MOC to its President and each of the other persons who
will serve as executive officers of the Company whose annual salary and bonus
exceeded $100,000 for the fiscal year ended December 31, 1996. The table does
not include perquisites and other personal benefits for individuals for whom
the aggregate amount of such compensation does not exceed the lesser of (i)
$50,000 or (ii) 10% of individual combined salary and bonus for the named
executive officers in that year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(A) COMPENSATION
--------------------------- -------- ------- --------------- ------------
<S> <C> <C> <C> <C>
Kelly E. Miller, President and
Chief Executive Officer......... $200,000 -- $9,500 $86,550(b)
William J. Baumgartner, Vice
President-Finance, Chief
Financial Officer and Secretary. $100,000 $30,000 $2,700 $ 618(c)
Lew P. Murray, Vice President-
Exploration..................... $ 80,000 $25,000 $7,800 $30,384(d)
</TABLE>
- --------
(a) Includes contributions made by MOC to its 401(k) Savings Plan on behalf of
the individuals listed.
(b) Includes $168 for travel accident insurance and $86,382 for royalty
program participation.
(c) Includes $421 for life insurance and $168 for travel accident insurance.
(d) Includes $391 for life insurance, $168 for travel accident insurance and
$29,825 for royalty program participation.

Employment Agreements

The Company intends to enter into employment agreements with each of Messrs.
Kelly Miller, Baumgartner, Calhoun, Murray and Morrison that provide for an
annual base salary in an amount not less than $250,000 for Mr. Miller,
$150,000 for Mr. Baumgartner, $135,000 for Mr. Calhoun, $140,000 for Mr.
Murray and $150,000 for Mr. Morrison. Upon consummation of this Offering,
Messrs. Miller, Baumgartner, Calhoun, Murray and Morrison also are expected to
receive option grants, pursuant to the 1997 Stock Plan, to purchase 300,000,
100,000, 25,000, 100,000 and 55,000 shares, respectively, of Common Stock at
the initial public offering price set forth on the cover page of this
Prospectus, which vest at the rate of one-fifth per year beginning on the
first anniversary of the grant date, and 60,000, 22,500, 2,000, 15,000 and
10,000 shares of restricted Common Stock, respectively, which begin to vest at
the rate of one-half per year beginning on the first anniversary of the grant
date. See "--Employee Benefit Plans--Stock Option and Restricted Stock Plan of
1997."

Each of the employment agreements of Messrs. Miller, Baumgartner, Calhoun,
Murray and Morrison will have an initial three-year term. At the end of the
first year of such initial term and on every anniversary thereafter, the term
of each employment agreement automatically will be extended for one year, so
that the remaining term of the agreement will never be less than two years.
Under each agreement, the officer's employment may be terminated upon his
death or "disability," for "cause" or "good reason," (as those terms are
defined in the employment agreement) or for any reason upon 60 days' notice by
the employee or at will by the Company. Upon discretionary termination of
employment by the Company or termination by the employee for good reason, the
employee's salary and benefits will be continued for a period to be determined
by the Company's Board of Directors. Upon death, disability, discretionary
termination by the employee or termination for cause, no severance pay will be
paid.

Each of the employment agreements provides that the employee is eligible to
participate in the Company's employee benefit plans, including the Company's
matching 401(k) Savings Plan and the 1997 Stock Option Plan.

54
<PAGE>

Each of the employment agreements contains certain confidentiality
obligations. In addition, in each agreement the employee will agree not to
compete against the Company for a period of six months following termination
in any county or parish in which the Company has a leasehold interest or
active or pending seismic programs.

Certain Other Arrangements

The Company currently expects to pay a cash bonus upon the consummation of
the Offering to Messrs. Kelly Miller, Baumgartner, Murray, Yeiter, Bell and
C.W. Measley, Jr. of $100,000, $60,000, $40,000, $50,000, $10,000 and $15,000,
respectively.

Employee Benefit Plans

Stock Option and Restricted Stock Plan of 1997

General. On November 17, 1997, the Company adopted the 1997 Stock Option
Plan. The Board of Directors contemplates that the 1997 Stock Option Plan
primarily will be used to grant stock options. However, the 1997 Stock Option
Plan permits grants of restricted stock and tax benefit rights if determined
to be desirable to advance the purposes of the 1997 Stock Option Plan. In this
Prospectus, stock options, restricted stock and tax benefit rights are
referred to as "Incentive Awards."

Persons eligible to receive Incentive Awards under the 1997 Stock Option
Plan (with certain limitations discussed below) are directors, corporate
officers and other full-time employees of the Company and its subsidiaries.

A maximum of 1,200,000 shares of Common Stock (subject to certain
antidilution adjustments) will be available for Incentive Awards under the
1997 Stock Option Plan. The 1997 Stock Option Plan will not be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and will not be subject to the Employee Retirement Income Security Act of
1974.

The 1997 Stock Option Plan will be administered by the Stock Plan Committee
of the Board of Directors. The 1997 Stock Option Plan requires the Stock Plan
Committee to consist of at least two members, all of whom qualify as "non-
employee directors" as defined in Rule 16b-3 under the Securities Exchange Act
of 1934, as amended. The Board of Directors, in its discretion, also may
require that the members of the Stock Plan Committee be "outside directors" as
defined in the rules issued pursuant to Section 162(m) of the Code. The Stock
Plan Committee will make determinations, subject to the terms of the 1997
Stock Option Plan, as to the persons to receive Incentive Awards, the amount
of Incentive Awards to be granted to each person, the terms of each grant and
all other determinations necessary or advisable for administration of the 1997
Stock Option Plan. The Stock Plan Committee may amend the terms of Incentive
Awards granted under the 1997 Stock Option Plan from time to time in a manner
consistent with the 1997 Stock Option Plan; provided, that no amendment may be
effective relating to a particular Incentive Award without the consent of the
relevant participant, except to the extent the amendment operates solely to
the benefit of the participant.

The 1997 Stock Option Plan took effect on November 17, 1997 and, unless
earlier terminated by the Board of Directors, the 1997 Stock Option Plan will
terminate on November 16, 2007. No award may be made under the 1997 Stock
Option Plan after that date. The Company intends to register shares covered by
the 1997 Stock Option Plan under the Securities Act.

Stock Options. Under the 1997 Stock Option Plan, participants may be granted
stock options. Certain stock options that may be granted to employees under
the 1997 Stock Option Plan may qualify as incentive stock options as defined
in Section 422(b) of the Code ("Incentive Stock Options"). Other stock options
will not be Incentive Stock Options within the meaning of the Code. Stock
options may be granted at any time prior to the termination of the 1997 Stock
Option Plan according to its terms or by action of the Stock Plan Committee.

The Stock Plan Committee will set forth the terms of individual grants of
stock options in stock option agreements that will contain such terms and
conditions, consistent with the provisions of the 1997 Stock Option Plan, as
the Stock Plan Committee determines to be appropriate. These restrictions may
include vesting

55
<PAGE>

requirements to encourage long-term ownership of shares. The Company will
receive no consideration upon the award of options. The option price per share
will be determined by the Stock Plan Committee; provided, that the option
price for an Incentive Stock Option will be a price equal to or higher than
the "market value" of the Company's Common Stock on the date of grant. Each
non-employee director automatically is granted an option on the date of each
annual meeting of stockholders to purchase 3,000 shares of Common Stock at an
exercise price per share equal to 100% of the fair market value of the Common
Stock on the date each option is granted.

Although the term of each stock option will be determined by the Stock Plan
Committee, no Incentive Stock Option will be exercisable under the 1997 Stock
Option Plan after 10 years from the date it was granted. Options generally
will be exercisable for limited periods of time if an option holder is
terminated from employment with the Company or its subsidiaries without cause,
dies or becomes disabled. If an option holder is terminated for cause, the
option holder will forfeit all rights to exercise any outstanding options. No
individual participant may be granted, during any calendar year, options to
purchase more than 10% of the total number of shares of Common Stock available
under the 1997 Stock Option Plan. The Stock Plan Committee may permit an
option holder to exercise an option for an extended period, which may not
extend beyond the earlier of either three years from the date of termination
or the date on which the options expire by their terms, if (i) the option
holder retires after age 62 or upon any other age determined by the Stock Plan
Committee ("Normal Retirement"), (ii) the option holder voluntarily terminates
employment with the written consent of the Stock Plan Committee after the
option holder has attained 55 years of age and completed 15 years of service
("Early Retirement") or (iii) the option holder voluntarily terminates
employment and the Stock Plan Committee determines the termination to be in
the best interests of the Company ("Consensual Severance").

Upon the consummation of the Offering, options under the 1997 Stock Option
Plan are expected to be granted to directors, officers and certain employees
of the Company to purchase a total of 885,000 shares of Common Stock at
exercise prices per share equal to the initial public offering price per share
set forth on the cover page of this Prospectus (555,000 shares) and 110% of
such initial public offering price (330,000 shares). These awards include
options to be granted to Messrs. Kelly Miller, Baumgartner, Calhoun, Murray,
Bell and Morrison to purchase 330,000, 100,000, 25,000, 100,000, 40,000 and
55,000 shares of Common Stock, respectively. All such options will have a term
of 10 years and become exercisable in cumulative annual increments of one-
fifth of the total number of shares of Common Stock subject thereto, beginning
on the first anniversary of the date of grant.

Upon the consummation of the Offering, each non-employee director of the
Company is expected to be granted an option to purchase 10,000 shares of
Common Stock. Any person who first becomes a non-employee director on or after
the consummation of the Offering automatically will be granted, on the date of
his or her election, an option to purchase 10,000 shares of Common Stock. In
addition, on the first business day following the date on which each annual
meeting of the Company's stockholders is held, each non-employee director then
serving automatically will be granted an option to purchase 3,000 shares of
Common Stock. Each option granted to non-employee directors will (i) have a
10-year term, (ii) have an exercise price per share equal to the fair market
value of a Common Stock share on the date of grant (the initial public
offering price in the case of options granted upon consummation of the
Offering) and (iii) become exercisable in cumulative annual increments of one-
fifth of the total number of shares of Common Stock subject thereto, beginning
on the first anniversary of the date of grant. If a non-employee director
resigns from the Board without the consent of a majority of the other
directors, such director's options may be exercised only to the extent they
were exercisable on the resignation date. The Board of Directors of the
Company has adopted a policy providing that directors are expected to
maintain, directly or indirectly, a minimum investment in the Company of
approximately $100,000.

Restricted Stock. In addition to the authority to grant stock options under
the 1997 Stock Option Plan, the 1997 Stock Option Plan will allow the Stock
Option Committee to award restricted stock. Restricted stock will be subject
to such terms and conditions, consistent with the provisions of the 1997 Stock
Option Plan, as the Stock Option Committee from time to time may determine. As
with stock option grants, the Stock Option Committee will set forth the terms
of individual awards of restricted stock in restricted stock agreements. If a

56
<PAGE>

participant's employment or director or officer status is terminated during the
restricted period set by the Stock Option Committee for any reason other than
death or disability, or any additional reason as may be permitted by the Stock
Option Committee, then any shares of restricted stock still subject to
restrictions will be forfeited. Unless the Stock Option Committee provides
otherwise in a restricted stock agreement, if a participant's employment or
director or officer status is terminated during the restricted period by reason
of death or disability, the restrictions on the participant's shares will
terminate automatically as of the date of death or disability. The Stock Option
Committee, in its discretion, may provide that all or part of the restrictions
on the restricted stock will lapse upon termination if the termination is by
reason of Consensual Severance, Normal Retirement or Early Retirement.

Without Stock Option Committee authorization, a recipient of restricted stock
may not sell, exchange, transfer, pledge, assign or otherwise dispose of such
stock other than to the Company or by will or the laws of descent or
distribution. In addition, the Stock Option Committee may impose other
restrictions on shares of restricted stock. However, holders of restricted
stock will enjoy all other rights of stockholders with respect to restricted
stock, including the right to vote restricted shares at stockholders' meetings
and the right to receive all dividends paid with respect to restricted stock.
Any securities received by a holder of restricted stock pursuant to a stock
dividend, stock split, recapitalization or reorganization will be subject to
the same terms, conditions and restrictions that are applicable to the
restricted stock for which such shares are received.

The Stock Option Committee may provide that upon the occurrence of a "change
in control" of the Company (as defined in the 1997 Stock Option Plan), all
restricted stock or other Incentive Awards immediately would become fully
vested, nonforfeitable or otherwise no longer subject to any restriction. The
Stock Option Committee may provide in the restricted stock agreement that the
number of shares that automatically will vest will be limited in value to the
extent that any payments that are deemed "parachute payments" as defined in
Section 280G9(b)(2) of the Code would not be subject to the excise tax imposed
by Section 4999 of the Code.

Upon the consummation of the Offering, Messrs. Kelly Miller, Baumgartner,
Calhoun, Murray and Morrison are expected to receive 60,000, 22,500, 2,000,
15,000 and 10,000 shares of restricted Common Stock, respectively. As described
above, an individual's restricted stock agreement may provide that shares
automatically will vest upon a change in control and that such shares so vested
will be limited in value to the extent deemed parachute payments, as defined in
the Code. The restricted shares will begin to vest at cumulative annual
increments of one-half of the total number of restricted shares of Common Stock
subject thereto, beginning on the first anniversary of the date of grant. At
the time of issuance of the restricted shares, compensation expense of
$1,204,500 will be deferred. Because the restricted shares are subject to the
risk of forfeiture during the vesting period, compensation expense (equivalent
to the Offering price per share) will be recognized ratably over the two-year
vesting period as the risk of forfeiture passes.

Tax Benefit Rights. The Stock Plan Committee also may grant tax benefit
rights under the 1997 Stock Option Plan. As with options and restricted stock,
the Stock Plan Committee will set forth the terms and conditions of tax benefit
rights granted and the participants to receive tax benefit rights in written
agreements. A tax benefit right entitles a participant to receive a cash
payment from the Company or its subsidiaries to encourage the participant to
exercise his or her options. The amount of the payment may not exceed the
amount calculated by multiplying the ordinary income, if any, realized by the
participant for federal tax purposes as a result of the exercise of a non-
Incentive Stock Option, or as a result of the disqualifying disposition of
shares acquired under an Incentive Stock Option, by the maximum federal income
tax rate (including any surtax or similar charge or assessment) for
corporations, plus the applicable state and local tax imposed on the exercise
of the option or disqualifying disposition. Tax benefit rights may be granted
only with respect to a stock option issued and outstanding or to be issued
under the 1997 Stock Option Plan or any prior plans. A participant may refuse
the issuance of a tax benefit right if the effect of the tax benefit right
would disqualify an Incentive Stock Option, change the date of the grant or
exercise price or impair the participant's existing stock options.

57
<PAGE>

The following table summarizes the number of stock options and restricted
stock grants that are expected to be received by certain individuals under the
1997 Stock Option Plan upon the consummation of the Offering:

<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME OPTIONS(1)(2) RESTRICTED STOCK(3)
---- ------------- -------------------
<S> <C> <C>
Kelly E. Miller........................ 330,000 60,000
William J. Baumgartner................. 100,000 22,500
Lew P. Murray.......................... 100,000 15,000
Douglas A. Bell........................ 40,000 --
Michael L. Calhoun .................... 25,000 2,000
Frank M. Burke, Jr. ................... 10,000 --
Kenneth J. Foote....................... 10,000 --
Dan A. Hughes, Jr. .................... 10,000 --
William Casey McManemin................ 10,000 --
Directors and executive officers as a
group................................. 635,000 99,500
All employees as a group (other than
directors and executive officers)..... 250,000 10,000
</TABLE>
- --------

(1) The exercise price for options granted will be equal to the initial public
offering price, except that the exercise price for the options granted to
Mr. Miller will be equal to 110% of the initial public offering price.

(2) Options become exercisable in cumulative annual increments of one-fifth of
the total number of shares of Common Stock subject thereto, beginning on
the first anniversary of the date of grant.

(3) Shares of restricted stock will begin to vest at cumulative annual
increments of one-half of the total number of shares subject thereto,
beginning on the first anniversary of the date of the grant.

401(k) Savings Plan

In connection with the Combination Transaction, the Company will adopt MOC's
401(k) Savings Plan (the "Savings Plan"). The Savings Plan will be available
to all full-time employees upon commencement of their employment and provides
for discretionary matching contributions by the Company. The funds in the
Savings Plan are invested in equity (including the Company's stock) and bond
funds at the election of the participant. The Company-paid matching
contributions under the Savings Plan vest at a rate of 20% per year, beginning
after three years of service. The Savings Plan balances that have vested
generally are paid at termination or retirement.

Life Insurance Program

The Company provides, at its sole cost, life insurance in the face amount of
$150,000 on each of the lives of Messrs. Baumgartner and Murray, each of whom
is entitled to designate the beneficiary of the insurance proceeds. Upon their
death, $150,000 will be paid to the beneficiary designated by Messrs.
Baumgartner or Murray. During 1996, the Company paid $421 and $391 in premiums
for Messrs. Baumgartner's and Murray's respective policies.

Travel Insurance Program

The Company provides to each of Messrs. Kelly Miller, C.E. Miller,
Baumgartner, Calhoun, Murray and Bell, as well as to C.W. Measley, Jr., Land
Manager of the Company and MOC, travel accident insurance in the face amount
of $100,000 at no cost. The insurance covers accidental death and disability
in the course of business or personal travel anywhere in the world. Each
covered person is entitled to designate the beneficiary of the insurance
proceeds. During 1996, the Company paid $168 in premiums for each of the
policies.

Tax Credit and Royalty Participation Programs

Tax Credit Participation Program. On April 14, 1995, MOC established the
Credit Participation Program (the "Tax Program"), which is designed to reward,
recognize and retain key employees of MOC who participate in an instrumental
manner in the acquisition, sale and/or brokerage of production of oil and
natural gas from non-conventional sources that qualify for certain tax credits
under Section 29 of the Code. Under the terms of

58
<PAGE>

the Tax Program, participants may be entitled to a percentage of any money
received by the Tax Program, including fees, reimbursements, down-payments and
credits from brokerage transactions. After payment of expenses, money is
allocated among and distributed to participants, pursuant to a participant's
annual allocation percentages, as determined by a majority vote of MOC's
shareholders. If MOC acquires properties for the purpose of the acquisition of
Section 29 Credits and MOC sells all or any part of the properties to which
such credits apply, the distribution of the proceeds for the Tax Program will
be net of the total invested capital plus a 10% return. If a participant's
employment is terminated, any distributions pursuant to the Tax Program will
terminate and the balance of current and future distributions to the
participant will remain in the Tax Program to be allocated and distributed by
MOC in its discretion.

As of October 31, 1997, Mr. Baumgartner was the only participant in the Tax
Program. No payments were made under the Tax Program during 1996. On or before
consummation of the Offering, Mr. Baumgartner's right to participate in the
Tax Program will terminate.

Royalty Participation Program. On December 31, 1992, MOC established the
Employee Participation Program (the "Royalty Program"), which is designed to
provide an incentive for certain key employees to contribute to the success of
MOC. Under the terms of the Royalty Program, participants receive a percentage
of the overriding royalty working interest on all prospects generated by MOC.
A maximum of 1/32nd of 8/8ths overriding royalty working interest is reserved
for the Royalty Program on all prospects generated by MOC. If less than a
1/32nd of 8/8ths overriding royalty is reserved on such prospects,
participants are assigned a proportionate share of the overriding royalty that
MOC retains. A sliding scale overriding royalty is reserved against MOC's
retained net revenue interest, proportionately adjusted to MOC's working
interest in any specific property. The net revenue scale is used whether MOC
retains an overriding royalty on its prospects, acquires a working interest
from a third party or sells or distributes working interests to an entity
owned by a shareholder of MOC. The Royalty Program is limited to those
properties that MOC has an initial working interest in and the overriding
royalty is not applied to farm-outs by MOC, sale of lease positions, purchase
of reserves or recovery from lawsuits. If a participant's employment is
terminated, any overriding royalties previously assigned to the participant
will revert to MOC. In the event of a participant's death, any royalties due
to the participant will be allocated to a beneficiary or trust designated by
the participant.

As of October 31, 1997, the following individuals participated in the
Royalty Program: Mr. Kelly Miller had a 40% interest in the royalty interest;
Mr. Baumgartner had a 7.5% interest in the royalty interest; Mr. Murray had a
15% interest in the royalty interest; and Kevin J. Sullivan had a 3% interest
in the royalty interest. The stated percentages for Messrs. Miller and Murray
apply to prospects of MOC as of January 1, 1996. To the extent that a prospect
was included in the Royalty Program prior to January 1, 1996, with respect to
those properties, Messrs. Miller and Murray had a 32% and 8% interest in such
royalties, respectively, as of October 31, 1997. During 1996 Messrs. Miller,
Baumgartner and Murray received $86,382, $29 and $29,825, respectively, under
the Royalty Program. Mr. Sullivan did not receive any amount under the Royalty
Program in 1996. On or before the consummation of the Offering, the
participants' rights to participate in the Royalty Program will terminate.

CERTAIN TRANSACTIONS

THE COMBINATION TRANSACTION

The Company was recently formed as a Delaware corporation as part of the
combination of MOC with certain oil and natural gas interests owned by
companies beneficially owned by individual members of the Miller family and
certain oil and natural gas interests owned by certain business partners and
investors. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview," "Business and Properties--The Company,"
and the Combined Financial Statements. William Casey McManemin, a nominee for
director of the Company, is an officer, shareholder and director of the
Manager of SASI Minerals Company, which is exchanging interests in oil and
natural gas properties for shares of Common Stock in the Combination
Transaction. Kenneth J. Foote, a nominee for director of the Company, also is

59
<PAGE>

exchanging interests in oil and natural gas properties for shares of Common
Stock in the Combination Transaction.

REGISTRATION RIGHTS AGREEMENT

The Company has agreed that upon the consummation of the Combination
Transaction it will enter into a Registration Rights Agreement with each
person who will become a stockholder of the Company upon the consummation of
the Combination Transaction. The Registration Rights Agreement will provide
each such person certain piggyback registration rights with respect to their
shares of Common Stock. See "Description of Capital Stock--Registration Rights
of Certain Stockholders."

TRANSACTIONS WITH C.E. MILLER AND AFFILIATES

The following information describes agreements or transactions between MOC
and C.E. Miller, Chairman of MOC and Chairman and a director of the Company,
or his affiliates:

Service Agreement. MOC has entered into an Amended Service Agreement dated
January 1, 1997, amending a prior service agreement, with Eagle, an oil and
gas exploratory company beneficially owned by C.E. Miller. Under the amended
agreement, MOC provides Eagle with administrative, technical, consulting and
other services required by Eagle to operate its business in the ordinary
course. These services include, among others, developing prospects,
coordinating, permitting, drilling and facility construction and operation,
maintaining joint venture relationships and providing accounting, financial,
tax and budget-preparation services. As compensation for its services, Eagle
has agreed to pay MOC a fixed fee of $50,000 per calendar quarter, subject to
annual adjustments to be negotiated by MOC and Eagle, as well as additional
fees for specialized services as agreed by the parties. Eagle also agreed to
reimburse MOC its out-of-pocket expenses incurred in providing the services.
Either party may terminate the agreement at any time upon 60 days' prior
notice. Eagle paid MOC $100,000, $50,000 and $100,000 under the service
arrangement in 1996, 1995 and 1994, respectively, which the Company believes
is adequate compensation for the services provided to Eagle.

1997 Drilling Program. MOC has entered into a 1997 Drilling Program
Exploration and Participation Agreement dated August 15, 1997 with Eagle and
certain companies affiliated with MOC who are participating in the Combination
Transaction. Under the agreement, MOC and the affiliated companies contributed
certain drilling inventory consisting of 13 prospects that had a high
probability of drilling operations beginning by December 31, 1997, and that
had pipelines and facilities in place, acreage and rights of way acquired and
drilling units or unitization agreements secured. As consideration for the
contribution of the wells, Eagle agreed to pay 100% of the actual acreage,
seismic, dry hole cost and cost of completion and facilities through the tanks
of the working interest represented by MOC and the affiliated companies. Eagle
will receive a proportionate 50% of MOC's and the affiliated companies' rights
to all depths that exist within the drilling unit or unitized area. In
addition, MOC and the affiliated companies agreed to contribute the use of
their existing facilities used for any common operations, such as production
platforms, flowlines, pipelines or rights of way. MOC and the affiliated
companies have the option to contribute additional prospects to Eagle, but
only upon the consent of C.E. Miller. The parties will terminate the agreement
upon the consummation of the Offering.

Sale of Non-strategic Assets. In an effort to divest certain non-strategic
assets before consummation of the Combination Transaction and the Offering,
MOC has agreed to sell to Eagle working and royalty interests in certain oil
and gas properties located in Michigan and Texas, as well as MOC's interests
in all wells, facilities and equipment associated with such properties. The
properties are located in areas where the Company does not intend to focus its
exploration and production activities. No part of the Company's 1997 or 1998
capital budgets is allocated to the properties. The purchase price is
$507,411, payable in cash at closing and will be distributed to the
shareholders of MOC. The Company believes that the purchase price is
representative of the fair market value of the interests being sold.

Sale and Lease of Principal Offices. In July 1996 MOC sold its principal
offices located at 3104 Logan Valley Road, Traverse City, Michigan to C.E.
Miller and Betty Miller for $700,000. Mr. Miller is Chairman of the Board and
a director of the Company and MOC. The Company is leasing the premises from
Mr. and Mrs.

60
<PAGE>

Miller under a five-year lease expiring in August 2001. The lease provides
that the rent on the premises is $6,058 a month for the first full 11 months
of the lease and thereafter increases by 4% each year. The Company believes
that the rental rate is representative of the fair market rental rate for the
premises and that the purchase price was representative of the fair market
value of the property at the time of sale.

Loan to MOC. Pursuant to a promissory note dated November 26, 1997, C.E.
Miller,as trustee of the C.E. Miller Trust, loaned $2.5 million to MOC, which
MOC used to fund a down payment made in connection with the Combination
Transaction. The loan is unsecured and subordinated to the Credit Facility.
Interest accrues on the loan at a variable rate equal to the New York
Consensus Prime Rate and is payable monthly, and principal is payable in full
on June 1, 1998. A portion of the proceeds from this Offering will be used to
repay the loan. See "Use of Proceeds."

SHAREHOLDER NOTES

In 1991, the shareholders of MOC loaned to MOC an aggregate of $7.6 million
pursuant to separate loan agreements. Principal on the indebtedness is payable
in full on October 18, 2006. Interest is payable within 30 days after the end
of each quarter at the New York City Prime Rate, which was 8.5% per annum as
of September 30, 1997, plus 2%. As of September 30, 1997, no principal
payments had been made on the indebtedness, and all interest due and payable
by that date had been paid. The shareholders of MOC have agreed to contribute
the indebtedness to the Company as capital in connection with the Combination
Transaction, resulting in cancellation of the indebtedness. Such cancellation
is not expected to result in income to the Company for federal income tax
purposes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview" and "--Liquidity and Capital Resources."

TAX CREDIT AND ROYALTY PARTICIPATION PROGRAMS

The Company has established the Tax Program and the Royalty Program under
which certain key employees are entitled to receive a stated percentage of tax
credits received by the Tax Program and/or royalties paid on certain prospects
generated by the Company. The participants' rights to participate in the Tax
Program and the Royalty Program will be terminated upon consummation of the
Offering. See "Management--Executive Compensation--Tax Credit and Royalty
Participation Programs."

CONSULTING AGREEMENT

MOC and Frank M. Burke, Jr., a nominee for director of the Company, entered
into a Consulting Agreement dated June 1, 1996, as subsequently amended.
Pursuant to the Consulting Agreement, Mr. Burke provides MOC, as an
independent contractor, certain financial, tax, strategic, marketing and other
consulting services as requested by MOC. As compensation for these services,
MOC has agreed to pay Mr. Burke a fee of $275 per hour. This fee is scheduled
to increase to $325 per hour for services provided during 1998 and to $375 per
hour for services provided during and after 1999. MOC also has agreed to
reimburse Mr. Burke reasonable travel and other out-of-pocket expenses. The
initial term of the Consulting Agreement was 12 months and automatically is
renewed for successive 12-month periods unless terminated by either party upon
30 days' prior notice. As of September 30, 1997, MOC had paid Mr. Burke a
total of $44,867 in fees and expenses.

CERTAIN EXPLORATION PROGRAMS

A portion of the Company's exploration activities have been, and are
expected to continue to be, conducted as an active working interest partner in
select projects proposed in Texas and Louisiana by the Hughes Company under an
exploration agreement in effect since 1994. Dan A. Hughes, Jr., a nominee for
director of the Company, is a partner in and Exploration Manager of Hughes.
See "Business and Properties--Core Exploration and Development Regions" and
"--Joint Venture Exploration, Participation and Farm-out Agreements." At the
time the exploration agreement was entered into, Mr. Hughes was not a director
of the Company. Revenues attributable to these properties were approximately
$240,000 and $1.3 million in 1995 and 1996, respectively. The Company
currently projects capital expenditures with respect to these properties of
approximately $1.4 million in 1998.

In addition, the Company has provided to its affiliated oil and natural gas
exploration companies opportunities to invest in certain oil and natural gas
exploration and development projects in which the Company already has an
interest. In exchange for their interests in a project, the affiliated
companies, which are under

61
<PAGE>

common ownership with MOC, are required to pay their proportionate share of a
$50,000 prospect fee charged by the Company, 110% of the associated drilling
costs and their proportionate share of the royalty interests allocated to the
Royalty Program. See "Management--Executive Compensation--Tax Credit and
Royalty Participation Programs." This program will terminate upon the
consummation of the Offering.

Any future material transactions between the Company and its affiliates will
be approved by a majority of the disinterested directors of the Company.

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock on the date of this Prospectus and as
adjusted to reflect the sale of the Common Stock offered hereby of (i) each
stockholder of the Company selling Common Stock in this Offering (a "Selling
Stockholder"), (ii) each person the Company knows to be the beneficial owner
of 5% or more of the outstanding shares of Common Stock, (iii) each executive
officer listed in the Summary Compensation Table, (iv) each director and
nominee for director of the Company and (v) all executive officers, directors
and nominees for director of the Company as a group, assuming, in each case,
the issuance of an estimated aggregate of 6,930,000 shares of Common Stock to
all participants in the Combination Transaction. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
the Company believes that each stockholder named in this table has sole
investment and voting power with respect to the shares set forth opposite such
stockholder's name.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES SHARES BENEFICIALLY
OWNED BEFORE THE BEING OWNED AFTER THE
OFFERING(1) OFFERED OFFERING(1)(2)
----------------- ------- -------------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER NUMBER PERCENT
- ---------------- --------- ------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
C.E. Miller(3).............. 1,415,234 20.42% -- 1,415,234 11.39%
Kelly E. Miller(4).......... 998,219 14.40% 100,002 898,217(5) 7.23%
David A. Miller(6).......... 883,945 12.76% 166,666 717,279 5.77%
3104 Logan Valley Road
Traverse City, Michigan
49685
Daniel R. Miller(7)......... 988,829 14.27% 166,666 822,163 6.61%
3104 Logan Valley Road
Traverse City, Michigan
49685
Sue Ellen Bell(8)........... 998,219 14.40% 166,666 831,553 6.69%
3104 Logan Valley Road
Traverse City, Michigan
49685
William J. Baumgartner...... -- -- -- -- (5) --
Lew P. Murray............... -- -- -- -- (5) --
Douglas A. Bell(9).......... 998,219 14.40% 166,666 831,553(5) 6.69%
Michael L. Calhoun.......... -- -- -- -- (5) --
Frank M. Burke, Jr.......... -- -- -- -- (5) --
Kenneth J. Foote............ 43,390 * -- 43,390(5) *
Dan A. Hughes, Jr.(10)...... 26,541 * -- 26,541(5) *
William Casey McManemin(11). 1,042,480 15.04% -- 1,042,480(5) 8.39%
SASI Minerals Company....... 1,042,480 15.04% -- 1,042,480 8.39%
1201 Market Street, Suite
1402
Wilmington, Delaware 19801
Executive Officers and
Directors
as a group................. 4,524,083 65.28% 266,668 4,257,415 34.25%
</TABLE>
- --------
* Less than 1%.

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<PAGE>

(1) The number of shares of Common Stock beneficially owned and percentage of
ownership are based on 6,930,000 shares outstanding as of the date of this
Prospectus, which represents an estimate of the number of shares of Common
Stock that is expected to be issued in the Combination Transaction.
Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes the sole or shared power to vote or dispose of
securities, regardless of having an economic interest in such securities.
(2) Assumes the issuance of 5,500,000 shares of Common Stock in the Offering
and no exercise of the Underwriters' over-allotment option.
(3) Includes 228,549 shares held by the Kelly E. Miller Retained Annuity Trust
#1, 228,549 shares held by the Daniel R. Miller Retained Annuity Trust #1,
342,823 shares held by the David A. Miller Retained Annuity Trust #1 and
228,549 shares held by the Sue Ellen Bell Retained Annuity Trust #1, with
respect to each of which C.E. Miller is the sole trustee. Also includes
264,199 shares held by Eagle and 122,565 shares held by Eagle
International, each of which is owned by a revocable trust of which C.E.
Miller is the sole trustee.
(4) Includes 914,195 shares held by the Kelly E. Miller Trust, a revocable
trust of which Kelly E. Miller is the sole trustee, and 84,024 shares held
by Miller and Miller, Inc., which is owned by a revocable trust of which
Kelly E. Miller is the sole trustee. Excludes 228,549 shares held by the
Kelly E. Miller Retained Annuity Trust #1, of which Kelly E. Miller's
father, C.E. Miller, is the sole trustee and of which Kelly E. Miller and
trusts for the benefit of his children are the beneficiaries.
(5) Excludes the following employee stock options and shares of restricted
stock expected to be issued concurrently with the consummation of the
Offering. See "Management--Executive Compensation--Employee Benefit
Plans."

<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME OPTIONS RESTRICTED STOCK
---- --------- ----------------
<S> <C> <C>
Kelly E. Miller................................. 330,000 60,000
William J. Baumgartner.......................... 100,000 22,500
Lew P. Murray................................... 100,000 15,000
Douglas A. Bell................................. 40,000 --
Michael L. Calhoun.............................. 25,000 2,000
Frank M. Burke, Jr. ............................ 10,000 --
Kenneth J. Foote................................ 10,000 --
Dan A. Hughes, Jr. ............................. 10,000 --
William Casey McManemin......................... 10,000 --
</TABLE>
(6) Includes 799,921 shares held by the David A. Miller Trust, a revocable
trust of which David A. Miller is the sole trustee, and 84,024 shares held
by Oak Shores Investments, Inc., which is owned by a revocable trust of
which David A. Miller is the sole trustee. Excludes 342,823 shares held by
the David A. Miller Retained Annuity Trust #1, of which David A. Miller's
father, C.E. Miller, is the sole trustee and of which David A. Miller and
trusts for the benefit of his children are the beneficiaries.
(7) Includes 914,195 shares held by the Daniel R. Miller Trust, a revocable
trust of which Daniel R. Miller is the sole trustee, and 74,634 shares
held by Double Diamond Enterprises, Inc., which is owned by a revocable
trust of which Daniel R. Miller is the sole trustee. Excludes 228,549
shares held by the Daniel R. Miller Retained Annuity Trust #1, of which
Daniel R. Miller's father, C.E. Miller, is the sole trustee and of which
Daniel R. Miller and trusts for the benefit of his children are the
beneficiaries.
(8) Includes 914,195 shares held by the Sue E. Bell Trust, a revocable trust
of which Sue E. Bell is the sole trustee, and 84,024 shares held by
Frontier Investments, Inc., which is owned by a revocable trust of which
Sue E. Bell is the sole trustee. Excludes 228,549 shares held by the Sue
Ellen Bell Retained Annuity Trust #1, of which Sue E. Bell's father, C.E.
Miller, is the sole trustee and of which Sue E. Bell and trusts for the
benefit of her children are the beneficiaries.

(9) Includes only those shares held by Mr. Bell's spouse, Sue Ellen Bell. Mr.
Bell disclaims beneficial ownership of these shares.

(10) Includes only those shares held by Hughes, of which Dan A. Hughes Jr. is
Exploration Manager and in which Mr. Hughes is a partner.

(11) Includes only those shares held by SASI Minerals Company. William
McManemin is an officer, director and shareholder of the Manager of SASI
Minerals Company and disclaims beneficial ownership of these shares.

63
<PAGE>

Kelly Miller, David Miller, Daniel Miller and Sue Bell, who are the sons and
daughter of C.E. Miller, the Chairman of the Board and a director of the
Company, have advised the Company that they have included a portion of their
shares of Common Stock in the shares being sold in this Offering to pay income
taxes and to repay certain business loans to C.E. Miller.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value $0.01 per share, and 2,000,000 shares of Preferred
Stock, $0.01 par value per share, issuable in one or more series by the Board
of Directors of the Company. Upon consummation of the Combination Transaction
and the Offering, 12,430,000 shares of Common Stock will be issued and
outstanding (13,345,000 shares if the Underwriters exercise their over-
allotment option in full), not including stock options for an aggregate of
885,000 shares of Common Stock and 109,500 restricted shares of Common Stock
that are expected to be granted to directors, officers and certain employees
of the Company in connection with the Offering.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to the stockholders. The Certificate of
Incorporation of the Company does not allow the stockholders to take written
action without a meeting by less than unanimous consent. Each share of Common
Stock is entitled to participate equally in dividends, if, as and when
declared by the Company's Board of Directors, and in the distribution of
assets in the event of liquidation, subject in all cases to any prior rights
of outstanding shares of Preferred Stock. In addition, the Delaware Law limits
the circumstances under which the Company can pay dividends or make other
distributions to its stockholders. The Company has never paid cash dividends
on its Common Stock. The shares of Common Stock have no preemptive or
conversion rights, redemption rights or sinking fund provisions. The shares of
Common Stock that will be issued upon the consummation of the Combination
Transaction and the Offering will be duly authorized, validly issued, fully
paid and nonassessable.

PREFERRED STOCK

The Board of Directors of the Company is authorized to issue, without
further stockholder approval, up to 2,000,000 shares of Preferred Stock from
time to time in one or more series and to fix such designations, powers,
preferences and relative voting, distribution, dividend, liquidation,
transfer, redemption, conversion and other rights, preferences,
qualifications, limitations or restrictions thereon. Any such Preferred Stock
could have priority over Common Stock as to dividends and as to the
distribution of the Company's assets upon any liquidation, dissolution or
winding up of the Company.

PROVISIONS AFFECTING CONTROL OF THE COMPANY

In addition to the control that will be vested in the existing stockholders
of the Company upon consummation of the Offering, the Company's Certificate of
Incorporation, Bylaws and other plans may affect control of the Company. See
"Risk Factors--Certain Antitakeover Considerations" and "--Control by Certain
Stockholders." The following provisions may have an antitakeover impact and
may make tender offers, proxy contests and certain mergers more difficult to
consummate.

Provisions Regarding the Board of Directors

Classified Board. The Company's Certificate of Incorporation classifies the
Company's Board of Directors into three classes serving staggered, three-year
terms. Classification of the Board of Director's could have the effect of
extending the time during which the existing Board of Directors could control
the operating policies of the Company even though opposed by the holders of a
majority of the outstanding shares of the Common Stock.

Nomination of Directors. Under the Company's Certificate of Incorporation,
all nominations for directors by stockholders are required to be delivered to
the Company in writing at least 120 days prior to the date of an

64
<PAGE>

annual meeting of stockholders or, in the case of a special meeting of
stockholders at which a director or directors would be elected, at least seven
days after the date of notice of the special meeting. A nomination that is not
received prior to these deadlines would not be placed on the ballot. The Board
of Directors believes that advance notice of nominations by stockholders would
afford a meaningful opportunity to consider the qualifications of the proposed
nominees and, to the extent deemed necessary or desirable by the Board of
Directors, would provide an opportunity to inform stockholders about such
qualifications. Although this nomination procedure would not give the Board of
Directors any power to approve or disapprove stockholder nominations for the
election of directors, the nomination procedure could have the effect of
precluding a nomination for the election of directors at a particular meeting
if the proper procedures were not followed. The Board of Directors of the
Company has adopted a policy providing that directors are expected to
maintain, directly or indirectly, a minimum investment in the Company of
approximately $100,000.

Removal of Directors. Under the Delaware Law, a director of a corporation
generally may be removed, with or without cause, by the holders of a majority
of the shares entitled to vote at an election of directors. However, unless
the corporation's certificate of incorporation provides otherwise, if the
corporation's board of directors is classified, directors may be removed only
for cause. Also, in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed
without cause if the votes cast against the director's removal would be
sufficient to elect the director if then cumulatively voted at an election of
the entire board of directors, or, if there are classes of directors, at any
election of the class of directors of which the director is a part. The
Company's Certificate of Incorporation provides that directors may be removed
only for cause. The Company's Certificate of Incorporation does not provide
for cumulative voting.

Under the Company's Certificate of Incorporation, subject to the rights of
any series of Preferred Stock then outstanding, any director could be removed
from office, but only for cause, and only by stockholder action. Generally,
the vote for removal would require the affirmative vote of a majority of
shares entitled to vote at an election of directors. "Cause" for removal could
only be present in the circumstances specified in the Company's Certificate of
Incorporation. "Cause" is present when: (i) the director whose removal is
proposed has been convicted of a felony by a court of competent jurisdiction
and such conviction is no longer subject to direct appeal; (ii) the director
has been adjudicated by a court of competent jurisdiction to be liable for
negligence, or misconduct, in the performance of such person's duty to the
Company in a matter of substantial importance to the Company and such
adjudication is no longer subject to a direct appeal; (iii) the director has
become mentally incompetent, whether or not so adjudicated, which mental
incompetency directly affects such person's ability as a director of the
Company; or (iv) the director's actions or failure to act have been in
derogation of the director's duties, as provided in the Company's Bylaws or
otherwise provided by law. Any proposal for removal pursuant to clauses (iii)
or (iv) above that is initiated by the Board of Directors for submission to
the stockholders would require the affirmative vote of at least two-thirds of
the total number of directors then in office, excluding the director who is
the subject of the removal action and who shall not be entitled to vote
thereon.

Qualification of Directors. Under Article VIII of the Company's Certificate
of Incorporation, no person who has asserted or asserts any "Claim" (defined
below) against the Company or any subsidiary (a "Plaintiff"), and no person
who is or becomes associated or affiliated with any Plaintiff (a "Related
Person"), would be eligible to be elected or to serve as a director until the
Claim is "Finally Resolved" (defined below). A director who is validly
nominated and elected as a director and who thereafter becomes a Plaintiff or
Related Person would continue as a director for the remainder of the term for
which the director was elected or until the director's resignation or removal.
A director who is or becomes a Plaintiff or a Related Person would be required
to either (i) promptly take all steps necessary to cause the director to be
neither a Plaintiff nor Related Person or (ii) if the director cannot do so
and the Claim has not been Finally Resolved within the "Resolution Period"
(defined below), resign as a director, effective immediately, at or before the
end of such Resolution Period.

A "Claim" means any claim, cross-claim, counterclaim or third-party claim
pled in any action, suit or proceeding before any court, governmental agency
or instrumentality, arbitrator or similar body or authority. However, certain
claims are excluded, including: (i) one which, when aggregated with all other
claims asserted

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by the Plaintiff or any Related Person of such Plaintiff against the Company
or any subsidiary that have not been Finally Resolved, could not, if decided
adversely to the Company or a subsidiary, along with all other aggregated
claims, cross-claims, counterclaims and third-party claims, result in
liability in excess of 10% of the consolidated current assets of the Company
as of the most recent quarter or render the Company insolvent; (ii) one
arising pursuant to a contract between the Company and the pertinent Plaintiff
or Related Person that was approved by a majority of the Continuing Directors
(as defined below), including without limitation, claims arising under any
indemnity or employment contract; and (iii) claims asserted in the right of
the Company (i.e., derivative actions).

The term "Finally Resolved" means that a final order has been rendered with
respect to the Claim and all available appeals from such order have been
exhausted or the time for seeking such review has expired. The term
"Resolution Period" means the 30-day period beginning on the earlier of (i)
the date on which a director of the Company notifies the Board that the
director has become a Plaintiff or Related Person or (ii) the date on which
the Board determines that a director has become a Plaintiff or Related Person.
However, the Board could (but would not be required to) extend a Resolution
Period by up to 15 days if the director establishes to the Board's
satisfaction a reasonable likelihood that the Claim would be Finally Resolved
or such director would cease to be both a Plaintiff and a Related Person
during that extra 15-day period.

The Board of Directors of the Company would not nominate any person for
election as a director unless (i) the prospective nominee has provided the
Board of Directors with (x) all information necessary or appropriate to enable
the Board to determine whether the nominee is a Plaintiff or a Related Person
and (y) a signed statement that the prospective nominee is not aware of any
reason not disclosed to the Board of Directors why the prospective nominee
would or might be considered a Plaintiff or Related Person and (ii) after
receipt of the items the Board determines that the prospective nominee is not
a Plaintiff or Related Person.

Any stockholder who is uncertain whether any person the stockholder desires
to nominate for election as a director is a Plaintiff or Related Person could
request a determination from the Board concerning that matter, upon delivering
to the Board of Directors certain information and other items and complying
with certain deadlines. Within 10 days after receiving a properly submitted
request (or, if it is impossible or impracticable to do so during such period,
as soon as practicable thereafter), the Board of Directors would be required
to consider the request and determine whether or not the candidate is a
Plaintiff or Related Person who could not be nominated for election to the
Board of Directors.

If a candidate who was the subject of a proper and timely submitted request
was determined not to be a Plaintiff or Related Person and the request was
submitted at least five days in advance of the last date on which the
requesting stockholder otherwise would have been entitled to give notice of
intent to nominate the candidate, then the Board of Director's determination
would operate as a waiver of the time limits otherwise applicable to the
giving of such notice of intent to the extent, if any, necessary to afford the
stockholder a period of five days after receipt of the Board of Director's
notice within which to give notice of intent to nominate the candidate.

If the Board of Directors determined that the candidate was a Plaintiff or
Related Person and the request was submitted at least five days in advance of
the last date on which the requesting stockholder otherwise would have been
entitled to give notice of intent to nominate, then the Board of Director's
determination would operate as a waiver of the time limits otherwise
applicable to the giving of notice of intent to nominate to the extent, if
any, necessary to afford the requesting stockholder a period of 15 days after
receipt of the Board of Director's notice within which to give notice of
intent to nominate another person in lieu of the ineligible candidate.

Whenever any stockholder was afforded an additional time period within which
to give notice of intention to nominate, the Board of Directors may afford the
other stockholders of the Company a comparable additional period of time
within which to give such notice.

While the Board of Directors believes that Article VIII of the Company's
Certificate of Incorporation ensures that directors and nominees for election
as directors will not have significant conflicts of interest with the Company,
Article VIII also may have the effect of making stockholder nominations of
director candidates more difficult.

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<PAGE>

Board Evaluation of Certain Offers

Article XI of the Company's Certificate of Incorporation provides that the
Board of Directors will not initiate, approve, adopt or recommend any offer of
any person or entity (other than the Company) to make a tender or exchange
offer for any Common Stock or Preferred Stock, to merge or consolidate the
Company with any other entity or to purchase or acquire all or substantially
all of the Company's assets, unless and until the Board of Directors of the
Company has evaluated the offer and determined that it would be in compliance
with all applicable laws and that the offer is in the best interests of the
Company and its stockholders. In doing so, the Board of Directors could rely
on an opinion of legal counsel who is independent from the offeror, and/or may
test the legality of the proposed offer before any court or agency that may
have appropriate jurisdiction over the matter.

In making its determination as to whether the transaction would be in the
best interests of the Company and its stockholders, the Board of Directors
would be required to consider all factors it deemed relevant, including but
not limited to: (i) the adequacy and fairness of the consideration to be
received by the Company and/or its stockholders, considering historical
trading prices of Common Stock, the price that could be achieved in a
negotiated sale of the Company as a whole, past offers to other corporations
and the future prospects of the Company; (ii) the possible social and economic
impact of the proposed transaction on the Company, its employees, customers
and suppliers; (iii) the potential social and economic impact of the proposed
transaction on the communities in which the Company and its subsidiaries
operate or are located; (iv) the business and financial condition and earnings
prospects of the offering party; (v) the competence, experience and integrity
of the offering party and its management; and (vi) the intentions of the
offering party regarding the use of the assets of the Company to finance the
transaction.

Supermajority Vote Provisions

The Company's Certificate of Incorporation contains "supermajority" vote
requirements for certain business combinations. Article X of the Certificate
of Incorporation provides that, in addition to any vote required by law or
other provisions of the Certificate of Incorporation, the affirmative vote of
not less than 80% of the outstanding shares of "voting stock" (which is
defined as all shares of the Company stock that are entitled to vote generally
in the election of directors, voting as a single class) would be required for
the approval of certain "business combinations" between the Company or a
subsidiary and any "interested stockholder."

A "business combination" is generally defined for purposes of Article X as
including mergers, sales of all or substantially all of the assets of the
Company and certain other transactions. An "interested stockholder" is defined
as a person (other than the Company, its majority-owned subsidiaries or their
employee benefit plans), who, alone or together with affiliated persons,
beneficially owns 10% or more of the voting stock of the Company, as well as
certain other persons that are affiliated with an interested stockholder.

These requirements would not apply when the transaction was approved by a
majority of the "continuing directors," which are directors who are not
affiliated with an interested stockholder and who were either (i) elected to
the Board of Directors of the Company prior to the time that the interested
stockholder became an interested stockholder or (ii) designated, before their
initial election as directors, as continuing directors by a majority of the
then-continuing directors. The term excludes, however, certain persons who
became directors as a result of election contests within the meaning of Rule
14a-11 under the Securities Exchange Act of 1934, as amended, or other types
of proxy solicitations.

In addition, Article XII of the Certificate of Incorporation provides that,
in addition to any vote required by law or other provisions of the Certificate
of Incorporation, the affirmative vote of at least 80% of the shares held by
persons who are not interested stockholders (as defined in Article X) would be
required to approve business combinations (as defined in Article X) of the
Company or a majority owned subsidiary with any interested stockholder. This
requirement would not apply if (i) the business combination was approved by a
majority of the continuing directors (as defined in Article X) or (ii) certain
other detailed conditions are satisfied.

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Restrictions on Amendments to Certificate of Incorporation and Bylaws of the
Company

Several provisions of the Company's Certificate of Incorporation require a
greater-than-majority vote to be amended. Specifically, Article XV(A) provides
that no amendment to the Certificate of Incorporation may alter, modify or
repeal any or all of the provisions of Article XII (supermajority vote/fair
price requirement for certain business combinations) or Article XV(A), unless
the amendment is adopted by the affirmative vote of not less than 80% of the
outstanding shares of voting stock held by stockholders who are not interested
stockholders.

Also, Article XV(B) of the Company's Certificate of Incorporation provides
that no amendment may alter, modify or repeal any or all of the provisions of
Articles VII (powers of the Board of Directors), VIII (Board of Directors
classification, nomination, qualification, etc.), X (supermajority vote
required for certain business combinations), XI (non-stockholder constituency
provision) or XIII (limitation of certain director liability), and the
stockholders would not have the right to alter, modify or repeal any or all
provisions of the Company's Bylaws, unless such amendment, alteration,
modification or repeal is adopted by the affirmative vote of the holders of
not less than 80% of the outstanding shares of voting stock. However, the
provisions of Article XV(B) would not apply to, and such 80% vote would not be
required for, any amendment, alteration, modification or repeal which has
first been approved by (i) the affirmative vote of 80% of the entire Board of
Directors, including the affirmative vote of at least one director of each
class of the Board of Directors and (ii) the affirmative vote of two-thirds of
the continuing directors.

Delaware Law Provisions

The Company is a Delaware corporation and is subject to Section 203 of the
Delaware Law. Generally, Section 203 prohibits the Company from engaging in a
"business combination" (as defined in Section 203 of the Delaware Law) with an
"interested stockholder" (defined generally as a person owning 15% or more of
the Company's outstanding voting stock) for three years following the date
that person becomes an interested stockholder, unless (i) before that person
became an interested stockholder, the Company's Board of Directors either
approved the transaction which resulted in the stockholder becoming an
interested stockholder or approved the business combination; (ii) upon
completion of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock outstanding at the time the transaction commenced (excluding
stock held by directors who are also officers of the Company and by employee
stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) following the transaction in which that
person became an interested stockholder, the business combination is approved
by the Company's Board of Directors and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least two-thirds of
the outstanding voting stock not owned by the interested stockholder.

Section 203 restrictions also do not apply to certain business combinations
proposed prior to the consummation or abandonment of and subsequent to the
announcement or notification of one of certain extraordinary transactions
involving the Company and a person who was either not an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of the Company's Board of Directors. The
extraordinary transaction must be approved or not opposed by a majority of the
Board of Directors who were directors before any person became an interested
stockholder in the previous three years or who were recommended for election
or elected to succeed such directors by a majority of such directors then in
office.

REGISTRATION RIGHTS OF CERTAIN STOCKHOLDERS

The Company has agreed that upon consummation of the Combination Transaction
it will enter into a Registration Rights Agreement with the persons receiving
shares of Common Stock in such transaction. The Company expects approximately
6,930,000 shares of Common Stock to be issued in the Combination Transaction.
The actual number of shares of Common Stock issued to the participants in the
Combination Transaction will be determined on the basis of the initial public
offering price of the Common Stock. The

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Registration Rights Agreement will provide these persons piggyback
registration rights with respect to such shares ("Registrable Securities"). As
a result, in the event that the Company proposes to register under the
Securities Act any of its securities for its own account, these stockholders,
subject to certain exceptions, will have the right to require the Company to
include their Registrable Securities in the registration.

In an underwritten offering, the Company may exclude a portion of the
Registrable Securities to be registered pursuant to the piggyback registration
rights on the written advice of the managing underwriter that marketing
factors require a limitation on the number of such shares to be included in
the offering. However, in no event may the value of the Registrable Securities
to be included in such registration be reduced to less than 10% of the total
value of securities included in the registration.

The Registration Rights Agreement contains customary indemnity by the
Company in favor of persons selling securities in a registration governed by
the Registration Rights Agreement, and by those persons in favor of the
Company and the underwriters, if any, relating to the information included in
or omitted from the applicable registration statement. The registration rights
will terminate as to any holder of Registrable Securities at the later of (i)
one year after the closing of the Offering or (ii) at such time as such holder
may sell under Rule 144 in a three-month period all Registrable Securities
then held by such holder.

Registration of shares under the Securities Act would result in such shares
becoming freely tradeable without restriction under the Securities Act (except
for shares purchased by affiliates of the Company) immediately upon the
effectiveness of such registration.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Combination Transaction and the Offering, the
Company will have 12,430,000 shares of Common Stock outstanding (13,345,000
shares if the Underwriters exercise their over-allotment option in full),
assuming that 6,930,000 shares are issued in the Combination Transaction. The
actual number of shares of Common Stock issued to the participants in the
Combination Transaction will be determined on the basis of the initial public
offering price of the Common Stock. Of the 12,430,000 shares expected to be
outstanding, the shares of Common Stock offered hereby will be freely
transferable without restriction under the Securities Act unless they are held
by the Company's affiliates, as that term is used in Rule 144 under the
Securities Act. The Company issued the remaining outstanding shares of Common
Stock in reliance on exemptions from the registration requirements of the
Securities Act, and these shares are "restricted" securities under Rule 144.
These restricted shares may not be sold publicly unless they are registered
under the Securities Act, sold in compliance with Rule 144 or sold in a
transaction that is exempt from registration. The Company believes that the
earliest date on which these restricted shares will be eligible for sale under
Rule 144 is one year after the consummation of the Combination Transaction.
Therefore, no such shares will be eligible for immediate sale in the public
market without registration, and no shares will be eligible for sale under the
volume and other limitations of Rule 144 until the expiration of that one-year
period, at which time all of the shares of Common Stock currently outstanding
will become eligible for sale under Rule 144, based on current SEC rules and
subject to compliance with the volume limitations, manner of sale and other
requirements of Rule 144. Beginning two years after the consummation of the
Combination Transaction, all of those shares of Common Stock will become
eligible for sale under Rule 144(k) without regard to volume limitations,
manner of sale and other requirements of Rule 144, if they are not held by
affiliates of the Company. Shares of Common Stock received by the Selling
Stockholders in the Combination Transaction being offered hereby will not be
restricted securities under Rule 144.

In general, under Rule 144 a person (or persons whose sales are aggregated),
including an affiliate, who beneficially owns shares that have been
outstanding for at least one year is entitled to sell in broker transactions,

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within any three-month period, a number of shares that does not exceed the
greater of (i) 1% of the then outstanding Common Stock (approximately
12,430,000 shares immediately after the Offering, assuming that 6,930,000
shares are issued in the Combination Transaction and no exercise of the
Underwriters' over-allotment option) or (ii) the average weekly trading volume
in the Common Stock during the four calendar weeks preceding the sale, subject
to the filing of a Form 144 with respect to the sale and other limitations. In
addition, except for affiliates and persons who acquired shares from
affiliates within the two preceding years, a person who beneficially owns
shares that have been outstanding for at least two years is entitled to sell
such shares under Rule 144(k) without regard to the manner-of-sale, volume and
other limitations of Rule 144. All shares of Common Stock, other than those
offered hereby, are subject to lock-up agreements with the Underwriters for
180 days after the date of this Prospectus. See "Underwriting."

Persons receiving shares of Common Stock in the Combination Transaction will
be entitled to certain piggyback registration rights with respect to such
shares under the Registration Rights Agreement. See "Description of Capital
Stock--Registration Rights of Certain Stockholders."

Prior to the Offering, there has been no public market for the securities of
the Company. No prediction can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial numbers
of shares by persons acquiring shares in the Combination Transaction or the
Offering could have a negative effect on the market price of the Common Stock.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
Bear, Stearns & Co. Inc., Raymond James & Associates, Inc. and Stephens Inc.
(the "Representatives"), severally have agreed to purchase from the Company
and the Selling Stockholders the aggregate number of shares of Common Stock
set forth opposite their names below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc.........................................
Raymond James & Associates, Inc.................................
Stephens Inc....................................................
---------
Total....................................................... 6,100,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to the approval of certain legal matters by their
counsel and to various other conditions. The nature of the obligations of the
Underwriters is such that they are committed to purchase all of the shares of
Common Stock offered hereby if any are purchased.

The Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus, and at such price less a concession not in excess of $ per share
of Common Stock to certain other dealers who are members of the National
Association of Securities Dealers, Inc. The Underwriters may allow, and such
dealers may reallow, concessions not in excess of $ per share to certain
other dealers. After the Offering, the offering price, concessions and other
selling terms may be changed by the Underwriters. The Common Stock is offered
subject to receipt and acceptance by the Underwriters and to certain other
conditions, including the right to reject orders in whole or in part.

The Company has granted a 30-day over-allotment option to the Underwriters
to purchase up to an aggregate of 915,000 additional shares of Common Stock of
the Company exercisable at the public offering price less the underwriting
discount. If the Underwriters exercise such over-allotment option, then each
of the

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Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in
the above table. All Common Stock sold to the Underwriters upon exercise of
their over-allotment option will be sold by the Company. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of the shares of Common Stock offered hereby. The underwriting agreement
provides that the Company and the Selling Stockholders will indemnify the
Underwriters against certain liabilities under the Securities Act or will
contribute to payments that the Underwriters may be required to make in
respect thereof.

The persons receiving shares of Common Stock in the Combination Transaction
have agreed pursuant to lock-up agreements not to sell or offer to sell or
otherwise dispose of any shares of Common Stock currently held by them, any
right to acquire any shares of Common Stock or any securities exercisable for
or convertible into any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Bear, Stearns
& Co. Inc., other than as gifts, intrafamily transfers, transfers for estate
planning purposes, transfers by will or the laws of descent and distribution
or sales to the Company.

In addition, the Company has agreed that for a period of 180 days after the
date of this Prospectus it will not, without the prior written consent of
Bear, Stearns & Co. Inc., offer, sell or otherwise dispose of any shares of
Common Stock except for shares of Common Stock offered hereby, shares issued
and options granted pursuant to the 1997 Stock Option Plan and shares issued
or to be issued in acquisitions, if any.

Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial offering price for the Common Stock
will be determined by negotiations between the Company and the Representatives
of the Underwriters. Among the factors to be considered in such negotiations
are the results of operations of the Company in recent periods, estimates of
the prospects of the Company and the industry in which the Company competes,
an assessment of the Company's management, the general state of the securities
markets at the time of the offering and the prices of similar securities of
generally comparable companies. The Common Stock has been approved for
inclusion on the Nasdaq Stock Market's National Market under the symbol
"MEXP." There can be no assurance, however, that an active or orderly trading
market will develop for the Common Stock or that the Common Stock will trade
in the public markets subsequent to the offering at or above the initial
offering price.

In order to facilitate the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the Offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company. The Underwriters may elect to cover any such short position by
purchasing shares of Common Stock in the open market or by exercising the
over-allotment option granted to the Underwriters. In addition, the
Underwriters may stabilize or maintain the price of the Common Stock by
bidding for or purchasing shares of Common Stock in the open market and may
impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in the Offering are reclaimed if
shares of Common Stock previously distributed in the Offering are repurchased
in connection with stabilization transactions or otherwise. The effect of
these transactions may be to stabilize or maintain the market price of the
Common Stock at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid also may affect the price of the
Common Stock to the extent that it discourages resales thereof. No
representation is made as to the magnitude or effect of any such stabilization
or other transactions. Such transactions may be effected on the Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any
time.

LEGAL MATTERS

Certain legal matters in connection with the Common Stock being offered
hereby will be passed upon for the Company by Warner Norcross & Judd LLP,
Grand Rapids, Michigan. Certain legal matters will be passed upon for the
Underwriters by Vinson & Elkins L.L.P., Houston, Texas.

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EXPERTS

The Combined Financial Statements as of December 31, 1995 and 1996 and for
each of the three years in the period ended December 31, 1996 and the
historical statements of revenues and direct operating expenses of the
Acquired Properties for each of the three years in the period ended December
31, 1996, all included in this Prospectus have been audited by Arthur Andersen
LLP, independent public accountants, as stated in their reports with respect
thereto and are all included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.

Summaries of the reserve reports of S.A. Holditch & Associates, independent
oil and gas consultants, with respect to the Company's Michigan oil and
natural gas reserves at December 31, 1996 and September 30, 1997, and of the
reserve reports of Miller and Lents, Ltd., independent oil and gas
consultants, with respect to the Company's non-Michigan oil and natural gas
reserves at December 31, 1996 and September 30, 1997, and certain information
with respect to the Company's oil and natural gas reserves derived from such
reports have been included in this Prospectus in reliance upon those firms as
experts with respect to the matters contained in those reports.

AVAILABLE INFORMATION

The Company has filed with the SEC a Registration Statement on Form S-1 (as
amended and together with all exhibits thereto, the "Registration Statement")
under the Securities Act, with respect to the shares of Common Stock offered
by this Prospectus. This Prospectus constitutes a part of the Registration
Statement and does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted from this
Prospectus as permitted by the rules and regulations of the SEC. Statements in
this Prospectus about the contents of any contract or other document are not
necessarily complete; reference is made in each instance to the copy of the
contract or other document filed as an exhibit to the Registration Statement.
Each such statement is qualified in all respects by such reference. The
Registration Statement and accompanying exhibits and schedules may by
inspected and copies may be obtained (at prescribed rates) at the public
reference facilities of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. Copies of the Registration Statement also
may be inspected at the SEC's regional offices at 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. In addition, the Common Stock will
be listed on the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006-1500, where such material also may be inspected and copied.

As a result of the Offering, the Company will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, as amended, and, in accordance therewith, will file periodic reports,
proxy statements and other information with the SEC. Such periodic reports,
proxy statements and other information will be available for inspection and
copying at the public reference facilities and regional offices referred to
above. In addition, these reports, proxy statements and other information also
may be obtained from the web site that the SEC maintains at
http://www.sec.gov.

The Company intends to furnish its stockholders annual reports containing
consolidated financial statements certified by its independent auditors and
quarterly reports for each of the first three quarters of each fiscal year
containing unaudited financial information.

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GLOSSARY OF CERTAIN OIL AND GAS TERMS

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

Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used in
reference to oil or other liquid hydrocarbons.

Bbl/d. One stock tank barrel of oil or other liquid hydrocarbons per day.

Bcfe. One billion cubic feet of natural gas equivalent. In reference to
natural gas, natural gas equivalents are determined using the ratio of 6.0 Mcf
of natural gas to 1.0 Bbl of oil, condensate of natural gas liquids.

Completion. The installation of permanent equipment for the production of
oil or natural gas.

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 natural
gas reservoir to the depth of a stratigraphic horizon known to be productive.

Drilling Costs. The costs associated with drilling and completing a well
(exclusive of seismic and land acquisition costs for that well and future
development costs associated with proved undeveloped reserves added by the
well) divided by total proved reserve additions.

Dry Well. A well found to be incapable of producing either oil or natural
gas in sufficient quantities to justify completion of an oil or natural gas
well.

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

Farm-in or Farm-out. An agreement under which the owner of a working
interest in an oil and natural gas lease assigns the working interest or a
portion thereof to another party who desires to drill on the leased acreage.
The assignor usually retains a royalty or reversionary interest in the lease.
The interest received by an assignee is a "farm-in" while the interest in the
lease transferred by the assignor is a "farm-out."

Finding and Development Costs. Capital costs incurred in the acquisition,
exploration and development of proved oil and natural gas reserves divided by
proved reserve additions.

Gross Acres or Gross Wells. The total acres or wells, as the case may be, in
which the Company has a working interest.

MBbl. One thousand barrels of oil or other liquid hydrocarbons.

Mcf. One thousand cubic feet of natural gas.

Mcfe. One thousand cubic feet of natural gas equivalent.

MMcf. One million cubic feet of natural gas.

MMcf/d. One million cubic feet of natural gas per day.

MMcfe. One million cubic feet of natural gas equivalent.

MMcfe/d. One million cubic feet of natural gas equivalent per day.

Net Acres or Net Wells. Gross acres or wells multiplied, in each case, by
the percentage working interest owned by the Company.

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Net Production. Production that is owned by the Company less royalties and
production due others.

Oil. Crude oil or condensate.

Operating Income. Gross oil and natural gas revenue less applicable
production taxes and lease operating expenses.

Operator. The individual or company responsible for the exploration,
development and production of an oil or natural gas well or lease.

Present Value of Future Net Revenues or PV-10. The pretax present value of
estimated future revenues to be generated from the production of proved
reserves calculated in accordance with SEC guidelines, net of estimated
production and future development costs, using prices and costs as of the date
of estimation without future escalation, without giving effect to non-property
related expenses such as general and administrative expenses, debt service and
depreciation, depletion and amortization, and discounted using an annual
discount rate of 10%.

Proved Developed Reserves. Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.

Proved Reserves. The estimated quantities of 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.

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

Salt Dome. A generally dome-shaped intrusion into sedimentary rock that has
a mass of salt as its core. The impermeable nature of the salt structure may
act as a mechanism to trap hydrocarbons migrating through surrounding rock
formations.

Success Rate. The number of wells completed as a percentage of the number of
wells drilled.

2-D Seismic. The method by which a cross-section of the earth's subsurface
is created through the interpretation of reflecting seismic data collected
along a single source profile.

3-D Seismic. The method by which a three dimensional image of the earth's
subsurface is created through the interpretation of reflection seismic data
collected over a surface grid. 3-D seismic surveys allow for a more detailed
understanding of the subsurface than do conventional surveys and contribute
significantly to field appraisal, development and production.

Working Interest. An interest in an oil and natural gas lease that gives the
owner of the interest the right to drill for and produce oil and natural gas
on the leased acreage and requires the owner to pay a share of the costs of
drilling and production operations.

74
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMBINED FINANCIAL STATEMENTS OF MILLER EXPLORATION COMPANY AND AFFILIATED
ENTITIES
Report of Independent Public Accountants................................ F-2
Combined Balance Sheets as of December 31, 1995 and 1996, and September
30, 1997 (Unaudited)................................................... F-3
Combined Statements of Operations for the Years Ended December 31, 1994,
1995 and 1996 and for the Nine Months Ended September 30, 1996
(unaudited) and 1997 (unaudited)....................................... F-4
Combined Statements of Equity for the Years Ended December 31, 1994,
1995 and 1996 and for the Nine Months Ended September 30, 1997
(unaudited)............................................................ F-5
Combined Statements of Cash Flows for the Years Ended December 31, 1994,
1995 and 1996 and for the Nine Months Ended September 30, 1996
(unaudited) and 1997 (unaudited)....................................... F-6
Notes to Combined Financial Statements.................................. F-7
STATEMENTS OF THE MILLER EXPLORATION COMPANY ACQUIRED PROPERTIES:
Report of Independent Public Accountants................................ F-18
Historical Statements of Revenues and Direct Operating Expenses for the
Years Ended December 31, 1994, 1995 and 1996 and for the Nine Months
Ended September 30, 1996 (unaudited) and 1997 (unaudited).............. F-19
Notes to Historical Statements of Revenues and Direct Operating
Expenses............................................................... F-20
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Miller Exploration Company:

We have audited the accompanying combined balance sheets of MILLER
EXPLORATION COMPANY (a Delaware corporation) and affiliated entities
identified in Note 1 (collectively, the "Company") as of December 31, 1995 and
1996, and the related combined statements of operations, equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

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

/s/ ARTHUR ANDERSEN LLP

Detroit, Michigan
October 10, 1997 (except
with respect to certain
matters discussed in Note 15
to the combined financial
statements as to which the
date is December 4, 1997)

F-2
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................ $ 180 $ 410 $ 107
Accounts receivable...................... 1,236 2,246 2,253
Inventories.............................. 55 47 47
Prepaid expenses......................... 56 66 36
Other current assets..................... 27 385 186
--------- --------- -------
Total current assets................... 1,554 3,154 2,629
--------- --------- -------
OIL AND GAS PROPERTIES--at cost (full cost
method):
Proved oil and gas properties............ 23,666 27,883 30,720
Unproved oil and gas properties.......... 1,453 2,811 2,284
Less-Accumulated depreciation, depletion
and amortization........................ (7,388) (9,962) (11,841)
--------- --------- -------
Net oil and gas properties............. 17,731 20,732 21,163
--------- --------- -------
PROPERTY AND EQUIPMENT--NET................ 720 164 201
--------- --------- -------
Total assets........................... $ 20,005 $ 24,050 $23,993
========= ========= =======
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable............................ $ 2,158 $ 3,942 $ 4,515
Current portion of long-term debt........ -- 216 238
Accounts payable......................... 815 891 743
Accounts payable--related parties........ 42 218 135
Oil and gas distributions payable........ 233 307 256
Accrued interest......................... 206 223 202
Other accrued expenses................... 80 39 6
--------- --------- -------
Total current liabilities.............. 3,534 5,836 6,095
--------- --------- -------
LONG-TERM DEBT............................. 7,643 8,723 8,186
DEFERRED REVENUE........................... 1,418 1,722 1,680
COMMITMENTS AND CONTINGENCIES (NOTE 7)
EQUITY:
Preferred stock, $0.01 par value;
2,000,000 shares authorized; none
outstanding............................. -- -- --
Common stock, $0.01 par value; 20,000,000
shares authorized; none outstanding..... -- -- --
Combined equity.......................... 141 72 197
Retained earnings........................ 7,269 7,697 7,835
--------- --------- -------
Total equity........................... 7,410 7,769 8,032
--------- --------- -------
Total liabilities and equity........... $ 20,005 $ 24,050 $23,993
========= ========= =======
</TABLE>

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

F-3
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR MONTHS ENDED
ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ --------------
1994 1995 1996 1996 1997
------ ------- ------- ------ ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Natural gas........................ $2,424 $ 2,748 $ 5,614 $3,719 $4,329
Crude oil and condensate........... 672 715 1,101 854 710
Other operating revenues........... 167 296 395 355 492
------ ------- ------- ------ ------
Total operating revenues......... 3,263 3,759 7,110 4,928 5,531
------ ------- ------- ------ ------
OPERATING EXPENSES:
Lease operating expenses and
production taxes.................. 811 777 1,123 753 917
Depreciation, depletion and
amortization...................... 1,009 1,666 2,629 1,826 2,019
General and administrative......... 1,200 1,270 1,591 1,002 1,335
------ ------- ------- ------ ------
Total operating expenses......... 3,020 3,713 5,343 3,581 4,271
------ ------- ------- ------ ------
OPERATING INCOME..................... 243 46 1,767 1,347 1,260
------ ------- ------- ------ ------
INTEREST EXPENSE..................... (810) (1,017) (1,139) (789) (922)
------ ------- ------- ------ ------
LAWSUIT SETTLEMENT................... -- 3,521 -- -- --
------ ------- ------- ------ ------
NET INCOME (LOSS).................... $ (567) $ 2,550 $ 628 $ 558 $ 338
====== ======= ======= ====== ======
</TABLE>

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

F-4
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

COMBINED STATEMENTS OF EQUITY

<TABLE>
<CAPTION>
COMBINED RETAINED TOTAL
EQUITY EARNINGS EQUITY
-------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE--January 1, 1994 $ 301 $6,486 $6,787
Contributions and return of capital, net........... (24) -- (24)
Net loss........................................... -- (567) (567)
Dividends declared................................. -- (600) (600)
----- ------ ------
BALANCE--December 31, 1994........................... 277 5,319 5,596
Contributions and return of capital, net........... (136) -- (136)
Net income......................................... -- 2,550 2,550
Dividends declared................................. -- (600) (600)
----- ------ ------
BALANCE--December 31, 1995........................... 141 7,269 7,410
Contributions and return of capital, net........... (69) -- (69)
Net income......................................... -- 628 628
Dividends declared................................. -- (200) (200)
----- ------ ------
BALANCE--December 31, 1996........................... 72 7,697 7,769
Contributions and return of capital, net
(unaudited)....................................... 125 -- 125
Net income (unaudited)............................. -- 338 338
Dividends declared (unaudited)..................... -- (200) (200)
----- ------ ------
BALANCE--September 30, 1997 (Unaudited).............. $ 197 $7,835 $8,032
===== ====== ======
</TABLE>

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

F-5
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- --------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................ $ (567) $2,550 $ 628 $ 558 $ 338
Adjustments to reconcile net
income (loss) to net cash from
operating activities--
Depreciation, depletion and
amortization.................. 1,009 1,666 2,629 1,826 2,019
Deferred revenue............... -- (21) (27) (19) (42)
Lawsuit settlement............. -- (3,521) -- -- --
Changes in assets and
liabilities--
Accounts receivable.......... 1,250 (200) (1,010) (495) (7)
Other current assets......... 324 67 (360) (304) 229
Accounts payable............. (145) (60) 252 55 (231)
Oil and gas distributions
payable..................... (113) 20 74 65 (51)
Other accrued expenses....... (38) 10 (24) 226 (54)
------ ------ ------ ------ ------
Net cash flows provided by
operating activities...... 1,720 511 2,162 1,912 2,201
------ ------ ------ ------ ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Exploration and development
expenditures.................... (4,528) (6,323) (6,184) (4,614) (5,166)
Advance payment of natural gas
sales........................... -- 1,439 185 -- --
Proceeds from sale of oil and gas
properties and purchases of
equipment, net.................. 3,378 1,212 1,256 775 2,679
Proceeds from lawsuit settlement. -- 3,521 -- -- --
------ ------ ------ ------ ------
Net cash flows used in
investing activities...... (1,150) (151) (4,743) (3,839) (2,487)
------ ------ ------ ------ ------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments of principal............ -- -- (55) -- (514)
Net borrowing on line-of-credit.. 229 359 2,785 1,860 572
Long-term debt borrowing......... -- -- 350 -- --
Contributions and return of
capital, net.................... (24) (136) (69) 175 125
Payments of dividends............ (600) (600) (200) (200) (200)
------ ------ ------ ------ ------
Net cash flows provided by
(used in) financing
activities................ (395) (377) 2,811 1,835 (17)
------ ------ ------ ------ ------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. 175 (17) 230 (92) (303)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD........... 22 197 180 180 410
------ ------ ------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF
THE PERIOD........................ $ 197 $ 180 $ 410 $ 88 $ 107
====== ====== ====== ====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest....................... $ 770 $1,005 $1,122 $ 798 $ 943
====== ====== ====== ====== ======
</TABLE>

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

F-6
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS

(1) ORGANIZATION, COMBINATION AND NATURE OF OPERATIONS

The Combination

Miller Exploration Company ("Miller") was recently formed as a Delaware
corporation to serve as the surviving company upon the completion of a series
of combination transactions (the "Combination"). The Combination includes the
following transactions: Miller will acquire all of the outstanding capital
stock of Miller Oil Corporation ("MOC") and certain oil and gas interests
owned by Miller & Miller, Inc., Double Diamond Enterprises, Inc., Frontier
Investments, Inc., Oak Shores Investments, Inc., Eagle Investments, Inc.
(d/b/a Victory, Inc.) and Eagle International, Inc. (all Michigan corporations
owned by the Miller family members who are beneficial owners of MOC) in
exchange for an aggregate consideration of approximately 5.3 million shares of
common stock of Miller (the "Common Stock"). Miller plans to complete the
Combination concurrently with the consummation of an initial public offering
of its Common Stock (see Note 15). The operations of all of these entities
have been managed through the same management team, and have been owned by the
same members of the Miller family.

Principles of Combination

The accompanying combined financial statements include the accounts of
Miller, MOC and the other affiliated entities described above, all of which
share common ownership and management (collectively, the Company). Upon
completion of the transactions described above, the Combination will be
accounted for as a reorganization of entities under common control in a manner
similar to a pooling-of-interests, as prescribed by Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin No. 47 because of the high degree
of common ownership among, and the common control of, the combined entities.
Accordingly, the accompanying combined accounts have been prepared using the
historical costs and results of operations of the affiliated entities. There
were no differences in accounting methods or their application among the
combining entities. All intercompany balances have been eliminated.

Other Transactions Completed Concurrently With the Initial Public Offering

In addition to the above combined activities of the Company, concurrently
with the initial public offering, the Company will exchange an aggregate of
approximately 1.6 million shares of Common Stock for interests in certain
other oil and gas properties that are currently owned by non-affiliated
parties. Because these interests will be acquired from individuals who are not
under the common ownership and management of the Company, these exchanges will
be accounted for under the purchase method of accounting. Under that method,
the properties will be recorded at their estimated fair value at the date on
which the exchange is consummated. The combined financial statements do not
include the activities of these non-affiliated interests.

Nature of Operations

The Company is a domestic, independent energy company engaged in the
exploration, development and production of crude oil and natural gas. The
Company has established exploration efforts concentrated primarily in three
provinces: the Mississippi Salt Basin of central Mississippi; the onshore Gulf
Coast region of Texas and Louisiana; and the Michigan Basin.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Oil and Gas Properties

The Company follows the full cost method of accounting and capitalizes all
costs related to its exploration and development program, including the cost
of nonproductive drilling and surrendered acreage. Such capitalized costs
include lease acquisition, geological and geophysical work, delay rentals,
drilling, completing and equipping oil and gas wells, together with internal
costs directly attributable to property acquisition, exploration

F-7
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

and development activities. The capitalized costs are amortized on an overall
unit-of-production method based on total estimated proved oil and gas
reserves. Additionally, certain costs associated with major development
projects and all costs of unevaluated leases are excluded from the depletion
base until reserves associated with the projects are proved or until
impairment occurs.

To the extent that capitalized costs (net of accumulated depreciation,
depletion and amortization) exceed the sum of discounted estimated future net
cash flows from proved oil and gas reserves (using unescalated prices and
costs and a 10% per annum discount rate) and the lower of cost or market value
of unproved properties, such excess costs are charged against earnings. The
Company did not have any such charges against earnings during the years ended
December 31, 1994, 1995 or 1996 or during the nine months ended September 30,
1997.

Interim Financial Data (Unaudited)

The combined financial statements and related information as of and for the
nine months ended September 30, 1996 and 1997 included herein are unaudited
and, in the opinion of management, reflect all adjustments (consisting of only
recurring adjustments) necessary for a fair presentation of financial
position, results of operations and cash flows.

These unaudited combined financial statements should be read in conjunction
with the Company's combined financial statements as of and for the year ended
December 31, 1996. The results of operations for the nine months ended
September 30, 1996 and 1997 are not necessarily indicative of operating
results for a full year. Additionally, all other financial statement
information contained in the Notes to Combined Financial Statements, which
occurred subsequent to December 31, 1996, is unaudited.

Income Taxes

The Company and the combined affiliated entities have either elected to be
treated as S corporations under the Internal Revenue Code or are otherwise not
taxed as entities for federal income tax purposes. The taxable income or loss
is therefore allocated to the equity owners of the Company and the combined
affiliated entities. Accordingly, no provision was made for income taxes in
the accompanying combined financial statements.

Due to the use of different methods for tax and financial reporting purposes
in accounting for various transactions, including intangible drilling costs
and geological and geophysical costs, and for the sale of oil and gas
properties, the Company has temporary differences between its tax basis and
financial reporting basis. Had the Company been a taxpaying entity, a deferred
tax liability of approximately $5.9 million, $5.8 million and $5.5 million at
December 31, 1995 and 1996, and September 30, 1997, respectively, would have
been recorded for this difference, with a corresponding reduction in retained
earnings. Additionally, had the Company been a taxpaying entity, an income tax
provision (credit) of approximately $830,000, $(10,000) and $(60,000) would
have been recorded for the years ended December 31, 1995 and 1996 and for the
nine months ended September 30, 1997, respectively.

Financial Instruments

The fair value of short-term financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximate their carrying amounts in the financial statements due to the
short maturity of such instruments.

F-8
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

The fair value of notes payable and long-term debt approximate their
carrying amounts in the financial statements as the individual borrowings bear
interest at floating market interest rates.

Revenue Recognition

Crude oil and natural gas revenues are recognized as production takes place
and the sale is completed and the risk of loss transfers to a third party
purchaser.

Inventories

Inventories consist of oil field casing utilized in the Company's
exploration activities. Inventories are valued at the lower of cost (first-in,
first-out method) or market.

Cash and Cash Equivalents

Cash and cash equivalents are comprised of cash and U.S. Government
Securities with original maturities of three months or less.

Hedging Activities

Beginning in 1997, the Company began to periodically enter into hedging
arrangements to manage price risks related to crude oil and natural gas sales
and not for speculative purposes. The Company's hedging arrangements apply
only to a portion of its production, provide only partial price protection
against declines in crude oil and natural gas prices and limit potential gains
from future increases in prices. For financial reporting purposes, gains and
losses related to hedging are recognized as income when the hedged transaction
occurs. Historically, gains and losses from hedging activities have not been
material. During 1994, 1995 and 1996, the Company did not hedge any of its
crude oil or natural gas production. As of September 30, 1997, the Company had
the following volumes of open natural gas contracts:

<TABLE>
<CAPTION>
VOLUME
PRODUCTION PERIOD (MMCF) PRICE/MCF
----------------- ------ ---------
<S> <C> <C>
October 1997............................................. 51.0 $2.45
November 1997............................................ 44.3 2.90
December 1997............................................ 26.6 2.92
January 1998............................................. 8.9 2.98
February 1998............................................ 8.9 2.71
March 1998............................................... 8.9 2.48
</TABLE>

Net Income (Loss) Per Share

Net income (loss) per share has been omitted from the combined statements of
operations since such information is not meaningful and the historically
combined Company is not a separate legal entity with a singular capital
structure. Pro forma net income (loss) is presented elsewhere in the
Prospectus using the weighted average number of common shares outstanding
after giving effect to the Combination.

Use of Estimates

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 assets and liabilities and

F-9
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the
reporting periods. Accordingly, actual results could differ from these
estimates. Significant estimates include depreciation, depletion and
amortization of proved oil and natural gas properties. Oil and natural gas
reserve estimates, which are the basis for unit-of-production depletion and
the cost ceiling test are, inherently imprecise and are expected to change as
future information becomes available.

(3) ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following components:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Joint interest receivable......... $ 730 $1,003 $1,678
Oil and gas revenue receivable.... 496 1,227 575
Advance billings receivable....... 10 16 --
------ ------ ------
Total accounts receivable..... $1,236 $2,246 $2,253
====== ====== ======
</TABLE>

Joint interest receivable represents exploration, development and production
costs paid by the Company on behalf of joint owners in excess of amounts
collected from them. At December 31, 1995 and 1996, and September 30, 1997,
the joint interest receivable balance due from related parties total $362,508,
$655,263 and $713,482, respectively.

Oil and gas revenue receivable represents the Company's portion of revenue
attributable to production that was uncollected at year end.

Advance billings receivable represents the uncollected portion of amounts
billed by the Company to joint owners in advance of when the related well
costs have been incurred.

(4) PROPERTY AND EQUIPMENT - NET

Property and equipment - net consists primarily of office furniture,
equipment and computer software and hardware. Depreciation and amortization
are calculated using straight-line and accelerated methods over the estimated
useful lives of the related assets, which typically range from 5 to 20 years.

Depreciation expense for property and equipment totaled $36,081, $58,827,
$54,259 and $39,391 for the years ended December 31, 1994, 1995, 1996 and for
the nine months ended September 30, 1997, respectively.

(5) NET PRODUCTION PAYMENTS

During 1995, the Company transferred a limited-term working interest, based
on specified volumes, in certain natural gas producing properties to Miller
Shale Limited Partnership ("MSLP"), an affiliated entity. Under the terms of
the agreement, the Company will receive payments equal to 97% of the net
profits from MSLP, as defined in the agreement, arising from the production of
those properties.

The payments received by the Company are reflected on a gross basis in the
accompanying combined financial statements and the associated proved reserves
are also reflected in the accompanying supplemental oil and gas disclosures to
the combined financial statements.

During 1995 and 1996, the Company also received advance cash payments from
MSLP of $1,439,394 and $185,000, respectively. These proceeds have been
recorded as deferred revenue, which will be recognized in income as the
natural gas volumes under the agreement are delivered.

F-10
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

The payments to be received by the Company, arising from this agreement, are
collateralized by a mortgage on the respective natural gas properties.

(6) NOTES PAYABLE AND LONG-TERM DEBT

At December 31, 1995, 1996 and September 30, 1997, the Company had a notes
payable balance of $2,158,446, $3,942,661 and $4,514,991, respectively, which
represent a borrowing against a $5,000,000 bank line-of-credit which bears
interest at the bank's prime rate. In October 1997, the Company extended this
line-of-credit until January 1998. In 1997, the Company also signed into
another $1,000,000 line-of-credit, which expires in January 1998 and bears
interest at the bank's prime rate plus one-quarter of 1%. These notes are
collateralized by the Company's reserved interest in the natural gas
properties discussed in Note 5.

During 1996, the Company also signed into a $1,000,000 term-loan payable to
a bank, with interest at the prime rate, maturing September 2000. This term-
loan requires quarterly payments of $24,477 and is collateralized by the
Company's reserved interest in the natural gas properties discussed in Note 5.
At December 31, 1996 and September 30, 1997, the balance of the term-loan was
$945,662 and $781,162, respectively.

The Company also has unsecured notes payable to stockholders, with interest
payable quarterly at 2% over the prime rate. The notes are due in October 2006
and are subordinate to the two notes payable and the term-loan. At December
31, 1995, 1996 and September 30, 1997, the balance of the notes payable to
stockholders were $7,643,000, $7,993,000 and $7,643,000, respectively. The
weighted average interest rate for all of the Company's borrowings was 10.4%,
10.0% and 9.5% as of December 31, 1995, 1996 and September 30, 1997,
respectively. Minimum principal payments on notes payable and long-term debt
as of December 31, 1996 are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997...................... $ 4,158
1998...................... 233
1999...................... 253
2000...................... 244
2001...................... --
Thereafter................ 7,993
--------
$ 12,881
========
</TABLE>

(7) COMMITMENTS AND CONTINGENCIES

Leasing Arrangements

The Company leases its office building in Traverse City, Michigan from a
related party. The lease term is for five years beginning in 1996 and contains
an annual 4% escalation clause. The Company also leases office space in
Houston, Texas. Terms of the Houston lease agreement, which expires in
February 1998, provide for monthly rent of $1,663. In September 1997, the
Company signed into a new lease agreement in Houston for five additional
years.

Future minimum lease payments required of the Company for years ending
December 31, are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997...................... $ 98
1998...................... 128
1999...................... 132
2000...................... 135
2001...................... 110
Thereafter................ 62
----
$665
====
</TABLE>

F-11
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Total net rent expense under these lease arrangements was $12,495, $18,009,
$59,735 and $72,894 for the years ended December 31, 1994, 1995 and 1996 and
for the nine months ended September 30, 1997, respectively.

Employee Benefit Plan

The Company has a qualified 401(k) savings plan (the "Plan") covering
substantially all eligible employees. The Plan provides for discretionary
matching contributions by the Company. Contributions charged against
operations totaled $52,753, $38,714, $42,278 and $44,958 for the years ended
December 31, 1994, 1995 and 1996, and for the nine months ended September 30,
1997, respectively.

Tax Credit and Royalty Participation Programs

Various employees are eligible to participate in the Company's Tax Credit
and Royalty Participation Programs, which are designed to provide incentive
for certain key employees of the Company. Under the programs, the employees
will receive cash payments from the Company, based on overriding royalty
working interests, fees, reimbursements and other financial items. These
payments to the employees, which have been charged against operations, totaled
$257,301, $139,365, $116,236 and $100,113 for the years ended December 31,
1994, 1995 and 1996, and for the nine months ended September 30, 1997,
respectively. These programs will be terminated on or before the consummation
of the initial public offering (see Note 15).

Other

In the normal course of business, the Company may be a party to certain
lawsuits and administrative proceedings. Management cannot predict the
ultimate outcome of any pending or threatened litigation or of actual or
possible claims; however, management believes resulting liabilities, if any,
will not have a material adverse impact upon the Company's financial position
or results of operations.

(8) RELATED PARTY TRANSACTIONS

In July 1996, the Company sold the building it occupies to a related party
and subsequently leased a substantial portion of the building under the terms
of a five-year lease agreement (see Note 7). The Company realized a gain on
the sale of the property of approximately $160,000. This gain was deferred and
is being amortized in proportion to the gross rental charges under the
operating lease.

The Company provides technical and administrative services to a corporation
controlled by a related party. In connection with this arrangement $100,000,
$50,000, $100,000 and $150,000 were recognized as management fee income (See
Note 12) for the years ended December 31, 1994, 1995 and 1996 and for the nine
months ended September 30, 1997, respectively.

(9) LAWSUIT SETTLEMENT

In November 1995, the Company received $3,520,557 as its respective share of
an inverse condemnation lawsuit settlement which is reported in the 1995
combined statement of operations.

(10) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS TO
CREDIT RISK

Off-Balance Sheet Risk

The Company does not consider itself to have any material financial
instruments with off-balance sheet risks.

F-12
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to credit risk
include cash on deposit with one financial institution in which these deposits
exceed the Federally insured amount.

The Company extends credit to various companies in the oil and gas industry
in the normal course of business. Within this industry, certain concentrations
of credit risk exist. The Company, in its role as operator of co-owned
properties, assumes responsibility for payment to vendors for goods and
services related to joint operations and extends credit to co-owners of these
properties.

This concentration of credit risk may be similarly affected by changes in
economic or other conditions and may, accordingly, impact the Company's
overall credit risk. The Company periodically monitors its customers' and co-
owners' financial conditions.

(11) NON-CASH FINANCING ACTIVITIES

During 1996, the Company transferred $1,000,000 of its outstanding note
payable balance to a five-year term-loan, as more fully discussed in Note 6.
This non-cash financing activity has been excluded from the combined statement
of cash flows.

(12) OTHER OPERATING REVENUES

The majority of the other operating revenues are reimbursements for general
and administrative activities that the Company performs on behalf of other
companies in the oil and gas industry. All other management fees that were
earned for exploration and development activities have been credited to oil
and gas property costs.

(13) SIGNIFICANT CUSTOMERS

Revenues from certain customers accounted for more than 10% of total crude
oil and natural gas sales as follows:

<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE NINE
DECEMBER 31, MONTHS ENDED
---------------- SEPTEMBER 30,
1994 1995 1996 1997
---- ---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Amerada Hess Corporation................. 29% 44% 51% 41%
Muskegon Development Co. ................ 51% 37% 24% 25%
Dan A. Hughes Company ................... 4% 7% 19% 29%
</TABLE>

(14) NEW ACCOUNTING STANDARDS

In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," and
SFAS No. 129, "Disclosure Information about Capital Structure," which are
effective for the Company's year-end 1997 financial statements. In 1997, the
FASB also issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
each of which will require expanded disclosures effective for 1998. The
Company does not expect the application of these statements to have a material
effect on its financial position, liquidity or results of operations.

F-13
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(15) SUBSEQUENT EVENTS

In November 1997, the Company filed a Registration Statement on Form S-1
with the SEC for an underwritten initial public offering (the "Offering") of
shares of common stock.

In November 1997, the Company signed into a Purchase and Sale Agreement (the
"Agreement"), whereas, the Company will acquire interests in certain crude oil
and natural gas producing properties and undeveloped properties from Amerada
Hess Corporation ("AHC") for approximately $50.5 million, subject to
adjustment. The acquisition is anticipated to close concurrent with the
Company's Offering, subject to certain contingent stipulations in the
Agreement. The acquisition is anticipated to be primarily financed with the
use of proceeds from the Offering and with new bank borrowings.

The Company made a $2.5 million down payment to AHC at the time of the
signing of the Agreement. This down payment could be retained by AHC in the
event this acquisition does not get completed. In association with the down
payment, the Chairman of the Company loaned to MOC $2,500,000, pursuant to a
promissory note which is payable on June 1, 1998. The loan is unsecured and
subordinated to the notes payable and long-term debt described in Note 6.
Interest accrues on the promissory note at the prime rate and is payable
monthly. The Company anticipates that a portion of the proceeds from the
Offering will be used to repay the loan.

On November 17, 1997, the Company adopted the 1997 Stock Option Plan. The
Board of Directors contemplates that the 1997 Stock Option Plan primarily will
be used to grant stock options. However, the 1997 Stock Option Plan permits
grants of restricted stock and tax benefit rights if determined to be
desirable to advance the purposes of the 1997 Stock Option Plan. These stock
options, restricted stock and tax benefit rights are collectively referred to
as "Incentive Awards." Persons eligible to receive Incentive Awards under the
1997 Stock Option Plan are directors, corporate officers and other full-time
employees of the Company and its subsidiaries. A maximum of 1,200,000 shares
of Common Stock (subject to certain antidilution adjustments) will be
available for Incentive Awards under the 1997 Stock Option Plan. None of the
Incentive Awards are expected to be granted until the consummation of the
Offering. Upon consummation of the Offering, 109,500 restricted shares will be
transferred to certain employees. At the time of the issuance of the
restricted shares, compensation expense of $1,204,500 will be deferred. The
restricted shares will begin to vest at cumulative increments of one-half of
the total number of restricted shares of Common Stock subject thereto,
beginning on the first anniversary of the date of grant. Because the
restricted shares are subject to the risk of forfeiture during the vesting
period, compensation expense (equivalent to the Offering price per share) will
be recognized ratably over the two-year vesting period as the risk of
forfeiture passes.

(16) SUPPLEMENTAL FINANCIAL INFORMATION ON OIL AND GAS EXPLORATION,
DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED)

The following information was prepared in accordance with the Supplemental
Disclosure Requirements of SFAS No. 69, "Disclosures About Oil and Gas
Producing Activities."

Users of this information should be aware that the process of estimating
quantities of "proved" and "proved developed" crude oil and natural 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 also may 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.

F-14
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Proved reserves represent estimated quantities of natural gas and crude oil
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.

The following estimates of proved reserves and future net cash flows as of
December 31, 1996 have been prepared by S.A. Holditch and Associates (as to
Michigan reserves) and Miller and Lents, Ltd. (as to non-Michigan reserves),
independent petroleum engineers. Estimates as of December 31, 1994 and 1995
have been prepared by the Company's petroleum engineers. All of the Company's
reserves are located in the United States.

Estimated Quantities of Proved Oil and Gas Reserves

The following table sets forth the Company's net proved and proved developed
reserves at December 31 for each of the three years in the period ended
December 31, 1996, and the changes in the net proved reserves for each of the
three years in the period then ended as estimated by the Company's petroleum
engineers:

<TABLE>
<CAPTION>
TOTAL
---------------------
OIL (MBBL) GAS (MMCF)
---------- ----------
<S> <C> <C>
Estimated Proved Reserves
December 31, 1993................................. 184.3 18,738.8
Revisions and other changes..................... (44.1) 916.5
Extensions and discoveries...................... 91.0 4,013.2
Production...................................... (39.5) (1,228.4)
Sales of reserves............................... -- (3,982.0)
------ --------
December 31, 1994................................. 191.7 18,458.1
Revisions and other changes..................... (114.5) (7,491.2)
Extensions and discoveries...................... 102.0 6,134.4
Production...................................... (31.6) (1,324.0)
Sales of reserves............................... (12.6) (15.1)
------ --------
December 31, 1995................................. 135.0 15,762.2
Revisions and other changes..................... 40.3 2,054.0
Extensions and discoveries...................... 514.9 553.7
Purchase of reserves............................ -- 1,016.1
Production...................................... (46.5) (2,030.0)
------ --------
December 31, 1996................................. 643.7 17,356.0
====== ========
Estimated Proved Developed Reserves
December 31, 1994................................. 111.4 15,173.1
====== ========
December 31, 1995................................. 55.8 12,625.5
====== ========
December 31, 1996................................. 121.0 15,221.2
====== ========
</TABLE>

Standardized Measure of Discounted Future Net Cash Flows Relating To Proved
Oil and Gas Reserves

The following information has been developed utilizing procedures prescribed
by SFAS No. 69 and based on crude oil and natural gas reserve and production
volumes estimated by the Company's petroleum engineers. It may be useful for
certain comparison 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.

F-15
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

The future cash flows presented below are based on sales prices and cost
rates in existence as of the date of the projections. It is expected that
material revisions to some estimates of crude oil and natural gas 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.

Management does not rely 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 proved reserves, and
varying price and cost assumptions considered more representative of a range
of possible economic conditions that may be anticipated.
The following table sets forth the Standardized Measure of Discounted Future
Net Cash Flows from projected production of the Company's crude oil and
natural gas reserves at December 31, 1994, 1995 and 1996:

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Future revenues (a)........................ $ 44,878 $ 56,792 $ 74,300
Future production costs (b)................ (19,266) (18,278) (21,326)
Future development costs (b)............... (387) (1,711) (4,348)
-------- -------- --------
Future net cash flows...................... 25,225 36,803 48,626
Discount to present value at 10% annual
rate...................................... (9,036) (14,449) (18,561)
-------- -------- --------
Standardized measure of discounted future
net cash flows (c)........................ $ 16,189 $ 22,354 $ 30,065
======== ======== ========
</TABLE>
- --------
(a) Crude oil and natural gas revenues are based on year-end prices with
adjustments for changes reflected in existing contracts. There is no
consideration for future discoveries or risks associated with future
production of proved reserves.
(b) Based on economic conditions at year-end. Does not include administrative,
general or financing costs. Does not consider future changes in
development or production costs.
(c) Does not include income taxes as the Company is not currently subject to
federal income taxes. Had the Company been subject to federal income
taxes, the pro forma Standardized Measure of Discounted Future Net Cash
Flows at December 31, 1996 would have been $21,681.

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 at December 31, 1994, 1995 and 1996:

<TABLE>
<CAPTION>
1994 1995 1996
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
New discoveries............................... $ 4,427 $ 11,786 $ 6,318
Purchase of reserves.......................... -- -- 1,102
Sales of reserves in place.................... (3,868) (127) --
Revisions to reserves......................... (684) (16,759) 7,887
Sales, net of production costs................ (2,285) (2,685) (5,592)
Changes in prices............................. (3,961) 27,251 (184)
Accretion of discount......................... (2,359) (1,619) (2,235)
Changes in timing of production and other..... 1,662 (11,682) 415
------- -------- -------
Net change during the year.................... $(7,068) $ 6,165 $ 7,711
======= ======== =======
</TABLE>

F-16
<PAGE>

MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Capitalized Cost Related to Oil and Gas Producing Activities

The following table sets forth the capitalized costs relating to the
Company's natural gas and crude oil producing activities at December 31, 1995
and 1996:

<TABLE>
<CAPTION>
1995 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Proved properties..................................... $ 23,666 $27,883
Unproved properties................................... 1,453 2,811
-------- -------
25,119 30,694
Less--Accumulated depreciation, depletion and
amortization......................................... (7,388) (9,962)
-------- -------
$ 17,731 $20,732
======== =======
</TABLE>

Cost Incurred In Oil and Gas Producing Activities

The acquisition, exploration and development costs disclosed in the
following tables are in accordance with definitions in SFAS No. 19, "Financial
Accounting and Reporting by Oil and Gas Producing Companies."

Acquisition costs include costs incurred to purchase, lease or otherwise
acquire property.

Exploration costs include exploration expenses, additions to exploration
wells in progress and depreciation of support equipment used in exploration
activities.

Development costs include additions to production facilities and equipment,
additions to development wells in progress and related facilities and
depreciation of support equipment and related facilities used in development
activities.

The following table sets forth costs incurred related to the Company's oil
and gas activities for the years ended December 31:

<TABLE>
<CAPTION>
1994 1995 1996(A)
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Property acquisition costs.......................... $ 872 $1,123 $2,264
Exploration costs................................... 2,003 2,130 2,340
Development costs................................... 1,653 3,070 1,580
------ ------ ------
Total............................................. $4,528 $6,323 $6,184
====== ====== ======
</TABLE>
- --------
(a) Includes $757 for the acquisition of proved producing properties.

Results Of Operations From Oil and Gas Producing Activities

The following table sets forth the Company's results of operations from oil
and gas producing activities for the years ended December 31, 1994, 1995 and
1996. The results of operations below do not include general and
administrative expenses, general taxes and interest expense.

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Revenues--
Natural gas........................................ $2,424 $2,747 $5,614
Crude oil and condensate........................... 672 715 1,101
------ ------ ------
Total operating revenues......................... 3,096 3,462 6,715
------ ------ ------
Operating expenses--
Lease operating expenses and production taxes...... 811 777 1,123
Depreciation, depletion and amortization........... 1,009 1,666 2,629
------ ------ ------
Total operating expenses......................... 1,820 2,443 3,752
------ ------ ------
Results of operations................................ $1,276 $1,019 $2,963
====== ====== ======
</TABLE>

F-17
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Miller Exploration Company:

We have audited the accompanying historical statements of revenues and
direct operating expenses of the Miller Exploration Company Acquired
Properties identified in Note 1 ("Historical Summaries") for each of the three
years in the period ended December 31, 1996. The Historical Summaries are the
responsibility of Miller Exploration Company's management. Our responsibility
is to express an opinion on the Historical Summaries based on our audits.

We have 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 Historical Summaries are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the Historical Summaries. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the Historical Summaries. We believe that our audits provide a reasonable
basis for our opinion.

The accompanying Historical Summaries were prepared for the purpose of
complying with the Securities and Exchange Commission's rules for inclusion in
the Registration Statement on Form S-1 as described in Note 1 and is not
intended to be a complete presentation of the Miller Exploration Company
Acquired Properties' revenues and expenses.

In our opinion, the Historical Summaries present fairly, in all material
respects, the revenues and direct operating expenses of the Miller Exploration
Company Acquired Properties for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.

/s/ ARTHUR ANDERSEN LLP

Detroit, Michigan
November 26, 1997

F-18
<PAGE>

MILLER EXPLORATION COMPANY ACQUIRED PROPERTIES

HISTORICAL STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE MONTHS
ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------- -------------------
1994 1995 1996 1996 1997
---- ------ ------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Natural gas.......................... $ 4 $3,810 $15,232 $ 11,269 $ 11,357
Crude oil and condensate............. 65 2,274 4,037 2,809 2,140
--- ------ ------- --------- ---------
Total revenues......................... 69 6,084 19,269 14,078 13,497
DIRECT OPERATING EXPENSES:
Lease operating expenses and
severance taxes..................... 7 388 1,153 746 664
--- ------ ------- --------- ---------
REVENUES IN EXCESS OF DIRECT OPERATING
EXPENSES.............................. $62 $5,696 $18,116 $ 13,332 $ 12,833
=== ====== ======= ========= =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-19
<PAGE>

MILLER EXPLORATION COMPANY ACQUIRED PROPERTIES

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

(1) BASIS OF PRESENTATION

The accompanying statements of revenues and direct operating expenses of the
natural gas and oil producing properties represent the interests in certain
producing properties currently owned by several unrelated investors and by the
Amerada Hess Corporation ("AHC") (collectively, the "Acquired Properties").
The interests in the unrelated investors' properties are to be exchanged for
shares of common stock of Miller Exploration Company (the "Company")
concurrently with the Company's initial public offering. The interests in the
AHC properties are to be acquired by the Company for $50.5 million, as part of
a Purchase and Sale Agreement between the Company and AHC. All of these
Acquired Properties will be part of the Company's Combination Transaction, as
defined elsewhere in this Prospectus.

The accompanying statements of revenues and direct operating expenses for
each of the three years in the period ended December 31, 1996, and for the
nine months ended September 30, 1996 and 1997 do not include general and
administrative expenses, interest income or expense, a provision for
depreciation, depletion and amortization or any provision for income taxes.
This is because these types of indirect operating costs are not available for
these properties as the properties have not been maintained as a separate pool
or business. In addition, historical expenses are not necessarily indicative
of the costs to be incurred by the Company since these Acquired Properties
will be recorded using a new cost basis (under the purchase method of
accounting).

Historical financial information reflecting the financial position, results
of operations and cash flows of the Acquired Properties are not presented
because the entire acquisition cost will be assigned to the oil and gas
property interests. Accordingly, the historical statements of revenues and
direct operating expenses have been presented in lieu of the financial
statements required under Rule 3-05 and Staff Accounting Bulletin No. 80 of
the Securities and Exchange Commission Regulations S-X.

The statements of revenues and direct operating expenses and related
information for the nine months ended September 30, 1996 and 1997 included
herein are unaudited and, in the opinion of management, reflect all
adjustments (consisting of only recurring adjustments) necessary for a fair
presentation of the revenues and direct operating expenses.

The statements of revenues and direct operating expenses for the nine months
ended September 30, 1996 and 1997 are not necessarily indicative of revenues
and direct operating expenses for a full year. Additionally, all other
information contained in these Notes, which occurred subsequent to December
31, 1996, is unaudited.

F-20
<PAGE>

MILLER EXPLORATION COMPANY ACQUIRED PROPERTIES

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

(2) SUPPLEMENTAL FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES

Estimated Quantities of Proved Oil and Gas Reserves (Unaudited)

Reserve information and future net cash flows as of December 31, 1996 are
based on reports prepared by Miller and Lents, Ltd., independent petroleum
engineers for the Company, using prices and costs in effect at December 31,
1996. Estimates as of December 31, 1994 and 1995 have been presented by the
Company's petroleum engineers. All of the Company's reserves are located in
the United States.

Proved reserves are estimated quantities of crude oil and natural gas 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 developed reserves are those which are expected
to be recovered through existing wells with existing equipment and operating
methods. Below are the net quantities of proved reserves and proved developed
reserves for the Acquired Properties.

<TABLE>
<CAPTION>
OIL (MBBLS) GAS (MMCF)
----------- ----------
<S> <C> <C>
Proved reserves at January 1, 1994................. 0.6 24.6
Extensions and discoveries......................... 156.1 9,325.9
Revisions and other changes........................ 369.1 3,627.8
Production......................................... (4.2) (165.0)
------ --------
Proved reserves at December 31, 1994............... 521.6 12,813.3
Extensions and discoveries......................... 814.4 35,467.1
Revisions and other changes........................ (392.7) (5,927.4)
Production......................................... (132.8) (2,789.7)
------ --------
Proved reserves at December 31, 1995............... 810.5 39,563.3
Extensions and discoveries......................... 173.8 1,640.7
Revisions and other changes........................ (84.9) 4,156.3
Production......................................... (189.1) (6,322.5)
------ --------
Proved reserves at December 31, 1996............... 710.3 39,037.8
====== ========
Proved developed reserves at December 31, 1994..... 321.9 3,100.1
====== ========
Proved developed reserves at December 31, 1995..... 693.7 29,996.3
====== ========
Proved developed reserves at December 31, 1996..... 413.6 22,268.7
====== ========
</TABLE>

F-21
<PAGE>

MILLER EXPLORATION COMPANY ACQUIRED PROPERTIES

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

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

The "Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure
requirement under SFAS No. 69. The Standardized Measure does not purport to
present the fair market value of the proved oil and natural gas reserves. This
would require consideration of expected future economic and operating
conditions, which are not taken into account in calculating the Standardized
Measure.

Under the Standardized Measure, future cash inflows were estimated by
applying year-end prices, adjusted for fixed and determinable escalations, to
the estimated future production of year-end proved reserves. Future cash
inflows were reduced by estimated future production and development costs
based on year-end costs to determine pre-tax cash inflows. Future net cash
inflows were discounted using a 10% annual discount rate to arrive at the
Standardized Measure. The following Standardized Measure and changes in the
Standardized Measure are based on the reserve estimates done at December 31,
1994, 1995 and 1996 on the basis of prices and costs at those respective
dates.

Set forth below is the Standardized Measure relating to proved oil and gas
reserves at December 31, 1994, 1995 and 1996:

<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Future revenues (a)............................... $33,076 $132,785 $141,946
Future production costs (b)....................... (4,096) (19,874) (23,164)
Future development costs (b)...................... (48) (7,588) (7,631)
------- -------- --------
Future net cash flows............................. 28,932 105,323 111,151
Discount to present value at 10% annual rate...... (7,154) (24,976) (24,880)
------- -------- --------
Standardized Measure of discounted future net cash
flows (c)........................................ $21,778 $ 80,347 $ 86,271
======= ======== ========
</TABLE>
- --------
(a) Crude oil and natural gas revenues are based on year-end prices with
adjustments for changes reflected in existing contracts. There is no
consideration for future discoveries or risks associated with future
production of proved reserves.
(b) Based on economic conditions at year-end. Does not include administrative,
general or financing costs. Does not consider future changes in
development or production costs.
(c) Does not include income taxes as the Company is not currently subject to
federal income taxes. Had the Company been subject to federal income
taxes, the pro forma Standardized Measure at December 31, 1996 would have
been $75,504.

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

The following is an analysis of the changes in the Standardized Measure
during 1994, 1995 and 1996:

<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
New discoveries...................................... $11,751 $34,965 $ 3,656
Revisions to reserves................................ 16,100 (17,945) 12,315
Sales, net of production costs....................... (62) (5,696) (18,116)
Changes in prices.................................... (6) 21,400 (6,626)
Accretion of discount................................ (55) (2,178) (8,035)
Changes in timing and other.......................... (6,830) 28,023 22,730
------- ------- -------
Net change during the year........................... $20,898 $58,569 $ 5,924
======= ======= =======
</TABLE>

F-22
<PAGE>

APPENDIX A

[LOGO OF S.A. HOLDITCH & ASSOCIATES APPEARS HERE]

[LETTERHEAD OF S.A. HOLDITCH & ASSOCIATES APPEARS HERE]

October 24, 1997

Miller Oil Corporation
3104 Logan Valley Road
Traverse City, MI 49685-0348

Attention: Mr. W.J. Baumgartner

Gentlemen:

At the request of Miller Oil Corporation (Miller), S.A. Holditch &
Associates, Inc. (Holditch) has prepared a reserve and economic evaluation of
certain oil and gas interests in nineteen Antrim Shale gas projects as of
September 30, 1997. The nineteen Antrim Shale projects evaluated are: Bass
Lake, Big Bass Lake, Caulkins Lake, Dover, East Heart Lake, Emerald Lake,
Gingell Lake, Heart Lake, Lower Chubb Lake, No Lake, Opal Lake, Perch Lake,
Round Lake, Shupac Lake, State Chester 31, Sturgeon River, Traverse Lake,
Viking Lake, and Mitchell Lake II. The results of this study are summarized in
the table below.

ESTIMATED NET RESERVES & INCOME
CERTAIN OIL AND GAS INTERESTS
EVALUATED FOR
MILLER OIL CORPORATION
AS OF SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
PROVED
PRODUCING
REMAINING RESERVES RESERVES
------------------ ----------
<S> <C>
Gas--MMscf 8,761.580
INCOME DATA (M$)
Future Net Revenue 31,055.610
Deductions
Severance Tax 1,667.384
Operating Expense 11,425.430
Investment 36.090
Future Net Income 17,926.710
Discounted FNI @ 10% 9,066.293
</TABLE>

Proved producing reserves and income data were determined in accordance with
the definitions contained in the Securities and Exchange Commission Regulation
S-X, Rule 4-10(A).

The working interests were evaluated with the Internal Revenue Service
Section 29 Unconventional Fuel Tax Credit (Section 29 Tax Credit) where
appropriate. The Section 29 Tax Credit was included in the economic analysis as
if it were actual revenue and income to the particular interest being
evaluated. We only show the actual tax credit which will be available to the
interests if the owners of the interests can use it. The actual tax
implications of the tax credit were not considered.

Section 29 Tax Credit was included for the gas used for lease fuel on all
projects except Mitchell Lake II. Miller gets 30% of the tax credit gas from
the sales gas volume and 50% of the tax credit gas from the lease fuel volume.
The lease fuel gas volume is included in the gross and net tax credit gas
volumes shown in the report.

A-1
<PAGE>

However, the lease fuel gas volume is not included in the gross and net gas
production volume shown in the report.

Section 29 Tax Credits are included where appropriate in the revenue and
income values shown above.

RESERVE ESTIMATES

Production data analysis methods were used to generate the performance of
the Antrim Shale wells included in this report. Gas and water production data
were evaluated for the nineteen Antrim Shale projects in Michigan. The primary
tool used in our analysis was SHALEGAS(TM), a three-dimensional, two-phase,
finite-difference reservoir simulation model developed by S.A. Holditch &
Associates, Inc. SHALEGAS(TM) was created specifically to study
unconventional, naturally fractured gas shales, such as the Antrim Shale in
the Michigan basin, the Eastern Devonian Shales in the Appalachian basin, and
the Barnett Shale in the Fort Worth basin.

Basic formation properties, such as relative permeability, desorption
isotherm, free gas porosity, and gas gravity, were used which Holditch had
previously developed through evaluation of historical production data in the
Michigan Antrim Shale play. Specific properties which were estimated for this
evaluation included initial pressure, calculated based on the depth of the
producing intervals; and net pay thickness, based on well log data; from wells
within the projects analyzed and nearby offset projects. Other estimated
average well properties, such as permeability, natural fracture spacing,
porosity, and initial free gas saturation, were based on an analysis of
production data from the projects.

The actual production forecast and reserves estimates were shrunk to account
for the removal of non-hydrocarbon gases, particularly CO/2/, from the well
stream. The gas volumes shown in the economics summaries are plant sales
volumes at 14.73 psi. The plant sales volumes have been shrunk for CO/2/
content. The produced volumes for all projects were shrunk for CO/2/ content
from their present CO/2/ content to a 28% CO/2/ content over the 30 year life
of the projected reserves. All gas production volumes presented on the
economic summaries are estimated plant sales volumes.

Reserve estimates are strictly technical judgments. The accuracy of any
reserve estimate is a function of the quality of data available and of
engineering and geological interpretations. The reserve estimates presented in
this report are believed reasonable; however, they are estimates only and
should be accepted with the understanding that reservoir performance
subsequent to the date of the estimate may justify their revision.

RESERVE CATEGORIES

Reserves were assigned to the proved developed producing reserve category
only. Proved reserves are divided into appropriate reserve status categories:
developed and undeveloped. The reserve categories used in this report conform
to the definitions contained in the Securities and Exchange Commission
Regulation S-X, Rule 4-10(A). These definitions are presented in Exhibit No.
1.

ECONOMIC TERMS

Net revenue (sales) is defined as the total proceeds from the sale of oil,
condensate, and gas before any deductions. Net revenue (sales) also includes
the Section 29 Tax Credit. Future net income (cashflow) is future net revenue
less net lease operating expenses and state severance or production taxes. The
net Section 29 Tax Credit is also shown separately in the economic reports.
Future net income (cashflow) includes only those deductions for general and
administrative expenses charged by the operator to each particular well on a
monthly basis. No provisions for State or Federal income taxes are made in
this evaluation. The present worth (discounted cashflow) at various discount
rates is calculated monthly.

A-2
<PAGE>

PRICES, EXPENSES, AND ESCALATION PARAMETERS

All oil and gas product prices, expenses, and escalation parameters used in
this report were supplied by Miller. Data from Miller were accepted as
presented. A summary of the price, expense, and escalation parameters used is
shown below.

Gas--A gas price of $3.39 per MMBtu was used. The gas prices were held
constant for the life of the project. Gas prices were not escalated.

Oil--No oil price was used since no oil reserves were assigned in this
report.

Section 29 Tax Credit--A $1.026 per MMBtu Section 29 Tax Credit was used.
The Section 29 Tax Credit was escalated 3% per year starting in 1997 until
January 1, 2003, when the tax credit is scheduled to expire.

Monthly Operating Costs--The initial monthly operating costs range from
$402 per well per month to $1,439 per well per month. Monthly operating
costs were held constant for the life of the project. Monthly operating
costs were not escalated.

Variable Operating Costs--The variable operating costs range from $0.105
to $0.977 per Mscf. The variable operating costs were held constant for the
entire life of the project. The variable operating costs were not
escalated. The variable operating costs are paid by the working interest
owners and are calculated using the shrunk gas volume.

Post Production Costs--The post production costs (PPC) net of the PPC
credit range from $-0.29 per Mscf to $0.38 per Mscf. The PPC were held
constant for the entire life of the project. The PPC were not escalated.
The post production costs net of the PPC credit are paid by the working
interest owners and are calculated using the shrunk gas volume.

Capital Costs--Capital costs were included in this report at the
estimated time of expenditure. Capital costs were held constant for the
life of the project. Capital costs were not escalated.

Severance Tax--The gas severance tax was adjusted for the variable
operating costs. The Gross Gas Revenue was reduced by the variable
operating costs before the 6% severance tax was applied.

OWNERSHIP

The leasehold interests were supplied by Miller and were accepted as
presented. No attempt was made by the undersigned to verify the title or
ownership of the interests evaluated.

GENERAL

All data used in this study were obtained from Miller, public industry
information sources, or the non-confidential files of Holditch. A field
inspection of the properties was not made in connection with the preparation
of this report.

The potential environmental liabilities attendant to ownership and/or
operation of the properties have not been addressed in this report.
Abandonment costs, clean-up costs, and possible salvage value of the equipment
were not considered in this report.

In evaluating the information at our disposal related to this report, we
have excluded from our consideration all matters which require a legal or
accounting interpretation or any interpretation other than those of an
engineering or geological nature. In assessing the conclusions expressed in
this report pertaining to all aspects of oil and gas evaluations, especially
pertaining to reserve evaluations, there are uncertainties inherent in the
interpretation of engineering data, and such conclusions represent only
informed professional judgments.

Data and worksheets used in the preparation of this evaluation will be
maintained in our files in Pittsburgh and New Orleans and will be available
for inspection by anyone having proper authorization by Miller.

A-3
<PAGE>

This report was prepared solely for the use of the party to whom it is
addressed and any disclosure made by said party of this report and/or the
contents thereof shall be solely the responsibility of said party, and shall
in no way constitute any representation of any kind whatsoever of the
undersigned with respect to the matters being addressed.

We appreciate the opportunity to serve you and are available should you need
further assistance in this matter.

Very truly yours,

S.A. Holditch & Associates, Inc.

/s/ W. Denton Copeland, P.E.
-----------------------------

W. Denton Copeland, P.E.
Vice President

A-4
<PAGE>

EXHIBIT NO. 1

SECURITIES AND EXCHANGE COMMISSION
REGULATION S-X, RULE 4-10 (A)

RESERVES DEFINITIONS

OIL AND GAS PRODUCING ACTIVITIES

Such activities include (A) the search for crude oil, including condensate
and natural gas liquids, or natural gas ("oil and gas") in their natural
states and original locations; (B) the acquisition of property rights or
properties for the purpose of further exploration and/or for the purpose of
removing the oil or gas from existing reservoirs on those properties; and (C)
the construction, drilling and production activities necessary to retrieve oil
and gas from its natural reservoirs, and the acquisition, construction,
installation, and maintenance of field gathering and storage systems--
including lifting the oil and gas to the surface and gathering, treating,
field processing (as in the case of processing gas to extract liquid
hydrocarbons) and field storage. For purposes of this section, the oil and gas
production function shall normally be regarded as terminating at the outlet
valve on the lease or field storage tank; if unusual physical or operational
circumstances exist, it may be appropriate to regard the production functions
as terminating at the first point at which oil, gas, or gas liquids are
delivered to a main pipeline, a common carrier, a refinery, or a marine
terminal.

Oil and gas producing activities do not include (A) the transporting,
refining and marketing of oil and gas; (B) activities relating to the
production of natural resources other than oil and gas; (C) the production of
geothermal steam or the extraction of hydrocarbons as a by-product of the
production of geothermal steam or associated geothermal resources as defined
in the Geothermal Steam Act of 1970; and (D) the extraction of hydrocarbons
from shale, tar sands, or coal.

The SEC stated in a September 18, 1989 accounting bulletin "since coalbed
methane gas can be recovered from coal in its natural state and location, it
should be included in proved reserves, provided that it complies in all other
respects with the SEC definitions of proved oil and gas reserves including the
requirement that methane production be economical at current prices, costs
(net of the tax credit) and existing operating conditions." We have also
interpreted this bulletin to include shale gas.

PROVED OIL AND GAS RESERVES

Proved oil and gas reserves are 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, i.e.,
prices and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future conditions.

Reservoirs are considered proved if economic producibility is supported by
either actual production or conclusive formation test. The area of a reservoir
considered proved includes (A) that portion delineated by drilling and defined
by gas-oil and/or oil-water contacts, if any; and (B) the immediately
adjoining portions not yet drilled, but which can be reasonably judged as
economically productive on the basis of available geological and engineering
data. In the absence of information on fluid contacts, the lowest known
structural occurrence of hydrocarbons controls the lower proved limit of the
reservoir.

Reserves which can be produced economically through application of improved
recovery techniques (such as fluid injection) are included in the "proved"
classification when successful testing by a pilot project, or the operation of
an installed program in the reservoir, provides support for the engineering
analysis on which the project or program was based.

A-5
<PAGE>

Estimates of proved reserves do not include the following: (A) oil that may
become available from known reservoirs but is classified separately as
"indicated additional reserves"; (B) crude oil, natural gas, and natural gas
liquids, the recovery of which is subject to reasonable doubt because of
uncertainty as to geology, reservoir characteristics, or economic factors; (C)
crude oil, natural gas, and natural gas liquids, that may occur in undrilled
prospects; and (D) crude oil, natural gas, and natural gas liquids, that may
be recovered from oil shales, coal, gilsonite and other such sources.

PROVED DEVELOPED OIL AND GAS RESERVES

Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery should be
included as "proved developed reserves" only after testing by a pilot project
or after the operation of an installed program has confirmed through
production response that increased recovery will be achieved.

PROVED UNDEVELOPED RESERVES

Proved undeveloped oil and gas reserves are 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. Reserves on
undrilled acreage shall be limited to those drilling units offsetting
productive units that are reasonably certain of production when drilled.
Proved reserves for other undrilled units can be claimed only where it can be
demonstrated with certainty that there is continuity of production from the
existing productive formation. Under no circumstances should estimates for
proved undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual
tests in the area and in the same reservoir.

A-6
<PAGE>

APPENDIX B
[LOGO OF MILLER AND LENTS, LTD. LETTERHEAD APPEARS HERE]

December 4, 1997

Mr. Doug Bell
Miller Oil Corporation
3104 Logan Valley Road
Traverse City, Michigan 49684

Re:Miller Oil Corporation
Proved Reserves and Future Net
Revenues
As of September 30, 1997
SEC Price Case
MOC2 Revised Interests
Amerada Hess Acquisition

Dear Mr. Bell:

At your request, we estimated the proved oil, condensate, and natural gas
reserves and projected the future net revenue from these reserves attributable
to the net revised combined interests including the Amerada Hess acquisition
interests (MOC2AH) in the Miller Oil Corporation properties as of September
30, 1997. The forecast of future net revenues is based on constant prices and
costs. The results of our evaluation are as follows:

<TABLE>
<CAPTION>
NET RESERVES FUTURE NET REVENUE
-------------------- ---------------------------
OIL AND DISCOUNTED AT
CONDENSATE, GAS, UNDISCOUNTED, 10% PER YEAR,
RESERVE CATEGORY MBBLS. MMCF M$ M$
---------------- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Proved Producing 334.8 18,555.5 51,736.1 41,905.9
Proved Nonproducing 86.9 2,246.7 4,957.6 2,680.4
Proved Undeveloped 752.3 16,814.5 43,692.2 33,831.6
------- -------- --------- --------
Total Proved 1,174.0 37,616.7 100,385.9 78,417.9
</TABLE>

Proved reserves and future net revenue were determined in accordance with
the definitions contained in the Securities and Exchange Commission Regulation
S-X, Rule 4-10(a) as shown in the Appendix.

Future net revenue is defined as the leasehold revenue attributable to the
evaluated working interests less operating expenses, royalties, overhead
charges, production and ad valorem taxes, and future capital expenditures. The
effects of depreciation, depletion, or Federal Income Tax are not considered.
For the forecast of future net revenue, the costs to abandon these properties
were assumed to be equal to the salvage values. Therefore, neither capital
costs to abandon nor salvage values for the production facilities or wells are
included in the projections. Future costs of restoration of all properties
evaluated herein to satisfy environmental standards

B-1
<PAGE>

are not deducted from the estimates of future net revenue as such estimates
are beyond the scope of this assignment. Estimates of future net revenue and
discounted future net revenue are not intended and should not be construed to
represent fair market value for these properties.

Proved reserves were based on decline curve analysis, material balance
calculations, volumetric estimates, and analogous well performance. Reserve
estimates from volumetric estimates and from analogy comparisons are often
less certain than reserve estimates based on well performance obtained over a
period during which a substantial portion of the reserves was produced. No
provisions for the possible consequences of adjustments, if any, to projected
volumes and future net revenue for the purposes of production balancing are
included in this study.

In conducting this evaluation, we relied upon production histories,
accounting and cost data, and other engineering and geological data supplied
by Miller Oil Corporation, various operators, and public information. We
relied upon representations by Miller Oil Corporation of the ownership
interests and have accepted them as presented with no independent verification
of their accuracy as such is not within the scope of this report.

The prices of the oil and condensate and natural gas for each property were
provided by Miller Oil Corporation and were represented as those prices
received for oil, condensate, and natural gas for September 1997. The gas
prices were represented to be net of gathering, transportation, and basis
adjustments. Adjustments to the gas price for Btu content were included in the
forecast of future net revenues. Both the oil and gas prices were projected to
remain constant for the life of each property.

Operating expenses and capital expenditures were based on information
provided by Miller Oil Corporation and were held constant for the life of the
property.

The evaluations presented in this report, with the exceptions of those
parameters specified by others, reflect our informed judgments based on
accepted standards of professional investigation but are subject to those
generally recognized uncertainties associated with interpretation of
geological, geophysical, and engineering information. Government policies and
market conditions different from those employed in this study may cause the
total quantity of oil or gas to be recovered, actual production rates, prices
received, or operating and capital costs to vary from those presented in this
report.

The details of this investigation are available in our office should you
require additional information. Please call us if you have questions
concerning this matter.

Very truly yours,
Miller and Lents, Ltd.

By /s/ Larry M. Gring
--------------------------------
Larry M. Gring
Senior Vice President

LMG/psh
Enclosures

B-2
<PAGE>

APPENDIX
PROVED RESERVES DEFINITIONS
IN ACCORDANCE WITH
SECURITIES AND EXCHANGE COMMISSION REGULATION S-X

PROVED OIL AND GAS RESERVES

Proved oil and gas reserves are 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, i.e.,
prices and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual
arrangements but not on escalations based upon future conditions.

1. Reservoirs are considered proved if economic producibility is supported
by either actual production or conclusive formation test. The area of a
reservoir considered proved includes (a) that portion delineated by
drilling and defined by gas-oil and/or oil-water contacts, if any, and
(b) the immediately adjoining portions not yet drilled but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons
controls the lower proved limit of the reservoir.

2. Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in
the proved classification when successful testing by a pilot project or
the operation of an installed program in the reservoirs provides
support for the engineering analysis on which the project or program
was based.

3. Estimates of proved reserves do not include the following:

a. Oil that may become available from known reservoirs but is
classified separately as indicated additional reserves.

b. Crude oil, natural gas, and natural gas liquids, the recovery of
which is subject to reasonable doubt because of uncertainty as to
geology, reservoir characteristics, or economic factors.

c. Crude oil, natural gas, and natural gas liquids, that may occur in
undrilled prospects.

d. Crude oil, natural gas, and natural gas liquids, that may be
recovered from oil shales, coal, gilsonite, and other such sources.

Depending upon their status of development, proved reserves are subdivided
into proved developed reserves and proved undeveloped reserves.

PROVED DEVELOPED OIL AND GAS RESERVES

Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery should be
included as proved developed reserves only after testing by a pilot project or
after the operation of an installed program has confirmed through production
response that increased recovery will be achieved.

PROVED UNDEVELOPED OIL AND GAS RESERVES

B-3
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Dilution.................................................................. 20
Capitalization............................................................ 21
Selected Historical Combined Financial and Operating Data................. 22
Selected Unaudited Pro Forma Combined Financial Data...................... 24
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 28
Business and Properties................................................... 34
Management................................................................ 49
Certain Transactions...................................................... 59
Principal and Selling Stockholders........................................ 62
Description of Capital Stock.............................................. 64
Shares Eligible for Future Sale........................................... 69
Underwriting.............................................................. 70
Legal Matters............................................................. 71
Experts................................................................... 72
Available Information..................................................... 72
Glossary of Certain Oil and Natural Gas Terms............................. 73
Index to Financial Statements............................................. F-1
Engineers' Reports........................................................
Report of S.A. Holditch & Associates..................................... A-1
Report of Miller and Lents, Ltd.......................................... B-1
</TABLE>

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

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SHARES OF THE COMMON STOCK, WHETHER OR NOT PAR-
TICIPATING 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

6,100,000 SHARES

[LOGO OF MILLER EXPLORATION COMPANY APPEARS HERE]

COMMON STOCK

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

PROSPECTUS

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

BEAR, STEARNS & CO. INC.

RAYMOND JAMES & ASSOCIATES, INC.

STEPHENS INC.

, 1998

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All the amounts shown are estimated
except the Securities and Exchange Commission (the "SEC") registration fee,
the National Association of Securities Dealers, Inc. (the "NASD") filing fee
and the Nasdaq National Market listing fee.

<TABLE>
<S> <C>
SEC registration fee.......................................... $ 25,860
NASD filing fee............................................... 9,125
Nasdaq National Market listing application fee................ 50,000
Printing and engraving expenses............................... 130,000
Legal fees and expenses....................................... 375,000
Accounting fees and expenses.................................. 300,000
Blue sky fees and expenses (including counsel fees)........... 2,500
Engineering fees and expenses................................. 100,000
Miscellaneous................................................. 7,515
----------
Total..................................................... $1,000,000
==========
</TABLE>
- --------
*To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law (the "Delaware Law")
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (a "proceeding") (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is 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), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably 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
reasonable cause to believe his conduct was unlawful. A Delaware corporation
may indemnify any person under such Section in connection with a proceeding by
or in the right of the corporation to procure judgment in its favor, as
provided in the preceding sentence, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense
or settlement of such action, except that no indemnification shall be made in
respect thereof unless, and then only to the extent that, a court of competent
jurisdiction shall determine upon application that such person is fairly and
reasonably entitled to indemnity for such expenses as the court shall deem
proper. A Delaware corporation must indemnify a present or former director or
officer of a corporation who was successful on the merits or otherwise in
defense of any action, suit or proceeding or in defense of any claim, issue or
matter in any proceeding, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith. A Delaware
corporation may pay for the expenses (including attorneys' fees) incurred by
an officer or director in defending a proceeding in advance of the final
disposition upon receipt of an undertaking by or on behalf of such officer or
director to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation.

Section 102(b)(7) of the Delaware Law permits a corporation to provide in
its certificate of incorporation that a director shall not be personally
liable to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to

II-1
<PAGE>

the corporation or its stockholders, (ii) for any acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or repurchases, or (iv) for any transaction from which the
director derived an improper personal benefit. Article XIII of the
Registrant's Certificate of Incorporation eliminates the liability of
directors to the fullest extent permitted by Section 102(b)(7) of the Delaware
Law. The Delaware Law permits the purchase of insurance on behalf of directors
and officers against any liability asserted against directors and officers and
incurred by such persons in such capacity, or arising out of their status as
such, whether or not the corporation would have the power to indemnify
directors and officers against such liability.

Before or immediately after the consummation of the Offering, the Registrant
intends to acquire officers' and directors' liability insurance for members of
its Board of Directors and executive officers. In addition, before or
immediately after the consummation of the Offering, the Registrant expects to
enter into agreements to indemnify its directors and officers. A form of such
indemnity agreement is filed as Exhibit 10.2 to this Registration Statement.

At present, there is no pending litigation or other proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought, nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification by any officer or director.

Reference is made to the form of Underwriting Agreement, filed as Exhibit
1.1 to this Registration Statement, that provides for indemnification of the
directors and officers signing this Registration Statement and certain
controlling persons of the Registrant against certain liabilities, including
those arising under the Securities Act, in certain instances by the
Underwriters.

Articles XIII and XIV of the Registrant's Certificate of Incorporation and
Article VI of the Registrant's Bylaws provide for indemnification of directors
and officers to the fullest extent permitted by Section 145 of the Delaware
Law.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In connection with its formation, on November 14, 1997 the Registrant issued
100 shares of Common Stock to Kelly E. Miller as sole trustee of the Kelly E.
Miller Trust. The Registrant issued such shares to Mr. Miller upon his payment
of $100 in a transaction exempt under Section 4(2) of the Securities Act. The
Registrant entered into the Exchange and Combination Agreement effective
November 12, 1997 (the "Combination Agreement") with the following persons,
who are certain trusts for the benefit of Mr. Miller and members of his
family, certain affiliated oil and gas exploration companies, and certain oil
and gas exploration companies who are business partners and investors with the
Registrant's predecessor, Miller Oil Corporation ("MOC"):
<TABLE>
<S> <C> <C>
Kelly E. Miller Trust Gilbert Brueckner Eagle Investments, Inc.
Sue E. Bell Trust C&H Exploration, LLC Eagle International, Inc.
David A. Miller Trust Ken Foote SASI Minerals Company
Daniel R. Miller Trust L.H. Hardy Dan A. Hughes, Jr.
KEM Annuity Trust Dennis LeJeune Miller and Miller, Inc.
SEB Annuity Trust O.O. Investments, Inc. Frontier Investments, Inc.
DRM Annuity Trust Albert Stevens Double Diamond Enterprises, Inc.
DAM Annuity Trust Giorgio Vozza Oak Shores Investment, Inc.
Niblick Exploration, LLC
</TABLE>
The assets being contributed to the Registrant under the Combination
Agreement include the capital stock of MOC and interests in oil and gas
properties in which MOC also has an interest. In exchange for these assets,
the foregoing persons will receive a number of shares of Common Stock of the
Registrant proportionate to the value of their ownership interests in the
assets calculated on the basis of the initial public offering price of the

II-2
<PAGE>

Common Stock. The percentage interest of each person's interest in the assets
being contributed is established in the Combination Agreement. For purposes of
this Registration Statement, the Registrant has estimated that the aggregate
number of shares to be issued to the contributing persons will be 6,930,000
shares.

The transaction contemplated by the Combination Agreement is subject to the
consummation of the Offering and certain other conditions. A copy of the
Combination Agreement is attached to this Registration Statement as Exhibit
2.1.

The shares of Common Stock to be issued in connection with the Combination
Transaction have been offered and sold by the Registrant without registration,
in reliance upon the exemption from registration made available under Section
4(2) of the Securities Act and Rules 501-503 and 506-508 of Regulation D
promulgated thereunder. On December 1, 1997, the Registrant filed with the SEC
a Form D with respect to the exempt offering, in accordance with the
requirements of Rule 503.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.5(c) $5,000,000 Promissory Note of Miller Oil Corporation
payable to First of America Bank-Michigan dated September
10, 1996, with amendment
10.5(d) $1,000,000 Promissory Note of Miller Oil Corporation
payable to First of America Bank-Michigan dated September
10, 1996
10.5(e) $500,000 Promissory Note of Miller Oil Corporation payable
to First of America Bank-Michigan dated March 21, 1997,
with amendment
10.5(f) Subordination Agreement among First of America Bank-
Michigan, Miller Oil Corporation, Kelly E. Miller, David
A. Miller, Daniel R. Miller and Sue Ellen Bell dated
October 6, 1995
10.5(g) $500,000 Promissory Note of Miller Oil Corporation payable
to First of America-Michigan dated November 17, 1997
10.6 Letter Agreement dated November 10, 1997, between Miller
Oil Corporation and C.E. Miller, regarding sale of certain
assets
10.7 Amended Service Agreement dated January 1, 1997, between
Miller Oil Corporation and Eagle Investments, Inc.
10.8 Form of Registration Rights Agreement (included as Exhibit
E to Exhibit 2.1)
10.9 Consulting Agreement dated June 1, 1996 between Miller Oil
Corporation and Frank M. Burke, Jr., with amendment
10.10 $2,500,000 Promissory Note dated November 26, 1997 between
Miller Oil Corporation and the C.E. Miller Trust
10.11 Form of Indemnification and Contribution Agreement among
the Registrant and the Selling Stockholders*+
11.1 Computation of Earnings per Share
21.1 Subsidiaries of the Registrant
23.1 Consent of Warner Norcross & Judd LLP (included in Exhibit
5.1)*
23.2 Consent of Arthur Andersen LLP*
23.3 Consent of S.A. Holditch & Associates*
23.4 Consent of Miller and Lents, Ltd.*
23.5 Consents of Director Nominees
24.1 Limited Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- --------
* Filed herewith.
+ Management contract or compensatory plan or arrangement.

Except as noted, all exhibits have been previously filed.

(b) FINANCIAL STATEMENT SCHEDULES

All schedules are omitted because they are inapplicable or the requested
information is shown in the financial statements or related notes.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 14 above, or otherwise,

II-4
<PAGE>

the Registrant has been advised that in the opinion of the SEC 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.

The Registrant hereby undertakes: (i) that 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) that 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; and (iii) to
provide to the Underwriters at the closing 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.

II-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 4 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Traverse City, State of Michigan, on January 30, 1998.

Miller Exploration Company
(Registrant)

By /s/ Kelly E. Miller
--------------------------------

Kelly E. Miller

President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 4 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ C. E. Miller* Chairman of the Board and January 30, 1998
- ------------------------------------ Director
C. E. Miller

/s/ Kelly E. Miller President, Chief Executive January 30, 1998
- ------------------------------------ Officer and Director
Kelly E. Miller (Principal Executive
Officer)

/s/ William J. Baumgartner* Vice President-Finance, January 30, 1998
- ------------------------------------ Chief Financial Officer and
William J. Baumgartner Director (Principal
Financial Officer)

</TABLE>

*By /s/ Kelly E. Miller
---------------------------------

Kelly E. Miller
Attorney-in-Fact

II-6
<PAGE>

EXHIBIT INDEX

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement among the Registrant, the
Selling Stockholders and the Underwriters
2.1 Exchange and Combination Agreement dated November 12,
1997
2.2(a) Letter Agreement amending Exchange and Combination
Agreement
2.2(b) Letter Agreement amending Exchange and Combination
Agreement
2.2(c) Letter Agreement amending Exchange and Combination
Agreement
2.3 Agreement for Purchase and Sale dated November 25, 1997
between Amerada Hess Corporation and Miller Oil Corpora-
tion
2.3(b) First Amendment to Agreement for Purchase and Sale dated
January 7, 1997
3.1 Certificate of Incorporation of the Registrant
3.2 Bylaws of the Registrant
4.1 Certificate of Incorporation. See Exhibit 3.1.
4.2 Bylaws. See Exhibit 3.2.
4.3 Form of Specimen Stock Certificate
5.1 Opinion of Warner Norcross & Judd LLP (including the
consent of such firm) as to the validity of the securi-
ties being offered*
10.1 Stock Option and Restricted Stock Plan of 1997+
10.1(b) Form of Stock Option Agreement*+
10.1(c) Form of Restricted Stock Agreement*+
10.2 Form of Director and Officer Indemnity Agreement+
10.3 Form of Employment Agreement for Kelly E. Miller, Wil-
liam J. Baumgartner, Lew P. Murray and Charles A. Morri-
son+
10.4 Lease Agreement between Miller Oil Corporation and C.E.
and Betty Miller, dated July 24, 1996
10.5(a) Business Loan Agreement between First of America Bank-
Michigan and Miller Oil Corporation dated September 10,
1996
10.5(b)(i) Mortgage, Security Agreement and Assignment between
First of America Bank-Michigan and Miller Oil Corpora-
tion dated May 1, 1995
10.5(b)(ii) Mortgage, Security Agreement and Assignment between
First of America Bank-Michigan and Miller Oil Corpora-
tion dated September 10, 1996
10.5(c) $5,000,000 Promissory Note of Miller Oil Corporation
payable to First of America Bank-Michigan dated Septem-
ber 10, 1996, with amendment
10.5(d) $1,000,000 Promissory Note of Miller Oil Corporation
payable to First of America Bank-Michigan dated Septem-
ber 10, 1996
10.5(e) $500,000 Promissory Note of Miller Oil Corporation pay-
able to First of America Bank-Michigan dated March 21,
1997, with amendment
10.5(f) Subordination Agreement among First of America Bank-
Michigan, Miller Oil Corporation, Kelly E. Miller, David
A. Miller, Daniel R. Miller and Sue Ellen Bell dated Oc-
tober 6, 1995
10.5(g) $500,000 Promissory Note of Miller Oil Corporation pay-
able to First of America-Michigan dated November 17,
1997
10.6 Letter Agreement dated November 10, 1997, between Miller
Oil Corporation and C.E. Miller, regarding sale of cer-
tain assets
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.7 Amended Service Agreement dated January 1, 1997, between
Miller Oil Corporation and Eagle Investments, Inc.
10.8 Form of Registration Rights Agreement (included as Exhibit
E to Exhibit 2.1)
10.9 Consulting Agreement dated June 1, 1996 between Miller Oil
Corporation and Frank M. Burke, Jr., with amendment
10.10 $2,500,000 Promissory Note dated November 26, 1997 between
Miller Oil Corporation and the C.E. Miller Trust
10.11 Form of Indemnification and Contribution Agreement among
the Registrant and the Selling Stockholders*+
11.1 Computation of Earnings per Share
21.1 Subsidiaries of the Registrant
23.1 Consent of Warner Norcross & Judd LLP (included in Exhibit
5.1)*
23.2 Consent of Arthur Andersen LLP*
23.3 Consent of S.A. Holditch & Associates*
23.4 Consent of Miller and Lents, Ltd.*
23.5 Consents of Director Nominees
24.1 Limited Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- --------
* Filed herewith.
+ Management contract or compensatory plan or arrangement.

Except as noted, all exhibits have been previously filed.

<PAGE>

EXHIBIT 5.1

[LETTERHEAD OF WARNER NORCROSS & JUDD LLP APPEARS HERE]

January 30, 1998

Miller Exploration Company
3104 Logan Valley Road
Traverse City, Michigan 49685-0348

Re: REGISTRATION STATEMENT ON FORM S-1

Gentlemen:

We represent Miller Exploration Company, a Delaware corporation
(the "Company"), with respect to the above-captioned Registration Statement
on Form S-1 (the "Registration Statement"), as amended by Amendment No. 1 filed
on December 5, 1997, Amendment No. 2 filed on January 5, 1998, Amendment No. 3
filed on January 9, 1998, and Amendment No. 4 filed on January 30, 1998, all as
filed pursuant to the Securities Act of 1933, as amended (the "Act") to register
7,015,000 shares (which includes 915,000 shares subject to an over-allotment
option) of the Company's common stock, $0.01 par value ("Common Stock").

As counsel for the Company, we are familiar with its Certificate
of Incorporation and Bylaws and have reviewed the various proceedings taken
by the Company to authorize the issuance of the Common Stock to be sold
pursuant to the Registration Statement. We have also reviewed and assisted
in preparing the Registration Statement. In our review, we have assumed
the genuineness of all signatures, the legal capacity of all natural
persons, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of
such copies.

On the basis of the foregoing we are of the opinion that when the
Registration Statement has become effective under the Act, any and all shares of
Common Stock that are the subject of the Registration Statement will, when
issued upon payment of the purchase price therefore to the Company, be validly
issued, fully paid and nonassessable .

This opinion is rendered for purposes of Item 16 of Form S-1 and
Item 601 of Regulation S-K and may not be used, quoted or referred to or
filed for any other purpose without our prior written permission.

We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and the references to our firm in the Registration
Statement.
Very truly yours,

WARNER NORCROSS & JUDD LLP

/s/ Stephen C. Waterbury
Stephen C. Waterbury, A Partner

<PAGE>

EXHIBIT 10.1(b)

FORM OF STOCK OPTION AGREEMENT

- --------------------------------------------------------------------------------
Grantee: Grant Date:
----------------------------- ------------------------------

Address: Vesting Date:
----------------------------- ----------------------------
-----------------------------
Expiration Date:
-------------------------

Number of Shares: Option Number:
-------------------- ---------------------------

Exercise Price Per Share: $
----------
- --------------------------------------------------------------------------------

MILLER EXPLORATION COMPANY
STOCK OPTION AND RESTRICTED STOCK PLAN OF 1997

STOCK OPTION AGREEMENT
----------------------

This Stock Option Agreement (the "AGREEMENT") is made as of the
Grant Date set forth above between MILLER EXPLORATION COMPANY, a Delaware
corporation (the "COMPANY"), and the grantee named above ("GRANTEE").

The Miller Exploration Company Stock Option and Restricted Stock
Plan of 1997 (the "PLAN") is administered by the Stock Plan Committee of the
Company's Board of Directors or such other committee (the "COMMITTEE") as the
Board of Directors shall designate to administer the Plan, which shall consist
of at least two members of the Board, all of who are Non-Employee Directors, as
defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT". The Committee has determined that Grantee[, a[n] [officer] [and]
[director] of the Company,] is eligible to participate in the Plan. The
Committee has granted stock options to Grantee, subject to the terms and
conditions contained in this Agreement and in the Plan.

Grantee acknowledgeS receipt of a copy of the Plan and accepts
these options subject to all of the terms, conditions, and provisions of this
Agreement and the Plan.

1. GRANT. The Company grants to Grantee an option to purchase
shares of the Company's Common Stock, $.01 par value ("COMMON STOCK"), as set
forth above, to be issued upon exercise of this option in accordance with the
terms and conditions set forth in this Agreement. This option is [not] an
incentive stock option as defined in Section 422(b) of the Internal Revenue Code
of 1986, as amended.

2. TERM AND DELAYED VESTING. Grantee's right to exercise this
option shall vest at a rate of _____ per year beginning on [the first
anniversary of the Grant Date set forth above], in each case appropriately
rounded to the closest whole share except that the total shall be as set

<PAGE>

forth above. The Committee may, in its sole discretion, accelerate the vesting
of the option at any time before full vesting. Grantee's right to exercise this
option shall terminate on the Expiration Date set forth above, unless earlier
terminated as set forth in the Plan or this Agreement.

3. PAYMENT BY GRANTEE. The Exercise Price per share shall be the
amount set forth above, which shall not be less than the Market Value on the
date of the grant (as defined in the Plan), subject to adjustment as provided in
the Plan and this Agreement. Grantee may pay the purchase price in cash or, if
the Committee consents, in shares of the Company's Common Stock (including
Common Stock to be received upon a simultaneous exercise). With Grantee's
consent, the Committee may amend the time and terms of payment before or after
the exercise of the option, but any such amendment shall not reduce the option
price. The Committee may authorize payment of all or a portion of the option
price in the form of a promissory note or installments according to such terms
as the Committee may approve. The Board of Directors may restrict or suspend
the power of the Committee to permit such loans and may require that adequate
security be provided.

4. REGISTRATION AND LISTING. The stock options granted under this
Agreement are conditional upon the effective registration or exemption of the
Plan and the options granted under the Plan and the stock to be received upon
exercise of options pursuant to the Plan under the Securities Act of 1933, as
amended (the "SECURITIES ACT") and applicable state or foreign securities laws.

5. EXERCISE OF OPTION. Grantee may exercise this option by giving
the Company written notice of the exercise of this option. The notice shall set
forth the number of shares to be purchased, and shall be effective when received
by the corporate Secretary at the Company's main office, accompanied by full
payment of the option price. The Company will deliver to Grantee a certificate
or certificates for such shares out of previously authorized but unissued shares
or reacquired shares of its Common Stock, as it may elect; provided, however,
that the time of delivery shall be postponed for such period as may be required
for the Company with reasonable diligence to comply with any registration
requirements under the Securities Act, the Exchange Act, and any requirements
under any other law, regulation, or agreement applicable to the issuance,
listing, or transfer of such shares. If Grantee fails to accept delivery of and
pay for all or any part of the number of shares specified in the notice upon
tender or delivery of the shares, Grantee's right to exercise the option with
respect to such undelivered shares shall terminate. In such event, Grantee's
remaining options not yet exercised or terminated shall continue in force.

6. TERMINATION OF EMPLOYEE STATUS.

(a) GENERAL. If Grantee ceases to be an employee of the
Company for any reason other than Grantee's disability or death and
except as provided in subsection (c) of this paragraph, Grantee may
exercise the option for a period of

-2-
<PAGE>

90 days after the date Grantee ceases to be an employee, but only to the
extent that Grantee was entitled to exercise the option on the date
Grantee ceased to be an employee unless the Committee otherwise
consents.

(b) DISABILITY OR DEATH. If Grantee dies or becomes
disabled, Grantee or his or her personal representative may exercise the
option for a period of one year after the date Grantee ceases to be an
employee, but only to the extent that Grantee was entitled to exercise
the option on the date Grantee ceased to be an employee unless the
Committee otherwise consents.

(c) TERMINATION FOR CAUSE. If the Committee determines that
Grantee has entered into competition with the Company or any of its
subsidiaries (as defined in the Plan), Grantee's right to exercise any
outstanding options shall terminate as of the date of entry into
competition. The Committee shall have sole discretion in making such
determination.

7. ADJUSTMENT PROVISIONS. If the number of shares of Common Stock
outstanding changes by reason of any stock dividend, stock split,
recapitalization, merger, consolidation, combination, exchange of shares, or any
other change in the corporate structure or shares of the Company, the aggregate
number and class of shares available under this Agreement and subject to each
option, together with the exercise price, shall be adjusted appropriately by the
Committee. No fractional shares shall be issued pursuant to the Plan, and any
fractional shares resulting from the adjustments shall be eliminated from the
respective option award, with an appropriate cash adjustment for the value of
any option eliminated. If an option is canceled, surrendered, modified, expired,
or terminated during the term of the Plan but prior to the exercise or vesting
of the option in full, the shares subject to but not delivered under the option
shall be available for other option awards.

8. STOCKHOLDER RIGHTS. Grantee shall have no rights as a
stockholder with respect to any shares covered by this option until exercise of
the option and payment for such shares. Grantee shall have no claim to be
granted any stock option, and there is no obligation of uniformity of treatment
among Grantees or holders or beneficiaries of options.

9. TRANSFERABILITY. Unless the Committee otherwise consents, no
option granted under the Plan and this Agreement may be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. All options granted to Grantee during
Grantee's lifetime shall be exercisable during Grantee's lifetime only by such
Grantee, his or her guardian, or legal representative. The Committee may impose
such other restrictions on any shares acquired pursuant to this option as it my
deem advisable, including, without limitation, restrictions under applicable
federal and state securities laws.

-3-
<PAGE>

10. CERTIFICATIONS. Grantee hereby represents and warrants that
Grantee is acquiring the option granted under this Agreement for Grantee's own
account and investment and without any intent to resell or distribute the shares
upon exercise of the option. Grantee shall not resell or distribute the shares
received upon exercise of the option except in compliance with such conditions
as the Company reasonably may specify to ensure compliance with federal and
state securities laws.

11. EFFECTIVE DATE. This option shall be effective as of the date
first set forth above.

12. BINDING EFFECT; AMENDMENT. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties to this Agreement and
their respective heirs, successors, and permitted assigns. This option shall not
be modified except in a writing executed by the parties to this Agreement.

13. PLAN CONTROLS. The Plan is incorporated by reference into this
Agreement. Capitalized terms not defined in this Agreement shall have those
meanings provided in the Plan. In the event of any conflict between the terms of
this Agreement and the terms of the Plan, the provisions of the Plan shall
control.

MILLER EXPLORATION COMPANY

By
---------------------------------------

Its
-----------------------------------

-4-

<PAGE>

I have received a copy of the Stock Option Agreement concerning
the grant of ______________ shares on ______________, 19__ and agree to receive
stock options according to the terms of such agreement.

---------------------------------------
Signature

---------------------------------------
Print name

(Please detach this page after signing and return to Miller Exploration Company)

-5-

<PAGE>

EXHIBIT 10.1(c)

FORM OF RESTRICTED STOCK AGREEMENT

- -------------------------------------------------------------------------------
Grantee: Grant Date:
----------------------------- -----------------------------

Address: Vesting Date(s) and Schedule:
----------------------------- -----------

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

Number of Shares: Exercise Price Per Share: $
-------------------- -------------
- -------------------------------------------------------------------------------

RESTRICTED STOCK AGREEMENT

This Restricted Stock Agreement (the "AGREEMENT"), is made as of the
Grant Date set forth above between MILLER EXPLORATION COMPANY, a Delaware
corporation (the "COMPANY"), and the grantee named above ("GRANTEE").

The Miller Exploration Company Stock Option and Restricted Stock Plan
of 1997 (the "PLAN") is administered by the Stock Plan Committee of the
Company's Board of Directors or such other committee (the "COMMITTEE") as the
Board of Directors shall designate to administer the Plan, which shall consist
of at least two members of the Board, all of who are Non-Employee Directors, as
defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"). The Committee has determined that Grantee[, an a[n] [officer]
[and] [director] of the Company,] is eligible to participate in the Plan. The
Committee has granted restricted stock to Grantee, subject to the terms and
conditions contained in this Agreement and in the Plan.

Grantee acknowledges receipt of a copy of the Plan and accepts these
shares of restricted stock subject to all of the terms, conditions, and
provisions of this Agreement and the Plan.

1. GRANT OF RESTRICTED STOCK. The Company grants to Grantee, and Grantee
accepts, the number of shares of common stock set forth above, subject to the
terms and conditions of this Agreement (the "RESTRICTED STOCK").

2. EMPLOYMENT BY THE COMPANY. The Company awards the Restricted Stock to
Grantee on the condition that Grantee remains employed by the Company or a
subsidiary of the Company and complies with the terms of this Agreement. If
Grantee breaches the terms of this Agreement or ceases to be employed by the
Company for any reason, Grantee promptly will surrender to the Company those
shares of Restricted Stock in which Grantee's interest has not vested pursuant
to this Agreement as set forth below.

3. VESTING OF RESTRICTED STOCK. So long as Grantee is employed by the
Company or a subsidiary of the Company and has not breached the terms of this
Agreement, Grantee's
<PAGE>

conditional right to the specified shares of the Restricted Stock (or all lesser
remaining number of shares of Restricted Stock) will vest on the dates and
according to the vesting schedule set forth above, in each case appropriately
rounded to the closest whole share except that the total shall be as set forth
above.

4. TRANSFERABILITY. Grantee will not sell, exchange, transfer, pledge,
or otherwise dispose of the Restricted Stock at any time, whether voluntarily or
involuntarily, by operation of law or otherwise, except that the provisions of
this paragraph will not apply to Restricted Stock that has vested pursuant to
this Agreement and Restricted Stock that is sold, exchanged, transferred,
pledged, or otherwise disposed of to the Company or by will or the laws of
descent and distribution. If Grantee violates the restrictions in this
Paragraph, Grantee's right to unvested shares of Restricted Stock immediately
will cease and terminate and Grantee promptly will forfeit and surrender all
shares of Restricted Stock that are still subject to restrictions to the
Company.

5. RIGHTS AS A STOCKHOLDER. Grantee will have all rights as a
stockholder with respect to the Restricted Stock, including (a) the right to
vote the Restricted Stock at stockholders' meetings, (b) the right to receive,
without restriction, all cash dividends paid with respect to the Restricted
Stock, and (c) the right to participate with respect to the Restricted Stock in
any stock dividend, stock split, recapitalization, or other adjustment in the
capital stock of the Company, or any merger, consolidation, or other
reorganization involving an increase, decrease, or adjustment in the capital
stock of the Company. Any shares or other security received as a result of any
stock dividend, stock split, or reorganization will be subject to the same
terms, conditions, and restrictions as those relating to the Restricted Stock
granted under this Agreement.

6. TERMINATION OF EMPLOYEE STATUS.

(a) GENERAL. If Grantee ceases to be an employee of the Company or a
subsidiary for any reason other than Grantee's disability or death, then
any shares of Restricted Stock still subject to restrictions on the date of
such termination of employment (as defined in the Plan) automatically shall
be forfeited and returned to the Company. Termination of employment shall
be considered to occur on the date on which Grantee is no longer obligated
to perform services for the Company or a subsidiary of the Company and
Grantee's right to reemployment is not guaranteed either by statute or
contract, regardless of whether Grantee continues to receive compensation
from the Company or a subsidiary of the Company after such date.

(b) DISABILITY OR DEATH. If Grantee dies or becomes disabled, the
restrictions applicable to the shares of Restricted Stock automatically
shall terminate and the Restricted Stock shall vest as of the date of
termination.

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<PAGE>

7. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF GRANTEE. Grantee
represents, warrants, and covenants to the Company as follows:

a. INVESTMENT ONLY. Grantee is acquiring the Restricted Stock for
Grantee's own account for investment and Grantee has no present intention
of distributing or selling any portion of the Restricted Stock. Grantee
understands and acknowledges that the Company will have no obligation to
recognize the ownership, beneficial or otherwise, of the Restricted Stock
by anyone but Grantee.

b. NO TRANSFER. Grantee will not sell or transfer any Restricted
Stock except upon conditions that the Company may reasonably specify to
insure compliance with the federal and applicable state securities laws.
The Company may refuse to transfer any Restricted Stock unless the Company
is reasonably satisfied that Grantee has complied with the federal and
applicable state securities laws and Grantee's other promises in this
Agreement.

c. LEGEND. The Company may place a legend on the certificates
evidencing the Restricted Stock noting restrictions on transferability.

-3-
<PAGE>

8. EMPLOYMENT BY THE COMPANY. Nothing in this Agreement will impose, or
be deemed to impose, upon the Company any obligation to retain Grantee in the
employ of the Company for any given period or upon any specific terms of
employment. Grantee acknowledges that, except as otherwise agreed by the Company
in a signed written agreement, Grantee's employment is "at will" and terminable
by Grantee or the Company at any time and for any reason.

9. TAX WITHHOLDING. Grantee authorizes the Company or a subsidiary of
the Company to (a) withhold and deduct from future wages of Grantee (or from
other amounts that may be due and owing to Grantee from the Company or a
subsidiary of the Company), or make other arrangements for the collection of,
all amounts deemed necessary to satisfy any and all federal, state, and local
withholding and employment-related tax requirements attributable to an award of
Restricted Stock, or (b) require Grantee promptly to remit the amount of such
withholding to the Company before taking any action with respect to the
Restricted Stock. Upon Grantee's request, the Company will withhold taxes, if
any, arising from the vesting of any Restricted Stock by accepting from Grantee
the return of a sufficient number of shares of unrestricted common stock equal
in value to the amount of taxes to be withheld.

10. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Michigan.

11. BINDING EFFECT AND AMENDMENT. This Agreement is the entire agreement
between the parties and will be binding upon, and will inure to the benefit of,
the parties to this Agreement and their respective heirs, successors, and
assigns, and may be modified only by a writing signed by the parties.

12. REMEDIES. Grantee acknowledges that any breach of the promises in
Paragraph 7 of this Agreement would cause the Company irreparable damage and
therefore agrees that, in the event of a breach of one or more of those
promises, the Company shall be entitled to preliminary and permanent injunction
relief in addition to any direct, incidental, and consequential damages,
including lost profits, arising from that breach.

13. EFFECTIVE DATE. The grant of the Restricted Stock under this
Agreement will be effective as of the Grant Date set forth above.

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<PAGE>

The parties have signed this Restricted Stock Agreement as of the date
first written at the beginning of this document.

MILLER EXPLORATION COMPANY

By
--------------------------------- --------------------------------------
Its
--------------------------------- --------------------------------------
"Company" "Grantee"

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<PAGE>

EXHIBIT 10.11

FORM OF INDEMNIFICATION AND CONTRIBUTION AGREEMENT

This Indemnification and Contribution Agreement (the "AGREEMENT") is
made this ___ day of February, 1998 by and between the undersigned selling
stockholders (the "STOCKHOLDER(S)"), and Miller Exploration Company, a Delaware
corporation ("MILLER"), in connection with the transactions contemplated by the
underwriting agreement between Miller, the Stockholders, and Bear Stearns & Co.
Inc., Raymond James & Associates, Inc. and Stephens Inc., on behalf of
themselves and the other several named underwriters, dated February ___, 1998
(the "UNDERWRITING AGREEMENT"). Capitalized terms used in this Agreement and not
otherwise defined shall have the meanings given to them in the Underwriting
Agreement.

In consideration of the premises, covenants, and obligations of the
parties under the Underwriting Agreement, the parties agree as follows:

1. INDEMNIFICATION. Miller agrees to indemnify and hold harmless the
Stockholders and each other person, if any, who controls any Stockholder within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
(collectively, the "INDEMNITEE(S)") against any and all losses, liabilities,
claims, damages, and expenses whatsoever as incurred (including but not limited
to reasonable attorneys' fees and any and all expenses whatsoever reasonably
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation), to which the Indemnitee(s) may become
subject under the Act, the Exchange Act, or otherwise, insofar as such losses,
liabilities, claims, damages, or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, or any related
preliminary prospectus or the Prospectus if used within the time period
specified in Section 4(A)(b) of the Underwriting Agreement and as supplemented
by any post-effective supplement or as amended by any amendment that has become
effective, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (i) in the case of the Registration Statement, not
misleading, and (ii) in the case of the Prospectus, in light of the
circumstances under which they were made, not misleading; provided, however,
that Miller will not be liable in any such case to the extent but only to the
extent that any such loss, liability, claim, damage, or expense arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with written
information furnished to Miller by or on behalf of any Indemnitee expressly for
use therein. This indemnity agreement will be in addition to any liability which
Miller otherwise may have to the Indemnitee(s) or any other party, including
liability under the Underwriting Agreement.
<PAGE>

2. NOTICE AND DEFENSE OF CLAIMS.

(a) Promptly after receipt by the Indemnitee(s) of notice of the
commencement of any action, the Indemnitee(s) shall, if a claim in respect
thereof is to be made against Miller, notify Miller in writing of the
commencement thereof, but the failure to notify Miller shall not relieve Miller
from any liability which it may have to the Indemnitee except to the extent that
it has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise. In case any such action is brought
against the Indemnitee(s), Miller will be entitled to participate therein, and
to the extent that Miller may elect by written notice delivered to the
Indemnitee(s) promptly after receiving the notice from the Indemnitee(s), to
assume the defense thereof with counsel reasonably satisfactory to the
Indemnitee(s). After notice to the Indemnitee(s) of its election to assume the
defense of the action, Miller will not be liable for any legal or other fees and
expenses subsequently incurred by the Indemnitee(s). Notwithstanding the
foregoing, the Indemnitee(s) shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such Indemnitee(s) unless (i) the employment of such counsel
shall have been authorized in writing by Miller in connection with the defense
of such action, or (ii) Miller shall not have employed counsel to have charge of
the defense of such action within a reasonable time after notice of commencement
of the action, in any of which events such fees and expenses shall be borne by
Miller. Miller shall not, without the prior written consent of the Indemnitee(s)
(which consent will not be unreasonably withheld), settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Agreement (whether or not the
Indemnitee(s) are actual or potential parties thereto), unless such settlement,
compromise, or consent (i) includes an unconditional release of each Indemnitee
from all liability arising out of such litigation, investigation, proceeding, or
claim and (ii) does not include a statement as to or an admission of fault,
culpability, or a failure to act by or on behalf of any Indemnitee.

(b) In addition, no such settlement, compromise, or consent by any
Indemnitee shall be binding on Miller without Miller's consent (which shall not
be unreasonably withheld) for purposes of Miller's indemnity obligations under
this Agreement or otherwise. Any consent of any Indemnitee under this paragraph
may be given on behalf of all Indemnitee(s).

(c) Any party granted the right to direct the defense of any action under
this Agreement shall (i) keep the other parties fully informed of material
developments in the action, (ii) promptly submit to the other parties copies of
all pleadings, responsive pleadings, motions, and other similar legal documents
and papers received in connection with the action, (iii) permit the other
parties and their counsel, to the extent practicable, to confer on the conduct
of the defense of the action, and (iv) to the extent practicable, permit the
other parties and their counsel an opportunity to review all legal papers to be
submitted prior to their submission. The parties shall make available to each
other and each other's counsel and accountants all of its or their books and
records relating to the action, and each party shall render to the other such
assistance as may be reasonably required to insure the proper and adequate
defense of the action. The parties shall use their respective good faith efforts
to avoid the waiver of any privilege of another

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<PAGE>

party. The assumption of the defense of any matter by Miller shall not
constitute an admission or responsibility to indemnify or in any manner impair
or restrict Miller's rights to later seek to be reimbursed its costs and
expenses if indemnification with respect to such matter was not required.

3. CONTRIBUTION. To provide for contribution under the Act in
circumstances in which the indemnification provided for in this Agreement is
applicable but for any reason (other than the failure to provide notice to
Miller as provided above) held to be unavailable from Miller or is insufficient
to hold harmless a party indemnified under this Agreement, Miller shall
contribute to the aggregate losses, claims, damages, liabilities, and expenses
of the nature contemplated by this Agreement (including any investigation,
legal, and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit, or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities, and expenses
suffered by the Indemnitee(s) any contribution received by the Indemnitee(s)
from persons who also may be liable for contribution) as incurred to which one
or more Indemnitee(s) may be subject, in such proportions as is appropriate to
reflect the relative benefits received by Miller and the Indemnitee(s) from the
offering of the Shares or, if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of Miller and the
Indemnitee(s) in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities, or expenses, as well as any other
relevant equitable considerations. The relative benefits received by Miller and
the Indemnitee(s) shall be deemed to be in the same proportion as the total
proceeds from the offering (net of underwriting discounts and commissions but
before deducting expenses) received by Miller and the Indemnitee(s) as set forth
in the table on the cover page of the Prospectus (and as each such amount may be
similarly determined to give effect to the sale of the Additional Shares, if
any). The relative fault of Miller and the Indemnitee(s) shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by Miller and the Indemnitee(s) and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission. Miller and the Indemnitee(s) agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section, each person, if any, who
controls an Indemnitee within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act shall have the same rights to contribution as such
Indemnitee. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit, or proceeding against such party in

-3-
<PAGE>

respect of which a claim for contribution may be made against another party or
parties under this Section, notify such party or parties from whom contribution
may be sought, but the omission to so notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any
obligation it or they may have under this Section or otherwise, except to the
extent that the contributing party has been prejudiced in any material respect
by such failure or from any liability which it may have otherwise.

4. GOVERNING LAW. This Agreement shall be construed, interpreted, and
the rights of the parties determined in accordance with the laws of the State of
Michigan without regard for the conflicts of laws provided thereof.

5. ENTIRE AGREEMENT; WAIVER. This Agreement and the Underwriting
Agreement, together with all exhibits and schedules constitute the entire
agreement among the parties pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations, and discussions,
whether oral or written, of the parties. No supplement, modification, or waiver
of this Agreement shall be binding unless executed in writing by the party to be
bound thereby. No waiver of any of this Agreement's provisions shall be deemed
or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such wavier constitute a continuing waiver unless otherwise
expressly provided.

6. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

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<PAGE>

The parties hereto have executed this Agreement as of the date and
year first written above.

-----------------------------------------
Kelley E. Miller, as trustee of the
Kelley E. Miller Trust

-----------------------------------------
David A. Miller, as trustee of the David
A. Miller Trust

-----------------------------------------
Daniel R. Miller, as trustee of the
Daniel R. Miller Trust

-----------------------------------------
Sue Ellen Bell, as trustee of the Sue
Ellen Bell Trust

-----------------------------------------
C.E. Miller, as trustee of the Kelley
E. Miller Retained Annuity Trust #1, the
David A. Miller Retained Annuity Trust
#1, the Daniel R. Miller Retained Annity
Trust #1, and the Sue Ellen Bell Retained
Annuity Trust #1

MILLER AND MILLER, INC.

By:
---------------------------------------
Kelley E. Miller
Its President

OAK SHORE INVESTMENTS, INC.

By:
---------------------------------------
David A. Miller
Its President

DOUBLE DIAMOND ENTERPRISES, INC.

By:
---------------------------------------
Daniel R. Miller
Its President

FRONTIER INVESTMENTS, INC.

By:
---------------------------------------
Sue Ellen Bell
Its President

"Indemnitee(s)"

MILLER EXPLORATION COMPANY

By:
---------------------------------------
C.E. Miller
Its Chairman

"Miller"

-5-

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the inclusion in this
registration statement of our report dated October 10, 1997 (except with respect
to certain matters discussed in Note 15 to the Combined Financial Statements as
to which the date is December 4, 1997) on the combined financial statements of
Miller Exploration Company and affiliated entities and our report dated November
26, 1997 on the statements of revenues and direct operating expenses of the
Miller Exploration Company Acquired Properties, all included herein and to all
references to our Firm included in this registration statement.

/s/ ARTHUR ANDERSEN LLP

Detroit, Michigan

January 29, 1998

<PAGE>

EXHIBIT 23.3

[LETTERHEAD APPEARS HERE]

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

We hereby consent to (i) the use in the Prospectus (the "Prospectus")
constituting a part of the Registration Statement on Form S-1 Amendment Number 4
filed by Miller Exploration Company, a Delaware corporation (the "Company"),
under the Securities Act of 1933, as amended (the "Act"), and each amendment to
such Registration Statement, of information contained in our reserve reports
relating to the oil and gas reserves and revenue, as of December 31, 1996, and
September 30, 1997, of certain interests of the Company and the information
derived from such reports, (ii) the inclusion of a summary of such reserve
report as of September 30, 1997 as Appendix A to such Prospectus, (iii) all
references to such summary, reports, and this firm in such Prospectus, and
further consent to our being named as an expert therein, and (iv) the
incorporation of this consent in any Registration Statement and each amendment
thereto filed for the same offering pursuant to Rule 462(b) under the Act.

S. A. HOLDITCH & ASSOCIATES, INC.

/s/ W. Denton Copeland, P.E.
----------------------------
W. Denton Copeland, P.E.
Vice President

New Orleans, Louisiana
January 28, 1998

<PAGE>

Exhibit 23.4

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

We hereby consent to (i) the use in the Prospectus (the "Prospectus")
constituting a part of the Registration Statement on Form S-1 Amendment Number
4, filed by Miller Exploration Company, a Delaware corporation (the "Company"),
under the Securities Act of 1933, as amended (the "Act"), of information
contained in our reserve reports relating to the oil and gas net reserves and
future net revenue, as of December 31, 1996 that includes the Amerada Hess
acquisition as if it occurred before December 31, 1996 rather than the actual
effective acquisition date of September 1, 1997 and excluding the acquisition
cost, and September 30, 1997, of certain interests of the Company and the
information derived from such reports, (ii) the inclusion of a summary of such
reserve report as of September 30, 1997 as Appendix B to such Prospectus, (iii)
all references to such summary reports and this firm in such Prospectus, and
further consent to our being named as an expert therein, and (iv) the
incorporation of this consent in any Registration Statement filed for the same
offering pursuant to Rule 462(b) under the Act.

MILLER AND LENTS, LTD.

By /s/ LARRY M. GRING
----------------------------------
Larry M. Gring
Senior Vice President

Houston, Texas
January 29, 1998